PNM RESOURCES INC (Form: 10-Q, Received: 05/02/2016 17:17:20)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016



Commission File	Name of Registrants, State of Incorporation,	I.R.S. Employer
Number	Address and Telephone Number	Identification No.
001-32462	PNM Resources, Inc.	85-0468296
	(A New Mexico Corporation)
	414 Silver Ave. SW
	Albuquerque, New Mexico 87102-3289
	(505) 241-2700

001-06986	Public Service Company of New Mexico	85-0019030
	(A New Mexico Corporation)
	414 Silver Ave. SW
	Albuquerque, New Mexico 87102-3289
	(505) 241-2700

002-97230	Texas-New Mexico Power Company	75-0204070
	(A Texas Corporation)
	577 N. Garden Ridge Blvd.
	Lewisville, Texas 75067
	(972) 420-4189

Indicate by check mark whether each 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.



PNM Resources, Inc. (“PNMR”)	YES	ü	NO
Public Service Company of New Mexico (“PNM”)	YES	ü	NO
Texas-New Mexico Power Company (“TNMP”)	YES		NO	ü

(NOTE: As a voluntary filer, not subject to the filing requirements, TNMP filed all reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months.)

Indicate by check mark whether each registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).



PNMR	YES	ü	NO
PNM	YES	ü	NO
TNMP	YES	ü	NO

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Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated

filer

Accelerated

filer

Non-accelerated

filer

Smaller Reporting Company

PNMR

PNM

TNMP

Indicate by check mark whether any of the registrants is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES NO ü

As of April 22, 2016 , 79,653,624 shares of common stock, no par value per share, of PNMR were outstanding.

The total number of shares of common stock of PNM outstanding as of April 22, 2016 was 39,117,799 all held by PNMR (and none held by non-affiliates).

The total number of shares of common stock of TNMP outstanding as of April 22, 2016 was 6,358 all held indirectly by PNMR (and none held by non-affiliates).

PNM AND TNMP MEET THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS (H) (1) (a) AND (b) OF FORM 10-Q AND ARE THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION (H) (2).

This combined Form 10-Q is separately filed by PNMR, PNM, and TNMP. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants. When this Form 10-Q is incorporated by reference into any filing with the SEC made by PNMR, PNM, or TNMP, as a registrant, the portions of this Form 10-Q that relate to each other registrant are not incorporated by reference therein.

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

INDEX



	Page No.
GLOSSARY	4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
PNM RESOURCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings	7
Condensed Consolidated Statements of Comprehensive Income	8
Condensed Consolidated Statements of Cash Flows	9
Condensed Consolidated Balance Sheets	11
Condensed Consolidated Statement of Changes in Equity	13
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings	14
Condensed Consolidated Statements of Comprehensive Income	15
Condensed Consolidated Statements of Cash Flows	16
Condensed Consolidated Balance Sheets	18
Condensed Consolidated Statement of Changes in Equity	20
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings	21
Condensed Consolidated Statements of Cash Flows	22
Condensed Consolidated Balance Sheets	23
Condensed Consolidated Statement of Changes in Common Stockholder's Equity	25
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	26
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	66
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	96
ITEM 4. CONTROLS AND PROCEDURES	99
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	99
ITEM 1A. RISK FACTORS	100
ITEM 6. EXHIBITS	100
SIGNATURE	102

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GLOSSARY



Definitions:
Afton		Afton Generating Station
AFUDC		Allowance for Funds Used During Construction
ALJ		Administrative Law Judge
AMI		Advanced Metering Infrastructure
AMS		Advanced Meter System
AOCI		Accumulated Other Comprehensive Income
APS		Arizona Public Service Company, the operator and a co-owner of PVNGS and Four Corners
ASU		Accounting Standards Update
BACT		Best Available Control Technology
BART		Best Available Retrofit Technology
BDT		Balanced Draft Technology
BHP		BHP Billiton, Ltd
Board		Board of Directors of PNMR
BTMU		The Bank of Tokyo-Mitsubishi UFJ, Ltd.
BTMU Term Loan Agreement		NM Capital’s $125.0 Million Unsecured Term Loan
BTU		British Thermal Unit
CAA		Clean Air Act
CCB		Coal Combustion Byproducts
CCN		Certificate of Convenience and Necessity
CO ₂		Carbon Dioxide
CSA		Coal Supply Agreement
CTC		Competition Transition Charge
DC Circuit		United States Court of Appeals for the District of Columbia Circuit
Delta		Delta-Person Generating Station, now known as Rio Bravo
DOE		United States Department of Energy
DOI		United States Department of Interior
EGU		Electric Generating Unit
EIP		Eastern Interconnection Project
EIS		Environmental Impact Study
EPA		United States Environmental Protection Agency
ESA		Endangered Species Act
Exchange Act		Securities Exchange Act of 1934
Farmington		The City of Farmington, New Mexico
FASB		Financial Accounting Standards Board
FERC		Federal Energy Regulatory Commission
FIP		Federal Implementation Plan
Four Corners		Four Corners Power Plant
FPPAC		Fuel and Purchased Power Adjustment Clause
FTY		Future Test Year
GAAP		Generally Accepted Accounting Principles in the United States of America
GHG		Greenhouse Gas Emissions
GWh		Gigawatt hours
IRP		Integrated Resource Plan

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ISFSI		Independent Spent Fuel Storage Installation
KW		Kilowatt
KWh		Kilowatt Hour
La Luz		La Luz Generating Station
LIBOR		London Interbank Offered Rate
Lightning Dock Geothermal		Lightning Dock geothermal power facility, also known as the Dale Burgett Geothermal Plant
Lordsburg		Lordsburg Generating Station
Luna		Luna Energy Facility
MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations
MMBTU		Million BTUs
Moody’s		Moody’s Investor Services, Inc.
MW		Megawatt
MWh		Megawatt Hour
NAAQS		National Ambient Air Quality Standards
Navajo Acts		Navajo Nation Air Pollution Prevention and Control Act, Navajo Nation Safe Drinking Water Act, and Navajo Nation Pesticide Act
NDT		Nuclear Decommissioning Trusts for PVNGS
NEC		Navopache Electric Cooperative, Inc.
NEE		New Energy Economy
NEPA		National Environmental Policy Act
NERC		North American Electric Reliability Corporation
New Mexico Wind		New Mexico Wind Energy Center
NM Capital		NM Capital Utility Corporation, an unregulated wholly-owned subsidiary of PNMR
NM Supreme Court		New Mexico Supreme Court
NMED		New Mexico Environment Department
NMPRC		New Mexico Public Regulation Commission
NOx		Nitrogen Oxides
NOPR		Notice of Proposed Rulemaking
NPDES		National Pollutant Discharge Elimination System
NRC		United States Nuclear Regulatory Commission
NSPS		New Source Performance Standards
NSR		New Source Review
OCI		Other Comprehensive Income
OPEB		Other Post Employment Benefits
OSM		United States Office of Surface Mining Reclamation and Enforcement
PNM		Public Service Company of New Mexico and Subsidiaries, a wholly-owned subsidiary of PNMR
PNM Multi-draw Term Loan		PNM’s $125.0 Million Unsecured Multi-draw Term Loan Facility
PNM New Mexico Credit Facility		PNM’s $50.0 Million Unsecured Revolving Credit Facility
PNM Revolving Credit Facility		PNM’s $400.0 Million Unsecured Revolving Credit Facility
PNMR		PNM Resources, Inc. and Subsidiaries
PNMR 2015 Term Loan Agreement		PNMR’s $150.0 Million Three-Year Unsecured Term Loan
PNMR Development		PNMR Development and Management Company, an unregulated wholly-owned subsidiary of PNMR

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PNMR Revolving Credit Facility		PNMR’s $300.0 Million Unsecured Revolving Credit Facility
PNMR Term Loan Agreement		PNMR’s $150.0 Million One-Year Unsecured Term Loan
PPA		Power Purchase Agreement
PSA		Power Sales Agreement
PSD		Prevention of Significant Deterioration
PUCT		Public Utility Commission of Texas
PV		Photovoltaic
PVNGS		Palo Verde Nuclear Generating Station
RA		San Juan Project Restructuring Agreement
RCRA		Resource Conservation and Recovery Act
RCT		Reasonable Cost Threshold
REA		New Mexico’s Renewable Energy Act of 2004
REC		Renewable Energy Certificates
Red Mesa Wind		Red Mesa Wind Energy Center
REP		Retail Electricity Provider
Rio Bravo		Rio Bravo Generating Station, formerly known as Delta
RMC		Risk Management Committee
ROE		Return on Equity
RPS		Renewable Energy Portfolio Standard
S&P		Standard and Poor’s Ratings Services
SCR		Selective Catalytic Reduction
SEC		United States Securities and Exchange Commission
SIP		State Implementation Plan
SJCC		San Juan Coal Company
SJGS		San Juan Generating Station
SNCR		Selective Non-Catalytic Reduction
SO ₂		Sulfur Dioxide
TECA		Texas Electric Choice Act
Tenth Circuit		United States Court of Appeals for the Tenth Circuit
TNMP		Texas-New Mexico Power Company and Subsidiaries, a wholly-owned subsidiary of TNP
TNMP 2015 Bond Purchase Agreement		TNMP’s $60.0 Million First Mortgage Bonds
TNMP Revolving Credit Facility		TNMP’s $75.0 Million Secured Revolving Credit Facility
TNP		TNP Enterprises, Inc. and Subsidiaries, a wholly-owned subsidiary of PNMR
Tucson		Tucson Electric Power Company
UG-CSA		Underground Coal Sales Agreement
US Supreme Court		Supreme Court of the United States
Valencia		Valencia Energy Facility
VaR		Value at Risk
VIE		Variable Interest Entity
WACC		Weighted Average Cost of Capital
WEG		WildEarth Guardians
Westmoreland		Westmoreland Coal Company
Westmoreland Loan		$125.0 Million of funding provided by NM Capital to WSJ
WSJ		Westmoreland San Juan, LLC, an indirect subsidiary of Westmoreland

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)



	Three Months Ended March 31,
	2016			2015
	(In thousands, except per share amounts)
Electric Operating Revenues	$	310,961		$	332,868
Operating Expenses:
Cost of energy	92,369			115,645
Administrative and general	47,109			43,859
Energy production costs	42,686			42,669
Regulatory disallowances and restructuring costs	774			215
Depreciation and amortization	49,829			45,461
Transmission and distribution costs	16,594			16,487
Taxes other than income taxes	20,092			18,963
Total operating expenses	269,453			283,299
Operating income	41,508			49,569
Other Income and Deductions:
Interest income	3,622			1,750
Gains on available-for-sale securities	6,218			4,024
Other income	4,264			4,961
Other (deductions)	(2,999		)	(3,662		)
Net other income and deductions	11,105			7,073
Interest Charges	31,491			30,273
Earnings before Income Taxes	21,122			26,369
Income Taxes	7,157			8,517
Net Earnings	13,965			17,852
(Earnings) Attributable to Valencia Non-controlling Interest	(3,287		)	(3,380		)
Preferred Stock Dividend Requirements of Subsidiary	(132		)	(132		)
Net Earnings Attributable to PNMR	$	10,546		$	14,340
Net Earnings Attributable to PNMR per Common Share:
Basic	$	0.13		$	0.18
Diluted	$	0.13		$	0.18
Dividends Declared per Common Share	$	0.22		$	0.20

The accompanying notes, as they relate to PNMR, are an integral part of these financial statements.

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PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Three Months Ended March 31,
	2016			2015
	(In thousands)
Net Earnings	$	13,965		$	17,852
Other Comprehensive Income (Loss):
Unrealized Gains on Available-for-Sale Securities :
Unrealized holding gains arising during the period, net of income tax (expense) of $(2,130) and $(2,679)	3,328			4,157
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $4,374 and $1,635	(6,836		)	(2,537		)
Pension Liability Adjustment:
Reclassification adjustment for amortization of experience losses recognized as net periodic benefit cost, net of income tax (benefit) of $(537) and $(583)	839			905
Fair Value Adjustment for Cash Flow Hedges:
Change in fair market value, net of income tax (expense) benefit of $503 and $0	(786		)	—
Reclassification adjustment for (gains) losses included in net earnings, net of income tax expense (benefit) of $(57) and $0	89			—
Total Other Comprehensive Income (Loss)	(3,366		)	2,525
Comprehensive Income	10,599			20,377
Comprehensive (Income) Attributable to Valencia Non-controlling Interest	(3,287		)	(3,380		)
Preferred Stock Dividend Requirements of Subsidiary	(132		)	(132		)
Comprehensive Income Attributable to PNMR	$	7,180		$	16,865

The accompanying notes, as they relate to PNMR, are an integral part of these financial statements.

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PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Three Months Ended March 31,
	2016			2015
	(In thousands)
Cash Flows From Operating Activities:
Net earnings	$	13,965		$	17,852
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization	58,563			55,062
Deferred income tax expense	7,187			8,326
Net unrealized (gains) losses on commodity derivatives	(1,435		)	1,720
Realized (gains) on available-for-sale securities	(6,218		)	(4,024		)
Stock based compensation expense	2,653			2,214
Regulatory disallowances and restructuring costs	774			215
Other, net	(612		)	148
Changes in certain assets and liabilities:
Accounts receivable and unbilled revenues	36,215			12,170
Materials, supplies, and fuel stock	(1,716		)	(2,657		)
Other current assets	(18,720		)	3,817
Other assets	277			4,220
Accounts payable	2,004			(2,639		)
Accrued interest and taxes	18,276			24,811
Other current liabilities	(16,583		)	(21,223		)
Other liabilities	(4,032		)	(33,278		)
Net cash flows from operating activities	90,598			66,734

Cash Flows From Investing Activities:
Additions to utility and non-utility plant	(278,764		)	(100,214		)
Proceeds from sales of available-for-sale securities	124,900			31,852
Purchases of available-for-sale securities	(126,101		)	(32,661		)
Return of principal on PVNGS lessor notes	8,547			14,188
Westmoreland Loan	(122,250		)	—
Other, net	150			144
Net cash flows from investing activities	(393,518		)	(86,691		)

The accompanying notes, as they relate to PNMR, are an integral part of these financial statements.

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PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Three Months Ended March 31,
	2016			2015
	(In thousands)
Cash Flows From Financing Activities:
Revolving credit facilities borrowings (repayments), net	$	107,400		$	(5,600	)
Long-term borrowings	182,500			150,000
Proceeds from stock option exercise	3,275			6,847
Awards of common stock	(10,020		)	(17,140		)
Dividends paid	(17,656		)	(16,063		)
Valencia’s transactions with its owner	(3,999		)	(4,160		)
Other, net	(761		)	194
Net cash flows from financing activities	260,739			114,078

Change in Cash and Cash Equivalents	(42,181		)	94,121
Cash and Cash Equivalents at Beginning of Period	46,051			28,274
Cash and Cash Equivalents at End of Period	$	3,870		$	122,395

Supplemental Cash Flow Disclosures:
Interest paid, net of amounts capitalized	$	11,403		$	6,191
Income taxes paid (refunded), net	$	—		$	(1,450	)

Supplemental schedule of noncash investing activities:
(Increase) decrease in accrued plant additions	$	20,149		$	(5,186	)

The accompanying notes, as they relate to PNMR, are an integral part of these financial statements.

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PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



	March 31, 2016		December 31, 2015
	(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	3,870	$	46,051
Accounts receivable, net of allowance for uncollectible accounts of $1,284 and $1,397	72,206		98,699
Unbilled revenues	41,872		52,012
Other receivables	22,343		28,590
Current portion of Westmoreland Loan	37,527		—
Materials, supplies, and fuel stock	69,103		67,386
Regulatory assets	2,872		1,070
Commodity derivative instruments	4,356		3,813
Income taxes receivable	5,876		5,845
Other current assets	96,936		82,104
Total current assets	356,961		385,570
Other Property and Investments:
Long-term portion of Westmoreland Loan	85,169		—
Available-for-sale securities	260,628		259,042
Other investments	456		604
Non-utility property	3,404		3,404
Total other property and investments	349,657		263,050
Utility Plant:
Plant in service, held for future use, and to be abandoned	6,676,612		6,307,261
Less accumulated depreciation and amortization	2,246,332		2,058,772
	4,430,280		4,248,489
Construction work in progress	233,109		204,766
Nuclear fuel, net of accumulated amortization of $51,000 and $44,455	83,302		82,117
Net utility plant	4,746,691		4,535,372
Deferred Charges and Other Assets:
Regulatory assets	467,343		470,664
Goodwill	278,297		278,297
Commodity derivative instruments	1,986		2,622
Other deferred charges	72,877		73,753
Total deferred charges and other assets	820,503		825,336
	$	6,273,812	$	6,009,328

The accompanying notes, as they relate to PNMR, are an integral part of these financial statements.

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PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



	March 31, 2016			December 31, 2015
	(In thousands, except share information)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term debt	$	358,000		$	250,600
Current installments of long-term debt	166,086			124,979
Accounts payable	82,276			100,419
Customer deposits	12,205			12,216
Accrued interest and taxes	76,612			58,306
Regulatory liabilities	18,818			15,591
Commodity derivative instruments	548			1,859
Dividends declared	17,656			17,656
Other current liabilities	39,364			59,494
Total current liabilities	771,565			641,120
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs	2,108,395			1,966,969
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes	889,595			877,393
Regulatory liabilities	464,716			467,413
Asset retirement obligations	114,446			111,895
Accrued pension liability and postretirement benefit cost	68,762			73,097
Other deferred credits	133,747			133,692
Total deferred credits and other liabilities	1,671,266			1,663,490
Total liabilities	4,551,226			4,271,579
Commitments and Contingencies (See Note 11)
Cumulative Preferred Stock of Subsidiary
without mandatory redemption requirements ($100 stated value; 10,000,000 shares authorized; issued and outstanding 115,293 shares)	11,529			11,529
Equity:
PNMR common stockholders’ equity:
Common stock (no par value; 120,000,000 shares authorized; issued and outstanding 79,653,624 shares)	1,162,358			1,166,465
Accumulated other comprehensive income (loss), net of income taxes	(74,798		)	(71,432		)
Retained earnings	552,802			559,780
Total PNMR common stockholders’ equity	1,640,362			1,654,813
Non-controlling interest in Valencia	70,695			71,407
Total equity	1,711,057			1,726,220
	$	6,273,812		$	6,009,328

The accompanying notes, as they relate to PNMR, are an integral part of these financial statements.

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PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited)



	Attributable to PNMR												Non- controlling Interest in Valencia
	Common Stock			AOCI			Retained Earnings			Total PNMR Common Stockholders’ Equity			Non- controlling Interest in Valencia			Total Equity
	(In thousands)
Balance at December 31, 2015	$	1,166,465		$	(71,432	)	$	559,780		$	1,654,813		$	71,407		$	1,726,220
Proceeds from stock option exercise	3,275			—			—			3,275			—			3,275
Awards of common stock	(10,020		)	—			—			(10,020		)	—			(10,020		)
Excess tax (shortfall) from stock-based payment arrangements	(15		)	—			—			(15		)	—			(15		)
Stock based compensation expense	2,653			—			—			2,653			—			2,653
Valencia’s transactions with its owner	—			—			—			—			(3,999		)	(3,999		)
Net earnings before subsidiary preferred stock dividends	—			—			10,678			10,678			3,287			13,965
Subsidiary preferred stock dividends	—			—			(132		)	(132		)	—			(132		)
Total other comprehensive income (loss)	—			(3,366		)	—			(3,366		)	—			(3,366		)
Dividends declared on common stock	—			—			(17,524		)	(17,524		)	—			(17,524		)
Balance at March 31, 2016	$	1,162,358		$	(74,798	)	$	552,802		$	1,640,362		$	70,695		$	1,711,057

The accompanying notes, as they relate to PNMR, are an integral part of these financial statements.

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)



	Three Months Ended March 31,
	2016			2015
	(In thousands)
Electric Operating Revenues	$	235,606		$	261,940
Operating Expenses:
Cost of energy	72,444			97,866
Administrative and general	42,028			39,567
Energy production costs	42,686			42,669
Regulatory disallowances and restructuring costs	774			215
Depreciation and amortization	31,864			28,403
Transmission and distribution costs	10,316			10,769
Taxes other than income taxes	12,197			10,796
Total operating expenses	212,309			230,285
Operating income	23,297			31,655
Other Income and Deductions:
Interest income	1,522			1,771
Gains on available-for-sale securities	6,218			4,024
Other income	3,387			3,392
Other (deductions)	(1,662		)	(1,606		)
Net other income and deductions	9,465			7,581
Interest Charges	21,591			19,959
Earnings before Income Taxes	11,171			19,277
Income Taxes	3,610			5,775
Net Earnings	7,561			13,502
(Earnings) Attributable to Valencia Non-controlling Interest	(3,287		)	(3,380		)
Net Earnings Attributable to PNM	4,274			10,122
Preferred Stock Dividends Requirements	(132		)	(132		)
Net Earnings Available for PNM Common Stock	$	4,142		$	9,990

The accompanying notes, as they relate to PNM, are an integral part of these financial statements.

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Three Months Ended March 31,
	2016			2015
	(In thousands)
Net Earnings	$	7,561		$	13,502
Other Comprehensive Income (Loss):
Unrealized Gains on Available-for-Sale Securities :
Unrealized holding gains arising during the period, net of income tax (expense) of $(2,130) and $(2,679)	3,328			4,157
Reclassification adjustment for (gains) included in net earnings, net of income tax expense of $4,374 and $1,635	(6,836		)	(2,537		)
Pension Liability Adjustment:
Reclassification adjustment for amortization of experience losses recognized as net periodic benefit cost, net of income tax (benefit) of $(537) and $(583)	839			905
Total Other Comprehensive Income (Loss)	(2,669		)	2,525
Comprehensive Income	4,892			16,027
Comprehensive (Income) Attributable to Valencia Non-controlling Interest	(3,287		)	(3,380		)
Comprehensive Income Attributable to PNM	$	1,605		$	12,647

The accompanying notes, as they relate to PNM, are an integral part of these financial statements.

Table of Contents

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Three Months Ended March 31,
	2016			2015
	(In thousands)
Cash Flows From Operating Activities:
Net earnings	$	7,561		$	13,502
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization	40,225			37,470
Deferred income tax expense	3,727			5,908
Net unrealized (gains) losses on commodity derivatives	(1,435		)	1,720
Realized (gains) on available-for-sale securities	(6,218		)	(4,024		)
Regulatory disallowances and restructuring costs	774			215
Other, net	(611		)	(974		)
Changes in certain assets and liabilities:
Accounts receivable and unbilled revenues	33,417			12,385
Materials, supplies, and fuel stock	(5,060		)	(2,558		)
Other current assets	(13,527		)	5,110
Other assets	3,311			4,479
Accounts payable	5,130			4,622
Accrued interest and taxes	20,221			22,832
Other current liabilities	(9,335		)	(18,836		)
Other liabilities	(4,505		)	(30,178		)
Net cash flows from operating activities	73,675			51,673

Cash Flows From Investing Activities:
Utility plant additions	(238,734		)	(81,988		)
Proceeds from sales of available-for-sale securities	124,900			31,852
Purchases of available-for-sale securities	(126,101		)	(32,661		)
Return of principal on PVNGS lessor notes	8,547			14,188
Other, net	150			144
Net cash flows from investing activities	(231,238		)	(68,465		)

The accompanying notes, as they relate to PNM, are an integral part of these financial statements.

Table of Contents

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Three Months Ended March 31,
	2016			2015
	(In thousands)
Cash Flows From Financing Activities:
Revolving credit facilities borrowings, net	118,800			—
Valencia’s transactions with its owner	(3,999		)	(4,160		)
Dividends paid	(132		)	(132		)
Other, net	(53		)	(144		)
Net cash flows from financing activities	114,616			(4,436		)

Change in Cash and Cash Equivalents	(42,947		)	(21,228		)
Cash and Cash Equivalents at Beginning of Period	43,138			25,480
Cash and Cash Equivalents at End of Period	$	191		$	4,252

Supplemental Cash Flow Disclosures:
Interest paid, net of amounts capitalized	$	8,561		$	4,287
Income taxes paid (refunded), net	$	—		$	(1,450	)

Supplemental schedule of noncash investing activities:
(Increase) decrease in accrued plant additions	$	16,747		$	(7,421	)

The accompanying notes, as they relate to PNM, are an integral part of these financial statements.

Table of Contents

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



	March 31, 2016		December 31, 2015
	(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	191	$	43,138
Accounts receivable, net of allowance for uncollectible accounts of $1,284 and $1,397	53,278		78,291
Unbilled revenues	33,819		42,641
Other receivables	19,701		24,725
Affiliate receivables	8,819		15,105
Materials, supplies, and fuel stock	65,538		60,477
Commodity derivative instruments	4,356		3,813
Income taxes receivable	14,694		14,577
Other current assets	91,541		74,990
Total current assets	291,937		357,757
Other Property and Investments:
Available-for-sale securities	260,628		259,042
Other investments	218		366
Non-utility property	96		96
Total other property and investments	260,942		259,504
Utility Plant:
Plant in service, held for future use, and to be abandoned	5,185,298		4,833,303
Less accumulated depreciation and amortization	1,744,062		1,569,549
	3,441,236		3,263,754
Construction work in progress	183,184		172,238
Nuclear fuel, net of accumulated amortization of $51,000 and $44,455	83,302		82,117
Net utility plant	3,707,722		3,518,109
Deferred Charges and Other Assets:
Regulatory assets	338,801		342,910
Goodwill	51,632		51,632
Commodity derivative instruments	1,986		2,622
Other deferred charges	66,326		66,810
Total deferred charges and other assets	458,745		463,974
	$	4,719,346	$	4,599,344

The accompanying notes, as they relate to PNM, are an integral part of these financial statements.

Table of Contents

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



	March 31, 2016			December 31, 2015
	(In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities:
Short-term debt	$	118,800		$	—
Current installments of long-term debt	124,990			124,979
Accounts payable	60,769			72,386
Affiliate payables	16,267			14,318
Customer deposits	12,205			12,216
Accrued interest and taxes	53,527			33,189
Regulatory liabilities	18,818			15,591
Commodity derivative instruments	548			1,859
Dividends declared	132			132
Other current liabilities	27,740			42,251
Total current liabilities	433,796			316,921
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs	1,456,141			1,455,698
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes	705,515			696,384
Regulatory liabilities	430,961			434,863
Asset retirement obligations	113,582			111,049
Accrued pension liability and postretirement benefit cost	62,253			66,285
Other deferred credits	115,468			117,275
Total deferred credits and liabilities	1,427,779			1,425,856
Total liabilities	3,317,716			3,198,475
Commitments and Contingencies (See Note 11)
Cumulative Preferred Stock
without mandatory redemption requirements ($100 stated value; 10,000,000 shares authorized; issued and outstanding 115,293 shares)	11,529			11,529
Equity:
PNM common stockholder’s equity:
Common stock (no par value; 40,000,000 shares authorized; issued and outstanding 39,117,799 shares)	1,236,776			1,236,776
Accumulated other comprehensive income (loss), net of income taxes	(74,145		)	(71,476		)
Retained earnings	156,775			152,633
Total PNM common stockholder’s equity	1,319,406			1,317,933
Non-controlling interest in Valencia	70,695			71,407
Total equity	1,390,101			1,389,340
	$	4,719,346		$	4,599,344

The accompanying notes, as they relate to PNM, are an integral part of these financial statements.

Table of Contents

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited)



	Attributable to PNM
									Total PNM Common Stockholder’s Equity			Non- controlling Interest in Valencia

	Common Stock		AOCI			Retained Earnings									Total Equity
	Common Stock		AOCI			Retained Earnings									Total Equity
	(In thousands)
Balance at December 31, 2015	$	1,236,776	$	(71,476	)	$	152,633		$	1,317,933		$	71,407		$	1,389,340
Valencia’s transactions with its owner	—		—			—			—			(3,999		)	(3,999		)
Net earnings	—		—			4,274			4,274			3,287			7,561
Total other comprehensive income (loss)	—		(2,669		)	—			(2,669		)	—			(2,669		)
Dividends declared on preferred stock	—		—			(132		)	(132		)	—			(132		)
Balance at March 31, 2016	$	1,236,776	$	(74,145	)	$	156,775		$	1,319,406		$	70,695		$	1,390,101

The accompanying notes, as they relate to PNM, are an integral part of these financial statements.

Table of Contents

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)



	Three Months Ended March 31,
	2016		2015
	(In thousands)
Electric Operating Revenues	$	75,355	$	70,928
Operating Expenses:
Cost of energy	19,925		17,779
Administrative and general	9,590		9,833
Depreciation and amortization	14,508		13,458
Transmission and distribution costs	6,278		5,718
Taxes other than income taxes	6,500		6,209
Total operating expenses	56,801		52,997
Operating income	18,554		17,931
Other Income and Deductions:
Other income	593		1,540
Other (deductions)	15		(249		)
Net other income and deductions	608		1,291
Interest Charges	7,369		6,925
Earnings before Income Taxes	11,793		12,297
Income Taxes	4,337		4,603
Net Earnings	$	7,456	$	7,694

The accompanying notes, as they relate to TNMP, are an integral part of these financial statements.

Table of Contents

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Three Months Ended March 31,
	2016			2015
	(In thousands)
Cash Flows From Operating Activities:
Net earnings	$	7,456		$	7,694
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization	14,936			13,831
Deferred income tax expense	194			4,170
Changes in certain assets and liabilities:
Accounts receivable and unbilled revenues	2,798			(215		)
Materials and supplies	3,344			(99		)
Other current assets	(1,842		)	981
Other assets	(2,694		)	(139		)
Accounts payable	(3,788		)	(7,640		)
Accrued interest and taxes	939			(2,006		)
Other current liabilities	163			368
Other liabilities	81			(3,631		)
Net cash flows from operating activities	21,587			13,314
Cash Flows From Investing Activities:
Utility plant additions	(32,947		)	(13,763		)
Net cash flows from investing activities	(32,947		)	(13,763		)
Cash Flow From Financing Activities:
Revolving credit facilities borrowings (repayments), net	(44,000		)	(5,000		)
Short-term borrowings (repayments) – affiliate, net	(3,900		)	5,800
Long-term borrowings	60,000			—
Other, net	(740		)	—
Net cash flows from financing activities	11,360			800

Change in Cash and Cash Equivalents	—			351
Cash and Cash Equivalents at Beginning of Period	1			1
Cash and Cash Equivalents at End of Period	$	1		$	352

Supplemental Cash Flow Disclosures:
Interest paid, net of amounts capitalized	$	1,719		$	1,664
Income taxes paid (refunded), net	$	—		$	—

Supplemental schedule of noncash investing activities:
(Increase) decrease in accrued plant additions	$	2,047		$	2,537

The accompanying notes, as they relate to TNMP, are an integral part of these financial statements.

Table of Contents

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



	March 31, 2016		December 31, 2015
	(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	1	$	1
Accounts receivable	18,928		20,408
Unbilled revenues	8,053		9,371
Other receivables	920		811
Materials and supplies	3,565		6,909
Regulatory assets	2,872		1,070
Other current assets	986		1,053
Total current assets	35,325		39,623
Other Property and Investments:
Other investments	238		238
Non-utility property	2,240		2,240
Total other property and investments	2,478		2,478
Utility Plant:
Plant in service and plant held for future use	1,298,266		1,285,727
Less accumulated depreciation and amortization	416,002		406,516
	882,264		879,211
Construction work in progress	32,498		16,561
Net utility plant	914,762		895,772
Deferred Charges and Other Assets:
Regulatory assets	128,542		127,754
Goodwill	226,665		226,665
Other deferred charges	4,630		4,847
Total deferred charges and other assets	359,837		359,266
	$	1,312,402	$	1,297,139

The accompanying notes, as they relate to TNMP, are an integral part of these financial statements.

Table of Contents

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



	March 31, 2016		December 31, 2015
	(In thousands, except share information)
LIABILITIES AND STOCKHOLDER’S EQUITY
Current Liabilities:
Short-term debt	$	15,000	$	59,000
Short-term debt – affiliate	7,900		11,800
Accounts payable	10,170		16,006
Affiliate payables	2,785		3,681
Accrued interest and taxes	33,830		32,891
Other current liabilities	3,100		2,044
Total current liabilities	72,785		125,422
Long-term Debt, net of Unamortized Premiums, Discounts, and Debt Issuance Costs	420,690		361,411
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes	233,044		232,791
Regulatory liabilities	33,755		32,550
Asset retirement obligations	709		695
Accrued pension liability and postretirement benefit cost	6,509		6,812
Other deferred credits	4,074		4,078
Total deferred credits and other liabilities	278,091		276,926
Total liabilities	771,566		763,759
Commitments and Contingencies (See Note 11)
Common Stockholder’s Equity:
Common stock ($10 par value; 12,000,000 shares authorized; issued and outstanding 6,358 shares)	64		64
Paid-in-capital	404,166		404,166
Retained earnings	136,606		129,150
Total common stockholder’s equity	540,836		533,380
	$	1,312,402	$	1,297,139

The accompanying notes, as they relate to TNMP, are an integral part of these financial statements.

Table of Contents

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDER’S EQUITY

(Unaudited)



	Common Stock		Paid-in Capital		Retained Earnings		Total Common Stockholder’s Equity
	(In thousands)
Balance at December 31, 2015	$	64	$	404,166	$	129,150	$	533,380
Net earnings	—		—		7,456		7,456
Balance at March 31, 2016	$	64	$	404,166	$	136,606	$	540,836

The accompanying notes, as they relate to TNMP, are an integral part of these financial statements.

Table of Contents

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


(1)	Significant Accounting Policies and Responsibility for Financial Statements

Financial Statement Preparation

In the opinion of management, the accompanying unaudited interim Condensed Consolidated Financial Statements reflect all normal and recurring accruals and adjustments that are necessary to present fairly the consolidated financial position at March 31, 2016 and December 31, 2015 , the consolidated results of operations, comprehensive income, and cash flows for the three months ended March 31, 2016 and 2015 . The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could ultimately differ from those estimated. Weather causes the Company’s results of operations to be seasonal in nature and the results of operations presented in the accompanying Condensed Consolidated Financial Statements are not necessarily representative of operations for an entire year.

The Notes to Condensed Consolidated Financial Statements include disclosures for PNMR, PNM, and TNMP. This report uses the term “Company” when discussing matters of common applicability to PNMR, PNM, and TNMP. Discussions regarding only PNMR, PNM, or TNMP are so indicated. Certain amounts in the 2015 Condensed Consolidated Financial Statements and Notes thereto have been reclassified to conform to the 2016 financial statement presentation.

These Condensed Consolidated Financial Statements are unaudited. Certain information and note disclosures normally included in the annual Consolidated Financial Statements have been condensed or omitted, as permitted under the applicable rules and regulations. Readers of these financial statements should refer to PNMR’s, PNM’s, and TNMP’s audited Consolidated Financial Statements and Notes thereto that are included in their respective 2015 Annual Reports on Form 10-K.

GAAP defines subsequent events as events or transactions that occur after the balance sheet date, but before financial statements are issued or are available to be issued. Based on their nature, magnitude, and timing, certain subsequent events may be required to be reflected at the balance sheet date and/or required to be disclosed in the financial statements. The Company has evaluated subsequent events as required by GAAP.

Principles of Consolidation

The Condensed Consolidated Financial Statements of each of PNMR, PNM, and TNMP include their accounts and those of subsidiaries in which that entity owns a majority voting interest. PNM also consolidates Valencia (Note 5) and, through January 15, 2016, the PVNGS Capital Trust. PNM owns undivided interests in several jointly-owned power plants and records its pro-rata share of the assets, liabilities, and expenses for those plants. The agreements for the jointly-owned plants provide that if an owner were to default on its payment obligations, the non-defaulting owners would be responsible for their proportionate share of the obligations of the defaulting owner. In exchange, the non-defaulting owners would be entitled to their proportionate share of the generating capacity of the defaulting owner. There have been no such payment defaults under any of the agreements for the jointly-owned plants.

PNMR shared services’ administrative and general expenses, which represent costs that are primarily driven by corporate level activities, are charged to the business segments. These services are billed at cost. Other significant intercompany transactions between PNMR, PNM, and TNMP include interest and income tax sharing payments, as well as equity transactions. All intercompany transactions and balances have been eliminated. See Note 14.

New Accounting Pronouncements

Information concerning recently issued accounting pronouncements that have not been adopted by the Company is presented below.

Accounting Standards Update 2014-09 – Revenue from Contracts with Customers (Topic 606)

Table of Contents

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On May 28, 2014, the FASB issued ASU No. 2014-09. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard will replace most existing revenue recognition guidance in GAAP when it becomes effective. On August 12, 2015, the FASB issued a one-year deferral in the effective date. On March 17, 2016, the FASB issued an additional ASU that clarifies the implementation guidance in ASU No. 2014-09 regarding principal versus agent considerations. On April 14, 2016, the FASB issued an additional ASU that clarifies the implementation guidance in ASU No. 2014-09 regarding licensing and identifying performance obligations. The Company must adopt ASU 2014-09 beginning on January 1, 2018. Early adoption would be permitted beginning January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company has not yet selected a transition method although it is unlikely the Company would elect to early adopt the new standard. The Company is analyzing the impacts this new standard will have on its consolidated financial statements and related disclosures, but has not determined the effect of the standard on its financial reporting.

Accounting Standards Update 2014-15 – Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern

On August 27, 2014, the FASB issued ASU No. 2014-15, which requires management to evaluate whether there is substantial doubt about a company’s ability to continue as a going concern in connection with the preparation of financial statements for each annual and interim reporting period. Disclosure requirements associated with management’s evaluation are also outlined in the new guidance. The new standard is effective for the Company for reporting periods ending after December 15, 2016, with early adoption permitted. The Company is analyzing the impacts of this new standard.

Accounting Standards Update 2016-01 – Financial Instruments (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities

On January 5, 2016, the FASB issued ASU No. 2016-01, which makes targeted improvements to GAAP regarding financial instruments. The new standard eliminates the requirement to classify investments in equity securities with readily determinable fair values into trading or available-for-sale categories and now requires those equity securities to be measured at fair value with changes in fair value recognized in net income rather than in OCI. The new standard also revises certain presentation and disclosure requirements. Under the new standard, accounting for investments in debt securities remains essentially unchanged. The new standard will be effective for the Company beginning on January 1, 2018. Early adoption of the standard is permitted. The Company is in the process of analyzing the impacts of this new standard.

Accounting Standards Update 2016-02 – Leases (Topic 842)

On February 25, 2016, the FASB issued ASU No. 2016-02, which will change how lessees account for leases. The ASU will require that a liability be recorded on the balance sheet for all leases based on the present value of future lease obligations. A corresponding right-of-use asset will also be recorded. Amortization of the lease obligation and the right-of-use asset for certain leases, primarily those currently classified as operating leases, will be on a straight-line basis, which is not expected to have a significant impact on the statements of earnings or cash flows, whereas other leases will be required to be accounted for as financing arrangements similar to the accounting treatment for capital leases under current GAAP. The new standard also revises certain disclosure requirements. The new standard will be effective for the Company beginning on January 1, 2019. Early adoption of the standard is permitted. At adoption of the ASU, leases will be recognized and measured as of the earliest period presented using a modified retrospective approach. The Company is in the process of analyzing the impacts of this new standard.

Accounting Standards Update 2016-09 - Compensation - Stock Compensation (Topic 718)

On March 30, 2016, the FASB issued ASU No. 2016-09. The ASU simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new standard is effective for the Company for reporting periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period. The Company is in the process of analyzing the impacts of this new standard.

Table of Contents

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


(2)	Earnings Per Share

In accordance with GAAP, dual presentation of basic and diluted earnings per share is presented in the Condensed Consolidated Statements of Earnings of PNMR. Information regarding the computation of earnings per share is as follows:



	Three Months Ended
	March 31,
	2016		2015
	(In thousands, except per share amounts)
Net Earnings Attributable to PNMR	$	10,546	$	14,340
Average Number of Common Shares:
Outstanding during period	79,654		79,654
Vested awards of restricted stock	104		112
Average Shares – Basic	79,758		79,766
Dilutive Effect of Common Stock Equivalents:
Stock options and restricted stock	406		387
Average Shares – Diluted	80,164		80,153
Net Earnings Per Share of Common Stock:
Basic	$	0.13	$	0.18
Diluted	$	0.13	$	0.18


(3)	Segment Information

The following segment presentation is based on the methodology that management uses for making operating decisions and assessing performance of its various business activities. A reconciliation of the segment presentation to the GAAP financial statements is provided.

PNM

PNM includes the retail electric utility operations of PNM that are subject to traditional rate regulation by the NMPRC. PNM provides integrated electricity services that include the generation, transmission, and distribution of electricity for retail electric customers in New Mexico. PNM also provides generation service to firm-requirements wholesale customers and sells electricity into the wholesale market, as well as providing transmission services to third parties. The sale of electricity into the wholesale market includes the optimization of PNM’s jurisdictional capacity, as well as the capacity from PVNGS Unit 3, which currently is not included in retail rates. FERC has jurisdiction over wholesale and transmission rates.

TNMP

TNMP is an electric utility providing regulated transmission and distribution services in Texas under the TECA. TNMP’s operations are subject to traditional rate regulation by the PUCT.

Corporate and Other

The Corporate and Other segment includes PNMR holding company activities, primarily related to corporate level debt and PNMR Services Company. The activities of PNMR Development and NM Capital are also included in Corporate and Other.

The following tables present summarized financial information for PNMR by segment. PNM and TNMP each operate in only one segment. Therefore, tabular segment information is not presented for PNM and TNMP.

Table of Contents

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

PNMR SEGMENT INFORMATION



	PNM			TNMP			Corporate and Other			Consolidated
	(In thousands)
Three Months Ended March 31, 2016
Electric operating revenues	$	235,606		$	75,355		$	—		$	310,961
Cost of energy	72,444			19,925			—			92,369
Utility margin	163,162			55,430			—			218,592
Other operating expenses	108,001			22,368			(3,114		)	127,255
Depreciation and amortization	31,864			14,508			3,457			49,829
Operating income	23,297			18,554			(343		)	41,508
Interest income	1,522			—			2,100			3,622
Other income (deductions)	7,943			608			(1,068		)	7,483
Net interest charges	(21,591		)	(7,369		)	(2,531		)	(31,491		)
Segment earnings (loss) before income taxes	11,171			11,793			(1,842		)	21,122
Income taxes	3,610			4,337			(790		)	7,157
Segment earnings (loss)	7,561			7,456			(1,052		)	13,965
Valencia non-controlling interest	(3,287		)	—			—			(3,287		)
Subsidiary preferred stock dividends	(132		)	—			—			(132		)
Segment earnings (loss) attributable to PNMR	$	4,142		$	7,456		$	(1,052	)	$	10,546

At March 31, 2016:
Total Assets	$	4,719,346		$	1,312,402		$	242,064		$	6,273,812
Goodwill	$	51,632		$	226,665		$	—		$	278,297



	PNM			TNMP			Corporate and Other			Consolidated
	(In thousands)
Three Months Ended March 31, 2015
Electric operating revenues	$	261,940		$	70,928		$	—		$	332,868
Cost of energy	97,866			17,779			—			115,645
Utility margin	164,074			53,149			—			217,223
Other operating expenses	104,016			21,760			(3,583		)	122,193
Depreciation and amortization	28,403			13,458			3,600			45,461
Operating income	31,655			17,931			(17		)	49,569
Interest income	1,771			—			(21		)	1,750
Other income (deductions)	5,810			1,291			(1,778		)	5,323
Net interest charges	(19,959		)	(6,925		)	(3,389		)	(30,273		)
Segment earnings (loss) before income taxes	19,277			12,297			(5,205		)	26,369
Income taxes (benefit)	5,775			4,603			(1,861		)	8,517
Segment earnings (loss)	13,502			7,694			(3,344		)	17,852
Valencia non-controlling interest	(3,380		)	—			—			(3,380		)
Subsidiary preferred stock dividends	(132		)	—			—			(132		)
Segment earnings (loss) attributable to PNMR	$	9,990		$	7,694		$	(3,344	)	$	14,340

At March 31, 2015:
Total Assets	$	4,444,290		$	1,232,687		$	223,629		$	5,900,606
Goodwill	$	51,632		$	226,665		$	—		$	278,297

Table of Contents

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

At December 31, 2015, the Company adopted ASU 2015-03 – Interest – Imputation of Interest (Subtopic 835-30) and ASU 2015-17, Income Taxes (Topic 740 ) - Balance Sheet Classification of Deferred Taxes , which require that debt issuance costs be reflected as a direct reduction of the related debt liability, except for arrangements such as the Company’s revolving credit facilities, and eliminated the requirement to classify deferred tax assets and liabilities as non-current or current. The Company applied the updates retrospectively to make all periods comparable. As a result, amounts previously reported as total assets at March 31, 2015 above have been reduced to reflect the reclassifications aggregating $38.7 million for PNMR, $20.2 million for PNM, and $10.7 million for TNMP.


(4)	Accumulated Other Comprehensive Income (Loss)

Information regarding accumulated other comprehensive income (loss) for the three months ended March 31, 2016 and 2015 is as follows:



	Accumulated Other Comprehensive Income (Loss)
	PNM									PNMR
	Unrealized									Fair Value
	Gains on									Adjustment
	Available-for-			Pension						for Cash
	Sale			Liability						Flow
	Securities			Adjustment			Total			Hedges			Total
	(In thousands)
Balance at December 31, 2015	$	17,346		$	(88,822	)	$	(71,476	)	$	44		$	(71,432	)
Amounts reclassified from AOCI (pre-tax)	(11,210		)	1,376			(9,834		)	146			(9,688		)
Income tax impact of amounts reclassified	4,374			(537		)	3,837			(57		)	3,780
Other OCI changes (pre-tax)	5,458			—			5,458			(1,289		)	4,169
Income tax impact of other OCI changes	(2,130		)	—			(2,130		)	503			(1,627		)
Net change after income taxes	(3,508		)	839			(2,669		)	(697		)	(3,366		)
Balance at March 31, 2016	$	13,838		$	(87,983	)	$	(74,145	)	$	(653	)	$	(74,798	)



Balance at December 31, 2014	$	28,008		$	(89,763	)	$	(61,755	)	$	—	$	(61,755	)
Amounts reclassified from AOCI (pre-tax)	(4,172		)	1,488			(2,684		)	—		(2,684		)
Income tax impact of amounts reclassified	1,635			(583		)	1,052			—		1,052
Other OCI changes (pre-tax)	6,836			—			6,836			—		6,836
Income tax impact of other OCI changes	(2,679		)	—			(2,679		)	—		(2,679		)
Net change after income taxes	1,620			905			2,525			—		2,525
Balance at March 31, 2015	$	29,628		$	(88,858	)	$	(59,230	)	$	—	$	(59,230	)

Pre-tax amounts reclassified from AOCI related to “Unrealized Gains on Available-for-Sale Securities” are included in “Gains on available-for-sale securities” in the Condensed Consolidated Statements of Earnings. Pre-tax amounts reclassified from AOCI related to “Pension Liability Adjustment” are reclassified to “Operating Expenses – Administrative and general” in the Condensed Consolidated Statements of Earnings. For the three months ended March 31, 2016 and 2015 , 22.7% and 22.8% of the pension amounts reclassified were capitalized into construction work in process and 2.6% and 2.9% were capitalized into other accounts. Pre-tax amounts reclassified from AOCI related to “Fair Value Adjustment for Cash Flow Hedges” are reclassified to

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

“Interest Charges” in the Condensed Consolidated Statements of Earnings. An insignificant amount was capitalized as AFUDC and capitalized interest. The income tax impacts of all amounts reclassified from AOCI are included in “Income Taxes” in the Condensed Consolidated Statements of Earnings.


(5)	Variable Interest Entities

GAAP determines how an enterprise evaluates and accounts for its involvement with variable interest entities, focusing primarily on whether the enterprise has the power to direct the activities that most significantly impact the economic performance of a variable interest entity (“VIE”). GAAP also requires continual reassessment of the primary beneficiary of a VIE. Additional information concerning PNM’s VIEs is contained in Note 9 of the Notes to Consolidated Financial Statements in the 2015 Annual Reports on Form 10-K.

Valencia

PNM has a PPA to purchase all of the electric capacity and energy from Valencia, a 158 MW natural gas-fired power plant near Belen, New Mexico, through May 2028. A third-party built, owns, and operates the facility while PNM is the sole purchaser of the electricity generated. PNM is obligated to pay fixed operations and maintenance and capacity charges in addition to variable operation and maintenance charges under this PPA. For the three months ended March 31, 2016 , PNM paid $4.8 million and $0.2 million for fixed and variable charges. For the three months ended March 31, 2015 , PNM paid $4.8 million and $0.1 million for fixed and variable charges. PNM does not have any other financial obligations related to Valencia. The assets of Valencia can only be used to satisfy obligations of Valencia and creditors of Valencia do not have any recourse against PNM’s assets. PNM has concluded that the third party entity that owns Valencia is a VIE and that PNM is the primary beneficiary of the entity under GAAP since PNM has the power to direct the activities that most significantly impact the economic performance of Valencia and will absorb the majority of the variability in the cash flows of the plant. As the primary beneficiary, PNM consolidates Valencia in its financial statements. The assets and liabilities of Valencia set forth below are immaterial to PNM and, therefore, not shown separately on the Condensed Consolidated Balance Sheets. The owner’s equity and net income of Valencia are considered attributable to non-controlling interest.

Summarized financial information for Valencia is as follows:

Results of Operations



	Three Months Ended March 31,
	2016			2015
	(In thousands)
Operating revenues	$	4,937		$	4,904
Operating expenses	(1,650		)	(1,524		)
Earnings attributable to non-controlling interest	$	3,287		$	3,380

Financial Position



	March 31,		December 31,
	2016		2015
	(In thousands)
Current assets	$	2,732	$	2,588
Net property, plant, and equipment	69,075		69,784
Total assets	71,807		72,372
Current liabilities	1,112		965
Owners’ equity – non-controlling interest	$	70,695	$	71,407

Table of Contents

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

During the term of the PPA, PNM has the option to purchase and own up to 50% of the plant or the VIE. The PPA specifies that the purchase price would be the greater of (i) 50% of book value reduced by related indebtedness or (ii) 50% of fair market value. On October 8, 2013, PNM notified the owner of Valencia that PNM may exercise the option to purchase 50% of the plant. As provided in the PPA, an appraisal process was initiated since the parties failed to reach agreement on fair market value within 60 days. Under the PPA, results of the appraisal process established the purchase price after which PNM was to determine in its sole discretion whether or not to exercise its option to purchase the 50% interest. The PPA also provides that the purchase price may be adjusted to reflect the period between the determination of the purchase price and the closing. The appraisal process determined the purchase price as of October 8, 2013 to be $85.0 million , prior to any adjustment to reflect the period through the closing date. Approval of the NMPRC and FERC would be required, which process could take up to 15 months. On May 30, 2014, after evaluating its alternatives with respect to Valencia, PNM notified the owner of Valencia that PNM intended to purchase 50% of the plant, subject to certain conditions. PNM’s conditions include: agreeing on the purchase price, adjusted to reflect the period between October 8, 2013 and the closing; approval of the NMPRC, including specified ratemaking treatment, and FERC; approval of the Board and PNM’s board of directors; receipt of other necessary approvals and consents; and other customary closing conditions. PNM received a letter dated June 30, 2014 from the owner of Valencia suggesting that the conditions set forth in PNM’s notification raise issues under the PPA. The owner of Valencia submitted a counter-proposal to PNM in April 2015 and the parties are continuing to have periodic discussions. PNM cannot predict if it will reach agreement with the owner of Valencia, if required regulatory and other approvals will be received, or if the purchase will be completed.

PVNGS Leases

PNM leases interests in Units 1 and 2 of PVNGS under arrangements, which initially were scheduled to expire on January 15, 2015 for the four Unit 1 leases and January 15, 2016 for the four Unit 2 leases. At January 15, 2015, the four Unit 1 leases were extended. At January 15, 2016, one of the Unit 2 leases was extended and PNM exercised its fair market value options to purchase the assets underlying the other three Unit 2 leases. See Note 7 of the Notes to Consolidated Financial Statements in the 2015 Annual Reports on Form 10-K and Note 6 for additional information regarding the leases, including PNM’s actions regarding the renewal and purchase options.

Each of the lease agreements is with a different trust whose beneficial owner is an institutional investor. PNM is not the legal or tax owner of the leased assets. The beneficial owners of the trusts possess all of the voting control and pecuniary interest in the trusts. PNM is only obligated to make payments to the trusts for the scheduled semi-annual lease payments and other than as discussed in Note 6, PNM has no other financial obligations or commitments to the trusts or the beneficial owners although PNM is responsible for all decommissioning obligations related to its entire interest in PVNGS both during and after termination of the leases. Creditors of the trusts have no recourse to PNM’s assets other than with respect to the contractual lease payments. PNM has no additional rights to the assets of the trusts other than the use of the leased assets. PNM has no assets or liabilities recorded on its Condensed Consolidated Balance Sheets related to the trusts other than accrued lease payments of $3.8 million at March 31, 2016 and $18.4 million at December 31, 2015 , which are included in other current liabilities on the Condensed Consolidated Balance Sheets.

Prior to their exercise or expiration, the fixed rate renewal options were considered to be variable interests in the trusts and resulted in the trusts being considered VIEs under GAAP. PNM evaluated the PVNGS lease arrangements, including actions taken with respect to the renewal and purchase options, and concluded that it did not have the power to direct the activities that most significantly impacted the economic performance of the trusts and, therefore, was not the primary beneficiary of the trusts under GAAP. Upon execution of documents establishing terms of the asset purchases or lease extensions, the fixed rate renewal options ceased to exist, as did PNM’s variable interest in the trusts.

Westmoreland San Juan LLC (“WSJ”) and SJCC

As discussed in the subheading Coal Supply in Note 11, PNM purchases coal for SJGS from SJCC under a coal supply agreement (“CSA”). That section includes information on the purchase of SJCC by WSJ on January 31, 2016, as well as a $125.0 million loan (the “Westmoreland Loan”) from NM Capital, a subsidiary of PNMR, to WSJ, which loan provided substantially all of the funds required for the SJCC purchase, and the issuance of a $40.0 million letter of credit under the PNMR Revolving Credit Facility to support the issuance of reclamation bonds required in order for SJCC to mine coal to be supplied to SJGS. The

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Westmoreland Loan and the letter of credit result in PNMR being considered to have a variable interest in WSJ, including its subsidiary, SJCC, since PNMR and NM Capital could be subject to loss in the event WSJ were to default under the Westmoreland Loan and/or performance under the letter of credit was required. Principal payments under the Westmoreland Loan begin on August 1, 2016 and are required quarterly thereafter. Interest is also paid quarterly beginning on May 1, 2016.

At March 31, 2016, the amount outstanding under the Westmoreland Loan was $125.0 million , which is reflected on the Condensed Consolidated Balance Sheet net of unamortized fees. In addition, interest receivable of $1.6 million is included in Other Receivables. The $40.0 million letter of credit also remains outstanding. Such amounts constitute PNMR’s maximum exposure to loss from the VIEs. However, the Westmoreland Loan requires that all cash flows of WSJ, in excess of normal operating expenses, capital additions, and operating reserves, be utilized for principal and interest payments under the loan until it is fully repaid. In addition, the Westmoreland Loan is secured by the assets of and the equity interests in SJCC. In the event of a default by WSJ, NM Capital would have the ability to take over the mining operations. In such event, NM Capital would likely engage a third-party mining company to operate SJCC so that operations of the mine are not disrupted. Since the acquisition of SJCC by WSJ for approximately $125 million is a recently negotiated, arms-length transaction between Westmoreland and BHP, the amount should represent the fair value of SJCC. Therefore, if WSJ were to default, NM Capital would be able to acquire assets of approximately the value of the Westmoreland Loan without a significant loss. Furthermore, PNMR considers the possibility of loss under the letter of credit to be remote since the purpose of posting the bonds is to provide assurance that SJCC performs the required reclamation of the mine site in accordance with applicable regulations and all reclamation costs are reimbursable under the CSA. Also, much of the mine reclamation activities will not be performed for many years in the future, including after the expiration of the CSA and the final maturity of the Westmoreland Loan. In addition, each of the SJGS participants has established, and funds, a trust to meet its future reclamation obligations.

Both WSJ and SJCC are considered to be VIEs. PNMR’s analysis of these arrangements concluded that Westmoreland, as the parent of WSJ, has the ability to direct the SJCC mining operations, which is the factor that most significantly impacts the economic performance of WSJ and SJCC. NM Capital’s rights under the Westmoreland Loan are the typical protective rights of a lender, but do not give NM Capital any oversight over mining operations unless there is a default under the loan. Other than PNM being able to ensure that coal is supplied in adequate quantities and of sufficient quality to provide the fuel necessary to operate SJGS in a normal manner, the mining operations are solely under the control of Westmoreland and its subsidiaries, including developing mining plans, hiring of personnel, and incurring operating and maintenance expenses. Neither PNMR nor PNM has any ability to direct or influence the mining operation. Therefore, PNM’s involvement through the CSA is a protective right rather than a participating right and Westmoreland has the power to direct the activities that most significantly impact the economic performance of the SJCC. The CSA requires SJCC to deliver coal required to fuel SJGS in exchange for payment of a set price per ton, which is escalated over time for inflation. If SJCC is able to mine more efficiently than anticipated, its economic performance will be improved. Conversely, if SJCC cannot mine as efficiently as anticipated, its economic performance will be negatively impacted. Accordingly, PNMR believes Westmoreland, and not PNMR, is the primary beneficiary of WSJ and, therefore, WSJ and SJCC are not consolidated by either PNMR or PNM.


(6)	Lease Commitments

The Company leases office buildings, vehicles, and other equipment under operating leases. In addition, PNM leases interests in Units 1 and 2 of PVNGS and, through April 1, 2015, leased an interest in the EIP transmission line. All of the Company’s leases are accounted for as operating leases. Additional information concerning the Company’s lease commitments is contained in Note 7 of the Notes to Consolidated Financial Statements in the 2015 Annual Reports on Form 10-K, including PNM’s actions with regard to renewal and purchase options under the PVNGS leases.

The PVNGS leases were scheduled to expire on January 15, 2015 for the four Unit 1 leases and January 15, 2016 for the four Unit 2 leases. The four Unit 1 leases have been extended to expire on January 15, 2023 and one of the Unit 2 leases has been extended to expire on January 15, 2024. For the other three PVNGS Unit 2 leases, PNM exercised its fair market value options to purchase the assets underlying those leases on the expiration date of the original leases. On January 15, 2016, PNM paid $78.1 million to the lessor under one lease for 31.25 MW of the entitlement from PVNGS Unit 2 and $85.2 million to the lessors under the other two leases for 32.76 MW of the entitlement from PVNGS Unit 2.

PNM is exposed to losses under the PVNGS lease arrangements upon the occurrence of certain events that PNM does not consider to be reasonably likely to occur. Under certain circumstances (for example, the NRC issuing specified violation orders with respect to PVNGS or the occurrence of specified nuclear events), PNM would be required to make specified payments to the lessors, and take title to the leased interests. If such an event had occurred as of March 31, 2016, amounts due to the lessors under the circumstances described above would be up to $179.1 million , payable on July 15, 2016 in addition to the scheduled lease payments due on July 15, 2016.

At March 31, 2015, PNM owned 60% of the EIP and leased the other 40% , under a lease that expired on April 1, 2015. PNM purchased the leased capacity at fair market value, which the parties agreed was $7.7 million , on April 1, 2015.


(7)	Fair Value of Derivative and Other Financial Instruments

Additional information concerning the Company’s energy related derivative contracts and other financial instruments is contained in Note 8 of the Notes to Consolidated Financial Statements in the 2015 Annual Reports on Form 10-K.

Energy Related Derivative Contracts

Overview

The primary objective for the use of derivative instruments, including energy contracts, options, and futures, is to manage price risk associated with forecasted purchases of energy and fuel used to generate electricity, as well as managing anticipated generation capacity in excess of forecasted demand from existing customers. PNM’s energy related derivative contracts manage commodity risk. PNM is required to meet the demand and energy needs of its retail and firm-requirements wholesale customers. PNM is exposed to market risk for its share of PVNGS Unit 3 and the needs of its firm-requirements wholesale customers not covered under a FPPAC. PNM’s operations are managed primarily through a net asset-backed strategy, whereby PNM’s aggregate net open forward contract position is covered by its forecasted excess generation capabilities or market purchases. PNM could

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

be exposed to market risk if its generation capabilities were to be disrupted or if its load requirements were to be greater than anticipated. If all or a portion of load requirements were required to be covered as a result of such unexpected situations, commitments would have to be met through market purchases.

Commodity Risk

Marketing and procurement of energy often involve market risks associated with managing energy commodities and establishing open positions in the energy markets, primarily on a short-term basis. PNM routinely enters into various derivative instruments such as forward contracts, option agreements, and price basis swap agreements to economically hedge price and volume risk on power commitments and fuel requirements and to minimize the effect of market fluctuations in wholesale portfolios. PNM monitors the market risk of its commodity contracts using VaR calculations to maintain total exposure within management-prescribed limits in accordance with approved risk and credit policies.

Accounting for Derivatives

Under derivative accounting and related rules for energy contracts, the Company accounts for its various derivative instruments for the purchase and sale of energy based on the Company’s intent. During the three months ended March 31, 2016 and the year ended December 31, 2015, the Company was not hedging its exposure to the variability in future cash flows from commodity derivatives through designated cash flows hedges. The contracts recorded at fair value that do not qualify or are not designated for cash flow hedge accounting are classified as economic hedges. Economic hedges are defined as derivative instruments, including long-term power agreements, used to economically hedge generation assets, purchased power and fuel costs, and customer load requirements. Changes in the fair value of economic hedges are reflected in results of operations and are classified between operating revenues and cost of energy according to the intent of the hedge. The Company has no trading transactions.

Fair value is defined under GAAP as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value is based on current market quotes as available and is supplemented by modeling techniques and assumptions made by the Company to the extent quoted market prices or volatilities are not available. External pricing input availability varies based on commodity location, market liquidity, and term of the agreement. Valuations of derivative assets and liabilities take into account nonperformance risk including the effect of counterparties’ and the Company’s credit risk. The Company regularly assesses the validity and availability of pricing data for its derivative transactions. Although the Company uses its best judgment in estimating the fair value of these instruments, there are inherent limitations in any estimation technique.

Commodity Derivatives

Commodity derivative instruments that are recorded at fair value, all of which are accounted for as economic hedges, are summarized as follows:



	Economic Hedges
	March 31, 2016			December 31, 2015
PNMR and PNM	(In thousands)
Current assets	$	4,356		$	3,813
Deferred charges	1,986			2,622
	6,342			6,435

Current liabilities	(548		)	(1,859		)
Long-term liabilities	—			—
	(548		)	(1,859		)
Net	$	5,794		$	4,576

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Included in the above table are $2.9 million of current assets and $2.0 million of deferred charges at March 31, 2016 and $3.0 million of current assets and $2.6 million of deferred charges at December 31, 2015 related to contracts for the sale of energy from PVNGS Unit 3 through 2017 at market price plus a premium. Certain of PNM’s commodity derivative instruments in the above table are subject to master netting agreements whereby assets and liabilities could be offset in the settlement process. The Company does not offset fair value, cash collateral, and accrued payable or receivable amounts recognized for derivative instruments under master netting arrangements and the above table reflects the gross amounts of assets and liabilities. The amounts that could be offset under master netting agreements were immaterial at March 31, 2016 and December 31, 2015 .

At March 31, 2016 and December 31, 2015 , PNMR and PNM had no amounts recognized for the legal right to reclaim cash collateral. However, at March 31, 2016 and December 31, 2015 , amounts posted as cash collateral under margin arrangements were $2.5 million and $2.7 million for both PNMR and PNM. At March 31, 2016 and December 31, 2015 , obligations to return cash collateral were $0.1 million and $0.1 million , for both PNMR and PNM. Cash collateral amounts are included in other current assets and other current liabilities on the Condensed Consolidated Balance Sheets.

PNM has a NMPRC approved hedging plan to manage fuel and purchased power costs related to customers covered by its FPPAC. At March 31, 2016, there were no hedges in place under this plan. The table above includes $0.4 million of current assets and $0.2 million of current liabilities at December 31, 2015 related to this plan. The offsets to these amounts are recorded as regulatory assets and liabilities on the Condensed Consolidated Balance Sheets.

The following table presents the effect of mark-to-market commodity derivative instruments on earnings, excluding income tax effects. Commodity derivatives had no impact on OCI for the periods presented.



	Economic Hedges
	Three Months Ended
	March 31,
	2016			2015
PNMR and PNM	(In thousands)
Electric operating revenues	$	2,684		$	(472	)
Cost of energy	(145		)	(50		)
Total gain (loss)	$	2,539		$	(522	)

Commodity contract volume positions are presented in MMBTU for gas related contracts and in MWh for power related contracts. The table below presents PNMR’s and PNM’s net buy (sell) volume positions:



	Economic Hedges
	MMBTU	MWh
PNMR and PNM
March 31, 2016	4,355,000	(2,850,460	)
December 31, 2015	577,481	(3,405,843	)

In connection with managing its commodity risks, the Company enters into master agreements with certain counterparties. If the Company is in a net liability position under an agreement, some agreements provide that the counterparties can request collateral from the Company if the Company’s credit rating is downgraded; other agreements provide that the counterparty may request collateral to provide it with “adequate assurance” that the Company will perform; and others have no provision for collateral.

The table below presents information about the Company’s contingent requirements to provide collateral under commodity contracts having an objectively determinable collateral provision that are in net liability positions and are not fully collateralized with cash. Contractual Liability represents commodity derivative contracts recorded at fair value on the balance sheet, determined on an individual contract basis without offsetting amounts for individual contracts that are in an asset position and could be offset under master netting agreements with the same counterparty. The table only reflects cash collateral that has been posted under the existing contracts and does not reflect letters of credit under PNM’s revolving credit facilities that have been issued as collateral. Net Exposure is the net contractual liability for all contracts, including those designated as normal purchases and normal sales,

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

offset by existing cash collateral and by any offsets available under master netting agreements, including both asset and liability positions.



Contingent Feature – Credit Rating Downgrade	Contractual Liability		Existing Cash Collateral		Net Exposure
	(In thousands)
PNMR and PNM
March 31, 2016	$	360	$	—	$	360
December 31, 2015	$	839	$	—	$	839

Sale of Power from PVNGS Unit 3

Because PNM’s 134 MW share of Unit 3 at PVNGS is not currently included in retail rates, that unit’s power is being sold in the wholesale market. PNM sells power from its interest in PVNGS Unit 3 at market prices. As of March 31, 2016 , PNM had contracted to sell 100% of PVNGS Unit 3 output through 2017, at market price plus a premium. Through hedging arrangements that are accounted for as economic hedges, PNM has established fixed rates, which average approximately $26 per MWh, for substantially all of the sales through 2016. There are currently no such hedging arrangements in place for the 2017 sales.

Non-Derivative Financial Instruments

The carrying amounts reflected on the Condensed Consolidated Balance Sheets approximate fair value for cash, receivables, and payables due to the short period of maturity. Available-for-sale securities are carried at fair value. Available-for-sale securities for PNMR and PNM consist of PNM assets held in the NDT for its share of decommissioning costs of PVNGS and a trust for PNM’s share of post-term reclamation costs related to the coal mines serving SJGS (Note 11). At March 31, 2016 and December 31, 2015 , the fair value of available-for-sale securities included $250.5 million and $249.1 million for the NDT and $10.1 million and $9.9 million for the mine reclamation trust. The fair value and gross unrealized gains of investments in available-for-sale securities are presented in the following table.



	March 31, 2016				December 31, 2015
	Unrealized Gains		Fair Value		Unrealized Gains		Fair Value
PNMR and PNM			(In thousands)
Cash and cash equivalents	$	—	$	8,810	$	—	$	10,700
Equity securities:
Domestic value	10,862		62,427		11,610		44,505
Domestic growth	5,164		43,714		11,163		61,078
International and other	2,034		27,937		1,569		27,961
Fixed income securities:
U.S. Government	563		37,203		178		27,880
Municipals	2,839		50,276		3,672		58,576
Corporate and other	1,518		30,261		628		28,342
	$	22,980	$	260,628	$	28,820	$	259,042

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The proceeds and gross realized gains and losses on the disposition of available-for-sale securities for PNMR and PNM are shown in the following table. Realized gains and losses are determined by specific identification of costs of securities sold. Gross realized losses shown below exclude the net decrease in realized impairment losses of $1.6 million and $0.4 million for the three months ended March 31, 2016 and 2015 .



	Three Months Ended
	March 31,
	2016			2015
	(In thousands)
Proceeds from sales	$	124,900		$	31,852
Gross realized gains	$	10,716		$	5,135
Gross realized (losses)	$	(6,116	)	$	(1,541	)

Held-to-maturity securities are those investments in debt securities that the Company has the ability and intent to hold until maturity. At March 31, 2016, held-to-maturity securities consist of the Westmoreland Loan and certain items within other investments.

The Company has no available-for-sale or held-to-maturity securities for which carrying value exceeds fair value. There are no impairments considered to be “other than temporary” that are included in AOCI and not recognized in earnings.

At March 31, 2016 , the available-for-sale and held-to-maturity debt securities had the following final maturities:



	Fair Value
	Available-for-Sale		Held-to-Maturity
	PNMR and PNM		PNMR
	(In thousands)
Within 1 year	$	3,068	$	—
After 1 year through 5 years	31,853		135,189
After 5 years through 10 years	22,561		—
After 10 years through 15 years	8,991		—
After 15 years through 20 years	10,214		—
After 20 years	41,053		—
	$	117,740	$	135,189

Fair Value Disclosures

The Company determines the fair values of its derivative and other financial instruments based on the hierarchy established in GAAP, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. GAAP describes three levels of inputs that may be used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Level 3 inputs used in determining fair values for the Company consist of internal valuation models. The Company records any transfers between fair value hierarchy levels as of the end of each calendar quarter. There were no transfers between levels during the three months ended March 31, 2016 and the year ended December 31, 2015 .

For available-for-sale securities, Level 2 fair values are provided by the trustee utilizing a pricing service. The pricing provider predominantly uses the market approach using bid side market value based upon a hierarchy of information for specific securities or securities with similar characteristics. For commodity derivatives, Level 2 fair values are determined based on market

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

observable inputs, which are validated using multiple broker quotes, including forward price, volatility, and interest rate curves to establish expectations of future prices. Credit valuation adjustments are made for estimated credit losses based on the overall exposure to each counterparty. For the Company’s long-term debt, Level 2 fair values are provided by an external pricing service. The pricing service primarily utilizes quoted prices for similar debt in active markets when determining fair value. For investments categorized as Level 3, including the Westmoreland Loan, PVNGS lessor notes, and certain items in other investments, fair values were determined by discounted cash flow models that take into consideration discount rates that are observable for similar types of assets and liabilities. Management of the Company independently verifies the information provided by pricing services.

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Items recorded at fair value on the Condensed Consolidated Balance Sheets are presented below by level of the fair value hierarchy. There were no Level 3 fair value measurements at March 31, 2016 and December 31, 2015 for items recorded at fair value.



				GAAP Fair Value Hierarchy
	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
March 31, 2016	(In thousands)
PNMR and PNM
Available-for-sale securities
Cash and cash equivalents	$	8,810		$	8,810	$	—
Equity securities:
Domestic value	62,427			62,427		—
Domestic growth	43,714			43,714		—
International and other	27,937			27,937		—
Fixed income securities:
U.S. Government	37,203			35,919		1,284
Municipals	50,276			—		50,276
Corporate and other	30,261			6,630		23,631
	$	260,628		$	185,437	$	75,191

Commodity derivative assets	$	6,342		$	—	$	6,342
Commodity derivative liabilities	(548		)	—		(548		)
Net	$	5,794		$	—	$	5,794

December 31, 2015
PNMR and PNM
Available-for-sale securities
Cash and cash equivalents	$	10,700		$	10,700	$	—
Equity securities:
Domestic value	44,505			44,505		—
Domestic growth	61,078			61,078		—
International and other	27,961			27,961		—
Fixed income securities:
U.S. Government	27,880			26,608		1,272
Municipals	58,576			—		58,576
Corporate and other	28,342			6,500		21,842
	$	259,042		$	177,352	$	81,690

Commodity derivative assets	$	6,435		$	—	$	6,435
Commodity derivative liabilities	(1,859		)	—		(1,859		)
Net	$	4,576		$	—	$	4,576

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The carrying amounts and fair values of investments in the Westmoreland Loan, PVNGS lessor notes, other investments, and long-term debt, which are not recorded at fair value on the Condensed Consolidated Balance Sheets are presented below:



					GAAP Fair Value Hierarchy
	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
March 31, 2016	(In thousands)
PNMR
Long-term debt	$	2,274,481	$	2,469,956	$	—	$	2,469,956	$	—
Westmoreland Loan	$	122,696	$	134,615	$	—	$	—	$	134,615
Other investments	$	456	$	1,030	$	456	$	—	$	574
PNM
Long-term debt	$	1,581,131	$	1,717,445	$	—	$	1,717,445	$	—
Other investments	$	218	$	218	$	218	$	—	$	—
TNMP
Long-term debt	$	420,690	$	477,511	$	—	$	477,511	$	—
Other investments	$	238	$	238	$	238	$	—	$	—

December 31, 2015
PNMR
Long-term debt	$	2,091,948	$	2,264,869	$	—	$	2,264,869	$	—
Investment in PVNGS lessor notes	$	8,587	$	8,947	$	—	$	—	$	8,947
Other investments	$	604	$	1,269	$	604	$	—	$	665
PNM
Long-term debt	$	1,580,677	$	1,703,209	$	—	$	1,703,209	$	—
Investment in PVNGS lessor notes	$	8,587	$	8,947	$	—	$	—	$	8,947
Other investments	$	366	$	366	$	366	$	—	$	—
TNMP
Long-term debt	$	361,411	$	411,661	$	—	$	411,661	$	—
Other investments	$	238	$	238	$	238	$	—	$	—


(8)	Stock-Based Compensation

PNMR has various stock-based compensation programs, including stock options, restricted stock, and performance shares granted under the Performance Equity Plan (“PEP”). Although certain PNM and TNMP employees participate in the PNMR plans, PNM and TNMP do not have separate employee stock-based compensation plans. In 2011, the Company changed its approach to awarding stock-based compensation. As a result, no stock options have been granted since 2010 and awards of restricted stock have increased. Certain restricted stock awards are subject to achieving performance or market targets. Other awards of restricted stock are only subject to time vesting requirements. Additional information concerning stock-based compensation under the PEP is contained in Note 13 of the Notes to Consolidated Financial Statements in the 2015 Annual Reports on Form 10-K.

Restricted stock under the PEP refers to awards of stock subject to vesting, performance, or market conditions rather than to shares with contractual post-vesting restrictions. Generally, the awards vest ratably over three years from the grant date of the award. However, awards with performance or market conditions vest upon satisfaction of those conditions. In addition, plan provisions provide that upon retirement, participants become 100% vested in certain stock awards.

The stock-based compensation expense related to restricted stock awards without performance or market conditions for awards to participants that are retirement eligible on the grant date is recognized immediately at the grant date and is not amortized. Compensation expense for other such awards is amortized to compensation expense over the shorter of the requisite vesting period, which is generally three years, or the period until the participant becomes retirement eligible. Compensation expense for performance-based shares is recognized ratably over the performance period and is adjusted periodically to reflect the level of

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

achievement expected to be attained. Compensation expense related to market-based shares is recognized ratably over the measurement period, regardless of the actual level of achievement, provided the employees meet their service requirements. At March 31, 2016 and December 31, 2015 , PNMR had unrecognized expense related to stock awards of $8.3 million and $5.7 million , which are expected to be recognized over an average of 1.9 and 1.4 years.

The grant date fair value for restricted stock and stock awards with Company internal performance targets is determined based on the market price of PNMR common stock on the date of the agreements reduced by the present value of future dividends, which will not be received prior to vesting, applied to the total number of shares that are anticipated to vest, although the number of performance shares that ultimately vest cannot be determined until after the performance periods end. The grant date fair value of stock awards with market targets is determined using Monte Carlo simulation models, which provide grant date fair values that include an expectation of the number of shares to vest at the end of the measurement period.

The following table summarizes the weighted-average assumptions used to determine the awards grant date fair value:



	Three Months Ended March 31,
Restricted Shares and Performance Based Shares	2016			2015
Expected quarterly dividends per share	$	0.22		$	0.20
Risk-free interest rate	1.00		%	1.07		%

Market-Based Shares
Dividend yield	2.74		%	2.87		%
Expected volatility	20.44		%	18.73		%
Risk-free interest rate	0.97		%	1.00		%

The following table summarizes activity in restricted stock awards, including performance-based and market-based shares, and stock options, for the three months ended March 31, 2016 :



	Restricted Stock				Stock Options
	Shares		Weighted- Average Grant Date Fair Value		Shares		Weighted- Average Exercise Price
Outstanding at December 31, 2015	245,094		$	24.81	569,342		$	19.35
Granted	173,903		$	26.05	—		$	—
Exercised	(178,574	)	$	23.13	(195,935	)	$	27.99
Forfeited	—		$	—	(2,000	)	$	12.22
Expired	—		$	—	(8,200	)	$	24.85
Outstanding at March 31, 2016	240,423		$	26.96	363,207		$	14.60

PNMR’s stock-based compensation program provides for performance and market targets through 2018. Included as restricted stock in the above table are 79,619 (granted) and 74,697 (exercised) previously awarded shares that were earned for the 2013 through 2015 performance measurement period and approved by the Board in February 2016 (based upon achieving market targets at “target” levels, weighted at 60% , and performance targets at “threshold” levels, weighted at 40% ). Excluded from the above table are maximums of 165,628 , 168,258 , and 147,031 shares for the three -year performance periods ending in 2016, 2017, and 2018 that would be awarded if all performance and market criteria are achieved at maximum levels and all executives remain eligible.

In March 2012, the Company entered into a retention award agreement with its Chairman, President, and Chief Executive Officer under which she would receive 135,000 shares of PNMR’s common stock if PNMR meets specific market targets at the

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

end of 2016 and she remains an employee of the Company. Under the agreement, she would receive 35,000 of the total shares if PNMR achieved specific market targets at the end of 2014. The specified market target was achieved at the end of 2014 and the Board approved her receiving the 35,000 shares in February 2015. The retention award was made under the PEP and was approved by the Board on February 28, 2012. The above table does not include the restricted stock shares that remain unvested under this retention award agreement.

Effective as of January 1, 2015, the Company entered into a retention award agreement with its Executive Vice President and Chief Financial Officer under which he would receive awards of restricted stock if PNMR meets specific performance targets at the end of 2016 and 2017 and he remains an employee of the Company. If PNMR achieves the specific performance target for the period from January 1, 2015 through December 31, 2016, he would receive $100,000 of PNMR common stock based on the market value per share on the grant date in early 2017. Similarly, if PNMR achieves the specific performance target for the period from January 1, 2015 through December 31, 2017, he would receive $275,000 of PNMR common stock based on the market value per share on the grant date in early 2018. If the target for the first performance period is not met, but the target for the second performance period is met, he would receive both awards, less any amount received previously under the agreement. The retention award was made under the PEP and was approved by the Board on December 9, 2014. The above table does not include any restricted stock shares under this retention award agreement.

In March 2015, the Company entered into a retention award agreement with its Chairman, President, and Chief Executive Officer under which she would receive 53,859 shares of PNMR’s common stock if PNMR meets certain performance targets at the end of 2019 and she remains an employee of the Company. Under the agreement, she would receive 17,953 of the total shares if PNMR achieves specific performance targets at the end of 2017. The retention award was made under the PEP and was approved by the Board on February 26, 2015. The above table does not include any restricted stock shares under this retention award agreement.

At March 31, 2016 , the aggregate intrinsic value of stock options outstanding, all of which are exercisable, was $6.9 million with a weighted-average remaining contract life of 2.53 years. At March 31, 2016 , no outstanding stock options had an exercise price greater than the closing price of PNMR common stock on that date.

The following table provides additional information concerning restricted stock activity, including performance-based and market-based shares, and stock options:



	Three Months Ended March 31,
Restricted Stock	2016		2015
Weighted-average grant date fair value	$	26.05	$	19.93
Total fair value of restricted shares that vested (in thousands)	$	4,131	$	6,005

Stock Options
Weighted-average grant date fair value of options granted	$	—	$	—
Total fair value of options that vested (in thousands)	$	—	$	—
Total intrinsic value of options exercised (in thousands)	$	853	$	1,138


(9)	Financing

The Company’s financing strategy includes both short-term and long-term borrowings. The Company utilizes short-term revolving credit facilities, as well as cash flows from operations, to provide funds for both construction and operating expenditures. Depending on market and other conditions, the Company will periodically sell long-term debt or enter into term loan arrangements and use the proceeds to reduce borrowings under the revolving credit facilities. Each of the revolving credit facilities and the Company’s term loans contains one financial covenant, which requires the maintenance of debt-to-capital ratios of less than or equal to 65% (for PNMR and PNM, these ratios reflect the present value of payments under the PVNGS leases as debt) and generally include customary covenants, events of default, cross default provisions, and change of control provisions. PNM must obtain NMPRC approval for any financing transaction having a maturity of more than 18 months. In addition, PNM files its annual

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

short-term financing plan with the NMPRC. Additional information concerning financing activities is contained in Note 6 of the Notes to Consolidated Financial Statements in the 2015 Annual Reports on Form 10-K.

Financing Activities

On March 9, 2015, PNMR entered into a $150.0 million Term Loan Agreement (“PNMR 2015 Term Loan Agreement”) between PNMR, the lenders identified therein, and Wells Fargo Bank, National Association, as Lender and Administrative Agent. The PNMR 2015 Term Loan Agreement bears interest at a variable rate, which was 1.35% at March 31, 2016 , and must be repaid on or before March 9, 2018. In September 2015, PNMR entered into a hedging agreement whereby it effectively established a fixed interest rate of 1.927% , subject to change if there is a change in PNMR’s credit rating, for borrowings under the PNMR 2015 Term Loan Agreement for the period from January 11, 2016 through March 9, 2018. This hedge is accounted for as a cash-flow hedge and had a fair value loss of $1.1 million at March 31, 2016 and a fair value gain of $0.1 million at December 31, 2015, using Level 2 inputs under GAAP determined using forward LIBOR curves under the mid-market convention to discount cash flows over the remaining term of the swap agreements.

As discussed in Note 11, NM Capital, a wholly owned subsidiary of PNMR, entered into a $125.0 million term loan agreement (the “BTMU Term Loan Agreement”), among NM Capital, The Bank of Tokyo-Mitsubishi UFJ, Ltd. (“BTMU”), as lender, and BTMU, as Administrative Agent, as of February 1, 2016. The BTMU Term Loan Agreement has a maturity date of February 1, 2021 and bears interest at a rate based on LIBOR plus a customary spread, which aggregated 3.37% at March 31, 2016. PNMR, as parent company of NM Capital, has guaranteed NM Capital’s obligations. NM Capital utilized the proceeds of the BTMU Term Loan Agreement to provide funding of $125.0 million (the “Westmoreland Loan”) to a ring-fenced, bankruptcy-remote, special-purpose entity that is a subsidiary of Westmoreland Coal Company to finance the purchase price of the stock of SJCC. The BTMU Term Loan Agreement provides that the amount outstanding thereunder must be reduced by at least $5.0 million quarterly beginning on November 1, 2016. NM Capital is also required to utilize the net proceeds of all amounts received under the Westmoreland Loan, after income taxes, to make principal and interest payments on the BTMU Term Loan Agreement.

On December 17, 2015, TNMP entered into an agreement (the “TNMP 2015 Bond Purchase Agreement”), which provided that TNMP would issue $60.0 million aggregate principal amount of 3.53% first mortgage bonds, due 2026 (the “Series 2016A Bonds”) on or about February 10, 2016, subject to satisfaction of certain conditions. TNMP issued the Series 2016A Bonds on February 10, 2016 and used the proceeds to reduce short-term debt and intercompany debt.

At March 31, 2016, PNM had borrowings of $125.0 million under the PNM Multi-draw Term Loan, which matures on June 21, 2016, that bear interest at a variable rate, which was 1.02% at March 31, 2016.

Short-term Debt

The PNMR Revolving Credit Facility has a financing capacity of $300.0 million and the PNM Revolving Credit Facility has a financing capacity of $400.0 million , both of which mature on October 31, 2020. The TNMP Revolving Credit Facility is a $75.0 million revolving credit facility secured by $75.0 million aggregate principal amount of TNMP first mortgage bonds. The TNMP Revolving Credit Facility matures on September 18, 2018. PNM also has the $50.0 million PNM New Mexico Credit Facility that expires on January 8, 2018. At March 31, 2016 , TNMP had $7.9 million in borrowings from PNMR under an intercompany loan agreement. At March 31, 2016 , the weighted average interest rate was 1.69% for the PNMR Revolving Credit Facility, 1.57% for the PNM Revolving Credit Facility, 1.58% for the PNM New Mexico Credit Facility, 1.44% for the TNMP Revolving Credit Facility, and 1.28% for borrowings outstanding under the twelve-month $150.0 million PNMR Term Loan Agreement, which matures in December 2016. Short-term debt outstanding consisted of:

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



	March 31,		December 31,
Short-term Debt	2016		2015
	(In thousands)
PNM:
PNM Revolving Credit Facility	$	68,800	$	—
PNM New Mexico Credit Facility	50,000		—
TNMP Revolving Credit Facility	15,000		59,000
PNMR:
PNMR Revolving Credit Facility	74,200		41,600
PNMR Term Loan Agreement	150,000		150,000
	$	358,000	$	250,600

In addition to the above borrowings, PNMR, PNM, and TNMP had letters of credit outstanding of $46.2 million , $3.2 million , and $0.1 million at March 31, 2016 that reduce the available capacity under their respective revolving credit facilities.

At April 22, 2016 , PNMR, PNM, and TNMP had $186.2 million , $298.5 million , and $50.9 million of availability under their respective revolving credit facilities, including reductions of availability due to outstanding letters of credit, and PNM had $10.0 million of availability under the PNM New Mexico Credit Facility. Total availability at April 22, 2016 , on a consolidated basis, was $545.6 million for PNMR. As of April 22, 2016 , TNMP had $9.2 million in borrowings from PNMR under an intercompany loan agreement. At April 22, 2016 , PNMR, PNM and TNMP had consolidated invested cash of $1.9 million , none , and none .


(10)	Pension and Other Postretirement Benefit Plans

PNMR and its subsidiaries maintain qualified defined benefit pension plans, postretirement benefit plans providing medical and dental benefits, and executive retirement programs (collectively, the “PNM Plans” and “TNMP Plans”). PNMR maintains the legal obligation for the benefits owed to participants under these plans.

Additional information concerning pension and OPEB plans is contained in Note 12 of the Notes to Consolidated Financial Statements in the 2015 Annual Reports on Form 10-K. Annual net periodic benefit cost (income) for the plans is actuarially determined using the methods and assumptions set forth in that note and is recognized ratably throughout the year.

PNM Plans

The following tables present the components of the PNM Plans’ net periodic benefit cost:



	Three Months Ended March 31,
	Pension Plan						OPEB Plan						Executive Retirement Program
	2016			2015			2016			2015			2016		2015
	(In thousands)
Components of Net Periodic Benefit Cost
Service cost	$	—		$	—		$	35		$	51		$	—	$	—
Interest cost	7,577			7,064			1,087			1,022			203		190
Expected return on plan assets	(8,854		)	(9,831		)	(1,371		)	(1,403		)	—		—
Amortization of net (gain) loss	3,455			3,705			286			491			64		81
Amortization of prior service cost	(241		)	(241		)	(7		)	(160		)	—		—
Net periodic benefit cost	$	1,937		$	697		$	30		$	1		$	267	$	271

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

PNM made contributions to its pension plan trust of $30.0 million in the three months ended March 31, 2015 and does not anticipate making any contributions to the pension plan in 2016 -2020, based on current law, including recent amendments to funding requirements, and estimates of portfolio performance. These anticipations were developed using current funding assumptions, with discount rates of 4.8% to 5.7% . Actual amounts to be funded in the future will be dependent on the actuarial assumptions at that time, including the appropriate discount rate. PNM may make additional contributions at its discretion. PNM made contributions to the OPEB trust of $0.8 million and $0.8 million in the three months ended March 31, 2016 and 2015. PNM expects to make contributions to the OPEB trust totaling $3.5 million in 2016 and $14.0 million for 2017-2020. Disbursements under the executive retirement program, which are funded by PNM and considered to be contributions to the plan, were $0.5 million and $0.5 million in the three months ended March 31, 2016 and 2015 and are expected to total $1.5 million during 2016 and $5.9 million for 2017-2020.

TNMP Plans

The following tables present the components of the TNMP Plans’ net periodic benefit cost (income):



	Three Months Ended March 31,
	Pension Plan						OPEB Plan						Executive Retirement Program
	2016			2015			2016			2015			2016		2015
	(In thousands)
Components of Net Periodic Benefit Cost (Income)
Service cost	$	—		$	—		$	46		$	62		$	—	$	—
Interest cost	826			761			169			152			10		9
Expected return on plan assets	(986		)	(1,105		)	(122		)	(130		)	—		—
Amortization of net (gain) loss	175			195			(10		)	—			1		1
Amortization of prior service cost	—			—			—			—			—		—
Net Periodic Benefit Cost (Income)	$	15		$	(149	)	$	83		$	84		$	11	$	10

TNMP made no contribution to its pension trust in 2015 and does not anticipate making any contributions in 2016 -2020, based on current law, including recent amendments to funding requirements, and estimates of portfolio performance. These anticipations were developed using current funding assumptions with discount rates of 4.8% to 5.7% . Actual amounts to be funded in the future will depend on the actuarial assumptions at that time, including the appropriate discount rate. TNMP may make additional contributions at its discretion. TNMP made no contributions to the OPEB trust in the three months ended March 31, 2016 and 2015. TNMP expects to make contributions to the OPEB trust totaling $0.3 million in 2016 and $1.4 million for 2017-2020. Disbursements under the executive retirement program, which are funded by TNMP and considered to be contributions to the plan, were less than $0.1 million in the three months ended March 31, 2016 and 2015 and are expected to total $0.1 million during 2016 and $0.4 million in 2017-2020.


(11)	Commitments and Contingencies

Overview

There are various claims and lawsuits pending against the Company. The Company also is subject to federal, state, and local environmental laws and regulations and periodically participates in the investigation and remediation of various sites. In addition, the Company periodically enters into financial commitments in connection with its business operations. Also, the Company is involved in various legal and regulatory (Note 12) proceedings in the normal course of its business. It is not possible at this time for the Company to determine fully the effect of all litigation and other legal and regulatory proceedings on its financial position, results of operations, or cash flows.

With respect to some of the items listed below, the Company has determined that a loss is not probable or that, to the extent probable, cannot be reasonably estimated. In some cases, the Company is not able to predict with any degree of certainty the range of possible loss that could be incurred. Nevertheless, the Company assesses legal and regulatory matters based on current

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PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

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(Unaudited)

information and makes judgments concerning their potential outcome, giving due consideration to the nature of the claim, the amount and nature of any damages sought, and the probability of success. Such judgments are made with the understanding that the outcome of any litigation, investigation, and other legal proceeding is inherently uncertain. In accordance with GAAP, the Company records liabilities for matters where it is probable a loss has been incurred and the amount of loss is reasonably estimable. The actual outcomes of the items listed below could ultimately differ from the judgments made and the differences could be material. The Company cannot make any assurances that the amount of reserves or potential insurance coverage will be sufficient to cover the cash obligations that might be incurred as a result of litigation or regulatory proceedings. Except as otherwise disclosed, the Company does not expect that any known lawsuits, environmental costs, and commitments will have a material effect on its financial condition, results of operations, or cash flows.

Additional information concerning commitments and contingencies is contained in Note 16 of the Notes to Consolidated Financial Statements in the 2015 Annual Reports on Form 10-K.

Commitments and Contingencies Related to the Environment

Nuclear Spent Fuel and Waste Disposal

Nuclear power plant operators are required to enter into spent fuel disposal contracts with the DOE that require the DOE to accept and dispose of all spent nuclear fuel and other high-level radioactive wastes generated by domestic power reactors. Although the Nuclear Waste Policy Act required the DOE to develop a permanent repository for the storage and disposal of spent nuclear fuel by 1998, the DOE announced that it would not be able to open the repository by 1998 and sought to excuse its performance of these requirements. In November 1997, the DC Circuit issued a decision preventing the DOE from excusing its own delay, but refused to order the DOE to begin accepting spent nuclear fuel. Based on this decision and the DOE’s delay, a number of utilities, including APS (on behalf of itself and the other PVNGS owners, including PNM), filed damages actions against the DOE in the Court of Federal Claims. The lawsuits filed by APS alleged that damages were incurred due to DOE’s continuing failure to remove spent nuclear fuel and high level waste from PVNGS. APS and DOE entered into a settlement agreement, which establishes a process for the payment of claims for costs incurred through December 31, 2016. Under the settlement agreement, APS must submit claims annually for payment of allowable costs. In the first quarter of 2015, PNM recorded $4.3 million , including $3.1 million credited back to PNM’s customers, for its share of the settlement under this process for costs incurred from July 2011 through June 2014. PNM now records estimated claims quarterly. The settlement agreement terminates upon payment of costs incurred through December 31, 2016, unless extended by mutual written agreement.

PNM estimates that it will incur approximately $58.0 million (in 2013 dollars) for its share of the costs related to the on-site interim storage of spent nuclear fuel at PVNGS during the term of the operating licenses. PNM accrues these costs as a component of fuel expense as the fuel is consumed. At March 31, 2016 and December 31, 2015 , PNM had a liability for interim storage costs of $11.8 million and $12.2 million included in other deferred credits.

PVNGS has sufficient capacity at its on-site ISFSI to store all of the nuclear fuel that will be irradiated during the initial operating license period, which ends in December 2027. Additionally, PVNGS has sufficient capacity at its on-site ISFSI to store a portion of the fuel that will be irradiated during the period of extended operation, which ends in November 2047. If uncertainties regarding the United States government’s obligation to accept and store spent fuel are not favorably resolved, APS will evaluate alternative storage solutions that may obviate the need to expand the ISFSI to accommodate all of the fuel that will be irradiated during the period of extended operation.

On June 8, 2012, the DC Circuit issued its decision on a challenge by several states and environmental groups of the NRC’s rulemaking regarding temporary storage and permanent disposal of high level nuclear waste and spent nuclear fuel. The petitioners had challenged the NRC’s 2010 update to the agency’s Waste Confidence Decision and temporary storage rule (the “Waste Confidence Decision”). The DC Circuit found that the Waste Confidence Decision update constituted a major federal action, which, consistent with NEPA, requires either an environmental impact statement or a finding of no significant impact from the NRC’s actions. The DC Circuit found that the NRC’s evaluation of the environmental risks from spent nuclear fuel was deficient and, therefore, remanded the Waste Confidence Decision update for further action consistent with NEPA. On September 6, 2012, the NRC commissioners issued a directive to the NRC staff to proceed with development of a generic EIS to support an updated Waste Confidence Decision.

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In September 2013, the NRC issued its draft generic EIS to support an updated Waste Confidence Decision. On August 26, 2014, the NRC approved a final rule on the environmental effects of continued storage of spent nuclear fuel. The continued storage rule adopted the findings of the generic EIS regarding the environmental impacts of storing spent fuel at any reactor site after the reactor’s licensed period of operations. As a result, those generic impacts do not need to be re-analyzed in the environmental reviews for individual licenses. The NRC lifted its suspension on final licensing actions on all nuclear power plant licenses and renewals that went into effect when the DC Circuit issued its June 2012 decision although PVNGS had not been involved in any licensing actions affected by that decision. The August 2014 final rule has been subject to continuing legal challenges before the NRC and the United States Court of Appeals. PNM is unable to predict the outcome of this matter.

In 2011, the National Association of Regulatory Utility Commissioners and the Nuclear Energy Institute challenged DOE’s 2010 determination of the adequacy of the one tenth of a cent per KWh fee (the “one-mill fee”) paid by the nation’s commercial nuclear power plant owners pursuant to their individual contracts with the DOE. On May 16, 2014, the DOE adjusted the fee to zero . PNM anticipates challenges to this action and is unable to predict its ultimate outcome.

The Clean Air Act

Regional Haze

In 1999, EPA developed a regional haze program and regional haze rules under the CAA. The rule directs each of the 50 states to address regional haze. Pursuant to the CAA, states have the primary role to regulate visibility requirements by promulgating SIPs. States are required to establish goals for improving visibility in national parks and wilderness areas (also known as Class I areas) and to develop long-term strategies for reducing emissions of air pollutants that cause visibility impairment in their own states and for preventing degradation in other states. States must establish a series of interim goals to ensure continued progress. The first planning period specifies setting reasonable progress goals for improving visibility in Class I areas by the year 2018. In July 2005, EPA promulgated its final regional haze rule guidelines for states to conduct BART determinations for certain covered facilities, including utility boilers, built between 1962 and 1977 that have the potential to emit more than 250 tons per year of visibility impairing pollution. If it is demonstrated that the emissions from these sources cause or contribute to visibility impairment in any Class I area, then BART must be installed by 2018.

SJGS

BART Compliance – SJGS is a source that is subject to the statutory obligations of the CAA to reduce visibility impacts. Note 16 of the Notes to Consolidated Financial Statements in the 2015 Annual Reports on Form 10-K contains detailed information concerning the BART compliance process, including interactions with governmental agencies responsible for environmental oversight and the NMPRC approval process. In December 2015, PNM received NMPRC approval for the plan to comply with the EPA regional haze rule at SJGS. Under the approved plan, the installation of selective non-catalytic reduction technology (“SNCR”) was required on SJGS Units 1 and 4, which was completed in early 2016, and Units 2 and 3 are to be retired by the end of 2017. In addition to the required SNCR equipment, the NSR permit, which was required to be obtained in order to install the SNCRs, specified that SJGS Units 1 and 4 be converted to balanced draft technology (“BDT”). PNM’s share of the total costs for SNCRs and BDT equipment was $76.6 million . Although operating costs will be reduced due to the retirement of SJGS Units 2 and 3, the operating costs for SJGS Units 1 and 4 will increase with the installation of SNCR and BDT equipment.

On December 16, 2015, following oral argument, the NMPRC issued a final order regarding SJGS. As provided in that order:


•	PNM will retire SJGS Units 2 and 3 (PNM’s current ownership interest totals 418 MW) at December 31, 2017 and recover, over 20 years, 50% of their undepreciated net book value at that date and earn a regulated return on those costs


•	PNM is granted an unconditional CCN to acquire an additional 132 MW in SJGS Unit 4, with an initial book value of zero , plus the costs of SNCR and other capital additions


•	PNM is granted a CCN for 134 MW of PVNGS Unit 3 with an initial rate base value equal to the book value as of December 31, 2017, including transmission assets associated with PVNGS Unit 3, (estimated to be approximately $150 million )

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•	No later than December 31, 2018, and before entering into a binding agreement for post-2022 coal supply for SJGS, PNM will file its position and supporting testimony in an NMPRC case to determine the extent to which SJGS should continue serving PNM’s retail customers’ needs after mid-2022; all parties agree to support this case being decided within six months


•	PNM is authorized to acquire 65 MW of SJGS Unit 4 as excluded utility plant; PNM and PNMR commit that no further coal-fired merchant plant will be acquired at any time by PNM, PNMR, or any PNM affiliate; PNM is not precluded from seeking a CCN to include the 65 MW or other coal capacity in rate base

•

Beginning January 1, 2020, for every MWh produced by 197 MW of coal-fired generation from PNM’s ownership share of SJGS, PNM will acquire and retire one MWh of RECs or allowances that include a zero-CO ₂ emission attribute compliant with EPA’s Clean Power Plan; this REC retirement is in addition to what is required to meet the RPS; the cost of these RECs are to be capped at $7.0 million per year and will be recovered in rates; PNM should purchase EPA-compliant RECs from New Mexico renewable generation unless those RECs are more costly


•	PNM will accelerate recovery of SNCR costs on SJGS Units 1 and 4 so that the costs are fully recovered by July 1, 2022; cost recovery for PNM’s BDT project on those units will be determined in PNM’s next general rate case


•	PNM will not recover approximately $20 million of other costs incurred in connection with CAA compliance


•	PNM’s 2014 IRP docket will be closed without other NMPRC action

At December 31, 2015, PNM estimated the undepreciated net book value of SJGS Units 2 and 3 at December 31, 2017 would be approximately $255.3 million , 50% of which would be recovered over a 20 year period, including a return on the unrecovered amount at PNM’s WACC. At December 31, 2015, PNM recorded a $127.6 million regulatory disallowance to reflect the write-off of the 50% of the estimated December 31, 2017 net book value that will not be recovered. The ultimate amount of the disallowance will be dependent on the actual December 31, 2017 net book values of SJGS Units 2 and 3. Accordingly, the amount initially recorded will be adjusted periodically to reflect changes in the projected December 31, 2017 net book values. At December 31, 2015, PNM recorded losses aggregating $165.7 million reflecting the above disallowance, the other unrecoverable costs, and the $16.5 million increase in the estimated liability recorded for coal mine reclamation resulting from the new coal mine reclamation arrangement entered into in conjunction with the new coal supply agreement (“CSA”). Additional information about the CSA is discussed under Coal Supply below and in Note 16 of the Notes to Consolidated Financial Statements in the 2015 Annual Reports on Form 10-K.

In the three months ended March 31, 2016, PNM revised its estimates of the December 31, 2017 projected book value of SJGS Units 2 and 3 and the other unrecoverable costs, which resulted in an expense of $0.8 million , which is reflected in regulatory disallowances and restructuring costs on the Condensed Consolidated Statement of Earnings. In addition, PNMR Development recorded an expense of $0.6 million for costs it was obligated to reimburse the other SJGS participants under the restructuring arrangement, which is included in other deductions on the Condensed Consolidated Statement of Earnings. At March 31, 2016, the carrying value for PNM’s current ownership share of SJGS Units 2 and 3 is comprised of plant in service of $471.3 million and accumulated depreciation and amortization of $197.2 million for a net undepreciated book value of $274.1 million , offset by 50% (which equals $128.2 million ) of the anticipated December 31, 2017 undepreciated net book value of SJGS Units 2 and 3 that will not be recovered, resulting in the net carrying value for SJGS Units 2 and 3 being $145.9 million at March 31, 2016.

On January 14, 2016, NEE filed, with the NM Supreme Court, a Notice of Appeal of the NMPRC’s December 16, 2015 order. In addition, on February 5, 2016, NEE filed, with the NMPRC, a motion for reconsideration of that final order based on recent developments related to the loan made by NM Capital to facilitate the sale of SJCC, which is described under Coal Supply below. NEE alleged the loan is a transaction that, under the New Mexico Public Utility Act, requires prior NMPRC approval. PNM filed its response to NEE’s motion for reconsideration on February 18, 2016. The NEE motion was denied by operation of law because the NMPRC did not act on the motion.

On March 31, 2016, NEE filed, with the NMPRC, a complaint against PNM regarding the financing provided by NM Capital to facilitate the sale of SJCC. The complaint alleges that PNM failed to comply with its discovery obligation in the SJGS abandonment case and requests the NMPRC to investigate whether the financing transactions could adversely affect PNM’s ability to provide electric service to its retail customers. Consistent with NMPRC rules, the NMPRC ordered PNM to respond to the complaint by May 4, 2016.

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SJGS Ownership Restructuring Matters – As discussed in Note 16 of the Notes to Consolidated Financial Statements in the 2015 Annual Report on Form 10-K, SJGS currently is jointly owned by PNM and eight other entities. In connection with the proposed retirement of SJGS Units 2 and 3, some of the SJGS participants expressed a desire to exit their ownership in the plant. As a result, the SJGS participants negotiated a restructuring of the ownership in SJGS and addressed the obligations of the exiting participants for plant decommissioning, mine reclamation, environmental matters, and certain future operating costs, among other items.

Following mediated negotiations, the SJGS participants executed the San Juan Project Restructuring Agreement (“RA”) on July 31, 2015. The RA provides the essential terms of restructured ownership and addresses other related matters, including that the exiting participants remain obligated for their proportionate shares of environmental, mine reclamation, and certain other legacy liabilities that are attributable to activities that occurred prior to their exit. PNMR Development became a party to the RA and will acquire an ownership interest in SJGS Unit 4 on the exit date, which is anticipated to be December 31, 2017, but has obligations related to Unit 4 before then. On the exit date, PNM and PNMR Development would acquire 132 MW and 65 MW of the capacity in SJGS Unit 4 from the exiting owners for no initial cost other than funding capital improvements, including the costs of installing SNCR and BDT equipment. PNMR currently anticipates that PNMR Development would transfer the rights and obligations related to the 65 MW to PNM prior to December 31, 2017 in order to facilitate dispatch of power from that capacity. As ordered by the NMPRC, PNM would treat the 65 MW as merchant utility plant that would be excluded from retail rates.

The RA became effective contemporaneously with the effectiveness of the new CSA. The effectiveness of the new CSA was dependent on the closing of the purchase of the existing coal mine operation by a new mine operator, which as discussed in Coal Supply below, occurred at 11:59 PM on January 31, 2016. The RA sets forth the terms under which PNM acquired the coal inventory of the exiting SJGS participants as of January 1, 2016 and will supply coal to the exiting participants for the period from January 1, 2016 through December 31, 2017, which arrangement provides economic benefits that are being passed on to PNM’s customers through the FPPAC.

Other SJGS Matters – Although the RA results in an agreement among the SJGS participants enabling compliance with current CAA requirements, it is possible that the financial impact of climate change regulation or legislation, other environmental regulations, the result of litigation, and other business considerations, could jeopardize the economic viability of SJGS or the ability or willingness of individual participants to continue participation in the plant.

Four Corners

On August 6, 2012, EPA issued its Four Corners FIP with a final BART determination for Four Corners. The rule included two compliance alternatives. On December 30, 2013, APS notified EPA that the Four Corners participants selected the alternative that required APS to permanently close Units 1-3 by January 1, 2014 and install SCR post-combustion NOx controls on each of Units 4 and 5 by July 31, 2018. PNM owns a 13% interest in Units 4 and 5, but had no ownership interest in Units 1, 2, and 3, which were shut down by APS on December 30, 2013. For particulate matter emissions, EPA is requiring Units 4 and 5 to meet an emission limit of 0.015 lb/MMBTU and the plant to meet a 20% opacity limit, both of which are achievable through operation of the existing baghouses. Although unrelated to BART, the final BART rule also imposes a 20% opacity limitation on certain fugitive dust emissions from Four Corners’ coal and material handling operations.

PNM is continuing to evaluate the impacts of EPA’s BART determination for Four Corners. PNM estimates its share of costs to be up to $91.4 million , including amounts incurred through March 31, 2016 and PNM’s AFUDC, for post-combustion controls at Four Corners Units 4 and 5. PNM will seek recovery from its ratepayers of all costs that are ultimately incurred. PNM is unable to predict the ultimate outcome of this matter.

The Four Corners participants’ obligations to comply with EPA’s final BART determinations, coupled with the financial impact of climate change regulation or legislation, other environmental regulations, and other business considerations, could jeopardize the economic viability of Four Corners or the ability of individual participants to continue their participation in Four Corners.

On December 21, 2015, several environmental groups filed a notice of intent to sue the OSM and other federal agencies under the ESA alleging that OSM’s reliance on the Biological Opinion and Incidental Take Statement prepared in connection with

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a federal environmental review was not in accordance with applicable law. The environmental review was undertaken as part of the DOI’s review process necessary to allow for the effectiveness of lease amendments and related rights-of-way renewals for Four Corners. This review process also required separate environmental impact evaluations under NEPA and culminated in the issuance of a Record of Decision justifying the agency action extending the life of the plant and the adjacent mine.

On April 20, 2016, the same environmental groups filed a lawsuit against OSM and other federal agencies in the United States District Court for the District of Arizona. Expanding upon the December 2015 ESA notice, the lawsuit alleges that these federal agencies violated both the ESA and NEPA in providing the federal approvals necessary to extend operations at Four Corners and the adjacent mine past July 6, 2016. APS is monitoring the proceedings and intends to request the right to intervene in the litigation. PNM cannot predict the timing or outcome of this matter.

Carbon Dioxide Emissions

On August 3, 2015, EPA established final standards to limit CO ₂ emissions from power plants. EPA took three separate but related actions in which it: (1) established the final carbon pollution standards for new, modified and reconstructed power plants; (2) established the final Clean Power Plan to set standards for carbon emission reductions from existing power plants; and (3) released a proposed federal plan associated with the final Clean Power Plan. The Clean Power Plan was published on October 23, 2015. Multiple states, utilities, and trade groups subsequently filed petitions for review and motions to stay in the DC Circuit.

The Clean Power Plan establishes state-by-state targets for carbon emissions reduction and requires states to submit initial plans to EPA by September 6, 2016. EPA may grant up to a two -year extension provided that the initial plan meets certain specified criteria for progress and consultation. States receiving an extension must submit an update to EPA in 2017. All final state plans must be submitted to EPA by 2018. State plans can be based on either an emission standards (rate or mass) approach or a state measures approach. Under an emission standards approach, federally enforceable emission limits are placed directly on affected units in the state. A state measures approach must meet equivalent rates statewide but may include some elements, such as renewable energy or energy efficiency requirements, that are not federally enforceable. State measures plans may only be used with mass-based goals and must include “backstop” federally enforceable standards that will become effective if the state measures fail to achieve the expected level of emission reductions.

On January 21, 2016, the DC Circuit denied petitions to stay the Clean Power Plan. On January 26, 2016, 29 states and state agencies filed a petition to the US Supreme Court asking the court to reverse the DC Circuit’s decision and stay the implementation of the Clean Power Plan. On February 9, 2016, the US Supreme Court granted the applications to stay the Clean Power Plan pending judicial review of the rule. The US Supreme Court issued a one-page order that stated, “The EPA rule to have states cut power sector carbon dioxide (CO ₂ ) emissions 32% by 2030 is stayed pending disposition of the applicants’ petitions for review in the United States Court of Appeals for the District of Columbia Circuit.” The vote was 5-4 among the US Supreme Court Justices. The decision means the Clean Power Plan is not in effect and states are not obliged to comply with its requirements. If the rule prevails through the legal challenges, states will be able to resume preparing state plans where they left off and should still have six more months to prepare initial plans and 2.5 years for final plans. The DC Circuit will hear oral arguments on the merits of the states’ case on June 2, 2016. A final ruling from that court might not come for months. The stay will remain in effect pending US Supreme Court review if such review is sought.

The proposed federal plan released concurrently with the Clean Power Plan is important to Four Corners and the Navajo Nation. Since the Navajo Nation does not have primacy over its air quality program, the EPA would be the regulatory authority responsible for implementing the Clean Power Plan on the Navajo Nation. In addition, the proposed rule recommends that EPA determine it is “necessary or appropriate” for EPA to regulate CO ₂ emissions on the Navajo Nation. The comment period for the proposed rule closed on January 21, 2016. APS and PNM filed separate comments with EPA on EPA’s draft plan and model trading rules, advocating that such a federal plan is neither necessary nor appropriate to protect air quality on the Navajo Nation. If EPA was to determine that it was “not necessary or appropriate”, then the Clean Power Plan would not apply to the Navajo Nation, in which case, APS has indicated the Clean Power Plan would not have a material impact on Four Corners. PNM is unable to predict the financial or operational impacts on Four Corners operations if EPA determines that a federal plan is necessary or appropriate for the Navajo Nation. PNM’s review of the new CO ₂ emission reductions standards is ongoing and will depend on the outcome of the judicial and regulatory proceedings. Accordingly, PNM cannot predict the impact these standards may have on its operations or a range of the potential costs of compliance.

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National Ambient Air Quality Standards (“NAAQS”)

The CAA requires EPA to set NAAQS for pollutants considered harmful to public health and the environment. EPA has set NAAQS for certain pollutants, including NOx, SO ₂ , ozone, and particulate matter. In 2010, EPA updated the primary NOx and SO ₂ NAAQS to include a 1-hour maximum standard while retaining the annual standards for NOx and SO ₂ and the 24-hour SO ₂ standard. New Mexico is in attainment for the 1-hour NOx NAAQS. On May 13, 2014, EPA released the draft data requirements rule for the 1-hour SO ₂ NAAQS, which directs state and tribal air agencies to characterize current air quality in areas with large SO ₂ sources to identify maximum 1-hour SO ₂ concentrations. The proposed rule also describes the process and timetable by which air regulatory agencies would characterize air quality around large SO ₂ sources through ambient monitoring or modeling. This characterization will result in these areas being designated as attainment, nonattainment, or unclassified for compliance with the 1-hour SO ₂ NAAQS. On March 2, 2015, the United States District Court for the Northern District of California approved a settlement that imposes deadlines for EPA to identify areas that violate the NAAQS standards for 1-hour SO ₂ emissions. The settlement results from a lawsuit brought by Earthjustice on behalf of the Sierra Club and the Natural Resources Defense Council under the CAA. The consent decree requires the following: (1) within 16 months of the consent decree entry, EPA must issue area designations for areas containing non-retiring facilities that either emitted more than 16,000 tons of SO ₂ in 2012 or emitted more than 2,600 tons with an emission rate of 0.45 lbs/MMBTU or higher in 2012; (2) by December 2017, EPA must issue designations for areas for which states have not adopted a new monitoring network under the proposed data requirements rule; and (3) by December 2020, EPA must issue designations for areas for which states have adopted a new monitoring network under the proposed data requirements rule. SJGS and Four Corners SO ₂ emissions are below the tonnages set forth in 1) above. EPA regions sent letters to state environmental agencies explaining how EPA plans to implement the consent decree. The letters outline the schedule that EPA expects states to follow in moving forward with new SO ₂ non-attainment designations. NMED did not receive a letter.

On August 11, 2015, EPA released the Data Requirements Rule for SO ₂ , telling states how to model or monitor to determine attainment or nonattainment with the new 1-hour SO ₂ NAAQS. If NMED chooses the modeling approach that EPA encourages states to adopt, the NMED must submit a modeling protocol for SJGS to EPA by July 1, 2016. NMED must then submit modeling results for SJGS to EPA by January 13, 2017. However, if NMED chooses the monitoring approach, a more relaxed schedule would apply. If SJGS can accept a federally enforceable 2,000 tons per year source-wide limit before January 13, 2017, modeling would not be required by EPA. PNM is currently evaluating the rule to understand its impacts.

EPA finalized revisions to its NAAQS for fine particulate matter on December 14, 2012. PNM believes the equipment modifications required under its amended NSR air permit for the installation of SNCRs and installation of BDT equipment to reduce fugitive emissions, including NOx, SO ₂ and particulate matter, will assist the plant in complying with the particulate matter NAAQS.

In January 2010, EPA announced it would strengthen the 8-hour ozone standard by setting a new standard in a range of 60 - 70 parts per billion (“ppb”). On October 1, 2015, EPA finalized the new ozone NAAQS and lowered both the primary and secondary 8-hour standard from 75 ppb to 70 ppb. With ozone standards becoming more stringent, fossil-fueled generation units will come under increasing pressure to reduce emissions of NOx and volatile organic compounds, and to generate emission offsets for new projects or facility expansions located in nonattainment areas.

On November 10, 2015, EPA proposed a rule revising its Exceptional Events Rule, which outlines the requirements for excluding air quality data (including ozone data) from regulatory decisions if the data are affected by events outside an area’s control. The proposed rule is timely in light of the new more stringent ozone NAAQS final rule since western states like New Mexico and Arizona are particularly subject to elevated background ozone transport from natural local sources such as wildfires, and transported via winds from distant sources, such as the stratosphere or another region or country.

On February 25, 2016, EPA released guidance on area designations, which states will use to determine their initial designation recommendations by October 1, 2016. EPA recommends that states and tribes use the three most recent years of quality assured monitoring data available (e.g., 2013 to 2015) to recommend designations. States and tribes may also have preliminary 2016 data that may be used. EPA will release final designations of attainment/nonattainment for areas by October 1, 2017. By October 2018, NMED must submit an infrastructure SIP that provides the basic air quality management program to implement

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the revised ozone standard. Due dates for SIPs for areas that have been designated as non-attainment for ozone are generally due within 36 months from the date of designation and are expected to be submitted to EPA by October 1, 2020.

Counties that exceed the ozone NAAQS would be designated as nonattainment for ozone. NMED would have responsibility for bringing nonattainment New Mexico counties into compliance and would look at all sources of NOx and volatile organic compounds since these are the pollutants that form ground-level ozone.

Should San Juan County become non-attainment for ozone, SJGS could be required to install further controls to meet the new ozone NAAQS. Until EPA approves attainment designations for the Navajo Nation and releases a proposal to implement the revised ozone NAAQS, APS is unable to predict what impact the adoption of these standards may have on Four Corners. PNM cannot predict the outcome of this matter, the impact of other potential environmental mitigations, or if additional controls would be required at any of its affected facilities as a result of ozone non-attainment designation.

Four Corners Coal Mine

In 2012, several environmental groups filed a lawsuit in federal district court against the OSM challenging OSM’s 2012 approval of a permit revision which allowed for the expansion of mining operations into a new area of the mine that serves Four Corners (“Area IV North”). In April 2015, the court issued an order invalidating the permit revision, thereby prohibiting mining in Area IV North until OSM took action to cure the defect in its permitting process identified by the court. On December 29, 2015, OSM took action to cure the defect in its permitting process by issuing a revised environmental assessment and finding of no new significant impact, and reissued the permit. This action is subject to possible judicial review and PNM cannot predict the outcome.

WEG v. OSM NEPA Lawsuit

In February 2013, WEG filed a Petition for Review in the United States District Court of Colorado against OSM challenging federal administrative decisions affecting seven different mines in four states issued at various times from 2007 through 2012. In its petition, WEG challenges several unrelated mining plan modification approvals, which were each separately approved by OSM. Of the fifteen claims for relief in the WEG Petition, two concern SJCC’s San Juan mine. WEG’s allegations concerning the San Juan mine arise from OSM administrative actions in 2008. WEG alleges various NEPA violations against OSM, including, but not limited to, OSM’s alleged failure to provide requisite public notice and participation, alleged failure to analyze certain environmental impacts, and alleged reliance on outdated and insufficient documents. WEG’s petition seeks various forms of relief, including a finding that the federal defendants violated NEPA by approving the mine plans; voiding, reversing, and remanding the various mining modification approvals; enjoining the federal defendants from re-issuing the mining plan approvals for the mines until compliance with NEPA has been demonstrated; and enjoining operations at the seven mines. SJCC intervened in this matter. The court granted SJCC’s motion to sever its claims from the lawsuit and transfer venue to the United States District Court for the District of New Mexico. Legal briefing is complete. A stay in this matter expired on April 1, 2016 and was not renewed although the parties continue to engage in settlement negotiations. If WEG ultimately obtains the relief it has requested, such a ruling could require significant expenditures to reconfigure operations at the San Juan mine, impact the production of coal, and impact the economic viability of the San Juan mine and SJGS. PNM cannot currently predict the outcome of this matter or the range of its potential impact.

Navajo Nation Environmental Issues

Four Corners is located on the Navajo Reservation and is held under an easement granted by the federal government, as well as a lease from the Navajo Nation. The Navajo Acts purport to give the Navajo Nation Environmental Protection Agency authority to promulgate regulations covering air quality, drinking water, and pesticide activities, including those activities that occur at Four Corners. In October 1995, the Four Corners participants filed a lawsuit in the District Court of the Navajo Nation challenging the applicability of the Navajo Acts to Four Corners. In May 2005, APS and the Navajo Nation signed an agreement resolving the dispute regarding the Navajo Nation’s authority to adopt operating permit regulations under the Navajo Nation Air Pollution Prevention and Control Act. As a result of this agreement, APS sought, and the courts granted, dismissal of the pending litigation in the Navajo Nation Supreme Court and the Navajo Nation District Court, to the extent the claims relate to the CAA. The agreement does not address or resolve any dispute relating to other aspects of the Navajo Acts. PNM cannot currently predict the outcome of these matters or the range of their potential impacts.

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Cooling Water Intake Structures

EPA signed its final cooling water intake structures rule on May 16, 2014, which establishes national standards for certain cooling water intake structures at existing power plants and other facilities under the Clean Water Act to protect fish and other aquatic organisms by minimizing impingement mortality (the capture of aquatic wildlife on intake structures or against screens) and entrainment mortality (the capture of fish or shellfish in water flow entering and passing through intake structures). The final rule was published on August 15, 2014 and became effective October 14, 2014.

The final rule allows multiple compliance options and considerations for site specific conditions and the permit writer is granted a significant amount of discretion in determining permit requirements, schedules, and conditions. To minimize impingement mortality, the rule provides operators of facilities, such as SJGS and Four Corners, seven options for meeting Best Technology Available (“BTA”) standards for reducing impingement. SJGS has a closed-cycle recirculating cooling system, which is a listed BTA and may also qualify for the “de minimis rate of impingement” based on the design of the intake structure. To minimize entrainment mortality, the permitting authority must establish the BTA for entrainment on a site-specific basis, taking into consideration an array of factors, including endangered species and social costs and benefits. Affected sources must submit source water baseline characterization data to the permitting authority to assist in the determination. Compliance deadlines under the rule are tied to permit renewal and will be subject to a schedule of compliance established by the permitting authority.

PNM does not expect material changes as a result of any requirements that may be imposed upon SJGS related to cooling water intake structures. APS is currently in discussions with EPA Region 9, the National Pollutant Discharge Elimination System (“NPDES”) permit writer for Four Corners, to determine the scope of the impingement and entrainment requirements, which will, in turn, determine APS’s costs to comply with the rule. APS has indicated that it does not expect such costs to be material.

Effluent Limitation Guidelines

On June 7, 2013, EPA published proposed revised wastewater effluent limitation guidelines establishing technology-based wastewater discharge limitations for fossil fuel-fired electric power plants. EPA’s proposal offered numerous options that target metals and other pollutants in wastewater streams originating from fly ash and bottom ash handling activities, scrubber activities, and non-chemical metal cleaning waste operations. All proposed alternatives establish a “zero discharge” effluent limit for all pollutants in fly ash transport water. Requirements governing bottom ash transport water differ depending on which alternative EPA ultimately chooses and could range from effluent limits based on Best Available Technology Economically Achievable to “zero discharge” effluent limits.

EPA signed the final Steam Electric Effluent Guidelines Rule on September 30, 2015. The final rule, which became effective on January 4, 2016, phases in the new, more stringent requirements in the form of effluent limits for arsenic, mercury, selenium, and nitrogen for wastewater discharged from wet scrubber systems and zero discharge of pollutants in ash transport water that must be incorporated into plants’ NPDES permits. Each plant must comply between 2018 and 2023 depending on when it needs a new/revised NPDES permit.

Because SJGS is zero discharge for wastewater and is not required to hold a NPDES permit, it is expected that minimal to no requirements will be imposed. Reeves Station, a PNM-owned gas-fired generating station, discharges cooling tower blowdown to a publicly owned treatment works and holds an NPDES permit. It is expected that minimum to no requirements will be imposed at Reeves.

Based upon the requirements of the final Steam Electric Effluent Guidelines Rule, Four Corners may be required to change equipment and operating practices affecting boilers and ash handling systems, as well as change its waste disposal techniques. Until a draft NPDES permit is proposed for Four Corners, APS is uncertain what will be required to comply with the finalized effluent limitations. PNM is unable to predict the outcome of this matter or a range of the potential costs of compliance.

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Santa Fe Generating Station

PNM and the NMED are parties to agreements under which PNM installed a remediation system to treat water from a City of Santa Fe municipal supply well, an extraction well, and monitoring wells to address gasoline contamination in the groundwater at the site of PNM’s former Santa Fe Generating Station and service center. PNM believes the observed groundwater contamination originated from off-site sources, but agreed to operate the remediation facilities until the groundwater meets applicable federal and state standards or until the NMED determines that additional remediation is not required, whichever is earlier. The City of Santa Fe has indicated that since the City no longer needs the water from the well, the City would prefer to discontinue its operation and maintain it only as a backup water source. However, for PNM’s groundwater remediation system to operate, the water well must be in service. Currently, PNM is not able to assess the duration of this project or estimate the impact on its obligations if the City of Santa Fe ceases to operate the water well.

The Superfund Oversight Section of the NMED also has conducted multiple investigations into the chlorinated solvent plume in the vicinity of the site of the former Santa Fe Generating Station. In February 2008, a NMED site inspection report was submitted to EPA, which states that neither the source nor extent of contamination has been determined and that the source may not be the former Santa Fe Generating Station. Results of tests conducted by NMED in April 2012 and April 2013 showed elevated concentrations of nitrate in three monitoring wells and an increase in free-phase hydrocarbons in another well. PNM conducted similar site-wide sampling activities in April 2014 and obtained results similar to the 2013 data. As part of this effort, PNM also collected a sample of hydrocarbon product for “fingerprint” analysis from a monitoring well located on the northeastern corner of the property. This analysis indicated that the hydrocarbon product was a mixture of newer and older fuels, and the location of the monitoring well suggests that the hydrocarbon product is likely from offsite sources. PNM does not believe the former generating station is the source of the increased levels of free-phase hydrocarbons, but no conclusive determinations have been made. It is possible that PNM’s prior activities to remediate hydrocarbon contamination, as conducted under an NMED-approved plan, may have resulted in increased nitrate levels. Additional testing and analysis will need to be performed before conclusions can be reached regarding the cause of the increased nitrate levels or the method and cost of remediation. PNM is unable to predict the outcome of these matters.

Effective December 22, 2015, PNM and NMED entered into a memorandum of understanding to address changing groundwater quality conditions at the site. Under the memorandum, PNM will continue gasoline remediation of the site under the supervision of NMED and qualified costs of the work will be eligible for payment through the New Mexico Corrective Action Fund, which is administered by the NMED Petroleum Storage Tank Bureau. Among other things, money in the Corrective Action Fund is available to NMED to make payments to or on behalf of owners and operators for corrective action taken in accordance with statutory and regulatory requirements to investigate, minimize, eliminate or clean up a release. PNM has engaged a contractor to develop an initial work plan and cost estimates for specific groundwater remediation tasks for the Petroleum Storage Tank Bureau’s approval.

Coal Combustion Byproducts Waste Disposal

CCBs consisting of fly ash, bottom ash, and gypsum from SJGS are currently disposed of in the surface mine pits adjacent to the plant. SJGS does not operate any CCB impoundments or landfills. The Mining and Minerals Division of the New Mexico Energy, Minerals and Natural Resources Department currently regulates mine placement of ash with federal oversight by the OSM. APS disposes of CCBs in ash ponds and dry storage areas at Four Corners. Ash management at Four Corners is regulated by EPA and the New Mexico State Engineer’s Office.

In June 2010, EPA published a proposed rule that included two options for waste designation of coal ash. One option was to regulate CCBs as a hazardous waste, which would allow EPA to create a comprehensive federal program for waste management and disposal of CCBs. The other option was to regulate CCBs as a non-hazardous waste, which would provide EPA with the authority to develop performance standards for waste management facilities handling the CCBs and would be enforced primarily by state authorities or through citizen suits. Both options allow for continued use of CCBs in beneficial applications.

On December 19, 2014, EPA issued its coal ash rule, including a non-hazardous waste determination for coal ash. Coal ash will be regulated as a solid waste under Subtitle D of RCRA. The rule sets minimum criteria for existing and new CCB landfills and existing and new CCB surface impoundments and all lateral expansions consisting of location restrictions, design and operating

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criteria; groundwater monitoring and corrective action; closure requirements and post closure care; and recordkeeping, notification, and internet posting requirements.

Because the rule is promulgated under Subtitle D, it does not require regulated facilities to obtain permits, does not require the states to adopt and implement the new rules, and is not within EPA’s enforcement jurisdiction. Instead, the rule’s compliance mechanism is for a state or citizen group to bring a RCRA citizen suit in federal district court against any facility that is alleged to be in non-compliance with the new requirements. EPA published the final CCB rule in the Federal Register on April 17, 2015, with an effective date of October 19, 2015. Based upon the requirements of the final rule, PNM conducted a CCB assessment at SJGS and made minor modifications at the plant to ensure that there are no facilities which would be considered impoundments or landfills under the rule. PNM does not expect it to have a material impact on operations, financial position, or cash flows.

The rule’s preamble indicates EPA is still evaluating whether to reverse its original regulatory determination and regulate coal ash under RCRA Subtitle C, which means it is possible at some point in the future for EPA to review the new CCB rules. The CCB rule does not cover mine placement of coal ash. OSM is expected to publish a proposed rule covering mine placement in 2016 and will likely be influenced by EPA’s rule. PNM cannot predict the outcome of OSM’s proposed rulemaking regarding CCB regulation, including mine placement of CCBs, or whether OSM’s actions will have a material impact on PNM’s operations, financial position, or cash flows. PNM would seek recovery from its ratepayers of all CCB costs that are ultimately incurred.

Other Commitments and Contingencies

Coal Supply

SJGS

The coal requirements for SJGS are supplied by SJCC, which through January 31, 2016 was a wholly owned subsidiary of BHP, under an underground coal sales agreement (“UG-CSA”) to supply processed coal for operation of SJGS through 2017. The parties to the UG-CSA were SJCC, PNM, and Tucson. SJCC holds certain federal, state, and private coal leases. Under the UG-CSA, SJCC was reimbursed for all costs for mining and delivering the coal, including an allocated portion of administrative costs, and received a return on its investment. In addition to coal delivered to meet the current needs of SJGS, PNM prepaid SJCC for certain coal mined but not yet delivered to the plant site. At March 31, 2016 and December 31, 2015, prepayments for coal, which are included in other current assets, amounted to $65.2 million and $49.0 million .

In conjunction with the activities undertaken to comply with the CAA for SJGS, as discussed above, PNM and the other owners of SJGS evaluated alternatives for the supply of coal to SJGS after the expiration of the UG-CSA. On July 1, 2015, PNM and Westmoreland Coal Company (“Westmoreland”) entered into a new coal supply agreement (“CSA”), pursuant to which Westmoreland will supply all of the coal requirements of SJGS through June 30, 2022. PNM and Westmoreland also entered into agreements under which Westmoreland will provide CCB disposal and mine reclamation services. Contemporaneous with the entry into the coal-related agreements, Westmoreland entered into a stock purchase agreement (the “Stock Purchase Agreement”) on July 1, 2015 to acquire all of the capital stock of SJCC. In addition, PNM, Tucson, SJCC, and SJCC’s owner entered into an agreement to terminate the existing UG-CSA upon the effective date of the new CSA.

The CSA became effective as of 11:59 PM on January 31, 2016, upon the closing under the Stock Purchase Agreement. Upon closing under the Stock Purchase Agreement, Westmoreland’s rights and obligations under the CSA and the agreements for CCB disposal and mine reclamation services were assigned to SJCC. Westmoreland has guaranteed SJCC’s performance under the CSA.

Pricing under the CSA is primarily fixed, adjusted to reflect general inflation. The pricing structure takes into account that SJCC has been paid for coal mined but not delivered, as discussed above. PNM has the option to extend the CSA, subject to negotiation of the term of the extension and compensation to the miner. In order to extend, PNM must give written notice of that intent by July 1, 2018 and the parties must agree to the terms of the extension by January 1, 2019. The RA sets forth terms under which PNM will supply coal to the SJGS exiting participants for the period from January 1, 2016 through December 31, 2017 and to the SJGS remaining participants over the term of the CSA. Coal costs under the CSA are significantly less than under the previous arrangement with SJCC. Since substantially all of PNM’s coal costs are passed through the FPPAC, the benefit of the

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reduced costs and the economic benefits of the coal inventory arrangement with the exiting owners are passed through to PNM’s customers.

In support of the closing under the Stock Purchase Agreement and to facilitate PNM customer savings, NM Capital, a wholly owned subsidiary of PNMR, provided funding of $125.0 million (the “Westmoreland Loan”) to Westmoreland San Juan, LLC (“WSJ”), a ring-fenced, bankruptcy-remote, special-purpose entity that is a subsidiary of Westmoreland, to finance the purchase price of the stock of SJCC (including an insignificant affiliate) under the Stock Purchase Agreement. NM Capital was able to provide the $125.0 million financing to WSJ by first entering into a $125.0 million term loan agreement (the “BTMU Term Loan Agreement”), among NM Capital, The Bank of Tokyo-Mitsubishi UFJ, Ltd. (“BTMU”), as lender, and BTMU, as Administrative Agent. The BTMU Term Loan Agreement is effective as of February 1, 2016, has a maturity date of February 1, 2021, and bears interest at a rate based on LIBOR plus a customary spread. In connection with the BTMU Term Loan Agreement, PNMR, as parent company of NM Capital, entered into a Guaranty Agreement, dated as of February 1, 2016, with BTMU (the “Guaranty”). The BTMU Term Loan Agreement and the Guaranty include customary covenants, including requirements for PNMR to not exceed a maximum debt-to-capital ratio of 65%, and customary events of default consistent with PNMR’s other term loan agreements. In addition, the BTMU Term Loan Agreement has a cross default provision and a change of control provision.

The Westmoreland Loan is a $125.0 million loan agreement among NM Capital, as lender, WSJ, as borrower, SJCC and its affiliate, as guarantors, BTMU, as Administrative Agent, and MUFG Union Bank, N.A., as Depository Bank. The Westmoreland Loan is effective as of February 1, 2016, and has a maturity date of February 1, 2021. The Westmoreland Loan initially bears interest at a 7.25% rate plus LIBOR and escalates over time. The Westmoreland Loan has been structured to encourage prepayments and early retirement of the debt. WSJ must pay principal and interest quarterly to NM Capital in accordance with an amortization schedule. In addition, the Westmoreland Loan requires that all cash flows of WSJ, in excess of normal operating expenses, capital additions, and operating reserves, be utilized for principal and interest payments under the loan until it is fully repaid. The Westmoreland Loan is secured by the assets of and the equity interests in SJCC and its affiliate. The Westmoreland Loan also includes customary representations and warranties, covenants, and events of default. There are no prepayment penalties.

Under the terms of the CSA, PNM and the other SJGS owners are obligated to compensate SJCC for all reclamation liabilities associated with the supply of coal from the San Juan mine. In order to assure the reclamation obligations, each of the SJGS owners agreed to fund an irrevocable trust to be maintained for the sole purpose of funding the reclamation of the San Juan mine site (each such trust, a “Reclamation Trust”), as further discussed under Coal Mine Reclamation below.

In connection with certain mining permits relating to the operation of the San Juan mine, SJCC is required to post reclamation bonds of $161.6 million with the New Mexico Mining and Minerals Division (“NMMMD”). In April 2016, NMMMD reduced SJCC’s bonding requirements to $118.7 million . In order to facilitate the posting of reclamation bonds by Zurich American Insurance Company (“Zurich”) on behalf of SJCC, a Reclamation Bond Agreement (the “Reclamation Bond Agreement”) among PNMR, Westmoreland, and SJCC was entered into with Zurich. In connection with the Reclamation Bond Agreement, PNMR used $40.0 million of the available capacity under the PNMR Revolving Credit Facility to support a bank letter of credit arrangement (the “Zurich Letter of Credit”) with Zurich. The Reclamation Bond Agreement provides, among other things, (i) certain obligations for PNMR to provide to Zurich, within 180 days, security interests in the Reclamation Trusts of WSJ and the SJGS owners, and (ii) if PNMR is unable to provide security interests in the Reclamation Trusts of certain SJGS owners (the “Base Security Interests”), PNMR, Westmoreland (subject to obtaining certain amendments or consents under its senior debt and credit facilities), and SJCC will be responsible, jointly and severally, to provide additional collateral to support the then outstanding reclamation bond amount, which will remain in place until such time as PNMR is able to provide the Base Security Interests. The Zurich Letter of Credit will be terminated upon PNMR providing security interests in the Reclamation Trusts of all SJGS owners. Also, the Zurich Letter of Credit will be proportionally reduced if PNMR is able to provide, in addition, to the Base Security Interests, security interests in the Reclamation Trusts of some, but not all, of the other SJGS owners or if the initial reclamation bonds amount is reduced. The reclamation bonds may be replaced or otherwise released at any time by SJCC with the concurrence of NMMMD. PNM cannot predict if it will be able to obtain any such security interests or the impacts of not being able to do so.

Four Corners

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APS purchased all of Four Corners’ coal requirements from a supplier that was also a subsidiary of BHP and had a long-term lease of coal reserves with the Navajo Nation. That contract was to expire on July 6, 2016 with pricing determined using an escalating base-price. On December 30, 2013, ownership of the mine was transferred to an entity owned by the Navajo Nation and a new coal supply contract for Four Corners, beginning in July 2016 and expiring in 2031, was entered into with that entity. The BHP subsidiary is to be retained as the mine manager and operator until December 2016. Coal costs are anticipated to increase approximately 40% in the first year of the new contract. The contract provides for pricing adjustments over its term based on economic indices. PNM anticipates that its share of the increased costs will be recovered through its FPPAC.

Coal Mine Reclamation

In conjunction with the proposed shutdown of SJGS Units 2 and 3 to comply with the BART requirements of the CAA, an updated coal mine reclamation study was requested by the SJGS participants. In 2013, PNM updated its study of the final reclamation costs for both the surface mines that previously provided coal to SJGS and the current underground mine providing coal and revised its estimates of the final reclamation costs. This estimate reflects that, with the proposed shutdown of SJGS Units 2 and 3 described above, the mine providing coal to SJGS will continue to operate through 2053, the anticipated life of SJGS. The 2013 coal mine reclamation study indicates reclamation costs have increased, including significant increases due to the proposed shutdown of SJGS Units 2 and 3, which would reduce the amount of CCBs generated over the remaining life of SJGS and result in a significant increase in the amount of fill dirt required to remediate the underground mine area thereby increasing the overall reclamation costs. As discussed under Coal Combustion Byproducts Waste Disposal above, SJGS currently disposes of CCBs from the plant in the surface mine pits adjacent to the plant.

In 2015, PNM updated its final reclamation costs estimates to reflect the terms of the new reclamation services agreement with Westmoreland, discussed above, and changes resulting from the approval of the 2015 SJCC Mine Permit Plan. The 2015 reclamation cost estimate reflects that the scope and pricing structure of the reclamation service agreement with Westmoreland would significantly increase reclamation costs. In addition, design plan changes, updated regulatory expectation, and common mine reclamation practices incorporated into the 2015 SJCC Mine Permit reflect an increase in the 2015 reclamation cost estimate. The impacts of these increases, amounting to $16.5 million , were recorded at December 31, 2015. The current estimate for decommissioning the Four Corners mine reflects the operation of the mine through 2031, the term of the new agreement for coal supply.

Based on the 2015 estimates and PNM’s current ownership share of SJGS, PNM’s remaining payments for mine reclamation, in future dollars, are estimated to be $97.6 million for the surface mines at both SJGS and Four Corners and $118.9 million for the underground mine at SJGS as of March 31, 2016. At March 31, 2016 and December 31, 2015, liabilities, in current dollars, of $38.7 million and $38.8 million for surface mine reclamation and $11.7 million and $11.4 million for underground mine reclamation were recorded in other deferred credits.

On June 1, 2012, the SJGS owners entered into a trust funds agreement to provide funding to compensate SJCC for post-term reclamation obligations under the UG-CSA. As part of the restructuring of SJGS ownership (see SJGS Ownership Restructuring Matters above), the SJGS owners and PNMR Development negotiated the terms of an amended agreement to fund post-term reclamation obligations under the CSA. The trust funds agreement requires each owner to enter into an individual trust agreement with a financial institution as trustee, create an irrevocable Reclamation Trust, and periodically deposit funding into the Reclamation Trust for the owner’s share of the mine reclamation obligation. Deposits, which are based on funding curves, must be made on an annual basis. As part of the restructuring of SJGS ownership discussed above, the SJGS participants agreed to adjusted interim trust funding levels. Based on the existing trust fund balance at March 31, 2016, PNM’s required contributions to its Reclamation Trust fund would be $4.0 million in 2016 and $4.7 million in 2017.

Under the coal supply agreement for Four Corners, which becomes effective on July 7, 2016, PNM is required to fund its ownership share of estimated final reclamation costs in thirteen annual installments, beginning on August 1, 2016, into an irrevocable escrow account solely dedicated to the final reclamation cost of the surface mine at Four Corners. PNM’s anticipated funding level is $1.9 million , $2.0 million , and $2.1 million in 2016, 2017, and 2018.

PNM collects a provision for surface and underground mine reclamation costs in its rates. The NMPRC has capped the amount that can be collected from ratepayers for final reclamation of the surface mines at $100.0 million . Previously, PNM recorded a regulatory asset for the $100.0 million and recovers the amortization of this regulatory asset in rates. If future estimates

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increase the liability for surface mine reclamation, the excess would be expensed at that time. The reclamation amounts discussed above reflect PNM’s estimates of its share of the revised costs. Regulatory determinations made by the NMPRC may also affect the impact on PNM. PNM is currently unable to determine the outcome of these matters or the range of possible impacts.

Continuous Highwall Mining Royalty Rate

In August 2013, the DOI Bureau of Land Management (“BLM”) issued a proposed rulemaking that would retroactively apply the surface mining royalty rate of 12.5% to continuous highwall mining (“CHM”). Comments regarding the rulemaking were due on October 11, 2013 and PNM submitted comments in opposition to the proposed rule. There is no legal deadline for adoption of the final rule.

SJCC utilized the CHM technique from 2000 to 2003 and, with the approval of the Farmington, New Mexico Field Office of BLM to reclassify the final highwall as underground reserves, applied the 8.0% underground mining royalty rate to coal mined using CHM and sold to SJGS. In March 2001, SJCC learned that the DOI Minerals Management Service (“MMS”) disagreed with the application of the underground royalty rate to CHM. In August 2006, SJCC and MMS entered into an agreement tolling the statute of limitations on any administrative action to recover unpaid royalties until BLM issued a final, non-appealable determination as to the proper rate for CHM-mined coal. The proposed BLM rulemaking has the potential to terminate the tolling provision of the settlement agreement, and underpaid royalties of approximately $5 million for SJGS would become due if the proposed BLM rule is adopted as proposed. PNM’s share of any amount that is ultimately paid would be approximately 46.3% , none of which would be passed through PNM’s FPPAC. PNM is unable to predict the outcome of this matter.

Four Corners Severance Tax Assessment

On May 23, 2013, the New Mexico Taxation and Revenue Department (“NMTRD”) issued a notice of assessment for coal severance surtax, penalty, and interest totaling approximately $30 million related to coal supplied under the coal supply agreement for Four Corners. For procedural reasons, on behalf of the Four Corners co-owners, including PNM, the coal supplier made a partial payment of the assessment and immediately filed a refund claim with respect to that partial payment in August 2013. NMTRD denied the refund claim. On December 19, 2013, the coal supplier and APS, on its own behalf and as operating agent for Four Corners, filed a complaint in the New Mexico District Court contesting both the validity of the assessment and the refund claim denial. On June 30, 2015, the court ruled that the assessment was not valid and further ruled that APS and the other Four Corners co-owners receive a refund of all of the contested amounts previously paid under the applicable tax statute. NMTRD filed a notice of appeal with the New Mexico Court of Appeals on August 31, 2015. In March 2016, the parties settled this matter. PNM’s share of the settlement is $0.1 million in addition to amounts previously paid.

PVNGS Liability and Insurance Matters

Public liability for incidents at nuclear power plants is governed by the Price-Anderson Nuclear Industries Indemnity Act, which limits the liability of nuclear reactor owners to the amount of insurance available from both private sources and an industry retrospective payment plan. In accordance with this act, the PVNGS participants have insurance for public liability exposure for a nuclear incident totaling $13.5 billion per occurrence. PVNGS maintains the maximum available nuclear liability insurance in the amount of $375 million , which is provided by American Nuclear Insurers. The remaining balance of $13.1 billion is provided through a mandatory industry-wide retrospective assessment program. If losses at any nuclear power plant covered by the program exceed the accumulated funds, PNM could be assessed retrospective premium adjustments. Based on PNM’s 10.2% interest in each of the three PVNGS units, PNM’s maximum potential retrospective premium assessment per incident for all three units is $38.9 million , with a maximum annual payment limitation of $5.8 million , to be adjusted periodically for inflation.

The PVNGS participants maintain “all risk” (including nuclear hazards) insurance for damage to, and decontamination of, property at PVNGS in the aggregate amount of $2.75 billion , a substantial portion of which must first be applied to stabilization and decontamination. These coverages are provided by Nuclear Electric Insurance Limited (“NEIL”). A sublimit of $2.25 billion for non-nuclear property damage losses has been enacted to the primary policy offered by NEIL. If NEIL’s losses in any policy year exceed accumulated funds, PNM is subject to retrospective premium assessments of $5.4 million for each retrospective premium assessment declared by NEIL’s Board of Directors. The insurance coverages discussed in this and the previous paragraph are subject to certain policy conditions, sublimits, and exclusions.

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Water Supply

Because of New Mexico’s arid climate and periodic drought conditions, there is concern in New Mexico about the use of water, including that used for power generation. Although PNM does not believe that its operations will be materially affected by drought conditions at this time, it cannot forecast long-term weather patterns. Public policy, local, state and federal regulations, and litigation regarding water could also impact PNM operations. To help mitigate these risks, PNM has secured permanent groundwater rights for the existing plants at Reeves Station, Rio Bravo, Afton, Luna, Lordsburg, and La Luz. Water availability is not an issue for these plants at this time. However, prolonged drought, ESA activities, and a federal lawsuit by the State of Texas (suing the State of New Mexico over water deliveries) could pose a threat of reduced water availability for these plants.

For SJGS, Four Corners, and related mines PNM and APS have secured supplemental water supplies to accommodate the possibility of inadequate precipitation in coming years. To further mitigate the impacts of severe drought, PNM and APS have entered into agreements with the more senior water rights holders (tribes, municipalities, and agricultural interests) in the San Juan basin to mutually share the impacts of water shortages with tribes and other water users in the San Juan basin. The agreements spread the burden of shortages over all water users in the basin instead of just having the more junior water rights holders (like APS and PNM) bear the entire impact of shortages. The agreements have been extended through 2016.

In April 2010, APS signed an agreement on behalf of the PVNGS participants with five cities to provide cooling water essential to power production at PVNGS for forty years.

PVNGS Water Supply Litigation

In 1986, an action commenced regarding the rights of APS and the other PVNGS participants to the use of groundwater and effluent at PVNGS. APS filed claims that dispute the court’s jurisdiction over PVNGS’ groundwater rights and their contractual rights to effluent relating to PVNGS and, alternatively, seek confirmation of those rights. In 1999, the Arizona Supreme Court issued a decision finding that certain groundwater rights may be available to the federal government and Indian tribes. In addition, the Arizona Supreme Court issued a decision in 2000 affirming the lower court’s criteria for resolving groundwater claims. Litigation on these issues has continued in the trial court. No trial dates have been set in these matters. PNM does not expect that this litigation will have a material impact on its results of operation, financial position, or cash flows.

San Juan River Adjudication

In 1975, the State of New Mexico filed an action in New Mexico District Court to adjudicate all water rights in the San Juan River Stream System, including water used at Four Corners and SJGS. PNM was made a defendant in the litigation in 1976. In March 2009, President Obama signed legislation confirming a 2005 settlement with the Navajo Nation. Under the terms of the settlement agreement, the Navajo Nation’s water rights would be settled and finally determined by entry by the court of two proposed adjudication decrees. The court issued an order in August 2013 finding that no evidentiary hearing was warranted in the Navajo Nation proceeding and, on November 1, 2013, issued a Partial Final Judgment and Decree of the Water Rights of the Navajo Nation approving the proposed settlement with the Navajo Nation. Several parties filed a joint motion for a new trial, which was denied by the court. A number of parties subsequently appealed to the New Mexico Court of Appeals. PNM has entered its appearance in the appellate case. No hearing dates have been set at this time.

PNM is participating in this proceeding since PNM’s water rights in the San Juan Basin may be affected by the rights recognized in the settlement agreement as being owned by the Navajo Nation, which comprise a significant portion of water available from sources on the San Juan River and in the San Juan Basin. PNM is unable to predict the ultimate outcome of this matter or estimate the amount or range of potential loss and cannot determine the effect, if any, of any water rights adjudication on the present arrangements for water at SJGS and Four Corners. Final resolution of the case cannot be expected for several years. An agreement reached with the Navajo Nation in 1985, however, provides that if Four Corners loses a portion of its rights in the adjudication, the Navajo Nation will provide, for an agreed upon cost, sufficient water from its allocation to offset the loss.

Rights-of-Way Matter

On January 28, 2014, the County Commission of Bernalillo County, New Mexico passed an ordinance requiring utilities to enter into a use agreement and pay a yet-to-be-determined fee as a condition to installing, maintaining, and operating facilities on county rights-of-way. The fee is purported to compensate the county for costs of administering, maintaining, and capital

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(Unaudited)

improvements to the rights-of-way. On February 27, 2014, PNM and other utilities filed a Complaint for Declaratory and Injunctive Relief in the United States District Court for the District of New Mexico challenging the validity of the ordinance. The court denied the utilities’ motion for judgment. The court further granted the County’s motion to dismiss the state law claims. The utilities filed an amended complaint reflecting the two federal claims remaining before the federal court. The utilities also filed a complaint in Bernalillo County, New Mexico District Court reflecting the state law counts dismissed by the federal court. In subsequent briefing in federal court, the County filed a motion for judgment on one of the utilities’ claims, which was granted by the court, leaving a claim regarding telecommunications service as the remaining federal claim. This matter is ongoing in state court. The utilities and Bernalillo County reached a standstill agreement whereby the County would not take any enforcement action against the utilities pursuant to the ordinance during the pendency of the litigation, but not including any period for appeal of a judgment, or upon 30 days written notice by either the County or the utilities of their intention to terminate the agreement. If the challenges to the ordinance are unsuccessful, PNM believes any fees paid pursuant to the ordinance would be considered franchise fees and would be recoverable from customers. PNM is unable to predict the outcome of this matter or its impact on PNM’s operations.

Navajo Nation Allottee Matters

A putative class action was filed against PNM and other utilities in February 2009 in the United States District Court for the District of New Mexico. Plaintiffs claim to be allottees, members of the Navajo Nation, who pursuant to the Dawes Act of 1887, were allotted ownership in land carved out of the Navajo Nation and allege that defendants, including PNM, are rights-of-way grantees with rights-of-way across the allotted lands and are either in trespass or have paid insufficient fees for the grant of rights-of-way or both. In March 2010, the court ordered that the entirety of the plaintiffs’ case be dismissed. The court did not grant plaintiffs leave to amend their complaint, finding that they instead must pursue and exhaust their administrative remedies before seeking redress in federal court. In May 2010, plaintiffs filed a Notice of Appeal with the Bureau of Indian Affairs (“BIA”), which was denied by the BIA Regional Director. In May 2011, plaintiffs appealed the Regional Director’s decision to the DOI, Office of Hearings and Appeals, Interior Board of Indian Appeals. Following briefing on the merits, on August 20, 2013, that board issued a decision upholding the Regional Director’s decision that the allottees had failed to perfect their appeals, and dismissed the allottees’ appeals, without prejudice. The allottees have not refiled their appeals. Although this matter was dismissed without prejudice, PNM considers the matter concluded. However, PNM continues to monitor this matter in order to preserve its interests regarding any PNM-acquired rights-of-way.

In a separate matter, in September 2012, 43 landowners claiming to be Navajo allottees filed a notice of appeal with the BIA appealing a March 2011 decision of the BIA Regional Director regarding renewal of a right-of-way for a PNM transmission line. The allottees, many of whom are also allottees in the above matter, generally allege that they were not paid fair market value for the right-of-way, that they were denied the opportunity to make a showing as to their view of fair market value, and thus denied due process. On January 6, 2014, PNM received notice that the BIA, Navajo Region, requested a review of an appraisal report on 58 allotment parcels. After review, the BIA concluded it would continue to rely on the values of the original appraisal. On March 27, 2014, while this matter was stayed, the allottees filed a motion to dismiss their appeal with prejudice. On April 2, 2014, the allottees’ appeal was dismissed with prejudice. Subsequent to the dismissal, PNM received a letter from counsel on behalf of what appears to be a subset of the 43 landowner allottees involved in the appeal, notifying PNM that the specified allottees were revoking their consents for renewal of right of way on six specific allotments. On January 22, 2015, PNM received a letter from the BIA Regional Director identifying ten allotments with rights-of-way renewals that were previously contested. The letter indicated that the renewals were not approved by the BIA because the previous consent obtained by PNM was later revoked, prior to BIA approval, by the majority owners of the allotments. It is the BIA Regional Director’s position that PNM must re-obtain consent from these landowners. On July 13, 2015, PNM filed a condemnation action in the United States District Court for the District of New Mexico regarding the approximately 15.49 acres of land at issue. On December 1, 2015, the court ruled that PNM could not condemn 2 of the 5 allotments at issue based on the Navajo Nation’s fractional interest in the land. PNM’s motion for reconsideration of this ruling was denied. On March 31, 2016, the Tenth Circuit granted PNM’s petition to appeal the December 1, 2015 ruling. On September 18, 2015, the allottees filed a separate complaint against PNM for federal trespass. Both matters have been consolidated and are stayed while PNM pursues its appeal before the Tenth Circuit. PNM cannot predict the outcome of these matters.

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


(12)	Regulatory and Rate Matters

The Company is involved in various regulatory matters, some of which contain contingencies that are subject to the same uncertainties as those described in Note 11. Additional information concerning regulatory and rate matters is contained in Note 17 of the Notes to Consolidated Financial Statements in the 2015 Annual Reports on Form 10-K.

PNM

New Mexico General Rate Case

On August 27, 2015, PNM filed an application with the NMPRC for a general increase in retail electric rates. The application proposes a revenue increase, including base fuel revenues, of $123.5 million , is based on a future test year (“FTY”) period beginning October 1, 2015, and proposes a ROE of 10.5% . The primary drivers of PNM’s identified revenue deficiency are the cost of infrastructure investments, including depreciation expense based on an updated depreciation study, and a decline in energy sales as a result of PNM’s successful energy efficiency programs and economic factors. The application includes several proposed changes in rate design to establish fair and equitable pricing across rate classes and to better align cost recovery with cost causation. Specific rate design proposals include higher customer and demand charges, a revenue decoupling pilot program applicable to residential and small commercial customers, a re-allocation of revenue among PNM’s customer classes, a new economic development rate, and continuation of PNM’s renewable energy rider. PNM requested that the proposed new rates become effective beginning in July 2016. On March 2, 2016, the NMPRC required PNM to file supplemental testimony regarding the treatment of renewable energy in PNM’s FPPAC due to issues identified in PNM’s 2016 renewable energy procurement plan and extended the rate suspension period by one month. As ordered by the NMPRC, PNM filed supplemental testimony in the electric rate case demonstrating that PNM’s FPPAC is designed to properly recover its fuel and purchased power expenses. See Renewable Portfolio Standard below. A public hearing on the proposed new rates was held in April 2016. PNM is unable to predict the outcome of this matter.

Renewable Portfolio Standard

The REA establishes a mandatory RPS requiring a utility to acquire a renewable energy portfolio equal to 10% of retail electric sales by 2011, 15% by 2015, and 20% by 2020. PNM files annual renewable energy procurement plans for approval by the NMPRC. The NMPRC requires renewable energy portfolios to be “fully diversified.” The current diversity requirements, which are subject to the limitation of the RCT, are minimums of 30% wind, 20% solar, 3% distributed generation, and 5% other.

The REA provides for streamlined proceedings for approval of utilities’ renewable energy procurement plans, assures that utilities recover costs incurred consistent with approved procurement plans, and requires the NMPRC to establish a RCT for the procurement of renewable resources to prevent excessive costs being added to rates. Currently, the RCT is set at 3% of customers’ annual electric charges. PNM makes renewable procurements consistent with the NMPRC approved plans. PNM recovers certain renewable procurement costs from customers through a rate rider. See Renewable Energy Rider below.

PNM filed its 2016 renewable energy procurement plan on June 1, 2015. The plan met RPS and diversity requirements within the RCT in 2016 and 2017 using existing resources and does not propose any significant new procurements. The NMPRC approved the plan in November 2015, and, after granting a rehearing motion to consider issues regarding the rate treatment of certain customers eligible for a cap on RPS procurement costs and customers exempt from RPS procurement costs, the NMPRC again approved the plan in an order issued on February 3, 2016. In this order, the NMPRC deferred issues related to capped and exempt customers to PNM’s pending rate case and to a new case, which the NMPRC subsequently initiated through issuance of an order to show cause. The rate case and show cause proceedings will examine whether PNM miscalculated the FPPAC factor and base fuel costs in its treatment of renewable energy costs and application of the renewable procurement cost caps and exemptions. PNM’s response to the show cause order is due May 10, 2016. PNM cannot predict the outcome of this matter.

Renewable Energy Rider

The NMPRC has authorized PNM to recover certain renewable procurement costs through a rate rider billed on a per KWh basis. The rider will terminate upon a final order in PNM’s pending rate case unless the NMPRC authorizes PNM to continue it. As a separate component of the rider, if PNM’s earned return on jurisdictional equity in a calendar year, adjusted for weather and

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

other items not representative of normal operations, exceeds 10.5% , PNM would be required to refund the amount over 10.5% to customers during May through December of the following year. On April 1, 2016, PNM made a compliance filing at the NMPRC showing that its jurisdictional equity return did not exceed 10.5% in 2015.

In its 2016 renewable energy procurement plan case, PNM proposed to collect $42.4 million in 2016. The 2016 rider adjustment was approved as part of the final order issued February 3, 2016 approving the 2016 renewable energy plan.

Energy Efficiency and Load Management

Public utilities are required by the Efficient Use of Energy Act to achieve specified levels of energy savings and to obtain NMPRC approval to implement energy efficiency and load management programs. In 2013, this act was amended to set an annual program budget equal to 3% of an electric utility’s annual revenue. PNM’s costs to implement approved programs are recovered through a rate rider.

2016 Energy Efficiency Program Application

On April 15, 2016, PNM filed an application for energy efficiency and load management programs to be offered in 2017. The proposed program portfolio consists of ten programs with a total budget of $28.0 million . The application also seeks approval of an incentive of $2.4 million based on target savings of 75 GWh. The actual incentive will be based upon actual savings achieved. PNM cannot predict the outcome of this matter.

Energy Efficiency Rulemaking

On May 17, 2012, the NMPRC issued a NOPR that would have amended the NMPRC’s energy efficiency rule to authorize use of a decoupling mechanism to recover certain fixed costs of providing retail electric service as the mechanism for removal of disincentives associated with the implementation of energy efficiency programs. The proposed rule also addressed incentives associated with energy efficiency. On July 26, 2012, the NMPRC closed the proposed rulemaking and opened a new energy efficiency rulemaking docket that may address decoupling and incentives. Workshops to develop a proposed rule have been held, but no order proposing a rule has been issued. PNM is unable to predict the outcome of this matter.

Integrated Resource Plan

NMPRC rules require that investor owned utilities file an IRP every three years. The IRP is required to cover a 20 -year planning period and contain an action plan covering the first four years of that period. PNM filed its 2014 IRP on July 1, 2014. The four-year action plan was consistent with the replacement resources identified in PNM’s application to retire SJGS Units 2 and 3. PNM indicated that it planned to meet its anticipated long-term load growth with a combination of additional renewable energy resources, energy efficiency, and natural gas-fired facilities. Consistent with statute and NMPRC rule, PNM incorporated a public advisory process into the development of its 2014 IRP. On July 31, 2014, several parties requested the NMPRC not to accept the 2014 IRP as compliant with NMPRC rule because to do so could affect the pending proceeding on PNM’s application to abandon SJGS Units 2 and 3 and for CCNs for certain replacement resources (Note 11) and because they asserted that the IRP does not conform to the NMPRC’s IRP rule. Certain parties also asked that further proceedings on the IRP be held in abeyance until the conclusion of the pending abandonment/CCN proceeding. The NMPRC issued an order in August 2014 that docketed a case to determine whether the IRP complies with applicable NMPRC rules. The order also held the case in abeyance pending the issuance of final, non-appealable orders in PNM’s 2015 renewable energy procurement plan case and its application to retire SJGS Units 2 and 3. The final order regarding PNM’s application to abandon SJGS Units 2 and 3 described in Note 11 states that the NMPRC will issue a Notice of Proposed Dismissal in the 2014 IRP docket. Such notice has not yet been issued.

San Juan Generating Station Units 2 and 3 Retirement

On December 16, 2015, the NMPRC issued an order approving PNM’s retirement of SJGS Units 2 and 3 on December 31, 2017. On January 14, 2016, NEE filed an appeal of the final order with the NM Supreme Court. Additional information concerning the NMPRC filing and related proceedings is set forth in Note 11.

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Application for Certificate of Convenience and Necessity

On June 30, 2015, PNM filed an application for a CCN for a 187 MW gas plant to be located at SJGS. This resource was identified as a replacement resource in PNM’s application to retire SJGS Units 2 and 3. On February 12, 2016, PNM filed a motion to withdraw its application and stated that it would file either a new CCN application for a gas-fueled resource or a report on the status of that application. On April 26, 2016, PNM filed an application for a 80 MW gas plant to be located at SJGS. The plant would consist of two 40 MW aeroderivative units. The projected cost of the plant is $86.8 million , which is included in PNM’s current construction expenditure forecast. PNM has requested a final order from the NMPRC by December 1, 2016 to facilitate a June 2018 in-service date. PNM cannot predict the outcome of this proceeding.

Advanced Metering Infrastructure Application

On February 26, 2016, PNM filed an application with the NMPRC requesting approval of a project to replace its existing customer metering equipment with Advanced Metering Infrastructure (“AMI”). The application also asks the NMPRC to authorize the recovery of the cost of the project, up to $87.2 million , in future ratemaking proceedings, as well as to approve the recovery of the remaining undepreciated investment in existing metering equipment estimated to be approximately $33 million at the date of implementation and the costs of customer education and severance for any affected employees. PNM does not intend to proceed with the AMI project unless the NMPRC approves the application. A public hearing has been scheduled to begin August 22, 2016. PNM cannot predict the outcome of this matter.

Formula Transmission Rate Case

On December 31, 2012, PNM filed an application with FERC for authorization to move from charging stated rates for wholesale electric transmission service to a formula rate mechanism pursuant to which rates for wholesale transmission service are calculated annually in accordance with an approved formula. The proposed formula includes updating cost of service components, including investment in plant and operating expenses, based on information contained in PNM’s annual financial report filed with FERC, as well as including projected large transmission capital projects to be placed into service in the following year. The projections included are subject to true-up in the following year formula rate. Certain items, including changes to return on equity and depreciation rates, require a separate filing to be made with FERC before being included in the formula rate. As filed, PNM’s request would have resulted in a $3.2 million wholesale electric transmission rate increase, based on PNM’s 2011 data and a 10.81% return on equity (“ROE”), and authority to adjust transmission rates annually based on an approved formula.

On March 1, 2013, FERC issued an order (1) accepting PNM’s revisions to its rates for filing and suspending the proposed revisions to become effective August 2, 2013, subject to refund; (2) directing PNM to submit a compliance filing to establish its ROE using the median, rather than the mid-point, of the ROEs from a proxy group of companies; (3) directing PNM to submit a compliance filing to remove from its rate proposal the acquisition adjustment related to PNM’s 60% ownership of the EIP transmission line, which was acquired in 2003; and (4) setting the proceeding for hearing and settlement judge procedures. On April 1, 2013, PNM made the required compliance filing. PNM would be allowed to make a separate filing related to recovery of the EIP acquisition adjustment. On August 2, 2013, new rates went into effect, subject to refund. In June 2013, May 2014, and March 2015, PNM made additional filings incorporating final 2012, 2013, and 2014 data into the formula rate request. On March 20, 2015, PNM along with five other parties entered into a settlement agreement, which was filed at FERC. The settlement reflects a ROE of 10% and results in an annual increase of $1.3 million above the rates approved in the previous rate case. Additionally, the parties filed a motion to implement the settled rates effective April 1, 2015. On March 25, 2015, the ALJ issued an order authorizing the interim implementation of settled rates beginning on April 1, 2015, subject to refund. In May 2015, the settlement judge recommended that FERC approve the settlement. On March 17, 2016, FERC approved the settlement.

Firm-Requirements Wholesale Customers – Navopache Electric Cooperative, Inc.

As discussed in Note 17 of the Notes to Consolidated Financial Statements in the 2015 Annual Reports on Form 10-K, NEC filed a petition on April 8, 2015 for a declaratory order requesting that FERC find that NEC can purchase an unlimited amount of power and energy from third party supplier(s) under its PSA with PNM. Following proceedings before a settlement judge, PNM and NEC entered into, and filed with FERC, a settlement agreement on October 29, 2015 that includes certain amendments to the PSA and related contracts on file with FERC. FERC approved the settlement on January 21, 2016. Under the settlement agreement, PNM will serve all of NEC’s load in 2016 at reduced demand and energy rates from those under the PSA. Beginning January 1,

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2016, NEC will also pay certain third-party transmission costs that it did not pay in 2014 and partially paid in 2015. The PSA and related transmission agreements will terminate on December 31, 2016. In 2017, PNM will serve 10 MW of NEC’s load under a short term coordination tariff at a rate lower than provided under the PSA. In the three months ended March 31, 2016 and 2015, revenues from NEC were $5.4 million and $7.1 million under the PSA.

TNMP

Advanced Meter System Deployment

In July 2011, the PUCT approved a settlement and authorized an AMS deployment plan that permits TNMP to collect $113.4 million in deployment costs through a surcharge over a 12 -year period. TNMP began collecting the surcharge on August 11, 2011. Deployment of advanced meters began in September 2011 and is scheduled to be completed over a 5 -year period.

The PUCT adopted a rule on August 15, 2013 creating a non-standard metering service for retail customers choosing to decline standard metering service via an advanced meter. The cost of providing non-standard metering service is to be borne by opt-out customers through an initial fee and ongoing monthly charge. As approved by the PUCT, TNMP is recovering $0.2 million in costs through initial fees ranging from $63.97 to $168.61 and ongoing annual expenses of $0.5 million through a $36.78 monthly fee. These amounts presume up to 1,081 consumers will elect the non-standard meter service, but TNMP has the right to adjust the fees if the number of anticipated consumers differs from that estimate. As of April 22, 2016, 98 customers have made the election. TNMP does not expect the implementation of non-standard metering service to have a material impact on its financial position, results of operations, or cash flows.

On October 2, 2015, TNMP filed a reconciliation of the costs and savings of its AMS deployment program with the PUCT. Those costs include $71.0 million in capital costs and $18.0 million in operation and maintenance expenses. However, since the deployment is not complete and the total program costs to date are $1.5 million below the original approved forecasts, TNMP did not request a change to its monthly surcharge amount. On January 8, 2016, the PUCT staff recommended that the PUCT approve TNMP’s reconciliation without adjustment and the PUCT accepted that recommendation on March 25, 2016.

Transmission Cost of Service Rates

TNMP can update its transmission rates twice per year to reflect changes in its invested capital. Updated rates reflect the addition and retirement of transmission facilities, including appropriate depreciation, federal income tax and other associated taxes, and the approved rate of return on such facilities. The following sets forth TNMP’s recent interim transmission cost rate increases:



Effective Date	Approved Increase in Rate Base		Annual Increase in Revenue
	(in millions)
September 8, 2014	$	25.2	$	4.2
March 16, 2015	27.1		4.4
September 10, 2015	7.0		1.4
March 23, 2016	25.8		4.3


(13)	Income Taxes

In 2013, New Mexico House Bill 641 reduced the New Mexico corporate income tax rate from 7.6% to 5.9% . The rate reduction is being phased-in from 2014 to 2018. In accordance with GAAP, PNMR and PNM adjusted accumulated deferred income taxes to reflect the tax rate at which the balances are expected to reverse during the period that includes the date of enactment, which was in the year ended December 31, 2013. At that time, the portion of the adjustment related to PNM’s regulated activities was recorded as a reduction in deferred tax liabilities, which was offset by an increase in a regulatory liability, on the assumption that PNM will be required to return the benefit to customers over time. In addition, the portion of the adjustment that is not related to PNM’s regulated activities was recorded in PNMR’s Corporate and Other segment as a reduction in deferred tax assets and an increase in income tax expense. Changes in the estimated timing of reversals of deferred tax assets and liabilities will result in

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PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

refinements of the impacts of this change in tax rates being recorded periodically until 2018, when the rate reduction is fully phased in. In the three months ended March 31, 2016 and 2015, PNM’s regulatory liability was reduced by $7.1 million and $2.0 million , which increased deferred tax liabilities. Deferred tax assets not related to PNM’s regulatory activities were: reduced by $0.7 million in the three months ended March 31, 2016, increasing income tax expense by $0.8 million for PNM and reducing income tax expense by $0.1 million for the Corporate and Other segment; and increased by $0.7 million in the three months ended March 31, 2015, reducing income tax expense by $0.5 million for PNM and $0.2 million for the Corporate and Other segment.

In 2008, fifty percent bonus tax depreciation was enacted as a temporary two-year stimulus measure as part of the Economic Stimulus Act of 2008. Bonus tax depreciation in various forms has been continuously extended since that time, most recently by the Protecting Americans from Tax Hikes Act of 2015. The 2015 act extends and phases-out bonus tax depreciation through 2019. As a result of the net operating loss carryforwards for income tax purposes created by bonus depreciation, and reduced future income taxes payable resulting from New Mexico House Bill 641, certain tax carryforwards are not expected to be utilized before their expiration. In accordance with GAAP, PNMR and PNM have impaired the tax carryforwards which were not expected to be utilized prior to their expiration. During the three months ended March 31, 2015, the impairment of the New Mexico net operating loss carryforward recorded in 2014 was refined, resulting in an additional impairment of $1.0 million , after federal income tax benefit, $0.7 million of which was recorded by PNM and $0.3 million was recorded in the Corporate and Other segment. TNMP had no such impairment in 2015. The Company has not recorded any impairments in 2016.


(14)	Related Party Transactions

PNMR, PNM, and TNMP are considered related parties as defined under GAAP. PNMR Services Company provides corporate services to PNMR and its subsidiaries in accordance with shared services agreements. The table below summarizes the nature and amount of related party transactions of PNMR, PNM, and TNMP:



	Three Months Ended
	March 31,
	2016		2015
	(In thousands)
Services billings:
PNMR to PNM	$	22,734	$	22,727
PNMR to TNMP	7,048		7,078
PNM to TNMP	106		92
TNMP to PNMR	10		10
Interest billings:
PNMR to TNMP	50		79
PNMR to PNM	—		6
PNM to PNMR	36		29
Income tax sharing payments:
PNMR to PNM	—		—
PNMR to TNMP	—		—

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations for PNMR is presented on a combined basis, including certain information applicable to PNM and TNMP. The MD&A for PNM and TNMP is presented as permitted by Form 10-Q General Instruction H(2). This report uses the term “Company” when discussing matters of common applicability to PNMR, PNM, and TNMP. A reference to a “Note” in this Item 2 refers to the accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) included in Item 1, unless otherwise specified. Certain of the tables below may not appear visually accurate due to rounding.

MD&A FOR PNMR

EXECUTIVE SUMMARY

Overview and Strategy

PNMR is a holding company with two regulated utilities serving approximately 762,000 residential, commercial, and industrial customers and end-users of electricity in New Mexico and Texas. PNMR’s electric utilities are PNM and TNMP.

Strategic Goals

PNMR is focused on achieving the following strategic goals:


•	Earning authorized returns on regulated businesses


•	Delivering above industry-average earnings and dividend growth


•	Maintaining solid investment grade credit ratings

In conjunction with these goals, PNM and TNMP are dedicated to:


•	Maintaining strong plant performance, system reliability, and employee safety


•	Delivering a superior customer experience


•	Environmental leadership in their business operations


•	Supporting the communities in their service territories

Earning Authorized Returns on Regulated Businesses

PNMR’s success in accomplishing its strategic goals is highly dependent on continued favorable regulatory treatment for its utilities and their strong operating performance. The Company has multiple strategies to achieve favorable regulatory treatment, all of which have as their foundation a focus on the basics: safety, operational excellence, and customer satisfaction, while engaging stakeholders to build productive relationships. Both PNM and TNMP seek cost recovery for their investments through general rate cases and various rate riders.

On August 27, 2015, PNM filed an application with the NMPRC for a general increase in retail electric rates. The application proposes a revenue increase of $123.5 million, including base fuel revenues. The application is based on a future test year (“FTY”) beginning October 1, 2015 and a ROE of 10.5%. The primary drivers of PNM’s identified revenue deficiency are infrastructure investments and declines in forecasted energy sales as a result of PNM’s successful energy efficiency programs and other economic factors. The application includes several proposed changes to rate design to establish fair and equitable pricing across rate classes and to better align cost recovery with cost causation. Specific rate design proposals include increased customer and demand charges, a revenue decoupling pilot program applicable to residential and small commercial customers, a re-allocation of revenue among PNM’s customer classes, a new economic development rate, and continuation of PNM’s renewable energy rider. Hearings were held in April 2016 and new rates are expected to become effective in the third quarter of 2016.

The PUCT has approved mechanisms that allow TNMP to recover capital invested in transmission and distribution projects without having to file a general rate case, which allows for more timely recovery. The PUCT has also approved riders that allow TNMP to recover amounts related to AMS, energy efficiency, third-party transmission costs, and the CTC. The NMPRC has approved rate riders for renewable energy and energy efficiency that allow for more timely recovery of investments and improve PNM’s ability to earn its authorized return.

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In early 2013, PNM completed rate proceedings for all of its FERC regulated transmission customers and for NEC, its largest generation services customer, which improved PNM’s returns for providing those services. PNM has allocated a portion of its generation assets to serve FERC wholesale generation services customers for a number of years. Recently, the low natural gas price environment has caused market prices for power to be substantially lower than what PNM is able to offer customers under the cost of service model that FERC requires PNM to use. As a result of this change in market conditions, PNM has not been earning an adequate return on the assets required to serve wholesale contracts and has decided to stop pursuing wholesale contracts that are served with the same generation assets that serve retail customers.

PNM had a PSA to supply power to NEC through 2035, which was approved by FERC in April 2013. On April 8, 2015, NEC filed a petition for a declaratory order requesting that FERC find that NEC can purchase an unlimited amount of power and energy from third party supplier(s) under the PSA. PNM intervened, requesting that FERC deny NEC’s petition. On July 16, 2015, FERC set the matter for a public hearing concerning the parties’ intent with regard to certain provisions of the PSA and held the hearing in abeyance to provide time for settlement judge procedures.

On October 29, 2015, PNM and NEC entered into, and filed with FERC, a settlement agreement that includes amendments to the PSA and related contracts. FERC approved the settlement in January 2016. Under the agreement, PNM will serve all of NEC’s load in 2016 at reduced demand and energy rates from those under the PSA. Beginning January 1, 2016, NEC will also pay certain third-party transmission costs that it did not pay in 2014 and only partially paid in 2015. The PSA will terminate on December 31, 2016. In 2017, PNM will continue to serve 10 MW of NEC’s load under a short-term coordination tariff at a rate lower than provided under the PSA, but higher than prices currently available under short-term market rates. For the three months ended March 31, 2016 and 2015, revenues were $5.4 million and $7.1 million under the PSA. Although the settlement agreement will negatively impact results of operations in 2016 and 2017, PNM expects to be able to mitigate these impacts through market sales of power that would have been sold to NEC, reductions in fuel and transmission expenses, and other measures. PNM anticipates that, in future general rate cases, assets and costs previously assigned to serve NEC will be reassigned, primarily to retail customers.

PNM filed a request with FERC for an increase in rates charged to transmission customers based on a formula rate mechanism. On March 20, 2015, PNM along with five other parties entered into a settlement agreement, which FERC approved on March 17, 2016. The settlement reflects a ROE of 10% and results in an annual increase in rates of $1.3 million above the rates approved in the previous case.

Currently, PNM’s 134 MW interest in PVNGS Unit 3 is excluded from NMPRC jurisdictional rates. The power generated from that interest is sold into the wholesale market and any earnings or losses are realized by shareholders. As part of compliance with the requirements for BART at SJGS discussed below, the NMPRC approved including PVNGS Unit 3 as a jurisdictional resource in the determination of rates charged to customers in New Mexico beginning in 2018.

Fair and timely rate treatment from regulators is crucial to PNM and TNMP earning their allowed returns, which is critical for PNMR’s ability to achieve its strategic goals. PNMR believes that if the utilities earn their allowed returns, it would be viewed positively by credit rating agencies and would further improve the Company’s ratings, which could lower costs to utility customers. Also, earning allowed returns should result in increased earnings for PNMR, which would lead to increased growth in EPS.

Additional information about rate filings is provided in Note 17 of the Notes to Consolidated Financial Statements in the 2015 Annual Reports on Form 10-K and in Note 12.

Delivering Above Industry-Average Earnings and Dividend Growth

PNMR’s strategic goal to deliver above industry-average earnings and dividend growth enables investors to realize the value in the Company’s business. PNMR’s current target is seven to nine percent earnings growth through 2019. Earnings growth is based on ongoing earnings, which is a non-GAAP financial measure that excludes certain non-recurring, infrequent, and other items from earnings determined in accordance with GAAP.

PNMR targets a dividend payout ratio of 50% to 60% of its ongoing earnings. PNMR expects to provide above-average dividend growth in the near-term and to manage the payout ratio to meet its long-term target. The Board will continue to evaluate

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the dividend on an annual basis, considering sustainability and growth, capital planning, and industry standards. The Board approved the following increases in the indicated annual common stock dividend:



Approval Date		Percent Increase
February 2012		16%
February 2013		14%
December 2013		12%
December 2014		8%
December 2015		10%

Maintaining Solid Investment Grade Credit Ratings

The Company is committed to maintaining investment grade credit ratings in order to reduce the cost of debt financing and to help ensure access to credit markets, when required. See the subheading Liquidity included in the full discussion of Liquidity and Capital Resources below for the specific credit ratings for PNMR, PNM, and TNMP. Currently, all of the credit ratings issued by both Moody’s and S&P on the Company’s debt are investment grade with a stable outlook.

Business Focus

PNMR strives to create enduring value for customers, communities, and stockholders. PNMR’s strategy and decision-making are focused on safely providing reliable, affordable, and environmentally responsible power. PNMR works closely with customers, stakeholders, legislators, and regulators to ensure that resource plans and infrastructure investments benefit from robust public dialogue and balance the diverse needs of our communities. Equally important are PNMR’s utilities’ focus on customer satisfaction and community engagement.

Reliable and Affordable Power

PNMR and its utilities are aware of the important roles they play in enhancing economic vitality in their New Mexico and Texas service territories. Management believes that maintaining strong and modern electric infrastructure is critical to ensuring reliability and supporting economic growth. When considering expanding or relocating to other communities, businesses consider energy affordability and reliability to be important factors. PNM and TNMP strive to balance service affordability with infrastructure investment to maintain a high level of electric reliability and to deliver a superior customer experience. The utilities also work to ensure that rates reflect the actual costs of providing service.

Investing in PNM’s and TNMP’s infrastructure is critical to ensuring reliability and meeting future energy needs. Both utilities have long-established records of providing customers with reliable electric service. Through 2014, both PNM and TNMP ranked in the top quartile nationally for reliability for three out of the previous five years. In 2014, PNM delivered its best reliability performance in the past seven years and TNMP’s reliability was its best in a decade. PNM anticipates again being in the electric utility industry top quartile for 2015 despite 2015 being one of the wettest years on record in New Mexico, whereas TNMP’s reliability was more negatively impacted by violent weather events accompanied with record amounts of rain in certain areas of Texas.

In September 2011, TNMP began its deployment of advanced meters for homes and businesses across its Texas service area. Through March 31, 2016 , TNMP had completed installation of more than 226,000 advanced meters, which is approximately 94% of the anticipated total. TNMP’s deployment is expected to be completed in 2016. As part of the State of Texas’ long-term initiative to create an advanced electric grid, installation of advanced meters will ultimately give consumers more data about their energy consumption and help them make more informed decisions. In addition, TNMP recently completed installation of a new outage management system that will leverage capabilities of the advanced metering infrastructure to enhance TNMP’s responsiveness to outages.

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On February 26, 2016, PNM filed an application with the NMPRC requesting approval of a project to replace its existing customer metering equipment with Advanced Metering Infrastructure (“AMI”). The application also asks the NMPRC to authorize the recovery of the cost of the project, up to $87.2 million, in future ratemaking proceedings, as well as to approve the recovery of the remaining undepreciated investment in existing metering equipment estimated to be approximately $33 million and the costs of customer education and severance for any affected employees. PNM does not intend to proceed with the AMI project unless the Commission approves the application. A public hearing has been scheduled to begin August 22, 2016. PNM cannot predict the outcome of this matter.

During the 2013 to 2015 period, PNM and TNMP together invested $1,302.4 million in utility plant, including substations, power plants, nuclear fuel, and transmission and distribution systems. In 2012, PNM announced plans for the 40 MW natural gas-fired La Luz peaking generating station to be located near Belen, New Mexico. Construction began in April 2015 and the facility went into service in December 2015. In addition, on January 15, 2016, PNM completed the $163.3 million acquisition of 64 MW of capacity in PVNGS Unit 2 that had previously been leased to PNM.

NMPRC rules require that investor-owned utilities file an IRP every three years. The IRP is required to cover a 20 -year planning period and contain an action plan covering the first four years of that period. PNM filed its 2014 IRP on July 1, 2014. The four-year action plan was consistent with the replacement resources identified in PNM’s application to retire SJGS Units 2 and 3. PNM indicated that it planned to meet its anticipated energy demand with a combination of additional renewable energy resources, energy efficiency, and natural gas-fired facilities. In mid-2016, PNM will begin its process for the 2017 IRP that is to be filed by July 1, 2017.

Environmentally Responsible Power

PNMR has a long-standing record of environmental stewardship. PNM’s environmental focus has been in three key areas:


•	Developing strategies to meet regional haze rules at the coal-fired SJGS as cost-effectively as possible while providing broad environmental benefits that also demonstrate progress in addressing new federal regulations for CO ₂ emissions from existing power plants


•	Preparing to meet New Mexico’s increasing renewable energy requirements as cost-effectively as possible

• Increasing energy efficiency participation

PNM continues its efforts to reduce the amount of fresh water used to make electricity (about 25% more efficient than in 2002). Continued growth in PNM’s fleet of solar, wind, and geothermal energy sources, energy efficiency programs, and innovative uses of gray water and air-cooling technology have contributed to this reduction. Water usage will continue to decline as PNM substitutes less fresh-water-intensive generation resources to replace SJGS Units 2 and 3 starting in 2018 (water consumption at that plant will be reduced by around 50%). Focusing on responsible stewardship of New Mexico’s scarce water resources improves PNM’s water-resilience in the face of persistent drought and ever-increasing demands for water to spur the growth of New Mexico’s economy. In addition to the above areas of focus, the Company is working to reduce the amount of solid waste going to landfills through increased recycling and reduction of waste. The Company has performed well in this area in the past and expects to continue to do so in the future.

Renewable Energy

PNM’s renewable procurement strategy includes utility-owned solar capacity, as well as wind and geothermal energy purchased under PPAs. As of December 31, 2015, PNM had 107 MW of utility-owned solar capacity, including 40 MW completed in 2015. The application for a general rate increase discussed above includes recovery of the costs associated with the new 40 MW solar facilities. In addition, PNM purchases power from a customer-owned distributed solar generation program that had an installed capacity of 52.2 MW at March 31, 2016. PNM also owns the 500 KW PNM Prosperity Energy Storage Project, which uses advanced batteries to store solar power and dispatch the energy either during high-use periods or when solar production is limited. The project features one of the largest combinations of battery storage and PV energy in the nation and involves extensive research and development of advanced grid concepts. The facility was the nation’s first solar storage facility fully integrated into a utility’s power grid. Since 2003, PNM has purchased the output from a 204 MW wind facility and began purchasing the output of another existing 102 MW wind energy center on January 1, 2015. PNM has a 20-year agreement to purchase energy from a geothermal facility built near Lordsburg, New Mexico. The facility began providing power to PNM in January 2014. The current capacity of the facility is 4 MW and future expansion may result in up to 9 MW of generation capacity. PNM also purchases RECs as necessary to meet the RPS.

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These renewable resources are key means for PNM to meet the RPS and related regulations, which require PNM to achieve prescribed levels of energy sales from renewable sources, if that can be accomplished without exceeding the RCT limit set by the NMPRC. PNM makes renewable procurements consistent with the plans approved by the NMPRC. PNM’s 2016 renewable energy procurement plan meets RPS and diversity requirements within the RCT in 2016 and 2017. PNM will continue to procure renewable resources while balancing the impact to customers’ bills in order to meet New Mexico’s escalating RPS requirements.

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SJGS

On December 16, 2015, PNM received NMPRC approval for the plan to comply with the EPA regional haze rule at SJGS in a manner that minimizes the cost impact to customers while still achieving broad environmental benefits. Under the approved plan, the installation of SNCRs on SJGS Units 1 and 4 was completed in early 2016 and Units 2 and 3 will be retired by the end of 2017. The plan provides for similar visibility improvements, but at a lower cost to PNM customers than a previous EPA ruling that would have required the installation of more expensive SCRs on all four units at SJGS. It has the added advantage of reducing other emissions beyond NOx, including SO ₂ , particulate matter, CO ₂ , and mercury, as well as reducing water usage. Additional information about BART at SJGS is contained in Note 16 of the Notes to Consolidated Financial Statements in the 2015 Annual Reports on Form 10-K and in Note 11.

As provided in the order approving the plan, PNM:


•	Will retire SJGS Units 2 and 3 (PNM’s current ownership interest totals 418 MW) at December 31, 2017 and recover, over 20 years, 50% (currently estimated to be approximately $128.2 million) of their undepreciated net book value at that date and earn a regulated return on those costs


•	Is granted a CCN to acquire an additional 132 MW in SJGS Unit 4, with an initial book value of zero, plus SNCR costs and whatever portion of BDT costs the NMPRC determines to be reasonable and prudent to be allowed for recovery in rates


•	Is granted a CCN for 134 MW of PVNGS Unit 3 with an initial rate base value equal to the book value as of December 31, 2017 (estimated to be approximately $150 million)


•	Is authorized to acquire 65 MW of SJGS Unit 4 as merchant utility plant, which will not be included in rates charged to retail customers


•	Will accelerate recovery of SNCR costs on SJGS Units 1 and 4 so that the costs are fully recovered by July 1, 2022 (cost recovery for PNM’s BDT project on those units will be determined in PNM’s next general rate case)


•	Is required to make a NMPRC filing in 2018 to determine the extent that SJGS should continue serving PNM’s customers’ needs after mid-2022


•	Will acquire and retire one MWh of RECs that include a zero-CO ₂ emission attribute beginning January 1, 2020 for every MWh produced by 197 MW of coal-fired generation from PNM’s ownership share of SJGS (the cost of these RECs would be capped at $7.0 million per year and recovered in rates)


•	Will not recover approximately $20 million of increased operations and maintenance expenses and other costs incurred in connection with CAA compliance

At December 31, 2015, PNM recorded losses aggregating $165.7 million to reflect the write-off of the 50% of the estimated December 31, 2017 net book value that will not be recovered, the other unrecoverable costs, and the increase in the estimated liability recorded for coal mine reclamation resulting from the new coal mine reclamation arrangement entered into in conjunction with the new coal supply agreement (“CSA”). Additional information about the CSA is discussed below and further described under Coal Supply in Note 16 of the Notes to Consolidated Financial Statements in the 2015 Annual Reports on Form 10-K and in Note 11.

On January 14, 2016, NEE filed, with the NM Supreme Court, a Notice of Appeal of the NMPRC’s December 16, 2015 final order. In addition, on February 5, 2016, NEE filed, with the NMPRC, a motion for reconsideration of that final order based on recent developments related to the loan made by NM Capital to facilitate the sale of SJCC, which is discussed below. NEE alleged the loan is a transaction that, under the New Mexico Public Utility Act, requires prior NMPRC approval. The NEE motion was denied by operation of law because the NMPRC did not act on the motion.

On March 31, 2016, NEE filed, with the NMPRC, a complaint against PNM regarding the financing provided by NM Capital to facilitate the sale of SJCC. The complaint alleges that PNM failed to comply with its discovery obligation in the SJGS abandonment case and requests the NMPRC to investigate whether the financing transactions could adversely affect PNM’s ability to provide electric service to its retail customers. The NMPRC ordered PNM to respond to the complaint by May 4, 2016.

In connection with the proposed retirement of SJGS Units 2 and 3, some of the SJGS participants expressed a desire to exit their ownership in the plant. As a result, the SJGS participants negotiated a restructuring of the ownership in SJGS and addressed the obligations of the exiting participants for plant decommissioning, mine reclamation, environmental matters, and certain future operating costs, among other items.

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The San Juan Project Restructuring Agreement (“RA”) sets forth the agreement among the SJGS owners regarding ownership restructuring. On December 31, 2017, PNM will acquire 132 MW of the capacity in SJGS Unit 4 from the exiting owners and PNMR Development will acquire 65 MW of such capacity. It is currently anticipated that PNMR Development will transfer the rights and obligations related to the 65 MW to PNM prior to December 31, 2017 in order to facilitate dispatch of power from that capacity. As ordered by the NMPRC, PNM would treat the 65 MW as merchant utility plant that would be excluded from retail rates. The RA also sets forth the terms under which PNM acquired the coal inventory of the exiting SJGS participants as of January 1, 2016 and will provide coal supply to the exiting participants during the period from January 1, 2016 through December 31, 2017, which arrangement provides economic benefits that are being passed on to PNM’s customers through the FPPAC.

The RA became effective contemporaneously with the effectiveness of the new CSA for SJGS. The effectiveness of the new CSA was dependent on the closing of the purchase of the existing coal mine operation by a new mine operator, which occurred on January 31, 2016. In support of the closing of the mine purchase and to facilitate PNM customer savings, NM Capital, a wholly owned subsidiary of PNMR, provided funding of $125.0 million to Westmoreland San Juan, LLC (“WSJ”), ring-fenced, bankruptcy-remote, special-purpose entity that is a subsidiary of Westmoreland Coal Company to finance the purchase price. NM Capital was able to provide the $125.0 million financing to WSJ by first entering into a $125.0 million term loan agreement with a commercial bank. PNMR guarantees the obligations of NM Capital. The Westmoreland Loan has a maturity date of February 1, 2021 and initially bears interest at a 7.25% rate plus LIBOR and escalates over time. WSJ must pay principal and interest quarterly to NM Capital in accordance with an amortization schedule. The Westmoreland Loan has been structured to encourage prepayments and early retirement of the debt.

Under the terms of the CSA, PNM and the other SJGS owners are obligated to compensate SJCC for all reclamation liabilities associated with the supply of coal from the San Juan mine. In connection with certain mining permits relating to the operation of the San Juan mine, SJCC is required to post reclamation bonds, which currently aggregate $118.7 million, with the New Mexico Mining and Minerals Division. In order to facilitate the posting of reclamation bonds, PNMR, Westmoreland, and SJCC entered into a Reclamation Bond Agreement (the “Reclamation Bond Agreement”) with a surety. In connection with the Reclamation Bond Agreement, PNMR used $40.0 million of the available capacity under the PNMR Revolving Credit Facility to support a bank letter of credit arrangement with the surety. See Note 11.

In addition to the regional haze rule, SJGS is required to comply with other rules currently being developed or implemented that affect coal-fired generating units, including rules regarding GHG under Section 111(d) of the CAA. Because of environmental upgrades completed in 2009, SJGS is well positioned to outperform the mercury limit imposed by EPA in the 2011 Mercury and Air Toxics Standards. The major environmental upgrades on each of the four units at SJGS have significantly reduced emissions of NOx, SO ₂ , particulate matter, and mercury. Since 2006, SJGS has reduced NOx emissions by 49%, SO ₂ by 77%, particulate matter by 78%, and mercury by 98%.

Energy Efficiency

Energy efficiency also plays a significant role in helping to keep customers’ electricity costs low while continuing to meet their energy needs. PNM’s and TNMP’s energy efficiency and load management portfolios continue to achieve robust results. In 2015, annual energy saved as a result of PNM’s portfolio of energy efficiency programs was approximately 79 GWh. This is equivalent to the annual consumption of approximately 10,900 homes in PNM’s service territory. PNM’s load management and energy efficiency programs also help lower peak demand requirements. TNMP’s energy efficiency programs in 2015 resulted in energy savings totaling an estimated 18 GWh. This is equivalent to the annual consumption of approximately 1,660 homes in TNMP’s service territory.

Customer, Stakeholder, and Community Engagement

The Company strives to deliver a superior customer experience by understanding the dynamic needs of its customers through ongoing market research, identifying and establishing best-in-class services and programs, and proactively communicating and engaging with customers at a regional and community level. Beginning in 2013, PNM refocused its efforts to improve the customer experience through an integrated marketing and communications strategy that encompassed brand repositioning and advertising, customer service improvements, including billing and payment options, and strategic customer and stakeholder engagement.

PNM continues to expand its environmental stakeholder outreach to various organizations including business and economic development, environmental and nonprofit organizations as well as elected officials. Community meetings, one-on-one briefings,

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and e-newsletter communications are just some of the tools being used to reach a wide array of stakeholders on key PNM issues including environmental commitment, infrastructure investments, price increases, energy savings opportunities, and other key issues. Recent customer awareness scores have increased in some of these key areas, including the PNM’s commitment to the environment, the community, and energy efficiency programs.

PNM has also expanded its integrated communication efforts, including increased social media efforts, radio, television, newspaper and digital advertising, fact sheets for stakeholders on key PNM issues, e-newsletters, and identification and participation in key stakeholder events. Communication is a major driver for JD Power customer satisfaction scores. PNM’s websites, www.pnm.com and www.PowerforProgress.com, provide the details of major regulatory filings, including PNM’s general rate case, as well as the background on PNM’s efforts to maintain reliability, keep prices affordable, and protect the environment. The websites are designed to be a resource for the facts about PNM’s operations and community support efforts, including plans for building a sustainable energy future for New Mexico.

Through outreach, collaboration, and various community-oriented programs, PNMR has a demonstrated commitment to build productive relationships with stakeholders, including customers, regulators, legislators, and intervenors.

PNM continues its outreach efforts to connect low-income customers with nonprofit community service providers offering support and help with such needs as utility bills, food, clothing, medical programs, services for seniors, and weatherization. In 2015, PNM hosted 38 community events throughout its service territory to assist low-income customers. Furthermore, the PNM Good Neighbor Fund provided $0.4 million of assistance with utility bills to 3,554 families in 2015. In 2015, PNM committed funding of $0.6 million to the PNM Good Neighbor Fund.

The PNM Resources Foundation helps nonprofits become more energy efficient through Reduce Your Use grants. In 2013, PNMR committed funding of $3.5 million to the PNM Resources Foundation. For 2015, the foundation awarded $0.3 million to support 54 projects in New Mexico to provide shade structure installations, window replacements, and efficient appliance purchases. Since the program’s inception in 2008, Reduce Your Use grants have provided nonprofit agencies in New Mexico with a total of $1.9 million of support. In 2014, the PNM Resources Foundation launched a new grant program designed to help nonprofit organizations build more vibrant communities. In 2014 and 2015, Power Up Grants in the aggregate amount of $0.5 million and $0.5 million were awarded to 24 and 34 nonprofits in New Mexico and Texas for projects ranging from creating community gathering spaces to revitalizing neighborhood parks to building a youth sports field.

In Texas, community outreach is centered first on local relationships, specifically with community leaders, nonprofit organizations and key customers in areas served by TNMP. Community liaisons serve in each of TNMP’s three geographic business areas, reaching out and ensuring productive lines of communication between TNMP and its customer base.

TNMP maintains long-standing relationships with several key nonprofit organizations, including agencies that support children and families in crisis, food banks, environmental organizations, and educational nonprofits, through employee volunteerism and corporate support. TNMP also actively participates in safety fairs and demonstrations in addition to supporting local chambers of commerce in efforts to build their local economies.

TNMP’s energy efficiency program, discussed above provides unique offers to multiple customer groups, including residential, commercial, government, education, and nonprofit customers. These programs not only enable peak load and consumption reductions, particularly important when extreme weather affects Texas’ electric system, but also demonstrate TNMP’s commitment to more than just delivering electricity by partnering with customers to optimize their energy usage. In April 2016, TNMP was recognized by Energy Star for TNMP’s successful energy efficiency efforts. TNMP received the “Partner of the Year Energy Efficiency Delivery Award” for its High-Performance Homes Program.

Economic Factors

In the three months ended March 31, 2016 , PNM experienced a decrease in weather normalized retail load of 1.0% compared to 2015. PNM has been impacted by a sluggish economy in New Mexico, which continues to have mixed indicators. The employment growth recently in the Albuquerque metro area has been improving with job creation of 1.6% in March 2016, which is the best month since May 2007. New Mexico overall continues to experience softness that is driven primarily by low oil and natural gas prices. Although PNM does not serve the regions of the state that produce oil and gas, it is anticipated that the impacts of layoffs and the decrease in state royalty revenues will further soften the economies in PNM’s service territory to some degree, particularly in the Albuquerque metro area and Santa Fe, as the state deals with budget shortfalls. In the three months ended March 31, 2016 , TNMP’s weather normalized volumetric retail load decreased 1.6% compared to 2015, but demand-based load was up 1.5%. Most of TNMP’s industrial and larger commercial customers are billed based on their peak demand. Also, the

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recent winter in Texas was warmer and drier than normal. Since the recent recession, Texas has fared better than the national average in job growth and unemployment although there has been some recent softening in job growth, particularly in the Houston area that appears to be related to lower oil prices. The Texas economy remains strong due to its diversified base, which helps compensate for the weakness in the energy sector.

Intel Corporation operates a manufacturing facility in Rio Rancho, New Mexico, which is a large customer of PNM. On April 19, 2016, Intel announced a global restructuring initiative, but has not formally announced what impacts, if any, the restructuring would have on its Rio Rancho facility. Accordingly, PNM is unable to predict if there will be any impact to its operations.

Results of Operations

PNMR’s net earnings were $10.5 million, or $0.13 per diluted share, in the three months ended March 31, 2016 compared to $14.3 million, or $0.18 per diluted share, in 2015. Among other things, earnings in 2016 benefited from reduced rent expense under the PVNGS leases, rate increases at TNMP, higher interest income, and greater realized gains on securities held in decommissioning and reclamation trusts compared to the prior year. However, these increases were more than offset by decreased load at PNM, milder weather, and increased maintenance, depreciation, property tax, interest, and employee related expenses. Additional information on factors impacting results of operation for each segment is discussed under Results of Operations below.

Liquidity and Capital Resources

PNMR has a $300.0 million revolving credit facility and PNM has a $400.0 million revolving credit facility, both of which expire in October 2020. Both facilities provide capacities for short-term borrowing and letters of credit. In addition, PNM has a $50.0 million revolving credit facility, which expires in January 2018, with banks having a significant presence in New Mexico and TNMP has a $75.0 million revolving credit facility, which expires in September 2018. Total availability for PNMR on a consolidated basis was $545.6 million at April 22, 2016 . The Company utilizes these credit facilities and cash flows from operations to provide funds for both construction and operational expenditures. PNMR also has intercompany loan agreements with each of its subsidiaries.

The Company projects that its total capital requirements, consisting of construction expenditures and dividends, will total $2,390.6 million for 2016-2020, including amounts expended through March 31, 2016 . The construction expenditures include estimated amounts for an 80 MW gas-fired generating unit identified as a source of replacement capacity under the revised plan for compliance described in Note 11, environmental upgrades at SJGS and Four Corners, and the January 15, 2016 purchase of the assets underlying three of the PVNGS Unit 2 leases at the expiration of those leases. In addition to internal cash generation, the Company anticipates that it will be necessary to obtain additional long-term financing in the form of debt refinancing, new debt issuances, and/or new equity in order to fund its capital requirements during the 2016-2020 period. The Company currently believes that its internal cash generation, existing credit arrangements, and access to public and private capital markets will provide sufficient resources to meet the Company’s capital requirements.

RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto. Trends and contingencies of a material nature are discussed to the extent known. Refer also to Disclosure Regarding Forward Looking Statements and to Part II, Item 1A. Risk Factors.

A summary of net earnings attributable to PNMR is as follows:



	Three Months Ended March 31,
	2016		2015		Change
	(In millions, except per share amounts)
Net earnings attributable to PNMR	$	10.5	$	14.3	$	(3.8	)
Average diluted common and common equivalent shares	80.2		80.2		—
Net earnings attributable to PNMR per diluted share	$	0.13	$	0.18	$	(0.05	)

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The components of the change in earnings attributable to PNMR are:



	2015/2016 Change
	Three Months Ended
	March 31
	(In millions)
PNM	$	(5.9	)
TNMP	(0.2		)
Corporate and Other	2.2
Net change	$	(3.8	)

Information regarding the factors impacting PNMR’s operating results by segment are set forth below.

Segment Information

The following discussion is based on the segment methodology that PNMR’s management uses for making operating decisions and assessing performance of its various business activities. See Note 3 for more information on PNMR’s operating segments.

PNM

PNM’s utility margin is defined as electric operating revenues less cost of energy, which consists primarily of fuel and purchase power costs. PNM believes that utility margin provides a more meaningful basis for evaluating operations than electric operating revenues since substantially all fuel and purchase power costs are offset in revenues as those costs are passed through to customers under PNM’s FPPAC. In the three months ended March 31, 2016, fuel and purchased power costs passed through the FPPAC were $26.4 million less than in 2015, which reduced both revenue and cost of energy. The decrease reflects lower coal costs at SJGS beginning in 2016 under the new CSA. See Note 11. In 2015, PNM also was recovering an under-collection of fuel costs that resulted from a prior regulatory proceeding, which amount was fully recovered as of December 31, 2015. See Note 17 of the Notes to Consolidated Financial Statements in the 2015 Annual Reports on Form 10-K.

The following table summarizes the operating results for PNM:



	Three Months Ended March 31,
	2016			2015			Change
	(In millions)
Electric operating revenues	$	235.6		$	261.9		$	(26.3	)
Cost of energy	72.4			97.9			(25.5		)
Utility margin	163.2			164.1			(0.9		)
Operating expenses	108.0			104.0			4.0
Depreciation and amortization	31.9			28.4			3.5
Operating income	23.3			31.7			(8.4		)
Other income (deductions)	9.5			7.6			1.9
Net interest charges	(21.6		)	(20.0		)	(1.6		)
Segment earnings before income taxes	11.2			19.3			(8.1		)
Income (taxes)	(3.6		)	(5.8		)	2.2
Valencia non-controlling interest	(3.3		)	(3.4		)	0.1
Preferred stock dividend requirements	(0.1		)	(0.1		)	—
Segment earnings	$	4.1		$	10.0		$	(5.9	)

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The following table shows total GWh sales, including the impacts of weather, by customer class and average number of customers:



	Three Months Ended March 31,
			Percentage
	2016	2015	Change
	(Gigawatt hours, except customers)
Residential	772.8	786.1	(1.7	)%
Commercial	864.0	834.3	3.6
Industrial	218.5	233.0	(6.2	)
Public authority	51.2	52.1	(1.7	)
Economy energy service ⁽¹⁾	208.9	195.6	6.8
Firm-requirements wholesale	119.1	112.4	6.0
Other sales for resale ⁽²⁾	655.4	464.6	41.1
	2,889.9	2,678.1	7.9	%
Average retail customers (thousands)	517.4	513.7	0.7	%

⁽¹⁾ PNM purchases energy for a major customer on the customer’s behalf and delivers the energy to the customer’s location through PNM’s transmission system with only a minor impact in utility margin resulting from providing ancillary services.

⁽²⁾ Increase due to more power available for off-system sales, primarily related to SJGS. Ninety percent of the margin from off-system sales is returned to customers through the FPPAC.

Operating Results – Three months ended March 31, 2016 compared to 2015

The following table summarizes the significant changes to utility margin:



		2015/2016
		Change
Utility margin:		(In millions)

	Customer usage/load – PNM’s weather normalized retail KWh sales decreased 1.0%, primarily resulting from a sluggish economy in New Mexico and energy efficiency initiatives	$	(1.6	)
	Leap Year – Increase due to additional day in 2016	1.6
	Transmission – Higher revenues under formula transmission rates and lower third-party transmission costs	0.6
	Wholesale contract – Lower revenues from NEC (Note 12)	(1.2		)
	Unregulated margin – Lower market prices for PVNGS Unit 3 sales	(2.9		)
	Rate Riders – Includes renewable energy and energy efficiency riders, which are offset in operating expenses, depreciation and amortization, and interest charges	(0.3		)
	Net unrealized economic hedges – Primarily related to hedges of PVNGS Unit 3 power sales	3.2
	Other	(0.3		)
	Net change	$	(0.9	)

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The following tables summarize the primary drivers for operating expenses, depreciation and amortization, other income (deductions), interest charges, and income taxes for the three months ended March 31, 2016 compared to 2015:



		2015/2016
		Change
Operating expenses:		(In millions)

	Higher plant maintenance at PVNGS, Four Corners, and natural gas-fired plants, partially offset by a decrease at SJGS	$	3.9
	Higher labor, pension, and OPEB costs	2.8
	Lower capitalized administrative and general expenses due to lower capital spending in 2016	1.2
	Higher employee medical costs due to unfavorable claims experience	0.8
	Change in estimated write-off associated with the SJGS BART determination and related ownership restructuring (Note 11)	0.8
	Higher property taxes due to increases in utility plant in service and higher assessed values	0.7
	Lower rent expense associated with PVNGS leases (Note 6)	(5.3		)
	Lower rent expense due to the termination of the EIP lease on April 1, 2015	(0.7		)
	Other	(0.2		)
	Net Change	$	4.0



Depreciation and amortization:

	Purchase of assets underlying PVNGS Unit 2 leases (Note 6)	$	0.9
	Other additions to utility plant in service, including PNM-owned solar PV facilities and environmental upgrades at SJGS	2.6
	Net Change	$	3.5



Other income (deductions):

	Higher gains on available-for-sale securities held in the NDT and coal mine reclamation trust	$	2.2
	Lower interest income due to lower outstanding balances of PVNGS lessor notes	(0.3		)
	Net change	$	1.9



Interest charges:

	Issuance of $250.0 million of long-term debt on August 11, 2015	$	(2.2	)
	Repayment of $175.0 million of long-term debt on August 12, 2015	0.5
	Other	0.1
	Net change	$	(1.6	)

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Income taxes:

	Decrease due to lower earnings before income taxes	$	3.1
	Impairments of New Mexico net operating loss carryforwards in 2015 (Note 13)	0.7
	Impacts of phased-in reduction in New Mexico corporate income tax rates	(1.3		)
	Other	(0.3		)
	Net change	$	2.2

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TNMP

TNMP’s utility margin is defined as electric operating revenues less cost of energy, which consists of costs charged by third-party transmission providers. TNMP believes that utility margin provides a more meaningful basis for evaluating operations than electric operating revenues since all third-party transmission costs are passed on to customers through a transmission cost recovery factor.

The following table summarizes the operating results for TNMP:



	Three Months Ended March 31,
	2016			2015			Change
	(In millions)
Electric operating revenues	$	75.4		$	70.9		$	4.5
Cost of energy	19.9			17.8			2.1
Utility margin	55.4			53.1			2.3
Operating expenses	22.4			21.8			0.6
Depreciation and amortization	14.5			13.5			1.0
Operating income	18.6			17.9			0.7
Other income (deductions)	0.6			1.3			(0.7		)
Net interest charges	(7.4		)	(6.9		)	(0.5		)
Segment earnings before income taxes	11.8			12.3			(0.5		)
Income (taxes)	(4.3		)	(4.6		)	0.3
Segment earnings	$	7.5		$	7.7		$	(0.2	)

The following table shows total GWh sales, including the impacts of weather, by retail tariff consumer class and average number of consumers:



	Three Months Ended March 31,
			Percentage
	2016	2015	Change
	(Gigawatt hours, except consumers)
Residential	578.7	663.9	(12.8	)%
Commercial	579.5	573.4	1.1
Industrial	716.9	660.4	8.6
Other	23.3	24.7	(5.7	)
	1,898.4	1,922.4	(1.2	)%
Average retail consumers (thousands)	243.9	240.1	1.6	%

⁽¹⁾ TNMP provides transmission and distribution services to REPs that provide electric service to customers in TNMP’s service territories. The number of consumers above represents the customers of these REPs. Under TECA, consumers in Texas have the ability to choose any REP to provide energy.

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Operating Results – Three months ended March 31, 2016 compared to 2015

The following table summarizes the significant changes to utility margin:



		2015/2016
		Change
Utility margin:		(In millions)

	Rate Relief – Transmission cost of service rate increases in March 2015, September 2015, and March 2016	$	1.6
	Customer usage/load – Increased retail demand-based revenues for large commercial and industrial retail customers and increased wholesale transmission load, partially offset by 1.6% lower weather normalized retail KWh sales, primarily related to the residential class	1.2
	Rate Riders – Impacts of rate rider revenue including the AMS surcharge, CTC surcharge, energy efficiency rider, and transmission cost recovery factor	1.0
	Weather – Milder winter weather decreased revenue in 2016; heating degree days were 27.8% lower in 2016	(1.5		)
	Net change	$	2.3



		2015/2016
		Change
Operating expenses:		(In millions)

	Increased property taxes due to increases in utility plant in service and higher assessed values	$	0.3
	Higher labor and pension expense	0.6
	Other	(0.3		)
	Net Change	$	0.6



Depreciation and amortization:

	Increase primarily due to AMS deployment and other increases in utility plant in service	$	1.0



Other income (deductions):

	Decrease primarily due to reduced contributions in aid of construction	$	(0.7	)



Interest charges:

	Increase primarily due to the issuance of $60.0 million of long-term debt on February 10, 2016 and higher short term debt balances	$	(0.5	)



Income taxes:

	Decrease primarily due to lower earnings before income taxes	$	0.3

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Corporate and Other

The table below summarizes the operating results for Corporate and Other:



	Three Months Ended March 31,
	2016			2015			Change
	(In millions)
Total revenues	$	—		$	—		$	—
Cost of energy	—			—			—
Utility margin	—			—			—
Operating expenses	(3.1		)	(3.6		)	0.5
Depreciation and amortization	3.5			3.6			(0.1		)
Operating income	(0.3		)	—			(0.3		)
Other income (deductions)	1.0			(1.8		)	2.8
Net interest charges	(2.5		)	(3.4		)	0.9
Segment earnings (loss) before income taxes	(1.8		)	(5.2		)	3.4
Income (taxes) benefit	0.8			1.9			(1.1		)
Segment earnings (loss)	$	(1.1	)	$	(3.3	)	$	2.2

Corporate and Other operating expenses shown above are net of amounts allocated to PNM and TNMP under shared services agreements. The amounts allocated include certain expenses shown as depreciation and amortization and other income (deductions) in the table above. The change in depreciation expense primarily relates to computer software. Substantially all depreciation and amortization expense is offset in operating expenses as a result of allocation of these costs to other business segments.

Operating Results – Three months ended March 31, 2016 compared to 2015

The following tables summarize the primary drivers for other income (deductions), interest charges, and income taxes for the three months ended March 31, 2016 compared to 2015:



		2015/2016
		Change
Other income (deductions):		(In millions)

	Interest income on the $125.0 million Westmoreland Loan (Note 11) beginning February 1, 2016	$	2.1
	Losses recorded in 2015 on items included in other investments related to a former PNMR subsidiary that ceased operations in 2008	1.1
	Other	(0.4		)
	Net change	$	2.8

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Interest charges:

	Maturity of $118.8 million of long-term debt on May 15, 2015	$	2.8
	Issuance of the $125.0 million BTMU Term Loan Agreement on February 1, 2016 (Note 9)	(1.0		)
	Issuance of the $150.0 million PNMR 2015 Term Loan Agreement on March 9, 2015	(0.6		)
	Higher short term borrowings	(0.5		)
	Other	0.2
	Net change	$	0.9



		2015/2016
		Change
Income taxes:		(In millions)

	Reduction in benefit due to change in loss before income taxes	$	(1.3	)
	Other	0.2
	Net change	$	(1.1	)

LIQUIDITY AND CAPITAL RESOURCES

Statements of Cash Flows

The changes in PNMR’s cash flows for the three months ended March 31, 2016 compared to March 31, 2015 are summarized as follows:



	Three Months Ended March 31,
	2016			2015			Change
	(In millions)
Net cash flows from:
Operating activities	$	90.6		$	66.7		$	23.9
Investing activities	(393.5		)	(86.7		)	(306.8		)
Financing activities	260.7			114.1			146.6
Net change in cash and cash equivalents	$	(42.2	)	$	94.1		$	(136.3	)

Changes in PNMR’s cash flow from operating activities result from net earnings, adjusted for items impacting earnings that do not provide or use cash. See Results of Operations above. Certain changes in assets and liabilities resulting from normal operations also impact operating cash flows. In addition, contributions to PNMR’s pension and postretirement benefit plans were $30.0 million lower in the three months ended March 31, 2016 than in 2015 due to a $30.0 million contribution to the PNM pension trust in the three months ended March 31, 2015 that did not recur in 2016.

The changes in PNMR’s cash flows from investing activities relate primarily to an increase of $178.6 million in utility plant additions in the three months ended March 31, 2016 compared to 2015. Utility plant additions at PNM were $156.7 million higher in the three months ended March 31, 2016 compared to 2015. The PNM increase includes the $163.3 million purchase of the assets underlying three of the leases for PVNGS Unit 2 (Note 6) on January 15, 2016 and other increases in generation additions of $5.5 million, offset by lower transmission and distribution additions of $11.7 million and lower nuclear fuel purchases of $0.4 million. TNMP utility plant additions increased $19.2 million in the three months ended March 31, 2016 compared to 2015, including increases in transmission and distribution additions of $18.3 million and AMS additions of $0.8 million. Corporate plant

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additions increased $2.7 million in the three months ended March 31, 2016 compared to 2015, including increases related to PNMR computer hardware and software additions of $2.6 million and utility plant additions related to PNMR Development of $0.2 million. Investing activities in 2016 also includes the $122.3 million Westmoreland Loan discussed in Note 11.

The changes in PNMR’s cash flows from financing activities include a $113.0 million increase in net short-term borrowing activity in the three months ended March 31, 2016 compared to 2015. Net short-term borrowings at PNM were $118.8 million in the three months ended March 31, 2016, which primarily were used, along with existing cash, to fund the purchase of the assets underlying the three PVNGS Unit 2 leases. In 2016, financing activities include $122.5 million of long-term borrowings under the BTMU Term Loan Agreement. NM Capital used the proceeds of the BTMU Term Loan Agreement to provide funds for the Westmoreland Loan. In 2016, TNMP issued $60.0 million of 3.53% first mortgage bonds and used the funds to reduce short-term debt and intercompany debt. In 2015, long-term borrowings of $150.0 million under the PNMR 2015 Term Loan Agreement were used to repay $118.8 million of 9.25% senior unsecured notes that matured on May 15, 2015 and for general corporate purposes.

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Financing Activities

See Note 6 of the Notes to Consolidated Financial Statements in the 2015 Annual Reports on Form 10-K and Note 9 for additional information concerning the Company’s financing activities. PNM must obtain NMPRC approval for any financing transaction having a maturity of more than 18 months. In addition, PNM files its annual short-term financing plan with the NMPRC. The Company’s ability to access the credit and capital markets at a reasonable cost is largely dependent upon its:


•	Ability to earn a fair return on equity


•	Results of operations


•	Ability to obtain required regulatory approvals


•	Conditions in the financial markets


•	Credit ratings

PNMR, PNM, and TNMP are subject to debt-to-capital ratio requirements of less than or equal to 65%. These ratios for PNMR and PNM include the present value of payments under the PVNGS leases as debt. At March 31, 2016, interest rates on outstanding borrowings were 1.28% for the PNMR Term Loan Agreement, 1.35% for the PNMR 2015 Term Loan Agreement, and 1.02% for the PNM Multi-draw Term Loan.

On December 17, 2015 TNMP entered into an agreement, which provided that TNMP would issue $60.0 million aggregate principal amount of 3.53% first mortgage bonds, due 2026, on or about February 10, 2016. TNMP issued the Series 2016A Bonds on February 10, 2016 and used the proceeds to reduce short-term debt and intercompany debt.

As of February 1, 2016, NM Capital, a wholly owned subsidiary of PNMR, entered into a $125.0 million term loan agreement (the “BTMU Term Loan Agreement”), among NM Capital, The Bank of Tokyo-Mitsubishi UFJ, Ltd. (“BTMU”), as lender, and BTMU, as Administrative Agent (Note 11). The BTMU Term Loan Agreement has a maturity date of February 1, 2021 and bears interest at a rate based on LIBOR plus a customary spread, which aggregated 3.37% at March 31, 2016. PNMR, as parent company of NM Capital, has guaranteed NM Capital’s obligations. NM Capital utilized the proceeds of the BTMU Term Loan Agreement to provide funding for the $125.0 million Westmoreland Loan to a ring-fenced, bankruptcy-remote, special-purpose entity that is a subsidiary of Westmoreland to finance the purchase price of the stock of SJCC.

Capital Requirements

Total capital requirements consist of construction expenditures and cash dividend requirements for PNMR common stock and PNM preferred stock. Key activities in PNMR’s current construction program include:


•	Upgrading generation resources, including expenditures for compliance with environmental requirements and for renewable energy resources


•	Expanding the electric transmission and distribution systems


•	Purchasing nuclear fuel

Projected capital requirements, including amounts expended through March 31, 2016 , are:



	2016		2017-2020		Total
	(In millions)
Construction expenditures	$	546.6	$	1,490.9	$	2,037.5
Dividends on PNMR common stock	70.1		280.4		350.5
Dividends on PNM preferred stock	0.5		2.1		2.6
Total capital requirements	$	617.2	$	1,773.4	$	2,390.6

The construction expenditure estimates are under continuing review and subject to ongoing adjustment, as well as to Board review and approval. The construction expenditures above include $86.8 million for an 80 MW gas-fired peaking generating unit identified as a source of replacement capacity under the revised plan for compliance described in Note 11, environmental upgrades of $3.5 million at SJGS and $86.0 million at Four Corners, and the January 2016 purchase of the assets underlying three of the PVNGS Unit 2 leases at the expiration of those leases for $163.3 million. Expenditures for environmental upgrades are estimated to be $44.5 million in 2016. See Note 11 and Commitments and Contractual Obligations below. The ability of PNMR to pay dividends on its common stock is dependent upon the ability of PNM and TNMP to be able to pay dividends to PNMR. Note 5

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of the Notes to Consolidated Financial Statements in the 2015 Annual Reports on Form 10-K describes regulatory and contractual restrictions on the payment of dividends by PNM and TNMP.

During the three months ended March 31, 2016 , PNMR met its capital requirements and construction expenditures through cash generated from operations, as well as its liquidity arrangements, and the additional borrowings described under Financing Activities above.

In addition to the capital requirements for construction expenditures and dividends, the Company has long-term debt that must be paid or refinanced at maturity. The $125.0 million PNM Multi-draw Term Loan matures on June 21, 2016. Note 6 of the Notes to Consolidated Financial Statements in the 2015 Annual Reports on Form 10-K contains additional information about the maturities of long-term debt. Also, the one-year $150.0 million PNMR Term Loan Agreement matures on December 21, 2016. PNMR and PNM anticipate that funds to repay the long-term debt maturities and term loans will come from entering into new arrangements similar to the existing agreements, borrowing under their revolving credit facilities, issuance of new long-term debt, or a combination of these sources. The Company has from time to time refinanced or repurchased portions of its outstanding debt before scheduled maturity. Depending on market conditions, the Company may refinance other debt issuances or make additional debt repurchases in the future.

Liquidity

PNMR’s liquidity arrangements include the PNMR Revolving Credit Facility and the PNM Revolving Credit Facility both of which expire in October 2020 and the TNMP Revolving Credit Facility that expires in September 2018. The PNMR Revolving Credit Facility has a financing capacity of $300.0 million, the PNM Revolving Credit Facility has a financing capacity of $400.0 million, and the TNMP Revolving Credit Facility has a financing capacity of $75.0 million. PNM also has the $50.0 million PNM New Mexico Credit Facility, which expires in January 2018. The Company believes the terms and conditions of these facilities are consistent with those of other investment grade revolving credit facilities in the utility industry.

The revolving credit facilities and the PNM New Mexico Credit Facility provide short-term borrowing capacity. The revolving credit facilities also allow letters of credit to be issued. Letters of credit reduce the available capacity under the facilities. The Company utilizes these credit facilities and cash flows from operations to provide funds for both construction and operational expenditures. The Company’s business is seasonal with more revenues and cash flows from operations being generated in the summer months. In general, the Company relies on the credit facilities to be the initial funding source for construction expenditures. Accordingly, borrowings under the facilities may increase over time. Depending on market and other conditions, the Company will periodically sell long-term debt and use the proceeds to reduce the borrowings under the credit facilities. Borrowings under the PNMR Revolving Credit Facility ranged from $40.0 million to $89.3 million during the three months ended March 31, 2016 . Borrowings under the PNM Revolving Credit Facility ranged from zero to $92.0 million during the three months ended March 31, 2016 . Borrowings under the PNM New Mexico Credit Facility ranged from zero to $50.0 million during the three months ended March 31, 2016 . Borrowings under the TNMP Revolving Credit Facility ranged from $15.0 million to $70.0 million during the three months ended March 31, 2016 . At March 31, 2016 , the average interest rate was 1.69% for the PNMR Revolving Credit Facility, 1.57% for the PNM Revolving Credit Facility, 1.58% for the PNM New Mexico Credit Facility, and 1.44% for the TNMP Revolving Credit Facility. At March 31, 2016 , TNMP had $7.9 million in borrowings from PNMR under its intercompany loan agreement.

The Company currently believes that its capital requirements can be met through internal cash generation, existing or new credit arrangements, and access to public and private capital markets. To cover the difference in the amounts and timing of internal cash generation and cash requirements, the Company intends to use short-term borrowings under its current and future liquidity arrangements. However, if difficult market conditions experienced during the recent recession return, the Company may not be able to access the capital markets or renew credit facilities when they expire. Should that occur, the Company would seek to improve cash flows by reducing capital expenditures and exploring other available alternatives. Also, PNM could consider seeking authorization for the issuance of first mortgage bonds to improve access to the capital markets.

In addition to its internal cash generation, the Company anticipates that it will be necessary to obtain additional long-term financing to fund its capital requirements during the 2016-2020 period. This could include new debt issuances and/or new equity.

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Information concerning the credit ratings for PNMR, PNM, and TNMP was set forth under the heading Liquidity in the MD&A contained in the 2015 Annual Reports on Form 10-K. Currently, all of the credit ratings issued by both Moody’s and S&P on the Company’s debt are investment grade. As of April 22, 2016 , ratings on the Company’s securities were as follows:



	PNMR	PNM	TNMP
S&P
Corporate rating	BBB+	BBB+	BBB+
Senior secured debt	*	*	A
Senior unsecured debt	*	BBB+	*
Preferred stock	*	BBB-	*
Moody’s
Issuer rating	Baa3	Baa2	A3
Senior secured debt	*	*	A1
Senior unsecured debt	*	Baa2	*

* Not applicable

Both S&P and Moody’s have PNMR, PNM, and TNMP on a stable outlook. However, negative regulatory outcomes from the NMPRC in the PNM New Mexico General Rate Case, discussed in Note 12, could affect both the outlook and credit ratings. Investors are cautioned that a security rating is not a recommendation to buy, sell, or hold securities, that it is subject to revision or withdrawal at any time by the assigning rating organization, and that each rating should be evaluated independently of any other rating.

A summary of liquidity arrangements as of April 22, 2016 is as follows:



	PNMR Separate		PNM Separate		TNMP Separate		PNMR Consolidated
	(In millions)
Financing capacity:
Revolving credit facility	$	300.0	$	400.0	$	75.0	$	775.0
PNM New Mexico Credit Facility	—		50.0		—		50.0
Total financing capacity	$	300.0	$	450.0	$	75.0	$	825.0


Amounts outstanding as of April 22, 2016:
Revolving credit facility	$	67.6	$	98.3	$	24.0	$	189.9
PNM New Mexico Credit Facility	—		40.0		—		40.0
Letters of credit	46.2		3.2		0.1		49.5

Total short-term debt and letters of credit	113.8		141.5		24.1		279.4

Remaining availability as of April 22, 2016	$	186.2	$	308.5	$	50.9	$	545.6
Invested cash as of April 22, 2016	$	1.9	$	—	$	—	$	1.9

The above table includes a $40.0 million letter of credit issued under the PNMR Revolving Credit Facility to facilitate the posting of reclamation bonds by a surety in connection with the purchase of SJCC by a subsidiary of Westmoreland from BHP. See Note 11. The above table excludes intercompany debt. As of April 22, 2016 , TNMP had $9.2 million in intercompany borrowings from PNMR. The remaining availability under the revolving credit facilities at any point in time varies based on a number of factors, including the timing of collections of accounts receivables and payments for construction and operating expenditures.

PNMR can offer new shares of common stock through the PNM Resources Direct Plan under a SEC shelf registration statement that expires in August 2018. PNM has a shelf registration statement for up to $250.0 million of senior unsecured notes that expires in May 2017.

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Off-Balance Sheet Arrangements

PNMR’s off-balance sheet arrangements include PNM’s operating leases for portions of PVNGS Units 1 and 2 and, until April 1, 2015, the EIP transmission line. These arrangements help ensure PNM the availability of lower-cost generation needed to serve customers. See MD&A – Off-Balance Sheet Arrangements and Notes 7 and 9 of the Notes to Consolidated Financial Statements in the 2015 Annual Reports on Form 10-K as well as Note 5.

Commitments and Contractual Obligations

PNMR, PNM, and TNMP have contractual obligations for long-term debt, operating leases, construction expenditures, purchase obligations, and certain other long-term obligations. See MD&A – Commitments and Contractual Obligations in the 2015 Annual Reports on Form 10-K.

Contingent Provisions of Certain Obligations

As discussed in the 2015 Annual Reports on Form 10-K, PNMR, PNM, and TNMP have a number of debt obligations and other contractual commitments that contain contingent provisions. Some of these, if triggered, could affect the liquidity of the Company. In the unlikely event that the contingent requirements were to be triggered, PNMR, PNM, or TNMP could be required to provide security, immediately pay outstanding obligations, or be prevented from drawing on unused capacity under certain credit agreements. The contingent provisions also include contractual increases in the interest rate charged on certain of the Company’s short-term debt obligations in the event of a downgrade in credit ratings. The Company believes its financing arrangements are sufficient to meet the requirements of the contingent provisions. No conditions have occurred that would result in any of the above contingent provisions being implemented.

Capital Structure

The capitalization tables below include the current maturities of long-term debt, but do not include short-term debt and do not include operating lease obligations as debt.



	March 31, 2016		December 31, 2015
PNMR
PNMR common equity	41.8	%	44.0	%
Preferred stock of subsidiary	0.3	%	0.3	%
Long-term debt	57.9	%	55.7	%
Total capitalization	100.0	%	100.0	%

PNM
PNM common equity	45.3	%	45.3	%
Preferred stock	0.4	%	0.4	%
Long-term debt	54.3	%	54.3	%
Total capitalization	100.0	%	100.0	%

TNMP
Common equity	56.2	%	59.6	%
Long-term debt	43.8	%	40.4	%
Total capitalization	100.0	%	100.0	%

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OTHER ISSUES FACING THE COMPANY

Climate Change Issues

Background

In 2015, GHG associated with PNM’s interests in its generating plants included approximately 6.4 million metric tons of CO ₂ , which comprises the vast majority of PNM’s GHG. By comparison, the total GHG in the United States in 2013, the latest year for which EPA has published this data, were approximately 6.7 billion metric tons, of which approximately 5.5 billion metric tons were CO ₂ .

PNM has several programs underway to reduce or offset GHG from its resource portfolio, thereby reducing its exposure to climate change regulation. See Note 12. In 2015, PNM completed construction of 40 MW of utility-scale solar generation, bringing its total owned solar generation capacity to 107 MW. Since 2003, PNM has purchased the entire output of New Mexico Wind, which has an aggregate capacity of 204 MW, and began purchasing the full output of Red Mesa Wind, which has an aggregate capacity of 102 MW, in January 2015. PNM has a 20-year PPA for the output of Lightning Dock Geothermal, which began providing power to PNM in January 2014. The current capacity of the geothermal facility is 4 MW and future expansion may result in up to 9 MW of generation capacity. Additionally, PNM has a customer distributed solar generation program that represented 52.2 MW at March 31, 2016. PNM’s distributed solar programs will reduce PNM’s annual production from fossil-fueled electricity generation by about 136 GWh. PNM offers its customers a comprehensive portfolio of energy efficiency and load management programs, with a budget of $25.8 million for the program year beginning in June 2015. PNM estimates these programs saved approximately 79 GWh of electricity in 2015. Over the next 18 years, PNM projects energy efficiency and load management programs will provide the equivalent of approximately 9,000 GWh of electricity, which will avoid at least 5.5 million metric tons of CO ₂ based upon projected emissions from PNM’s system-wide resources. These estimates are subject to change because of the uncertainty of many of the underlying variables, including changes in demand for electricity, and complex relationships between those variables.

Management periodically updates the Board on implementation of the corporate environmental policy and the Company’s environmental management systems, promotion of energy efficiency, and use of renewable resources. The Board is also advised of the Company’s practices and procedures to assess the sustainability impacts of operations on the environment. The Board considers associated issues around climate change, the Company’s GHG exposures, and the financial consequences that might result from potential federal and/or state regulation of GHG.

As of December 31, 2015, approximately 70.6% of PNM’s generating capacity, including resources owned, leased, and under PPAs, all of which is located within the United States, consisted of coal or gas-fired generation that produces GHG. Based on current forecasts, the Company does not expect its output of GHG from existing sources to increase significantly in the near-term. Many factors affect the amount of GHG emitted. For example, if new natural gas-fired generation resources are added to meet increased load as anticipated in PNM’s current IRP, GHG would be incrementally increased. In addition, plant performance could impact the amount of GHG emitted. If PVNGS experienced prolonged outages, PNM might be required to utilize other power supply resources such as gas-fired generation, which could increase GHG. As described in Note 11, PNM received approval for the December 31, 2017 shutdown of SJGS Units 2 and 3 as part of its strategy to address the regional haze requirements of the CAA. The shutdown of Units 2 and 3 would result in a reduction of GHG for the entire station of approximately 50%, including a reduction of approximately 28% for the Company’s ownership interests. Although replacement power strategies include some gas-fired generation, the reduction in GHG from the retirement of the coal-fired generation would be far greater than the increase in GHG from replacement generation.

Because of PNM’s dependence on fossil-fueled generation, legislation or regulation that imposes a limit or cost on GHG could impact the cost at which electricity is produced. While PNM expects to recover any such costs through rates, the timing and outcome of proceedings for cost recovery are uncertain. In addition, to the extent that any additional costs are recovered through rates, customers may reduce their usage, relocate facilities to other areas with lower energy costs, or take other actions that ultimately will adversely impact PNM.

Given the geographic location of its facilities and customers, PNM generally has not been exposed to the extreme weather events and other physical impacts commonly attributed to climate change, with the exception of periodic drought conditions. Drought conditions in northwestern New Mexico could impact the availability of water for cooling coal-fired generating plants. Water shortage sharing agreements are in place with the more senior water rights holders to mutually share the impacts of water shortages although no shortage has been declared due to sufficient precipitation in the San Juan River basin. These agreements have been extended through 2016. PNM’s service areas also experience periodic high winds, forest fires, and severe thunderstorms.

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TNMP has operations in the Gulf Coast area of Texas, which experiences periodic hurricanes and drought conditions. In addition to potentially causing physical damage to TNMP-owned facilities, which disrupt the ability to transmit and/or distribute energy, hurricanes can temporarily reduce customers’ usage and demand for energy. Climate changes are generally not expected to have material consequences to the Company in the near-term.

EPA Regulation

In April 2007, the US Supreme Court held that EPA has the authority to regulate GHG under the CAA. This decision heightened the importance of this issue for the energy industry. In December 2009, EPA released its endangerment finding stating that the atmospheric concentrations of six key greenhouse gases (CO ₂ , methane, nitrous oxides, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride) endanger the public health and welfare of current and future generations. In May 2010, EPA released the final PSD and Title V Greenhouse Gas Tailoring Rule (the “Tailoring Rule”) to address GHG from stationary sources under the CAA permitting programs. The purpose of the rule was to “tailor” the applicability of two programs, PSD and Title V operating permit programs, to avoid impacting millions of small GHG emitters. The rule focused on the largest sources of GHG, including fossil-fueled electric generating units. This program covered the construction of new emission units that emit GHG of at least 100,000 tons per year in CO ₂ equivalents (even if PSD is not triggered for other pollutants). In addition, modifications at existing major-emitting facilities that increase GHG by at least 75,000 tons per year in CO ₂ equivalents would be subject to PSD permitting requirements, even if they did not significantly increase emissions of any other pollutant. As a result, PNM’s fossil-fueled generating plants were more likely to trigger PSD permitting requirements because of the magnitude of GHG. However as discussed below, a court case in 2014 now limits the extent of the Tailoring Rule.

On June 26, 2012, the DC Circuit rejected challenges to EPA’s 2009 GHG endangerment finding, GHG standards for light-duty vehicles, PSD Interpretive Memorandum (EPA’s so-called GHG “Timing Rule”), and the Tailoring Rule. The court found that EPA’s endangerment finding and its light-duty vehicle rule “are neither arbitrary nor capricious,” that “EPA’s interpretation of the governing CAA provisions is unambiguously correct,” and that “no petitioner has standing to challenge the Timing and Tailoring Rules.” On October 15, 2013, the US Supreme Court granted a petition for a Writ of Certiorari regarding the permitting of stationary sources that emit GHG. The US Supreme Court limited the question that it would review to: “Whether EPA permissibly determined that its regulation of greenhouse gas emissions from new motor vehicles triggered permitting requirements under the Clean Air Act for stationary sources that emit greenhouse gases.” Specifically, the case dealt with whether EPA’s determination that regulation of GHG from motor vehicles required EPA to regulate stationary sources under the PSD and Title V permitting programs. The petitioners argued that EPA’s determination that it was required to regulate GHG under the PSD and Title V Programs was unlawful as it violates Congressional intent.

On June 23, 2014, the US Supreme Court issued its opinion on the above case. The US Supreme Court largely reversed the DC Circuit. First, the US Supreme Court found the CAA does not compel or permit EPA to adopt an interpretation of the act that requires a source to obtain a PSD or Title V permit on the sole basis of its potential GHG. Second, EPA had argued that even if it was not required to regulate GHGs under the PSD and Title V programs, the Tailoring Rule was nonetheless justified on the grounds that it was a reasonable interpretation of the CAA. The US Supreme Court rejected this argument. Third, the US Supreme Court found EPA lacked authority to “tailor” the CAA’s unambiguous numerical thresholds of 100 or 250 tons per year. Fourth, the US Supreme Court found that it would be reasonable for EPA to interpret the CAA to limit the PSD program for GHGs to “anyway” sources – those sources that have to comply with the PSD program for other non-GHG pollutants. The US Supreme Court said that EPA needed to establish a de minimis level below which BACT would not be required for “anyway” sources.

On June 25, 2013, President Obama announced his Climate Action Plan which outlines how his administration plans to cut GHG in the United States, prepare the country for the impacts of climate change, and lead international efforts to combat and prepare for global warming. The plan proposes actions that would lead to the reduction of GHG by 17% below 2005 levels by 2020. The President also issued a Presidential Memorandum to EPA to continue development of the GHG NSPS regulations for electric generators. The Presidential Memorandum establishes a timeline for the reproposal and issuance of a GHG NSPS for new sources and a timeline for the proposal and final rule for developing carbon pollution standards, regulations, or guidelines for GHG reductions from existing sources under Section 111(d) of the CAA. The Presidential Memorandum further directs EPA to allow the use of “market-based instruments” and “other regulatory flexibilities” to ensure standards will allow for continued reliance on a range of energy sources and technologies and that they are developed and implemented in a manner that provides for reliable and affordable energy and to undertake the rulemaking through direct engagement with states, “as they will play a central role in establishing and implementing standards for existing power plants,” and with utility leaders, labor leaders, non-governmental organizations, tribal officials, and other stakeholders.

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EPA met the President’s timeline for issuance of carbon pollution standards for new sources under Section 111(b) and for existing sources under Section 111(d) of the CAA. On August 3, 2015, EPA issued its final standards to limit CO ₂ emissions from power plants. The final rule was published on October 23, 2015. Three separate but related actions took place: (1) the final Carbon Pollution Standards for new, modified, and reconstructed power plants were established (under Section 111(b)); (2) the final Clean Power Plan was issued to set standards for carbon emission reductions from existing power plants (under Section 111(d)); and (3) a proposed federal plan associated with the final Clean Power Plan was released.

EPA’s final rule to limit GHG emissions from new, modified, and reconstructed power establishes standards based upon certain, specific conditions. For newly constructed and reconstructed base load natural gas-fired stationary combustion turbines, the EPA finalized a standard of 1,000 lb CO ₂ /MWh-gross based on efficient natural gas combined cycled technology as the best system of emissions reductions (“BSER”). Alternatively, owners and operators of base load natural gas-fired combustion turbines may elect to comply with a standard based on an output of 1,030 lb CO ₂ /MWh-net. A new source is any newly constructed fossil fuel-fired power plant that commenced construction after January 8, 2014.

The final standards for coal-fired power plants vary depending on whether the unit is new, modified, or reconstructed. The BSER for new steam units is a supercritical pulverized coal unit with partial carbon capture and storage. Based on that technology, new coal-fired units will be required to meet an emissions standard equal to 1,400 lbs CO ₂ /MWh from the beginning of the power plant’s life. The BSER for modified units is based on each affected unit’s own best potential performance. Standards will be in the form of an emission limit in pounds of CO ₂ per MWh, which will apply to units with modifications resulting in an increase of hourly CO ₂ emissions of more than 10% relative to the emissions of the most recent five years from that unit. The BSER for reconstructed coal-fired power units is the performance of the most efficient generating technology for these types of units. Final emissions standards depend on heat input. Sources with heat input greater than 2,000 MMBTU/hour would be required to meet an emission limit of 1,800 lbs CO ₂ /MWh-gross, and sources with a heat input of less than or equal to 2,000 MMBTU/hour would be required to meet an emission limit of 2,000 lbs CO ₂ /MWh-gross.

The final Clean Power Plan rule changed significantly in structure from the proposed rule that was released in June 2014. Changes include delaying the first compliance date by two years from 2020 to 2022; adopting a new approach to calculating the emission targets which resulted in different state goals than those originally proposed; adding a reliability safety valve; and proposing rewards for early reductions. The rule establishes two numeric “emission standards” - one for “fossil-steam” units (coal- and oil-fired units) and one for natural gas-fired units (combined cycle only). The emission standards are based on emission reduction opportunities that EPA deemed achievable using technical assumptions for three “building blocks:” efficiency improvements at coal-fired EGUs, displacement of affected EGUs with renewable energy, and displacement of coal-fired generation with natural gas-fired generation. The final standards are 1,305 lb/MWH for fossil-steam units and 771 lb/MWH for gas units, both of which phase in over the period 2022-2030. To facilitate implementation, EPA converted the emission standards into state goals. Each state’s goal reflects the average state-wide emission rate that all of the state’s affected EGUs would meet in the aggregate if each one achieved the emission standards alone based upon a weighted average of each state’s unique mix of affected units.

Under the final rule, states are required to make initial plan submissions to EPA by September 6, 2016. EPA will grant up to a two-year extension provided that the initial plan meets certain specified criteria for progress and consultation. States receiving an extension must submit an update to EPA in 2017 and final plans by September 2018. States not requesting an extension must submit their final plans by September 2016. State plans can be based on either an emission standards (rate or mass) approach or a state measures approach. Under an emission standards approach, federally enforceable emission limits are placed directly on affected units in the state. A state measures approach must meet equivalent rates statewide, but may include some elements, such as renewable energy or energy efficiency requirements, that are not federally enforceable. Plans using state measures may only be used with mass-based goals and must include “backstop” federally enforceable standards for EGUs that will become effective if the state measures fail to achieve the expected level of emission reductions.

The Clean Power Plan also proposes a Clean Energy Incentive Program designed to award credits for early development of certain renewable energy and energy efficiency programs that displace fossil generation in 2020 and 2021 prior to the compliance obligation taking effect in 2022. In addition, the Clean Power Plan contains a reliability safety valve for individual power plants. The reliability safety valve allows for a 90-day relief from CO ₂ emissions limits if generating units need to continue to operate and release excess emissions during emergencies that could compromise electric system reliability.

As discussed above, EPA issued a proposed Federal Plan in association with the Clean Power Plan. Under Section 111(d), EPA is authorized to issue a federal plan for states that do not submit an approvable state plan. EPA indicates that states may voluntarily adopt the Federal Plan in whole or in part as its state plan. EPA explains in its communications that the proposed

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Federal Plan will be released in advance of the deadline for submission of state plans to provide regulatory certainty to states that fail to submit an approvable plan. The proposed Federal Plan will apply emission reduction obligations directly on affected EGUs. The plan presents two approaches: a rate-based emissions trading program and a mass-based emissions trading program. EPA indicates that it will choose only one of these approaches in the final Federal Plan. However, the proposed rule will offer both approaches for states to use as models in their own plans. EPA asked for comments on the proposed Federal Plan by January 21, 2016. PNM submitted comments in response.

Multiple states, utilities, and trade groups filed petitions for review and motions to stay in the DC Circuit. On January 21, 2016, the DC Circuit denied the motions to stay the EPA’s section 111(d) rule (the Clean Power Plan). It did, however, expedite briefing in the case and set it for oral argument on June 2, 2016. Under the court’s order, the parties were required to submit a proposed briefing format to the court by January 27, 2016, which ensures that briefing on all issues is completed by April 22, 2016. Petitioners had asked for bifurcated briefing that would allow the core legal issues to be litigated first and the programmatic issues related to the rule to be litigated later depending on the outcome of the litigation. The court denied that request.

On January 26, 2016, 29 states and state agencies filed a petition to the US Supreme Court asking the court to reverse the DC Circuit’s decision and stay the implementation of the Clean Power Plan. On February 9, 2016, the US Supreme Court granted the applications to stay the Clean Power Plan pending judicial review of the rule. The US Supreme Court issued a one-page order that stated, “The EPA rule to have states cut power sector carbon dioxide (CO ₂ ) emissions 32% by 2030 is stayed pending disposition of the applicants’ petitions for review in the United States Court of Appeals for the District of Columbia Circuit.” The vote was 5-4 among the US Supreme Court Justices. The decision means the Clean Power Plan is not in effect and states are not obliged to comply with its requirements. If the rule prevails through the legal challenges, states will be able to resume preparing state plans where they left off and should still have six more months to prepare initial plans and 2.5 years for final plans (if an extension is granted by EPA). The DC Circuit will hear oral arguments on the merits of the states’ case on June 2, 2016. A final ruling from that court might not come for months. The stay will remain in effect pending US Supreme Court review if such review is sought.

If the Clean Power Plan prevails, the rule will impact PNM’s existing and future fossil-fueled EGUs. The Carbon Pollution Standards covering new sources will also impact PNM’s generation fleet. Impacts could involve investments in additional renewables and energy efficiency programs, efficiency improvements, and/or control technologies at the fossil-fueled EGUs. Under an emissions rate or mass based trading program, PNM may be required to purchase credits or allowances to comply with New Mexico’s final state plan. There are limited efficiency enhancement measures that may be available to a subset of the existing EGUs; however, such measures would provide only marginal GHG improvements. The only emission control technology for coal and gas-fired power plants available for GHG reduction is carbon capture and sequestration, which is not yet a commercially demonstrated technology. Additional GHG control technologies for existing EGUs may become viable in the future. The costs of purchasing carbon credits or allowances, making improvements, or installing new technology could impact the economic viability of some plants. PNM estimates that implementation of the BART plan at SJGS that required the installation of SNCRs on Units 1 and 4 by early 2016, which has been completed, and the retirement of SJGS Units 2 and 3 by the end of 2017 as described in Note 11, should provide a significant step for New Mexico to meet its ultimate compliance with Section 111(d). PNM is unable to predict the impact of this rule on its fossil-fueled generation.

Federal Legislation

Prospects for enactment of legislation imposing a new or enhanced regulatory program to address climate change in Congress are unlikely in 2016. Instead, EPA continues to be the primary venue for GHG regulation in the near future, especially for coal-fired EGUs. The US Supreme Court’s decision to stay the Clean Power Plan does put into question the viability of the rule, but EPA is encouraging states to continue to develop plans for compliance even during the stay. In addition, while there are legislative proposals to limit or block implementation of the Clean Power Plan once it is finalized, enactment of such legislation appears unlikely.

PNM has assessed, and continues to assess, the impacts of climate change legislation or regulation on its business. This assessment is ongoing and future changes arising out of the legislative or regulatory process could impact the assessment significantly. PNM’s assessment includes assumptions regarding the specific GHG limits, the timing of implementation of these limits, the possibility of a cap-and-trade or tax program including the associated costs and the availability of offsets, the development of technologies for renewable energy and to reduce emissions, and provisions for cost containment. Moreover, the assessment assumes various market reactions such as the price of coal and gas and regional plant economics. These assumptions, at best, are preliminary and speculative. However, based upon these assumptions, the enactment of climate change legislation or regulation could, among other things, result in significant compliance costs, including large capital expenditures by PNM, and could jeopardize the economic viability of certain generating facilities. See Note 11. In turn, these consequences could lead to increased costs to

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customers and affect results of operations, cash flows, and financial condition if the incurred costs are not fully recovered through regulated rates. Higher rates could also contribute to reduced usage of electricity. PNM’s assessment process is ongoing, but too preliminary and speculative at this time for the meaningful prediction of financial impact.

State and Regional Activity

Pursuant to New Mexico law, each utility must submit an IRP to the NMPRC every three years to evaluate renewable energy, energy efficiency, load management, distributed generation, and conventional supply-side resources on a consistent and comparable basis. The IRP is required to take into consideration risk and uncertainty of fuel supply, price volatility, and costs of anticipated environmental regulations when evaluating resource options to meet supply needs of the utility’s customers. The NMPRC requires that New Mexico utilities factor a standardized cost of carbon emissions into their IRPs using prices ranging between $8 and $40 per metric ton of CO ₂ emitted and escalating these costs by 2.5% per year. Under the NMPRC order, each utility must analyze these standardized prices as projected operating costs. Reflecting the developing nature of this issue, the NMPRC order states that these prices may be changed in the future to account for additional information or changed circumstances. Although these prices may not reflect the costs that ultimately will be incurred, PNM is required to use these prices for purposes of its IRP. PNM’s IRP filed with the NMPRC on July 1, 2014 showed that consideration of carbon emissions costs impacted the projected in-service dates of some of the identified resources.

In the past, New Mexico adopted regulations, which have since been repealed, that would directly limit GHG from larger sources, including EGUs, through a regional GHG cap and trade program and that would cap GHG from larger sources such as EGUs. Although these rules have been repealed, PNM cannot rule out future state legislative or regulatory initiatives to regulate GHG.

On August 2, 2012, thirty-three New Mexico organizations representing public health, business, environmental, consumers, Native American, and other interested parties filed a petition for rulemaking with the NMPRC. The petition asked the NMPRC to issue a NOPR regarding the implementation of an Optional Clean Energy Standard for electric utilities located in New Mexico. The proposed standard would have utilities that elect to participate reduce their CO ₂ emissions by 3% per year. Utilities that opt into the program would be assured recovery of their reasonable compliance costs. On October 4, 2012, the NMPRC held a workshop to discuss the proposed standard and whether it has authority to proceed with the NOPR. On August 28, 2013, the petitioners amended the August 2, 2012 petition and requested that the NMPRC issue a NOPR to implement a “Carbon Risk Reduction Rule” for electric utilities in New Mexico. The proposed rule would require affected utilities to demonstrate a 3% per year CO ₂ emission reduction from a three-year average baseline period between 2005 and 2012. The proposed rule would use a credit system that provides credits for electricity production based on how much less than one metric ton of CO ₂ per MWh the utility emits. Credits would be retired such that 3% per year reductions are achieved from the baseline year until 2035 unless a participating utility elects to terminate the program at the end of 2023. Credits would not expire and could be banked. An advisory committee of interested stakeholders would monitor the program. In addition, utilities would be allowed to satisfy their obligations by funding NMPRC approved energy efficiency programs. There has been no further action on this matter at the NMPRC.

International Accords

The United Nations Framework Convention on Climate Change (“UNFCCC”) is an international environmental treaty that was negotiated at the 1992 United Nations Conference on Environment and Development (informally known as the Earth Summit) and entered into force in March 1994. The objective of the treaty is to “stabilize greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.” Parties, including the United States, have been meeting annually in Conferences of the Parties (“COP”) to assess progress in meeting the objectives of the UNFCCC. This assessment process led to the negotiation of the Kyoto Protocol in the mid-1990s. The Protocol, which was agreed to in 1997 and established legally binding obligations for developed countries to reduce their GHG, was never ratified by the United States. PNM monitors the proceedings of the UNFCCC, including the annual COP meetings, to determine potential impacts to its business activities. At the COP meeting in 2011, participating nations, including the United States, agreed to negotiate by 2015 an international agreement involving commitments by all nations to begin reducing carbon emissions by 2020. On December 12, 2015, the Paris Agreement was finalized during the 2015 COP. The agreement, which was agreed to by more than 190 countries, requires that countries submit Nationally Determined Contributions (“NDCs”). NDCs reflect national targets and actions that arise out of national polices, and elements relating to oversight, guidance and coordination of actions to reduce emissions by all countries. In November 2014, President Obama announced the United States’ commitment to reduce GHG, on an economy-wide basis, by 26%-28% from 2005 levels by the year 2025 as part of an overall effort to have the United States achieve economy-wide reductions of around 80% by 2050. As part of the process for developing the new global climate agreement, the United States enshrined this reduction commitment in its intended NDC, which was formally submitted to the UNFCCC Secretariat on March 31, 2015. As part of the Paris Agreement, NDCs have been submitted by 188 nations, including the United States and the

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European Union. PNM will continue to monitor the United States’ participation in international accords. The Obama administration’s GHG reduction target for the electric utility industry is a key element of its NDC and is based on EPA’s final GHG regulations for new, existing, and modified and reconstructed sources. With the stay of the Clean Power Plan that covers existing sources, it is uncertain how the Obama administration plans to meet its NDC under the Paris Agreement. PNM believes that implementation of the BART plan for SJGS (Note 11) should provide a significant step towards compliance with the Clean Power Plan, should it prevail, or other GHG reduction requirements.

Transmission Issues

At any given time, FERC has various notices of inquiry and rulemaking dockets related to transmission issues pending. Such actions may lead to changes in FERC administrative rules or ratemaking policy, but have no time frame in which action must be taken or a docket closed with no further action. Further, such notices and rulemaking dockets do not apply strictly to PNM, but will have industry-wide effects in that they will apply to all FERC-regulated entities. PNM monitors and often submits comments taking a position in such notices and rulemaking dockets or may join in larger group responses. PNM often cannot determine the full impact of a proposed rule and policy change until the final determination is made by FERC and PNM is unable to predict the outcome of these matters.

On November 24, 2009, FERC issued Order 729 approving two Modeling, Data, and Analysis Reliability Standards (“Reliability Standards”) submitted by NERC – MOD-001-1 (Available Transmission System Capability) and MOD-029-1 (Rated System Path Methodology). Both MOD-001-1 and MOD-029-1 require a consistent approach, provided for in the Reliability Standards, to measuring the total transmission capability (“TTC”) of a transmission path. The TTC level established using the two Reliability Standards could result in a reduction in the available transmission capacity currently used by PNM to deliver generation resources necessary for its jurisdictional load and for fulfilling its obligations to third-party users of the PNM transmission system.

During the first quarter of 2011, at the request of PNM and other southwestern utilities, NERC advised all transmission owners and transmission service providers that the implementation of portions of the MOD-029 methodology for “Flow Limited” paths has been delayed until such time as a modification to the standard can be developed that will mitigate the technical concerns identified by the transmission owners and transmission service providers. PNM and other western utilities filed a Standards Action Request with NERC in the second quarter of 2012.

NERC initiated an informal development process to address directives in Order 729 to modify certain aspects of the MOD standards, including MOD-001 and MOD-029. The modifications to this standard would retire MOD-029 and require each transmission operator to determine and develop methodology for TTC values for MOD-001.

A final ballot for MOD-001-2 concluded on December 20, 2013 and received sufficient affirmative votes for approval. On February 10, 2014, NERC filed with FERC a petition for approval of MOD-001-2 and retirement of reliability standards MOD-001-1a, MOD-004-1, MOD-008-1, MOD-028-2, MOD-029-1a, and MOD-030-2. On June 19, 2014, FERC issued a NOPR to approve a new reliability standard. The MOD-001-2 standard will become effective on the first day of the calendar quarter that is 18 months after the date the standard is approved by FERC. MOD-001-2 will replace multiple existing reliability standards and will remove the risk of reduced TTC for PNM and other western utilities.

Financial Reform Legislation

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Reform Act”), enacted in July 2010, includes provisions that will require certain over-the-counter derivatives, or swaps, to be centrally cleared and executed through an exchange or other approved trading facility. It also includes provisions related to swap transaction reporting and record keeping and may impose margin requirements on swaps that are not centrally cleared. The United States Commodity Futures Trading Commission (“CFTC”) has published final rules defining several key terms related to the act and has set compliance dates for various types of market participants. The Dodd-Frank Reform Act provides exemptions from certain requirements, including an exception to the mandatory clearing and swap facility execution requirements for commercial end-users that use swaps to hedge or mitigate commercial risk. PNM has elected the end-user exception to the mandatory clearing requirement. PNM expects to be in compliance with the Dodd-Frank Reform Act and related rules within the time frames required by the CFTC. However, as a result of implementing and complying with the Dodd-Frank Reform Act and related rules, PNM’s swap activities could be subject to increased costs, including from higher margin requirements. At this time, PNM cannot predict the ultimate impact the Dodd-Frank Reform Act may have on PNM’s financial condition, results of operations, cash flows, or liquidity.

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Other Matters

See Notes 11 and 12 herein and Notes 16 and 17 of the Notes to Consolidated Financial Statements in the 2015 Annual Reports on Form 10-K for a discussion of commitments and contingencies and rate and regulatory matters. See Note 1 for a discussion of accounting pronouncements that have been issued, but are not yet effective and have not been adopted by the Company.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with GAAP requires Company management to select and apply accounting policies that best provide the framework to report the results of operations and financial position for PNMR, PNM, and TNMP. The selection and application of those policies requires management to make difficult, subjective, and/or complex judgments concerning reported amounts of revenue and expenses during the reporting period and the reported amounts of assets and liabilities at the date of the financial statements. As a result, there exists the likelihood that materially different amounts would be reported under different conditions or using different assumptions.

As of March 31, 2016 , there have been no significant changes with regard to the critical accounting policies disclosed in PNMR’s, PNM’s, and TNMP’s 2015 Annual Reports on Forms 10-K. The policies disclosed included unbilled revenues, regulatory accounting, impairments, decommissioning and reclamation costs, pension and other postretirement benefits, accounting for contingencies, income taxes, and market risk.

MD&A FOR PNM

RESULTS OF OPERATIONS

PNM operates in only one reportable segment, as presented above in Results of Operations for PNMR.

MD&A FOR TNMP

RESULTS OF OPERATIONS

TNMP operates in only one reportable segment, as presented above in Results of Operations for PNMR.

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

Statements made in this filing that relate to future events or PNMR’s, PNM’s, or TNMP’s expectations, projections, estimates, intentions, goals, targets, and strategies are made pursuant to the Private Securities Litigation Reform Act of 1995. Readers are cautioned that all forward-looking statements are based upon current expectations and estimates. PNMR, PNM, and TNMP assume no obligation to update this information.

Because actual results may differ materially from those expressed or implied by these forward-looking statements, PNMR, PNM, and TNMP caution readers not to place undue reliance on these statements. PNMR’s, PNM’s, and TNMP’s business, financial condition, cash flows, and operating results are influenced by many factors, which are often beyond their control, that can cause actual results to differ from those expressed or implied by the forward-looking statements. These factors include:


•	The ability of PNM and TNMP to recover costs and earn allowed returns in regulated jurisdictions, including the pending application for a retail rate increase before the NMPRC and other impacts of federal or state regulatory and judicial actions


•	The ability of the Company to successfully forecast and manage its operating and capital expenditures, including supporting forecasts utilized in future test year rate proceedings


•	The impacts on the electricity usage of customers and consumers due to performance of state, regional, and national economies, mandatory energy efficiency measures, weather, seasonality, alternative sources of power, and other changes in supply and demand, including the failure to maintain or replace customer contracts on favorable terms


•	Uncertainty surrounding the status of PNM’s participation in jointly-owned generation projects resulting from the scheduled expiration of the operational agreements for SJGS and Four Corners, as well as the fuel supply agreement for SJGS, including the 2018 required NMPRC filing to determine the extent to which SJGS should continue serving PNM’s retail customers


•	Uncertainty surrounding counterparty credit risk, including financial support provided to facilitate the new coal supply and ownership restructuring at SJGS, as well as obligations to provide additional collateral in support of required reclamation bonds

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•	State and federal regulation or legislation relating to environmental matters, the resultant costs of compliance, and other impacts on the operations and economic viability of PNM’s generating plants


•	Physical and operational risks related to climate change and potential financial risks resulting from climate change litigation and legislative and regulatory efforts to limit GHG, including the Clean Power Plan


•	Uncertainty regarding the requirements and related costs of decommissioning power plants and reclamation of coal mines supplying certain power plants, as well as the ability to recover those costs from customers


•	The performance of generating units, transmission systems, and distribution systems, which could be negatively affected by operational issues, fuel quality, unplanned outages, extreme weather conditions, terrorism, cybersecurity breaches, and other catastrophic events


•	Variability of prices and volatility and liquidity in the wholesale power and natural gas markets


•	Changes in price and availability of fuel and water supplies, including the ability of the mines supplying coal to PNM’s coal-fired generating units and the companies involved in supplying nuclear fuel to provide adequate quantities of fuel


•	The risks associated with completion of generation, transmission, distribution, and other projects


•	State and federal regulatory, legislative, and judicial decisions and actions on ratemaking, tax, and other matters


•	Regulatory, financial, and operational risks inherent in the operation of nuclear facilities, including spent fuel disposal uncertainties


•	The Company’s ability to access the financial markets, including disruptions in the credit markets, actions by ratings agencies, and fluctuations in interest rates


•	The potential unavailability of cash from PNMR’s subsidiaries due to regulatory, statutory, or contractual restrictions


•	The risk that FERC rulemakings may negatively impact the operation of PNM’s transmission system


•	The impacts of decreases in the values of marketable equity securities maintained to provide for decommissioning, reclamation, pension benefits, and other postretirement benefits


•	Employee workforce factors, including issues arising out of collective bargaining agreements and labor negotiations with union employees


•	The effectiveness of risk management regarding commodity transactions and counterparty risk


•	The outcome of legal proceedings, including the extent of insurance coverage


•	Changes in applicable accounting principles or policies

Any material changes to risk factors occurring after the filing of PNMR’s, PNM’s, and TNMP’s 2015 Annual Reports on Form 10-K are disclosed in Item 1A, Risk Factors, in Part II of this Form 10-Q.

For information about the risks associated with the use of derivative financial instruments, see Item 3. “Quantitative and Qualitative Disclosures About Market Risk.”

SECURITIES ACT DISCLAIMER

Certain securities described or cross-referenced in this report have not been registered under the Securities Act of 1933, as amended, or any state securities laws and may not be reoffered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act of 1933 and applicable state securities laws. This Form 10-Q does not constitute an offer to sell or the solicitation of an offer to buy any securities.

WEBSITES

The PNMR website, www.pnmresources.com , is an important source of Company information. New or updated information for public access is routinely posted. PNMR encourages analysts, investors, and other interested parties to register on the website to automatically receive Company information by e-mail. This information includes news releases, notices of webcasts, and filings with the SEC. Participants will not receive information that was not requested and can unsubscribe at any time.

Our Internet addresses are:


•	PNMR: www.pnmresources.com


•	PNM: www.pnm.com


•	TNMP: www.tnmp.com

In addition to the corporate websites, PNM has a website, www.PowerforProgress.com , dedicated to showing how it balances delivering reliable power at affordable prices and protecting the environment. This website is designed to be a resource for the facts about PNM’s operations and support efforts, including plans for building a sustainable energy future for New Mexico.

The contents of these websites are not a part of this Form 10-Q. The SEC filings of PNMR, PNM, and TNMP, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are accessible free of charge on the PNMR website as soon as reasonably practicable after they are filed with, or furnished to, the SEC. These reports are also available in print upon request from PNMR free of charge.

Also available on the Company’s website at www.pnmresources.com/corporate-governance.aspx and in print upon request from any shareholder are our:


•	Corporate Governance Principles


•	Code of Ethics ( Do the Right Thing – Principles of Business Conduct )


•	Charters of the Audit and Ethics Committee, Nominating and Governance Committee, Compensation and Human Resources Committee, and Finance Committee

The Company will post amendments to or waivers from its code of ethics (to the extent applicable to the Company’s executive officers and directors) on its website.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company manages the scope of its various forms of risk through a comprehensive set of policies and procedures with oversight by senior level management through the RMC. The Board’s Finance Committee sets the risk limit parameters. The RMC has oversight over the risk control organization. The RMC is assigned responsibility for establishing and enforcing the policies, procedures, and limits and evaluating the risks inherent in proposed transactions on an enterprise-wide basis. The RMC’s responsibilities include:


•	Establishing policies regarding risk exposure levels and activities in each of the business segments


•	Approving the types of derivatives entered into for hedging


•	Reviewing and approving hedging risk activities


•	Establishing policies regarding counterparty exposure and limits


•	Authorizing and delegating transaction limits


•	Reviewing and approving controls and procedures for derivative activities


•	Reviewing and approving models and assumptions used to calculate mark-to-market and market risk exposure


•	Proposing risk limits to the Board’s Finance Committee for its approval


•	Quarterly reporting to the Board’s Audit and Finance Committees on these activities

To the extent an open position exists, fluctuating commodity prices, interest rates, equity prices, and economic conditions can impact financial results and financial position, either favorably or unfavorably. As a result, the Company cannot predict with certainty the impact that its risk management decisions may have on its businesses, operating results, or financial position.

Commodity Risk

Information concerning accounting for derivatives and the risks associated with commodity contracts is set forth in Note 7, including a summary of the fair values of mark-to-market energy related derivative contracts included in the Condensed Consolidated Balance Sheets. During the three months ended March 31, 2016 and the year ended December 31, 2015, the Company had no commodity derivative instruments designated as cash flow hedging instruments.

Commodity contracts, other than those that do not meet the definition of a derivative under GAAP and those derivatives designated as normal purchases and normal sales, are recorded at fair value on the Condensed Consolidated Balance Sheets. The following table details the changes in the net asset or liability balance sheet position for mark-to-market energy transactions.

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	Three Months Ended
	March 31,
	2016			2015
Economic Hedges	(In thousands)
Sources of fair value gain (loss):
Net fair value at beginning of period	$	4,576		$	9,546
Amount realized on contracts delivered during period	(1,105		)	(1,197		)
Changes in fair value	2,539			(522		)
Net mark-to-market change recorded in earnings	1,434			(1,719		)
Net change recorded as regulatory assets and liabilities	(216		)	3
Net fair value at end of period	$	5,794		$	7,830

The following table provides the maturity of the net assets (liabilities), giving an indication of when these mark-to-market amounts will settle and generate (use) cash.

Fair Value of Mark-to-Market Instruments at March 31, 2016



	Settlement Dates
	2016		2017
	(In thousands)
Economic hedges
Prices actively quoted	$	—	$	—
Prices provided by other external sources	3,155		2,639
Prices based on models and other valuations	—		—
Total	$	3,155	$	2,639

PNM measures the market risk of its long-term contracts and wholesale activities using a Monte Carlo VaR simulation model to report the possible loss in value from price movements. VaR is not a measure of the potential accounting mark-to-market loss. The quantitative risk information is limited by the parameters established in creating the model. The Monte Carlo VaR methodology employs the following critical parameters: historical volatility estimates, market values of all contractual commitments, a three-day holding period, seasonally adjusted and cross-commodity correlation estimates, and a 95% confidence level. The instruments being evaluated may trigger a potential loss in excess of calculated amounts if changes in commodity prices exceed the confidence level of the model used.

PNM measures VaR for the positions in its wholesale portfolio (not covered by the FPPAC). For the three months ended March 31, 2016 , the high, low, and average VaR amounts were $1.3 million, $0.7 million, and $0.9 million. For the year ended December 31, 2015 , the high, low, and average VaR amounts were $2.6 million, $0.5 million, and $1.4 million. At March 31, 2016 and December 31, 2015 , the VaR amounts for the PNM wholesale portfolio were $0.9 million and $1.2 million.

The VaR represents an estimate of the potential gains or losses that could be recognized on the Company’s portfolios, subject to market risk, given current volatility in the market, and is not necessarily indicative of actual results that may occur, since actual future gains and losses will differ from those estimated. Actual gains and losses may differ due to actual fluctuations in market prices, operating exposures, and the timing thereof, as well as changes to the underlying portfolios during the year. VaR limits were not exceeded during the three months ended March 31, 2016 or the year ended December 31, 2015.

Credit Risk

The Company is exposed to credit risk from its retail and wholesale customers, as well as the counterparties to derivative instruments. The Company conducts counterparty risk analysis across business segments and uses a credit management process to assess the financial conditions of counterparties. The following table provides information related to credit exposure by the

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credit worthiness (credit rating) and concentration of credit risk for counterparties to derivative transactions all of which will mature in less than two years.

Schedule of Credit Risk Exposure

March 31, 2016



Rating ⁽¹⁾	Credit Risk Exposure ⁽²⁾		Number of Counter-parties >10%	Net Exposure of Counter-parties >10%
	(Dollars in thousands)
External ratings:
Investment grade	$	746	—	$	—
Non-investment grade	243		—	—
Split rating	309
Internal ratings:
Investment grade	7,407		1	6,793
Non-investment grade	2		—	—
Total	$	8,707		$	6,793


⁽¹⁾	The rating “Investment Grade” is for counterparties, or a guarantor, with a minimum S&P rating of BBB- or Moody’s rating of Baa3. The category “Internal Ratings – Investment Grade” includes those counterparties that are internally rated as investment grade in accordance with the guidelines established in the Company’s credit policy.

⁽²⁾

The Credit Risk Exposure is the gross credit exposure, including long-term contracts (other than firm-requirements wholesale customers), forward sales, and short-term sales. The exposure captures the amounts from receivables/payables for realized transactions, delivered and unbilled revenues, and mark-to-market gains/losses. Gross exposures can be offset according to legally enforceable netting arrangements but are not reduced by posted credit collateral. At March 31, 2016 , PNMR held $0.1 million of cash collateral to offset its credit exposure.

Net credit risk for the Company’s largest counterparty as of March 31, 2016 was $6.8 million.

As discussed in Note 11, PNMR’s subsidiary, NM Capital, entered into the Westmoreland Loan and PNMR arranged for a letter of credit to be issued under the PNMR Revolving Credit Facility to support the acquisition of SJCC by WSJ, a subsidiary of Westmoreland. PNMR is exposed to credit risk under these arrangements in the event of default by WSJ. Required principal payments under the Westmoreland Loan for the next five years are $39.6 million, $29.7 million, $4.8 million, $12.3 million, and $38.6 million. In addition, the Westmoreland Loan requires that all cash flows of WSJ, in excess of normal operating expenses, capital additions, and operating reserves, be utilized for principal and interest payments under the loan until it is fully repaid. In addition, the Westmoreland Loan is secured by the assets of and the equity interests in SJCC. In the event of a default by WSJ, NM Capital would have the ability to take over the mining operations, the value of which PNMR believes approximates the amount outstanding under the Westmoreland Loan. Furthermore, PNMR considers the possibility of loss under the letter of credit to be remote as discussed in Note 5. Accordingly, PNMR does consider its credit risk under these arrangements to be material.

Interest Rate Risk

The majority of the Company’s long-term debt is fixed-rate debt and does not expose earnings to a major risk of loss due to adverse changes in market interest rates. However, the fair value of PNMR’s consolidated long-term debt instruments would increase by 2.9%, or $71.6 million, if interest rates were to decline by 50 basis points from their levels at March 31, 2016 . In general, an increase in fair value would impact earnings and cash flows to the extent not recoverable in rates if all or a portion of debt instruments were acquired in the open market prior to their maturity. At April 22, 2016 , PNMR, PNM, and TNMP had $67.6 million, $98.3 million, and $24.0 million of short-term debt outstanding under their revolving credit facilities, which allow for a maximum aggregate borrowing capacity of $300.0 million for PNMR, $400.0 million for PNM, and $75.0 million for TNMP. PNM also had borrowings of $40.0 million under the $50.0 million PNM New Mexico Credit Facility at April 22, 2016 . The revolving credit facilities, the PNM New Mexico Credit Facility, the $125.0 million PNM Multi-draw Term Loan, the $150.0 million PNMR Term Loan Agreement, the $150.0 million PNMR 2015 Term Loan Agreement, the $150.0 million PNMR Term Loan Agreement, and the $125.0 million BTMU Term Loan Agreement bear interest at variable rates. On April 22, 2016 , interest rates on borrowings averaged 1.69% for the PNMR Revolving Credit Facility, 1.34% for the PNMR 2015 Term Loan Agreement,

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1.30% for the PNMR Term Loan Agreement, 3.37% for the BTMU Term Loan Agreement, 1.02% for the PNM Multi-draw Term Loan, 1.56% for the PNM Revolving Credit Facility, 1.57% for the PNM New Mexico Credit Facility, and 1.44% for the TNMP Revolving Credit Facility. The Company is exposed to interest rate risk to the extent of future increases in variable interest rates.

The investments held by PNM in trusts for decommissioning and reclamation had an estimated fair value of $260.6 million at March 31, 2016 , of which 45.2% were fixed-rate debt securities that subject PNM to risk of loss of fair value with movements in market interest rates. If interest rates were to increase by 50 basis points from their levels at March 31, 2016 , the decrease in the fair value of the fixed-rate securities would be 3.7%, or $4.4 million.

PNM does not directly recover or return through rates any losses or gains on the securities, including equity investments discussed below, in the trusts for decommissioning and reclamation. However, the overall performance of these trusts does enter into the periodic determinations of expense and funding levels, which are factored into the rate making process to the extent applicable to regulated operations. PNM is at risk for shortfalls in funding of obligations due to investment losses, including those from the equity market risks discussed below to the extent not ultimately recovered through rates charged to customers.

Equity Market Risk

The investments held by PNM in trusts for decommissioning and reclamation include certain equity securities at March 31, 2016 . These equity securities expose PNM to losses in fair value should the market values of the underlying securities decline. Equity securities comprised 51.4% of the securities held by the trusts as of March 31, 2016 . A hypothetical 10% decrease in equity prices would reduce the fair values of these funds by $13.4 million.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

As of the end of the period covered by this quarterly report, each of PNMR, PNM, and TNMP conducted an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer of each of PNMR, PNM, and TNMP concluded that the disclosure controls and procedures are effective.

Changes in internal controls

There have been no changes in each of PNMR’s, PNM’s, and TNMP’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, each of PNMR’s, PNM’s, and TNMP’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Notes 11 and 12 for information related to the following matters, for PNMR, PNM, and TNMP, incorporated in this item by reference.

Note 11


•	The Clean Air Act – Regional Haze – SJGS


•	The Clean Air Act – Regional Haze – Four Corners


•	Four Corners Coal Mine


•	WEG v. OSM NEPA Lawsuit


•	Navajo Nation Environmental Issues


•	Santa Fe Generating Station


•	Continuous Highwall Mining Royalty Rate


•	Four Corners Severance Tax Assessment


•	PVNGS Water Supply Litigation


•	San Juan River Adjudication


•	Rights-of-Way Matter


•	Navajo Nation Allottee Matters

Note 12


•	PNM – New Mexico General Rate Case


•	PNM – Renewable Portfolio Standard


•	PNM – Renewable Energy Rider


•	PNM – Energy Efficiency and Load Management


•	PNM – Integrated Resource Plan


•	PNM – San Juan Generating Station Units 2 and 3 Retirement


•	PNM – Application for Certificate of Convenience and Necessity


•	PNM – Advanced Metering Infrastructure Application


•	PNM – Formula Transmission Rate Case


•	PNM – Firm-Requirements Wholesale Customers – Navopache Electric Cooperative, Inc.


•	TNMP – Advanced Meter System Deployment


•	TNMP – Transmission Cost of Service Rates

See also Climate Change Issues under Other Issues Facing the Company in MD&A. The third paragraph under State and Regional Activity is incorporated in this item by reference.

ITEM 1A. RISK FACTORS

As of the date of this report, there have been no material changes with regard to the Risk Factors disclosed in PNMR’s, PNM’s, and TNMP’s Annual Reports on Form 10-K for the year ended December 31, 2015 .

ITEM 6. EXHIBITS



3.1	PNMR	Articles of Incorporation of PNMR, as amended to date (incorporated by reference to Exhibit 3.1 to PNMR’s Current Report on Form 8-K filed November 21, 2008)

3.2	PNM	Restated Articles of Incorporation of PNM, as amended through May 31, 2002 (incorporated by reference to Exhibit 3.1.1 to PNM’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002)

3.3	TNMP	Articles of Incorporation of TNMP, as amended through July 7, 2005 (incorporated by reference to Exhibit 3.1.2 to TNMP’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005)

3.4	PNMR	Bylaws of PNMR, with all amendments to and including February 26, 2015 (incorporated by reference to Exhibit 3.4 to PNMR’s Annual Report on Form 10-K for the year ended December 31, 2014)

3.5	PNM	Bylaws of PNM, with all amendments to and including May 31, 2002 (incorporated by reference to Exhibit 3.1.2 to PNM’s Report on Form 10-Q for the fiscal quarter ended June 30, 2002)

3.6	TNMP	Bylaws of TNMP, with all amendments to and including June 18, 2013 (incorporated by reference to Exhibit 3.6 to TNMP’s Current Report on Form 8-K filed June 20, 2013)

10.1	PNMR	Term Loan Agreement (“NM Capital Term Loan Agreement”) dated as of February 1, 2016 among NM Capital Utility Corporation, as borrower, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as lender and administrative agent

10.2	PNMR	Guaranty Agreement dated as of February 1, 2016 made by PNMR in favor of the lenders under the NM Capital Term Loan Agreement

10.3	PNMR	Loan Agreement dated as of February 1, 2016 among Westmoreland San Juan, LLC, as borrower, Westmoreland San Juan Holdings, Inc., San Juan Coal Company, and San Juan Transportation Company, as guarantors; NM Capital Utility Corporation, as lender, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as administrative agent; and MUFG Union Bank, N.A., as depository bank

10.4	PNMR	Reclamation Bond Agreement dated January 31, 2016 between PNMR, Westmoreland Coal Company, San Juan Coal Company and Zurich American Insurance Company

10.5	PNMR	PNM Resources, Inc. 2016 Long-Term Incentive Plan dated March 22, 2016

10.6	PNMR	PNM Resources, Inc. 2016 Officer Annual Incentive Plan dated March 22, 2016

10.7	PNMR	First Amendment to PNM Resources, Inc. Executive Savings Plan II executed April 15, 2016

100

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10.8	PNMR	First Amendment to Term Loan Agreement dated as of April 26, 2016 among NM Capital Utility Corporation, as borrower and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as lender and administrative agent (amending the NM Capital Term Loan Agreement)

12.1	PNMR	Ratio of Earnings to Fixed Charges

12.2	PNM	Ratio of Earnings to Fixed Charges

12.3	TNMP	Ratio of Earnings to Fixed Charges

31.1	PNMR	Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	PNMR	Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3	PNM	Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.4	PNM	Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.5	TNMP	Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.6	TNMP	Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	PNMR	Chief Executive Officer and Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2	PNM	Chief Executive Officer and Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.3	TNMP	Chief Executive Officer and Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS	PNMR, PNM, and TNMP	XBRL Instance Document

101.SCH	PNMR, PNM, and TNMP	XBRL Taxonomy Extension Schema Document

101.CAL	PNMR, PNM, and TNMP	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	PNMR, PNM, and TNMP	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	PNMR, PNM, and TNMP	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	PNMR, PNM, and TNMP	XBRL Taxonomy Extension Presentation Linkbase Document

101

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SIGNATURE

Pursuant to the requirements 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.



		PNM RESOURCES, INC. PUBLIC SERVICE COMPANY OF NEW MEXICO TEXAS-NEW MEXICO POWER COMPANY
		(Registrants)


Date:	May 2, 2016	/s/ Joseph D. Tarry
		Joseph D. Tarry
		Vice President, Corporate Controller, and Chief Information Officer
		(Officer duly authorized to sign this report)

102

Exhibit 10.1

[EXECUTION COPY]

$125,000,000

TERM LOAN AGREEMENT

among

NM CAPITAL UTILITY CORPORATION,

as Borrower,

THE LENDERS IDENTIFIED HEREIN,

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,

as Administrative Agent

DATED AS OF FEBRUARY 1, 2016

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,

as Sole Lead Arranger and Sole Book Manager

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SECTION 1

DEFINITIONS AND ACCOUNTING TERMS	1
1.1. Definitions	1
1.2. Computation of Time Periods and Other Definitional Provisions	16
1.3. Accounting Terms	16
1.4. Time	17
1.5. References to Agreements and Requirement of Laws	17

SECTION 2

CREDIT FACILITY	17
2.1. Loans	17
2.2. [Reserved]	18
2.3. Continuations and Conversions	18
2.4. Minimum Amounts	18
2.5. Evidence of Debt	18

SECTION 3

GENERAL PROVISIONS APPLICABLE TO LOANS	19
3.1. Interest	19
3.2. Payments Generally	19
3.3. Voluntary Prepayments	21
3.4. Mandatory Prepayments	21
3.5. Amortization Schedule	22
3.6. Computations of Interest and Fees	22
3.7. Pro Rata Treatment	23
3.8. Sharing of Payments	23
3.9. Capital Adequacy	24
3.10. Eurodollar Provisions	24
3.11. Illegality	24
3.12. Requirements of Law	25
3.13. Taxes	25
3.14. Compensation	28
3.15. Determination and Survival of Provisions	29
3.16. Defaulting Lenders	29

SECTION 4

CONDITIONS PRECEDENT TO CLOSING	30
4.1. Closing Conditions	30
4.2. Funding Requirements	32



SECTION 5

[RESERVED]	33

SECTION 6

REPRESENTATIONS AND WARRANTIES	33
6.1. Organization and Good Standing	33
6.2. Due Authorization	33
6.3. No Conflicts	33
6.4. Consents	34
6.5. Enforceable Obligations	34
6.6. [Reserved]	34
6.7. No Material Change; Property	34
6.8. No Default	34
6.9. Litigation	34
6.10. Taxes	34
6.11. Compliance with Law	35
6.12. ERISA	35
6.13. Use of Proceeds; Margin Stock	35
6.14. Government Regulation	36
6.15. Solvency	36
6.16. Disclosure	36
6.17. Environmental Matters	36
6.18. Anti-Corruption Laws and Sanctions	36

SECTION 7

AFFIRMATIVE COVENANTS	37
7.1. Information Covenants	37
7.2. [Reserved]	38
7.3. Preservation of Existence and Franchises	38
7.4. Books and Records	38
7.5. Compliance with Law	39
7.6. Payment of Taxes and Other Indebtedness	39
7.7. Insurance	39
7.8. Performance Obligations	39
7.9. Use of Proceeds	39
7.10. Audits/Inspections	40
7.11. Designated Account	40

SECTION 8

NEGATIVE COVENANTS	40
8.1. Nature of Business	40
8.2. Consolidation and Merger	41
8.3. Sale or Lease of Assets	41
8.4. Affiliate Transactions	41
8.5. Indebtedness; Liens	41
8.6. Accounting Changes	41
8.7. Burdensome Agreements	41



8.8. Acquisitions; Investments	41
8.9. Modifications to San Juan Loan Agreement	42

SECTION 9

EVENTS OF DEFAULT	42
9.1. Events of Default	42
9.2. Acceleration; Remedies	44
9.3. Allocation of Payments After Event of Default	44

SECTION 10

AGENCY PROVISIONS	45
10.1. Appointment and Authority	45
10.2. Rights as a Lender	45
10.3. Exculpatory Provisions	45
10.4. Reliance by Administrative Agent	47
10.5. Delegation of Duties	47
10.6. Resignation of Administrative Agent	47
10.7. Non-Reliance on Administrative Agent and Other Lenders	48
10.8. No Other Duties, Etc.	48
10.9. Administrative Agent May File Proofs of Claim	48
10.10. Status of Lenders	49

SECTION 11

MISCELLANEOUS	49
11.1. Notices; Effectiveness; Electronic Communication	49
11.2. Right of Set-Off	51
11.3. Successors and Assigns	51
11.4. No Waiver; Remedies Cumulative	54
11.5. Attorney Costs, Expenses, Taxes and Indemnification by Borrower	54
11.6. Amendments, Etc.	55
11.7. Counterparts; Electronic Execution	56
11.8. Headings	57
11.9. Survival of Indemnification and Representations and Warranties	57
11.10. Governing Law; Venue; Service	57
11.11. Waiver of Jury Trial; Waiver of Consequential Damages	58
11.12. Severability	58
11.13. Further Assurances	58
11.14. Confidentiality	58
11.15. Entirety	59
11.16. Binding Effect; Continuing Agreement	59
11.17. USA Patriot Act Notice	60
11.18. Replacement of Lenders	60
11.19. No Advisory or Fiduciary Responsibility	61

iii

SCHEDULES

Schedule 1.1(a) Pro Rata Shares

Schedule 3.5 Amortization Schedule

Schedule 11.1 Notices

EXHIBITS

Exhibit A Form of Parent Guaranty

Exhibit 2.1(b) Form of Notice of Borrowing

Exhibit 2.1(d) Form of Term Note

Exhibit 2.3 Form of Notice of Continuation/Conversion

Exhibit 4.1(j) Form of Account Designation Letter

Exhibit 7.1(c) Form of Financial Statement Certificate

Exhibit 11.3(b) Form of Assignment and Assumption

TERM LOAN AGREEMENT

THIS TERM LOAN AGREEMENT (this “ Loan Agreement ”) is entered into as of February 1, 2016 among NM CAPITAL UTILITY CORPORATION, a Delaware corporation, as Borrower, the Lenders and THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., as Administrative Agent.

RECITALS

WHEREAS , the Borrower, the Lenders and the Administrative Agent have agreed to enter into this Loan Agreement in order to evidence the making of the Loans (as defined below) to the Borrower in an aggregate principal amount of $125,000,000 in accordance with each Lender’s Commitment Percentage with respect to Loans, and to set forth the terms and conditions under which such Loans shall be made;

NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

SECTION 1

DEFINITIONS AND ACCOUNTING TERMS

1.1. Definitions .

The following terms shall have the meanings specified herein unless the context otherwise requires. Defined terms herein shall include in the singular number the plural and in the plural the singular:

“ Account Designation Letter ” means the Notice of Account Designation Letter dated the Closing Date from the Borrower to the Administrative Agent in substantially the form of Exhibit 4.1(j) .

“ Adjusted Base Rate ” means the Base Rate plus the Applicable Percentage.

“ Adjusted Eurodollar Rate ” means the Eurodollar Rate plus the Applicable Percentage.

“ Administrative Agent ” means The Bank of Tokyo-Mitsubishi UFJ, Ltd. (including its branches and Affiliates as may be required to administer the duties), as administrative agent under this Loan Agreement, or any successor administrative agent appointed pursuant to Section 10.6.

“ Administrative Agent’s Office ” means the Administrative Agent’s address and, as appropriate, account as set forth on Schedule 11.1 or such other address or account as the Administrative Agent may from time to time notify the Borrower and the Lenders.

“ Administrative Questionnaire ” means an Administrative Questionnaire in a form supplied by the Administrative Agent.

“ Affiliate ” means, with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and officers of such Person), controlled by or under direct or indirect common control with such Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power (a) to vote 10% or more of the securities having ordinary voting power for the election of directors of such other Person or (b) to

direct or cause direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise.

“ Anti-Corruption Laws ” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower, the Guarantor or the Guarantor’s other Subsidiaries from time to time concerning or relating to bribery or corruption.

“ Applicable Percentage ” means, (a) for Eurodollar Loans, 2.75% and (b) for Base Rate Loans, 1.75%.

“ Approved Fund ” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

“ Arranger ” means The Bank of Tokyo-Mitsubishi UFJ, Ltd. and its successors and/or assigns.

“ Assignment and Assumption ” means an Assignment and Assumption substantially in the form of Exhibit 11.3(b) .

“ Authorized Officer ” means any of the president, chief executive officer, chief financial officer or treasurer of the Borrower or the Guarantor, as applicable.

“ Bankruptcy Code ” means the Bankruptcy Code in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to time.

“ Base Rate ” means for any day a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the FRBNY Rate in effect on such day plus ½ of 1.00% and (c) the Eurodollar Base Rate for a one month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1.00%, provided that, for the avoidance of doubt, the Eurodollar Base Rate for any day shall be based on the Eurodollar Base Rate at approximately 11:00 a.m. London time on such day, subject to the interest rate floors set forth therein. Any change in the Base Rate due to a change in the Prime Rate, the FRBNY Rate or the Eurodollar Base Rate shall be effective from and including the effective date of such change in the Prime Rate, the FRBNY Rate or the Eurodollar Base Rate, respectively. For the avoidance of doubt, if the Base Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Loan Agreement.

“ Base Rate Loan ” means any Loan bearing interest at a rate determined by reference to the Base Rate.

“ Borrower ” means NM Capital Utility Corporation, a Delaware corporation, together with its successors and permitted assigns.

“ Borrower Material Adverse Effect ” means a material adverse effect upon the business, assets, liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects of the Borrower which could prevent, or could reasonably be expected to prevent, the Borrower from paying the scheduled principal amortization payments in respect of the Loans set forth in Schedule 3.5 or performing any of its other obligations under this Loan Agreement or any of the other Loan Documents to which it is a party.

“ Borrower Obligations ” means, without duplication, all of the obligations of the Borrower to the Administrative Agent, the Lenders and the other Indemnitees, whenever arising, under this Loan Agreement, the Notes, any Qualified Hedging Agreements or any of the other Loan Documents.

“ Borrowing ” means a borrowing consisting of simultaneous Loans of the same Type and, in the case of Eurodollar Loans, having the same Interest Period made by each of the Lenders pursuant to Section 2.1.

“ Business Day ” means (a) for all purposes other than as set forth in clause (b) below, any day other than a Saturday, Sunday or legal holiday on which banks in Los Angeles, California or New York, New York are closed or permitted to close for the conduct of their commercial banking business, and (b) with respect to all notices and determinations in connection with, and payments of principal and interest on, any Eurodollar Loan, or any Base Rate Loan as to which the interest rate is determined by reference to LIBOR, any day that is a Business Day described in clause (a) and that is also a day for trading by and between banks in Dollar deposits in the London interbank market.

“ Capital Stock ” means (a) in the case of a corporation, all classes of capital stock of such corporation, (b) in the case of a partnership, partnership interests (whether general or limited), (c) in the case of a limited liability company, membership interests and (d) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person; including, in each case, all warrants, rights or options to purchase any of the foregoing.

“ Change in Law ” means the occurrence, after the date of this Loan Agreement (or with respect to any Lender, if later, the date on which such Lender becomes a Lender), of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority, or (c) the making or issuance of any request, rules, guideline, requirement or directive (whether or not having the force of law) by any Governmental Authority; provided , however , that notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and all requests, rules, guidelines, requirements and directives thereunder, issued in connection therewith or in implementation thereof, and (ii) all requests, rules, guidelines, requirements and directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “ Change in Law ”, regardless of the date enacted, adopted, issued or implemented.

“ Change of Control ” means the occurrence of any of the following: (a) with respect to the Guarantor, any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person or group shall be deemed to have “beneficial ownership” of all Capital Stock that such person or group has the right to acquire (such right, an “ option right ”), whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of twenty-five (25%) of the Capital Stock of the Guarantor entitled to vote for members of the board of directors or equivalent governing body of the Guarantor on a fully diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right); (b) during any period of 24 consecutive months, a majority

of the members of the board of directors or other equivalent governing body of the Guarantor cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body; (c) any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation thereof, will result in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Guarantor, or control over the Voting Stock of the Guarantor on a fully-diluted basis (and taking into account all such Voting Stock that such Person or group has the right to acquire pursuant to any option right) representing twenty-five (25%) or more of the combined voting power of such Voting Stock; or (d) the Guarantor shall cease to (i) be the sole direct “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person or group shall be deemed to have “beneficial ownership” of all Capital Stock that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time) of all of the Capital Stock of the Borrower entitled to vote for members of the board of directors or equivalent governing body of the Borrower on a fully diluted basis (and taking into account all such securities that any person or group has the right to acquire pursuant to any option right) or (ii) have the power to exercise, directly or indirectly, sole control over the management or policies of the Borrower, or control over one hundred percent (100%) of the Voting Stock of the Borrower on a fully-diluted basis.

“ Closing Date ” means February 1, 2016.

“ Code ” means the Internal Revenue Code of 1986 and the rules and regulations promulgated thereunder, as amended, modified, succeeded or replaced from time to time.

“ Commitment ” means, as to each Lender, its obligation to make or maintain a Loan to the Borrower pursuant to Section 2.1 in an aggregate principal amount not to exceed the amount set forth opposite such Lender’s name on Schedule 1.1(a) . The aggregate amount of Commitments of all Lenders on the Closing Date is ONE HUNDRED TWENTY FIVE MILLION DOLLARS ($125,000,000).

“ Commitment Percentage ” means, with respect to each Lender, the percentage listed under the heading “ Commitment Percentage ” on Schedule 1.1(a) .

“ Compensation Period ” has the meaning set forth in Section 3.2(c)(ii).

“ Contingent Obligation ” means, with respect to any Person, any direct or indirect liability of such Person with respect to any Indebtedness, liability or other obligation (the “ primary obligation ”) of another Person (the “ primary obligor ”), whether or not contingent, (a) to purchase, repurchase or otherwise acquire such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or provide funds (i) for the payment or discharge of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor in respect thereof to make payment of such primary obligation or (d)

otherwise to assure or hold harmless the owner of any such primary obligation against loss or failure or inability to perform in respect thereof; provided , however , that, with respect to the Borrower, the term Contingent Obligation shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation of any Person shall be deemed to be an amount equal to the maximum amount of such Person’s liability with respect to the stated or determinable amount of the primary obligation for which such Contingent Obligation is incurred or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder).

“ Covenant Compliance Worksheet ” means a fully completed worksheet in the form of Schedule 1 to Exhibit 7.1(c) to the Parent Guaranty.

“ Debtor Relief Laws ” means the Bankruptcy Code, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

“ Default ” means any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default.

“ Default Rate ” means an interest rate equal to two percent (2%) plus the rate that otherwise would be applicable (or if no rate is applicable, the Base Rate plus two percent (2%) per annum ).

“ Defaulting Lender ” means any Lender that (a) has failed to fund any portion of the Loans required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder, unless such Lender notifies the Administrative Agent and the Borrower in writing that such failure is the result of such Lender’s good faith determination that one or more of the conditions precedent to funding (each of which conditions precedent, together with any applicable Default, shall be specifically identified in such writing) has not been satisfied, (b) has notified the Borrower or the Administrative Agent in writing that it does not intend to comply with its funding obligations or has made a public statement to that effect with respect to its funding obligations hereunder (unless such writing or public statement states that such position is based on such Lender’s good faith determination that a condition precedent to funding (which condition precedent, together with any applicable Default, shall be specifically identified in such writing or public statement) cannot be satisfied), or (c) has become or is insolvent or has become the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment.

“ Designated Account ” means a deposit account, in the name of the Borrower, established with the Administrative Agent or any of its Affiliates, as the depositary bank.

“ Dollars ” and “ $ ” means dollars in lawful currency of the United States of America.

“ Electronic Signature ” means an electronic sound, symbol, or process attached to, or associated with, a contract or other record and adopted by a Person with the intent to sign, authenticate or accept such contract or record.

“ Electronic System ” means any electronic system, including e-mail, e-fax, Intralinks®, ClearPar®, Debt Domain, Syndtrak and any other Internet or extranet-based site, whether such electronic system is owned, operated or hosted by the Administrative Agent and any of its Related Parties or any other Person, providing for access to data protected by passcodes or other security system.

“ Eligible Assignee ” means (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved Fund and (d) any other Person (other than a natural person) approved by the Administrative Agent and the Borrower (such approval not to be unreasonably withheld or delayed); provided that (i) the Borrower’s consent is not required during the existence and continuation of a Default or an Event of Default, (ii) approval by the Borrower shall be deemed given if no objection is received by the assigning Lender and the Administrative Agent from the Borrower within five Business Days after notice of such proposed assignment has been delivered to the Borrower and (iii) no Ineligible Institution shall be an Eligible Assignee.

“ Environmental Claims ” means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, accusations, allegations, notices of noncompliance or violation, investigations (other than internal reports prepared by any Person in the ordinary course of its business and not in response to any third party action or request of any kind) or proceedings relating in any way to any actual or alleged violation of or liability under any Environmental Law or relating to any permit issued, or any approval given, under any such Environmental Law (collectively, “ Claims ”), including, without limitation, (a) any and all Claims by Governmental Authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law and (b) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Substances or arising from alleged injury or threat of injury to human health or the environment.

“ Environmental Laws ” shall mean any and all federal, state and local laws, statutes, ordinances, rules, regulations, permits, licenses, approvals, rules of common law and orders of courts or Governmental Authorities, relating to the protection of human health or occupational safety or the environment, now or hereafter in effect and in each case as amended from time to time, including, without limitation, requirements pertaining to the manufacture, processing, distribution, use, treatment, storage, disposal, transportation, handling, reporting, licensing, permitting, investigation or remediation of Hazardous Substances.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute, and all rules and regulations from time to time promulgated thereunder.

“ ERISA Affiliate ” means any Person who together with the Borrower is treated as a single employer within the meaning of Sections 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA.

“ ERISA Event ” means the occurrence of any of the following which, individually or in the aggregate, has resulted or could reasonably be expected to result, within a reasonable period of time, in liability of the Borrower in an aggregate amount in excess of the Threshold Amount: (a) a Reportable Event with respect to a Single Employer Plan or a Multiemployer Plan, (b) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan if withdrawal liability is asserted by such plan, or the receipt by the Borrower or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to

Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA, (c) the distribution by the Borrower or any ERISA Affiliate under Section 4041 or 4041A of ERISA of a notice of intent to terminate any Single Employer Plan or Multiemployer Plan or the taking of any action to terminate any Single Employer Plan or Multiemployer Plan if the plan assets are not sufficient to pay all plan liabilities, (d) the commencement of proceedings by the PBGC under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Single Employer Plan, or the receipt by the Borrower or any ERISA Affiliate of a notice from any Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan, (e) the determination that any Single Employer Plan or Multiemployer Plan is considered an at-risk plan or plan in endangered or critical status within the meaning of Sections 430, 431 or 432 of the Code or Sections 303, 304 or 305 of ERISA; (f) the imposition upon the Borrower or any ERISA Affiliate of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, or the imposition or threatened imposition of any Lien upon any assets of the Borrower or any ERISA Affiliate as a result of any alleged failure to comply with the Code or ERISA in respect of any Single Employer Plan or Multiemployer Plan, or (g) the withdrawal of the Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was a substantial employer (as such term is defined in Section 4001(a)(2) of ERISA), or a cessation of operations that is treated as such a withdrawal or the termination of a Multiple Employer Plan, where the Borrower or an ERISA Affiliate has liability under Section 4062 or 4063 of ERISA.

“ Eurodollar Base Rate ” means, with respect to any Eurodollar Loan for any applicable Interest Period, the London interbank offered rate as administered by ICE Benchmark Administration (or any other Person that takes over the administration of such rate) for Dollars for a period equal in length to such Interest Period as displayed on pages LIBOR01 or LIBOR02 of the Reuters screen or, in the event such rate does not appear on either of such Reuters pages, on any successor or substitute page on such screen that displays such rate, or on the appropriate page of such other information service that publishes such rate as shall be selected by the Administrative Agent from time to time in its reasonable discretion (in each case the “ LIBOR Screen Rate ”) at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period; provided that, if the LIBOR Screen Rate shall be less than zero, such rate shall be deemed to be zero for the purposes of this Loan Agreement; provided , further , that if a LIBOR Screen Rate shall not be available at such time for such Interest Period (the “ Impacted Interest Period ”), then the Eurodollar Base Rate for such Interest Period shall be the Interpolated Rate; provided , that, if any Interpolated Rate shall be less than zero, such rate shall be deemed to be zero for the purposes of this Loan Agreement. It is understood and agreed that all of the terms and conditions of this definition of “Eurodollar Base Rate” shall be subject to Section 3.10.

“ Eurodollar Loan ” means a Loan bearing interest at a rate determined by reference to the Adjusted Eurodollar Rate.

“ Eurodollar Rate “ means, with respect to any Eurodollar Loan for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to (a) the Eurodollar Base Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.

“ Event of Default ” has the meaning set forth in Section 9.1.

“ Exchange Act ” means the Securities Exchange Act of 1934, and the rules and regulations promulgated thereunder, as amended, modified, succeeded or replaced from time to time.

“ Excluded Amounts ” has the meaning set forth in Section 3.4(a).

“ Excluded Taxes ” means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable Lending Office is located, (b) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction in which the Borrower is located, (c) in the case of a Foreign Lender, any U.S. federal withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new Lending Office) or is attributable to such Foreign Lender’s failure or inability (other than as a result of a Change in Law) to comply with Section 3.13(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new Lending Office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 3.13(a) and (d) any U.S. federal withholding Taxes imposed under FATCA.

“ FATCA ” means Sections 1471 through 1474 of the Code, as of the date of this Loan Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreement entered into pursuant to Section 1471(b)(1) of the Code.

“ Federal Funds Rate ” means, for any day, the rate calculated by the FRBNY based on such day’s federal funds transactions by depository institutions (as determined in such manner as the FRBNY shall set forth on its public website from time to time) and as published on the next succeeding Business Day by the FRBNY as the federal funds effective rate. For the avoidance of doubt, if the Federal Funds Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Loan Agreement.

“ Fee Letter ” means the fee letter agreement, dated the date hereof, among the Borrower, the Guarantor and the Administrative Agent.

“ Financial Officer ” means the treasurer or the vice president and secretary of the Borrower.

“ Fiscal Quarter ” means each of the calendar quarters ending as of the last day of each March, June, September and December.

“ Fiscal Year ” means the calendar year ending December 31.

“ Foreign Lender ” means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

“ FRBNY ” means the Federal Reserve Bank of New York.

“ FRBNY Rate ” means, for any day, the greater of (a) the Federal Funds Rate in effect on such day and (b) the Overnight Bank Funding Rate in effect on such day; provided that if both

such rates are not so published for any day that is a Business Day, the term “ FRBNY Rate ” means the rate quoted for such day for a federal funds transaction at 11:00 a.m. on such day received by the Administrative Agent from a Federal funds broker of recognized standing selected by it; provided , further, that if any of the aforesaid rates shall be less than zero, such rate shall be deemed to be zero for purposes of this Loan Agreement.

“ Fund ” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

“ GAAP ” means generally accepted accounting principles as in effect from time to time in the United States of America.

“ Governmental Authority ” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supranational bodies).

“ Guarantor ” means PNM Resources, Inc., a New Mexico corporation, together with its successors and permitted assigns.

“ Hazardous Substances ” means any substances or materials (a) that are or become defined as hazardous wastes, hazardous substances, pollutants, contaminants or toxic substances under any Environmental Law, (b) that are defined by any Environmental Law as toxic, explosive, corrosive, ignitable, infectious, radioactive, mutagenic or otherwise hazardous, (c) the presence of which require investigation or response under any Environmental Law, (d) that constitute a nuisance, trespass or health or safety hazard to Persons or neighboring properties, (e) that consist of underground or aboveground storage tanks, whether empty, filled or partially filled with any substance, or (f) that contain, without limitation, asbestos, polychlorinated biphenyls, urea formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived substances or wastes, crude oil, nuclear fuel, natural gas or synthetic gas.

“ Hedging Agreements ” means, collectively, interest rate protection agreements, equity index agreements, foreign currency exchange agreements, option agreements or other interest or exchange rate or commodity price hedging agreements.

“ Impacted Interest Period ” has the meaning assigned to such term in the definition of “Eurodollar Base Rate”.

“ Indebtedness ” means, with respect to any Person (without duplication), (a) all indebtedness and obligations of such Person for borrowed money or in respect of loans or advances of any kind, (b) all obligations of such Person evidenced by notes, bonds, debentures or similar instruments, (c) all reimbursement obligations of such Person with respect to surety bonds, letters of credit and bankers’ acceptances (in each case, whether or not drawn or matured and in the stated amount thereof), (d) all obligations of such Person to pay the deferred purchase price of property or services, (e) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person, (f) all obligations of such Person as lessee under leases that are or are required to be, in accordance with GAAP, recorded as capital leases, to the extent such obligations are required to be so recorded, (g) the net termination obligations of such Person under any Hedging Agreements, calculated as

of any date as if such agreement or arrangement were terminated as of such date in accordance with the applicable rules under GAAP, (h) all Contingent Obligations of such Person, (i) all obligations and liabilities of such Person incurred in connection with any transaction or series of transactions providing for the financing of assets through one or more securitizations or in connection with, or pursuant to, any synthetic lease or similar off-balance sheet financing, (j) the aggregate amount of uncollected accounts receivable of such Person subject at the time of determination to a sale of receivables (or similar transaction) to the extent such transaction is effected with recourse to such Person (whether or not such transaction would be reflected on the balance sheet of such Person in accordance with GAAP), (k) all Specified Securities and (l) all indebtedness referred to in clauses (a) through (k) above secured by any Lien on any property or asset owned or held by such Person regardless of whether the indebtedness secured thereby shall have been assumed by such Person or is nonrecourse to the credit of such Person.

“ Indemnified Liabilities ” has the meaning set forth in Section 11.5(b).

“ Indemnified Taxes ” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of the Borrower under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.

“ Indemnitees ” has the meaning set forth in Section 11.5(b).

“ Ineligible Institution ” means (a) a natural person, (b) a Defaulting Lender or any of its Subsidiaries, (c) the Borrower, the Guarantor or any of the Guarantor’s Subsidiaries or any of their respective Affiliates, or (d) a company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural person or relative(s) thereof.

“ Interest Payment Date ” means, (a) as to any Eurodollar Loan, the last day of each Interest Period applicable to such Loan, the date of any prepayment of the Loans pursuant to Section 3.3 or Section 3.4 and the Maturity Date; provided , however , that if any Interest Period for a Eurodollar Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates and (b) as to any Base Rate Loan, the last Business Day of each Fiscal Quarter, the date of any prepayment of the Loans pursuant to Section 3.3 or Section 3.4 and the Maturity Date.

“ Interest Period ” means, as to each Eurodollar Loan, the period commencing on the date such Eurodollar Loan is disbursed or converted to or continued as a Eurodollar Loan and ending on the date one, two, three or six months thereafter, as selected by the Borrower in its Notice of Continuation/Conversion; provided that:

(i) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;

(ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and

(iii) no Interest Period shall extend beyond the Maturity Date.

“ Interpolated Rate ” means, at any time, the rate per annum determined by the Administrative Agent (which determination shall be conclusive and binding absent manifest error) to be equal to the rate that results from interpolating on a linear basis between: (a) the LIBOR Screen Rate for the longest period (for which the LIBOR Screen Rate is available) that is shorter than the Impacted Interest Period and (b) the LIBOR Screen Rate for the shortest period (for which the LIBOR Screen Rate is available) that exceeds the Impacted Interest Period, in each case, at such time.

“ Investments ” means (a) any direct or indirect purchase or other acquisition by the Borrower of, or of a beneficial interest in, (i) any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing, or (ii) all or substantially all of the assets of any other Person (or of any division or business line of such other Person); (b) any direct or indirect redemption, retirement, purchase or other acquisition for value from any Person of any Capital Stock of such Person; (c) any direct or indirect loan, advance or capital contributions by the Borrower to any other Person, including, without limitation, all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business; and (d) any direct or indirect guarantee of any obligations of any other Person.

“ Laws ” means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.

“ Lender ” means any of the Persons identified as a “ Lender ” on the signature pages hereto, and any Eligible Assignee which may become a Lender by way of assignment in accordance with the terms hereof, together with their successors and permitted assigns.

“ Lending Office ” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent.

“ LIBOR Screen Rate ” has the meaning assigned to such term in the definition of “Eurodollar Base Rate”.

“ Lien ” means any mortgage, pledge, hypothecation, assignment, security interest, lien (statutory or otherwise), preference, priority, charge or other encumbrance of any nature, whether voluntary or involuntary, including, without limitation, the interest of any vendor or lessor under any conditional sale agreement, title retention agreement, capital lease or any other lease or arrangement having substantially the same effect as any of the foregoing.

“ Loan Agreement ” has the meaning set forth in the Preamble hereof.

“ Loan Documents ” means this Loan Agreement, the Notes, the Notice of Borrowing, any Notice of Continuation/Conversion, the Parent Guaranty, the Fee Letter, any Qualified Hedging Agreements and any other document, agreement or instrument entered into or executed in connection with the foregoing.

“ Loan Parties ” means, collectively, the Borrower and the Guarantor, and each a “ Loan Party ”.

“ Loans ” has the meaning set forth in Section 2.1(a).

“ Margin Stock ” has the meaning ascribed to such term in Regulation U.

“ Material Adverse Change ” means a material adverse change in the condition (financial or otherwise), operations, business, performance, properties or assets of the Borrower or of the Guarantor and its Subsidiaries, taken as a whole.

“ Material Adverse Effect ” means a material adverse effect upon (a) the business, assets, liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects of the Guarantor and the Guarantor’s Subsidiaries, taken as a whole, (b) the ability of any Loan Party to perform its obligations under any of the Loan Documents to which it is a party, or (c) the legality, validity or enforceability of this Loan Agreement or any of the other Loan Documents or the rights and remedies of the Administrative Agent and the Lenders hereunder and thereunder.

“ Maturity Date ” means February 1, 2021.

“ Multiemployer Plan ” means any “ multiemployer plan ” within the meaning of Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate makes, is making or is accruing an obligation to make contributions or has made or been obligated to make contributions within the preceding seven (7) years.

“ Multiple Employer Plan ” means a Single Employer Plan to which the Borrower or any ERISA Affiliate and at least one employer other than the Borrower or any ERISA Affiliate are contributing sponsors.

“ Notes ” means the promissory notes of the Borrower in favor of each of the Lenders evidencing the Loans provided pursuant to Section 2.1, individually or collectively, as appropriate, as such promissory notes may be amended, modified, supplemented, extended, renewed or replaced from time to time and as evidenced in the form of Exhibit 2.1(d) .

“ Notice of Borrowing ” means a request by the Borrower for a Loan in the form of Exhibit 2.1(b) .

“ Notice of Continuation/Conversion ” means a request by the Borrower to continue an existing Eurodollar Loan to a new Interest Period or to convert a Eurodollar Loan to a Base Rate Loan or a Base Rate Loan to a Eurodollar Loan, in the form of Exhibit 2.3 .

“ OFAC ” means the Office of Foreign Assets Control of the U.S. Department of Treasury.

“ Other Taxes ” means all present or future stamp, court, documentary, intangible, recording or filing taxes or any other excise or property taxes, charges or similar levies arising from any

payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Loan Agreement or any other Loan Document.

“ Overnight Bank Funding Rate ” means, for any day, the rate comprised of both overnight federal funds and overnight Eurodollar borrowings by U.S. managed banking offices of depository institutions (as such composite rate shall be determined by the FRBNY as set forth on its public website from time to time) and published on the next succeeding Business Day by the FRBNY as an overnight bank funding rate (from and after such date as the FRBNY shall commence to publish such composite rate).

“ Parent Guaranty ” means that certain Guaranty Agreement, dated as of the date hereof, by the Guarantor in favor of the Administrative Agent and the Lenders, in the form of Exhibit A .

“ Participant ” has the meaning set forth in Section 11.3(d).

“ Participant Register ” has the meaning set forth in Section 11.3(d).

“ PATRIOT Act ” means the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), as amended.

“ PBGC ” means the Pension Benefit Guaranty Corporation and any successor thereto.

“ Person ” means any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other enterprise (whether or not incorporated), or any Governmental Authority.

“ Prime Rate ” means the rate of interest per annum publicly announced from time to time by The Bank of Tokyo-Mitsubishi UFJ, Ltd. as its prime commercial lending rate for extensions of credit in Dollars. Each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. It is understood that The Bank of Tokyo-Mitsubishi UFJ, Ltd. may price loans to its customers at, above, or below the Prime Rate, and that the prime rate is not intended to be the lowest rate of interest charged by The Bank of Tokyo-Mitsubishi UFJ, Ltd. in connection with extensions of credit to debtors.

“ Pro Rata Share ” means, with respect to each Lender (i) at any time prior to making of the Loans and termination of the Commitments pursuant to Section 2.1, a fraction (expressed as a percentage, carried out to the ninth decimal place), the numerator of which is the amount of the Commitment of such Lender at such time and the denominator of which is the amount of the aggregate Commitments of all Lenders at such time and (ii) at all times after the making of the Loans and termination of the Commitments pursuant to Section 2.1, a fraction (expressed as a percentage, carried out to the ninth decimal place), the numerator of which is the outstanding principal amount of such Lender’s Loans at such time and the denominator of which is the aggregate outstanding principal amount of all Loans at such time.

“ Prohibited Transaction ” means any transaction described in (a) Section 406 of ERISA that is not exempt by reason of Section 408 of ERISA or by reason of a Department of Labor prohibited transaction individual or class exemption or (b) Section 4975(c) of the Code that is not exempt by reason of Section 4975(c)(2) or 4975(d) of the Code.

“ Property ” means any right, title or interest in or to any property or asset of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible.

“ PSNM ” means Public Service Company of New Mexico, a New Mexico corporation.

“ Qualified Hedging Agreement ” means any Hedging Agreement between the Borrower, on the one hand, and the Administrative Agent, any Lender or any of their respective Affiliates, on the other hand.

“ Register ” has the meaning set forth in Section 11.3(c).

“ Regulations T, U and X ” means Regulations T, U and X, respectively, of the Federal Reserve Board, and any successor regulations.

“ Related Parties ” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents, advisors and representatives of such Person and such Person’s Affiliates.

“ Reportable Event ” means (a) any “ reportable event ” within the meaning of Section 4043(c) of ERISA for which the notice under Section 4043(a) of ERISA has not been waived by the PBGC (including any failure to meet the minimum funding standard of, or timely make any required installment under, Section 412 of the Code or Section 302 of ERISA, regardless of the issuance of any waivers in accordance with Section 412(d) of the Code), (b) any such “ reportable event ” subject to advance notice to the PBGC under Section 4043(b)(3) of ERISA, (c) any application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code, and (d) a cessation of operations described in Section 4062(e) of ERISA.

“ Required Lenders ” means, at any time, Lenders holding in the aggregate more than 50% of the aggregate outstanding principal amount of all Loans (or, if all Loans have been repaid in full, more than 50% of the aggregate amount of all outstanding Borrower Obligations at such time).

“ Requirement of Law ” means, with respect to any Person, the organizational documents of such Person and any Law applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject or otherwise pertaining to any or all of the transactions contemplated by this Loan Agreement and the other Loan Documents.

“ San Juan Loan Agreement ” means, collectively, (a) the Loan Agreement, dated as of February 1, 2016, among WSJ, as the borrower, Westmoreland San Juan Holdings, Inc., a Delaware corporation, San Juan Coal Company, a Delaware corporation, and San Juan Transportation Company, a Delaware corporation, as the guarantors, the Borrower, as the lender, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as the administrative agent, and MUFG Union Bank, N.A., as the depository bank, and (b) all other “Loan Documents” (as such term in defined in the Loan Agreement referred to in the foregoing clause (a)).

“ Sanctioned Country ” means, at any time, a country, region or territory which is itself subject to or the target of comprehensive Sanctions (at the time of this Loan Agreement, the Crimea Region of Ukraine, Cuba, Iran, North Korea, Sudan and Syria).

“ Sanctioned Person ” means, at any time, (a) any Person listed in any publicly-available list of Persons designated as being subject to Sanctions, which lists are maintained by OFAC, the U.S. Department of State, the United Nations Security Council, the European Union or any European Union member state, (b) any Person organized or resident in a Sanctioned Country or (c) any Person

known by the Borrower, the Guarantor or any Subsidiary to be fifty percent (50%) or more owned, or controlled, by any such Person or Persons described in the foregoing clauses (a) or (b).

“ Sanctions ” means all economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by OFAC or the U.S. Department of State or (b) the United Nations Security Council, the European Union, or any European Union member state.

“ Single Employer Plan ” means any “ employee pension benefit plan ” (within the meaning of Section 3(2) of ERISA) which is covered by Title IV of ERISA, but which is not a Multiemployer Plan and which the Borrower or any ERISA Affiliate has maintained, funded or administered for employees at any time within the preceding seven (7) years.

“ Solvent ” means, with respect to any Person as of a particular date, that on such date (a) such Person is able to pay its debts and other liabilities, Contingent Obligations and other commitments as they mature in the normal course of business, (b) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature in their ordinary course, (c) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person’s assets would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged or is to engage, (d) the fair value of the assets of such Person is greater than the total amount of liabilities, including, without limitation, Contingent Obligations, of such Person and (e) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured.

“ Specified Securities ” means, with respect to any Person, (a) all preferred Capital Stock issued by such Person and required by the terms thereof to be redeemed or for which mandatory sinking fund payments are due, (b) all securities issued by such Person that contain two distinct components, typically medium-term debt and a forward contract for the issuance of common stock prior to the debt maturity, including such securities commonly referred to by their tradenames as “FELINE PRIDES”, “PEPS”, “HITS”, “SPACES” and “DECS” and generally referred to as “equity units” and (c) all other securities issued by such Person that are similar to those described in the forgoing clauses (a) and (b).

“ Statutory Reserve Rate ” means 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 Federal Reserve Board to which the Administrative Agent is subject for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Federal Reserve Board). Such reserve percentages shall include those imposed pursuant to such Regulation D of the Federal Reserve Board. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D of the Federal Reserve Board or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

“ Subsidiary ” means, as to any Person, (a) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time, any class or classes of such

corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries, and (b) any partnership, association, joint venture or other entity in which such person directly or indirectly through Subsidiaries has more than a 50% equity interest at any time. Any reference to Subsidiary herein, unless otherwise identified, shall mean a Subsidiary, direct or indirect, of the Guarantor. Any reference to a Subsidiary of the Guarantor herein shall not include any Subsidiary that is inactive, has minimal or no assets and does not generate revenues.

“ Taxes ” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, fines, additions to tax or penalties applicable thereto.

“ Threshold Amount ” means $20,000,000.

“ TNMP ” means Texas-New Mexico Power Company, a Texas corporation.

“ Type ” means, with respect to a Loan, its character as a Base Rate Loan or a Eurodollar Loan.

“ US Person ” means any Person that is a “United States Person” as defined in Section 7701(a)(30) of the Code.

“ Voting Stock ” means the Capital Stock of a Person that is then outstanding and normally entitled to vote in the election of directors and other securities of such Person convertible into or exercisable for such Capital Stock (whether or not such securities are then currently convertible or exercisable).

“ WSJ ” means Westmoreland San Juan, LLC, a Delaware limited liability company.

“ WSJ Administrative Agent ” means The Bank of Tokyo-Mitsubishi UFJ, Ltd., in its capacity as the “Administrative Agent” under the San Juan Loan Agreement, together with its successors and assigns in such capacity.

1.2. Computation of Time Periods and Other Definitional Provisions .

For purposes of computation of periods of time hereunder, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding.” References in this Loan Agreement to “Articles”, “Sections”, “Schedules” or “Exhibits” shall be to Articles, Sections, Schedules or Exhibits of or to this Loan Agreement unless otherwise specifically provided. Any reference herein to any Person shall be construed to include such Person’s successors and assigns (subject to any restrictions on assignment set forth herein) and, in the case of any Governmental Authority, any other Governmental Authority that shall have succeeded to any or all functions thereof. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.

1.3. Accounting Terms .

(a) Except as otherwise expressly provided herein, all accounting terms used herein or incorporated herein by reference shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Administrative Agent or the Lenders hereunder shall be prepared, in accordance with GAAP applied on a consistent basis.

(b) Notwithstanding any other provision contained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made (i) without giving effect to any election under Accounting Standards Codification 825-10-25 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of any Loan Party or any Subsidiary at “fair value”, as defined therein, (ii) without giving effect to any treatment of Indebtedness in respect of convertible debt instruments under Accounting Standards Codification 470-20 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any such Indebtedness in a reduced or bifurcated manner as described therein, and such Indebtedness shall at all times be valued at the full stated principal amount thereof and (iii) in a manner such that any obligations relating to a lease that was accounted for by a Person as an operating lease as of the Closing Date and any similar lease entered into after the Closing Date by such Person shall be accounted for as obligations relating to an operating lease and not as capital lease.

1.4. Time .

All references to time herein shall be references to Eastern Standard Time or Eastern Daylight Time, as the case may be, unless specified otherwise.

1.5. References to Agreements and Requirement of Laws .

Unless otherwise expressly provided herein: (a) references to organization documents, agreements (including the Loan Documents) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements and other modifications are not prohibited by any Loan Document and (b) references to any Requirement of Law shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Requirement of Law.

SECTION 2

CREDIT FACILITY

2.1. Loans .

(a) Loan . Subject to the terms and conditions of this Loan Agreement, the Borrower and each Lender agree that on the Closing Date, but subject to the satisfaction of the conditions described in Section 4, each Lender severally agrees to make a term loan to the Borrower in the amount of such Lender’s Commitment as set forth on Schedule 1.1(a) (each a “ Loan ” and collectively the “ Loans ”). Amounts repaid or prepaid in respect of Loans may not be reborrowed. The Commitment of each Lender shall immediately and automatically terminate on the Closing Date after giving effect to the making of the Loans.

(b) Method of Borrowing for Loans . By no later than (i) 10:00 a.m. on the Closing Date if the requested Borrowing of Loans shall be comprised of Base Rate Loans and (ii) 12:00 noon three (3) Business Days prior to the Closing Date if the requested Borrowing of Loans shall be comprised of Eurodollar Loans, the Borrower shall submit a written Notice of Borrowing in the form of Exhibit 2.1(b) to the Administrative Agent setting forth (A) the amount of Loans requested, (B) the date of the requested Borrowing, (C) the Type of Loans, (D) with respect to Loans that will be Eurodollar Loans, the Interest Period applicable thereto, (E) certification that the Borrower has complied, or, in respect of a Borrowing

that shall consist of Eurodollar Loans, intends to comply, in all respects with Section 4 and (F) with respect to Loans that will be Eurodollar Loans, compensation provisions substantially consistent with the terms of Section 3.14. If the Borrower shall fail to specify (1) an Interest Period in the case of a Eurodollar Loan, then such Eurodollar Loan shall be deemed to have an Interest Period of one month or (2) the Type of Loan requested, then such Loan shall be deemed to be a Base Rate Loan.

(c) Funding of Loans . Upon receipt of a Notice of Borrowing, the Administrative Agent shall promptly inform the Lenders as to the terms thereof. Each such Lender shall make its Pro Rata Share in respect of the requested Loans available to the Administrative Agent in immediately available funds at the Administrative Agent's Office not later than 12:00 noon on the Closing Date. Upon satisfaction of the conditions set forth in Section 4, the amount of the requested Loans will then be made available to the Borrower by the Administrative Agent by wire transfer of such funds in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrower.

(d) Term Notes . At the request of any Lender, the Loans made by such Lender shall be evidenced by a duly executed promissory note of the Borrower to such Lender in substantially the form of Exhibit 2.1(d) .

2.2. [Reserved] .

2.3. Continuations and Conversions .

Subject to the terms below, the Borrower shall have the option, on any Business Day prior to the Maturity Date, to continue existing Eurodollar Loans for a subsequent Interest Period, to convert Base Rate Loans into Eurodollar Loans or to convert Eurodollar Loans into Base Rate Loans. By no later than 12:00 noon (a) two Business Days prior to the date of the requested conversion of a Eurodollar Loan to a Base Rate Loan and (b) three Business Days prior to the date of the requested continuation of a Eurodollar Loan or conversion of a Base Rate Loan to a Eurodollar Loan, the Borrower shall provide a written Notice of Continuation/Conversion in the form of Exhibit 2.3 , setting forth whether the Borrower wishes to continue or convert such Loans. Notwithstanding anything herein to the contrary, (A) except as provided in Section 3.11, Eurodollar Loans may only be continued or converted into Base Rate Loans on the last day of the Interest Period applicable thereto, (B) Eurodollar Loans may not be continued nor may Base Rate Loans be converted into Eurodollar Loans during the existence and continuation of a Default or an Event of Default and (C) any request to continue a Eurodollar Loan that fails to comply with the terms hereof or any failure to request a continuation of a Eurodollar Loan at the end of an Interest Period shall be deemed a request to convert such Eurodollar Loan to a Base Rate Loan on the last day of the applicable Interest Period.

2.4. Minimum Amounts .

Each request for a borrowing, conversion or continuation shall be subject to the requirements that (a) each Eurodollar Loan shall be in a minimum amount of $3,000,000 and in integral multiples of $1,000,000 in excess thereof, (b) each Base Rate Loan shall be in a minimum amount of $1,000,000 and in integral multiples of $100,000 in excess thereof (or the remaining amount of outstanding Loans) and (c) no more than seven Eurodollar Loans shall be outstanding hereunder at any one time. For the purposes of this Section 2.4, separate Eurodollar Loans that begin and end on the same date, as well as Eurodollar Loans that begin and end on different dates, shall all be considered as separate Eurodollar Loans.

2.5. Evidence of Debt .

The Loans made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The

accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Loans made by the Lenders to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to its Borrower Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.

SECTION 3

GENERAL PROVISIONS APPLICABLE
TO LOANS

3.1. Interest .

(a) Interest Rate . Subject to Section 3.1(b), (i) all Base Rate Loans shall accrue interest at the Adjusted Base Rate and (ii) all Eurodollar Loans shall accrue interest at the Adjusted Eurodollar Rate.

(b) Default Rate of Interest .

(i) After the occurrence, and during the continuation, of an Event of Default pursuant to Section 9.1(a), the principal of and, to the extent permitted by Law, interest on the Loans and any other amounts owing hereunder or under the other Loan Documents (including without limitation fees and expenses) shall bear interest, payable on demand, at the Default Rate.

(ii) After the occurrence, and during the continuation, of an Event of Default (other than an Event of Default pursuant to Section 9.1(a)), at the request of the Required Lenders, the principal of and, to the extent permitted by Law, interest on the Loans and any other amounts owing hereunder or under the other Loan Documents (including without limitation fees and expenses) shall bear interest, payable on demand, at the Default Rate.

3.2. Payments Generally .

(a) No Deductions; Place and Time of Payments . All payments to be made by the Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agent’s Office in Dollars and in immediately available funds not later than 2:00 p.m. on the date specified herein. The Administrative Agent will promptly distribute to each Lender its Pro Rata Share (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender’s Lending Office. All payments received by the Administrative Agent after 2:00 p.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. Notwithstanding the foregoing, if there exists a Defaulting Lender, each payment by the Borrower to such Defaulting Lender hereunder shall be applied in accordance with Section 3.16(b).

(b) Payment Dates . Subject to the definition of “Interest Period,” if any payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the next

following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.

(c) Advances by Administrative Agent . Unless the Borrower or any Lender has notified the Administrative Agent, prior to the time any payment is required to be made by it to the Administrative Agent hereunder, that the Borrower or such Lender, as the case may be, will not make such payment, the Administrative Agent may assume that the Borrower or such Lender, as the case may be, has timely made such payment and may (but shall not be so required to), in reliance thereon, make available a corresponding amount to the Person entitled thereto. If and to the extent that such payment was not in fact made to the Administrative Agent in immediately available funds, then:

(i) if the Borrower failed to make such payment, each Lender shall forthwith on demand repay to the Administrative Agent the portion of such assumed payment that was made available to such Lender in immediately available funds, together with interest thereon in respect of each day from and including the date such amount was made available by the Administrative Agent to such Lender to the date such amount is repaid to the Administrative Agent in immediately available funds at the Federal Funds Rate from time to time in effect; and

(ii) if any Lender failed to make such payment, such Lender shall forthwith on demand pay to the Administrative Agent the amount thereof in immediately available funds, together with interest thereon for the period from the date such amount was made available by the Administrative Agent to the Borrower to the date such amount is recovered by the Administrative Agent (the “ Compensation Period ”) at a rate per annum equal to the greater of the Federal Funds Rate from time to time in effect and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Loan included in the applicable Borrowing. If such Lender does not pay such amount forthwith upon the Administrative Agent’s demand therefor, the Administrative Agent may make a demand therefor upon the Borrower, and the Borrower shall pay such amount to the Administrative Agent, together with interest thereon for the Compensation Period at a rate per annum equal to the rate of interest applicable to such Borrowing. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its Commitment or to prejudice any rights which the Administrative Agent or the Borrower may have against any Lender as a result of any default by such Lender hereunder.

A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this subsection (c) shall be conclusive, absent manifest error.

(d) Several Obligations . The obligations of the Lenders hereunder to make Loans are several and not joint. The failure of any Lender to make any Loan on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Loan.

(e) Funding Offices . Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.

3.3. Voluntary Prepayments .

The Borrower shall have the right to prepay the Loans in whole or in part from time to time without premium or penalty; provided , however , that (i) all prepayments under this Section 3.3 shall be subject to Section 3.14, (ii) Eurodollar Loans may only be prepaid on three (3) Business Days’ prior written notice to the Administrative Agent, (iii) each such partial prepayment of Eurodollar Loans shall be in the minimum principal amount of $1,000,000 and integral multiples of $1,000,000, and (iv) each such partial prepayment of Base Rate Loans shall be in the minimum principal amount of $500,000 and integral multiples of $100,000, or, in the case of clauses (iii) and (iv), if less than such minimum amounts, the entire principal amount thereof then outstanding. Amounts prepaid pursuant to this Section 3.3 shall be applied as the Borrower may elect based on the Lenders’ Pro Rata Shares; provided , however , if the Borrower fails to specify, such prepayment shall be applied by the Administrative Agent, subject to Section 3.7, in such manner as it deems reasonably appropriate.

3.4. Mandatory Prepayments .

(a) Promptly (and in any event within five (5) Business Days except as provided in subsection (b)(ii) below) following receipt by the Borrower of (i) any funds in repayment or prepayment of the principal amount of the loan made pursuant to the San Juan Loan Agreement, (ii) any other amounts paid by WSJ to the Borrower pursuant to the San Juan Loan Agreement (other than amounts paid by WSJ to reimburse or indemnify the Borrower or any of its Affiliates for any losses, costs or expenses incurred by the Borrower or such Affiliate (subject to the following proviso, “ Excluded Amounts ”), provided that Excluded Amounts shall not include any such amounts that are intended to reimburse or indemnify the Borrower, in whole or in part, for any losses, costs or expenses payable by the Borrower under this Loan Agreement or any other Loan Document, which amounts shall be applied by the Borrower pursuant to this subsection (a)) or (iii) any net amounts paid to the Borrower under any Hedging Agreement, the Borrower will apply all such funds and other amounts (A) to prepay the outstanding principal amount of the Loans and (B) to pay any other Borrower Obligations (including, without limitation, accrued interest on the principal amount of the Loans prepaid) then due and payable under the Loan Documents, together with any amounts due with respect to such principal payment pursuant to Section 3.14 (it being understood and agreed, for the avoidance of doubt, that all such funds and other amounts not applied pursuant to the foregoing clause (B) shall be applied to prepay the outstanding principal amount of the Loans pursuant to clause (A) above). Amounts prepaid pursuant to this Section 3.4(a) shall be applied by the Administrative Agent, subject to Section 3.7, pursuant to the foregoing clauses (A) and (B) as the Borrower may elect, and any amounts so applied pursuant to the foregoing clause (A) shall prepay the remaining scheduled principal amortization payments in respect of the Loans set forth in Schedule 3.5 in the direct order of their respective due dates. Except as otherwise provided by this Agreement, all principal payments in respect of the Loans shall be applied, first, to repay outstanding Base Rate Loans and then to repay outstanding Eurodollar Loans in direct order of Interest Period maturities.

(b) Notwithstanding subsection (a) above, and for the avoidance of doubt, (i) no portion of the amounts deposited and maintained in the Cash Management Collection Account (as defined in the San Juan Loan Agreement) pursuant to the San Juan Loan Agreement shall be deemed to be received by the Borrower for purposes of subsection (a) above until and to the extent such amounts are applied (A) to pay or prepay the loan made pursuant to the San Juan Loan Agreement or (B) to pay any other amounts (including, without limitation, interest and fees) due and payable to the Borrower in respect of such loan, in each case as provided in the San Juan Loan Agreement, and (ii) unless and until an Event of Default has occurred and is continuing, the Borrower shall have the right, upon written notice to the Administrative Agent at least one (1) Business Day prior to the required due date of such prepayment pursuant to subsection (a) above, to make any prepayment of Eurodollar Loans required under subsection (a) above on the last day of the applicable Interest Period or Interest Periods thereof next occurring after

such required due date, provided that the amount of such prepayment has been deposited in the Designated Account on or before such required due date (to be applied to such prepayment on the last day of the applicable Interest Period or Interest Periods).

(c) Immediately following any sale, assignment or other transfer (including, without limitation, any grant of a participation interest) of the Borrower’s rights under the San Juan Loan Agreement, the Borrower shall prepay in full the outstanding principal amount of the Loans and all other Borrower Obligations.

3.5. Amortization Schedule .

The Borrower will repay the Loans on each of the dates set forth in the amortization schedule contained in Schedule 3.5 in such amount so that the outstanding principal balance of the Loans (after giving effect to such repayment) shall not exceed the amount set forth opposite such date (it being understood and agreed, for the avoidance of doubt, that no such repayment shall be required on any such date if the outstanding principal balance of the Loans on such date (without giving effect to such repayment) is less than or equal to the amount set forth opposite such date on Schedule 3.5 ); provided that the remaining outstanding principal balance of all Loans, together with accrued but unpaid interest and all fees and other sums owing under the Loan Documents, shall be due and payable in full on the Maturity Date, unless accelerated sooner pursuant to Section 9.2; provided further , that if the Maturity Date is not a Business Day, then such principal, interest, fees and other sums shall be due and payable in full on the next preceding Business Day.

3.6. Computations of Interest and Fees .

(a) Calculation of Interest and Fees . Except for Base Rate Loans that are based upon the Prime Rate, in which case interest shall be computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, all computations of interest and fees hereunder shall be made on the basis of the actual number of days elapsed over a year of 360 days. Interest shall accrue from and including the first date of Borrowing (or continuation or conversion) to but excluding the last day occurring in the period for which such interest is payable. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.

(b) Usury . It is the intent of the Lenders and the Borrower to conform to and contract in strict compliance with applicable usury Law from time to time in effect. All agreements between the Lenders and the Borrower are hereby limited by the provisions of this subsection which shall override and control all such agreements, whether now existing or hereafter arising and whether written or oral. In no way, nor in any event or contingency (including but not limited to prepayment or acceleration of the maturity of any Borrower Obligation), shall the interest taken, reserved, contracted for, charged, or received under this Loan Agreement, under the Notes or otherwise, exceed the maximum nonusurious amount permissible under applicable Law. If, from any possible construction of any of the Loan Documents or any other document, interest would otherwise be payable in excess of the maximum nonusurious amount, any such construction shall be subject to the provisions of this subsection and such documents shall be automatically reduced to the maximum nonusurious amount permitted under applicable Law, without the necessity of execution of any amendment or new document. If any Lender shall ever receive anything of value which is characterized as interest on the Loans under applicable Law and which would, apart from this provision, be in excess of the maximum nonusurious amount, an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the Loans and not to the payment of interest, or refunded to the Borrower or the other payor thereof if and to the extent such amount which would have been excessive exceeds such unpaid principal amount of the Loans. The right to demand payment of the Loans or any other Indebtedness evidenced by any of the Loan Documents does not include the right to accelerate the payment of any interest which has not otherwise accrued on the date of such

demand, and the Lenders do not intend to charge or receive any unearned interest in the event of such demand. All interest paid or agreed to be paid to the Lenders with respect to the Loans shall, to the extent permitted by applicable Law, be amortized, prorated, allocated, and spread throughout the full stated term (including any renewal or extension) of the Loans so that the amount of interest on account of the Loans does not exceed the maximum nonusurious amount permitted by applicable Law.

3.7. Pro Rata Treatment .

Except to the extent otherwise provided herein, each Borrowing, each payment or prepayment of principal of any Loan, each payment of interest, each payment of fees (other than administrative fees, if any, paid to the Administrative Agent) and each conversion or continuation of any Loans, shall be allocated pro rata among the relevant Lenders in accordance with their Pro Rata Shares; provided that, if any Lender shall have failed to pay its Pro Rata Share of any Loan, then any amount to which such Lender would otherwise be entitled pursuant to this Section 3.7 shall instead be payable to the Administrative Agent until the share of such Loan not funded by such Lender has been repaid. In the event any principal, interest, fee or other amount paid to any Lender pursuant to this Loan Agreement or any other Loan Document is rescinded or must otherwise be returned by the Administrative Agent, (a) such principal, interest, fee or other amount that had been satisfied by such payment shall be revived, reinstated and continued in full force and effect as if such payment had not occurred and (b) such Lender shall, upon the request of the Administrative Agent, repay to the Administrative Agent the amount so paid to such Lender, with interest for the period commencing on the date such payment is returned by the Administrative Agent until the date the Administrative Agent receives such repayment at a rate per annum equal to (i) the greater of the Federal Funds Rate from time to time in effect and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, if repaid within two (2) Business Days after such request, and (ii) thereafter the Base Rate.

3.8. Sharing of Payments .

The Lenders agree among themselves that, except to the extent otherwise provided herein, in the event that any Lender shall obtain payment in respect of any Loan or any other obligation owing to such Lender under this Loan Agreement through the exercise of a right of setoff, banker’s lien or counterclaim, or pursuant to a secured claim under Section 506 of the Bankruptcy Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable Debtor Relief Law or other similar Law or otherwise, or by any other means, in excess of its Pro Rata Share of such payment as provided for in this Loan Agreement, such Lender shall promptly pay in cash or purchase from the other Lenders a participation in such Loans and other obligations in such amounts, and make such other adjustments from time to time, as shall be equitable to the end that all Lenders share such payment in accordance with their Pro Rata Shares. The Lenders further agree among themselves that if payment to a Lender obtained by such Lender through the exercise of a right of setoff, banker’s lien, counterclaim or other event as aforesaid shall be rescinded or must otherwise be returned, each Lender which shall have shared the benefit of such payment shall, by payment in cash or a repurchase of a participation theretofore sold, return its share of that benefit (together with its share of any accrued interest payable with respect thereto) to each Lender whose payment shall have been rescinded or otherwise returned. The Borrower agrees that (a) any Lender so purchasing such a participation may, to the fullest extent permitted by Law, exercise all rights of payment, including setoff, banker’s lien or counterclaim, with respect to such participation as fully as if such Lender were a holder of such Loan or other obligation in the amount of such participation and (b) the Borrower Obligations that have been satisfied by a payment that has been rescinded or otherwise returned shall be revived, reinstated and continued in full force and effect as if such payment had not occurred. Except as otherwise expressly provided in this Loan Agreement, if any Lender or the Administrative Agent shall fail to remit to any other Lender an amount payable by such Lender or the Administrative Agent to such other Lender pursuant to this Loan Agreement on the date when such amount is due, such payments shall be made

together with interest thereon for each date from the date such amount is due until the date such amount is paid to the Administrative Agent or such other Lender at a rate per annum equal to the Federal Funds Rate. If under any applicable Debtor Relief Law or other similar Law, any Lender receives a secured claim in lieu of a setoff to which this Section 3.8 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders under this Section 3.8 to share in the benefits of any recovery on such secured claim.

Notwithstanding the foregoing, if there exists a Defaulting Lender, all amounts received by such Defaulting Lender hereunder shall be applied in accordance with Section 3.16(b).

3.9. Capital Adequacy .

If any Lender determines that any Change in Law has or would have the effect of reducing the rate of return on the capital or assets of such Lender or any corporation controlling such Lender as a consequence of such Lender’s obligations hereunder (taking into consideration its policies with respect to capital adequacy, liquidity requirements and such Lender’s desired return on capital), then from time to time upon demand of such Lender (with a copy of such demand to the Administrative Agent), the Borrower shall pay to such Lender such additional amounts as will compensate such Lender for such reduction; provided that such determination to charge such additional amounts to the Borrower shall be made in good faith (and not on an arbitrary or capricious basis) and consistent with other similarly situated customers of the applicable Lender after consideration of such factors as such Lender then reasonably determines to be relevant.

3.10. Eurodollar Provisions .

If the Administrative Agent determines (which determination shall be conclusive and binding upon the Borrower) in connection with any request for a Eurodollar Loan or a conversion to or continuation thereof that (i) deposits in Dollars are not being offered to banks in the applicable offshore interbank market for the applicable amount and Interest Period of such Eurodollar Loan, (ii) adequate and reasonable means do not exist for determining the Eurodollar Rate for such Eurodollar Loan, or (iii) the Eurodollar Rate for such Eurodollar Loan does not adequately and fairly reflect the cost to the Lenders of funding such Eurodollar Loan, the Administrative Agent will promptly notify the Borrower and the Lenders. Thereafter, the obligation of the Lenders to make or maintain Eurodollar Loans shall be suspended until the Administrative Agent revokes such notice. Upon receipt of such notice, the Borrower may revoke any pending Notice of Continuation/Conversion with respect to Eurodollar Loans or, failing that, will be deemed to have converted such request into a request for a Borrowing of or, to the extent permitted hereunder, conversion into a Base Rate Loan in the amount specified therein.

3.11. Illegality .

If any Lender determines that any Requirement of Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Loans the interest rate on which is determined by reference to the Eurodollar Rate, or materially restricts the authority of such Lender to purchase or sell, or to take deposits of Dollars in the London interbank market, or to determine or charge interest rates based upon the Eurodollar Rate, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, any obligation of such Lender to make or continue Eurodollar Loans or Base Rate Loan as to which the interest rate is determined with reference to the Eurodollar Base Rate or to convert Base Rate Loans to Eurodollar Loans shall be suspended until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrower shall, upon demand to the Borrower from such Lender (with a copy to the Administrative

Agent), prepay or, if applicable, convert all Eurodollar Loans of such Lender to Base Rate Loans as to which the interest rate is not determined with reference to the Eurodollar Base Rate, either on the last day of the Interest Period thereof, if such Lender may lawfully continue to maintain such Eurodollar Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Loans. Upon any such prepayment or conversion, the Borrower shall also pay interest on the amount so prepaid or converted, together with any amounts due with respect thereto pursuant to Section 3.14.

3.12. Requirements of Law .

If the Administrative Agent or any Lender determines that as a result of any Change in Law, there shall be any increase in the cost to the Administrative Agent or such Lender of agreeing to make or making, funding, continuing, converting or maintaining Loans, or a reduction in the amount received or receivable by the Administrative Agent or such Lender in connection with any of the foregoing (excluding for purposes of this Section 3.12 any such increased costs or reduction in amount resulting from (a) Indemnified Taxes or Other Taxes covered by Section 3.13 and the imposition of or change in the rate of any Excluded Taxes and (b) the Eurodollar Reserve Percentage covered by the definition of Eurodollar Rate), then from time to time, upon demand of the Administrative Agent or such Lender (through the Administrative Agent), the Borrower shall pay to the Administrative Agent or such Lender such additional amounts as will compensate the Administrative Agent or such Lender for such increased cost or reduction in yield; provided that, such determination to charge such additional amounts to the Borrower shall be made in good faith (and not on an arbitrary or capricious basis) and consistent with other similarly situated customers of the Administrative Agent or applicable Lender after consideration of such factors as the Administrative Agent or such Lender then reasonably determines to be relevant.

3.13. Taxes .

(a) Payments Free of Taxes . Except as required by applicable law, any and all payments by or on account of any obligation of the Borrower hereunder or under any other Loan Document shall be made free and clear of and without reduction or withholding for any Taxes; provided that if applicable Law (as determined by the Administrative Agent) requires the withholding or deduction of any Indemnified Taxes from such withholding or payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including withholding or deductions applicable to additional sums payable under this Section) the Administrative Agent or the applicable Lender, as the case may be, receives an amount equal to the sum it would have received had no such withholding or deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable Law.

(b) Payment of Other Taxes by the Borrower . Without limiting the provisions of paragraph (a) above, the Borrower shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable Law.

(c) Indemnification by the Borrower . The Borrower shall indemnify the Administrative Agent and each Lender, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent or such Lender, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority; provided that the Borrower shall not be obligated to indemnify the Administrative Agent or any Lender for any amount in respect of any such penalties, interest or reasonable expenses if written demand therefor was not made by the Administrative Agent or such Lender within 180 days from the date on

which such party makes payment for such penalties, interest or expenses; provided further that the foregoing limitation shall not apply to any such penalties, interest or reasonable expenses arising out of the retroactive application of any such Indemnified Tax. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. In addition, the Borrower shall indemnify the Administrative Agent and each Lender, within ten (10) days after demand therefor, for any incremental Taxes that may become payable by such Administrative Agent or Lender (or its beneficial owners) as a result of any failure of the Borrower to pay any Taxes when due to the appropriate Governmental Authority or to deliver to such Administrative Agent, pursuant to clause (d) below, documentation evidencing the payment of Taxes.

(d) Evidence of Payments . As soon as practicable after any payment of Indemnified Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

(e) Status of Lenders .

(i) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any other Loan Document shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable Law or reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable Law as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable Law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than the documentation described below) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of the Lender.

(ii) Without limiting the generality of the foregoing, in the event that the Borrower is a US Person.

(A) any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Loan Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed originals of U.S. Internal Revenue Service (“ IRS ”) Form W-9 (or any applicable successor forms) certifying that such Lender is exempt from U.S. federal backup withholding tax;

(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Loan Agreement (and from time to time thereafter upon the

request of the Borrower or the Administrative Agent, but only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable:

(i) duly completed copies of IRS Form W-8BEN or IRS Form W-8BEN-E (or any applicable successor forms) claiming eligibility for benefits of an income tax treaty to which the United States is a party;

(ii) duly completed copies of IRS Form W-8ECI (or any applicable successor forms);

(iii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate to the effect that such Foreign Lender is not (A) a “bank” within the meaning of Section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code and (y) duly completed copies of IRS Form W-8BEN or IRS Form W-8BEN-E (or any applicable successor forms);

(iv) to the extent the Foreign Lender is not the beneficial owner, duly completed copies of IRS Form W-8IMY (or any applicable successor forms) together with duly executed documents and certifications or information from each beneficial owner; or

(v) any other form prescribed by applicable Law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable Law to permit the Borrower to determine the withholding or deduction required to be made.

(C) If a payment made to a Lender under any Loan Document would be subject to U.S. Federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by Law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable Law (including as prescribed by Section 1741(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (C), “ FATCA ” shall include any amendments made to FATCA after the date of this Loan Agreement.

Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.

(f) Treatment of Certain Refunds . If the Administrative Agent or a Lender determines, in its sole discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified pursuant to this Section (including additional amounts paid by the Borrower pursuant to this Section), it shall pay to the applicable indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, under this Section 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, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided that the applicable indemnifying party, upon the request of the Administrative Agent or such Lender, agrees to repay the amount paid over pursuant to this Section (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent or such Lender in the event the Administrative Agent or such Lender is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (f), in no event will the Administrative Agent or any Lender be required to pay any amount to an indemnifying party pursuant to this paragraph (f) the payment of which would place the Administrative Agent or Lender in a less favorable net after-Tax position than the Administrative Agent or Lender would have been in if the indemnification payments or additional amounts giving rise to such refund had never been paid. This paragraph shall not be construed to require the Administrative Agent or any Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to the Borrower or any other Person.

(g) Indemnification of the Administrative Agent . Each Lender shall severally indemnify the Administrative Agent, within ten (10) days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that the Borrower has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Borrower to do so), (ii) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 11.3(d) relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this paragraph (g).

(h) Survival . Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section shall survive the payment in full of the Borrower Obligations.

3.14. Compensation .

Upon the written demand of any Lender, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:

(a) any continuation, conversion, payment or prepayment of any Eurodollar Loan on a day other than the last day of the Interest Period for such Eurodollar Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise); or

(b) any failure by the Borrower (for a reason other than the failure of such Lender to make a Eurodollar Loan) to prepay, borrow, continue or convert any Eurodollar Loan on the date or in the amount previously requested by the Borrower.

The amount each such Lender shall be compensated pursuant to this Section 3.14 shall include, without limitation, (i) any loss incurred by such Lender in connection with the re‑employment of funds prepaid, repaid, not borrowed or paid, as the case may be and (ii) any reasonable out‑of‑pocket expenses (including the reasonable fees and expenses of legal counsel) incurred and reasonably attributable thereto.

For purposes of calculating amounts payable by the Borrower to the Lenders under this Section 3.14, each Lender shall be deemed to have funded each Eurodollar Loan made by it at the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the London interbank market for a comparable amount and for a comparable period, whether or not such Eurodollar Loan was in fact so funded.

3.15. Determination and Survival of Provisions .

All determinations by the Administrative Agent or a Lender of amounts owing under Sections 3.9 through 3.14, inclusive, shall, absent manifest error, be conclusive and binding on the parties hereto and all amounts owing thereunder shall be due and payable within ten (10) Business Days of demand therefor. In determining such amount, the Administrative Agent or such Lender may use any reasonable averaging and attribution methods. Sections 3.9 through 3.14, inclusive, shall survive the termination of this Loan Agreement and the payment of all Borrower Obligations.

3.16. Defaulting Lenders .

Notwithstanding anything to the contrary contained in this Loan Agreement, if any Lender becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by applicable Law:

(a) Waivers and Amendments . Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Loan Agreement shall be restricted as set forth in Section 11.6.

(b) Reallocation of Payments . Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, or otherwise, and including any amounts made available to the Administrative Agent for the account of such Defaulting Lender pursuant to Section 11.2), shall be applied at such time or times as may be determined by the Administrative Agent as follows: first , to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second , as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Loan Agreement, as determined by the Administrative Agent; third , to the payment of any amounts owing to the Administrative Agent or the Lenders as a result of any judgment of a court of competent jurisdiction obtained by the Administrative Agent or any Lender against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Loan Agreement; fourth , so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Loan Agreement; and fifth , to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if such payment is a payment of the principal amount of any Loans in respect of which such Defaulting Lender has not fully funded its appropriate share, such payment shall be applied solely to pay the Loans of all Non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of such Defaulting Lender. Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender pursuant to this Section 3.16(b) shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.

(c) Defaulting Lender Cure . If the Borrower and the Administrative Agent agree in writing in their sole discretion that a Defaulting Lender should no longer be deemed to be a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the date specified in such notice and

subject to any conditions set forth therein, that Lender will, to the extent applicable, purchase that portion of outstanding Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause the Loans to be held on a pro rata basis by the Lenders in accordance with their Pro Rata Shares, whereupon such Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while such Lender was a Defaulting Lender; and provided , further , that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from such Lender’s having been a Defaulting Lender.

SECTION 4

CONDITIONS PRECEDENT TO CLOSING

4.1. Closing Conditions .

The obligation of the Lenders to enter into this Loan Agreement and to make the Loans in accordance with the terms and conditions hereof is subject to satisfaction of the following conditions:

(a) Executed Loan Documents . Receipt by the Administrative Agent of duly executed copies of: (i) this Loan Agreement, (ii) the Notes, to the extent requested by the Lenders, (iii) the Parent Guaranty, (iv) the Fee Letter, and (v) all other Loan Documents, each (other than the Fee Letter) in form and substance reasonably acceptable to the Lenders in their sole discretion.

(b) Authority Documents . Receipt by the Administrative Agent of the following:

(i) Organizational Documents . Copies of the articles of incorporation or certificate of incorporation, as applicable, of each Loan Party certified to be true and complete as of a recent date by the appropriate Governmental Authority of the state or other jurisdiction of its incorporation and copies of the bylaws of such Loan Party certified by its respective secretary or assistant secretary (or the equivalent) to be true, correct and complete and in full force and effect as of the Closing Date.

(ii) Resolutions . Copies of resolutions of the board of directors of each Loan Party approving and adopting the Loan Documents to which it is a party, the transactions contemplated herein and therein and authorizing execution and delivery hereof and thereof, certified by a secretary or assistant secretary (or the equivalent) of such Loan Party to be true, correct and complete and in full force and effect as of the Closing Date.

(iii) Good Standing . Copies of certificates of good standing, existence or its equivalent with respect to each Loan Party certified as of a recent date by the appropriate Governmental Authority of the state or other jurisdiction of its incorporation.

(iv) Incumbency . An incumbency certificate of each Loan Party certified by its respective secretary or assistant secretary (or the equivalent) to be true and correct as of the Closing Date.

(v) Existing Term Loan Agreement . A copy of the fully executed Third Amended and Restated Term Loan Agreement , dated as of December 21, 2015, among PNM Resources, Inc., as borrower, the lenders identified therein, and JPMorgan Chase

Bank, N.A., as administrative agent, including all schedules and exhibits thereto, together with any amendments or other modifications thereto, certified by a secretary or assistant secretary (or the equivalent) of the Guarantor to be a true, correct and complete copy thereof and in full force and effect as of the Closing Date.

(c) Opinions of Counsel . Receipt by the Administrative Agent of opinions of counsel from counsel to each Loan Party (which may include in-house counsel with respect to matters of New Mexico law), in form and substance acceptable to the Administrative Agent, addressed to the Administrative Agent and the Lenders and dated as of the Closing Date.

(d) Financial Statements . Receipt by the Administrative Agent of a copy of (i) the annual consolidated financial statements (including balance sheets, income statements and cash flow statements) of the Guarantor and its Subsidiaries for Fiscal Years 2013 and 2014, audited by independent public accountants of recognized national standing, (ii) the consolidated balance sheet and income statement of the Guarantor and its Subsidiaries for the Fiscal Quarter ended September 30, 2015, together with the related consolidated statement of income for such Fiscal Quarter and a year to date statement of cash flows, (iii) a pro forma balance sheet of the Borrower as of the Closing Date, giving effect to the transactions contemplated by this Loan Agreement and the San Juan Loan Agreement, and (iv) such other financial information regarding the Borrower and the Guarantor as the Administrative Agent may reasonably request.

(e) Designated Account . The Borrower shall have established the Designated Account, and the Borrower and the WSJ Administrative Agent shall have agreed, pursuant to an irrevocable payment instruction letter in form and substance satisfactory to the Administrative Agent, that the WSJ Administrative Agent shall pay, directly into the Designated Account in immediately available funds, all amounts received by the WSJ Administrative Agent and required under the San Juan Loan Agreement to be used (i) to pay or prepay the principal amount of the loan made pursuant to the San Juan Loan Agreement or (ii) to pay any other amounts due and payable to the Borrower under the San Juan Loan Agreement, including, without limitation, interest and fees, but excluding any Excluded Amounts.

(f) Material Adverse Effect . Since December 31, 2014, except as disclosed in the Guarantor’s Annual Report on Form 10-K for the Fiscal Year ended December 31, 2014 and Quarterly Report on Form 10-Q for each of the Fiscal Quarters ended March 31, 2015, June 30, 2015 and September 30, 2015, (i) there shall have been no development or event relating to or affecting the Borrower, the Guarantor or any of the Guarantor’s other Subsidiaries that has had or could be reasonably expected to have a Material Adverse Effect or, in the case of the Borrower, a Borrower Material Adverse Effect, and (ii) no Material Adverse Change shall have occurred in the facts and information regarding the Borrower, the Guarantor and the Guarantor’s other Subsidiaries as disclosed in the Guarantor’s Annual Report on Form 10-K for the Fiscal Year ended December 31, 2014.

(g) Litigation . There shall not exist any material order, decree, judgment, ruling or injunction or any material pending or threatened action, suit, investigation or proceeding against the Borrower, the Guarantor or any of the Guarantor’s other Subsidiaries except as disclosed in the Guarantor’s Annual Report on Form 10-K for the Fiscal Year ended December 31, 2014, and in its Quarterly Report on Form 10-Q for each of the Fiscal Quarters ended March 31, 2015, June 30, 2015 and September 30, 2015.

(h) Consents . All necessary governmental, shareholder and third party consents and approvals, if any, with respect to this Loan Agreement and the Loan Documents and the transactions contemplated herein and therein have been received and no condition or Requirement of Law exists which would reasonably be likely to restrain, prevent or impose any material adverse conditions on the transactions contemplated hereby and by the other Loan Documents.

(i) Officer’s Certificates . Receipt by the Administrative Agent of a certificate or certificates executed by an Authorized Officer of each Loan Party as of the Closing Date stating that (i) such Loan Party and, in the case of the Guarantor, each of its Subsidiaries are in compliance in all material respects with all existing material financial obligations and all material Requirements of Law, (ii) there does not exist any material order, decree, judgment, ruling or injunction or any material pending or threatened action, suit, investigation or proceeding against such Loan Party or, in the case of the Guarantor, any of its Subsidiaries except as disclosed in the Guarantor’s Annual Report on Form 10-K for the Fiscal Year ended December 31, 2014, and in its Quarterly Report on Form 10-Q for each of the Fiscal Quarters ended March 31, 2015, June 30, 2015, and September 30, 2015, (iii) the financial statements and information delivered by or on behalf of such Loan Party to the Administrative Agent on or before the Closing Date were prepared in good faith and in accordance with GAAP and (iv) immediately after giving effect to this Loan Agreement, the other Loan Documents and all the transactions contemplated herein or therein to occur on such date, (A) such Loan Party is Solvent, (B) no Default or Event of Default exists, (C) all representations and warranties of such Loan Party contained in the Loan Documents to which it is a party are true and correct in all material respects (except that any representation and warranty that is qualified by materiality is true and correct in all respects), (D) since December 31, 2014, except as disclosed in the Guarantor’s Annual Report on Form 10-K for the Fiscal Year ended December 31, 2014 or in its Quarterly Report on Form 10-Q for each of the Fiscal Quarters ended March 31, 2015, June 30, 2015 and September 30, 2015, (i) there has been no development or event relating to or affecting such Loan Party or, in the case of the Guarantor, any of its Subsidiaries that has had or could be reasonably expected to have a Material Adverse Effect or a Borrower Material Adverse Effect, and (ii) no Material Adverse Change has occurred in the facts and information regarding such Loan Party or, in the case of the Guarantor, any of its Subsidiaries as disclosed in the Guarantor’s Annual Report on Form 10-K for the Fiscal Year ended December 31, 2014, and (E) the Guarantor is in compliance with the financial covenant referenced in Section 7(b) of the Parent Guaranty, as of September 30, 2015, as demonstrated in the applicable Covenant Compliance Worksheet received by the Administrative Agent.

(j) Account Designation Letter . Receipt by the Administrative Agent of an executed counterpart of the Account Designation Letter.

(k) PATRIOT Act . The Borrower and the Guarantor shall have provided to the Administrative Agent and the Lenders the documentation and other information reasonably requested by the Administrative Agent in order to comply with requirements of the PATRIOT Act.

(l) Fees and Expenses . Unless waived by the Person entitled thereto, payment by the Borrower of all fees and expenses (including, without limitation, the reasonable fees and expenses of counsel to the Administrative Agent) owed by it to the Administrative Agent, the Arranger and the Lenders on or before the Closing Date.

(m) Other . Receipt by the Administrative Agent of such other documents, instruments, agreements or information as reasonably requested by the Administrative Agent or any Lender.

4.2. Funding Requirements .

As of the Closing Date:

(a) Notice . The Borrower shall have delivered a Notice of Borrowing with respect to the Loans, duly executed and completed, by the time specified in Section 2.1 . The delivery of the Notice of Borrowing with respect to the Loans shall constitute a representation and warranty by the Borrower of the correctness of the matters specified in subsections (b) and (c) below.

(b) Representations and Warranties . The representations and warranties made by each Loan Party in any Loan Document are true and correct in all material respects (except that any representation and warranty that is qualified by materiality shall be true and correct in all respects) at and as if made as of such date except to the extent any such representation and warranty expressly and exclusively relates to an earlier date (in which case such representation and warranty shall be true and correct in all material respects (except that any such representation and warranty that is qualified by materiality shall be true and correct in all respects) as of such earlier date).

(c) No Default . No Default or Event of Default shall exist and be continuing either prior to or after giving effect to the requested Borrowing.

Without limiting the generality of the provisions of Section 10.4, for purposes of determining compliance with the conditions specified in this Section, each Lender that has signed this Loan Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required hereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.

SECTION 5

[RESERVED]

SECTION 6

REPRESENTATIONS AND WARRANTIES

To induce the Administrative Agent and the Lenders to enter into this Loan Agreement and to induce the Lenders to extend the credit contemplated hereby, the Borrower represents and warrants to the Administrative Agent and the Lenders as follows:

6.1. Organization and Good Standing .

The Borrower (a) is duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (b) is duly qualified and in good standing as a foreign entity authorized to do business in every other jurisdiction where the failure to so qualify would have a Material Adverse Effect or a Borrower Material Adverse Effect, (c) has the requisite power and authority to own its properties and to carry on its business as now conducted and as proposed to be conducted and (d) does not have any Subsidiaries.

6.2. Due Authorization .

The Borrower (a) has the requisite corporate power and authority to execute, deliver and perform this Loan Agreement and the other Loan Documents to which it is a party and to incur the obligations herein and therein provided for and (b) has been authorized by all necessary action to execute, deliver and perform this Loan Agreement and the other Loan Documents to which it is a party.

6.3. No Conflicts .

Neither the execution and delivery of this Loan Agreement and the other Loan Documents, nor the consummation of the transactions contemplated herein and therein, nor performance of and compliance with the terms and provisions hereof and thereof by the Borrower will (a) violate or conflict with any provision of its organizational documents, (b) violate, contravene or conflict with any law, regulation (including, without limitation, Regulations T, U and X), order, writ, judgment, injunction, decree or permit applicable to it, (c) violate, contravene or conflict with contractual provisions of, or cause an event of default under, any indenture, loan agreement, mortgage, deed of trust, contract or other agreement or instrument to which it is a party or by which it may be bound, or (d) result in or require the creation of any Lien upon or with respect to its properties.

6.4. Consents .

No consent, approval, authorization or order of, or filing, registration or qualification with, any court or Governmental Authority or third party is required in connection with the execution, delivery or performance of this Loan Agreement or any of the other Loan Documents that has not been obtained or completed.

6.5. Enforceable Obligations .

This Loan Agreement and the other Loan Documents to which the Borrower is a party have been duly executed and delivered and constitute the legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except as may be limited by Debtor Relief Laws or similar laws affecting creditors’ rights generally or by general equitable principles.

6.6. [Reserved] .

6.7. No Material Change; Property .

(a) Since December 31, 2014, there has been no development or event relating to or affecting the Borrower, the Guarantor or any of the Guarantor’s other Subsidiaries which would have or would reasonably be expected to have a Material Adverse Effect or a Borrower Material Adverse Effect.

(b) The Borrower has no material Property other than its right, title and interest in and to the San Juan Loan Agreement.

6.8. No Default .

The Borrower is not in default in any respect under any contract, lease, loan agreement, indenture, mortgage, security agreement or other agreement or obligation to which it is a party or by which any of its properties is bound. No Default or Event of Default presently exists and is continuing.

6.9. Litigation .

There are no actions, suits, investigations or legal, equitable, arbitration or administrative proceedings, pending or, to the knowledge of the Borrower, threatened against the Borrower.

6.10. Taxes .

The Borrower has filed, or caused to be filed, all material tax returns (federal, state, local and foreign) required to be filed and paid all amounts of Taxes shown to be due (including interest and penalties)

and has paid all other Taxes, fees, assessments and other governmental charges (including mortgage recording taxes, documentary stamp taxes and intangibles taxes) owed by it, except for any such amounts that are not yet delinquent.

6.11. Compliance with Law .

The Borrower is in compliance with all laws, rules, regulations, orders and decrees applicable to it or to its properties, unless such failure to comply would not have or would not reasonably be expected to have a Material Adverse Effect or a Borrower Material Adverse Effect.

6.12. ERISA .

(a) The Borrower does not have, and has never had, any employees.

(b) Except as would not result or reasonably be expected to result in a Material Adverse Effect:

(i) Each Single Employer Plan has been maintained, operated, and funded in compliance with its own terms and in material compliance with the provisions of ERISA, the Code, and any other applicable federal or state laws, regulations and published interpretations thereunder, except for any required amendments for which the remedial amendment period as defined in Section 401(b) of the Code has not yet expired. Each Single Employer Plan that is intended to be qualified under Section 401(a) of the Code has been determined by the IRS to be so qualified, and each trust related to such plan has been determined to be exempt under Section 501(a) of the Code except for such plans that have not yet received determination letters but for which the remedial amendment period for submitting a determination letter has not yet expired. No liability has been incurred by the Borrower or any ERISA Affiliate which remains unsatisfied for any taxes or penalties assessed with respect to any Single Employer Plan or any Multiemployer Plan except for a liability that could not reasonably be expected to have a Material Adverse Effect.

(ii) No ERISA Event has occurred or is reasonably expected to occur.

(iii) No Prohibited Transaction or breach of fiduciary responsibility has occurred with respect to a Single Employer Plan which has subjected or would be reasonably likely to subject the Borrower or any ERISA Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under any agreement or other instrument pursuant to which the Borrower or any ERISA Affiliate has agreed or is required to indemnify any person against any such liability.

(iv) No proceeding, claim (other than a benefits claim in the ordinary course of business), lawsuit and/or investigation is existing or, to the best of the knowledge of the Borrower after due inquiry, threatened concerning or involving (i) any employee welfare benefit plan (as defined in Section 3(1) of ERISA) currently maintained or contributed to by the Borrower or any ERISA Affiliate (a “ Welfare Plan ”), (ii) any Single Employer Plan or (iii) any Multiemployer Plan.

(v) Each Welfare Plan to which Sections 601-609 of ERISA and Section 4980B of the Code apply has been administered in compliance in all material respects with such sections.

6.13. Use of Proceeds; Margin Stock .

The proceeds of the Borrowings hereunder will be used solely for the purposes specified in Section 7.9. None of such proceeds will be used (a)(i) for the purpose of purchasing or carrying any Margin Stock or (ii) for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry Margin Stock, or (iii) for any other purpose that might constitute this transaction a “purpose credit” within the meaning of Regulation U or (b) for the acquisition of another Person unless the board of directors (or other comparable governing body) or stockholders, as appropriate, of such Person has approved such acquisition.

6.14. Government Regulation .

The Borrower is not an “investment company” registered or required to be registered under the Investment Company Act of 1940, as amended, or controlled by such a company.

6.15. Solvency .

The Borrower is and, after the consummation of the transactions contemplated by this Loan Agreement, will be Solvent.

6.16. Disclosure .

Neither this Loan Agreement nor any financial statements delivered to the Administrative Agent or the Lenders nor any other document, certificate or statement furnished to the Administrative Agent or the Lenders by or on behalf of the Borrower or the Guarantor in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein or herein, taken as a whole, not misleading.

6.17. Environmental Matters .

(a) Each of the properties of the Borrower (the “ Properties ”) and all operations at the Properties are in substantial compliance with all applicable Environmental Laws, (b) there is no undocumented or unreported violation of any Environmental Law with respect to the Properties or the businesses operated by the Borrower (the “ Businesses ”) that the Borrower is aware of, and (c) there are no conditions relating to the Businesses or Properties that have given rise to or would reasonably be expected to give rise to a liability under any applicable Environmental Laws or to any Environmental Claim.

6.18. Anti-Corruption Laws and Sanctions .

The Borrower has implemented and maintains in effect policies and procedures reasonably designed to ensure compliance by the Borrower and its directors, officers and representatives with the Anti-Corruption Laws and applicable Sanctions. The Borrower and, to the knowledge of the Borrower, its officers, directors and representatives, are in compliance with the Anti-Corruption Laws and applicable Sanctions in all material respects. None of (a) the Borrower or, to the knowledge of the Borrower, any of its directors, officers or representatives, or (b) to the knowledge of the Borrower, any third party that will act in any capacity on behalf of or at the direction of the Borrower in connection with, or that will benefit from, the credit facility established hereby, is a Sanctioned Person. No Borrowing, use of proceeds or other transactions by the Borrower contemplated by this Loan Agreement will knowingly violate any Anti-Corruption Law or applicable Sanctions.

SECTION 7

AFFIRMATIVE COVENANTS

The Borrower covenants and agrees that, until the payment in full of all Borrower Obligations:

7.1. Information Covenants .

The Borrower will furnish, or cause to be furnished, to the Lenders:

(a) Annual Financial Statements . As soon as available, and in any event within 120 days after the close of each Fiscal Year of the Borrower commencing with the 2016 Fiscal Year, a balance sheet and income statement of the Borrower as of the end of such Fiscal Year, together with the related statements of income and of cash flows for such Fiscal Year (which, in each case, commencing with the 2017 Fiscal Year, will set forth in comparative form figures for the preceding Fiscal Year), all such financial information described above to be in reasonable form and detail and reasonably acceptable to the Required Lenders, and, in each case, accompanied by a certificate of a Financial Officer of the Borrower to the effect that such annual financial statements fairly present in all material respects the financial condition of the Borrower and have been prepared in accordance with GAAP.

(b) Quarterly Financial Statements . As soon as available, and in any event within 60 days after the close of each Fiscal Quarter of the Borrower commencing with the Fiscal Quarter ending March 31, 2016 (other than the fourth Fiscal Quarter), a balance sheet and income statement of the Borrower as of the end of such Fiscal Quarter, together with the related statement of income for such Fiscal Quarter and a year to date statement of cash flows (which, in each case, commencing with the first Fiscal Quarter of 2017, will set forth in comparative form figures for the corresponding period of the preceding Fiscal Year), all such financial information described above to be in reasonable form and detail and reasonably acceptable to the Required Lenders, and, in each case, accompanied by a certificate of a Financial Officer of the Borrower to the effect that such quarterly financial statements fairly present in all material respects the financial condition of the Borrower and have been prepared in accordance with GAAP, subject to changes resulting from normal year-end audit adjustments and except that the quarterly financial statement have fewer footnotes than annual statements.

(c) Officer’s Certificate . At the time of delivery of the financial statements provided for in Sections 7.1(a) and 7.1(b) above, a certificate of a Financial Officer substantially in the form of Exhibit 7.1(c) stating that no Default or Event of Default exists, or if any Default or Event of Default does exist, specifying the nature and extent thereof and what action the Borrower proposes to take with respect thereto.

(d) [ Reserved ].

(e) Notices . Upon the Borrower obtaining knowledge thereof, the Borrower will give written notice to the Administrative Agent within ten (10) days of (i) the occurrence of a Default or Event of Default, specifying the nature and extent thereof and what action the Borrower proposes to take with respect thereto and (ii) the occurrence of any of the following with respect to the Borrower: (A) the pendency or commencement of any litigation, arbitration or governmental proceeding against the Borrower, (B) one or more judgments, orders, or decrees shall be entered against the Borrower involving any liability, or (C) the institution of any proceedings against the Borrower with respect to, or the receipt of notice by the Borrower of potential liability or responsibility for violation or alleged violation of, any federal, state or local law, rule or regulation (including, without limitation, any Environmental Law).

(f) ERISA . Upon the Borrower or any ERISA Affiliate obtaining knowledge thereof, the Borrower will give written notice to the Administrative Agent promptly (and in any event within ten days) of any of the following which would result in or reasonably would be expected to result in a Material Adverse Effect: (i) any unfavorable determination letter from the IRS regarding the qualification of a Single Employer Plan under Section 401(a) of the Code (along with a copy thereof), (ii) all notices received by the Borrower or any ERISA Affiliate of the PBGC’s intent to terminate any Single Employer Plan or to have a trustee appointed to administer any Single Employer Plan, (iii) with respect to any Multiemployer Plan, the receipt of notice as prescribed in ERISA or otherwise of any withdrawal liability assessed against the Borrower or any of its ERISA Affiliates, or of a determination that any Multiemployer Plan is in reorganization or insolvent (both within the meaning of Title IV of ERISA); or (iv) the Borrower obtaining knowledge or reason to know that the Borrower or any ERISA Affiliate has filed or intends to file a notice of intent to terminate any Single Employer Plan under a distress termination within the meaning of Section 4041(c) of ERISA. Promptly upon request, the Borrower shall furnish the Lenders with such additional information concerning any Single Employer Plan as may be reasonably requested, including, but not limited to, copies of each annual report/return (Form 5500 series), as well as all schedules and attachments thereto required to be filed with the Department of Labor and/or the Internal Revenue Service pursuant to ERISA and the Code, respectively, for each “plan year” (within the meaning of Section 3(39) of ERISA).

(g) Other Information . With reasonable promptness upon any such request, such other information regarding the business, properties or financial condition of the Borrower as the Lenders may reasonably request.

Documents required to be delivered pursuant to Section 7.1(a) or (b) may be delivered electronically and, if so delivered, shall be deemed to have been delivered on the date on which such documents are posted on the Borrower’s behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third‑party website or whether sponsored by the Administrative Agent); provided that: (A) the Borrower shall deliver paper copies of such documents to the Administrative Agent or any Lender that requests the Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender and (B) the Borrower shall notify the Administrative Agent and each Lender (by telecopier or electronic mail) of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions ( i.e. , soft copies) of such documents. Notwithstanding anything contained herein, in every instance the Borrower shall be required to provide paper copies of the Officer’s Certificate required by Section 7.1(c) to the Administrative Agent. Except for such Officer’s Certificate, the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.

7.2. [Reserved] .

7.3. Preservation of Existence and Franchises .

(a) The Borrower will do all things necessary to preserve and keep in full force and effect its existence and all material rights, franchises and authority.

(b) The Borrower will maintain its properties in good condition and not waste or otherwise permit such properties to deteriorate, reasonable wear and tear excepted.

7.4. Books and Records .

The Borrower will keep complete and accurate books and records of its transactions in accordance with good accounting practices on the basis of GAAP (including the establishment and maintenance of appropriate reserves).

7.5. Compliance with Law .

(a) The Borrower will comply with all laws (including, without limitation, all Environmental Laws and ERISA laws), rules, regulations and orders, and all applicable restrictions imposed by all Governmental Authorities, applicable to it and its properties, if the failure to comply would have or would reasonably be expected to have a Material Adverse Effect or a Borrower Material Adverse Effect.

(b) Without limiting clause (a) above, the Borrower will ensure that no Person who owns a controlling interest in or otherwise controls the Borrower is or shall be a Sanctioned Person.

(c) The Borrower will maintain in effect and enforce policies and procedures designed to ensure compliance by the Borrower and its directors, officers and representatives with the Anti-Corruption Laws and applicable Sanctions.

(d) The Borrower shall provide such information and take such actions as are reasonably requested by the Administrative Agent or any Lender in order to assist the Administrative Agent and the Lenders in maintaining compliance with the PATRIOT Act.

7.6. Payment of Taxes and Other Indebtedness .

The Borrower will pay, settle or discharge (a) all Taxes, assessments and governmental charges or levies imposed upon it, or upon its income or profits, or upon any of its properties, before they shall become delinquent, (b) all lawful claims (including claims for labor, materials and supplies) which, if unpaid, might give rise to a Lien upon any of its properties, and (c) all of its other Indebtedness as it shall become due (to the extent such repayment is not otherwise prohibited by this Loan Agreement); provided , however , that the Borrower shall not be required to pay any such tax, assessment, charge, levy, claim or Indebtedness which is being contested in good faith by appropriate proceedings and as to which adequate reserves therefor have been established in accordance with GAAP, unless the failure to make any such payment (i) would give rise to an immediate right to foreclose or collect on a Lien securing such amounts or (ii) would have or would be reasonably expected to have a Material Adverse Effect or a Borrower Material Adverse Effect.

7.7. Insurance .

The Borrower will at all times maintain in full force and effect insurance in such amounts, covering such risks and liabilities and with such deductibles or self-insurance retentions as are in accordance with normal industry practice.

7.8. Performance of Obligations .

The Borrower will perform all of its obligations under the terms of all agreements, indentures, mortgages, security agreements or other debt instruments to which it is a party or by which it is bound, the failure of which to perform could reasonably be expected to have a Material Adverse Effect or a Borrower Material Adverse Effect.

7.9. Use of Proceeds .

The proceeds of the Borrowings may be used solely to make a loan to WSJ in accordance with the terms of the San Juan Loan Agreement, and to pay fees and expenses required by the Loan Documents. The Borrower will not request any Borrowing, and the Borrower shall not use, and shall use commercially-reasonable efforts to ensure that its directors, officers and representatives shall not use, the proceeds of any Borrowing directly or, to the knowledge of the Borrower, indirectly (i) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws, or (ii) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person in violation of applicable Sanctions, or in any Sanctioned Country in violation of applicable Sanctions.

7.10. Audits/Inspections .

Upon reasonable notice and during normal business hours, the Borrower will permit representatives appointed by the Administrative Agent or the Lenders, including, without limitation, independent accountants, agents, attorneys, and appraisers to visit and inspect the Borrower’s property, including its books and records, its accounts receivable and inventory, the Borrower’s facilities and its other business assets, and to make photocopies or photographs thereof and to write down and record any information such representative obtains and shall permit the Administrative Agent or such Lender or its representatives to investigate and verify the accuracy of information provided to it and to discuss all such matters with the officers, directors and representatives of the Borrower; provided , that an officer or authorized agent of the Borrower shall be present during any such discussions between the officers, directors or representatives of the Borrower and the representatives of the Administrative Agent or any Lender.

7.11. Designated Account .

The Borrower shall (a) maintain at all times the Designated Account, (b) cause all net amounts payable to the Borrower under any Hedging Agreement to which it is a party to be deposited directly into the Designated Account in immediately available funds, and (c) irrevocably direct the WSJ Administrative Agent to pay, directly into the Designated Account in immediately available funds, all amounts received by the WSJ Administrative Agent and required under the San Juan Loan Agreement to be used (i) to pay or prepay the principal amount of the loan made pursuant to the San Juan Loan Agreement or (ii) to pay any other amounts due and payable to the Borrower under the San Juan Loan Agreement, including, without limitation, interest and fees, but excluding any Excluded Amounts, pursuant to an irrevocable payment instruction letter in form and substance satisfactory to the Administrative Agent. The Borrower hereby irrevocably authorizes the Administrative Agent to withdraw funds from the Designated Account at any time and from time to time, without notice to or the consent of the Borrower, to the extent that any Borrower Obligations are then due and payable (taking into account Section 3.4(b)(ii)) and to apply such funds to the payment of such Borrower Obligations.

SECTION 8

NEGATIVE COVENANTS

Unless otherwise approved in writing by the Required Lenders, the Borrower covenants and agrees that, until the payment in full of all Borrower Obligations:

8.1. Nature of Business .

The Borrower will not (a) materially alter the character of its business from that conducted as of the Closing Date or (b) employ any employees.

8.2. Consolidation and Merger .

The Borrower will not (a) enter into any transaction of merger or (b) consolidate, liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution).

8.3. Sale or Lease of Assets .

The Borrower will not sell, lease, transfer or otherwise dispose of any of its assets (including, without limitation, all or substantially all of its assets, whether in one transaction or a series of related transactions), except transfers of any assets of the Borrower to the Guarantor for fair value in accordance with Section 8.4.

8.4. Affiliate Transactions .

The Borrower will not enter into any transaction or series of transactions, whether or not in the ordinary course of business, with any Affiliate other than on terms and conditions substantially as favorable as would be obtainable in a comparable arm’s-length transaction with a Person other than an Affiliate.

8.5. Indebtedness; Liens .

The Borrower will not contract, create, incur, assume or permit to exist any Indebtedness, other than the Borrower Obligations. The Borrower will not contract, create, incur, assume or permit to exist any Lien with respect to any of its property or assets of any kind (whether real or personal, tangible or intangible), whether now owned or hereafter acquired, other than the following: (a) Liens securing the Borrower Obligations, (b) Liens for taxes not yet due or Liens for taxes being contested in good faith by appropriate proceedings for which adequate reserves determined in accordance with GAAP have been established (and as to which the property subject to any such Lien is not yet subject to foreclosure, sale or loss on account thereof), (c) Liens arising from good faith deposits in connection with or to secure performance of statutory obligations and surety and appeal bonds, (d) judgment Liens that would not constitute an Event of Default, and (e) Liens arising by virtue of any statutory or common law provision relating to banker’s liens, rights of setoff or similar rights as to deposit accounts or other funds maintained with a creditor depository institution.

8.6. Accounting Changes .

The Borrower will not make or permit, any change in accounting policies or reporting practices, except as required by GAAP, or as permitted by GAAP, if the amounts involved are not material.

8.7. Burdensome Agreements .

The Borrower will not enter into any contractual obligation that prohibits the ability of the Borrower (a) to enter into or execute any Loan Documents or to pay and perform the Borrower Obligations or (b) to create, incur, assume or suffer to exist Liens on its property in favor of the Administrative Agent, for the benefit of the Lenders.

8.8. Acquisitions; Investments .

The Borrower will not, directly or indirectly, (a) acquire by purchase or otherwise any Property of any other Person (other than office equipment and other non-material Property acquired in the ordinary course of business of the Borrower), including, without limitation, any Capital Stock or other equity interests in any Person, (b) form or acquire any Subsidiaries, or (c) make any Investments, except for the

loan to be made to WSJ in accordance with the terms of the San Juan Loan Agreement (as the San Juan Loan Agreement provisions may be amended, modified, waived or consented to from time to time to the extent permitted by Section 8.9).

8.9. Modifications to San Juan Loan Agreement .

The Borrower will not amend or otherwise modify the terms of, or waive or consent to the departure from any of the provisions of, the San Juan Loan Agreement, except for any amendments, modifications, waivers or consents that would not have, and would not reasonably be expected to have, a Material Adverse Effect or a Borrower Material Adverse Effect.

SECTION 9

EVENTS OF DEFAULT

9.1. Events of Default .

An Event of Default shall exist upon the occurrence of any of the following specified events (each an “ Event of Default ”):

(a) Payment . The Borrower shall: (i) default in the payment when due of any principal of any of the Loans; or (ii) default, and such default shall continue for three (3) or more Business Days, in the payment when due of any interest on the Loans or of any fees or other amounts owing hereunder, under any of the other Loan Documents or in connection herewith or therewith.

(b) Representations . Any representation, warranty or statement made or deemed to be made by the Borrower herein, or by any Loan Party in any of the other Loan Documents or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto, shall prove untrue in any material respect on the date as of which it was deemed to have been made.

(i) default in the due performance or observance of any term, covenant or agreement contained in Section 7.1(e)(i), 7.3(a) (solely with respect to the existence of the Borrower), 7.9, or 8.1 through 8.9 inclusive; or

(ii) default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in subsections (a), (b) or (c)(i) of this Section 9.1) contained in this Loan Agreement or any other Loan Document and such default shall continue unremedied for a period of at least ten (10) days after the earlier of the Borrower becoming aware of such default or notice thereof given by the Administrative Agent.

(d) Loan Documents .

(i) Any Loan Document shall fail to be in force and effect or any Loan Party shall so assert, or any Loan Document shall fail to give the Administrative Agent or the Lenders the material rights, powers, liens and privileges purported to be created thereby.

(ii) The Guarantor shall (A) fail to perform or observe Section 7(b) ( Financial Covenant ) of the Parent Guaranty or any negative covenants contained, or incorporated by reference, in the Parent Guaranty, (B) fail to preserve and keep in full force and effect its

existence, (C) fail to own and control 100% of the Voting Stock of PSNM, (D) fail to own and control, directly or indirectly, 100% of the Voting Stock of TNMP, or (E) default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in clauses (A), (B), (C) and (D) of this Section 9.1(d)(ii)) contained in the Parent Guaranty or any other Loan Document to which the Guarantor is a party and such default shall continue unremedied for a period of at least ten (10) days after the earlier of the Guarantor becoming aware of such default or notice thereof given by the Administrative Agent.

(e) Bankruptcy, etc . The occurrence of any of the following with respect to the Borrower, the Guarantor or any of the Guarantor’s other Subsidiaries: (i) a court or governmental agency having jurisdiction in the premises shall enter a decree or order for relief in respect of the Borrower, the Guarantor or any of the Guarantor’s other Subsidiaries in an involuntary case under any applicable Debtor Relief Law now or hereafter in effect, or appoint a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Borrower, the Guarantor or any of the Guarantor’s other Subsidiaries or for any substantial part of their property or ordering the winding up or liquidation of its affairs; or (ii) an involuntary case under any applicable Debtor Relief Law now or hereafter in effect is commenced against the Borrower, the Guarantor or any of the Guarantor’s other Subsidiaries and such petition remains unstayed and in effect for a period of sixty (60) consecutive days; or (iii) the Borrower, the Guarantor or any of the Guarantor’s other Subsidiaries shall commence a voluntary case under any applicable Debtor Relief Law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of such Person or any substantial part of its property or make any general assignment for the benefit of creditors; or (iv) the Borrower, the Guarantor or any of the Guarantor’s other Subsidiaries admit in writing its inability to pay its debts generally as they become due or any action shall be taken by any Person in furtherance of any of the aforesaid purposes.

(f) Defaults under Other Agreements .

(i) The Borrower, the Guarantor or any of the Guarantor’s other Subsidiaries shall default in the due performance or observance (beyond the applicable grace period with respect thereto) of any material obligation or condition of any contract or lease to which it is a party, if such default would have or would reasonably be expected to have a Material Adverse Effect.

(ii) With respect to any Indebtedness of the Guarantor or any of its Subsidiaries (other than Indebtedness outstanding under the Loan Documents) in excess of $20,000,000 in the aggregate (A) the Guarantor or such Subsidiary shall (x) default in any payment (beyond the applicable grace period with respect thereto, if any) with respect to such Indebtedness, or (y) default (after giving effect to any applicable grace period) in the observance or performance of any covenant or agreement relating to such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event or condition shall occur or condition exist, the effect of which default or other event or condition is to cause or permit the holder or the holders of such Indebtedness (or any trustee or agent on behalf of such holders) to cause (determined without regard to whether any notice or lapse of time is required) such Indebtedness to become due prior to its stated maturity; or (B) such Indebtedness shall be declared due and payable, or required to be prepaid other than by a regularly scheduled required prepayment prior to the stated maturity thereof; or (C) such Indebtedness shall mature and remain unpaid.

(g) Judgments . Any judgment, order or decree involving a liability of $20,000,000 or more, or one or more judgments, orders, or decrees involving a liability of $40,000,000 or more, in the aggregate, shall be entered against the Borrower, the Guarantor or any of the Guarantor’s other Subsidiaries and such judgments, orders or decrees shall continue unsatisfied, undischarged and unstayed for a period ending on the

first to occur of (i) the last day on which such judgment, order or decree becomes final and unappealable and, where applicable, with the status of a judicial lien or (ii) 60 days; provided that if such judgment, order or decree provides for periodic payments over time then the Borrower, the Guarantor or such Subsidiary shall have a grace period of 30 days with respect to each such periodic payment.

(h) ERISA . The occurrence of any of the following events or conditions (i) an ERISA Event or (ii) the Borrower or any ERISA Affiliate fails to make full payment when due of all amounts which, under the provisions of any Single Employer Plan or Sections 412 or 430 of the Code, the Borrower or any ERISA Affiliate is required to pay as contributions thereto and which are in excess of the Threshold Amount.

(i) Change of Control . There shall occur a Change of Control.

9.2. Acceleration; Remedies .

Upon the occurrence and during the continuation of an Event of Default, the Administrative Agent may or, upon the request and direction of the Required Lenders, shall take the following actions without prejudice to the rights of the Administrative Agent or any Lender to enforce its claims against the Borrower, except as otherwise specifically provided for herein:

(a) Acceleration of Loans . Declare the unpaid principal of and any accrued interest in respect of all Loans and any and all other Borrower Obligations of any and every kind owing by the Borrower to the Administrative Agent or the Lenders under the Loan Documents to be due, whereupon the same shall be immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.

(b) Enforcement of Rights . To the extent permitted by Law enforce any and all rights and interests created and existing under applicable Law and under the Loan Documents, including, without limitation, all rights of set‑off.

Notwithstanding the foregoing, if an Event of Default specified in Section 9.1(e) shall occur, then all Loans, all accrued interest in respect thereof, all accrued and unpaid fees and other Borrower Obligations owing to the Administrative Agent and the Lenders hereunder shall immediately become due and payable without the giving of any notice or other action by the Administrative Agent or the Lenders, which notice or other action is expressly waived by the Borrower.

Notwithstanding the fact that enforcement powers reside primarily with the Administrative Agent, each Lender has, to the extent permitted by Law, a separate right of payment and shall be considered a separate “creditor” holding a separate “claim” within the meaning of Section 101(5) of the Bankruptcy Code or any other insolvency statute.

9.3. Allocation of Payments After Event of Default .

Notwithstanding any other provisions of this Loan Agreement, after the occurrence and during the continuation of an Event of Default, all amounts collected or received by the Administrative Agent or any Lender on account of amounts outstanding under any of the Loan Documents shall be paid over or delivered as follows:

FIRST, to the payment of all reasonable out‑of‑pocket costs and expenses (including the reasonable fees and expenses of legal counsel) of the Administrative Agent or any of the Lenders in connection with enforcing the rights of the Administrative Agent and the Lenders under the Loan

Documents, ratably among them in proportion to the amounts described in this clause “FIRST” payable to them;

SECOND, to payment of any fees owed to the Administrative Agent or any Lender, ratably among them in proportion to the amounts described in this clause “SECOND” payable to them;

THIRD, to the payment of all accrued interest payable to the Lenders hereunder, ratably among them in proportion to the amounts described in this clause “THIRD” payable to them;

FOURTH, to the payment of the outstanding principal amount of the Loans, ratably among them in proportion to the amounts described in this clause “FOURTH” payable to them;

FIFTH, to all other Borrower Obligations which shall have become due and payable under the Loan Documents and not repaid pursuant to clauses “FIRST” through “FOURTH” above, ratably among the holders of such Borrower Obligations in proportion to the amounts described in this clause “FIFTH” payable to them; and

SIXTH, the payment of the surplus, if any, to whomever may be lawfully entitled to receive such surplus.

SECTION 10

AGENCY PROVISIONS

10.1. Appointment and Authority .

Each of the Lenders hereby irrevocably appoints The Bank of Tokyo-Mitsubishi UFJ, Ltd. to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Section are solely for the benefit of the Administrative Agent and the Lenders, and none of the Loan Parties shall have rights as a third party beneficiary of any of such provisions. It is understood and agreed that the use of the term “agent” as used herein or in any other Loan Documents (or any similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties.

10.2. Rights as a Lender .

The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “ Lender ” or “ Lenders ” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with any Loan Party or any of its respective Affiliates as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.

10.3. Exculpatory Provisions .

(a) The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, the Administrative Agent:

(i) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;

(ii) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law; and

(iii) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to any Loan Party, any Subsidiary or any of their respective Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.

(b) The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 11.6 and 9.2) or (ii) in the absence of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction by a final and nonappealable judgment. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice describing such Default is given to the Administrative Agent by the Borrower or a Lender.

(c) The Administrative Agent shall be fully justified in refusing to take or to continue to take any action hereunder or under any other Loan Document unless it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action.

(d) The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Loan Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Loan Agreement, any other Loan Document, the San Juan Loan Agreement or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Section 4 or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.

(e) The Administrative Agent is hereby authorized by the Lenders to execute, deliver and perform each of the Loan Documents to which the Administrative Agent is or is intended to be a party and each Lender agrees to be bound by all of the agreements of the Administrative Agent contained in the Loan Documents.

10.4. Reliance by Administrative Agent .

The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, that by its terms must be fulfilled to the satisfaction of a Lender, the Administrative Agent may presume that such condition is satisfactory to such Lender unless the Administrative Agent shall have received notice to the contrary from such Lender prior to the making of such Loan. The Administrative Agent may consult with legal counsel (who may be counsel for any Loan Party), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

10.5. Delegation of Duties .

The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub‑agents appointed by the Administrative Agent. The Administrative Agent and any such sub‑agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Section shall apply to any such sub‑agent and to the Related Parties of the Administrative Agent and any such sub‑agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.

10.6. Resignation of Administrative Agent .

The Administrative Agent may at any time give notice of its resignation to the Lenders and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent meeting the qualifications set forth above; provided that if the Administrative Agent shall notify the Borrower and the Lenders that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (a) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents and (b) all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender directly, until such time as the Required Lenders appoint a successor Administrative Agent as provided for above in this Section. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent, and the retiring Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section). The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring Administrative Agent’s resignation hereunder and under the other Loan Documents, the provisions of this Section and Section 11.5 shall continue in effect for the benefit of such

retiring Administrative Agent, its sub‑agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.

10.7. Non‑Reliance on Administrative Agent and Other Lenders .

Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Loan Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties 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 Loan Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder and in deciding whether or the extent to which it will continue as a Lender or assign or otherwise transfer its rights, interests and obligations hereunder.

None of the Lenders, if any, identified in this Loan Agreement as a Syndication Agent or a Documentation Agent shall have any right, power, obligation, liability, responsibility or duty under this Loan Agreement other than those applicable to all Lenders as such. Without limiting the foregoing, none of such Lenders shall have or be deemed to have a fiduciary relationship with any Lender.

10.8. No Other Duties, Etc .

Anything herein to the contrary notwithstanding, none of the bookrunners, arrangers or agents listed on the cover page hereof shall have any powers, duties or responsibilities under this Loan Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent or a Lender hereunder.

10.9. Administrative Agent May File Proofs of Claim .

In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on any Loan Party) shall be entitled and empowered, by intervention in such proceeding or otherwise:

(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans and all other Borrower Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Section 11.5) allowed in such judicial proceeding; and

(b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative

Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Section 11.5.

Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Borrower Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.

The Administrative Agent shall have the exclusive right on behalf of the Lenders to enforce the payment of the principal of and interest on any Loan after the date such principal or interest has become due and payable pursuant to the terms of this Loan Agreement.

10.10. Status of Lenders .

The Lenders are not partners or co-venturers, and no Lender shall be liable for the acts or omissions of, or (except as otherwise set forth herein in case of the Administrative Agent) authorized to act for, any other Lender.

SECTION 11

MISCELLANEOUS

11.1. Notices; Effectiveness; Electronic Communication .

(i) if to the Borrower or the Administrative Agent, to the address, telecopier number, electronic mail address or telephone number specified for such Person on Schedule 11.1 ; and

(ii) if to any other Lender, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire.

Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through Electronic Systems to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b).

(b) Electronic Communications . Notices and other communications to the Lenders hereunder may be delivered or furnished by using Electronic Systems pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender pursuant to Section 2 if such Lender has notified the Administrative Agent that it is incapable of receiving notices

under such Section by electronic communication. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications.

Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e‑mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e‑mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e‑mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.

(i) The Borrower agrees that the Administrative Agent may, but shall not be obligated to, make Communications (as defined below) available to the Lenders by posting the Communications on Debt Domain, Intralinks, Syndtrak, ClearPar or a substantially similar Electronic System.

(ii) Any Electronic System used by the Administrative Agent is provided “as is” and “as available.” The Agent Parties (as defined below) do not warrant the adequacy of such Electronic Systems and expressly disclaim liability for errors or omissions in the Communications. No warranty of any kind, express, implied or statutory, including any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects, is made by any Agent Party in connection with the Communications or any Electronic System. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “ Agent Parties ”) have any liability to the Borrower, any Lender or any other Person or entity for damages of any kind, including direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of the Borrower’s or the Administrative Agent’s transmission of Communications through an Electronic System. “ Communications ” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of the Borrower pursuant to any Loan Document or the transactions contemplated therein which is distributed by the Administrative Agent or any Lender by means of electronic communications pursuant to this Section, including through an Electronic System.

(d) Change of Address, Etc . Each of the Borrower and the Administrative Agent may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the other parties hereto. Each other Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the Borrower and the Administrative Agent. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, telecopier number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender.

(e) Reliance by Administrative Agent and Lenders . The Administrative Agent and the Lenders shall be entitled to rely and act upon any notices (including telephonic Notices of Borrowing) purportedly given by or on behalf of the Borrower even if (i) such notices were not made in a manner

specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Borrower shall indemnify the Administrative Agent, each Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrower. All telephonic notices to and other telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording.

11.2. Right of Set-Off .

In addition to any rights now or hereafter granted under applicable Law or otherwise, and not by way of limitation of any such rights, upon the occurrence of an Event of Default and the commencement of remedies described in Section 9.2, each Lender is authorized at any time and from time to time, without presentment, demand, protest or other notice of any kind (all of which rights being hereby expressly waived), to set‑off and to appropriate and apply any and all deposits (general or special) and any other indebtedness at any time held or owing by such Lender (including, without limitation, branches, agencies or Affiliates of such Lender wherever located) to or for the credit or the account of the Borrower against obligations and liabilities of the Borrower to the Lenders hereunder, under the Notes, the other Loan Documents or otherwise, irrespective of whether the Administrative Agent or the Lenders shall have made any demand hereunder and although such obligations, liabilities or claims, or any of them, may be contingent or unmatured, and any such set‑off shall be deemed to have been made immediately upon the occurrence of an Event of Default even though such charge is made or entered on the books of such Lender subsequent thereto. The Borrower hereby agrees that any Person purchasing a participation in the Loans and Commitments hereunder pursuant to Sections 3.8 or 11.3(d) may exercise all rights of set‑off with respect to its participation interest as fully as if such Person were a Lender hereunder.

11.3. Successors and Assigns .

(a) Successors and Assigns Generally . The provisions of this Loan Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this Section, or (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (f) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Loan Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Loan Agreement.

(b) Assignments by Lenders . Any Lender may at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Loan Agreement (including all or a portion of its Loans (at the time owing to it); provided that

(i) except in the case of an assignment of the entire remaining amount of the assigning Lender’s Loans at the time owing to it or in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund with respect to a Lender, the aggregate amount of the principal outstanding balance of the Loans of the assigning Lender subject to each such

assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $5,000,000 unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed); provided , however , that concurrent assignments to members of an Assignee Group and concurrent assignments from members of an Assignee Group to a single Eligible Assignee (or to an Eligible Assignee and members of its Assignee Group) will be treated as a single assignment for purposes of determining whether such minimum amount has been met;

(ii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Loan Agreement with respect to the Loans assigned;

(iii) no consent shall be required for any assignment to an Eligible Assignee except to the extent required by paragraph (b)(i) of this Section and, in addition:

(A) the consent of the Borrower (such consent not to be unreasonably withheld) shall be required unless (x) an Event of Default has occurred and is continuing at the time of such assignment or (y) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; provided , that the Borrower shall be deemed to have given its consent five (5) Business Days after the date written notice thereof has been delivered by the assigning Lender (through the Administrative Agent) unless such consent is expressly refused by the Borrower prior to such fifth (5 ^th ) Business Day; and

(B) the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments if such assignment is to a Person that is not a Lender, an Affiliate of such Lender or an Approved Fund with respect to such Lender.

(iv) Assignment and Assumption . The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500 for each assignment ( provided , that only one such fee will be payable in connection with simultaneous assignments to two or more Approved Funds by a Lender), and the assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.

(v) No Assignment to Ineligible Institutions . No such assignment shall be made to any Ineligible Institution.

Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the Eligible Assignee thereunder shall be a party to this Loan Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Loan Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Loan Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Loan Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 3.9, 3.12, 3.13, 3.14, and 11.5(b) with respect to facts and circumstances occurring prior to the effective date of such assignment. Upon request, the Borrower (at its expense) shall execute and deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of rights or

obligations under this Loan Agreement that does not comply with this subsection shall be treated for purposes of this Loan Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section.

(c) Register . The Administrative Agent, acting solely for this purpose as a non-fiduciary agent of the Borrower, shall maintain at the Administrative Agent’s Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the principal amounts (and stated interest) 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 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 Loan Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower at any reasonable time and from time to time upon reasonable prior notice. In addition, at any time that a request for a consent for a material or substantive change to the Loan Documents is pending, any Lender may request and receive from the Administrative Agent a copy of the Register.

(d) Participations . Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than an Ineligible Institution) (each, a “ Participant ”) in all or a portion of such Lender’s rights and/or obligations under this Loan Agreement (including all or a portion of its Loans owing to it); provided that (i) such Lender’s obligations under this Loan Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) 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 Loan Agreement. Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “ Participant Register ”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any loans or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Loan Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.

Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Loan Agreement and to approve any amendment, modification or waiver of any provision of this Loan Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to Section 11.6 that affects such Participant. Subject to subsection (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.9, 3.12 3.13 and 3.14 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section. To the extent permitted by Law, each Participant also shall be entitled to the benefits of Section 3.7 as though it were a Lender, provided such Participant agrees to be subject to Section 3.8 as though it were a Lender.

(e) Limitations upon Participant Rights . A Participant shall not be entitled to receive any greater payment under Section 3.9, 3.12, 3.13, or 3.14 than the applicable Lender would have been

entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 3.13 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 3.13(e) as though it were a Lender.

(f) Certain Pledges . Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Loan Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

11.4. No Waiver; Remedies Cumulative .

No failure or delay on the part of the Administrative Agent or any Lender in exercising any right, power or privilege hereunder or under any other Loan Document and no course of dealing between the Borrower and the Administrative Agent or any Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Loan Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies provided herein are cumulative and not exclusive of any rights or remedies which the Administrative Agent or any Lender would otherwise have. No notice to 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 or constitute a waiver of the rights of the Administrative Agent or the Lenders to any other or further action in any circumstances without notice or demand.

11.5. Attorney Costs, Expenses, Taxes and Indemnification by Borrower .

(a) The Borrower agrees (i) to pay or reimburse the Administrative Agent and the Arranger for all costs and expenses incurred in connection with the preparation, negotiation and execution of this Loan Agreement and the other Loan Documents and any amendment, waiver, consent or other modification of the provisions hereof and thereof (whether or not the transactions contemplated hereby or thereby are consummated), and the consummation and administration of the transactions contemplated hereby and thereby, including all reasonable fees and expenses of legal counsel, and (ii) to pay or reimburse the Administrative Agent and each Lender for all costs and expenses incurred in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Loan Agreement or the other Loan Documents (including all such costs and expenses incurred during any “workout” or restructuring in respect of the Borrower Obligations and during any legal proceeding, including any proceeding under any Debtor Relief Law), including all reasonable fees and expenses of legal counsel. The foregoing costs and expenses shall include all search, filing, recording, and appraisal charges and fees and taxes related thereto, and other out‑of‑pocket expenses incurred by the Administrative Agent and the Arranger and the cost of independent public accountants and other outside experts retained by the Administrative Agent, the Arranger or any Lender. Other than costs and expenses payable in connection with the closing of the transactions contemplated by this Loan Agreement pursuant to this Section 11.5(a) (which shall be payable on the Closing Date unless otherwise agreed by the Administrative Agent and the Arranger), all amounts due under this Section 11.5 shall be payable within ten (10) Business Days after demand therefor. The agreements in this Section shall survive the termination of the Commitments and repayment of all other Borrower Obligations.

(b) Whether or not the transactions contemplated hereby are consummated, the Borrower shall indemnify and hold harmless the Administrative Agent, each Lender and their respective Affiliates, directors, officers, employees, counsel, agents, advisors and attorneys-in-fact (collectively the

“ Indemnitees ”) from and against any and all liabilities, obligations, losses, damages, penalties, claims, demands, actions, judgments, suits, costs, expenses and disbursements (including the reasonable fees and expenses of legal counsel) of any kind or nature whatsoever which may at any time be imposed on, incurred by or asserted against any such Indemnitee in any way relating to or arising out of or in connection with (i) the execution, delivery, enforcement, performance or administration of any Loan Document or any other agreement, letter or instrument delivered in connection with the transactions contemplated thereby or the consummation of the transactions contemplated thereby, (ii) any Loan or the use or proposed use of the proceeds therefrom, or (iii) any actual or alleged presence or release of Hazardous Substances on or from any property currently or formerly owned or operated by any Loan Party or any Subsidiary, or any Environmental Claim related in any way to any Loan Party or any Subsidiary, (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory (including any investigation of, preparation for, or defense of any pending or threatened claim, investigation, litigation or proceeding), whether brought by a third party or by any Loan Party or any Subsidiary, and regardless of whether any Indemnitee is a party thereto or (v) any civil penalty or fine assessed by OFAC against, and all reasonable costs and expenses (including counsel fees and disbursements) incurred in connection with defense thereof, by the Administrative Agent or any Lender as a result of conduct of any Loan Party that violates a sanction enforced by OFAC (all the foregoing, collectively, the “ Indemnified Liabilities ”), in all cases, whether or not caused by or arising, in whole or in part, out of the negligence of the Indemnitee; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such liabilities, obligations, losses, damages, penalties, claims, demands, actions, judgments, suits, costs, expenses or disbursements are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee. No Indemnitee shall be liable for any damages arising from the use by others of any information or other materials obtained through IntraLinks or other similar information transmission systems in connection with this Loan Agreement, nor shall any Indemnitee have any liability for any special, punitive, indirect or consequential damages relating to this Loan Agreement or any other Loan Document or arising out of its activities in connection herewith or therewith (whether before or after the Closing Date).

(c) To the extent that the Borrower for any reason fails to indefeasibly pay any amount required under subsection (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub-agent thereof) or any Related Parties of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub‑agent) or such Related Parties, as the case may be, such Lender’s Pro Rata Share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub‑agent) in its capacity as such, or against any Related Parties of any of the foregoing acting for the Administrative Agent (or any such sub‑agent) in connection with such capacity. The obligations of the Lenders under this subsection (c) are subject to the provisions of Section 3.2(d).

All amounts due under this Section 11.5 shall be payable within ten (10) Business Days after demand therefor. The agreements in this Section shall survive the resignation of the Administrative Agent, the replacement of any Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all the other Borrower Obligations.

11.6. Amendments, Etc .

No amendment or waiver of any provision of this Loan Agreement or any other Loan Document to which the Borrower is a party, and no consent to any departure by the Borrower therefrom, shall be effective unless in writing signed by the Required Lenders and the Borrower and acknowledged by the

Administrative Agent, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided , however , that no such amendment, waiver or consent shall:

(a) waive any condition set forth in Section 4 without the written consent of each Lender;

(b) extend or increase the Commitment of any Lender without the written consent of such Lender;

(c) postpone any date fixed by this Loan Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby;

(d) reduce the principal of, or the rate of interest specified herein on, any Loan, or any fees or other amounts payable hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby; provided , however , that only the consent of the Required Lenders shall be necessary to amend the definition of “Default Rate” or to waive any obligation to pay interest at the Default Rate;

(e) change Section 3.8 or Section 9.3 in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender;

(f) change any provision of this Section or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder without the written consent of each Lender;

(g) release all or any portion of the Guarantor’s obligations under the Parent Guaranty or change any provision of the Parent Guaranty providing for the release or termination of the Parent Guaranty, in each case without the written consent of each Lender; or

(h) release the Borrower from its obligations, or consent to the assignment or transfer by the Borrower of any of its rights and obligations under (or in respect of) the Loan Documents without the written consent of each Lender;

and, provided , further , that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Loan Agreement or any other Loan Document. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder.

11.7. Counterparts; Electronic Execution .

This Loan Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page of this Loan Agreement by telecopy, e-mailed .pdf or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Loan Agreement. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to any document to be signed in connection with this Loan Agreement and the transactions contemplated hereby shall be deemed to include Electronic Signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal

effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.

11.8. Headings .

The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Loan Agreement.

11.9. Survival of Indemnification and Representations and Warranties .

(a) Survival of Indemnification . All indemnities set forth herein shall survive the execution and delivery of this Loan Agreement, the making of any Loan and the repayment of the Loans and other Borrower Obligations hereunder.

(b) Survival of Representations and Warranties . All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or Event of Default at the time of any Borrowing, and shall continue in full force and effect as long as any Loan or any other Borrower Obligation hereunder shall remain unpaid or unsatisfied.

11.10. Governing Law; Venue; Service.

(a) THIS LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTIONS 5‑1401 AND 5‑1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BUT EXCLUDING ALL OTHER CHOICE OF LAW AND CONFLICTS OF LAW RULES). Any legal action or proceeding with respect to this Loan Agreement or any other Loan Document may be brought in the Supreme Court of the State of New York sitting in New York County, New York and in the United States District Court for the Southern District of New York, and any appellate court from any thereof, and, by execution and delivery of this Loan Agreement, the Borrower hereby irrevocably accepts for itself and in respect of its Property, generally and unconditionally, the jurisdiction of such courts, and the Borrower 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 court or, to the extent permitted by law, in such Federal court. The Borrower 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 Loan Agreement or any other Loan Document shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Loan Agreement or any other Loan Document against the Borrower or its respective Properties in the courts of any other 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 Loan Agreement or any other Loan Document in any court referred to in paragraph (a) of this Section. The Borrower hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such suit, action or proceeding in any such court.

(c) The Borrower irrevocably consents to the service of process in any action or proceeding with respect to this Loan Agreement or any other Loan Document by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at the address for notices pursuant to Section 11.1, such service to become effective ten days after such mailing. Nothing herein shall affect the right of the Administrative Agent or a Lender to serve process in any other manner permitted by Law.

11.11. Waiver of Jury Trial; Waiver of Consequential Damages .

EACH OF THE PARTIES TO THIS LOAN AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS LOAN AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY. Each of the parties to this Loan Agreement agrees not to assert any claim against any other party hereto, Administrative Agent, any Lender, any of their Affiliates, or any of their respective directors, officers, employees, attorneys or agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to any of the transactions contemplated herein and in the other Loan Documents.

11.12. Severability .

If any provision of any of the Loan Documents is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions.

11.13. Further Assurances .

The Borrower agrees, upon the request of the Administrative Agent, to promptly take such actions, as reasonably requested, as is necessary to carry out the intent of this Loan Agreement and the other Loan Documents.

11.14. Confidentiality .

Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates’ respective partners, directors, officers, employees, agents, advisors and representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by, or required to be disclosed to, any rating agency or regulatory authority purporting to have jurisdiction over it or an Affiliate (including any self‑regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Loan Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Loan Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (g) on a confidential basis

to the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers with respect to the credit facilities provided for herein, (h) with the consent of the Borrower or (i) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Administrative Agent, any Lender or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower.

For purposes of this Section, “ Information ” means all information received from any Loan Party or any Subsidiary or any of their respective businesses, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by such Loan Party or any Subsidiary, provided that, in the case of information received from any Loan Party or any Subsidiary after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

EACH LENDER ACKNOWLEDGES THAT INFORMATION AS DEFINED IN THE IMMEDIATELY PRECEDING PARAGRAPH FURNISHED TO IT PURSUANT TO THIS LOAN AGREEMENT MAY INCLUDE MATERIAL NON-PUBLIC INFORMATION CONCERNING THE LOAN PARTIES AND THEIR RESPECTIVE RELATED PARTIES OR THEIR RESPECTIVE SECURITIES, AND CONFIRMS THAT IT HAS DEVELOPED COMPLIANCE PROCEDURES REGARDING THE USE OF MATERIAL NON-PUBLIC INFORMATION AND THAT IT WILL HANDLE SUCH MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH THOSE PROCEDURES AND APPLICABLE LAW, INCLUDING FEDERAL AND STATE SECURITIES LAWS.

ALL INFORMATION, INCLUDING REQUESTS FOR WAIVERS AND AMENDMENTS, FURNISHED BY ANY LOAN PARTY OR THE ADMINISTRATIVE AGENT PURSUANT TO, OR IN THE COURSE OF ADMINISTERING, THIS LOAN AGREEMENT WILL BE SYNDICATE-LEVEL INFORMATION, WHICH MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION ABOUT THE LOAN PARTIES AND THEIR RESPECTIVE RELATED PARTIES OR THEIR RESPECTIVE SECURITIES. ACCORDINGLY, EACH LENDER REPRESENTS TO THE BORROWER AND THE ADMINISTRATIVE AGENT THAT IT HAS IDENTIFIED IN ITS ADMINISTRATIVE QUESTIONNAIRE A CREDIT CONTACT WHO MAY RECEIVE INFORMATION THAT MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH ITS COMPLIANCE PROCEDURES AND APPLICABLE LAW.

11.15. Entirety .

This Loan Agreement together with the other Loan Documents represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to the Loan Documents or the transactions contemplated herein and therein.

11.16. Binding Effect; Continuing Agreement .

(a) This Loan Agreement shall become effective at such time when all of the conditions set forth in Section 4.1 have been satisfied or waived by the Lenders and it shall have been executed by the Borrower and the Administrative Agent, and the Administrative Agent shall have received copies hereof (telefaxed or otherwise) which, when taken together, bear the signatures of each Lender, and thereafter

this Loan Agreement shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent and each Lender and their respective successors and assigns.

(b) This Loan Agreement shall be a continuing agreement and shall remain in full force and effect until all Loans, interest, fees and other Borrower Obligations have been paid in full. Upon termination, the Borrower shall have no further obligations (other than the indemnification provisions and other provisions that by their terms survive) under the Loan Documents; provided that should any payment, in whole or in part, of the Borrower Obligations be rescinded or otherwise required to be restored or returned by the Administrative Agent or any Lender, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, then the Loan Documents shall automatically be reinstated and all amounts required to be restored or returned and all costs and expenses incurred by the Administrative Agent or any Lender in connection therewith shall be deemed included as part of the Borrower Obligations.

11.17. USA Patriot Act Notice .

The Administrative Agent and each Lender hereby notifies the Borrower that pursuant to the requirements of the PATRIOT Act, it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the PATRIOT Act.

11.18. Replacement of Lenders .

If (a) any Lender requests compensation under Section 3.12, (b) the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.13, (c) a Lender (a “ Non-Consenting Lender ”) does not consent to a proposed change, waiver, discharge or termination with respect to any Loan Document that has been approved by the Required Lenders as provided in Section 11.6 but requires unanimous consent of all Lenders or all Lenders directly affected thereby (as applicable) or (d) any Lender is a Defaulting Lender, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 11.3), all of its interests, rights and obligations under this Loan Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:

(i) the Borrower shall have paid to the Administrative Agent the assignment fee specified in Section 11.3(b);

(ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 3.14) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);

(iii) in the case of any such assignment resulting from a claim for compensation under Section 3.12 or payments required to be made pursuant to Section 3.13, such assignment will result in a reduction in such compensation or payments thereafter;

(iv) such assignment does not conflict with applicable Laws; and

(v) in the case of any such assignment resulting from a Non-Consenting Lender’s failure to consent to a proposed change, waiver, discharge or termination with respect to any

Loan Document, the applicable replacement bank, financial institution or Fund consents to the proposed change, waiver, discharge or termination; provided that the failure by such Non-Consenting Lender to execute and deliver an Assignment and Assumption shall not impair the validity of the removal of such Non-Consenting Lender and the mandatory assignment of such Non-Consenting Lender’s outstanding Loans pursuant to this Section shall nevertheless be effective without the execution by such Non-Consenting Lender of an Assignment and Assumption.

A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

11.19. No Advisory or Fiduciary Responsibility .

In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), the Borrower acknowledges and agrees that: (i) (A) the arranging and other services regarding this Loan Agreement provided by the Administrative Agent, the Arranger and the Lenders are arm’s-length commercial transactions between the Borrower and its Affiliates, on the one hand, and the Administrative Agent, the Arranger and the Lenders, on the other hand, (B) the Borrower has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (C) the Borrower is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (ii) (A) each of the Administrative Agent, the Arranger and the Lenders is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for the Borrower or any of its Affiliates, or any other Person and (B) neither the Administrative Agent, any Arranger nor any Lender has any obligation to the Borrower or any of its Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; and (iii) each of the Administrative Agent, the Arranger and the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower and its Affiliates, and none of the Administrative Agent, the Arranger or the Lenders has any obligation to disclose any of such interests to the Borrower or its Affiliates. To the fullest extent permitted by law, the Borrower hereby waives and releases any claims that it may have against each of the Administrative Agent, the Arranger and the Lenders with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

Each of the parties hereto has caused a counterpart of this Loan Agreement to be duly executed and delivered as of the date first above written.

BORROWER : NM CAPITAL UTILITY CORPORATION,

a Delaware corporation

By: /s/ Elisabeth A. Eden

Name: Elisabeth A. Eden

Title: President

S-1

[Signature Page to NM Capital Utility Corporation Term Loan Agreement]


ADMINISTRATIVE AGENT :	THE BANK OF TOKYO-MITSUBISHI UFJ, LTD. , as Administrative Agent

By: /s/ Chi-Cheng Chen

Name: Chi-Cheng Chen

Title: Director


LENDERS :	THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,

as a Lender

By: /s/ Chi-Cheng Chen

Name: Chi-Cheng Chen

Title: Director

SCHEDULE 1.1(a)

PRO RATA SHARES



Lender	Commitment with respect to Loans	Pro Rata Share with respect to Loans
The Bank of Tokyo-Mitsubishi UFJ, Ltd.	$125,000,000.00	100%

SCHEDULE 3.5

AMORTIZATION SCHEDULE



Principal Payment Date	Maximum Balance of the Loans
November 1, 2016	$120,000,000
February 1, 2017	$115,000,000
May 1, 2017	$110,000,000
August 1, 2017	$105,000,000
November 1, 2017	$100,000,000
February 1, 2018	$95,000,000
May 1, 2018	$90,000,000
August 1, 2018	$85,000,000
November 1, 2018	$80,000,000
February 1, 2019	$75,000,000
May 1, 2019	$70,000,000
August 1, 2019	$65,000,000
November 1, 2019	$60,000,000
February 1, 2020	$55,000,000
May 1, 2020	$50,000,000
August 1, 2020	$45,000,000
November 1, 2020	$40,000,000
Maturity Date	$0.00

SCHEDULE 11.1

NOTICES

Borrower:

c/o PNM Resources, Inc.

414 Silver Ave. SW, MS0905

Albuquerque, New Mexico 87102-3289

Attention: Elisabeth Eden, Treasurer

Telephone No.: (505) 241-2691

Fax No.: (505) 241-4386

E-mail: Elisabeth.Eden@pnmresources.com

Address for notices as Administrative Agent:

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

1251 Avenue of the Americas, 12th Floor

New York, NY 10020-1104

Attention: Dolores Ruland – Loan Operations Dept.

Telephone No.: (201) 413-8629

Fax No.: (201) 521-2304 or (201) 521-2305

E-mail: druland@us.mufg.jp

Address for notices as Credit Contact:

MUFG Union Bank, N.A.

445 South Figueroa Street, 15th Floor

Los Angeles, CA 90071

Attention: Paul Farrell, Managing Director

Telephone No.: (213) 236-5065

Fax No.: (213) 236-4096

Email: pfarrell@us.mufg.jp

Administrative Agent Wiring Instructions :

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

ABA#: 0260-0963-2

A/C #: 97770191

Re: NM Capital Utility Corporation

EXHIBIT A

FORM OF
PARENT GUARANTY

EXHIBIT A

FORM OF

PARENT GUARANTY

GUARANTY AGREEMENT

This GUARANTY AGREEMENT, dated as of February 1, 2016 (this “ Guaranty ”), is made by PNM RESOURCES, INC., a New Mexico corporation (the “ Guarantor ”), in favor of the Lenders (as defined in the Loan Agreement referred to below) and THE BANK OF TOKYO- MITSUBISHI UFJ, LTD., as administrative agent (in such capacity, together with its successors and assigns in such capacity, the “ Administrative Agent ”) for the Lenders (the Lenders and the Administrative Agent being referred to herein, collectively, as the “ Beneficiaries ” and, individually, as a “ Beneficiary ”).

PRELIMINARY STATEMENTS

1. NM Capital Utility Corporation, a Delaware corporation (the “ Borrower ”), a wholly-owned subsidiary of the Guarantor, is party to a Term Loan Agreement, dated as of February 1, 2016 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Loan Agreement ”; the capitalized terms defined therein and not otherwise defined herein being used herein as therein defined), with the Beneficiaries. Pursuant to the Loan Agreement, the Lenders have agreed to make certain Loans available to the Borrower on the terms and conditions set forth therein.

2. The obligation of the Lenders to make Loans to the Borrower pursuant to the Loan Agreement is conditioned upon, among other things, the execution and delivery of this Guaranty by the Guarantor. This Guaranty is referred to as the “Parent Guaranty” in the Loan Agreement.

3. The Guarantor will derive substantial direct and indirect benefits from the transactions contemplated by the Loan Agreement. The Guarantor is willing to guarantee the Borrower Obligations under the Loan Agreement and the other Loan Documents as hereinafter provided to obtain such benefits.

NOW, THEREFORE, in consideration of the premises and in order to induce the Lenders to make Loans under the Loan Agreement and to induce the Beneficiaries to otherwise satisfy their obligations under the Loan Agreement, the Guarantor hereby agrees as follows:

SECTION 1. Guaranty; Limitation of Liability.

without limitation, any extensions, modifications, substitutions, amendments or renewals of any or all of the foregoing Borrower Obligations), whether direct or indirect, absolute or contingent, and whether for principal, interest, reimbursement obligations, premiums, fees, indemnities, contract causes of action, costs, expenses or otherwise, including, without limitation, the obligation of the Borrower to pay principal, interest, charges, expenses, fees, attorneys’ fees and disbursements, indemnities and other amounts payable by the Borrower under any Loan Document (all of the foregoing obligations, collectively, the “ Guaranteed Obligations ”), and agrees to pay any and all expenses (including, without limitation, reasonable fees and expenses of counsel) incurred by any Beneficiary in enforcing any rights under this Guaranty. Without limiting the generality of the foregoing, the Guarantor’s liability shall extend to all amounts that constitute part of the Guaranteed Obligations and would be owed by the Borrower to any Beneficiary under or in respect of the Loan Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Borrower. The Guarantor further agrees that its guaranty hereunder constitutes a guarantee of payment when due and not of collection, and waives any right to require that any resort be had by the Administrative Agent or any other Beneficiary to any of the security held for payment of the Guaranteed Obligations or to any balance of any deposit account or credit on the books of the Administrative Agent or any other Beneficiary in favor of the Borrower or any other Person.

(b) The Guarantor and, by its acceptance of this Guaranty, each Beneficiary hereby confirms that it is the intention of all such Persons that this Guaranty and the Guaranteed Obligations of the Guarantor hereunder shall not constitute a fraudulent transfer or fraudulent conveyance for purposes of the Federal Bankruptcy Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any other federal, state or foreign bankruptcy, insolvency, receivership or similar law to the extent applicable to this Guaranty and the Guaranteed Obligations. To effectuate the foregoing intention, the Beneficiaries and the Guarantor hereby irrevocably agree that the Guaranteed Obligations at any time as to the Guarantor shall be limited to the maximum amount as will result in the Guaranteed Obligations not constituting a fraudulent transfer or fraudulent conveyance as to the Guarantor.

SECTION 2. Guaranty Absolute.

The Guarantor guarantees that the Guaranteed Obligations will be paid strictly in accordance with the terms of the Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of any Beneficiary with respect thereto. The obligations of the Guarantor under or in respect of this Guaranty are independent of the Guaranteed Obligations or any other obligations of the Borrower under or in respect of the Loan Documents, and a separate action or actions may be brought and prosecuted against the Guarantor to enforce this Guaranty, irrespective of whether any action is brought against the Borrower or whether the Borrower is joined in any such action or actions. The liability of the Guarantor under this Guaranty shall be irrevocable, absolute and unconditional irrespective of, and the Guarantor hereby irrevocably waives any defenses it may now have or hereafter acquire in any way relating to, any or all of the following:

(a) any lack of validity or enforceability of any Loan Document or any agreement or instrument relating thereto;

(b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations or any other obligations of the Borrower or any other guarantor or surety under or in respect of the Loan Documents, or any other amendment or waiver of or any consent to departure from any Loan Document, including, without limitation, any increase in the Guaranteed Obligations resulting from the extension of additional credit to the Borrower or otherwise;

(c) any taking, exchange, release or non-perfection of any collateral, or any taking, release or amendment or waiver of, or consent to departure from, any other guaranty, for all or any of the Guaranteed Obligations;

(d) any manner of application of any collateral, or proceeds thereof, to all or any of the Guaranteed Obligations, or any manner of sale or other disposition of any collateral for all or any of the Guaranteed Obligations or any other assets of the Borrower or any of its Affiliates;

(e) any change, restructuring or termination of the corporate, limited liability company or other entity structure or existence of the Borrower or any of its Affiliates;

(f) any failure of any Beneficiary to disclose to the Guarantor any information relating to the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower or any of its Affiliates now or hereafter known to such Beneficiary (the Guarantor waiving any duty on the part of Beneficiaries to disclose such information);

(g) the failure of any other Person to execute or deliver this Guaranty or any other guaranty or agreement or the release or reduction of liability of the Guarantor or any other guarantor or surety with respect to the Guaranteed Obligations; or

(h) any other circumstance (including, without limitation, any statute of limitations) or any existence of or reliance on any representation by any Beneficiary that might otherwise constitute a defense available to, or a discharge of, the Guarantor or any other guarantor or surety.

This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by any Beneficiary or any other Person upon the insolvency, bankruptcy or reorganization of the Guarantor, the Borrower or otherwise, all as though such payment had not been made.

SECTION 3. Waivers and Acknowledgments.

(a) The Guarantor hereby unconditionally and irrevocably waives promptness, diligence, notice of acceptance, presentment, demand for performance, notice of nonperformance, default, acceleration, protest or dishonor and any other notice with respect to any of the Guaranteed Obligations and this Guaranty and any requirement that any Beneficiary protect, secure, perfect or insure any Lien or any property subject thereto or exhaust any right or take any action against the Borrower or any other Person or any collateral.

(b) The Guarantor hereby unconditionally and irrevocably waives any right to revoke

this Guaranty and acknowledges that this Guaranty is continuing in nature and applies to all Guaranteed Obligations, whether existing now or in the future.

(c) The Guarantor hereby unconditionally and irrevocably waives (i) any defense arising by reason of any claim or defense based upon an election of remedies by any Beneficiary that in any manner impairs, reduces, releases or otherwise adversely affects the subrogation, reimbursement, exoneration, contribution or indemnification rights of the Guarantor or other rights of the Guarantor to proceed against the Borrower or any other Person or any collateral and (ii) any defense based on any right of set-off or counterclaim against or in respect of the Guaranteed Obligations.

(d) The Guarantor hereby unconditionally and irrevocably waives any duty on the part of any Beneficiary to disclose to the Guarantor any matter, fact or thing relating to the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower or any of its Affiliates now or hereafter known by such Beneficiary.

(e) The Guarantor acknowledges that it will receive substantial direct and indirect benefits from the financing arrangements contemplated by the Loan Documents and that the waivers set forth in Section 2 and this Section 3 are knowingly made in contemplation of such benefits.

SECTION 4. Subrogation.

The Guarantor hereby unconditionally and irrevocably agrees not to exercise any rights that it may now have or hereafter acquire against the Borrower that arise from the existence, payment, performance or enforcement of the Guaranteed Obligations under or in respect of this Guaranty, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of any Beneficiary against the Borrower, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from the Borrower, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim, remedy or right, unless and until all of the Guaranteed Obligations and all other amounts payable under this Guaranty shall have been paid in full in cash. If any amount shall be paid to the Guarantor in violation of the immediately preceding sentence at any time prior to the later of (a) the payment in full in cash of the Guaranteed Obligations and all other amounts payable under this Guaranty, and (b) the termination of all Commitments in accordance with the Loan Agreement, such amount shall be received and held in trust for the benefit of the Beneficiaries, shall be segregated from other property and funds of the Guarantor and shall forthwith be paid or delivered to the Administrative Agent in the same form as so received (with any necessary endorsement or assignment) to be credited and applied to the Guaranteed Obligations and all other amounts payable under this Guaranty, whether matured or unmatured, in accordance with the terms of the Loan Documents, or to be held as collateral for any Guaranteed Obligations or other amounts payable under this Guaranty thereafter arising. If (i) the Guarantor shall make payment to any Beneficiary of all or any part of the Guaranteed Obligations, (ii) all of the Guaranteed Obligations and all other amounts payable under this Guaranty shall have been paid in full in cash, and (iii) the termination of all Commitments in accordance with the Loan Agreement shall have occurred, the Beneficiaries will, at the Guarantor’s request and expense, execute and deliver to the Guarantor appropriate documents, without recourse and without representation or

warranty, necessary to evidence the transfer by subrogation to the Guarantor of an interest in the Guaranteed Obligations resulting from such payment made by the Guarantor pursuant to this Guaranty.

SECTION 5. Payments Free and Clear of Taxes, Etc.

(a) Section 3.13 of the Loan Agreement is incorporated herein by reference as if set forth at length in this Guaranty, mutatis mutandis , provided that each reference to the term “Borrower” shall be deemed to be a reference to the Guarantor.

(b) Without prejudice to the survival of any other agreement of the Guarantor hereunder, the agreements and obligations of the Guarantor contained in this Section 5 shall survive the payment in full or termination of the Guaranteed Obligations.

SECTION 6. Representations and Warranties.

(a) The Guarantor hereby makes for the benefit of the Beneficiaries all of the representations and warranties contained in Section 6 of that certain Third Amended and Restated Term Loan Agreement, dated as of December 21, 2015 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ PNMR Loan Agreement ”), among the Guarantor, in its capacity as borrower, the lenders party thereto from time to time and JPMorgan Chase Bank, N.A., as administrative agent (in the form of such representations and warranties (and all defined terms used therein) as they exist on the date of this Guaranty and as they may hereafter be amended from time to time, but only to the extent that the incorporation of any such amendments into this Guaranty has been consented to in accordance with Section 9 hereof), which representations and warranties (and all defined terms used therein) are incorporated herein by reference as if set forth at length in this Guaranty, mutatis mutandis ; provided , that each reference to the term “this Loan Agreement” shall be deemed to be a reference to this Guaranty; each reference to the term “Loan Documents” shall be deemed to be a reference to this Guaranty and each other Loan Document (as defined in the Loan Agreement) to which the Guarantor is a party, if any; each reference to the term “Borrower” shall be deemed to be a reference to the Guarantor; and each reference to the term “Administrative Agent” or “Lender” shall be deemed to be a reference to the Beneficiaries; provided , further , that the defined terms contained in the PNMR Loan Agreement that are incorporated by reference in this Section 6(a) (as modified by the foregoing proviso) apply only to the representations and warranties incorporated herein by reference.

(b) The Guarantor hereby makes for the benefit of the Beneficiaries each of the following additional representations and warranties:

(i) There are no conditions precedent to the effectiveness of this Guaranty that have not been satisfied or waived.

(ii) The Guarantor has, independently and without reliance upon any Beneficiary and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Guaranty and each other Loan Document to which it is or is to be a party, and the Guarantor has established adequate means of obtaining from the Borrower on a continuing basis information pertaining to, and is now and on a continuing basis will be completely familiar with, the business,

condition (financial or otherwise), operations, performance, properties and prospects of the Borrower.

SECTION 7. Covenants.

(a) PNMR Loan Agreement . So long as any Commitment is in effect or any portion of the Guaranteed Obligations shall remain unpaid, the Guarantor shall observe and perform all of the covenants contained in Section 7 and Section 8 (other than Section 7.2 and the first sentence of Section 7.9 thereof) of the PNMR Loan Agreement (in the form of such covenants (and all defined terms used therein) as they exist as of the date of this Guaranty and as they may hereafter be amended from time to time, but only to the extent that the incorporation of any such amendments into this Guaranty has been consented to in accordance with Section 9), and all such covenants (and all defined terms used therein) are hereby incorporated and made applicable by reference as if set forth at length in this Guaranty, mutatis mutandis ; provided , that each reference to the term “Borrower” shall be deemed to be a reference to the Guarantor; each reference to the term “Administrative Agent”, “Lender” and “Required Lenders” shall be deemed to have the meanings assigned to such terms in the Loan Agreement; and each reference to “Exhibit 7.1(c)” of the PNMR Loan Agreement shall be deemed to be a reference to Exhibit 7.1(c) attached to this Guaranty; provided , further , that the defined terms contained in the PNMR Loan Agreement that are incorporated by reference in this Section 7(a) (as modified by the foregoing proviso) apply only to the covenants incorporated herein by reference.

(b) Financial Covenant . So long as any Commitment is in effect or any portion of the Guaranteed Obligations shall remain unpaid, the Guarantor shall maintain a ratio of (i) Consolidated Indebtedness to (ii) Consolidated Capitalization that is less than or equal to 0.65 to 1.0. For purposes of such calculation the portion of Consolidated Indebtedness attributable to obligations under Material Leases shall be the net present value (using (A) the discount rate (1) set forth in Schedule 6.19 of the PNMR Loan Agreement (as such Schedule 6.19 is in effect on the date hereof and as hereafter amended from time to time, but only to the extent that any such amendments have been consented to in accordance with Section 9), so long as such Schedule 6.19 specifies the same relevant discount rate as is used in calculating such net present value provided to Moody’s and S&P or (2) used in calculating such net present value provided to Moody’s and S&P or (B) any such other discount rate as shall be proposed by the Guarantor (and agreed upon by the Required Lenders)) of all amounts payable under the Material Leases. As used in this subsection (b), the terms “Consolidated Capitalization”, “Consolidated Indebtedness”, “Material Leases”, “Moody’s” and “S&P” shall have the meanings assigned to such terms in the PNMR Loan Agreement (as such terms, and all related defined terms, exist as of the date of this Guaranty and as they may hereafter be amended from time to time, but only to the extent that the incorporation of any such amendments into this Guaranty has been consented to in accordance with Section 9), and such terms (and all related defined terms) and Schedule 6.19 of the PNMR Loan Agreement are hereby incorporated and made applicable by reference as if set forth at length in this Guaranty, mutatis mutandis ; provided , that each reference to the term “Borrower” shall be deemed to be a reference to the Guarantor; provided , further , that the defined terms contained in the PNMR Loan Agreement that are incorporated by reference in this Section 7(b) (as modified by the foregoing proviso) apply only to the financial covenant set forth in this Section 7(b).

as any Commitment is in effect or any portion of the Guaranteed Obligations shall remain unpaid, it will cause the Borrower to perform and observe all of the terms, covenants and agreements set forth in the Loan Agreement on the Borrower’s part to be performed or observed.

(d) Acknowledgement . Sections 7(a), 7(b) and 7(c) hereof contain (or incorporate by reference) affirmative and negative covenants applicable to the Guarantor. The Beneficiaries acknowledge and agree that any such covenants that require the Guarantor to cause any of its Subsidiaries to take or to refrain from taking specified actions will be enforceable unless prohibited by applicable law or regulatory requirement.

SECTION 8. Notice of Defaults.

(a) The Administrative Agent hereby agrees to (i) provide written notice to the Guarantor promptly after the Administrative Agent obtains knowledge of the occurrence of any Event of Default, and (ii) provide written notice to the Guarantor (an “ Acceleration Notice ”) promptly after the acceleration of the outstanding principal amount of the Loans pursuant to Section 9.2 of the Loan Agreement.

(b) The Guarantor hereby agrees within two (2) Business Days after its receipt of an Acceleration Notice, to pay to the Administrative Agent (for the benefit of the Beneficiaries) the outstanding amount of the Guaranteed Obligations due and payable at such time and all other amounts due and payable by the Guarantor under this Guaranty.

SECTION 9. Amendments, Etc.

No amendment or waiver of any provision of this Guaranty and no consent to any departure by the Guarantor therefrom shall in any event be effective unless the same shall be in writing and signed by the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however , that no amendment, waiver or consent shall, unless in writing and signed by all of the Beneficiaries, (a) reduce or limit the obligations of the Guarantor hereunder, release the Guarantor hereunder or otherwise limit the Guarantor’s liability with respect to the Borrower Obligations owing to the Beneficiaries under or in respect of the Loan Documents, (b) postpone any date fixed for payment hereunder or (c) change the number of Beneficiaries or the percentage of (x) the Commitments, or (y) the aggregate unpaid principal amount of the Loans that, in each case, shall be required for the Beneficiaries or any of them to take any action hereunder; and provided, further , that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Administrative Agent under this Guaranty.

SECTION 10. Notices, Etc.

(i) if to the Guarantor, to the address, telecopier number, electronic mail address or telephone number listed below the Guarantor’s name on the signature pages hereto, and if to the Administrative Agent, to the address, telecopier number, electronic mail address or telephone number specified on Schedule 11.1 of the Loan Agreement; and

(ii) if to any other Lender, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire.

(b) Electronic Communications . Notices and other communications to the Lenders hereunder may be delivered or furnished by using Electronic Systems pursuant to procedures approved by the Administrative Agent. The Administrative Agent or the Guarantor may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications.

Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.

(a) Electronic Systems .

(i) The Guarantor agrees that the Administrative Agent may, but shall not be obligated to, make Communications (as defined below) available to the Lenders by posting the Communications on Debt Domain, Intralinks, Syndtrak, ClearPar or a

substantially similar Electronic System.

(ii) Any Electronic System used by the Administrative Agent is provided “as is” and “as available.” The Agent Parties (as defined below) do not warrant the adequacy of such Electronic Systems and expressly disclaim liability for errors or omissions in the Communications. No warranty of any kind, express, implied or statutory, including any warranty of merchantability, fitness for a particular purpose, non-infringement of third- party rights or freedom from viruses or other code defects, is made by any Agent Party in connection with the Communications or any Electronic System. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “ Agent Parties ”) have any liability to the Guarantor, any Lender or any other Person or entity for damages of any kind, including direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of the Guarantor’s or the Administrative Agent’s transmission of Communications through an Electronic System. “ Communications ” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of the Guarantor pursuant to any Loan Document or the transactions contemplated therein which is distributed by the Administrative Agent or any Lender by means of electronic communications pursuant to this Section, including through an Electronic System.

Change of Address, Etc . Each of the Guarantor and the Administrative Agent may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the other parties hereto. Each other Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the Guarantor and the Administrative Agent.

SECTION 11. No Waiver, Remedies.

No failure on the part of any Beneficiary to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

SECTION 12. Right of Set-off.

In addition to any rights now or hereafter granted under applicable Law or otherwise, and not by way of limitation of any such rights, upon the occurrence of an Event of Default and the commencement of remedies described in Section 9.2 of the Loan Agreement, each Lender is authorized at any time and from time to time, without presentment, demand, protest or other notice of any kind (all of which rights being hereby expressly waived), to set-off and to appropriate and apply any and all deposits (general or special) and any other indebtedness at any time held or owing by such Lender (including, without limitation, branches, agencies or Affiliates of such Lender wherever located) to or for the credit or the account of the Guarantor against obligations and liabilities of the Guarantor to the Lenders hereunder, under the other Loan Documents or otherwise, irrespective of whether the Administrative Agent or the Lenders shall have made any demand hereunder and although such obligations, liabilities or claims, or any of them, may be contingent or unmatured, and any such set-off shall be deemed to have been made immediately upon the occurrence of an Event of Default even though such charge is made or entered on the books of such Lender subsequent thereto. The Guarantor hereby agrees that any Person purchasing a participation

in the Loans and Commitments pursuant to Section 3.8 or 11.3(d) of the Loan Agreement may exercise all rights of set-off with respect to its participation interest as fully as if such Person were a Lender thereunder.

SECTION 13. Indemnification.

(a) Without limitation of any other Guaranteed Obligations of the Guarantor or remedies of the Beneficiaries under this Guaranty, the Guarantor shall, to the fullest extent permitted by law, indemnify, defend and save and hold harmless each Beneficiary and each of its Affiliates and their respective officers, directors, employees, agents and advisors (each, an “ Indemnified Party ”) from and against, and shall pay on demand, any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party in connection with or as a result of any failure of any Guaranteed Obligations to be the legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their terms.

(b) THE GUARANTOR HEREBY ALSO AGREES THAT NONE OF THE INDEMNIFIED PARTIES SHALL HAVE ANY LIABILITY (WHETHER DIRECT OR INDIRECT, IN CONTRACT, TORT OR OTHERWISE) TO THE GUARANTOR OR ANY OF ITS RESPECTIVE AFFILIATES OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND ADVISORS, AND THE GUARANTOR HEREBY AGREES NOT TO ASSERT ANY CLAIM AGAINST ANY INDEMNIFIED PARTY ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH, ARISING OUT OF, OR OTHERWISE RELATING TO THIS GUARANTY, ANY OTHER LOAN DOCUMENT, ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN, OR THE ACTUAL OR PROPOSED USE OF THE PROCEEDS OF THE LOANS CONSTITUTING GUARANTEED OBLIGATIONS.

(c) Without prejudice to the survival of any of the other agreements of the Guarantor under this Guaranty or any of the other Loan Documents, the agreements and obligations of the Guarantor contained in Section 1(a) (with respect to enforcement expenses), the last sentence of Section 2, Section 5 and this Section 13 shall survive the payment in full of the Guaranteed Obligations and all of the other amounts payable under this Guaranty.

SECTION 14. Subordination.

If any Specified Default (as defined below) shall have occurred and be continuing, the Guarantor agrees to subordinate any and all debts, liabilities and other obligations owed to the Guarantor by the Borrower (the “ Subordinated Obligations ”) to the Guaranteed Obligations to the extent and in the manner hereinafter set forth in this Section 14:

(a) Prohibited Payments, Etc. After the occurrence and during the continuance of any Specified Default (including, without limitation, the commencement and continuation of any proceeding under any Debtor Relief Law relating to the Borrower), unless the Administrative Agent otherwise agrees, the Guarantor shall not demand, accept or take any action to collect any payment on account of the Subordinated Obligations.

(b) Prior Payment of Guaranteed Obligations. In any proceeding under any Debtor Relief Law relating to the Borrower, the Guarantor agrees that the Beneficiaries shall be entitled to receive payment in full in cash of all Guaranteed Obligations (including, without limitation, all interest and expenses accruing after the commencement of a proceeding under any Debtor Relief Law, whether or not constituting an allowed claim in such proceeding (“ Post Petition Interest ”)) before the Guarantor receives payment of any Subordinated Obligations.

(c) Turn-Over. After the occurrence and during the continuance of any Specified Default (including, without limitation, the commencement and continuation of any proceeding under any Debtor Relief Law relating to the Borrower), the Guarantor shall, if the Administrative Agent so requests, collect, enforce and receive payments on account of the Subordinated Obligations as trustee for the Beneficiaries and deliver such payments to the Administrative Agent on account of the Guaranteed Obligations (including, without limitation, all Post Petition Interest), together with any necessary endorsements or other instruments of transfer, but without reducing or affecting in any manner the liability of the Guarantor under the other provisions of this Guaranty.

(d) Administrative Agent Authorization. After the occurrence and during the continuance of any Specified Default (including, without limitation, the commencement and continuation of any proceeding under any Debtor Relief Law relating to the Borrower), the Administrative Agent is authorized and empowered (but without any obligation to so do), in its discretion, (i) in the name of the Guarantor, to collect and enforce, and to submit claims in respect of, Subordinated Obligations and to apply any amounts received thereon to the Guaranteed Obligations (including, without limitation, any and all Post Petition Interest), and (ii) to require the Guarantor (A) to collect and enforce, and to submit claims in respect of, Subordinated Obligations and (B) to pay any amounts received on such obligations to the Administrative Agent for application to the Guaranteed Obligations (including, without limitation, any and all Post Petition Interest).

(e) Specified Default. As used in this Section 14, the term “ Specified Default ” means (i) any Default pursuant to Section 9.1(a) or Section 9.1(e) of the Loan Agreement or (ii) any Event of Default.

SECTION 15. Continuing Guaranty; Assignments under the Loan Agreement.

This Guaranty is a continuing guaranty and shall (a) remain in full force and effect until the later of (i) the payment in full in cash of the Guaranteed Obligations and all other amounts payable under this Guaranty, and (ii) the date of the termination of all Commitments in accordance with the Loan Agreement, (b) be binding upon the Guarantor, its successors and assigns and (c) inure to the benefit of and be enforceable by the Beneficiaries and their successors, transferees and assigns. Without limiting the generality of clause (c) of the immediately preceding sentence, each Lender may assign or otherwise transfer all or any portion of its rights and obligations under the Loan Agreement (including, without limitation, all or any portion of its Commitment, the Loans owing to it and the Note or Notes held by it) to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise, in each case as and to the extent provided in Section 11.3 of the Loan Agreement. The Guarantor shall not have the right to assign or otherwise transfer its rights or obligations hereunder or any interest herein without the prior written consent of the Beneficiaries (and any attempted assignment or transfer by the Guarantor

without such consent shall be null and void).

SECTION 16. Execution in Counterparts.

This Guaranty may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page of this Guaranty by telecopy, e- mailed .pdf or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Guaranty. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to any document to be signed in connection with this Guaranty and the transactions contemplated hereby shall be deemed to include Electronic Signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.

SECTION 17. Governing Law; Jurisdiction; Waiver of Jury Trial, Etc.

(a) THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK .

(b) The Guarantor hereby irrevocably and unconditionally submits, for itself and its Property, to the exclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County, New York and of the United States District Court for the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Guaranty or any of the other Loan Documents to which it is or is to be a party, or for recognition or enforcement of any judgment, and the Guarantor 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 court or, to the extent permitted by law, in such Federal court. The Guarantor 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 Guaranty or any other Loan Document shall affect any right that any Beneficiary may otherwise have to bring any action or proceeding relating to this Guaranty or any other Loan Document against the Guarantor or its Properties in the courts of any other jurisdiction.

(c) The Guarantor 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 Guaranty or any other Loan Document to which it is or is to be a party in any court referred to in paragraph of this Section. The Guarantor hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such suit, action or proceeding in any such court. The Guarantor also irrevocably consents, to the fullest extent permitted by law, to the service of any and all process in any such suit, action or proceeding in the manner provided for notices in Section 10. Nothing in this Guaranty or any other Loan Document will affect the right of any Beneficiary to serve process in any other manner permitted by law.

(d) THE GUARANTOR AND EACH BENEFICIARY HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS GUARANTY, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). THE GUARANTOR AND EACH BENEFICIARY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY TO ANY LOAN DOCUMENT 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 TO THE LOAN DOCUMENTS HAVE BEEN INDUCED TO ENTER INTO THE LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

SECTION 18. Severability .

If any provision of this Guaranty is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions.

SECTION 19. Captions .

The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Guaranty.

SECTION 20. Entire Agreement .

This Guaranty together with the other Loan Documents represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any commitment letters or correspondence relating to the Loan Documents or the transactions contemplated herein and therein.

SECTION 21. Regulatory Statement .

Pursuant to the terms of an order issued by the New Mexico Public Regulation Commission and a stipulation that has been approved by the New Mexico Public Regulation

Commission, the Guarantor is required to include the following separateness covenants in any debt instrument:

The Guarantor and PSNM are being operated as separate corporate and legal entities. In agreeing to make loans to the Borrower, the Lenders are relying solely on the creditworthiness of the Loan Parties based on the assets owned by the Loan Parties, and the repayment of the loan will be made solely from the assets of the Loan Parties and not from any assets of PSNM; and the Lenders will not take any steps for the purpose of procuring the appointment of an administrative receiver or the making of an administrative order for instituting any bankruptcy, reorganization, insolvency, wind up or liquidation or any like proceeding under applicable law in respect of PSNM.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written.

GUARANTOR

PNM RESOURCES, INC.

By:

Name:

Title:

Address: 414 Silver Ave. SW, MS0905

Albuquerque, NM 87102-3289 Attention: Elisabeth Eden, Treasurer Telephone No.: (505) 241-2691

Telecopier No.: (505) 241-4386

E-mail: Elisabeth.Eden@pnmresources.com

S- 1

Signature Page to Guaranty

AGREED AND ACCEPTED:

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., as Administrative Agent

By:

Name:

Title:

S- 2

Signature Page to Guaranty

EXHIBIT 2.1(b)

FORM OF
NOTICE OF BORROWING


TO:	The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Administrative Agent


RE:	Term Loan Agreement dated as of February 1, 2016 among NM Capital Utility Corporation (the “ Borrower ”), the Lenders identified therein and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as administrative agent (the “ Administrative Agent ”) (as the same may be amended, modified, extended or restated from time to time, the “ Loan Agreement ”).


DATE:	________________, 2016


1.	This Notice of Borrowing is made pursuant to the terms of the Loan Agreement. All capitalized terms used herein unless otherwise defined shall have the meanings set forth in the Loan Agreement.


2.	Please be advised that the Borrower is requesting a Loan on the terms set forth below:


(a)	Principal amount of requested Loan $125,000,000.00


(b)	Date of requested Loan (the “ Borrowing Date ”) February 1, 2016


(c)	Interest rate applicable to the requested Loan:


(i)	_______ Adjusted Base Rate


(ii)	_______ Adjusted Eurodollar Rate for an Interest Period of:

_______    one month
_______    two months
_______    three months
_______    six months


3.	The undersigned hereby certifies that the following statements will be true on the Borrowing Date:

(a) The representations and warranties made by the undersigned in any Loan Document are true and correct in all material respects (except that any representation and warranty that is qualified by materiality is true and correct in all respects) at and as if made as of such date except to the extent any such representation and warranty expressly and exclusively relates to an earlier date (in which case such representation and warranty was true and correct in all material respects (except that any such representation and warranty that is qualified by materiality was true and correct in all respects) as of such earlier date).

(b) No Default or Event of Default exists or shall be continuing either prior to or after giving effect to the Loan made pursuant to this Notice of Borrowing.

(c) Subsequent to the funding of the requested Loan, the aggregate principal amount of the Loans will not exceed the aggregate amount of the Lenders’ Commitments.

[4. The undersigned hereby acknowledges and agrees that the Borrower shall indemnify each Lender in accordance with Section 3.14 against any loss, cost or expense incurred by such Lender as a result of any failure by the Borrower to borrow the Loan requested by the Borrower in this Notice of Borrowing on the Borrowing Date.] ¹

[5. The undersigned hereby authorizes the Administrative Agent to deduct from the amount of the requested Loan, and apply such deduction to, (a) the fees payable to the Administrative Agent, for the account of the Arranger, pursuant to the Fee Letter and (b) the fees and expenses of counsel to the Administrative Agent as set forth in an invoice from such counsel delivered to the Borrower prior to the Borrowing Date.] ²

NM CAPITAL UTILITY CORPORATION,
a Delaware corporation

By:
Name:
Title:______________________________________

_____________________________

¹ Include if requesting a Eurodollar Loan.

² Any additional deductions should be listed or included on a schedule.

EXHIBIT 2.1(d)

FORM OF TERM NOTE

Lender: ____________ _________, 201__

FOR VALUE RECEIVED, NM Capital Utility Corporation, a Delaware corporation (the “ Borrower ”), hereby promises to pay to the order of the Lender referenced above (the “ Lender ”), at the Administrative Agent’s Office set forth in that certain Term Loan Agreement dated as of February 1, 2016 (as amended, modified, extended or restated from time to time, the “ Loan Agreement ”) among the Borrower, the Lenders party thereto (including the Lender) and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as administrative agent (the “ Administrative Agent ”) (or at such other place or places as the holder of this Note may designate), the aggregate unpaid principal amount of the Loan made by the Lender to the Borrower under the Loan Agreement, in lawful money and in immediately available funds, on the dates and in the principal amounts provided in the Loan Agreement (but, in any event, no later than the Maturity Date), and to pay interest on the unpaid principal amount of the Loan made by the Lender, at such office, in like money and funds, for the period commencing on the date of the Loan until such Loan shall be paid in full, at the rates per annum and on the dates provided in the Loan Agreement.

This Note is one of the Notes referred to in the Loan Agreement and evidences the Loan made by the Lender to the Borrower thereunder. Capitalized terms used in this Note have the respective meanings assigned to them in the Loan Agreement and the terms and conditions of the Loan Agreement are expressly incorporated herein and made a part hereof.

The Loan Agreement provides for the acceleration of the maturity of the Loan evidenced by this Note upon the occurrence of certain events (and for payment of collection costs in connection therewith) and for prepayment of the Loan upon the terms and conditions specified therein. In the event this Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to principal and interest, all costs of collection, including reasonable attorney fees.

The date, amount, type, interest rate and duration of Interest Period (if applicable) of the Loan made by the Lender to the Borrower, and each payment made on account of the principal thereof, shall be recorded by the Lender on its books; provided that the failure of the Lender to make any such recordation or endorsement shall not affect the obligations of the Borrower to make a payment when due of any amount owing under the Loan Agreement or under this Note in respect of the Loan to be evidenced by this Note, and each such recordation or endorsement shall be prima facie evidence of such information, absent manifest error.

Except as permitted by Section 11.3(b) of the Loan Agreement, this Note may not be assigned by the Lender to any other Person.

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

[signature page follows]

IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of the date first above written.

NM CAPITAL UTILITY CORPORATION,
a Delaware corporation

By:
Name:
Title:_______________________________________

EXHIBIT 2.3

FORM OF
NOTICE OF CONTINUATION/CONVERSION


TO:	THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., as Administrative Agent


RE:	Term Loan Agreement dated as of February 1, 2016 among NM Capital Utility Corporation (the “ Borrower ”), the Lenders identified therein and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as administrative agent (the “ Administrative Agent ”) (as the same may be amended, modified, extended or restated from time to time, the “ Loan Agreement ”).


DATE:	________________, 201__


1.	This Notice of Continuation/Conversion is made pursuant to the terms of the Loan Agreement. All capitalized terms used herein unless otherwise defined shall have the meanings set forth in the Loan Agreement.


2.	Please be advised that the Borrower is requesting that a portion of the current outstanding Loan in the amount of $_______________, currently accruing interest at ____________, be extended or converted as of ________, 201_ at the interest rate option set forth in paragraph 3 below.


3.	The interest rate option applicable to the extension or conversion of all or part of the existing Loan referenced above shall be:


a.	______ the Adjusted Base Rate


b.	______ the Adjusted Eurodollar Rate for an Interest Period of:

______ one month
______ two months
______ three months
______ six months


4.	As of the date hereof, no Default or Event of Default has occurred and is continuing.

[signature page follows]

NM CAPITAL UTILITY CORPORATION,
a Delaware corporation

By:
Name:
Title:______________________________________

EXHIBIT 4.1(j)

FORM OF
ACCOUNT DESIGNATION LETTER

[Date]

The Bank of Tokyo-Mitsubishi UFJ, Ltd.
[address]
Attention: [________]

Ladies and Gentlemen:

This Account Designation Letter is delivered to you by NM Capital Utility Corporation (the “ Borrower ”), a Delaware corporation, under Section 4.1(j) of the Term Loan Agreement, dated as of February 1, 2016 (as amended, restated or otherwise modified from time to time, the “ Loan Agreement ”), by and among the Borrower, the Lenders party thereto, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as administrative agent (the “ Administrative Agent ”).

The Administrative Agent is hereby authorized to disburse all Loan proceeds into the following account, unless the Borrower shall designate, in writing to the Administrative Agent, one or more other accounts:

A/C#
ABA
Reference:

IN WITNESS WHEREOF, the undersigned has executed this Account Designation Letter this [__] day of ________, 20__.

NM CAPITAL UTILITY CORPORATION,
a Delaware corporation

By:
Name:
Title:_______________________________________

EXHIBIT 7.1(c)

FORM OF
COMPLIANCE CERTIFICATE


TO:	THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., as Administrative Agent


RE:	Term Loan Agreement dated as of February 1, 2016 among NM Capital Utility Corporation (the “ Borrower ”), The Bank of Tokyo-Mitsubishi UFJ, Ltd., (the “ Administrative Agent ”), and the Lenders identified therein (as the same may be amended, modified, extended or restated from time to time, the “ Loan Agreement ”).


DATE:	________________, 201__

Pursuant to the terms of the Loan Agreement, I, ________________, [Title of Financial Officer] of NM Capital Utility Corporation, hereby certify on behalf of the Borrower that, as of the [Fiscal Quarter] [Fiscal Year] ending ______, 201__, the statements below are accurate and complete in all respects (all capitalized terms used below shall have the meanings set forth in the Loan Agreement):

a. No Default or Event of Default exists under the Loan Agreement, except as indicated on a separate page attached hereto, together with an explanation of the action taken or proposed to be taken by the Borrower with respect thereto.

b. [Attached hereto as Schedule 1 are the [quarterly][annual] financial statements for the fiscal [quarter][year] ended __________, 201__ and such [quarterly][annual] financial statements] [ The [quarterly][annual] financial statements for the fiscal [quarter][year] ended _______, 201_, delivered electronically pursuant to the last paragraph of Section 7.1 of the Loan Agreement,] ³ fairly present in all material respects the financial condition of the Borrower and have been prepared in accordance with GAAP[, subject to changes resulting from normal year-end audit adjustments and except that the quarterly financial statements have fewer footnotes than annual statements] ⁴ .

[signature page follows]

__________________________

³ Use the first bracketed language when delivering paper copies of financial statements and the second bracketed language when delivering financial statements electronically.

⁴ Include when delivering quarterly financial statements.

NM CAPITAL UTILITY CORPORATION,
a Delaware corporation

By:
Name:
Title:_______________________________________

SCHEDULE 1

TO EXHIBIT 7.1(c)

[QUARTERLY][ANNUAL] FINANCIAL STATEMENTS

[Attached]

EXHIBIT 11.3(b)

FORM OF ASSIGNMENT AND ASSUMPTION

This Assignment and Assumption (the “ Assignment and Assumption ”) is dated as of the Effective Date set forth below and is entered into by and between _________ (the “ Assignor ”) and ________________ (the “ Assignee ”). Capitalized terms used but not defined herein shall have the meanings given to them in the Term Loan Agreement identified below (as amended, the “ Loan Agreement ”), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Schedule 1 attached hereto (the “ Standard Terms and Conditions ”) are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Loan Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (a) all of the Assignor’s rights and obligations in its capacity as a Lender under the Loan Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the facility identified below and (b) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Loan Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (a) above (the rights and obligations sold and assigned pursuant to clauses (a) and (b) above being referred to herein collectively as, the “ Assigned Interest ”). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.



1.	Assignor:	____________________________
2.	Assignee:	____________________________ and is an Affiliate/Approved Fund of ___________
3.	Borrower:	NM Capital Utility Corporation, a Delaware corporation
4.	Administrative Agent:	The Bank of Tokyo-Mitsubishi UFJ, Ltd., as the Administrative Agent under the Loan Agreement
5.	Loan Agreement:	Term Loan Agreement dated as of February 1, 2016 among the Borrower, the Administrative Agent, and the Lenders identified therein
6.	Assigned Interest:



Aggregate Amount of Loans for all Lenders	Amount of Loan Assigned	Percentage Assigned of Loan
$	$	%



7.	After giving effect to the foregoing assignment, the Assignor and the Assignee shall have the following Pro Rata Shares and outstanding Loans:



	Pro Rata Share	Outstanding Loans
Assignor
Assignee



8.	Trade Date:	__________________

Effective Date: _____________ ___, 201__

The terms set forth in this Assignment and Assumption are hereby agreed to:

ASSIGNOR

[NAME OF ASSIGNOR]

By:
Name:
Title:______________________________________

ASSIGNEE

[NAME OF ASSIGNEE]

By:
Name:
Title:______________________________________

Consented to and Accepted if applicable:

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,
as Administrative Agent

By:
Name:
Title:___________________________________

Consented to if applicable:

NM CAPITAL UTILITY CORPORATION,
a Delaware corporation

By:
Name:
Title:___________________________________

SCHEDULE 1
TO EXHIBIT 11.3(b)

STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION

1. Representations and Warranties .

1.1 Assignor . The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Loan Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Affiliates or any other Person of any of their respective obligations under any Loan Document.

1.2. Assignee . The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Loan Agreement, (ii) it meets all requirements of an Eligible Assignee under the Loan Agreement (subject to receipt of such consents as may be required under the Loan Agreement), (iii) from and after the Effective Date, it shall be bound by the provisions of the Loan Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the Loan Agreement, together with copies of the most recent financial statements delivered pursuant to Section 7.1 thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Lender, and (v) if it is a foreign lender, attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Loan Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.

2. Payments . From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.

3. General Provisions . This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and

Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.

Exhibit 10.2

[EXECUTION COPY]

GUARANTY AGREEMENT

This GUARANTY AGREEMENT, dated as of February 1, 2016 (this “ Guaranty ”), is made by PNM RESOURCES, INC., a New Mexico corporation (the “ Guarantor ”), in favor of the Lenders (as defined in the Loan Agreement referred to below) and THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., as administrative agent (in such capacity, together with its successors and assigns in such capacity, the “ Administrative Agent ”) for the Lenders (the Lenders and the Administrative Agent being referred to herein, collectively, as the “ Beneficiaries ” and, individually, as a “ Beneficiary ”).

PRELIMINARY STATEMENTS

SECTION 1. Guaranty; Limitation of Liability.

(a) The Guarantor hereby absolutely, unconditionally and irrevocably guarantees the punctual payment when due, whether at scheduled maturity or on any date of a required prepayment or by acceleration, demand or otherwise (in each case as provided in the Loan Agreement and the other Loan Documents), of all Borrower Obligations now or hereafter existing under or in respect of the Loan Agreement and the other Loan Documents (including, without limitation, any extensions, modifications, substitutions, amendments or renewals of any or all of the foregoing Borrower Obligations), whether direct or indirect, absolute or contingent, and whether for principal, interest, reimbursement obligations, premiums, fees, indemnities,

contract causes of action, costs, expenses or otherwise, including, without limitation, the obligation of the Borrower to pay principal, interest, charges, expenses, fees, attorneys’ fees and disbursements, indemnities and other amounts payable by the Borrower under any Loan Document (all of the foregoing obligations, collectively, the “ Guaranteed Obligations ”), and agrees to pay any and all expenses (including, without limitation, reasonable fees and expenses of counsel) incurred by any Beneficiary in enforcing any rights under this Guaranty. Without limiting the generality of the foregoing, the Guarantor’s liability shall extend to all amounts that constitute part of the Guaranteed Obligations and would be owed by the Borrower to any Beneficiary under or in respect of the Loan Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Borrower. The Guarantor further agrees that its guaranty hereunder constitutes a guarantee of payment when due and not of collection, and waives any right to require that any resort be had by the Administrative Agent or any other Beneficiary to any of the security held for payment of the Guaranteed Obligations or to any balance of any deposit account or credit on the books of the Administrative Agent or any other Beneficiary in favor of the Borrower or any other Person.

SECTION 2. Guaranty Absolute.

(a) any lack of validity or enforceability of any Loan Document or any agreement or instrument relating thereto;

(b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations or any other obligations of the Borrower

or any other guarantor or surety under or in respect of the Loan Documents, or any other amendment or waiver of or any consent to departure from any Loan Document, including, without limitation, any increase in the Guaranteed Obligations resulting from the extension of additional credit to the Borrower or otherwise;

(e) any change, restructuring or termination of the corporate, limited liability company or other entity structure or existence of the Borrower or any of its Affiliates;

SECTION 3. Waivers and Acknowledgments.

(b) The Guarantor hereby unconditionally and irrevocably waives any right to revoke this Guaranty and acknowledges that this Guaranty is continuing in nature and applies to all Guaranteed Obligations, whether existing now or in the future.

SECTION 4. Subrogation.

cash, and (iii) the termination of all Commitments in accordance with the Loan Agreement shall have occurred, the Beneficiaries will, at the Guarantor’s request and expense, execute and deliver to the Guarantor appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to the Guarantor of an interest in the Guaranteed Obligations resulting from such payment made by the Guarantor pursuant to this Guaranty.

SECTION 5. Payments Free and Clear of Taxes, Etc.

SECTION 6. Representations and Warranties.

(b) The Guarantor hereby makes for the benefit of the Beneficiaries each of the following additional representations and warranties:

(i) There are no conditions precedent to the effectiveness of this Guaranty that have not been satisfied or waived.

SECTION 7. Covenants.

if set forth at length in this Guaranty, mutatis mutandis ; provided , that each reference to the term “Borrower” shall be deemed to be a reference to the Guarantor; provided , further , that the defined terms contained in the PNMR Loan Agreement that are incorporated by reference in this Section 7(b) (as modified by the foregoing proviso) apply only to the financial covenant set forth in this Section 7(b).

(c) Loan Agreement Covenants . The Guarantor covenants and agrees that, so long as any Commitment is in effect or any portion of the Guaranteed Obligations shall remain unpaid, it will cause the Borrower to perform and observe all of the terms, covenants and agreements set forth in the Loan Agreement on the Borrower’s part to be performed or observed.

SECTION 8. Notice of Defaults.

SECTION 9. Amendments, Etc.

SECTION 10. Notices, Etc.

(ii) if to any other Lender, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire.

(b) Electronic Communications . Notices and other communications to the Lenders hereunder may be delivered or furnished by using Electronic Systems pursuant to procedures approved by the Administrative Agent. The Administrative Agent or the Guarantor may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications.

(a) Electronic Systems .

(i) The Guarantor agrees that the Administrative Agent may, but shall not be obligated to, make Communications (as defined below) available to the Lenders by

posting the Communications on Debt Domain, Intralinks, Syndtrak, ClearPar or a substantially similar Electronic System.

(ii) Any Electronic System used by the Administrative Agent is provided “as is” and “as available.” The Agent Parties (as defined below) do not warrant the adequacy of such Electronic Systems and expressly disclaim liability for errors or omissions in the Communications. No warranty of any kind, express, implied or statutory, including any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects, is made by any Agent Party in connection with the Communications or any Electronic System. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “ Agent Parties ”) have any liability to the Guarantor, any Lender or any other Person or entity for damages of any kind, including direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of the Guarantor’s or the Administrative Agent’s transmission of Communications through an Electronic System. “ Communications ” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of the Guarantor pursuant to any Loan Document or the transactions contemplated therein which is distributed by the Administrative Agent or any Lender by means of electronic communications pursuant to this Section, including through an Electronic System.

(b) Change of Address, Etc . Each of the Guarantor and the Administrative Agent may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the other parties hereto. Each other Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the Guarantor and the Administrative Agent.

SECTION 11. No Waiver, Remedies.

SECTION 12. Right of Set-off.

unmatured, and any such set‑off shall be deemed to have been made immediately upon the occurrence of an Event of Default even though such charge is made or entered on the books of such Lender subsequent thereto. The Guarantor hereby agrees that any Person purchasing a participation in the Loans and Commitments pursuant to Section 3.8 or 11.3(d) of the Loan Agreement may exercise all rights of set‑off with respect to its participation interest as fully as if such Person were a Lender thereunder.

SECTION 13. Indemnification.

SECTION 14. Subordination.

SECTION 15. Continuing Guaranty; Assignments under the Loan Agreement.

immediately preceding sentence, each Lender may assign or otherwise transfer all or any portion of its rights and obligations under the Loan Agreement (including, without limitation, all or any portion of its Commitment, the Loans owing to it and the Note or Notes held by it) to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise, in each case as and to the extent provided in Section 11.3 of the Loan Agreement. The Guarantor shall not have the right to assign or otherwise transfer its rights or obligations hereunder or any interest herein without the prior written consent of the Beneficiaries (and any attempted assignment or transfer by the Guarantor without such consent shall be null and void).

SECTION 16. Execution in Counterparts.

This Guaranty may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page of this Guaranty by telecopy, e-mailed .pdf or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Guaranty. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to any document to be signed in connection with this Guaranty and the transactions contemplated hereby shall be deemed to include Electronic Signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.

SECTION 17. Governing Law; Jurisdiction; Waiver of Jury Trial, Etc.

(a) THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK .

(c) The Guarantor 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 Guaranty or any other Loan Document to which it is or is to be a party in any court referred to in paragraph (b) of this Section. The Guarantor hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such suit, action or proceeding in any such court. The Guarantor also irrevocably consents, to the fullest extent permitted by law, to the service of any and all process in any such suit, action or proceeding in the manner provided for notices in Section 10. Nothing in this Guaranty or any other Loan Document will affect the right of any Beneficiary to serve process in any other manner permitted by law.

SECTION 18. Severability .

SECTION 19. Captions .

The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Guaranty.

SECTION 20. Entire Agreement .

SECTION 21. Regulatory Statement .

Pursuant to the terms of an order issued by the New Mexico Public Regulation Commission and a stipulation that has been approved by the New Mexico Public Regulation

Commission, the Guarantor is required to include the following separateness covenants in any debt instrument:

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written.

GUARANTOR

PNM RESOURCES, INC.

By: /s/ Charles N. Eldred

Name: Charles N. Eldred


Title:	Executive Vice President and Chief Financial Officer

Address: 414 Silver Ave. SW, MS0905

Albuquerque, NM 87102-3289

Attention: Elisabeth Eden, Treasurer

Telephone No.: (505) 241-2691

Telecopier No.: (505) 241-4386

E-mail: Elisabeth.Eden@pnmresources.com

S-1

Signature Page to Guaranty

AGREED AND ACCEPTED:

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., as Administrative Agent

By: /s/ Chi-Cheng Chen

Name: Chi-Cheng Chen

Title: Director

S-2

Signature Page to Guaranty

EXHIBIT 7.1(c)

FORM OF
COMPLIANCE CERTIFICATE


TO:	THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., as Administrative Agent

RE:

Guaranty, dated as of February 1, 2016 (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the “ Guaranty ”), made by PNM Resources, Inc. (the “ Guarantor ”) in favor of the Beneficiaries (as defined below), to guaranty the obligations of NM Capital Utility Corporation, a Delaware corporation (the “ Borrower ”), arising under a Term Loan Agreement, dated as of February 1, 2016, among the Borrower, The Bank of Tokyo-Mitsubishi UFJ, Ltd. (together with its successors and assigns, the “ Administrative Agent ”), and the Lenders identified therein (such Lenders together with the Administrative Agent, the “ Beneficiaries ”).


DATE:	________________, 201__

Pursuant to the terms of the Guaranty, I, ________________, [Title of Financial Officer] of the Guarantor, hereby certify on behalf of the Guarantor that, as of the [Fiscal Quarter] [Fiscal Year] ending ______, 201__, the statements below are accurate and complete in all respects (all capitalized terms used below shall have the meanings assigned thereto in the Guaranty):

a. Attached hereto as Schedule 1 are calculations (calculated as of the date of the annual financial statements delivered in accordance with Section 7(a) of the Guaranty or as of the date of the quarterly financial statements referred to in paragraph c. below) demonstrating compliance by the Guarantor with the financial covenant set forth in Section 7(b) of the Guaranty.

b. No Default or Event of Default exists with respect to the Guarantor, except as indicated on a separate page attached hereto, together with an explanation of the action taken or proposed to be taken by the Guarantor with respect thereto.

c. [Attached hereto as Schedule 2 are the [quarterly][annual] financial statements for the fiscal [quarter][year] ended __________, 201__ and such [quarterly][annual] financial statements] [ The [quarterly][annual] financial statements for the fiscal [quarter][year] ended _______, 201_, delivered electronically pursuant to the last paragraph of Section 7.1 of the PNMR Loan Agreement, as incorporated by reference in Section 7(a) of the Guaranty,] ¹ fairly present in all material respects the financial condition of the Guarantor and its Subsidiaries and have been prepared in accordance with GAAP[, subject to changes resulting from audit and

__________________________

¹ Use the first bracketed language when delivering paper copies of financial statements and the second bracketed language when delivering financial statements electronically.

normal year-end audit adjustments and except that the quarterly financial statements have fewer footnotes than annual statements] ² .

[signature page follows]

__________________________

² Include when delivering quarterly financial statements.

PNM RESOURCES, INC.,
a New Mexico corporation

By:
Name:
Title:

SCHEDULE 1
TO EXHIBIT 7.1(c)

FINANCIAL COVENANT CALCULATIONS

A. Debt Capitalization



1.	Consolidated Indebtedness of the Guarantor ³	$ ___________________
2.	Consolidated Capitalization of the Guarantor	$ ___________________
3.	Debt to Capitalization Ratio (Line A1 ÷ A2)	____________ to 1.0
Maximum Permitted		0.65 to 1.0

___________________________

³ For purposes of such calculation, the portion of Consolidated Indebtedness attributable to obligations under Material Leases shall be the net present value (using (i) the discount rate (A) set forth in Schedule 6.19 of the PNMR Loan Agreement (as such Schedule 6.19 is in effect on the date of the Guaranty and as thereafter amended from time to time, but only to the extent that any such amendments have been consented to in accordance with Section 9 of the Guaranty), so long as such Schedule 6.19 specifies the same relevant discount rate as is used in calculating such net present value provided to Moody's and S&P or (B) used in calculating such net present value provided to Moody's and S&P or (ii) any such other discount rate as shall be proposed by the Guarantor (and agreed upon by the Required Lenders)) of all amounts payable under the Material Leases.

SCHEDULE 2

TO EXHIBIT 7.1(c)

[QUARTERLY][ANNUAL] FINANCIAL STATEMENTS

[Attached]

Exhibit 10.3

LOAN AGREEMENT

Dated as of February 1, 2016

among

WESTMORELAND SAN JUAN, LLC ,
as the Borrower,

WESTMORELAND SAN JUAN HOLDINGS, INC., SAN JUAN COAL COMPANY and SAN JUAN TRANSPORTATION COMPANY ,
as the Guarantors,

NM CAPITAL UTILITY CORPORATION ,
as the Lender,

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD. ,
as the Administrative Agent,

And

MUFG UNION BANK, N.A. ,
as the Depository Bank

TABLE OF CONTENTS

Page



ARTICLE 1	DEFINITIONS AND ACCOUNTING TERMS	1

Section 1.01	Defined Terms	1
Section 1.02	Other Interpretive Provisions	21
Section 1.03	Accounting Terms	22
Section 1.04	Rounding	22
Section 1.05	Times of Day; Rates	22
Section 1.06	UCC Terms	22

ARTICLE 2	THE LOAN	23

Section 2.01	The Loan	23
Section 2.02	Disbursement of Loan	23
Section 2.03	Repayment of Loan	23
Section 2.04	Prepayments	23
Section 2.05	Interest and Default Rate	24
Section 2.06	Certain Fees and Expenses	24
Section 2.07	Computation of Interest	25
Section 2.08	General Payment Terms	25
Section 2.09	Note	26

ARTICLE 3	TAXES, YIELD PROTECTION AND ILLEGALITY	26

Section 3.01	Additional Costs	26
Section 3.02	Alternate Interest Rate	27
Section 3.03	Illegality	28
Section 3.04	Compensation	28
Section 3.05	Covered Taxes	29
Section 3.06	Mitigation	29
Section 3.07	Survival	30

ARTICLE 4	CONDITIONS PRECEDENT TO LOAN	30

Section 4.01	Conditions Precedent	30

ARTICLE 5	REPRESENTATIONS AND WARRANTIES	33

Section 5.01	Existence, Qualification and Power	33
Section 5.02	Authorization; No Contravention	33
Section 5.03	Governmental Authorization; Other Consents	34
Section 5.04	Binding Effect	34
Section 5.05	Financial Statements; No Material Adverse Effect	34
Section 5.06	Litigation	34
Section 5.07	No Default	35
Section 5.08	Ownership of Property	35
Section 5.09	Environmental Compliance	35
Section 5.10	Taxes	35
Section 5.11	ERISA Compliance	36
Section 5.12	Margin Regulations; Investment Company Act	36
Section 5.13	Disclosure	37
Section 5.14	Solvency	37
Section 5.15	Casualty, Etc	37
Section 5.16	Sanctions Concerns and Anti-Corruption Laws	37

TABLE OF CONTENTS

(continued)

Page



Section 5.17	Responsible Officers	37
Section 5.18	Subsidiaries; Equity Interests; Loan Parties	38
Section 5.19	Collateral Representations	38
Section 5.20	Flood Hazard	40
Section 5.21	Intellectual Property; Licenses, Etc	40
Section 5.22	Labor Matters	40
Section 5.23	Closing Under Stock Purchase Agreement	40

ARTICLE 6	AFFIRMATIVE COVENANTS	41

Section 6.01	Financial Statements	41
Section 6.02	Certificates; Other Information	45
Section 6.03	Notices	46
Section 6.04	Payment of Obligations	47
Section 6.05	Preservation of Existence, Etc	47
Section 6.06	Maintenance of Properties	47
Section 6.07	Maintenance of Insurance	47
Section 6.08	Compliance with Laws	48
Section 6.09	Books and Records	48
Section 6.10	Inspection Rights	48
Section 6.11	Use of Proceeds	49
Section 6.12	Material Contracts	49
Section 6.13	Covenant to Give Security	49
Section 6.14	Further Assurances	50
Section 6.15	Compliance with Terms of Leaseholds	50
Section 6.16	Compliance with Environmental Laws	50
Section 6.17	Preparation of Environmental Reports	50
Section 6.18	Anti-Corruption Laws	51
Section 6.19	Deposit Accounts; Cash Management	51

6.19.1	Establishment of Cash Management Collection Account and Deposit Accounts	51
6.19.2	Collection and Deposit of Funds	52
6.19.3	Payment of Funds Deposited into the Cash Management Collection Account	53
6.19.4	Application of Operating Reserve; Operating Reserve Balance	53
6.19.5	Pledge and Security Interest	54
6.19.6	Authorization to Apply Funds	54
6.19.7	Permitted Account Investments	55
6.19.8	Deposit of Excess Operating Expense and Capital Expenditure Allocations	56

Section 6.20	Special Purpose Entity	56

ARTICLE 7	NEGATIVE COVENANTS	56

Section 7.01	Liens	56
Section 7.02	Indebtedness	58
Section 7.03	Investments	59
Section 7.04	Fundamental Changes	59
Section 7.05	Dispositions	59
Section 7.06	Restricted Payments	60
Section 7.07	Change in Nature of Business	60
Section 7.08	Transactions with Affiliates	60

TABLE OF CONTENTS

(continued)

Page



Section 7.09	Burdensome Agreements	60
Section 7.10	Use of Proceeds	61
Section 7.11	Financial Covenants	61

7.11.1	Debt Service Coverage Ratio	61
7.11.2	Reserve Tail	61

Section 7.12	Capital Expenditures	61
Section 7.13	Amendments of Organization Documents; Fiscal Year; Legal Name, State of Formation; Form of Entity and Accounting Changes	61
Section 7.14	Sale and Leaseback Transactions	61
Section 7.15	Prepayments, Etc	61
Section 7.16	Lease Obligations	61
Section 7.17	Sanctions	61
Section 7.18	Anti Corruption Laws	62
Section 7.19	Material Contracts	62
Section 7.20	Swap Contracts	62

ARTICLE 8	EVENTS OF DEFAULT AND REMEDIES	62

Section 8.01	Events of Default	62
Section 8.02	Remedies upon Event of Default	64
Section 8.03	Application of Funds	65

ARTICLE 9	CONTINUING GUARANTY	65

Section 9.01	Guaranty	65
Section 9.02	Rights of Lender	65
Section 9.03	Certain Waivers	66
Section 9.04	Obligations Independent	66
Section 9.05	Subrogation	66
Section 9.06	Termination; Reinstatement	66
Section 9.07	Stay of Acceleration	66
Section 9.08	Condition of Borrower	67
Section 9.09	Appointment of Borrower	67
Section 9.10	Right of Contribution	67

ARTICLE 10	THE ADMINISTRATIVE AGENT	67

Section 10.01	Appointment, Powers and Immunities	67
Section 10.02	Reliance by Administrative Agent	68
Section 10.03	Defaults	68
Section 10.04	Subagents; Notice of Assignment by Lender	69
Section 10.05	Indemnification	69
Section 10.06	Non-Reliance on Administrative Agent	69
Section 10.07	Failure to Act	70
Section 10.08	Resignation or Removal of Administrative Agent	70
Section 10.09	Notices	70

ARTICLE 11	MISCELLANEOUS	70

Section 11.01	Amendments, Etc	70
Section 11.02	Notices; Effectiveness; Electronic Communications	71
Section 11.03	No Waiver; Cumulative Remedies; Enforcement	72

iii

TABLE OF CONTENTS

(continued)

Page



Section 11.04	Expenses; Indemnity; Damage Waiver	72
Section 11.05	Payments Set Aside	73
Section 11.06	Successors and Assigns	73
Section 11.07	Treatment of Certain Information; Confidentiality	74
Section 11.08	Right of Setoff	75
Section 11.09	Interest Rate Limitation	75
Section 11.10	Counterparts; Integration; Effectiveness	76
Section 11.11	Survival of Representations and Warranties	76
Section 11.12	Severability	76
Section 11.13	Governing Law; Jurisdiction; Etc	76
Section 11.14	Waiver of Jury Trial	77
Section 11.15	Subordination	78
Section 11.16	No Advisory or Fiduciary Responsibility	78
Section 11.17	Electronic Execution	78
Section 11.18	USA PATRIOT Act Notice	79
Section 11.19	Lender as Collateral Agent	79
Section 11.20	Time of the Essence	79
Section 11.21	ENTIRE AGREEMENT	79

SCHEDULES

Schedule I Principal Payment Schedule

Schedule II Certain Addresses for Notices and Payments

EXHIBITS

Exhibit A Form of Note

Exhibit B Form of Compliance Certificate

Exhibit C Form of Closing Certificate

Exhibit D Form of Notice of Loan Prepayment

Exhibit E Form of Withdrawal Certificate

Exhibit F Form of Solvency Certificate

Exhibit G Single Purpose Entity Requirements

Exhibit H Mortgaged Property Support Documentation

LOAN AGREEMENT

This LOAN AGREEMENT is entered into as of February 1, 2016 among WESTMORELAND SAN JUAN, LLC, a Delaware limited liability company (the “ Borrower ”), WESTMORELAND SAN JUAN HOLDINGS, INC., a Delaware corporation (“ Holdings ”), SAN JUAN COAL COMPANY, a Delaware corporation (“ SJCC ”), SAN JUAN TRANSPORTATION COMPANY, a Delaware corporation (“ SJTC ”), NM CAPITAL UTILITY CORPORATION, a Delaware corporation (the “ Lender ”), THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., a Japanese banking corporation, as Administrative Agent, and MUFG UNION BANK, N.A., a national banking association, as the Depository Bank.

RECITALS

WHEREAS , the Loan Parties (as hereinafter defined) have requested that the Lender make a loan to the Borrower in an aggregate principal amount of $125,000,000 to finance a portion of the purchase price of the Acquisition (as hereinafter defined); and

WHEREAS , the Lender has agreed to make such loan to the Borrower on the terms and subject to the conditions set forth herein.

NOW THEREFORE , in consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS

Section 1.01 Defined Terms . As used in this Agreement, the following terms shall have the meanings set forth below:

“ Acquisition ” means the Borrower’s purchase of 100% of the Equity Interests of SJCC and SJTC pursuant to the Stock Purchase Agreement.

“ Act ” has the meaning given in Section 11.18.

“ Additional Costs ” shall have the meaning given to that term in Section 3.01 (Additional Costs).

“ Administrative Agent ” means, (i) during any period for which Lender appoints an agent to undertake the duties of Administrative Agent described in this Agreement, the commercial bank (or affiliate of a commercial bank) which is so appointed and which undertakes such duties by executing and delivering a counterpart of this Agreement or a joinder agreement with respect hereto, and (ii) during any other period, the Lender. Initially, the Administrative Agent shall be The Bank of Tokyo-Mitsubishi UFJ, LTD.

“ Administrative Agent’s Office ” means the Administrative Agent’s address and, as appropriate, account as set forth on Schedule II to this Agreement , or such other address or account as the Administrative Agent may from time to time notify the Borrower and the Lender; which office may include any Affiliate of the Administrative Agent or any domestic or foreign branch of the Administrative Agent or such Affiliate.

“ Affiliate ” means, with respect to a specified Person, (a) 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, or (b) another Person owning beneficially or Controlling 20% or more of the Voting Stock of such Person.

“ Agreement ” means this Loan Agreement.

“ Alternate Rate ” means, for any day, a rate per annum which shall at all times be equal to the highest of:

(a) the Prime Rate in effect on such day;

(b) the Federal Funds Rate in effect on such day plus 0.50%; and

Each change in any interest rate provided for herein based upon the Alternate Rate resulting from a change in the Prime Rate, the Federal Funds Rate or the Eurodollar Reference Rate (as the case may be) shall take effect at the time of such change in the Prime Rate, the Federal Funds Rate or Eurodollar Reference Rate, respectively.

“ Borrower ” has the meaning specified in the introductory paragraph hereto.

“ Business Day ” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Lender’s Office is located or the state where the Administrative Agent’s Office is located and, if such day relates to any determination of the Eurodollar Rate, means any such day that is also a London Banking Day.

“ Capital Expenditures ” means, with respect to any Person for any period, any expenditure in respect of the purchase or other acquisition of any fixed or capital asset (excluding normal replacements and maintenance which are properly charged to current operations) that have been, or should be, capitalized in accordance with GAAP.

“ Capitalized Leases ” means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases.

“ Cash Equivalents ” means any of the following types of Investments, to the extent owned by any Loan Party free and clear of all Liens (other than Permitted Liens):

(a) readily marketable obligations issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof having maturities of not more than three hundred sixty days (360) days from the date of acquisition thereof;

(b) deposits with, or insured certificates of deposit or bankers’ acceptances of, any commercial bank that (i) (A) is the Administrative Agent or the Depository Bank or (B) is organized under the laws of the United States, any state thereof, the District of Columbia or Japan or is the principal banking subsidiary of (x) a bank holding company organized under the laws of Japan, or (y) a bank holding company organized under the laws of the United States, any state thereof or the District of Columbia that is a member of the Federal Reserve System, (ii) issues (or the parent of which issues) commercial paper rated as described in clause (c) of this definition and (iii) has combined capital and surplus of at least $500,000,000, in each case with maturities of not more than two (2) years from the date of acquisition thereof;

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(c) commercial paper issued by any Person organized under the laws of any state of the United States and rated at least “Prime-2” (or the then equivalent grade) by Moody’s or at least “A-2” (or the then equivalent grade) by S&P, in each case with maturities of not more than two (2) years from the date of acquisition thereof;

(d) Investments in money market funds registered under the Investment Company Act of 1940 (the “Investment Company Act”) and meeting the requirements and guidelines of Rule 2a-7 promulgated by the SEC under the Investment Company Act, or demand deposits, including interest bearing money market accounts, time deposits, trust funds, trust accounts, overnight bank deposits, interest-bearing deposits, and certificates of deposit or bankers acceptances of depository institutions, including the Depository Bank or any of its Affiliates, rated in the AA long-term ratings category or higher by S&P and Moody’s; and

(e) Investments, classified in accordance with GAAP as current assets of the Loan Parties, in money market investment programs registered under the Investment Company Act, which are administered by the Depository Bank or by financial institutions, financial services companies or investment funds that have the highest rating obtainable from either Moody’s or S&P, and the portfolios of which are limited solely to Investments of the character, quality and maturity described in clauses (a), (b) and (c) of this definition.

“ Cash Management Collection Account ” has the meaning given to such term in subsection 6.19.1 and includes the following subaccounts, each of which shall be referred to herein by the designation given to such subaccount in subsection 6.19.1: the Operating Expenses Subaccount, the Loan Payments Subaccount, the Capital Expenditures Subaccount, the Operating Reserve Subaccount and the Loan Prepayments Subaccount.

“ CCR Disposal Agreement ” means the Coal Combustion Residuals Disposal Agreement dated as of July 15, 2015 by and between SJCC, as assignee of Westmoreland, and PNM, a copy of which is attached to the Stock Purchase Agreement as Exhibit C.

“ CERCLA ” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980.

“ CERCLIS ” means the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the U.S. Environmental Protection Agency.

“ Change of Control ” means an event or series of events by which:

(a) (i) Westmoreland shall cease to own and control, of record and beneficially, directly or indirectly, 100% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests of Holdings on a fully diluted basis; or (ii) Holdings shall cease to own and control, of record and beneficially, directly or indirectly, 100% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests of the Borrower on a fully diluted basis; or (iii) the Borrower shall cease to own and control, of record and beneficially, directly or indirectly, 100% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests of SJCC or SJTC on a fully diluted basis; or

(b) (i) Westmoreland shall cease to have the ability to elect (either through share ownership or contractual voting rights) a majority of the board of directors or equivalent governing body of Holdings; or (ii) Holdings shall cease to have the ability to elect (either

27810336v11

through share ownership or contractual voting rights) a majority of the board of directors or equivalent governing body of the Borrower; or (iii) the Borrower shall cease to have the ability to elect (either through share ownership or contractual voting rights) a majority of the board of directors or equivalent governing body of SJCC or SJTC.

“ Closing Date ” means the date hereof, subject to the satisfaction of all of the conditions set forth in Section 4.01.

“ Coal Supply Agreement ” means the Coal Supply Agreement for the supply of coal by SJCC and SJTC from the San Juan Property dated as of July 1, 2015 by and between SJCC, as assignee of Westmoreland, and PNM, a copy of which is attached to the Stock Purchase Agreement as Exhibit A.

“ Coal Supply Contracts ” means the Coal Supply Agreement, the Reclamation Services Agreement and the CCR Disposal Agreement.

“ Coal Supply Letter Agreement ” has the meaning given in Section 4.01(u).

“ Code ” means the Internal Revenue Code of 1986.

“ Collateral ” means all of the “Collateral” and “Mortgaged Property” referred to in the Collateral Documents and all of the other property that is or is intended under the terms of the Collateral Documents to be subject to Liens in favor of the Lender and the other Secured Parties (including all proceeds and products thereof).

“ Collateral Documents ” means, collectively, the Security Agreement, the Mortgages, any related Mortgaged Property Support Documents, the Environmental Indemnity Agreement, each of the mortgages, collateral assignments, security agreements, pledge agreements or other similar agreements delivered to the Secured Parties, and each of the other agreements, instruments or documents that creates or purports to create a Lien in favor of the Secured Parties.

“ Commodity Exchange Act ” means the Commodity Exchange Act (7 U.S.C. § 1 et seq .), as amended from time to time, and any successor statute.

“ Compliance Certificate ” means a certificate substantially in the form of Exhibit B .

“ Consolidated ” or “ consolidated ” means, when used with reference to financial statements or financial statement items of the Borrower and its Subsidiaries or any other Person, such statements or items on a consolidated basis in accordance with the consolidation principles of GAAP.

“ Contractual Obligation ” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking, contract or agreement to which such Person is a party or by which it or any of its property is bound.

“ Control ” means 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 ability to exercise voting power, by contract or otherwise. “ Controlling ” and “ Controlled ” have meanings correlative thereto.

“ Debt Service ” means, for any period, the sum of, without duplication, (a) all amounts paid or required to be paid by the Borrower during such period pursuant to Section 2.03 hereof in respect of principal of (excluding for the avoidance of doubt, any mandatory prepayment) and pursuant to Section

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2.05 hereof in respect of interest on, the outstanding principal balance of the Loan, and (b) all amounts paid or required to be paid by the Borrower and its Subsidiaries during such period in respect of the principal of and interest or other finance charges on other Indebtedness (including Capitalized Leases). Each calculation of Debt Service shall be made on a consolidated basis with respect to the Borrower and its Subsidiaries.

“ Debt Service Coverage Ratio ” means, as at any date of determination, the ratio of Project Cash Flow to Debt Service for the fiscal year or, as applicable, other period ending on such date.

“ Debtor Relief Laws ” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect.

“ Default ” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

“ Default Margin ” means five percent (5%) per annum.

“ Default Rate ” means the per annum rate equal to the sum of (i) the Alternate Rate then in effect, (ii) the then applicable Margin (or, for any period on or after the Maturity Date, the applicable Margin that was in effect on the day immediately preceding the Maturity Date), and (iii) the Default Margin, to the fullest extent permitted by applicable Law.

“ Deposit Account ” means each operating or other deposit account or trust account maintained from time to time by any one or more of the Loan Parties, including the Cash Management Collection Account and all of the deposit accounts referred to in Section 6.19.

“ Depository Bank ” has the meaning given in Section 6.19.

“ Designated Jurisdiction ” means any country or territory to the extent that such country or territory is the subject of any Sanction.

“ Disclosure Letter ” means the letter dated the date hereof issued by the Loan Parties with respect to certain disclosures made to the Lender pursuant to this Agreement.

“ Disposition ” or “ Dispose ” means the sale, transfer, license, lease or other disposition (including any Sale and Leaseback Transaction) of any property by any Loan Party or Subsidiary (or the granting of any option or other right to do any of the foregoing), including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith, but excluding any Involuntary Disposition.

“ Dollar ” and “ $ ” mean lawful money of the United States.

“ Environmental Indemnity Agreement ” means the Environmental Indemnity Agreement of even date herewith by the Loan Parties, as indemnitors, to and for the benefit of the Lender.

“ Environmental Laws ” means any and all federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the

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environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.

“ Environmental Liability ” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“ Environmental Permit ” means any permit, approval, identification number, license or other authorization required under any Environmental Law.

“ Equity Interests ” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination. Equity Interests include all shares of stock, membership interests, partnership interests, interests in any trust and all other ownership interests (legal or beneficial) in any Person.

“ Equity Issuance ” means, any issuance by any Loan Party or any Subsidiary to any Person of its Equity Interests, other than (a) any issuance of its Equity Interests pursuant to the exercise of options or warrants, (b) any issuance of its Equity Interests pursuant to the conversion of any debt securities to equity or the conversion of any class of equity securities to any other class of equity securities, and (c) any issuance of options or warrants relating to its Equity Interests. The term “Equity Issuance” shall not be deemed to include any Disposition.

“ ERISA ” means the Employee Retirement Income Security Act of 1974.

“ ERISA Affiliate ” means any trade or business (whether or not incorporated) under common control with the Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

“ ERISA Event ” means (a) a Reportable Event with respect to a Pension Plan; (b) the withdrawal of the Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which such entity was a “substantial employer” as defined in Section 4001(a)(2) of ERISA or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Pension Plan amendment as a termination under Section 4041 or 4041A of ERISA; (e) the institution by the PBGC of proceedings to terminate a Pension Plan; (f) any event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (g) the determination that any Pension Plan is considered an at-risk plan or a plan in endangered or critical status within the meaning of Sections 430, 431 and 432 of the

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Code or Sections 303, 304 and 305 of ERISA; (h) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate or (a) a failure by the Borrower or any ERISA Affiliate to meet all applicable requirements under the Pension Funding Rules in respect of a Pension Plan, whether or not waived, or the failure by the Borrower or any ERISA Affiliate to make any required contribution to a Multiemployer Plan.

“ Eurodollar Base Rate ” means, for any day during any Interest Period, the London interbank offered rate as administered by ICE Benchmark Administration (or any other Person that takes over the administration of such rate) for Dollars for a period equal in length to such Interest Period as displayed on pages LIBOR01 or LIBOR02 of the Reuters screen or, in the event such rate does not appear on either of such Reuters pages, on any successor or substitute page on such screen that displays such rate, or on the appropriate page of such other information service that publishes such rate as shall be selected by the Administrative Agent from time to time in its reasonable discretion (in each case the “LIBOR Screen Rate”) at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period; provided that, if the LIBOR Screen Rate shall be less than zero, such rate shall be deemed to be zero for the purposes of this Loan Agreement; provided, further, that if a LIBOR Screen Rate shall not be available at such time for such Interest Period (the “Impacted Interest Period”), then the Eurodollar Base Rate for such Interest Period shall be the Interpolated Rate; provided, that, if any Interpolated Rate shall be less than zero, such rate shall be deemed to be zero for the purposes of this Loan Agreement.

“ Eurodollar Rate “ means, with respect to any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to (a) the Eurodollar Base Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate..

“ Eurodollar Reference Rate ” means, for any day, a fluctuating rate of interest per annum equal to:

(a) the rate per annum (on the basis of a 360-day year) quoted on the Reuters Screen LIBOR01 page (or such other page as may replace the LIBOR01 page on that service, or any successor or replacement service, for the purpose of displaying LIBOR), or if such page or successor page replacing it does not have the required details, is not accessible or ceases to display, on the relevant pages of any other service (such as Bloomberg Financial Markets Service) as may be reasonably selected by the Administrative Agent as suitable for determining LIBOR, for a period equal to one (1) month, at approximately 11:00 A.M., London time, on such day (or if such day is not a London Banking Day, the immediately preceding London Banking Day); and

(b) in the event that the rate referred to in clause (a) above is not available at such time for any reason, the average (rounded upwards, if necessary, to the nearest one-sixteenth of one per cent (1/16 of 1%)) of the rates per annum for a period equal to one (1) month at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in an amount comparable to such Loan are offered to at least two (2) reference banks in the London interbank market at approximately 11:00 a.m., London time, on such day (or if such day is not a London Banking Day, the immediately preceding London Banking Day).

“ Event of Default ” has the meaning specified in Section 8.01.

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“ Extraordinary Receipt ” means any cash received by or paid to or for the account of any Person not in the ordinary course of business, including tax refunds, pension plan reversions, proceeds of insurance (other than proceeds of business interruption insurance to the extent such proceeds constitute compensation for lost earnings and proceeds of Involuntary Dispositions), indemnity payments and any purchase price adjustments; provided, however , that an Extraordinary Receipt shall not include cash receipts from proceeds of insurance or indemnity payments to the extent that such proceeds, awards or payments are received by any Person in respect of any third party claim against such Person and applied to pay (or to reimburse such Person for its prior payment of) such claim and the costs and expenses of such Person with respect thereto.

“ FASB ASC ” means the Accounting Standards Codification of the Financial Accounting Standards Board.

“ Federal Funds Rate ” means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (a) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day and (b) if such rate is not so published for any Business Day, the Federal Funds Rate for such Business Day shall be the average rate charged to the Administrative Agent’s Office on such Business Day on such transactions as determined by the Administrative Agent.

“ Fee Letter ” means that certain Fee Letter of even date herewith among the Borrower, the Lender and the Administrative Agent, providing for certain fees to be paid by the Borrower.

“ Fee Schedule ” means that certain Schedule of Fees agreed among the Borrower and the Depository Bank on January 27, 2016, providing for certain fees to be paid to the Depository Bank.

“ Flood Hazard Property ” means any portion of the Mortgaged Property that is in an area designated by the Federal Emergency Management Agency as having special flood or mudslide hazards.

“ FRB ” means the Board of Governors of the Federal Reserve System of the United States.

“ FRBNY ” means the Federal Reserve Bank of New York.

“ GAAP ” means generally accepted accounting principles in the United States set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the accounting profession) including, without limitation, the FASB Accounting Standards Codification, that are applicable to the circumstances as of the date of determination, consistently applied and subject to Section 1.03.

“ Governmental Authority ” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including, without limitation, any supra-national bodies such as the European Union or the European Central Bank).

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“ Guarantee ” or “guarantee” means, as to any Person, (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness of the kind described in clauses (a) through (g) of the definition thereof or other obligation payable or performable by another Person (the “ primary obligor ”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness of the kind described in clauses (a) through (g) of the definition thereof or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed or expressly undertaken by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “ Guarantee ” as a verb has a corresponding meaning.

“ Guaranteed Obligations ” has the meaning set forth in Section 9.01.

“ Guarantors ” means, collectively, Holdings, SJCC, SJTC and, in the event the Borrower or Holdings ever forms or acquires any other Subsidiaries (without implying any consent by the Lender to the formation or acquisition of any such other Subsidiary), all such other Subsidiaries which become parties to this Agreement as guarantors.

“ Guaranty ” means, collectively, the Guarantee made by the Guarantors under Article 9 in favor of the Lender.

“ Hazardous Materials ” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, natural gas, natural gas liquids, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, toxic mold, infectious or medical wastes and all other substances, wastes, chemicals, pollutants, contaminants or compounds of any nature in any form regulated pursuant to any Environmental Law.

“ Historical Financial Statements ” means (i) the audited financial statements of Westmoreland for the fiscal years ended December 31, 2013 and December 31, 2014, and the unaudited financial statements of Westmoreland for the first nine months of the fiscal year ended December 31, 2014 and for the first nine months of the fiscal year ended December 31, 2015, (ii) the audited combined financial statements of SJCC and SJTC for the fiscal years ended December 31, 2013 and December 31, 2014, and the unaudited combined financial statements of SJCC and SJTC for the first nine months of the fiscal year ended December 31, 2014 and for the first nine months of the fiscal year ended December 31, 2015.

“ Holdings ” means Westmoreland San Juan Holdings, Inc., a Delaware corporation and a wholly-owned Subsidiary of Westmoreland.

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“ Indebtedness ” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

(a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments evidencing obligations for borrowed money;

(b) the maximum amount of all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

(d) all obligations (including, without limitation, earnout obligations) of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business and not past due for more than ninety (90) days after the date on which such trade account was created);

(e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

(f) all indebtedness in respect of Capitalized Leases of such Person;

(g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interest in such Person or any other Person or any warrant, right or option to acquire such Equity Interest, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; and

(h) all Guarantees of such Person in respect of any of the foregoing.

For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date.

“ Indemnitees ” has the meaning specified in Section 11.04(b).

“ Information ” has the meaning specified in Section 11.07.

“ Intellectual Property ” has the meaning set forth in the Security Agreement.

“ Interest Payment Date ” means the first day of each May, August, November and February, beginning with the first of such dates to occur after the Closing Date and any other date on which interest is due and payable pursuant to this Agreement.

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“ Interest Period ” means each period of three calendar months beginning on an Interest Rate Adjustment Date, provided, however that the initial Interest Period shall begin on February 4, 2016 and continue until May 1, 2016 and the Interest Period in which the Maturity Date occurs shall end on the Maturity Date.

“ Interest Rate Adjustment Date ” means (i) February 4, 2016, and (ii) May 1, 2016 and the first day of each third calendar month thereafter.

“ Investment ” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of Equity Interests of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or interest in, another Person (including any partnership or joint venture interest in such other Person and any arrangement pursuant to which the investor guaranties Indebtedness of such other Person), or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person which constitute all or substantially all of the assets of such Person or of a division, line of business or other business unit of such Person. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

“ Involuntary Disposition ” means any loss of, damage to or destruction of, or any condemnation or other taking for public use of, any property of any Loan Party or any Subsidiary.

“ IRS ” means the United States Internal Revenue Service.

“ Lender ” means NM Capital Utility Corporation, a Delaware corporation, and its successors and assigns.

“ Lender’s Office ” means the Lender’s address and, as appropriate, account as set forth on Schedule II to this Agreement , or such other address or account as the Lender may from time to time notify the Borrower; which office may include any Affiliate of the Lender.

“ Lien ” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance

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on title to real property and any financing lease having substantially the same economic effect as any of the foregoing).

“ Loan ” means the loan made by the Lender to the Borrower under Article 2 .

“ Loan Documents ” means, collectively, (a) this Agreement, (b) the Guaranty, (c) the Note, (d) the Collateral Documents, (e) the Fee Letter, (f) the Westmoreland Negative Covenant Agreement, and (g) all other certificates, agreements, documents and instruments executed and delivered, in each case, by or on behalf of any Loan Party pursuant to the foregoing.

“ Loan Parties ” means, collectively, the Borrower and each Guarantor.

“ London Banking Day ” means any day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.

“ Margin ” means, during any period during the term of the Loan, the rate per annum set forth in the table below opposite such period:



Period	Margin
Closing Date through 1/31/2017	7.25%
2/1/2017 through 1/31/2018	9.25%
2/ 1/2018 through 1/31/2019	12.25%
2/ 1/2019 through 1/31/2020	13.25%
2/1/2020 until the Maturity Date	14.25%

“ Market Disruption Event ” shall have the meaning given to such term in Section 3.02(b).

“ Market Disruption Event Notice ” any notice delivered by the Lender to the Administrative Agent pursuant to Section 3.02(b) (with a copy to the Borrower) notifying the Administrative Agent that it has reasonably determined that the relevant rates of interest referred to in the definition of “Eurodollar Rate” in this Section 1.01 (Certain Defined Terms) upon the basis of which the rate of interest for any Interest Period is to be determined are not likely adequately to cover its cost of making or maintaining the Loan, or maintaining any other amount hereunder not paid when due, for such Interest Period.

“ Master Agreement ” has the meaning set forth in the definition of “Swap Contract.”

“ Material Adverse Effect ” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent), condition (financial or otherwise) or prospects of repayment of the Obligations of the Borrower and its Subsidiaries taken as a whole; (b) a material impairment of the rights and remedies of the Lender under any Loan Document, or of the ability of the Loan Parties, taken as a whole, to perform their obligations under any Loan Document; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party.

“ Material Contract ” means, with respect to any Loan Party, each contract or agreement (a) to which such Loan Party is a party involving aggregate consideration payable to or by such Person of $1,000,000 or more in any year or (b) otherwise material to the business, condition (financial or otherwise), operations, performance, properties or prospects of such Loan Party or (c) any other contract, agreement, permit or license, written or oral, of any Loan Party as to which the breach, nonperformance, cancellation or failure to renew by any party thereto, individually or in the aggregate, would reasonably

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be expected to have a Material Adverse Effect. Without limiting the foregoing, the Coal Supply Contracts, the Stock Purchase Agreement and all agreements required by the terms of the Stock Purchase Agreement to be executed and delivered shall constitute Material Contracts.

“ Maturity Date ” means February 1, 2021; provided , however , that if such date is not a Business Day, the Maturity Date shall be the next preceding Business Day.

“ Maximum Rate ” has the meaning given in Section 11.09.

“ Mine Plan ” means the 7-year mine plan submitted to the Lender before the Closing Date.

“ Moody’s ” means Moody’s Investors Service, Inc. and any successor thereto.

“ Mortgage ” or “ Mortgages ” means, individually and collectively, as the context requires, each of the fee or leasehold mortgages, deeds of trust and deeds executed by a Loan Party that purport to grant a Lien to the Lender (or a trustee for the benefit of the Lender) in any Mortgaged Properties, in form and substance satisfactory to the Lender.

“ Mortgaged Property ” means the San Juan Property and any other owned or leased property of a Loan Party listed on Schedule 5.19(g)(i) to the Disclosure Letter and any other owned or leased real property of a Loan Party that is or will become encumbered by a Mortgage in favor of the Lender in accordance with the terms of this Agreement.

“ Mortgaged Property Support Documents ” means with respect to any real property subject to a Mortgage, the deliveries and documents described on Exhibit H attached hereto.

“ MUFG ” means MUFG Union Bank, N.A., a national banking association.

“ Multiemployer Plan ” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five (5) plan years, has made or been obligated to make contributions.

“ Multiple Employer Plan ” means a Plan which has two or more contributing sponsors (including the Borrower or any ERISA Affiliate) at least two of whom are not under common control, as such a plan is described in Section 4064 of ERISA.

“ Negotiation Period ” has the meaning given in Section 3.02(b)(i).

“ Net Cash Proceeds ” means the aggregate cash or Cash Equivalents proceeds received by any Loan Party or any Subsidiary in respect of any Disposition, Equity Issuance, or Involuntary Disposition, net of (a) direct costs incurred in connection therewith (including, without limitation, legal, accounting and investment banking fees and sales commissions), (b) taxes paid in cash to a taxing authority as a result thereof (by any Loan Party or any direct or indirect owner thereof) and (c) in the case of any Disposition or any Involuntary Disposition, the amount necessary to retire any Indebtedness secured by a Permitted Lien (ranking senior to any Lien of the Lender) on the related property; it being understood that “Net Cash Proceeds” shall include, without limitation, any cash or Cash Equivalents received upon the sale or other disposition of any non‑cash consideration received by any Loan Party or any Subsidiary in any Disposition, Equity Issuance or Involuntary Disposition.

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“ Note ” has the meaning given in Section 2.09.

“ Notice of Loan Prepayment ” means a notice of prepayment with respect to a Loan, which shall be substantially in the form of Exhibit D or such other form as may be approved by the Lender or the Administrative Agent (including any form on an electronic platform or electronic transmission system as shall be approved by the Lender), appropriately completed and signed by a Responsible Officer.

“ NPL ” means the National Priorities List under CERCLA.

“ Obligations ” means (a) all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to the Loan, and (b) all costs and expenses incurred by the Lender, the Administrative Agent or the Depository Bank in connection with enforcement and collection of the foregoing, including the reasonable fees, charges and disbursements of counsel to the Lender, the Administrative Agent and the Depository Bank, in each case whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof pursuant to any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.

“ OFAC ” means the Office of Foreign Assets Control of the United States Department of the Treasury.

“ Operating Budget ” means the operating budget of the coal mine owned and operated by SJCC and SJTC attached to the letter agreement of even date herewith between the Loan Parties and the Lender, as such operating budget may be revised from time to time pursuant to Section 6.01(c) or Section 6.01(d)(ii).

“ Operating Expenses ” or “ operating expenses ,” whether used with respect to actual operating expenses or projected operating expenses, means those expenses of a type included as operating expenses in the Operating Budget.

“ Operating Reserve Account ” has the meaning given to such term in subsection 6.19.1.

“ Operating Reserve Deficiency ” means, at any time of determination, the amount by which Ten Million Dollars ($10,000,000.00) exceeds the balance held in the Operating Reserve Subaccount.

“ Organization Documents ” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement or limited liability company agreement (or equivalent or comparable documents with respect to any non-U.S. jurisdiction); (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization (or equivalent or comparable documents with respect to any non-U.S. jurisdiction) and (d) with respect to all entities, any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization (or equivalent or comparable documents with respect to any non-U.S. jurisdiction).

“ PBGC ” means the Pension Benefit Guaranty Corporation.

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“ Pension Act ” means the Pension Protection Act of 2006.

“ Pension Funding Rules ” means the rules of the Code and ERISA regarding minimum required contributions (including any installment payment thereof) to Pension Plans and set forth in, with respect to plan years ending prior to the effective date of the Pension Act, Section 412 of the Code and Section 302 of ERISA, each as in effect prior to the Pension Act and, thereafter, Section 412, 430, 431, 432 and 436 of the Code and Sections 302, 303, 304 and 305 of ERISA.

“ Pension Plan ” means any employee pension benefit plan (including a Multiple Employer Plan or a Multiemployer Plan) that is maintained or is contributed to by the Borrower and any ERISA Affiliate and is either covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code.

“ Permitted Cash Management Investments ” means (a) Cash Equivalents, and (b) such other types of investments as may be mutually agreed to and designated in writing by all parties hereto as “Permitted Cash Management Investments.”

“Permitted Encumbrances” means, with respect to any Mortgaged Property, such encumbrances upon such Mortgaged Property as are set forth in any title report delivered to the Lender before the Closing Date or, in the case of any Mortgaged Property becoming subject to a Mortgage after the Closing Date, before the execution and delivery of such Mortgage, but only if such encumbrances are approved by the Lender as “Permitted Encumbrances” with respect to such Mortgaged Property.

“ Permitted Liens ” has the meaning set forth in Section 7.01.

“ Permitted Tax Distributions ” means, for so long as the applicable Loan Party is treated as a partnership for federal income tax purposes or is treated as part of an “affiliated group” as defined in Section 1504 of the Code, aggregate cash distributions by such Loan Party to its direct or indirect stockholders, partners or members (any of such direct or indirect stockholders, partners or members, a “Member”) in amounts sufficient to allow such Members to pay their estimated and final federal, state and local income tax liabilities, based on the Effective Tax Rate (as defined herein), deemed to arise from the taxable income of the Person making such distribution or any Subsidiary thereof (such taxable income calculated taking into account any additional deductions or losses available to a Member as a result of any basis adjustment pursuant to Section 743 of the Code and taking into account losses, if any, of the distributing Person or its Subsidiaries from prior periods which are permitted to be applied by the Members to offset income in the current period, such losses to be applied on a Member-by-Member basis so that the excess losses of one Member shall not be netted hereunder against the taxable income of another Member, except to the extent such Members are part of the same “affiliated group”), but only to the extent of the Members’ actual cash payments currently required to be made to federal, state and local income taxing authorities in payment of federal, state and local income tax liabilities. Such distributions may be made not more frequently than quarterly with respect to each period for which an installment of estimated tax would be required to be paid by such Members (and then, not more than thirty (30) days prior to the due date of the taxes which are the subject of such distribution), except that an additional final distribution may be made after the final taxable income of the applicable Loan Party for any fiscal year has been determined in an amount equal to the excess of the income tax liability of the Members of such Loan Party as computed herein with respect to the immediately preceding taxable year over the aggregate amount of any prior Permitted Tax Distributions made to the Members with respect to such taxable year; provided, the maximum aggregate amount of Permitted Tax Distributions for any such period made to each Member shall not exceed the lesser of (x) the product of (a) the taxable income of the Person making such distribution or its Subsidiaries (calculated as described above) allocable to such Member (taking into

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account any additional deductions or losses available to the Members as a result of any basis adjustment pursuant to Section 743 and taking into account losses, if any, of the distributing Person from prior periods which are permitted to be applied by such Member to offset income in the current period) for such period, multiplied by (b) the Effective Tax Rate allocable to such Member. The Effective Tax Rate shall be equal to the sum of (i) the highest individual or corporate marginal federal income tax rate applicable to any Member for the applicable year and (ii) the percentage with respect to state and local income tax rates for that year that the board of managers of the Person making the Permitted Tax Distributions determines in good faith is appropriate (provided that such percentage shall not exceed the highest state and local income tax rates applicable to any Member), and (y) the actual federal, state and local income tax liability of such Member.

“ Permitted Transfers ” means (a) Dispositions of inventory in the ordinary course of business; (b) licenses, sublicenses, leases or subleases granted by SJCC or SJTC to others not interfering in any material respect with the business of the Borrower and its Subsidiaries (provided that the rights of SJCC or SJTC (as the case may be) therein shall be Collateral); and (c) the sale or disposition of Cash Equivalents for fair market value.

“ Person ” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

“ Plan ” means any employee benefit plan within the meaning of Section 3(3) of ERISA (including a Pension Plan), maintained for employees of the Borrower or any ERISA Affiliate or any such Plan to which the Borrower or any ERISA Affiliate is required to contribute on behalf of any of its employees.

“ Pledged Equity ” has the meaning specified in the Security Agreement and shall include, among other things, all of the Equity Interest in the Borrower and its Subsidiaries, including SJCC and SJTC.

“ PNM ” means Public Service Company of New Mexico.

“ PNM Resources ” has the meaning given in Section 6.01(e).

“ Principal Payment Date ” means each day on which any payment of principal is due and payable pursuant to Section 2.03.

“ Project Cash Flow ” means, for any period, the excess (if any) of (a) cash received by the Borrower and its Subsidiaries during such period (collectively, the “ Project Revenues ”) from (i) the operations of the Borrower and its Subsidiaries, (ii) interest accrued on, and other income derived from, the balance outstanding during such period in the Cash Management Collection Account, and all other accounts, wherever maintained, of the Borrower and its Subsidiaries, to the extent that such interest has been credited thereto, (iii) the proceeds of any business interruption insurance, and (iv) all other income, however earned, by the Borrower and its Subsidiaries during such period, excluding, however, all Extraordinary Receipts (other than Net Cash Proceeds of any Disposition or Involuntary Disposition to

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the extent such amounts are actually applied to replace, repair or reconstruct the property Disposed of or Involuntarily Disposed of), over (b) the sum, without duplication, of (i) the direct operating and maintenance costs of the Borrower and its Subsidiaries paid or payable during such period, (ii) property taxes paid or payable during such period by the Borrower and its Subsidiaries with respect to the San Juan Property, (iii) sales and excise taxes paid or payable during such period by the Borrower and its Subsidiaries with respect to the sale and transportation of coal and ash, (iv) costs and expenses paid or payable by the Borrower and its Subsidiaries during such period in connection with the procurement and transportation of coal and ash, (v) all reasonable and necessary Capital Expenditures made by the Borrower and its Subsidiaries during such period in connection with the maintenance of its operations in accordance with the Mine Plan, except to the extent of any such Capital Expenditures financed with the proceeds of Indebtedness incurred in compliance with this Agreement, and (vi) all other costs and expenses (including, without limitation, Capital Expenditures and obligations under operating leases) required to be paid by the Borrower and its Subsidiaries during such period (provided, however, that the amounts set forth in this clause (b) shall not include Debt Service payable during such period). Each calculation of Project Cash Flow shall be made on a Consolidated basis with respect to the Borrower and its Subsidiaries.

“ Qualifying Control Agreement ” means an agreement, among a Loan Party, a depository institution or securities intermediary and the Lender, which agreement is in form and substance acceptable to the Lender and which provides the Lender, for the benefit of the Secured Parties, with “control” (as such term is used in Article 9 of the UCC) over the deposit account(s) or securities account(s) described therein.

“ Real Estate ” has the meaning given in Section 6.13(b).

“ Reclamation Services Agreement ” means the Reclamation Services Agreement dated as of July 1, 2015 by and between SJCC, as assignee of Westmoreland, and Public Service Company of New Mexico, a copy of which is attached to the Stock Purchase Agreement as Exhibit B.

“ Regulatory Change ” means, with respect to the Lender, the occurrence after the date of this Agreement of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any governmental or monetary authority charged with the interpretation or administration thereof or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) by any governmental or monetary authority, in each case under clause (a), (b) or (c) of this definition, to the extent applying to a class of Persons including the Lender.

“ Related Parties ” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents, trustees, administrators, managers, advisors and representatives of such Person and of such Person’s Affiliates.

“ Reportable Event ” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the thirty (30) day notice period has been waived.

“ Reserve Tail ” means as of any date of determination, the lesser of: (i) the quotient obtained by dividing the proven and probable coal reserves remaining to be mined from the San Juan Property on the last principal repayment date under this Agreement (as adjusted by the effect of mandatory prepayments and as projected in the current Mine Plan) by the total proven and probable coal reserves in the San Juan Property as of the date of this Agreement after accounting for additions to the proven and probable coal

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reserves since the date of this Agreement; and (ii) the quotient obtained by dividing the coal contracted for sale under the Coal Supply Agreement that remains to be sold after the last principal repayment date (as adjusted by the effect of mandatory prepayments) by the total coal contracted for sale under the Coal Supply Agreement taking into account future additions or reductions in contracted sales tonnage that may be agreed by the Borrower and PNM.

“ Responsible Officer ” means the chief executive officer, president, chief financial officer, treasurer, assistant treasurer, controller, any vice president and the secretary or any assistant secretary of a Loan Party. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party. To the extent requested by the Lender, each Responsible Officer will provide an incumbency certificate and to the extent requested by the Lender, appropriate authorization documentation, in form and substance satisfactory to the Lender.

“ Restricted Payment ” means (a) any dividend or other distribution (including without limitation Permitted Tax Distributions), direct or indirect, on account of any shares (or equivalent) of any class of Equity Interests of the Loan Parties or any of their respective Subsidiaries, now or hereafter outstanding, (b) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares (or equivalent) of any class of Equity Interests of the Loan Parties or any of their respective Subsidiaries, now or hereafter outstanding, and (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Equity Interests of any Loan Party or any of its Subsidiaries, now or hereafter outstanding.

“ S&P ” means Standard & Poor’s Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc., and any successor thereto.

“ Sale and Leaseback Transaction ” means, with respect to any Loan Party or any Subsidiary, any arrangement, directly or indirectly, with any Person whereby such Loan Party or such Subsidiary shall sell or transfer any property used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property being sold or transferred.

“ San Juan Coal Company ” or “ SJCC ” means San Juan Coal Company, a Delaware corporation, and its successors or assigns.

“ SJCC Operating Account ” has the meaning given to such term in subsection 6.19.1. “ San Juan Property ” has the meaning given in the Stock Purchase Agreement.

“ San Juan Transportation Company ” or “ SJTC ” means San Juan Transportation Company, a Delaware corporation, and its successors or assigns. “ Sanction(s) ” means any sanction administered or enforced by the United States Government (including, without limitation, OFAC), the United Nations Security Council or other relevant sanctions authority.

“ SEC ” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

“ Secured Obligations ” means (a) in the case of the Borrower or Holdings, (i) all Obligations, and (ii) all costs and expenses incurred by the Lender, the Administrative Agent or the Depository Bank in connection with enforcement and collection of the foregoing, including the reasonable fees, charges and

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disbursements of counsel of the Lender, the Administrative Agent and the Depository Bank, in each case whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding and (b) in the case of any Guarantor other than Holdings, such Guarantor’s Guaranteed Obligations.

“ Secured Party” or “Secured Parties ” means the Lender, the Administrative Agent and the Depository Bank.

“ Securities Act ” means the Securities Act of 1933, including all amendments thereto and regulations promulgated thereunder.

“ Security Agreement ” means the security and pledge agreement, dated as of the Closing Date, executed in favor of the Lender by each of the Loan Parties.

“ Solvency Certificate ” means a solvency certificate in substantially in the form of Exhibit F .

“ Solvent ” and “ Solvency ” mean, with respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature, (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital, and (e) such Person is able to pay its debts and liabilities, contingent obligations and other commitments as they mature in the ordinary course of business. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

“ Special Purpose Entity ” or “ SPE ” means, when used with respect to a Loan Party, that such Loan Party is in compliance with all of the requirements set forth on Exhibit G attached hereto.

“ Statutory Reserve Rate ” means 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 FRB to which the Administrative Agent is subject for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the FRB). Such reserve percentages shall include those imposed pursuant to such Regulation D of the FRB. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D of the FRB or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

“ Stock Purchase Agreement ” means the Stock Purchase Agreement dated as of July 1, 2015 between BHP Billiton New Mexico Coal, Inc., as seller, and Borrower, as assignee of Westmoreland, as purchaser.

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“ Subordinating Loan Party ” has the meaning given in Section 11.15.

“ Subsidiary ” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of Voting Stock is at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of the Loan Parties.

“ Substitute Basis ” has the meaning given in Section 3.02(b)(i).

“ Swap Contract ” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “ Master Agreement ”), including any such obligations or liabilities under any Master Agreement.

“ Swap Termination Value ” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include the Lender or any Affiliate of the Lender).

“ Synthetic Debt ” means, with respect to any Person as of any date of determination thereof, all obligations of such Person in respect of transactions entered into by such Person that are intended to function primarily as a borrowing of funds but are not otherwise included in the definition of “Indebtedness” or as a liability on the Consolidated balance sheet of such Person and its Subsidiaries in accordance with GAAP.

“ Synthetic Lease Obligation ” means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property (including Sale and Leaseback Transactions), in each case, creating obligations that do not appear on the balance sheet of such Person but which, upon the application of any Debtor Relief Laws to such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).

“ Threshold Amount ” means $250,000.

“ UCC ” means the Uniform Commercial Code as in effect in the State of New York; provided that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any

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Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, “ UCC ” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.

“ United States ” and “ U.S. ” mean the United States of America.

“ Voting Stock ” means, with respect to any Person, Equity Interests issued by such Person the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even though the right to so vote has been suspended by the happening of such contingency.

“ Westmoreland ” means Westmoreland Coal Company, a Delaware corporation.

“ Westmoreland Negative Covenant Agreement ” means the Negative Covenant Agreement of even date herewith made by Westmoreland to and for the benefit of the Lender.

“ Westmoreland Services Agreement ” means the Services Agreement of even date herewith between SJCC and Westmoreland.

“ Withdrawal Certificate ” means a certificate delivered by the Lender to the Depository Bank in substantially the form of Exhibit E attached hereto.

Section 1.02 Other Interpretive Provisions . With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:

(a) The definitions of terms herein shall apply equally to 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.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including the Loan Documents and any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, amended and restated, modified, extended, restated, replaced or supplemented from time to time (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “hereto,” “herein,” “hereof” and “hereunder,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Preliminary Statements, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Preliminary Statements, Exhibits and Schedules to, the Loan Document in which such references appear, except that references in this Agreement to Schedules shall be deemed to refer to Schedules to the Disclosure Letter unless otherwise specified, (v) any reference to any law shall include all statutory and regulatory rules, regulations, orders and provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified, extended, restated, replaced or supplemented from time to time, and (vi) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

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(b) In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including.”

(c) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.

Section 1.03 Accounting Terms .

(a) Generally . All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Historical Financial Statements, except as otherwise specifically prescribed herein. Notwithstanding the foregoing, for purposes of determining compliance with any covenant (including the computation of any financial covenant) contained herein, Indebtedness of the Borrower and its Subsidiaries shall be deemed to be carried at 100% of the outstanding principal amount thereof, and the effects of FASB ASC 825 on financial liabilities shall be disregarded.

(b) Changes in GAAP . If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrower or Lender shall so request, the Lender and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP; provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrower shall provide to the Lender financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. Without limiting the foregoing, leases shall continue to be classified and accounted for on a basis consistent with that reflected in the Historical Financial Statements of SJCC and SJTC for all purposes of this Agreement, notwithstanding any change in GAAP relating thereto, unless the parties hereto shall enter into a mutually acceptable amendment addressing such changes, as provided for above.

Section 1.04 Rounding . Any financial ratios required to be maintained by the Borrower pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).

Section 1.05 Times of Day; Rates . Unless otherwise specified, all references herein to times of day shall be references to Mountain time (daylight or standard, as applicable).

The Lender does not warrant, nor accept responsibility, nor shall the Lender have any liability with respect to the administration, submission or any other matter related to the rates in the definition of “Eurodollar Rate” or “Eurodollar Reference Rate” or with respect to any comparable or successor rate thereto.

Section 1.06 UCC Terms . Terms defined in the UCC in effect on the Closing Date and not otherwise defined herein shall, unless the context otherwise indicates, have the meanings provided by

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those definitions. Subject to the foregoing, the term “UCC” refers, as of any date of determination, to the UCC then in effect.

ARTICLE 2 THE LOAN

Section 2.01 The Loan . Subject to the terms and conditions set forth herein, the Lender agrees to make the Loan to the Borrower, in Dollars on the Closing Date, in a principal amount not to exceed $125,000,000, solely for the purpose of financing a portion of the purchase price and costs of the Acquisition. Amounts of the Loan that are repaid or prepaid may not be reborrowed.

Section 2.02 Disbursement of Loan . Upon satisfaction of the conditions set forth in Section 4.01, the Lender shall make the requested funds available to the Borrower by wire transfer of such funds for the account of the Borrower for application to the purchase price under the Stock Purchase Agreement.

Section 2.03 Repayment of Loan .

(a) Until the Maturity Date, the Borrower shall repay the Loan in installments on the dates set forth in the payment schedule set forth on Schedule I attached hereto in the respective amounts set forth opposite such dates (which amounts shall be reduced as a result of the application of prepayments in accordance with the order of priority set forth in Section 2.04), unless accelerated sooner pursuant to Section 8.02.

(b) On the Maturity Date, the Borrower shall repay the entire unpaid principal amount of the Loan, together with all accrued unpaid interest and all other amounts payable under this Agreement and the other Loan Documents.

Section 2.04 Prepayments .

(a) Optional . The Borrower may, upon notice to the Lender pursuant to delivery to the Lender (with a copy to the Administrative Agent) of a Notice of Loan Prepayment, at any time or from time to time voluntarily prepay the Loan in whole or in part without premium or penalty subject to Section 3.04; provided that, unless otherwise agreed by the Lender (A) such notice must be received by Lender not later than 1:00 p.m. three (3) Business Days prior to any date of prepayment, and (B) any prepayment shall be in a principal amount of $1,000,000 or a whole multiple of $100,000 in excess thereof. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment of principal shall be accompanied by all accrued interest on the amount prepaid, together with any additional amounts required pursuant to Section 3.04. Each prepayment of the Loan pursuant to this Section 2.04(a) shall be applied to the scheduled principal installments in inverse order of their respective due dates.

(b) Mandatory Quarterly Prepayments . On each quarterly payment date with respect to interest on or principal of the Loan, a mandatory prepayment shall be due in the amount equal to the amount remaining in the Loan Prepayments Subaccount after any application on such date of funds in the Cash Management Collection Account (as hereinafter defined) as provided in paragraphs (a) through (d) of subsection 6.19.3. Each prepayment of the Loan pursuant to this Section 2.04(b) shall be applied to the scheduled principal installments in inverse order of their respective due dates.

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(c) Costs Payable Upon Prepayment . All prepayments under this Section 2.04 shall be subject to Section 3.04, but otherwise without premium or penalty, and shall be accompanied by interest on the principal amount prepaid through the date of prepayment.

Section 2.05 Interest and Default Rate .

(a) Interest . Subject to the provisions of Section 2.05(b), (i) for each day during the period from the Closing Date until February 4, 2016, the principal amount of the Loan shall bear interest at the per annum rate equal to the Alternate Rate established for such day plus the Margin then in effect, and (ii) beginning on February 4, 2016 and continuing thereafter, for each day during an Interest Period, the principal amount of the Loan shall bear interest at the per annum rate equal to the Eurodollar Rate established for such Interest Period plus the Margin then in effect.

(b) Default Rate .

(i) If any amount of principal of the Loan is not paid when due (without regard to any applicable grace periods unless funds are available in the Loan Payments Subaccount in an amount sufficient to make such payment), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

(ii) If any amount (other than principal of the Loan) payable by the Borrower under any Loan Document is not paid when due (without regard to any applicable grace periods, unless funds are available in the Loan Payments Subaccount in an amount sufficient to make such payment), whether at stated maturity, by acceleration or otherwise, then upon the request of the Lender such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

(iii) At the option of the Lender while any Event of Default exists (including a payment default), and automatically and without any further action by the Lender if an Event of Default described in item (f) of Section 8.01 exists, all outstanding Obligations shall accrue at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

(iv) Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.

(c) Interest Payments . Interest on the Loan shall be due and payable in arrears on each Interest Payment Date, beginning with the first of such dates occurring after the Closing Date, on the Maturity Date and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.

Section 2.06 Certain Fees and Expenses . (a) The Borrower shall pay to the Lender and the Administrative Agent such fees as shall have been separately agreed upon in writing in the amounts and at the times so specified, including all fees set forth in the Fee Letter. The Borrower shall pay to the Depository Bank such fees as shall have been separately agreed upon in writing in the amounts and at the times so specified, including all fees set forth in the Fee Schedule. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.

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(b) On or before April 1, 2016, the Borrower will pay or cause to be paid to the Lender an amount sufficient to pay, or to reimburse the Lender for all amounts paid by it on account of, (i) the costs and expenses described in clause (i) of Section 11.04(a) hereof and (ii) any amount paid by Lender to the Administrative Agent for amounts due and payable to the Administrative Agent on the Closing Date, including amounts payable by Borrower to the Administrative Agent pursuant to the Fee Letter and not paid by the Borrower on the Closing Date.

Section 2.07 Computation of Interest . All computations of interest shall be made on the basis of a year of 360 days and actual days elapsed. Interest shall accrue on each portion of the Loan for the day on which the Loan is made, and shall not accrue on any portion of the Loan for the day on which such portion is paid, provided that any portion of the Loan that is repaid on the same day on which it is made shall bear interest for one (1) day. Each determination by the Lender of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error.

Section 2.08 General Payment Terms .

(a) Notwithstanding anything to the contrary provided herein, all payments of principal, interest and other amounts to be made by the Borrower under this Agreement shall be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim, to the Administrative Agent at its payment address set forth on Schedule II attached hereto, for the account of the Lender, for deposit into the Cash Management Collection Account, not later than 1:00 p.m. New York City time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day).

(b) Each payment received by the Administrative Agent under this Agreement for account of the Lender shall be paid by the Administrative Agent promptly to the Lender, in immediately available funds, at the Lender’s payment address specified herein or as otherwise agreed in writing between the Lender and the Administrative Agent.

(c) If the due date of any payment under this Agreement would otherwise fall on a day that is not a Business Day, such date shall be extended to the next succeeding Business Day, and interest shall be payable for any principal so extended for the period of such extension.

(d) Without limiting any of the obligations of the Borrower or the rights of the Lender and the Administrative Agent hereunder, if the Borrower shall fail to pay when due (whether at stated maturity, by prepayment, acceleration or otherwise) any amount payable by it hereunder or under the Note each of the Lender and the Administrative Agent is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, without prior notice to the Borrower (which notice is expressly waived by the Borrower to the fullest extent permitted by applicable law), in respect of the amount owed to it, to set off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final, in any currency, matured or unmatured) and any other obligations at any time held or owing by the Lender or the Administrative Agent, as applicable, or any of their respective Affiliates, or by any branch or agency of the Lender or the Administrative Agent, as applicable, to or for the credit or account of the Borrower. If the Lender or the Administrative Agent exercises such right, it shall promptly provide notice to the Borrower of such set-off, provided that failure by the Lender or the Administrative Agent to provide such notice to the Borrower shall not give the Borrower any cause of action or right to damages or affect the validity of such set-off and application. The rights of the Lender and the Administrative Agent under this paragraph (d) are in addition to any other rights and remedies (including, without limitation, any other rights of set-off) that the Lender or the Administrative Agent may have.

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Section 2.09 Note . The Borrower shall execute and deliver a promissory note in substantially the form of Exhibit A attached hereto, duly completed, to evidence the Borrower’s obligation to repay the Loan, with interest as provided herein (including all extensions, renewals, replacements or other modifications thereof, the “ Note ”).

ARTICLE 3 TAXES, YIELD PROTECTION AND ILLEGALITY

Section 3.01 Additional Costs .

(a) The Borrower shall pay directly to the Lender from time to time such amounts as the Lender may determine in good faith to be necessary to compensate the Lender for any costs attributable to its making or maintaining of the Loan, or any reduction in any amount receivable by the Lender hereunder in respect of the Loan or such obligation (such increases in costs and reductions in amounts receivable being herein called “ Additional Costs ”), in each case, from those costs and amounts receivable existing on the date hereof, resulting from any Regulatory Change that:

(i) changes the basis of taxation of any amounts payable to the Lender under this Agreement or the Note (other than changes in rates of taxes imposed on or measured by the overall net income of the Lender by the jurisdiction in which the Lender pays such taxes due to operations, personnel or assets other than the Loan and other than Covered Taxes as described in Section 3.05 (Covered Taxes)); or

(ii) imposes or modifies any reserve, special deposit or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, the Lender; or

(iii) imposes any other duty or charge in respect of this Agreement or the Note or the Loan.

(b) Without limiting the effect of the foregoing provisions of this Section 3.01 (but without duplication), if any Regulatory Change regarding capital requirements affecting the Lender or the Lender’s parent or holding company, if any, has or would have the effect of reducing the rate of return on the Lender’s capital or on the capital of the Lender’s parent or holding company, if any, to a level below that which the Lender or the Lender’s parent or holding company, if any, would have achieved but for such Regulatory Change (taking into consideration the Lender’s policies and the policies of the Lender’s parent or holding company, if any, with respect to capital adequacy) as a consequence of the Lender’s obligations hereunder, then the Borrower shall pay directly to the Lender from time to time on request such additional amount or amounts as the Lender may reasonably determine to be necessary to compensate the Lender or the Lender’s parent or holding company, if any, for any such reduction suffered.

(c) To the extent that the Lender has funded or is maintaining the Loan with proceeds of one or more loans obtained by the Lender from one or more banks having their applicable lending offices within the United States and, pursuant to the loan agreement(s) or other documents under which the Lender obtains or has obtained such loan(s), the Lender is obligated to pay one or more of such banks any compensation for increased costs or reductions in return of a type similar to those described in the foregoing provisions of this Section 3.01, the Borrower shall pay directly to the Lender from time to time upon request such additional amount or amounts (but without duplication of amounts described in paragraphs (a) or (b) above) as the Lender shall be obligated to pay.

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(d) The Lender shall notify the Borrower of any event occurring after the date of this Agreement entitling the Lender to compensation under paragraph (a), (b) or (c) of this Section 3.01 as promptly as practicable, but in any event, within 120 days after the Lender obtains actual knowledge thereof; provided that if the Lender fails to give such notice within 120 days after it obtains actual knowledge of such an event, the Lender shall, with respect to compensation payable pursuant to this Section 3.01 in respect of any Additional Costs resulting from such event, only be entitled to payment under this Section 3.01 for costs incurred from and after the date 120 days prior to the date that the Lender delivers such notice. The Lender will furnish to the Borrower a certificate setting forth in reasonable detail the basis and amount of each request by the Lender for compensation under paragraph (a), (b) or (c) of this Section 3.01. Determinations and allocations set forth in such certificate by the Lender for purposes of this Section 3.01 of the effect of any Regulatory Change pursuant to Section 3.01(a), or of the effect of capital maintained pursuant to Section 3.01(b) or amounts payable by Lender as described in Section 3.01(c), on its costs or rate of return of maintaining the Loan, or on amounts receivable by it in respect of the Loan, and of the amounts required to compensate the Lender under this Section 3.01, shall, absent manifest error, be conclusive, provided that such determinations and allocations are made on a reasonable basis and are mathematically accurate.

Section 3.02 Alternate Interest Rate . Anything herein to the contrary notwithstanding, if, on or prior to the determination of the Eurodollar Rate for any Interest Period:

(a) the Lender or the Administrative Agent reasonably determines that quotations of interest rates for the relevant deposits referred to in the definition of “Eurodollar Rate” in Section 1.01 (Certain Defined Terms) are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest as provided herein; or

(b) the Administrative Agent receives a Market Disruption Event Notice from the Lender constituting any of the events set forth in paragraph (a) or (b) of this Section 3.02 (hereinafter a “ Market Disruption Event ”);

then the Lender or the Administrative Agent (at the written direction of the Lender) shall notify the Borrower thereof within three (3) Business Days after the occurrence of such Market Disruption Event and the following provisions shall apply:

(i) During the thirty-day period following the date of any such Market Disruption Event Notice (the “ Negotiation Period ”), the Lender and the Borrower will negotiate in good faith for the purpose of agreeing upon an alternative, mutually acceptable basis (the “ Substitute Basis ”) for determining the rate of interest to be applicable to the Loan, and any other amounts hereunder not paid when due, from time to time and if, at the expiry of the Negotiation Period, the Lender and the Borrower have agreed upon a Substitute Basis and any required governmental approvals therefor have been obtained, the Substitute Basis shall take effect from such date (including such retroactive date) as the Lender and the Borrower may in such circumstance agree.

(ii) If, at the expiry of the Negotiation Period, a Substitute Basis shall not have been agreed upon or any required governmental approvals therefor shall not have been obtained, and the Lender shall reasonably determine and notify the Administrative Agent in writing by way of a notice that the Eurodollar Rate will not adequately and fairly reflect the cost to the Lender of funding and maintaining the Loan, and any other amounts hereunder not paid when due, for the applicable Interest Period, then, the Lender or the Administrative Agent, at the written direction of the Lender, shall so notify the Borrower of the Lender’s reasonable

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determination and the interest payable to the Lender on the Loan, and such other amounts not paid when due, to which such Interest Period applies shall be interest at a rate per annum equal to the Alternate Rate plus the Margin. The interest rate determined pursuant to clause (ii) of this Section 3.02(b) shall be binding on all of the parties hereto and shall take effect from the date the Administrative Agent or the Lender so notifies the Borrower and be applied retroactively from the beginning of the relevant Interest Period in respect of which the Market Disruption Event occurred.

The procedures specified in clauses (i) and (ii) above shall apply to each relevant period succeeding the first such period to which they were applied unless and until the Lender or the Administrative Agent, at the written direction of the Lender, notifies the Borrower that it has reasonably determined that the applicable Market Disruption Event no longer exists, which notice the Lender agrees to give, promptly after the cessation of such Market Disruption Event, whereupon interest on the Loan shall again be determined in accordance with the provisions of Section 2.05 (Interest and Default Rate), effective commencing on the first day of the next Interest Period, as the case may be, immediately succeeding such notice.

Section 3.03 Illegality . Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for the Lender to honor its obligation hereunder to fund or otherwise maintain its Loan, then, at the election of the Lender (by notice to the Administrative Agent and the Borrower), the Borrower will prepay the Loan in full (or in the amount of the affected portion thereof) together with accrued interest thereon and all other amounts payable to the Lender hereunder (including amounts payable under Section 3.04 (Compensation)) to the Lender, on the last day of the then current Interest Period for such Loan (or on such earlier date as shall be certified by the Lender as being the last permissible date for such prepayment under the relevant law, rule, regulation, treaty or directive).

Section 3.04 Compensation . The Borrower shall pay to the Lender or to the Administrative Agent for the account of the Lender, upon the request of the Lender (including any request made through the Administrative Agent), such amount or amounts as shall be sufficient (in the reasonable opinion of the Lender) to compensate it for any loss, cost or reasonable expense that the Lender determines in good faith is attributable to:

(a) any payment or prepayment, for any reason (including acceleration of the Loan pursuant to Article 8), of any principal amount of the Loan on a date other than an Interest Rate Adjustment Date; or

(b) any failure by the Borrower for any reason (including the failure of any of conditions precedent specified in Article 4 (Conditions Precedent) to be satisfied) to borrow the Loan from the Lender on the Closing Date, other than any failure which results from a default by the Lender under this Agreement.

Such compensation shall include any loss of anticipated profits, and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such portion of the Loan or from fees or other amounts payable as a result of prepayment of any loans from which such funds were obtained or as a result of any termination or modification of any Swap Contracts entered into to hedge the Lender’s interest rate risk with respect to such loans, and an amount equal to the excess, if any, of (i) the amount of interest that otherwise would have accrued on the principal amount so paid or prepaid for the period from the date of such payment or prepayment to the last day of the then current Interest Period at the applicable rate of interest provided for herein (excluding, however, the applicable Margin included therein, if any) over (ii) the amount of interest (as reasonably determined by the Lender or the

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Administrative Agent) that otherwise would have accrued on such principal amount by placing such amount on deposit for a comparable period with leading banks in the London interbank eurodollar market (regardless of whether the Lender actually makes any such deposit).

Section 3.05 Covered Taxes . The Borrower agrees that:

(a) All payments of principal of and interest on the Loan and all other amounts payable on, under or in respect of this Agreement, the Loan, or the Note by the Borrower, including amounts payable by the Borrower under paragraph (b) of this Section 3.05, shall be made free and clear of all present and future income, stamp and other taxes and levies, imposts, deductions, charges, compulsory loans and withholdings (other than taxes imposed on the overall net income of the Lender by the jurisdiction in which it has its principal office) (hereinafter called “ Covered Taxes ”) all of which will be paid by or on behalf of the Borrower, for its own account, prior to the date on which penalties attach thereto.

(b) The Borrower will indemnify the Administrative Agent and the Lender against, and reimburse the Administrative Agent and the Lender on demand for, any Covered Taxes paid by the Administrative Agent or the Lender and any loss, liability, claim or expense, including interest, penalties and reasonable and documented legal fees, which the Administrative Agent or the Lender may incur at any time arising out of or in connection with any failure of the Borrower to make any payment of Covered Taxes when due. If the Lender determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to Section 3.05(c), the Lender shall pay to the Borrower as soon as practicable an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under Section 3.05(c) with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) incurred by the Lender, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that the Borrower, upon the request of the Lender, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Lender in the event the Lender is required to repay such refund to such Governmental Authority.

(c) In the event that the Borrower is required by applicable law, decree or regulation to deduct or withhold Covered Taxes from any amounts payable on, under or in respect of this Agreement, the Loan or the Note (including amounts payable under paragraph (b) of this Section 3.05, the Borrower shall pay the Lender or the Administrative Agent, as applicable, such additional amount as may be required, after the deduction or withholding of Covered Taxes, to enable the Lender or the Administrative Agent, as applicable, to receive from the Borrower an amount equal to the full amount stated to be payable under this Agreement, the Loan and the Note.

(d) The Borrower shall furnish to the Administrative Agent original or certified, notarized copies of tax receipts in respect of any withholding of Covered Taxes required under this Section 3.05 within 30 days after the date of each payment hereunder as to which such withholding is required, and the Borrower shall promptly furnish to the Administrative Agent any other information, documents and receipts that the Administrative Agent or the Lender may from time to time reasonably require to establish to its satisfaction that full and timely payment has been made of all Covered Taxes required to be paid under this Section 3.05.

Section 3.06 Mitigation . If an event or circumstance occurs that would entitle the Lender to exercise any of the rights or benefits afforded by this Article 3 , the Lender, promptly upon becoming

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aware of the same, shall take all steps as may be reasonably available to eliminate or mitigate the effects of such event or circumstance; provided, however, that the Lender shall not be under any obligation to take any step that, in its sole discretion, would (a) result in its incurring additional costs or taxes or (b) otherwise be disadvantageous to the Lender.

Section 3.07 Survival . All of the Borrower’s obligations under this Article 3 shall survive the full and final payment and satisfaction of all Obligations hereunder and the resignation or removal of the Administrative Agent.

ARTICLE 4 CONDITIONS PRECEDENT TO LOAN

Section 4.01 Conditions Precedent . The obligations of the Lender to make the Loan hereunder is subject to satisfaction of the following conditions precedent:

(a) Execution of Loan Agreement; Loan Documents . The Lender shall have received (i) counterparts of this Agreement, executed by a Responsible Officer of each Loan Party, (ii) the original Note, executed by a Responsible Officer of the Borrower, (iii) a counterpart of the Fee Letter, executed by a Responsible Officer of the Borrower, (iv) counterparts of the Security Agreement, each Mortgage and any related Mortgaged Property Support Document, the Environmental Indemnity Agreement, and each other Collateral Document, each executed by a Responsible Officer of the applicable Loan Parties and a duly authorized officer of each other Person party thereto, as applicable, (v) a counterpart of the Westmoreland Negative Covenant Agreement, executed by an authorized officer of Westmoreland, and (vi) counterparts of all other Loan Documents, each executed by a Responsible Officer of the applicable Loan Party and a duly authorized officer of each other Person party thereto.

(b) Payment Direction to PNM . A written direction, irrevocable without the consent of the Lender for so long as any of the Obligations remain unpaid and not satisfied, in form and substance satisfactory to the Lender, from SJCC to PNM authorizing and directing PNM to remit to the Administrative Agent, for deposit into the Cash Management Collection Account and application in accordance with Section 6.19 hereof, all amounts payable from time to time by PNM to or for the account of SJCC under the Coal Supply Agreement.

(c) Officer’s Certificate . The Lender shall have received a certificate of a Responsible Officer dated the Closing Date, certifying as to the Organization Documents of each Loan Party (which, to the extent filed with a Governmental Authority, shall be certified as of a recent date by such Governmental Authority), the resolutions of the governing body of each Loan Party, the good standing, existence or its equivalent of each Loan Party and of the incumbency (including specimen signatures) of the Responsible Officers of each Loan Party.

(d) Legal Opinions of Counsel . The Lender shall have received opinions of counsel for the Loan Parties (including local counsel opinions), as to the form and enforceability of the Loan Documents, non-consolidation of the Loan Parties with other Persons, and such other matters as the Lender may require, each dated the Closing Date and addressed to the Lender, and each in form and substance acceptable to the Lender.

(e) Financial Statements . The Lender shall have received copies of the financial statements referred to in Section 5.05, each in form and substance satisfactory to the Lender.

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(f) Personal Property Collateral . The Lender shall have received, in form and substance satisfactory to the Lender:

(i) (A) searches of UCC filings in the jurisdiction of incorporation or formation, as applicable, of each Loan Party and each jurisdiction where any Collateral is located or where a filing would need to be made in order to perfect the Lender’s security interest in the Collateral, copies of the financing statements on file in such jurisdictions and evidence that no Liens exist other than Permitted Liens and (B) tax lien, judgment and bankruptcy searches;

(ii) searches of ownership of Intellectual Property in the appropriate governmental offices and such patent/trademark/copyright filings as requested by the Lender in order to perfect the Lender’s security interest in the Intellectual Property;

(iii) completed UCC financing statements for each appropriate jurisdiction as is necessary, in the Lender’s sole discretion, to perfect the Lender’s security interest in the Collateral;

(iv) stock or membership certificates, if any, evidencing the Pledged Equity and undated stock or transfer powers duly executed in blank; in each case to the extent such Pledged Equity is certificated;

(v) in the case of any personal property Collateral located at premises leased by a Loan Party and set forth on Section 5.19(g)(ii), such estoppel letters, consents and waivers from the landlords of such real property to the extent required by the Lender and obtainable by the Borrower using its commercially reasonable efforts to do so (such letters, consents and waivers shall be in form and substance satisfactory to the Lender); and

(vi) to the extent required to be delivered, filed, registered or recorded pursuant to the terms and conditions of the Collateral Documents, all instruments, documents and chattel paper in the possession of any of the Loan Parties, together with allonges or assignments as may be necessary or appropriate to create and perfect the Lender’s security interest in the Collateral.

(g) Real Property Collateral .

(i) The Collateral Documents establishing the Lender’s mortgage liens on the San Juan Property and all other Mortgaged Property shall have been duly recorded and the Lender shall have received evidence satisfactory to the Lender of the recordation and the first priority status of such mortgage liens.

(ii) The Lender shall have received, in form and substance satisfactory to the Lender all Mortgaged Property Support Documents with respect to each Mortgaged Property.

(h) Liability, Casualty, Property, Terrorism and Business Interruption Insurance . The Lender shall have received copies of insurance policies, declaration pages, certificates, and endorsements of insurance or insurance binders evidencing liability, casualty, property, terrorism and business interruption insurance meeting the requirements set forth herein or in the Collateral Documents or as required by the Lender.

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(i) Mine Plan . The Lender shall have received and shall have approved a copy of the Mine Plan, certified by the Borrower to be a true and complete copy thereof.

(j) Solvency Certificate . The Lender shall have received a Solvency Certificate signed by a Responsible Officer of the Borrower as to the financial condition, solvency and related matters of the Borrower and its Subsidiaries, after giving effect to the initial borrowings under the Loan Documents and the other transactions contemplated hereby.

(k) Initial Operating Budget . The Lender shall have received and approved the initial Operating Budget and the Loan Parties and the Lender shall have executed and delivered the letter agreement referred to in the definition of “Operating Budget” set forth in Section 1.01.

(l) Existing Indebtedness of the Loan Parties . All of the existing Indebtedness for borrowed money of the Borrower and its Subsidiaries (other than Indebtedness permitted to exist pursuant to Section 7.02) shall be repaid in full and all security interests related thereto shall be terminated on or prior to the Closing Date.

(m) Consents . The Lender shall have received evidence that all members, boards of directors, governmental, shareholder and material third party consents and approvals necessary in connection with the entering into of this Agreement have been obtained.

(n) Fees and Expenses . The Lender, the Administrative Agent and the Depository Bank shall have received all fees and expenses, if any, owing pursuant to Section 2.06 or Section 11.04(a).

(o) No Default; No Material Adverse Effect . No Default shall have occurred and be continuing and no other event or circumstance which is reasonably expected to result in a Material Adverse Effect shall have occurred and be continuing.

(p) Closing Certificate of Loan Parties . The Lender shall have received a closing certificate executed and delivered by the Loan Parties in substantially the form of Exhibit C .

(q) Insurance . The Lender shall have received evidence satisfactory to the Lender that all insurance coverages required to be maintained pursuant to the terms of the Loan Documents are in effect and provide such benefits to the Lender as are required pursuant to the Loan Documents.

(r) Equity . The Lender shall have received evidence satisfactory to the Lender that Westmoreland, through its Subsidiary, Holdings, shall have invested not less than $10,000,000 of cash equity in the Borrower.

(s) Cash Management Collection Account; Deposit Accounts; Control Agreements . The Cash Management Collection Account and all other Deposit Accounts required to be established pursuant to Section 6.19 shall have been established and the Lender shall have received fully executed Qualifying Control Agreements with respect to such Deposit Accounts, other than the Cash Management Collection Account. The Lender and Depository Bank shall have received fully executed counterparts of such written authorizations from the Loan Parties as may be required by either or both of the Depository Bank or the Lender to irrevocably authorize and direct the Depository Bank to receive and apply funds in accordance with the requirements of Section 6.19.

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(t) Closing Under Stock Purchase Agreement . (i) There shall have been no modification of the Stock Purchase Agreement and no waiver of any of the provisions thereof, except to the extent disclosed to the Lender in writing before the Closing Date and approved by the Lender in writing, and (ii) all “Closing Conditions” under the Stock Purchase Agreement shall be satisfied and the “Closing” under the Stock Purchase Agreement shall have occurred in escrow, subject only to the disbursement of the Loan proceeds and the application thereof in accordance with this Agreement.

(u) Coal Supply Letter Agreement . SJCC and PNM shall have executed and delivered, and provided the Lender with a true and complete copy of, a letter agreement dated on or about the Closing Date relating to the Coal Supply Agreement (the “ Coal Supply Letter Agreement ”).

(v) Other Due Diligence . The Lender, the Administrative Agent and the Depository Bank shall have completed all other applicable due diligence investigations of the Loan Parties in scope, and with results, satisfactory to the Lender, including: (i) organizational structure of the Loan Parties being satisfactory to the Lender, (ii) the structure of the transaction being satisfactory to Lender’s accountants in Lender’s sole discretion (including with respect to variable interest entity accounting issues), (iii) satisfactory review of liquidity analysis for Westmoreland and the Loan Parties over the term of the Loan, and (iv) satisfactory review of the sources and uses of funds (including accommodation for future capital expenditures to the extent material).

(w) Other Documents . All other documents provided for herein or which the Lender, the Administrative Agent and the Depository Bank may reasonably request or require.

(x) Additional Information . Such additional information and materials which the Lender shall reasonably request or require.

ARTICLE 5 REPRESENTATIONS AND WARRANTIES

Each Loan Party represents and warrants to the Lender, the Administrative Agent and the Depository Bank, as of the date made or deemed made, that:

Section 5.01 Existence, Qualification and Power . Each Loan Party and each of its Subsidiaries (a) is duly organized or formed, validly existing and, as applicable, in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all requisite governmental licenses, authorizations, consents and approvals to (i) own or lease its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents to which it is a party, and (c) is duly qualified and is licensed and, as applicable, in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license; except in each case referred to in clause (b)(i) or (c), to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect. The copy of the Organization Documents of each Loan Party provided to the Lender pursuant to the terms of this Agreement is a true and correct copy of each such document, each of which is valid and in full force and effect.

Section 5.02 Authorization; No Contravention . The execution and delivery by each Loan Party of, and the performance by such Loan Party of its obligations under, each Loan Document to which such Loan Party is or is to be a party have been duly authorized by all necessary corporate or other organizational action on the part of such Loan Party, and do not and will not (a) contravene the terms of any of such Loan Party’s Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien (other than in favor of the Secured Parties) under, or require

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any payment to be made under (i) except as set forth in Schedule 5.02 to the Disclosure Letter, any Contractual Obligation under any Material Contract to which such Person is a party or affecting such Person or the properties of such Person or any of its Subsidiaries or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject; or (c) violate any Law.

Section 5.03 Governmental Authorization; Other Consents . No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with (a) the execution or delivery by any Loan Party of, or the performance by such Loan Party of its obligations under, or enforcement against any Loan Party of this Agreement or any other Loan Document except as set forth in Schedule 5.02 attached to the Disclosure Letter, (b) the grant by any Loan Party of the Liens granted by it pursuant to the Collateral Documents, (c) the perfection or maintenance of the Liens created under the Collateral Documents (including the first priority nature thereof, subject to Permitted Liens) or (d) the exercise by the Lender of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Collateral Documents (other than, with respect to this clause (d), such as are required under applicable law in connection with the Lender’s exercise of remedies), other than (i) authorizations, approvals, actions, notices and filings which have been duly obtained and (ii) filings to perfect the Liens created by the Collateral Documents.

Section 5.04 Binding Effect . This Agreement has been, and each other Loan Document, when delivered hereunder, will have been, duly executed and delivered by each Loan Party that is party thereto. This Agreement constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of such Loan Party, enforceable against each Loan Party that is party thereto in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity.

Section 5.05 Financial Statements; No Material Adverse Effect .

(a) Historical Financial Statements . The Historical Financial Statements (i) except as described on Schedule 5.05(a) attached to the Disclosure Letter, were prepared in accordance with GAAP consistently applied throughout the periods covered thereby, except as otherwise expressly noted therein; (ii) except as described on Schedule 5.05(a) attached to the Disclosure Letter, fairly present the financial condition of SJCC, SJTC and Westmoreland as of the dates thereof and their results of operations, cash flows and changes in shareholder’s equity for the periods covered thereby in accordance with GAAP consistently applied throughout the periods covered thereby, except as otherwise expressly noted therein; and (iii) show all material indebtedness and other liabilities, direct or contingent, of SJCC, SJTC and Westmoreland as of the date thereof, including liabilities for taxes, material commitments and Indebtedness; subject, however, to normal year-end audit adjustments with respect to unaudited periods.

(b) Material Adverse Effect . Since the date of the last balance sheet included in the Historical Financial Statements, there has been no event or circumstance, either individually or in the aggregate, that has had or would reasonably be expected to have a Material Adverse Effect.

Section 5.06 Litigation . Except as disclosed on Schedule 5.06 attached to the Disclosure Letter, there are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of the Loan Parties after due and diligent investigation, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, by or against any Loan Party or any Subsidiary or Westmoreland or against any of their properties or revenues that (a) purport to affect or pertain to this

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Agreement or any other Loan Document or any of the transactions contemplated hereby, or (1) either individually or in the aggregate would reasonably be expected to have a Material Adverse Effect.

Section 5.07 No Default . Neither any Loan Party nor any Subsidiary thereof is in default under or with respect to, or a party to, any Contractual Obligation that would, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. No Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.

Section 5.08 Ownership of Property . Each Loan Party and each of its Subsidiaries has good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, except for such defects in title as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

Section 5.09 Environmental Compliance .

(a) In connection with the Acquisition, the Borrower has reviewed the effect of existing Environmental Laws and claims alleging potential liability or responsibility for violation of any Environmental Law on the businesses, operations and properties of SJCC and SJTC, and as a result thereof the Loan Parties have reasonably concluded that, to their knowledge, such Environmental Laws and claims would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(b) None of the properties currently or, to the Loan Parties’ knowledge, formerly, owned or operated by any Loan Party or any of its Subsidiaries is listed or proposed for listing on the NPL or on the CERCLIS or any analogous foreign, state or local list or, to the Loan Parties’ knowledge, except as set forth on Schedule 5.09(b), is adjacent to any such property, to the Loan Parties’ knowledge, there is no asbestos or asbestos-containing material on any property currently owned or operated by any Loan Party or any of its Subsidiaries; and, to the Loan Parties’ knowledge, Hazardous Materials have not been released, discharged or disposed of on any property currently or formerly owned or operated by any Loan Party or any of its Subsidiaries except in material compliance with Environmental Laws.

(c) Neither any Loan Party nor any of its Subsidiaries is undertaking, and has not completed, either individually or together with other potentially responsible parties, any investigation or assessment or remedial or response action relating to any actual or threatened release, discharge or disposal of Hazardous Materials at any site, location or operation, either voluntarily or pursuant to the order of any Governmental Authority or the requirements of any Environmental Law; and all Hazardous Materials generated, used, treated, handled or stored at, or transported to or from, any property currently or, to the Loan Parties’ knowledge, except as set forth on Schedule 5.09(b), formerly, owned or operated by any Loan Party or any of its Subsidiaries have been disposed of in a manner not reasonably expected to result in material liability to any Loan Party or any of its Subsidiaries.

Section 5.10 Taxes . Each Loan Party and its Subsidiaries have filed all federal, state and other material tax returns and reports required to be filed through the date of this Agreement or have requested extensions thereof, and have paid all federal, state and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets to the extent due and payable, except those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against any Loan Party or any Subsidiary that would, if made, have a Material Adverse Effect, nor is there any tax sharing agreement applicable to the Borrower or any Subsidiary. The

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filing and recording of any and all documents required to perfect the security interests granted to the Lender (or for the benefit of the Lender) will not result in any documentary, stamp or other taxes, except to the extent the same have been paid or will be paid by Borrower.

Section 5.11 ERISA Compliance .

(a) Each Plan is in compliance with the applicable provisions of ERISA, the Code and other federal or state laws, other than any noncompliance that would not reasonably be expected to have a Material Adverse Effect. Each Pension Plan that is intended to be a qualified plan under Section 401(a) of the Code has received a favorable determination letter or is subject to a favorable opinion letter from the IRS to the effect that the form of such Plan is qualified under Section 401(a) of the Code and the trust related thereto has been determined by the IRS to be exempt from federal income tax under Section 501(a) of the Code, or an application for such a letter is currently being processed by the IRS. To the best knowledge of the Loan Parties, nothing has occurred that would prevent or cause the loss of such tax-qualified status.

(b) There are no pending or, to the best knowledge of the Loan Parties, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect.

(c) (i) No ERISA Event has occurred, and no Loan Party nor any ERISA Affiliate is aware of any fact, event or circumstance that could reasonably be expected to constitute or result in an ERISA Event with respect to any Pension Plan; (ii) the Borrower and each ERISA Affiliate has met all applicable requirements under the Pension Funding Rules in respect of each Pension Plan, and no waiver of the minimum funding standards under the Pension Funding Rules has been applied for or obtained; (iii) as of the most recent valuation date for any Pension Plan, the funding target attainment percentage (as defined in Section 430(d)(2) of the Code) is sixty percent (60%) or higher and no Loan Party nor any ERISA Affiliate knows of any facts or circumstances that could reasonably be expected to cause the funding target attainment percentage for any such plan to drop below sixty percent (60%) as of the most recent valuation date; (iv) no Loan Party nor any ERISA Affiliate has incurred any liability to the PBGC other than for the payment of premiums, and there are no premium payments which have become due that are unpaid; (v) neither the Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or Section 4212(c) of ERISA; and (vi) no Pension Plan has been terminated by the plan administrator thereof nor by the PBGC, and no event or circumstance has occurred or exists that could reasonably be expected to cause the PBGC to institute proceedings under Title IV of ERISA to terminate any Pension Plan.

(d) Neither the Borrower nor any ERISA Affiliate maintains or contributes to, or has any unsatisfied obligation to contribute to, or liability under, any active or terminated Pension Plan other than (i) on the Closing Date, those listed on Schedule 5.11(d) attached to the Disclosure Letter and (ii) thereafter, Pension Plans not otherwise prohibited by this Agreement.

Section 5.12 Margin Regulations; Investment Company Act .

(a) Margin Regulations . The Borrower is not engaged and will not engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the FRB), or extending credit for the purpose of purchasing or carrying margin stock.

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(b) Investment Company Act . None of the Borrower, any Person Controlling the Borrower, or any Subsidiary is or is required to be registered as an “investment company” under the Investment Company Act of 1940.

Section 5.13 Disclosure . The Borrower has disclosed to the Lender (and has provided the Lender with copies of) all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries or any other Loan Party is subject, and all other matters known to it (including all material information provided to the Loan Parties on or before the Closing Date by Seller or its affiliates pursuant to the Stock Purchase Agreement), that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect. No report, financial statement, certificate or other information furnished (whether in writing or orally) by or on behalf of any Loan Party to the Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder or under any other Loan Document (in each case as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, each Loan Party represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time; provided, further, such factual information shall not include any pro forma financial information or information of a general economic or general industry nature or any information regarding SJCC or SJTC, their financial condition or businesses, it being understood that all information that the Borrower has furnished to the Administrative Agent or Lender regarding SJCC and SJTC, their financial condition or businesses is information that the Borrower has received from the parties to the Stock Purchase Agreement, SJCC or SJTC or their representatives.

Section 5.14 Solvency . Each Loan Party is, individually and together with its Subsidiaries on a Consolidated basis, Solvent.

Section 5.15 Casualty, Etc . Neither the businesses nor the properties of any Loan Party or any of its Subsidiaries are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance) that, either individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.

Section 5.16 Sanctions Concerns and Anti-Corruption Laws .

(a) Sanctions Concerns . No Loan Party, nor any Subsidiary, nor, to the knowledge of the Loan Parties and their Subsidiaries, any director, officer, employee, agent, affiliate or representative thereof, is an individual or entity that is, or is owned or controlled by any individual or entity that is (i) currently the subject or target of any Sanctions, (ii) included on OFAC’s List of Specially Designated Nationals or any similar list enforced by any other relevant sanctions authority, or (iii) located, organized or resident in a Designated Jurisdiction.

(b) Anti-Corruption Laws . The Loan Parties and their Subsidiaries have conducted their business in compliance with the United States Foreign Corrupt Practices Act of 1977 and other similar anti-corruption legislation in other jurisdictions, and have instituted and maintained policies and procedures designed to promote and achieve compliance with such laws.

Section 5.17 Responsible Officers . Set forth on Schedule 5.17 attached to the Disclosure Letter are Responsible Officers, holding the offices indicated next to their respective names, as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section

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6.02 and such Responsible Officers are the duly elected and qualified officers of such Loan Party and are duly authorized to execute and deliver, on behalf of the respective Loan Party, this Agreement, and the other Loan Documents.

Section 5.18 Subsidiaries; Equity Interests; Loan Parties .

(a) Subsidiaries, Joint Ventures, Partnerships and Equity Investments . Set forth on Schedule 5.18(a) attached to the Disclosure Letter, is the following information which is true and complete in all respects as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 6.02: (i) a complete and accurate list of all Subsidiaries, joint ventures and partnerships and other equity investments of the Loan Parties as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 6.02, (ii) the number of shares of each class of Equity Interests in each Subsidiary outstanding, (iii) the number and percentage of outstanding shares of each class of Equity Interests owned by the Loan Parties and their Subsidiaries and (1) the class or nature of such Equity Interests (i.e. voting, non-voting, preferred, etc.). The outstanding Equity Interests in all Subsidiaries are validly issued, fully paid and non-assessable and are owned free and clear of all Liens. There are no outstanding subscriptions, options, warrants, calls, rights or other agreements or commitments of any nature relating to the Equity Interests of any Loan Party or any Subsidiary thereof.

(b) Loan Parties . Set forth on Schedule 5.18(b) attached to the Disclosure Letter is a complete and accurate list of all Loan Parties, showing as of the Closing Date, or as of the last date such Schedule was required to be updated in accordance with Section 6.02, (as to each Loan Party) (i) the exact legal name, (ii) any former legal names of such Loan Party in the four (4) months prior to the Closing Date, (iii) the jurisdiction of its incorporation or organization, as applicable, (iv) the type of organization, (v) the jurisdictions in which such Loan Party is qualified to do business, (vi) the address of its chief executive office, (vii) the address of its principal place of business, (viii) its U.S. federal taxpayer identification number or, in the case of any non-U.S. Loan Party that does not have a U.S. federal taxpayer identification number, its unique identification number issued to it by the jurisdiction of its incorporation or organization, (ix) the organization identification number, (x) ownership information (e.g. publicly held or if private or partnership, the owners and partners of each of the Loan Parties), and (xi) the industry or nature of business of such Loan Party.

Section 5.19 Collateral Representations .

(a) Collateral Documents . The provisions of the Collateral Documents are effective to create in favor of the Lender, for the benefit of the Secured Parties, a legal, valid and enforceable first priority Lien (subject to Permitted Liens) on all right, title and interest of the respective Loan Parties in the Collateral described therein. Except for filings completed prior to the Closing Date and as contemplated hereby and by the Collateral Documents and the delivery of any possessory Collateral as required under the Collateral Documents, no filing or other action will be necessary to perfect or protect such Liens.

(b) Intellectual Property . Set forth on Schedule 5.19(b) attached to the Disclosure Letter, as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 6.02, is a list of all registered or issued Intellectual Property (including all applications for registration and issuance) owned by each of the Loan Parties or that each of the Loan Parties has the right to (including the name/title, current owner, registration or application number, and registration or application date and such other information as reasonably requested by the Lender).

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(c) Documents, Instrument, and Tangible Chattel Paper . Set forth on Schedule 5.19(c) to the Disclosure Letter is a is a description of all Documents, Instruments, and Tangible Chattel Paper of the Loan Parties as of the Closing Date (including the Loan Party owning such Document, Instrument and Tangible Chattel Paper and such other information as reasonably requested by the Lender).

(d) Deposit Accounts, Electronic Chattel Paper, Letter-of-Credit Rights, and Securities Accounts .

(i) Set forth on Schedule 5.19(d)(i) attached to the Disclosure Letter, as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 6.02, is a description of all Deposit Accounts and Securities Accounts of the Loan Parties, including the name of (A) the applicable Loan Party, (B) in the case of a Deposit Account, the depository institution and average amount held in such Deposit Account and whether such account is a zero balance account or a payroll account, and (C) in the case of a Securities Account, the Securities Intermediary or issuer and the average aggregate market value held in such Securities Account, as applicable.

(ii) Set forth on Schedule 5.19(d)(ii) attached to the Disclosure Letter, as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 6.02, is a description of all Electronic Chattel Paper (as defined in the UCC) and Letter-of-Credit Rights (as defined in the UCC) of the Loan Parties, including the name of (A) the applicable Loan Party, (B) in the case of Electronic Chattel Paper (as defined in the UCC), the account debtor and (C) in the case of Letter-of-Credit Rights (as defined in the UCC), the issuer or nominated person, as applicable.

(e) Commercial Tort Claims . Set forth on Schedule 5.19(e) attached to the Disclosure Letter, as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 6.02, is a description of all Commercial Tort Claims of the Loan Parties (detailing such Commercial Tort Claim in such detail as reasonably requested by the Lender).

(f) Pledged Equity Interests . Set forth on Schedule 5.19(f) attached to the Disclosure Letter, as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 6.02, is a list of (i) all Pledged Equity and (ii) all other Equity Interests required to be pledged to the Lender pursuant to the Collateral Documents (in each case, detailing the Grantor (as defined in the Security Agreement), the Person whose Equity Interests are pledged, the number of shares of each class of Equity Interests, the certificate number and percentage ownership of outstanding shares of each class of Equity Interests and the class or nature of such Equity Interests (i.e. voting, non-voting, preferred, etc.).

(g) Properties . Set forth on Schedule 5.19(g) attached to the Disclosure Letter, as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 6.02, is a list of all Mortgaged Properties (including (i) the name of the Loan Party owning or leasing such Mortgaged Property, (ii) the property address, if available, (iii) the city, county, state and zip code which such Mortgaged Property is located to the extent available or, alternatively, the legal description of such Mortgaged Property, and (iv) an indication if such location is leased or owned, and if leased, the name of the owner). Set forth on Section 5.19(g)(ii), as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 6.02, is a list of (A) each headquarter location of the Loan Parties, (B) each other location where any significant administrative or governmental functions are performed, (C) each other location where the Loan Parties maintain any

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material books or records (electronic or otherwise), and (D) each location where any personal property Collateral is located at any premises owned or leased by a Loan Party (in each case, including (i) an indication if such location is leased or owned, (ii) if leased, the name of the lessor, and if owned, the name of the Loan Party owning such property, (iii) the address of such property (including, the city, county, state and zip code) if available).

(h) Material Contracts . Set forth on Schedule 5.19(h) attached to the Disclosure Letter, as of the Closing Date and as of the last date such Schedule was required to be updated in accordance with Section 6.02, is a complete and accurate list of all Material Contracts of the Borrower and its Subsidiaries. All such Material Contracts are in full force and effect.

Section 5.20 Flood Hazard . No Mortgaged Property is a Flood Hazard Property unless no later than the date that Mortgages are filed with respect to the Mortgaged Property, the Lender shall have received the following: (a) the applicable Loan Party’s written acknowledgment of receipt of written notification from the Lender (i) as to the fact that such Mortgaged Property is a Flood Hazard Property, (ii) as to whether the community in which each such Flood Hazard Property is located is participating in the National Flood Insurance Program, and (iii) such other flood hazard determination forms, notices and confirmations thereof as requested by the Lender and (b) copies of insurance policies or certificates of insurance of the applicable Loan Party evidencing flood insurance reasonably satisfactory to the Lender and naming the Lender as loss payee. All flood hazard insurance policies required hereunder have been obtained and remain in full force and effect, and the premiums thereon have been paid in full.

Section 5.21 Intellectual Property; Licenses, Etc . Each Loan Party and each of its Subsidiaries own, or possess the right to use, all of the trademarks, service marks, trade names, copyrights, patents, patent rights, franchises, licenses and other intellectual property rights that are reasonably necessary for the operation of their respective businesses, without any known conflict with the rights of any other Person, except to the extent the failure to so own or possess such intellectual property would not reasonably be expected to have a Material Adverse Effect. To the knowledge of the Borrower, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by any Loan Party or any of its Subsidiaries infringes upon any rights held by any other Person. No claim or litigation regarding any of the foregoing is pending or, to the knowledge of the Borrower, threatened, which, either individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.

Section 5.22 Labor Matters . There are no collective bargaining agreements or Multiemployer Plans covering the employees of the Borrower or any of its Subsidiaries as of the Closing Date and neither the Borrower nor any Subsidiary has suffered any strikes, walkouts, work stoppages or other material labor difficulty within the last five (5) years preceding the Closing Date, except as set forth on Schedule 5.22 attached to the Disclosure Letter.

Section 5.23 Closing Under Stock Purchase Agreement . (i) There has been no modification of the Stock Purchase Agreement and no waiver of any of the provisions thereof, except to the extent disclosed to the Lender in writing before the Closing Date and approved by the Lender in writing, and (ii) all “Closing Conditions” under the Stock Purchase Agreement have been satisfied and the “Closing” under the Stock Purchase Agreement shall have occurred in escrow, subject only to the disbursement of the Loan proceeds and the application thereof in accordance with this Agreement.

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ARTICLE 6 AFFIRMATIVE COVENANTS

Each of the Loan Parties hereby covenants and agrees that on the Closing Date and thereafter until the full and final payment and satisfaction of all of the Obligations, such Loan Party shall, and shall cause each of its Subsidiaries to:

Section 6.01 Financial Statements . Deliver or cause to be delivered to the Lender, in form and detail satisfactory to the Lender:

(a) Audited Financial Statements .

(i) As soon as available, but in any event within ninety (90) days after the end of each fiscal year of Westmoreland (commencing with the fiscal year ended December 31, 2015), a Consolidated balance sheet of Westmoreland and its Subsidiaries as at the end of such fiscal year, and the related Consolidated statements of income or operations, changes in shareholders’ equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, such Consolidated statements to be audited and accompanied by a report and opinion of an independent certified public accountant of nationally recognized standing, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any exception or qualification as to the scope of such audit.

(ii) As soon as available, but in any event within ninety (90) days after the end of each fiscal year of the Borrower and its Subsidiaries (commencing with the fiscal year ended December 31, 2015), a Consolidated and consolidating balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year, and the related Consolidated and consolidating statements of income or operations, changes in shareholders’ equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, (A) such Consolidated statements to be audited and accompanied by a report and opinion of an independent certified public accountant of nationally recognized standing, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any exception or qualification as to the scope of such audit, and (B) such consolidating statements to be certified by the chief executive officer, chief financial officer, treasurer or controller that is a Responsible Officer of the Borrower to the effect that such statements are fairly stated in all material respects when considered in relation to the Consolidated financial statements of the Borrower and its Subsidiaries.

(b) Quarterly Financial Statements .

(i) As soon as available, but in any event within forty-five (45) days after the end of each of the first three (3) fiscal quarters of each fiscal year of Westmoreland (commencing with the fiscal quarter ending March 31, 2016), a Consolidated balance sheet of Westmoreland and its Subsidiaries as at the end of such fiscal quarter, and the related Consolidated statements of income or operations, changes in shareholders’ equity and cash flows for such fiscal quarter and for the portion of Westmoreland’s fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP such Consolidated statements to be certified by the chief executive officer, chief financial officer, treasurer or controller of Westmoreland as fairly

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presenting in all material respects the financial condition, results of operations, shareholders’ equity and cash flows of Westmoreland and its Subsidiaries, subject only to normal year-end audit adjustments and the absence of footnotes.

(ii) As soon as available, but in any event within forty-five (45) days after the end of each of the first three (3) fiscal quarters of each fiscal year of the Borrower (commencing with the fiscal quarter ending March 31, 2016), a Consolidated and consolidating balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal quarter, and the related Consolidated and consolidating statements of income or operations, changes in shareholders’ equity and cash flows for such fiscal quarter and for the portion of the Borrower’s fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP such Consolidated and consolidating statements to be certified by the chief executive officer, chief financial officer, treasurer or controller of the Borrower as fairly presenting in all material respects the financial condition, results of operations, shareholders’ equity and cash flows of the Borrower and its Subsidiaries, subject only to normal year-end audit adjustments and the absence of footnotes.

(c) Monthly Financial Statements; Quarterly Budget Review . As soon as available, but in any event within thirty (30) days after the end of each month, a Consolidated and consolidating operating statement of the Borrower and its Subsidiaries as of the end of such month, including a comparison to budgeted amounts and, as applicable, a statement of any amounts required to be deposited into the Cash Management Collection Account pursuant to Section 6.19.8, all in reasonable detail and duly certified by the chief executive officer, chief financial officer, treasurer or controller of the Borrower who is a Responsible Officer . Each monthly operating statement for a month ending on the last day of a calendar quarter shall be accompanied by any proposed changes to the Operating Budget which may be required in order to conform the then effective Operating Budget to projected results of operations. If such proposed changes to the Operating Budget indicate projected compliance with the covenants set forth in Section 7.11 and are otherwise consistent with the Loan Parties’ obligations under the Loan Documents, such changes shall be effective and the Operating Budget shall be modified for purposes of this Agreement, including Section 6.19. If the proposed changes to the Operating Budget indicate non-compliance with any of the covenants set forth in Section 7.11 or are otherwise inconsistent with the Loan Parties’ obligations under the Loan Documents, such proposed changes shall not become effective without the written consent of the Lender, which may be withheld by Lender in its sole discretion.

(d) Financial Projections; Revised Operating Budget .

(i) One Year Projections . As soon as available, but in any event not later than May 15, 2016 with respect to the fiscal year ending December 31, 2016 and at least thirty (30) days prior to the first day of each subsequent fiscal year of the Borrower, financial projections for such fiscal year and each quarter thereof, including (i) projected consolidated and consolidating statements of income and statements of cash flows of the Borrower and its Subsidiaries as for each period beginning on the first day of such fiscal year and ending on the last day of a fiscal quarter occurring during such fiscal year, along with projected consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as of the last day of each fiscal quarter occurring during such fiscal year, and (ii) projected calculations of the covenants set forth in Section 7.11 hereof (Financial Covenants), showing the projected Debt Service Coverage Ratio and the projected Reserve Tail, in each case as of the last day of such fiscal year, together with all supporting calculations based on the projected consolidated financial statements referred

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to in clause (i), along with a certification of a Responsible Officer of the Borrower that the consolidated and consolidating financial statements submitted pursuant to this paragraph were prepared in good faith on the basis of the assumptions stated therein, which assumptions were fair in light of the conditions existing at the time of preparation of such projections, and represented, at the time of delivery, the Borrower’s good faith estimate of its future financial condition and performance.

(ii) Proposed Modification of Operating Budget . In any event with respect to the projected financial statements required pursuant to paragraph (i) for the remainder of fiscal year 2016, and, with respect to the projected financial statements required pursuant to paragraph (i) for any subsequent fiscal year if the assumptions on which the projected financial statements for such subsequent fiscal year are made are in any material respect inconsistent with the Mine Plan or the Operating Budget then in effect, the Borrower shall also provide the Lender with (A) financial projections for each fiscal year during the entire remaining term of the Loan, certified by a Responsible Officer of the Borrower to have been prepared in good faith on the basis of the assumptions stated therein, which assumptions were fair in light of the conditions existing at the time of preparation of such projections, and representing, at the time of delivery, the Borrower’s good faith estimate of its future financial condition and performance over such term, and (B) a proposed modification of the Operating Budget, based on the financial projections described in clause (A) and showing differences from the Operating Budget theretofore in effect. If such proposed modification of the Operating Budget and the related financial projections indicate projected continued compliance with the covenants set forth in Section 7.11 for the remaining term of the Loan and are otherwise consistent with the Loan Parties’ obligations under the Loan Documents, the Operating Budget shall be modified accordingly and such modification shall be deemed effective for purposes of this Agreement, including Section 6.19, for the remaining term of the Loan. If the proposed modification of the Operating Budget and the related financial projections indicate non-compliance with any of the covenants set forth in Section 7.11 at any time during the remaining term of the Loan or are otherwise inconsistent with the Loan Parties’ obligations under the Loan Documents, such proposed modification shall not become effective without the written consent of the Lender, which may be withheld by Lender in its sole discretion.

(e) The Loan Parties shall also provide to the Lender all information reasonably requested by the Lender in order for the Lender to determine whether or not PNM Resources, Inc. or any of its Subsidiaries (collectively, “ PNM Resources ”) is required to consolidate any Loan Party’s financial statements with PNM Resources’ financial statements for financial accounting purposes under Accounting Standards Codification 810-10 or future guidance issued by accounting profession governance bodies or the SEC. If the Lender determines, in its sole discretion, that such consolidation is required, (i) the Lender shall promptly notify the Borrower of any such determination, and (ii) the Borrower and the other Loan Parties shall comply with the following:

(i) Within thirty (30) calendar days following the end of each calendar year, the Borrower shall deliver to the Lender (i) unaudited financial statements of the Loan Parties together with related footnotes as necessary to comply with GAAP, and (ii) a completed annual disclosure checklist with supporting financial schedules necessary for PNM Resources to prepare its annual filing with the SEC. The Lender shall provide to the Borrower the form of such checklist prior to the end of each year and include only items considered material to PNM Resources.

(ii) Within fifteen (15) calendar days following the end of each calendar quarter, including the fourth quarter of the calendar year, Borrower shall deliver to the Lender: (i)

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an unaudited condensed statement of income of the Loan Parties for the calendar quarter and year-to-date, (ii) an unaudited condensed statement of cash flows of the Loan Parties for the calendar quarter and year-to-date, (iii) an unaudited condensed balance sheet of the Loan Parties at the end of such calendar quarter, and (iv) a completed disclosure checklist with supporting financial schedules necessary for PNM Resources to prepare its quarterly filing with the SEC. The Lender shall provide to the Borrower the form of such checklist prior to the end of each quarter and include only items considered material to PNM Resources.

(iii) The Borrower shall deliver to the Lender any other information reasonably requested by Lender to comply with the consolidation requirements of GAAP (but in no event more frequently than each calendar quarter), provided that such information shall be provided no later than 15 calendar days after the end of each calendar quarter.

(iv) Upon reasonable notice from the Lender, during normal business hours and mutually agreed terms and dates, each Loan Party shall allow PNM Resources access to such Loan Party’s records and personnel, so that PNM Resources and PNM Resources’ independent registered public accounting firm, at Lender’s expense, can conduct financial statement reviews and audits in accordance with the standards of the Public Company Accounting Oversight Board (United States), as well as internal control audits in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, as applicable. Within thirty (30) Days after a Loan Party’s receipt of notice from the Lender, such Loan Party shall submit a plan to PNM Resources for the remediation of any deficiency in such Loan Party’s internal controls over financial reporting identified by PNM Resources or PNM Resources’ independent registered public accounting firm during or as a result of the audits permitted in this Section 6.01(e), and such Loan Party shall implement such plan within 90 days after it has received the notice of deficiency

(v) If there is a change, or a Loan Party has determined to implement a change, that has materially affected, or is reasonably likely to materially affect, such Loan Party’s internal control over financial reporting, such Loan Party shall notify the Lender within a commercially reasonable period of time of such change or the determination to make a change so that PNM Resources and PNM Resources’ independent registered public accounting firm will have sufficient time to conduct an assessment of the change before the end of the then current quarter and, upon reasonable notice, such Loan Party shall be available to discuss such change with PNM Resources and PNM Resources’ independent registered public accounting firm.

(vi) Once during each calendar quarter, the Lender and the Borrower shall meet (either in person or by conference call) at a mutually agreed upon date and time to conduct due diligence and discuss the Loan Parties’ internal control over financial reporting.

(vii) As soon as possible, but in no event later than two (2) Business Days following the occurrence of any items affecting a Loan Party which, during the term of the Loan, the Borrower understands that PNM Resources would be required to disclose in a Form 8-K filing with the SEC, the Borrower shall provide to the Lender a notice describing such event in sufficient detail to permit PNM Resources to make a Form 8-K filing. Such items include, but are not limited to, the following:

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(A) Acquisition or disposition of a material amount of assets;

(B) Creation of a material direct financial obligation or off-balance sheet financing arrangement;

(D) Entry into, or termination of, a material contract not made in the ordinary course of such Loan Party’s business.

Section 6.02 Certificates; Other Information . Deliver to the Lender, in form and detail satisfactory to the Lender:

(a) Accountants’ Certificate . Concurrently with the delivery of the financial statements referred to in Section 6.01(a) (ii) (commencing with the delivery of the financial statements for the fiscal year ended December 31, 2016), a certificate of its independent certified public accountants with respect to the financial statements referred to in Section 6.01(a)(ii), stating that in making the examination necessary therefor no knowledge was obtained of any Default or, if any such Default shall exist, stating the nature and status of such event.

(b) Compliance Certificates . Concurrently with the delivery of the financial statements referred to in Section 6.01(a) and (b) (commencing with the delivery of the financial statements for the quarterly period ending March 31, 2016), (i) a duly completed Compliance Certificate signed by the chief executive officer, chief financial officer, treasurer or controller who is a Responsible Officer of the Borrower, and in the event of any change in generally accepted accounting principles used in the preparation of such financial statements, the Borrower shall also provide, if necessary for the determination of compliance with Section 7.11, a statement of reconciliation conforming such financial statements to GAAP, and (ii) a copy of management’s discussion and analysis with respect to such financial statements. Unless the Lender requests executed originals, delivery of the Compliance Certificate may be by electronic communication including fax or email and shall be deemed to be an original and authentic Compliance Certificates thereof for all purposes.

(c) Updated Schedules . Concurrently with the delivery of the Compliance Certificate referred to in Section 6.02(b), updated Schedules to the Disclosure Letter, to the extent permitted to be updated pursuant to the terms of this Agreement, which may be attached to the Compliance Certificate, to the extent required to make the representation related to such Schedule true and correct as of the date of such Compliance Certificate.

(d) Calculations . Concurrently with the delivery of the Compliance Certificate referred to in Section 6.02(b) required to be delivered with the financial statements referred to in Section 6.01(a), a certificate (which may be included in such Compliance Certificate) setting forth the amount of all Restricted Payments, and Capital Expenditures that were made during the prior fiscal year.

(e) Audit Reports; Management Letters; Recommendations . Promptly after any request by the Lender, copies of any detailed audit reports, management letters or recommendations submitted to the board of directors (or the audit committee of the board of directors) of any Loan Party by independent accountants in connection with the accounts or books of any Loan Party or any of its Subsidiaries, or any audit of any of them.

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(f) SEC Notices . Promptly, and in any event within five (5) Business Days after receipt thereof by any Loan Party or any Subsidiary thereof, copies of each notice or other correspondence received from the SEC concerning any investigation or possible investigation or other inquiry by such agency regarding financial or other operational results of any Loan Party or any Subsidiary thereof or Westmoreland.

(g) Environmental Notice . Promptly after the assertion or after any Loan Party has knowledge of the occurrence thereof, notice of any action or proceeding against or of any noncompliance by any Loan Party or any of its Subsidiaries with any Environmental Law or Environmental Permit that would (i) reasonably be expected to have a Material Adverse Effect or (ii) cause any property described in the Mortgages to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law.

(h) Additional Information . Promptly, such additional information regarding the business, financial, legal or corporate affairs of any Loan Party or any Subsidiary thereof, or compliance with the terms of the Loan Documents, as the Lender may from time to time reasonably request.

Documents required to be delivered pursuant to Section 6.01(a) or (b) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (a) on which the Borrower posts such documents, or provides a link thereto on the Borrower’s website on the Internet at the website address listed on Schedule II attached hereto; or (b) on which such documents are posted on the Borrower’s behalf on an Internet or intranet website, if any, to which the Lender has access (whether a commercial, third-party website or whether sponsored by the Lender); provided that: (i) the Borrower shall deliver paper copies of such documents to the Lender upon its request to the Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Lender and (ii) the Borrower shall notify the Lender (by fax transmission or e-mail transmission) of the posting of any such documents and, upon the request of the Lender, provide to the Lender by e-mail electronic versions of such documents.

Section 6.03 Notices . Promptly, but in any event within two (2) Business Days after such event, notify the Lender:

(a) of the occurrence of any Default;

(b) of any matter that has resulted or would reasonably be expected to result in a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual Obligation of the Borrower or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between the Borrower or any Subsidiary and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting the Borrower or any Subsidiary, including pursuant to any applicable Environmental Laws that, in the case of each of clauses (i), (ii) and (iii), has resulted in or would reasonably be expected to result in a Material Adverse Effect;

(d) of any material change in accounting policies or financial reporting practices by any Loan Party or any Subsidiary thereof; and

(e) of any (i) occurrence of any Disposition other than Dispositions set out in clauses (a), (b) and (c) of Section 7.05 and (ii) receipt of any Extraordinary Receipt.

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Each notice pursuant to this Section 6.03 shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and to the extent applicable, stating what action the Borrower has taken and proposes to take with respect thereto. Each notice pursuant to Section 6.03(a) shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.

Section 6.04 Payment of Obligations . Pay and discharge as the same shall become due and payable, all its obligations and liabilities, including (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by the Borrower or such Subsidiary; (b) all lawful claims which, if unpaid, would by law become a Lien upon its property; and (c) all Indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness except (only as to Indebtedness other than the Obligations) insofar as the failure to pay any Indebtedness would not reasonably be expected to have a Material Adverse Effect.

Section 6.05 Preservation of Existence, Etc .

(a) Preserve, renew and maintain in full force and effect its legal existence and good standing under the Laws of the jurisdiction of its organization and each state in which the failure to be so qualified would reasonably be expected to have a Material Adverse Effect;

(b) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect; and

(c) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which would reasonably be expected to have a Material Adverse Effect.

Section 6.06 Maintenance of Properties .

(a) Maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear, obsolescence excepted;

(b) make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so would not reasonably be expected to have a Material Adverse Effect; and

Section 6.07 Maintenance of Insurance .

(a) Maintenance of Insurance . Maintain with financially sound and reputable insurance companies not Affiliates of the Borrower, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons, including, without limitation, (i) terrorism insurance and (ii) flood hazard insurance

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on all Mortgaged Properties that are Flood Hazard Properties, on such terms and in such amounts as required by the National Flood Insurance Reform Act of 1994 or as otherwise required by the Lender.

(b) Evidence of Insurance . Cause the Lender to be named as lenders’ loss payable, loss payee or mortgagee, as its interest may appear, and/or additional insured with respect of any such insurance providing liability coverage or coverage in respect of any Collateral, and cause, unless otherwise agreed to by the Lender, each provider of any such insurance to agree, by endorsement upon the policy or policies issued by it or by independent instruments furnished to the Lender that it will give the Lender thirty (30) days prior written notice before any such policy or policies shall be altered or cancelled (or ten (10) days prior notice in the case of cancellation due to the nonpayment of premiums). Annually, upon expiration of current insurance coverage, the Loan Parties shall provide, or cause to be provided, to the Lender, such evidence of insurance as required by the Lender, including, but not limited to: (i) certified copies of such insurance policies, (ii) evidence of such insurance policies (including, without limitation and as applicable, ACORD Form 28 certificates (or similar form of insurance certificate), and ACORD Form 25 certificates (or similar form of insurance certificate)), (iii) declaration pages for each insurance policy and (iv) lender’s loss payable endorsement if the Lender for the benefit of the Lender is not on the declarations page for such policy.

Section 6.08 Compliance with Laws . Comply with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted; or (b) the failure to comply therewith would not reasonably be expected to have a Material Adverse Effect.

Section 6.09 Books and Records . Maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of such Loan Party or such Subsidiary, as the case may be.

Section 6.10 Inspection Rights .

(a) Permit representatives and independent contractors of the Lender to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants (with, at Borrower’s election, a representative of Borrower present provided that no Event of Default exists), all at the expense of the Borrower and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Borrower; provided , however , that when an Event of Default exists the Lender (or any of its respective representatives or independent contractors) may do any of the foregoing at the expense of the Borrower at any time during normal business hours and without advance notice.

(b) If requested by the Lender in its sole discretion, permit the Lender and its representatives, upon reasonable advance notice to the Borrower, to conduct, at the expense of the Borrower, an annual (i) personal property asset appraisal on personal property Collateral of the Borrower and its Subsidiaries, (ii) real estate appraisal on real estate Collateral of the Borrower and its Subsidiaries and (iii) field exam on the accounts receivable, inventory, payables, controls and systems of the Borrower and its Subsidiaries.

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(c) If requested by the Lender in its sole discretion, permit the Lender, and its representatives, upon reasonable advance notice to the Borrower, to conduct an annual audit of the Collateral at the reasonable expense of the Borrower.

Section 6.11 Use of Proceeds . Use the proceeds of the Loan only for the purpose specified in Section 2.01 and not in contravention of any Law or of any Loan Document.

Section 6.12 Material Contracts . Perform and observe all the terms and provisions of each Material Contract to be performed or observed by it, maintain each such Material Contract in full force and effect, enforce each such Material Contract in accordance with its terms, take all such action to such end as may be from time to time requested by the Lender and, upon request of the Lender, make to each other party to each such Material Contract such demands and requests for information and reports or for action as any Loan Party or any of its Subsidiaries is entitled to make under such Material Contract, and cause each of its Subsidiaries to do so, except, in any case, where the failure to do so, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.

Section 6.13 Covenant to Give Security .

(a) Equity Interests and Personal Property . Each Loan Party will cause the Pledged Equity and all of its tangible and intangible personal property now owned or hereafter acquired by it to be subject at all times to a first priority, perfected Lien (subject to Permitted Liens to the extent permitted by the Loan Documents) in favor of the Lender for the benefit of the Secured Parties, to secure the Secured Obligations pursuant to the terms and conditions of the Collateral Documents. Each Loan Party shall provide opinions of counsel and any filings and deliveries reasonably necessary in connection therewith to perfect the security interests therein, all in form and substance reasonably satisfactory to the Lender.

(b) Real Property . If any Loan Party intends to acquire a fee ownership interest in any real property (“ Real Estate ”) after the Closing Date and such Real Estate has a fair market value in excess of $50,000, it shall provide to the Lender promptly a Mortgage and such Mortgaged Property Support Documents as the Lender may request to cause such Real Estate to be subject at all times to a first priority, perfected Lien (subject in each case to Permitted Liens) in favor of the Lender for the benefit of the Secured Parties, to secure the Secured Obligations pursuant to the terms and conditions of the Collateral Documents.

(c) Landlord Waivers . In the case of (i) each headquarter location of the Loan Parties, each other location where any significant administrative or governmental functions are performed and each other location where the Loan Parties maintain any material books or records (electronic or otherwise) and (ii) any personal property Collateral located at any other premises leased by a Loan Party containing personal property Collateral with a value in excess of $100,000, the Loan Parties will provide the Lender with such estoppel letters, consents and waivers from the landlords on such real property to the extent (A) requested by the Lender and (B) the Loan Parties are able to secure such letters, consents and waivers after using commercially reasonable efforts (such letters, consents and waivers shall be in form and substance satisfactory to the Lender).

(d) Account Control Agreements . Each of the Loan Parties shall not open, maintain or otherwise have any deposit or other accounts (including securities accounts) at any bank or other financial institution, or any other account where money or securities are or may be deposited or maintained with any Person, other than (i) deposit accounts that are maintained at all times with depositary institutions as to which the Lender shall have received a Qualifying Control Agreement, (ii) securities accounts that are maintained at all times with financial institutions as to which the Lender shall

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have received a Qualifying Control Agreement, (iii) the Cash Management Collection Account, and (iv) deposit accounts established solely as payroll and other zero balance accounts.

(e) Further Assurances . At any time upon request of the Lender, promptly execute and deliver any and all further instruments and documents and take all such other action as the Lender may deem necessary or desirable to maintain in favor of the Lender, Liens and insurance rights on the Collateral that are duly perfected in accordance with the requirements of, or the obligations of the Loan Parties under, the Loan Documents and all applicable Laws.

Section 6.14 Further Assurances . Promptly upon request by the Lender, (a) correct any material defect or error that may be discovered in any Loan Document or in the execution, acknowledgment, filing or recordation thereof, and (b) do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, deeds, certificates, assurances and other instruments as the Lender may reasonably require from time to time in order to (i) carry out more effectively the purposes of the Loan Documents, (ii) to the fullest extent permitted by applicable Law, subject any Loan Party’s or any of its Subsidiaries’ properties, assets, rights or interests to the Liens now or hereafter intended to be covered by any of the Collateral Documents, (iii) perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and any of the Liens intended to be created thereunder and (iv) assure, convey, grant, assign, transfer, preserve, protect and confirm more effectively unto the Lender the rights granted or now or hereafter intended to be granted to the Lender under any Loan Document or under any other instrument executed in connection with any Loan Document to which any Loan Party or any of its Subsidiaries is or is to be a party, and cause each of its Subsidiaries to do so.

Section 6.15 Compliance with Terms of Leaseholds . Make all payments and otherwise perform all obligations in respect of all leases of real property to which the Borrower or any of its Subsidiaries is a party, keep such leases in full force and effect and not allow such leases to lapse or be terminated or any rights to renew such leases to be forfeited or cancelled, notify the Lender of any default by any party with respect to such leases and cooperate with the Lender in all respects to cure any such default, and cause each of its Subsidiaries to do so, except, in any case, where the failure to do so, either individually or in the aggregate, would not be reasonably likely to have a Material Adverse Effect.

Section 6.16 Compliance with Environmental Laws . Comply, and cause all lessees and other Persons operating or occupying its properties to comply, in all material respects, with all applicable Environmental Laws and Environmental Permits; obtain and renew all Environmental Permits necessary for its operations and properties; and conduct any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action necessary to remove and clean up all Hazardous Materials from any of its properties, in accordance with the requirements of all Environmental Laws; provided , however , that neither the Borrower nor any of its Subsidiaries shall be required to undertake any such cleanup, removal, remedial or other action to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances in accordance with GAAP.

Section 6.17 Preparation of Environmental Reports . At the request of the Lender from time to time, provide to the Lender within sixty (60) days after such request, at the expense of the Borrower, an environmental site assessment report for any of its properties described in such request, prepared by an environmental consulting firm acceptable to the Lender, indicating the presence or absence of Hazardous Materials and the estimated cost of any compliance, removal or remedial action in connection with any Hazardous Materials on such properties; without limiting the generality of the foregoing, if the Lender determines at any time that a material risk exists that any such report will not be provided within the time

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referred to above, the Lender may retain an environmental consulting firm to prepare such report at the expense of the Borrower, and the Borrower hereby grants and agrees to cause any Subsidiary that owns any property described in such request to grant at the time of such request to the Lender, such firm and any agents or representatives thereof an irrevocable non-exclusive license, subject to the rights of tenants, to enter onto their respective properties to undertake such an assessment.

Section 6.18 Anti-Corruption Laws . Conduct its business in compliance with the United States Foreign Corrupt Practices Act of 1977 and other similar anti-corruption legislation in other jurisdictions and maintain policies and procedures designed to promote and achieve compliance with such laws.

Section 6.19 Deposit Accounts; Cash Management .

6.19.1 Establishment of Cash Management Collection Account and Deposit Accounts .

(a) The Loan Parties shall be required to maintain all of their operating and other deposit accounts with MUFG or another depository bank approved by the Lender and the Administrative Agent (MUFG or such other depository bank is sometimes referred to herein, in such capacity, as the “ Depository Bank ”), except as otherwise provided in Section 6.13(d) and Section 6.19.1(c).

(b) On or prior to the date hereof, there shall have been established or there shall be established with the Depository Bank a collection cash management account (the “ Cash Management Collection Account ”) in the name of the Borrower or SJCC containing the following subaccounts: (i) the “Operating Expenses Subaccount”, (ii) the “Loan Payments Subaccount”, (iii) the “Capital Expenditures Subaccount”, (iv) the “Operating Reserve Subaccount”, and (v) the “Loan Prepayments Subaccount”. The Cash Management Collection Account shall be a trust account maintained by the Depository Bank and the Depository Bank shall hold the funds deposited therein in trust, subject to the terms of this Agreement and the Lien established in favor of the Lender (for itself and the other Secured Parties) hereunder and under the Collateral Documents. No Loan Party may make any withdrawal or transfer from, or issue any entitlement order or instruction with respect to, the Cash Management Collection Account or any money, securities entitlements or investment property contained therein, and should any Loan Party issue or purport to issue any such order or instruction, Depository Bank will not comply with such order or instruction. Amounts in the Cash Management Collection Account shall be invested, applied and paid only in accordance with this Section. The Cash Management Collection Account is a “securities account,” the Depository Bank is the “securities intermediary” with respect to the Cash Management Collection Account, and all assets held in the Cash Management Collection Account from time to time shall be deemed to be “financial assets,” all within the meaning of those terms under §8-102 of the UCC. The Depository Bank shall identify the Lender as the sole entitlement holder with respect to the Cash Management Collection Account on the records of the Depository Bank. The Depository Bank will comply with all instructions issued by the Lender pursuant to this Section 6.19 with respect to the Cash Management Collection Account or the assets held therein from time to time, and shall be fully authorized to do so without further consent by any Loan Party. The Depository Bank shall provide the Borrower, SJCC, the Lender and the Administrative Agent access to the Depository Bank’s on-line bank statements and transaction activities reports with respect to the Cash Management Collection Account, subject to the Borrower, SJCC, the Lender and the Administrative Agent, as applicable, providing any information requested by the Depository Bank for the purpose of providing such Person with access to such on-line system.

(c) On or prior to the date hereof, San Juan Coal Company has opened or shall open a deposit account with the Depository Bank which shall be used by San Juan Coal Company as its

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operating account (the “ SJCC Operating Account ”). The SJCC Operating Account and all amounts on deposit therein from time to time shall be subject to the Lien in favor of Lender, for the benefit of the Secured Parties, established under the Collateral Documents. The SJCC Operating Account shall be subject to a Qualifying Control Agreement in form and substance satisfactory to the Lender, which shall provide, among other things, that upon any Event of Default, the Depository Bank shall cease to comply with any instruction issued by San Juan Coal Company and shall comply only with written instructions issued by the Lender. San Juan Coal Company may also open and maintain until ninety (90) days after the Closing Date an operating account at The Private Bank and Trust Company. Any such operating account shall be subject to the Lien of the Lender, for the benefit of the Secured Parties, under the Collateral Documents and shall be subject to a Qualifying Control Agreement in form and substance satisfactory to the Lender which shall provide, among other things, that upon any Event of Default, The Private Bank and Trust Company shall cease to comply with any instruction issued by San Juan Coal Company and shall comply only with written instructions issued by the Lender.

(d) On or prior to the date hereof, the Borrower has opened or shall open a deposit account with the Depository Bank which shall hold the operating reserve of SJCC and SJTC (the “ Operating Reserve Account ”). The Operating Reserve Account shall be a blocked account maintained in the name of the Borrower and shall be subject to the Lien in favor of the Lender, for the benefit of the Secured Parties, established under the Collateral Documents. The Operating Reserve Account shall be subject to a Qualifying Control Agreement in form and substance satisfactory to the Lender. No Loan Party may make any withdrawal or transfer from the Operating Reserve Account without the written consent of the Lender.

6.19.2 Collection and Deposit of Funds . (a) The Loan Parties shall cause all revenues of the Loan Parties, including all amounts payable to San Juan Coal Company under the Coal Supply Contracts and also including all Net Cash Proceeds of any Disposition or Involuntary Disposition and all Extraordinary Receipts, and all excess amounts described in Section 6.19.8, to be deposited promptly to the Cash Management Collection Account, for application in accordance with this Section, except that certain payments by PNM to SJCC under the Coal Supply Contract for the Fruitland Coal Subleases (the REI) and the Cimarron leases and the AU leases (the Utility Payment Stream) will be deposited into an escrow account for further payment to the lessees under the aforesaid leases, as disclosed by the Loan Parties to the Lender prior to the Closing Date.

(b) For so long as no Event of Default has occurred, the Lender or the Administrative Agent (at the written direction of the Lender) shall, on a monthly basis or, if the Lender so determines, more frequently, direct in writing the Depository Bank to allocate, pursuant to a Withdrawal Certificate delivered to the Depository Bank not later than 12:00 noon New York City time at least one (1) Business Day prior to the date of the requested allocation (it being understood and agreed that any Withdrawal Certificate received by the Depository Bank after such time on any Business Day will be processed on the second Business Day after the date of such receipt), the amounts deposited to the Cash Management Collection Account to the subaccounts therein as follows:

(i) first, to the Operating Expenses Subaccount in an amount up to the operating expenses amount shown on the Operating Budget for the current month, plus 5% of such amount;

(ii) second, to the Loan Payments Subaccount, in the amount equal to the sum of (A) all amounts (if any) then due and payable under the Loan Documents (including principal, interest, fees, costs and indemnity payments), and (B) an amount equal to one-third of the total of (x) the principal of and interest on the Loan and (y) fees (including any such fees

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payable to the Administrative Agent) and other amounts scheduled to become due and payable on the next quarterly payment date therefor, provided that if no further amounts are expected to be received for deposit into the Cash Management Collection Account before the next quarterly payment date for principal, interest and fees hereunder, the amount allocated to the Loan Payments Subaccount shall be the amount, which when added to all amounts already on deposit in the Loan Payments Subaccount, will be sufficient to pay all amounts of principal, interest, fees and other amounts scheduled to become due and payable on the next quarterly payment date;

(iii) third, to the Capital Expenditures Subaccount, in the amount shown on the Operating Budget as the capital expenditure amount for the period ending on the last day of the current month, plus 5% of such amount;

(iv) fourth, to the Operating Reserve Subaccount, in an amount equal to the lesser of (x) 10% of the amount remaining after allocation of funds pursuant to clauses (i), (ii) and (iii) above and (y) the Operating Reserve Deficiency; and

(v) fifth, to the Loan Prepayments Subaccount, any amount remaining after allocation pursuant to clauses (i) through (iv) above.

6.19.3 Payment of Funds Deposited into the Cash Management Collection Account . For so long as no Event of Default has occurred, the Lender or the Administrative Agent (at the written direction of the Lender) shall direct in writing, pursuant to a Withdrawal Certificate delivered to the Depository Bank not later than 12:00 noon New York City time at least one (1) Business Day prior to the date of the requested application (it being understood and agreed that any Withdrawal Certificate received by the Depository Bank after such time on any Business Day will be processed on the second Business Day after the date of such receipt), the Depository Bank to apply amounts on deposit from time to time in the Cash Management Collection Account as follows:

(a) On a monthly basis, the amounts in the Operating Expenses Subaccount shall be transferred to the SJCC Operating Account.

(b) At the times that scheduled payments of interest on and principal of the Loan and fees and other amounts become due and payable under this Agreement and the Note, the amounts in the Loan Payments Subaccount shall be paid, pursuant to Section 2.08, to the Administrative Agent on behalf of the Lender and applied against such payments then due the Lender, the Administrative Agent or the Depository Bank as provided in this Agreement (provided that nothing herein shall be construed to limit the liability and obligation of the Loan Parties hereunder to make all payments of interest, principal and other amounts due under the Loan Documents in accordance with the terms hereof and thereof).

(c) On a monthly basis, amounts held in the Capital Expenditures Subaccount shall be transferred to the SJCC Operating Account.

(d) On a monthly basis, amounts held in the Operating Reserve Subaccount shall be transferred to the Operating Reserve Account.

(e) On each date on which a mandatory prepayment is required pursuant to Section 2.04(b) hereof, the amounts held in the Loan Prepayments Subaccount shall be paid, pursuant to Section 2.08, to the Administrative Agent on behalf of the Lender and applied to such mandatory prepayment.

6.19.4 Application of Operating Reserve; Operating Reserve Balance .

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(a) For so long as no Event of Default has occurred and is continuing, the Borrower may request that funds on deposit in the Operating Reserve Account shall be made available for transfer to the SJCC Operating Account to pay operating expenses or other cash requirements of the Loan Parties incurred in excess of their budgeted operating expenses for the applicable period, and the Lender, in its sole discretion, shall determine whether to permit such use of funds or to retain such funds in the Operating Reserve Account as Collateral under the Loan Documents. Any request for disbursement from the Operating Reserve Account shall be in writing and shall include or be accompanied by a statement of the Borrower’s Responsible Officer summarizing in reasonable detail the uses for such funds, together with such supporting information in each case as the Lender may request. If the Lender, in its sole discretion, determines to permit the requested use of Operating Reserve Account funds, the Lender and Loan Parties will execute and deliver such documents as the Depository Bank may require to permit the transfer of such funds to the SJCC Operating Account (it being understood and agreed that a written request for any such transfer shall be delivered to the Depository Bank not later than 12:00 noon New York City time at least one (1) Business Day prior to the date of the requested transfer, and any such written request received by the Depository Bank after such time on any Business Day will be processed on the second Business Day after the date of such receipt).

(b) At all times on and after June 30, 2016, the Borrower shall cause the balance in the Operating Reserve Account to be not less than $5,000,000.

(c) At all times on and after the first anniversary of the Closing Date, the Borrower shall cause the balance in the Operating Reserve Account to be not less than $10,000,000.

6.19.5 Pledge and Security Interest . The Loan Parties hereby pledge and assign to the Lender for the benefit of the Secured Parties, and grant to the Lender for the benefit of the Secured Parties, a first priority security interest in, all funds at any time on deposit in the Deposit Accounts and all amounts on deposit therein from time to time. The Loan Parties will take, and authorize the Lender to take, all actions necessary to maintain in favor of Lender a perfected first priority Lien in the Deposit Accounts. This Agreement is, among other things, intended by the parties to be a security agreement for purposes of the UCC. The Loan Parties will execute and deliver, and will cause the Depository Bank to execute and deliver, Qualifying Control Agreements in form and substance satisfactory to the Lender and the Depository Bank, in respect of the Deposit Accounts other than the Cash Management Collection Account, which, in any event, shall be sufficient to establish Lender’s “control” of the Deposit Accounts (within the meaning of Section 9-104 of the Uniform Commercial Code). Without limitation of the foregoing, during the existence of an Event of Default, Lender shall have the right to apply funds in such Deposit Accounts to the Obligations, and to direct the Depository Bank to remit to the Administrative Agent for the benefit of the Lender funds in the Cash Management Collection Account for application to the Obligations, in each case in such order or proportion as the Lender may determine, in its sole discretion, subject to the requirements of Section 8.03.

6.19.6 Authorization to Apply Funds . Each Loan Party that at any time has any interest in any of the accounts at the Depository Bank hereby irrevocably authorizes the Lender and the Administrative Agent to direct the Depository Bank to apply funds as provided in this Section and the other provisions of the Loan Documents and to issue such other and further instructions as the Lender or the Administrative Agent may deem necessary or appropriate to carry out the provisions of this Section and the Loan Documents. Each Loan Party hereby appoints each of the Lender and the Administrative Agent, or any officer of either of them, as such Loan Party’s attorney-in-fact for issuing any instruction for the transfer, application and payment of funds held in any such account from time to time, or to take any other actions which may be necessary or useful (as determined by the Lender or the Administrative Agent) to carry out the purposes of this Section and the Loan Documents, which appointment is coupled

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with an interest and is irrevocable. The power of attorney set forth in this subsection may be exercised in the name of the applicable Loan Party or in the name of the Lender or the Administrative Agent, at the option of the Lender or the Administrative Agent, as the case may be. The Loan Parties irrevocably authorize the Depository Bank to rely upon and comply with any instruction, including any instruction regarding the application and payment of funds, that the Depository Bank believes in good faith to be properly issued by the Lender or the Administrative Agent pursuant to this Section.

6.19.7 Permitted Account Investments .

(a) Funds held in the Cash Management Collection Account from time to time shall be invested only in Permitted Cash Management Investments in accordance with written directions of Lender given to the Depository Bank from time to time. The Lender shall select investments that will mature in such amounts and not later than such times as may be necessary to provide funds when needed to permit payments to be made from such funds as provided in this Agreement. The Lender’s right to direct the manner of investment includes the right (i) to direct the Depository Bank to sell any Permitted Cash Management Investment or hold it until maturity and (ii) upon any sale or maturity of any Permitted Cash Management Investment, to direct Depository Bank to reinvest the proceeds thereof, plus any interest received by Depository Bank thereon, in Permitted Cash Management Investments or to hold such proceeds and interest for application pursuant to the terms of this Agreement. Except as otherwise provided herein, net interest or gain received, if any, from such Permitted Cash Management Investments shall be deposited into the Cash Management Collection Account. Any loss shall be charged to the Cash Management Collection Account. The Depository Bank shall have no responsibility or liability for any loss which may result from any investment made pursuant to this Agreement, or for any loss resulting from the sale of any such investment or from the selection of such investment (including whether any investment made qualified under the definition of “Permitted Cash Management Investment”).

(b) Absent written instructions from the Lender, the Depository Bank shall hold the amounts in the Cash Management Collection Account under this Agreement in cash. In the event that at any time amounts are funded into the Cash Management Collection Account after 1:00 p.m. (New York City time) on any Business Day, the Depository Bank shall have no obligation to invest or reinvest such amounts until the next Business Day.

(c) If and when cash is required for the making of any withdrawal or transfer in accordance with this Agreement, the Lender shall cause Permitted Cash Management Investments to be sold or otherwise liquidated into cash (without regard to maturity) as and to the extent necessary in order to make such withdrawals or transfers. The Depository Bank shall comply with any instruction from the Lender with respect to any such liquidation of Permitted Cash Management Investments. In the event any such investments are so redeemed prior to the maturity thereof, neither the Depository Bank nor the Administrative Agent shall be liable for any loss or penalties relating thereto.

(d) For purposes of determining responsibility for any income Taxes payable on account of any income or gain on any Permitted Cash Management Investment hereunder, such income or gain shall be for the account of the applicable Loan Party. The Loan Parties shall provide Depository Bank with certified tax identification numbers by furnishing appropriate Internal Revenue Service Form W-8 or W-9, as applicable, and such other forms and documents that Depository Bank may reasonably request (and the Depository Bank’s obligation to invest amounts in the Depositary Accounts is conditioned upon receipt thereof by the Depository Bank from the applicable Loan Party). Such forms shall, to the extent necessary, be updated as required by the Internal Revenue Service and provided to the Depository Bank. The Depository Bank shall be entitled to rely on an opinion of legal counsel (which may be counsel to any Loan Parties or the Lender) in connection with the reporting of any earnings with

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respect hereto. In no event shall the Depository Bank be liable or responsible for the payment of taxes on any income earned on the Depositary Accounts or for income reporting with respect to income earned on the Depositary Accounts or any other tax reporting. The Loan Parties shall pay or reimburse the Depository Bank upon request for any transfer taxes or other taxes relating to the Depositary Accounts actually incurred in connection herewith and the Loan Parties and the Lender shall indemnify and hold harmless the Depository Bank in respect of any amounts that the Depository Bank has paid in the way of such taxes.

(e) The Loan Parties and the Lender waive the right to receive brokerage confirmations of security transactions effected by the Depository Bank as they occur, to the extent permitted by law. The Loan Parties, the Lender and the Administrative Agent further acknowledge that trade confirmations for securities transactions effected by the Depository Bank in accordance with this Section 6.19.7 will be available upon request and at no additional cost and other trade confirmations may be obtained from the applicable broker.

6.19.8 Deposit of Excess Operating Expense and Capital Expenditure Allocations . On a monthly basis, the Loan Parties shall deposit or cause to be deposited into the Cash Management Collection Account (a) any amount deposited into the SJCC Operating Account pursuant to Section 6.19.3(a) in excess of actual operating expenses for the applicable month, and (b) any amount deposited into the SJCC Operating Account pursuant to Section 6.19.3(c) in excess of actual Capital Expenditures for the applicable month, and such excess amounts shall be applied in accordance with this Section 6.19.

Section 6.20 Special Purpose Entity . The Loan Parties shall at all times comply with the requirements set forth on Exhibit G (SPE Requirements).

ARTICLE 7 NEGATIVE COVENANTS

Each of the Loan Parties hereby covenants and agrees that on the Closing Date and thereafter until the full and final payment and satisfaction of all of the Obligations, no Loan Party shall, nor shall it permit any Subsidiary to, directly or indirectly:

Section 7.01 Liens . Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for the following to the extent (other than with respect to clause (a)) the incurrence, assumption or existence thereof is in compliance with the requirements of Section 6.20 (the “ Permitted Liens ”):

(a) Liens pursuant to any Loan Document;

(b) Liens existing on the Closing Date and listed on Schedule 7.01 attached to the Disclosure Letter and any renewals or extensions thereof, provided that (i) the property covered thereby is not changed, (ii) the amount secured or benefited thereby is not increased except as contemplated by Section 7.02 ( b), (iii) the direct or any contingent obligor with respect thereto is not changed, and (iv) any renewal or extension of the obligations secured or benefited thereby is permitted by Section 7.02 ( b);

(c) Liens for taxes not yet due or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;

(d) Statutory Liens such as carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business which are not overdue for a

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period of more than thirty (30) days or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person; provided that a reserve or other appropriate provision shall have been made therefor;

(e) pledges or deposits in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other social security legislation, other than any Lien imposed by ERISA;

(f) deposits to secure the performance of bids, tenders, trade contracts and leases (other than Indebtedness), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;

(g) easements, rights-of-way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person;

(h) Liens securing judgments for the payment of money (or appeal or other surety bonds relating to such judgments) not constituting an Event of Default under Section 8.01(h);

(i) Liens securing Indebtedness permitted under Section 7.02(c); provided that (i) such Liens do not at any time encumber any property other than the property financed by such Indebtedness and (ii) such Liens only secure the payment of Indebtedness arising thereunder;

(j) bankers’ Liens, rights of setoff and other similar Liens existing solely with respect to cash and Cash Equivalents on deposit in one or more accounts maintained by the Borrower or any of its Subsidiaries in compliance with the requirements of this Agreement, in each case in the ordinary course of business in favor of the bank or banks with which such accounts are maintained, securing solely the customary amounts owing to such bank with respect to cash management and operating account arrangements; provided, that in no case shall any such Liens secure (either directly or indirectly) the repayment of any Indebtedness;

(k) (i) Any interest or title of a lessor, licensor or sublessor under any lease, license or sublease entered into by SJCC or SJTC in the ordinary course of business and covering only the assets so leased, licensed or subleased or (ii) to the extent constituting a Lien, any licenses, sublicenses, leases or subleases granted by SJCC or SJTC to other Persons not materially interfering with the conduct of the business of the Loan Parties taken as a whole;

(l) Liens of a collection bank arising under Section 4-210 of the UCC on items in the course of collection; or

(m) Any zoning, building or similar laws or rights reserved to or vested in any Governmental Authority.

(n) Statutory and common law landlords’ liens under leases to which any Loan Party is a party;

(o) Permitted Encumbrances;

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(p) Liens granted in the ordinary course of business on the unearned portion of insurance premiums securing the financing of insurance premiums;

(q) Liens in respect of royalty, production payment and other obligations under coal leases and similar agreements entered into by SJCC or SJTC in the ordinary course of business and to the extent such Liens do not secure any obligation for borrowed money;

(r) Liens in respect of supply, sales, surface use and other operational agreements entered into consistent with normal practices in the mining industry, in each case to the extent such agreements are entered into in the ordinary course of business and such Liens do not secure any obligation for borrowed money;

(s) licenses of intellectual property granted by the Loan Parties in the ordinary course of business and not interfering in any material respect with the ordinary course of business of the Loan Parties; or

(t) Liens granted, or to be granted, by SJCC pursuant to the Reclamation Bond Agreement dated as of January 31, 2016 among PNM Resources, Westmoreland, SJCC and Zurich American Insurance Company.

Section 7.02 Indebtedness . Create, incur, assume or suffer to exist any Indebtedness, Synthetic Lease Obligations or Synthetic Debt, except any of the following to the extent (other than with respect to clause (a)) the incurrence, assumption or existence thereof is in compliance with the requirements of Section 6.20:

(a) Indebtedness under the Loan Documents;

(b) Indebtedness of SJCC or SJTC outstanding on the date hereof and listed on Schedule 7.02 attached to the Disclosure Letter and any refinancings, refundings, renewals or extensions thereof; provided that the amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing and by an amount equal to any existing commitments unutilized thereunder and the direct or any contingent obligor with respect thereto is not changed, as a result of or in connection with such refinancing, refunding, renewal or extension; or

(c) Indebtedness of SJCC or SJTC in respect of Capitalized Leases and purchase money obligations for fixed or capital assets within the limitations set forth in Section 7.01(i); provided , however , that the aggregate amount of all such Indebtedness at any one time outstanding shall not exceed the amount shown on the Operating Budget for such Indebtedness, plus 5% thereof.

(d) Indebtedness for the repayment of loans made by Westmoreland or any of its Subsidiaries to one or more of the Loan Parties after the Closing Date, provided that such Indebtedness is unsecured and is subordinated to the Obligations upon terms satisfactory to the Lender, including a deferral of any payment obligations and forbearance from any enforcement action until full payment and satisfaction of the Obligations;

(e) Indebtedness in respect of overdraft facilities, employee credit card programs, netting services, automated clearinghouse arrangements and other cash management and similar arrangements in the ordinary course of business;

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(f) Indebtedness incurred, or to be incurred, by SJCC pursuant to the Reclamation Bond Agreement dated as of January 31, 2016 among PNM Resources, Westmoreland, SJCC and Zurich American Insurance Company; or

(g) so long as no Default or Event of Default then exists or would result therefrom, additional Indebtedness incurred by SJCC or SJTC in an aggregate principal amount not to exceed $500,000 at any one time outstanding, which Indebtedness shall be unsecured unless otherwise permitted under Section 7.01.

Section 7.03 Investments . Create or acquire any Subsidiary or make or hold any Investments, except:

(a) Investments held by the Borrower and its Subsidiaries in the form of cash or Cash Equivalents;

(b) (i) Investments by Holdings, the Borrower and its Subsidiaries in their respective Subsidiaries outstanding on the date hereof, and (ii) additional Investments by Holdings, the Borrower and its Subsidiaries in Loan Parties;

(c) Investments of SJCC or SJTC consisting of extensions of credit in the nature of accounts receivable arising from the grant of trade credit in the ordinary course of business;

(d) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and customers and in good faith settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; or

(e) Loans and advances by the Loan Parties to their officers, directors and employees for moving, relocation and travel expenses and other similar expenditures, in each case in the ordinary course of business in an aggregate amount not to exceed $250,000 at any time for all such officers, directors and employees (determined without regard to any write-downs or write-offs of such loans and advances);

Section 7.04 Fundamental Changes . Merge, dissolve, liquidate, consolidate with or into another Person, or Dispose of (whether in one transaction or in a series of transactions) all or any material part of its assets (whether now owned or hereafter acquired) to or in favor of any Person.

Section 7.05 Dispositions . Make any Disposition or enter into any agreement to make any Disposition, except:

(a) Permitted Transfers;

(b) Dispositions of obsolete or worn out property, whether now owned or hereafter acquired, in the ordinary course of business;

(c) Dispositions of property to the extent that (i) such property is exchanged for credit against the purchase price of similar replacement property or (ii) the proceeds of such Disposition are reasonably promptly applied to the purchase price of such replacement property; or

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(d) the Borrower and its Subsidiaries may, in the ordinary course of their business, sell assets that are no longer necessary or useful in the operation of the business of the Borrower and its Subsidiaries so long as (i) no Default or Event of Default then exists or would result therefrom, (ii) the conveyance, sale, contribution, lease or other disposition of such assets would not reasonably be expected to have a Material Adverse Effect, (iv) Borrower or the respective Subsidiary receives at least fair market value for the assets sold in the Disposition, payable in the form of cash or Cash Equivalents, and (v) the Net Sale Proceeds from Dispositions are deposited and applied as required by Section 6.19 and Section 2.04 .

Section 7.06 Restricted Payments . Declare or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, or issue or sell any Equity Interests, or accept any capital contributions other than from Westmoreland (directly or indirectly through one or more of its Subsidiaries) except that, so long as no Default shall have occurred and be continuing at the time of any action described below or would result therefrom:

(a) each Subsidiary of the Borrower may make Restricted Payments to the Borrower, if the proceeds of such Restricted Payments are applied to payments or prepayments under the Loan Documents or deposits to Deposit Accounts required by Section 6.19; and

(b) the Borrower may make Permitted Tax Distributions.

Section 7.07 Change in Nature of Business . Engage in any line of business other than those lines of business conducted by the SJCC and SJTC on the date hereof or with respect to SJCC and SJTC any business substantially related or incidental thereto.

Section 7.08 Transactions with Affiliates . Except for intercompany transactions expressly permitted under this Agreement, enter into a contract, agreement or transaction with any officer, director, member, manager, guarantor or Affiliate of such Person that is not in the ordinary course of business and on terms and conditions that are intrinsically fair and substantially similar to those that are available on an arm’s length basis with an unrelated third party. The parties acknowledge that transactions made pursuant to and in accordance with the terms and conditions of, the Westmoreland Services Agreement shall not be a violation of this Section 7.08.

Section 7.09 Burdensome Agreements . Enter into, or permit to exist, any Contractual Obligation (except for this Agreement and the other Loan Documents) that (a) encumbers or restricts the ability of any such Person to (i) act as a Loan Party; (ii) make payments to any Loan Party, (iii) pay any Indebtedness or other obligation owed to any Loan Party, (iv) make loans or advances to any Loan Party, (v) create any Lien upon any of their properties or assets, whether now owned or hereafter acquired, (b) requires the grant of any Lien on property for any obligation if a Lien on such property is given as security for the Secured Obligations, or (c) causes the occurrence of a Default or Event of Default or otherwise creates a breach under any Loan Document other than, in the case of clause (a) and (b) above, such encumbrances, restrictions or requirements existing under or by reason of (i) applicable law, (ii) customary provisions restricting subletting or assignment of any lease governing any leasehold interest of SJCC or SJTC, (iii) customary provisions restricting assignment of any licensing agreement (in which SJCC or SJTC is the licensee, (iv) restrictions on the transfer of any asset pending the close of the sale of such asset, if such sale is in compliance with this Agreement, (v) restrictions on the transfer of any asset subject to a Lien permitted by Section 7.01, (vi) customary provisions restricting assignment of any agreement entered into in the ordinary course of business, and (vii) any amendment, restatement, renewal, replacement or refinancing of an agreement referred to above, provided that such restrictions are not

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materially more restrictive, taken as a whole, than those under the agreement being amended, restated, renewed, refinanced or replaced.

Section 7.10 Use of Proceeds . Use the proceeds of Loan, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the FRB) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose.

Section 7.11 Financial Covenants .

7.11.1 Debt Service Coverage Ratio . Permit the Debt Service Coverage Ratio to be less than 1.05 to 1.00, as of the last day of any fiscal year of the Borrower.

7.11.2 Reserve Tail . Permit the Reserve Tail to be less than 15%.

Section 7.12 Capital Expenditures . Make or become legally obligated to make any Capital Expenditure, except for Capital Expenditures in the ordinary course of business not exceeding, in the aggregate for the Borrower and its Subsidiaries during each fiscal year, the amount set forth in the Operating Budget in effect from time to time.

Section 7.13 Amendments of Organization Documents; Fiscal Year; Legal Name, State of Formation; Form of Entity and Accounting Changes .

(a) Amend any of its Organization Documents;

(b) change its fiscal year;

(d) make any change in accounting policies or reporting practices, except as required by GAAP.

Section 7.14 Sale and Leaseback Transactions . Enter into any Sale and Leaseback Transaction.

Section 7.15 Prepayments, Etc. of Indebtedness . Prepay, redeem, purchase, defease or otherwise satisfy or obligate itself to do so prior to the scheduled maturity thereof in any manner (including by the exercise of any right of setoff) any Indebtedness other than the Loan.

Section 7.16 Lease Obligations . Except for (i) leases of the San Juan Property, (ii) leases permitted pursuant to Section 7.02(c), or (iii) any other leases in effect on the date hereof, and any extensions, renewals or replacements thereof on substantially similar terms, create, incur, assume or suffer to exist any obligations as lessee for the rental or hire of real or personal property of any kind under leases or agreements to lease or rent.

Section 7.17 Sanctions . Directly or indirectly, use the Loan or the proceeds of the Loan, or lend, contribute or otherwise make available the Loan or the proceeds of the Loan to any Person, to fund any activities of or business with any Person, or in any Designated Jurisdiction, that, at the time of such

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funding, is the subject of Sanctions, or in any other manner that will result in a violation by any Person of Sanctions.

Section 7.18 Anti Corruption Laws . Directly or indirectly, use the Loan or the proceeds of the Loan for any purpose which would breach the United States Foreign Corrupt Practices Act of 1977 and other similar anti-corruption legislation in other jurisdictions.

Section 7.19 Material Contracts . Make any material modification to the Westmoreland Service Agreement or any other Material Contract that is adverse to the applicable Loan Party without the Lender’s written consent thereto.

Section 7.20 Swap Contracts . Enter into any Swap Contract, without the Lender’s prior written consent.

ARTICLE 8 EVENTS OF DEFAULT AND REMEDIES

Section 8.01 Events of Default .

Any of the following shall constitute an Event of Default:

(a) Non-Payment . The Borrower or any other Loan Party fails to pay (i) when and as required to be paid herein, any amount of principal of the Loan, or (ii) within five (5) days after the same becomes due, any interest on the Loan, or any fee due hereunder, or (iii) within ten (10) days after the same becomes due, any other amount payable hereunder or under any other Loan Document; or

(b) Specific Covenant . Any Loan Party fails to perform or comply with any term, covenant or agreement contained in Section 7.06; or

(c) Other Defaults . Any Loan Party fails to perform or observe any other covenant or agreement (not specified in S ection 8.01(a) or (b) above) contained in any Loan Document on its part to be performed or observed and such failure continues for thirty (30) days after the earlier to occur of (i) the receipt by the Borrower of notice thereof from the Lender or (ii) a Responsible Officer becoming aware of such failure; or

(d) Representations and Warranties . Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of the Borrower or any other Loan Party herein, in any other Loan Document, or in any document delivered in connection herewith or therewith shall be materially incorrect or materially misleading when made or deemed made; or

(e) Cross-Default . Any Loan Party or any Subsidiary thereof (i) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness or Guarantee (other than Indebtedness hereunder which is covered by another provision of this Section 8.01) having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than the Threshold Amount, or (ii) fails to observe or perform any other agreement or condition relating to any such Indebtedness or Guarantee or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness or the beneficiary or beneficiaries of such Guarantee (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness

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to be demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity, or such Guarantee to become payable or cash collateral in respect thereof to be demanded; or

(f) Insolvency Proceedings, Etc . Any Loan Party or any Subsidiary thereof institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for sixty (60) calendar days; or any proceeding under any Debtor Relief Law relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for sixty (60) calendar days, or an order for relief is entered in any such proceeding; or

(g) Inability to Pay Debts; Attachment . (i) Any Loan Party or any Subsidiary thereof becomes unable or admits in writing its inability or fails generally to pay its debts as they become due, or (ii) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any such Person and is not released, vacated or fully bonded within thirty (30) days after its issue or levy.

(h) Judgments . There is entered against any Loan Party or any Subsidiary thereof (i) one or more final judgments or orders for the payment of money in an aggregate amount (as to all such judgments and orders) exceeding the Threshold Amount (to the extent not covered by independent third-party insurance as to which the insurer is rated at least “A” by A.M. Best Company, has been notified of the potential claim and does not dispute coverage), or (ii) any one or more non-monetary final judgments that have, or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and, in either case, (A) enforcement proceedings are commenced by any creditor upon such judgment or order, or (B) there is a period of sixty (60) consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect; or

(i) ERISA . (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of any Loan Party under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of the Threshold Amount, or (ii) the Borrower or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of the Threshold Amount; or

(j) Default Under Loan Document; Invalidity of Loan Documents . (i) Any Loan Party fails to perform or observe any covenant or agreement contained in any other Loan Document or any default or event of default occurs under any other Loan Document and is not cured within any grace or cure period applicable pursuant to such Loan Document; or (ii) any provision of any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect; or any Loan Party or any other Person contests in any manner the validity or enforceability of any provision of any Loan Document; or any Loan Party denies that it has any or further liability or obligation under any provision of any Loan Document, or purports to revoke, terminate or rescind any provision of any Loan Document; or

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(k) Collateral Documents . Any Collateral Document after delivery thereof pursuant to the terms of the Loan Documents shall for any reason cease to create a valid and perfected first priority Lien (subject to Permitted Liens) on the Collateral purported to be covered thereby, or any Loan Party shall assert the invalidity of such Liens; or

(l) Change of Control . There occurs any Change of Control; or

(m) Uninsured Loss . Any uninsured damage to or loss, theft or destruction of any assets of the Loan Parties or any of their Subsidiaries shall occur that is in excess of the Threshold Amount (excluding customary deductible thresholds established in accordance with historical past practices); or

(n) Default Under Material Contract . There occurs any default by any Loan Party under any Material Contract that remains uncured during any applicable grace period and that would reasonably be expected to have a Material Adverse Effect; or

(o) Projected Breach . Any projected calculation of the covenants set forth in Section 7.11 hereof included as part of the financial projections required by Section 6.01(d) to be submitted to the Lender shall indicate a breach of any such covenant or other covenant or obligation under this Agreement as of any applicable calculation date to occur during the period covered by the financial projections, and within thirty (30) days after the delivery of such financial projections, has not delivered to the Lender revised financial projections that indicate that the Borrower will not breach any such covenant, together with a description of action to be taken by the Loan Parties to avoid the breach indicated by the financial projections submitted in the first instance.

If a Default shall have occurred under the Loan Documents, then such Default will continue to exist until it either is cured (to the extent specifically permitted) in accordance with the Loan Documents or is otherwise expressly waived by Lender as determined in accordance with Section 11.01; and once an Event of Default occurs under the Loan Documents, then such Event of Default will continue t o exist until it is expressly waived by the Lender, as required hereunder in Section 11.01.

Section 8.02 Remedies upon Event of Default .

If any Event of Default occurs and is continuing, the Lender may take any or all of the following actions:

(a) declare the entire unpaid principal amount of the Loan, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; and

(b) exercise all rights and remedies available to it under the Loan Documents or applicable Law or equity;

provided , however , that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States, the entire unpaid principal amount of the Loan and all interest and other amounts as aforesaid shall automatically become due and payable, in each case without further act of the Lender.

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Section 8.03 Application of Funds . After the exercise of remedies provided for in Section 8.02 (or after the Loan has automatically become immediately due and payable as set forth in the proviso to Section 8.02) or if at any time insufficient funds are received by and available to the Lender to pay fully all Secured Obligations then due hereunder, any amounts received on account of the Secured Obligations shall be allocated by the Lender among itself and the other Secured Parties on a pro rata basis, determined by the respective amounts then due and payable hereunder to each of the Secured Parties, including, their respective amounts of interest, principal, fees, charges, reimbursements or other amounts. The Lender will retain its pro rata share and distribute to the other Secured Parties their respective pro rata shares, and each Secured Party will apply the amounts so retained (in the case of the Lender) or received (in the case of the other Secured Parties) to the amounts then due and payable to such Secured Party in such order or proportion as it shall determine in its sole discretion, subject to the requirements of applicable law.

ARTICLE 9 CONTINUING GUARANTY

Section 9.01 Guaranty . Each Guarantor hereby absolutely and unconditionally, jointly and severally guarantees, as primary obligor and as a guaranty of payment and performance and not merely as a guaranty of collection, prompt payment when due, whether at stated maturity, by required prepayment, upon acceleration, demand or otherwise, and at all times thereafter, of any and all of the Obligations, whether for principal, interest, premiums, fees, indemnities, damages, costs, expenses or otherwise, of the Borrower to the Lender, the Administrative Agent and the Depository Bank arising hereunder or under any other Loan Document (including all renewals, extensions, amendments, refinancings and other modifications thereof and all costs, reasonable attorneys’ fees and expenses incurred by the Lender, the Administrative Agent or the Depository Bank in connection with the collection or enforcement thereof) (for each Guarantor, subject to the proviso in this sentence, its “ Guaranteed Obligations ”); provided that the liability of each Guarantor individually with respect to this Guaranty shall be limited to an aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance under Section 548 of the Bankruptcy Code of the United States or any comparable provisions of any applicable state law. The Lender’s books and records showing the amount of the Obligations shall be admissible in evidence in any action or proceeding, and shall be binding upon each Guarantor, and conclusive for the purpose of establishing the amount of the Secured Obligations. This Guaranty shall not be affected by the genuineness, validity, regularity or enforceability of the Secured Obligations or any instrument or agreement evidencing any Secured Obligations, or by the existence, validity, enforceability, perfection, non-perfection or extent of any collateral therefor, or by any fact or circumstance relating to the Secured Obligations which might otherwise constitute a defense to the obligations of the Guarantors, or any of them, under this Guaranty other than a defense that the Guaranteed Obligations have been paid in full, and each Guarantor hereby irrevocably waives any defenses it may now have or hereafter acquire in any way relating to any or all of the foregoing.

Section 9.02 Rights of Lender . Each Guarantor consents and agrees that the Lender may, at any time and from time to time, without notice or demand, and without affecting the enforceability or continuing effectiveness hereof: (a) amend, extend, renew, compromise, discharge, accelerate or otherwise change the time for payment or the terms of the Secured Obligations or any part thereof; (b) take, hold, exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any security for the payment of this Guaranty or any Secured Obligations; (c) apply such security and direct the order or manner of sale thereof as the Lender in its sole discretion may determine; and (d) release or substitute one or more of any endorsers or other guarantors of any of the Secured Obligations. Without limiting the generality of the foregoing, each Guarantor consents to the taking of, or failure to take, any action which might in any manner or to any extent vary the risks of such Guarantor under this Guaranty or which, but for this provision, might operate as a discharge of such Guarantor.

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Section 9.03 Certain Waivers . Each Guarantor waives (a) any defense arising by reason of any disability or other defense of the Borrower or any other guarantor, or the cessation from any cause whatsoever (including any act or omission of the Lender) of the liability of the Borrower or any other Loan Party, other than a defense that the Guaranteed Obligations have been paid in full; (b) any defense based on any claim that such Guarantor’s obligations exceed or are more burdensome than those of the Borrower or any other Loan Party; (c) the benefit of any statute of limitations affecting any Guarantor’s liability hereunder; (d) any right to proceed against the Borrower or any other Loan Party, proceed against or exhaust any security for the Secured Obligations, or pursue any other remedy in the power of the Lender whatsoever; (e) any benefit of and any right to participate in any security now or hereafter held by the Lender; and (f) to the fullest extent permitted by law, any and all other defenses or benefits that may be derived from or afforded by applicable Law limiting the liability of or exonerating guarantors or sureties. Each Guarantor expressly waives all setoffs and counterclaims and all presentments, demands for payment or performance, notices of nonpayment or nonperformance, protests, notices of protest, notices of dishonor and all other notices or demands of any kind or nature whatsoever with respect to the Secured Obligations, and all notices of acceptance of this Guaranty or of the existence, creation or incurrence of new or additional Secured Obligations.

Section 9.04 Obligations Independent . The obligations of each Guarantor hereunder are those of primary obligor, and not merely as surety, and are independent of the Secured Obligations and the obligations of any other guarantor, and a separate action may be brought against each Guarantor to enforce this Guaranty whether or not the Borrower or any other person or entity is joined as a party.

Section 9.05 Subrogation . No Guarantor shall exercise any right of subrogation, contribution, indemnity, reimbursement or similar rights with respect to any payments it makes under this Guaranty until all of the Secured Obligations and any amounts payable under this Guaranty and all of the other Obligations have been indefeasibly paid and performed in full. If any amounts are paid to a Guarantor in violation of the foregoing limitation, then such amounts shall be held in trust for the benefit of the Lender, for the benefit of the Secured Parties, and shall forthwith be paid to the Lender to reduce the amount of the Secured Obligations, whether matured or unmatured.

Section 9.06 Termination; Reinstatement . This Guaranty is a continuing and irrevocable guaranty of all Secured Obligations now or hereafter existing and shall remain in full force and effect until all Obligations shall have been indefeasibly paid and satisfied in full. Notwithstanding the foregoing, this Guaranty shall continue in full force and effect or be revived, as the case may be, if any payment by or on behalf of the Borrower or a Guarantor is made, or the Lender, the Administrative Agent or the Depository Bank exercises its right of setoff, in respect of the Secured Obligations and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Laws or otherwise, all as if such payment had not been made or such setoff had not occurred and whether or not the Lender is in possession of or has released this Guaranty and regardless of any prior revocation, rescission, termination or reduction. The obligations of each Guarantor under this paragraph shall survive termination of this Guaranty.

Section 9.07 Stay of Acceleration . If acceleration of the time for payment of any of the Secured Obligations is stayed, in connection with any case commenced by or against a Guarantor or the Borrower under any Debtor Relief Laws, or otherwise, all such amounts shall nonetheless be payable by each Guarantor, jointly and severally, immediately upon demand by the Lender.

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Section 9.08 Condition of Borrower . Each Guarantor acknowledges and agrees that it has the sole responsibility for, and has adequate means of, obtaining from the Borrower and any other guarantor such information concerning the financial condition, business and operations of the Borrower and any such other guarantor as such Guarantor requires, and that none of the Lender, the Administrative Agent or the Depository Bank has any duty, and such Guarantor is not relying on the Lender, the Administrative Agent or the Depository Bank at any time, to disclose to it any information relating to the business, operations or financial condition of the Borrower or any other guarantor (each Guarantor waiving any duty on the part of the Lender, the Administrative Agent or the Depository Bank to disclose such information and any defense relating to the failure to provide the same).

Section 9.09 Appointment of Borrower . Each of the Loan Parties hereby appoints the Borrower to act as its agent for all purposes of this Agreement, the other Loan Documents and all other documents and electronic platforms entered into in connection herewith and agrees that (a) the Borrower may execute such documents and provide such authorizations on behalf of such Loan Parties as the Borrower deems appropriate in its sole discretion and each Loan Party shall be obligated by all of the terms of any such document and/or authorization executed on its behalf, (b) any notice or communication delivered by the Lender, the Administrative Agent or the Depository Bank to the Borrower shall be deemed delivered to each Loan Party and (c) each of the Lender, the Administrative Agent and the Depository Bank may accept, and be permitted to rely on, any document, authorization, instrument or agreement executed by the Borrower on behalf of each of the Loan Parties.

Section 9.10 Right of Contribution . The Guarantors agree among themselves that, in connection with payments made hereunder, each Guarantor shall have contribution rights against the other Guarantors as permitted under applicable Law.

ARTICLE 10 THE ADMINISTRATIVE AGENT

Section 10.01 Appointment, Powers and Immunities . The Lender appoints the Administrative Agent and authorizes the Administrative Agent to act as its agent hereunder, with such powers as are specifically delegated to the Administrative Agent by the terms of this Agreement or otherwise granted to the Administrative Agent by any other Loan Document or other agreement or arrangement between the Lender and the Administrative Agent, together with such other powers as are reasonably incidental thereto.

The Administrative Agent (which term, as used in this sentence, in Section 10.02 (Reliance by Administrative Agent), in Section 10.04 (Subagents; Notice of Assignment by Lender), in Section 10.05 (Indemnification), in the first sentence of Section 10.06 (Non-Reliance on Administrative Agent), in Section 10.07 (Failure to Act) and in Section 11.04 hereof shall include reference to (i) its Affiliates, (ii) the Depository Bank and (iii) its own, its Affiliates’ and the Depository Bank’s officers, directors, employees, representatives, attorneys and agents) shall not: (A) have any duties or responsibilities except those expressly set forth for the Administrative Agent in this Agreement and in any other document to which the Administrative Agent is or becomes a party, or by reason of this Agreement or any such document be a trustee for the Lender or subject to any fiduciary or other implied duties, regardless of whether an Event of Default has occurred and is continuing; (B) be responsible to the Lender for any recitals, statements, representations or warranties contained in this Agreement, or in any other document to which the Administrative Agent is or becomes a party, or in any certificate or other document referred to or provided for in, or received by it under, this Agreement or any such document, or for the due execution, legality, value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other document referred to or provided for herein or therein or for any failure by the Borrower or any other Person to perform any of its obligations hereunder or thereunder, and makes no

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representations or warranties to the Lender or any Loan Party; (C) except as expressly set forth for the Administrative Agent in this Agreement, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to any Loan Party, any Subsidiary or any of their respective Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity; (D) be required to initiate or conduct any litigation or collection proceedings hereunder; (E) be liable or responsible for any action taken, suffered or omitted to be taken by it hereunder or under any other document or instrument referred to or provided for herein or in connection herewith, except for its own gross negligence or willful misconduct as finally determined by the non-appealable judgment of a court of competent jurisdiction; and (F) shall not be required to take any action which is contrary to this Agreement or any other document to which it is or becomes a party.

Section 10.02 Reliance by Administrative Agent . The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any judicial order or judgment, certification (including, without limitation, any certificate of a Responsible Officer), instruction, notice or other written communication (including any thereof by electronic message, Internet, intranet, website posting, telex, telegram or cable) reasonably believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons (without being required to determine the authenticity thereof or the correctness of any fact stated therein or the propriety or validity of service thereof), and upon advice and statements of legal counsel, independent accountants and other experts selected by the Administrative Agent. To the extent a certificate of a Responsible Officer or opinion of counsel is required or permitted under this Agreement or any other Loan Document to be delivered to the Administrative Agent in respect of any matter, the Administrative Agent may rely conclusively on a certificate of a Responsible Officer or opinion of counsel as to such matter and such certificate of a Responsible Officer or opinion of counsel shall be full warranty and protection to the Administrative Agent for any action taken, suffered or omitted by it under the provisions of this Agreement and the other Loan Documents. The Administrative Agent may also rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. As to any matters not expressly provided for by this Agreement or any other document to which the Administrative Agent is intended to be a party, the Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions given by the Lender, and shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Lender as it deems appropriate and until such instructions are received, the Administrative Agent shall act, or refrain from acting, as it deems advisable in its sole discretion.

Without limiting the foregoing, the Administrative Agent shall be entitled to the advice of counsel, independent accountants and other professionals concerning all matters of trust and its duty hereunder, but the Administrative Agent shall not be answerable or responsible for the professional malpractice of any attorney-at-law or certified public accountant or for the acts or omissions of any other professional in connection with the rendering of professional advice in accordance with the terms of this Agreement.

Section 10.03 Defaults . The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of an Event of Default (other than the non-payment of principal of or interest on the Loan) unless the Administrative Agent has received written notice from the Lender or the Borrower specifying such Event of Default and stating that such notice is a “Notice of Default”. In the event that the Administrative Agent receives such a notice of the occurrence of any Event of Default, the Administrative Agent shall give prompt notice thereof to the Lender and the Borrower (and shall give the Lender prompt notice of each such non-payment). The Administrative Agent shall (subject to Section 10.07 (Failure to Act)) take such action with respect to such Event of Default as shall be directed by the

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Lender, provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default as it shall deem advisable in the best interest of the Lender except to the extent that this Agreement expressly requires that such action be taken, or not be taken, only with the consent or upon the authorization of the Lender.

Section 10.04 Subagents; Notice of Assignment by Lender . The Administrative Agent may employ agents and attorneys-in-fact, and the Administrative Agent shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. The Administrative Agent may deem and treat the Lender named herein as the Lender hereunder and the holder of the Note for all purposes hereof unless and until a written notice of assignment or transfer thereof shall have been filed with the Administrative Agent.

Section 10.05 Indemnification . The Lender agrees to indemnify the Administrative Agent and each of its shareholders, subsidiaries, affiliates, directors, officers, employees and agents (to the extent not reimbursed under Section 11.04, but without limiting the obligations of the Borrower under said Section 11.04), for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, fines, claims, demands, settlements, suits, costs, expenses or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against (including by the Lender) the Administrative Agent, arising out of or by reason of any investigation in or in any way relating to or arising out of this Agreement or any other documents contemplated by or referred to herein or the transactions contemplated hereby or thereby (including, without limitation, the costs and expenses that the Loan Parties are obligated to pay under Section 11.04 or the enforcement of any of the terms hereof or thereof or of any such other documents, provided that the Lender shall not be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct (as finally determined by a non-appealable judgment of a court of competent jurisdiction) of the party to be indemnified. The obligations of the Lender under this Section 10.05 shall survive the termination of this Agreement, the repayment of the Loan or the earlier resignation or removal of the Administrative Agent.

Section 10.06 Non-Reliance on Administrative Agent . The Lender agrees that it has, independently and without reliance on the Administrative Agent, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and its own decision to enter into this Agreement and that it will, independently and without reliance upon the Administrative Agent, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement. The Administrative Agent shall not be required to keep itself informed as to the performance or observance by the Borrower of this Agreement or any other document referred to or provided for herein or to inspect the properties or books of the Borrower. The Administrative Agent shall give prompt notice to the Lender of each notice or request required or permitted to be given to the Administrative Agent by the Borrower pursuant to the terms of this Agreement (unless concurrently delivered to the Lender by the Borrower). The Administrative Agent will deliver to the Lender each document or instrument received by the Administrative Agent for the Lender’s account and copies of all other communications received by the Administrative Agent from the Borrower for delivery to the Lender by the Administrative Agent in accordance with the terms of this Agreement. Except for notices, reports and other documents and information expressly required to be furnished to the Lender by the Administrative Agent hereunder (as to which the Administrative Agent only shall have the duty to forward what it has received), the Administrative Agent shall not have any duty or responsibility to provide the Lender with any credit or other information concerning the affairs, financial condition or business of the Borrower or any of its Affiliates that may come into the Administrative Agent’s possession or that of any of the Administrative Agent’s Affiliates. The Administrative Agent shall not have any duty to ascertain or to inquire as to the

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performance or observance of any of the terms, covenants or conditions of this Agreement or any other Loan Document on the part of any Loan Party or to inspect the property (including the books and records) of any Loan Party. In addition, the Administrative Agent and its Affiliates may be engaged in a broad range of transactions that involve interests that differ from, and may conflict with, those of the Borrower and its Affiliates, and neither the Administrative Agent nor any of its Affiliates has any obligation to disclose any such interest by virtue of any advisory agency or fiduciary relationship or otherwise.

Section 10.07 Failure to Act . Except for action expressly required of the Administrative Agent hereunder, the Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder or under any other Loan Document unless it shall receive further assurances to its satisfaction from the Lender of its indemnification obligations under Section 10.05 (Indemnification) against any and all liability and expense that may be incurred by the Administrative Agent by reason of taking or continuing to take any such action. The Administrative Agent shall be entitled to interest (calculated on a per annum basis) on all amounts advanced by it hereunder in its discretion at the Federal Funds Rate. The Administrative Agent shall at any time be entitled to cease taking any action if it no longer deems any indemnity or undertaking from the Lender to be sufficient.

Section 10.08 Resignation or Removal of Administrative Agent . The Administrative Agent may resign at any time by giving notice thereof to the Lender and the Borrower and the Lender may remove the Administrative Agent. Upon any such resignation or removal, the Lender shall have the right to appoint a successor Administrative Agent, and if no such successor Administrative Agent shall have been so appointed and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent’s giving of notice of resignation or the removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lender, appoint a successor Administrative Agent, that shall be a bank which has an office in New York, New York or other location approved by the Lender and which has a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent’s resignation or removal hereunder as Administrative Agent, the provisions of this Article 10 (The Administrative Agent) 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 Administrative Agent hereunder.

Section 10.09 Notices . The Administrative Agent agrees to promptly furnish to the Lender a copy of each written communication (including financial information and project reports) received by it from the Borrower expressly relating to, and any amendment or waiver of any of the provisions of, this Agreement and the transactions contemplated hereby. In addition, the Administrative Agent agrees to promptly advise the Lender of any material action taken, or any action proposed by the Lender to be taken that is not taken, by Administrative Agent.

ARTICLE 11 MISCELLANEOUS

Section 11.01 Amendments, Etc . No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by the Borrower or any other Loan Party therefrom, shall be effective unless in writing signed by the Lender (and (i) the Administrative Agent if such amendment, waiver or consent affects the obligations, rights, or remedies of the Administrative Agent and (ii) the Depository Bank if such amendment, waiver or consent affects the obligations, rights, or remedies of the Depository Bank) and the Borrower or the applicable Loan Party, as the case may be, and each such waiver or consent shall be effective only in the specific instance and for the specific

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purpose for which given. The Borrower will promptly provide the Administrative Agent and the Depository Bank with copies of all amendments and waivers of, and consents to departure from, any provisions of the Loan Documents.

Section 11.02 Notices; Effectiveness; Electronic Communications .

(a) Notices Generally . Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all 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, return receipt requested, or sent by fax transmission or e-mail transmission, and all notices and other communications (i) expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, and (ii) all other notices shall be given to the address, fax number, e-mail address or telephone number specified for the Borrower, any other Loan Party, the Lender or the Administrative Agent or the Depository Bank on Schedule II attached hereto .

Notices and other communications sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices and other communications sent by fax transmission shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient). Notices and other communications delivered through electronic communications to the extent provided in subsection (b) below shall be effective as provided in such subsection (b).

(b) Electronic Communications . Notices and other communications to the Lender, the Despository Bank and the Administrative Agent hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Lender, the Depository Bank and the Administrative Agent. The Lender or the Borrower may each, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications.

Unless the Lender otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), and (ii) notices and other communications posted to an Internet or intranet website shall be deemed received by the intended recipient upon the sender’s receipt of an acknowledgement by the intended recipient (such as by the “return receipt requested” function, as available, return email address or other written acknowledgement) indicating that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii), if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice, email or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient.

(c) Change of Address, Etc . Each of the Borrower, the Lender, the Depository Bank and the Administrative Agent may change its address, fax number or telephone number or e-mail address for notices and other communications hereunder by notice to the other parties hereto.

(d) Reliance by Lender, Depository Bank and the Administrative Agent . Each of the Lender, the Depository Bank and the Administrative Agent shall be entitled to rely and act upon any

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notices (including, without limitation, telephonic or electronic notices and Notice of Loan Prepayment) purportedly given by or on behalf of any Loan Party even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Loan Parties shall indemnify the Lender, the Administrative Agent and the Depository Bank, and the respective Related Parties of each of them, from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of a Loan Party. All telephonic notices to and other telephonic communications with the Lender, the Depository Bank or the Administrative Agent may be recorded by such Person, and each of the parties hereto hereby consents to such recording.

Section 11.03 No Waiver; Cumulative Remedies; Enforcement . No failure by the Lender, the Depository Bank or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or under any other Loan Document preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided, and provided under each other Loan Document, are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

Section 11.04 Expenses; Indemnity; Damage Waiver .

(a) Costs and Expenses . The Loan Parties shall pay (i) all reasonable out-of-pocket expenses incurred by the Lender and its Affiliates and all reasonable out-of-pocket expenses incurred by the Administrative Agent, the Depository Bank and their respective Affiliates (in each case including the reasonable fees, charges and disbursements of counsel, and also including, in the case of the Lender and its affiliates, the reasonable fees and expenses of financial advisors and due diligence expenses, travel and other reasonable expenses), in connection with the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), and (ii) all out-of-pocket expenses incurred by each of the Administrative Agent, the Depository Bank and the Lender (including the fees, charges and disbursements of any counsel for the Administrative Agent, the Depository Bank or the Lender), and shall pay all fees and time charges for attorneys who may be employees of the Administrative Agent, the Depository Bank or the Lender, in connection with the enforcement or protection of its rights in connection with this Agreement and the other Loan Documents, including its rights under this Section, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of the Loan.

(b) Indemnification by the Loan Parties . The Loan Parties shall indemnify the Lender, the Administrative Agent and the Depository Bank and each of their respective Related Parties (each such Person being called an “ Indemnitee ”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the reasonable fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any Person (including the Borrower or any other Loan Party) arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, or the administration of this Agreement and the other Loan Documents (including in respect of any matters addressed in Article

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3), (ii) the Loan or the use or proposed use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by a Loan Party or any of its Subsidiaries, or any Environmental Liability related in any way to a Loan Party or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any other Loan Party or any of the Borrower’s or such Loan Party’s directors, shareholders or creditors, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by the Borrower or any other Loan Party against an Indemnitee for breach in bad faith of such Indemnitee’s obligations hereunder or under any other Loan Document, if the Borrower or such Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction.

(c) Waiver of Consequential Damages, Etc . To the fullest extent permitted by applicable Law, no party hereto shall assert, and each party hereto hereby waives, and acknowledges that no other Person shall have, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, the Loan or the use of the proceeds thereof. No Indemnitee referred to in subsection (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed to such unintended recipients by such Indemnitee through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.

(d) Payments . Except as specifically provided by Section 2.06(b) with respect to certain amounts payable within sixty (60) days after the Closing Date, all amounts due under this Section shall be payable not later than ten (10) Business Days after demand therefor.

(e) Survival . The agreements in this Section and the indemnity provisions of Section 11.02(d) shall survive the repayment, satisfaction or discharge of all the other Obligations.

Section 11.05 Payments Set Aside . To the extent that any payment by or on behalf of the Borrower is made to the Lender or the Administrative Agent, or the Lender or the Administrative Agent exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred.

Section 11.06 Successors and Assigns . This Agreement is binding on each Loan Party’s, the Administrative Agent’s, the Depository Bank’s and the Lender’s respective successors and assignees. No Loan Party may assign the Loan or the Loan Documents without the Lender’s prior consent. The Lender may not assign the Loan and the Loan Documents without the Borrower’s prior consent, which consent shall not be unreasonably withheld or delayed; provided, however, that if an Event of Default exists at the time of the assignment, no consent of the Borrower shall be required. If the Loan is assigned, the

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purchaser will have the right of set-off against the Borrower. Any assignee of the Lender’s rights under the Loan and the Loan Documents shall have all of such rights so assigned as though such assignee was an original party to such Loan Documents. The Lender may sell participations in the Loan with the Borrower’s prior consent (unless any Event of Default exists, in which case such consent shall not be required), which consent shall not be unreasonably withheld or delayed, provided that (i) the Lender’s obligations under this Agreement shall remain unchanged, (ii) the Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower and the Administrative Agent shall continue to deal solely and directly with the Lender in connection with the Lender’s rights and obligations under this Agreement. The Lender may exchange information about the Loan Parties (including, without limitation, any information regarding any hazardous substances) with actual or potential participants or assignees so long as any such potential participant or assignee agrees in writing to be bound by the confidentiality provisions set forth in Section 11.06.

Section 11.07 Treatment of Certain Information; Confidentiality .

(a) Treatment of Certain Information . The Lender, the Administrative Agent and the Depository Bank agree to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed by Lender, the Administrative Agent or the Depository Bank (i) to their Affiliates and Related Parties (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (ii) to the extent required or requested by any regulatory authority purporting to have jurisdiction over such Person or its Related Parties (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (iii) to the extent required by applicable Laws or regulations or by any subpoena or similar legal process, (iv) to any other party hereto, (v) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (vi) subject to an agreement containing provisions substantially the same as those of this Section, to (A) any assignee of or participant in, or any prospective assignee of or participant in, any of its rights and obligations under this Agreement or (B) any actual or prospective party (or its Related Parties) to any swap, derivative or other transaction under which payments are to be made by reference to any Loan Party and its obligations, this Agreement or payments hereunder, (vii) on a confidential basis to any rating agency in connection with rating any Loan Party or its Subsidiaries or the credit facilities provided hereunder, (viii) with the consent of the Borrower or to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Lender, the Administrative Agent or the Depository Bank or any of its Affiliates on a nonconfidential basis from a source other than the Borrower. For purposes of this Section, “ Information ” means all information received from any Loan Party or any Subsidiary relating to any Loan Party or any Subsidiary or any of their respective businesses, other than any such information that is available to the Lender, the Administrative Agent or the Depository Bank on a nonconfidential basis prior to disclosure by any Loan Party or any Subsidiary, provided that, in the case of information received from any Loan Party or any Subsidiary after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. In addition, the Lender, the Administrative Agent and the Depository Bank may disclose the existence of this Agreement and information about this Agreement to market data collectors, similar service providers to the lending industry and service providers used by the Lender, the Administrative Agent and the Depository Bank in connection with the administration of this Agreement and the other Loan Documents.

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(b) Press Releases . The Loan Parties and their Affiliates agree that they will not in the future issue any press releases or other public disclosure using the name of the Lender, the Administrative Agent, the Depository Bank or their respective Affiliates or referring to this Agreement or any of the Loan Documents without the prior written consent of the Lender and, if the name of the Administrative Agent or the Depository Bank is to be used, the Administrative Agent or the Depository Bank (as the case may be), unless (and only to the extent that) the Loan Parties or such Affiliate is required to do so under law and then, in any event the Loan Parties or such Affiliate will consult with such Person before issuing such press release or other public disclosure.

Section 11.08 Right of Setoff . If an Event of Default shall have occurred and be continuing:

(a) The Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by the Lender or any such Affiliate to or for the credit or the account of the Borrower or any other Loan Party against any and all of the Obligations of the Borrower or such Loan Party now or hereafter existing under this Agreement or any other Loan Document to the Lender or its Affiliates, irrespective of whether or not the Lender or Affiliate shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrower or such Loan Party may be contingent or unmatured, secured or unsecured, or are owed to an Affiliate of the Lender different from the Affiliate holding such deposit or obligated on such indebtedness.

(b) The Administrative Agent is hereby authorized, at any time and from time to time upon the direction of the Lender, to the fullest extent permitted by applicable Law, to apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held (in whatever currency) at any time by the Administrative Agent or any such Affiliate to or for the credit or the account of the Borrower or any other Loan Party against any and all of the Obligations of the Borrower or such Loan Party now or hereafter existing under this Agreement or any other Loan Document to the Lender, the Administrative Agent or their respective Affiliates, irrespective of whether or not the Lender, the Administrative Agent or such Affiliate shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrower or such Loan Party may be contingent or unmatured, secured or unsecured.

(c) The rights of the Lender, the Administrative Agent and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that the Administrative Agent, the Lender or their respective Affiliates may have. The Lender or the Administrative Agent agrees to notify the Borrower promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.

Section 11.09 Interest Rate Limitation . Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the “ Maximum Rate ”). If the Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loan or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged, or received by the Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.

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Section 11.10 Counterparts; Integration; Effectiveness . This Agreement and each of the other Loan Documents may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents, and any separate letter agreements with respect to fees payable to the Lender, constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Lender, the Administrative Agent and the Depository Bank and when the Lender, the Administrative Agent and the Depository Bank shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement or any other Loan Document, or any certificate delivered thereunder, by fax transmission or e-mail transmission (e.g. “pdf” or “tif”) shall be effective as delivery of a manually executed counterpart of this Agreement or such other Loan Document or certificate. Without limiting the foregoing, to the extent a manually executed counterpart is not specifically required to be delivered under the terms of any Loan Document, upon the request of any party, such fax transmission or e-mail transmission shall be promptly followed by such manually executed counterpart.

Section 11.11 Survival of Representations and Warranties . All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Lender, the Administrative Agent and the Depository Bank, regardless of any investigation made by the Lender, the Administrative Agent or the Depository Bank or on behalf of any Person and notwithstanding that the Lender, the Administrative Agent or the Depository Bank may have had notice or knowledge of any Default at the time of disbursement of the Loan, and shall continue in full force until the Maturity Date.

Section 11.12 Severability . If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 11.13 Governing Law; Jurisdiction; Etc .

(a) GOVERNING LAW . THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (EXCEPT, AS TO ANY OTHER LOAN DOCUMENT, AS EXPRESSLY SET FORTH THEREIN) AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (EXCEPT, AS TO ANY OTHER LOAN DOCUMENT, AS EXPRESSLY SET FORTH THEREIN) AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

(b) SUBMISSION TO JURISDICTION . THE BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT IT WILL NOT COMMENCE ANY ACTION, LITIGATION OR PROCEEDING OF ANY KIND OR DESCRIPTION, WHETHER IN LAW OR EQUITY, WHETHER IN CONTRACT OR IN TORT OR OTHERWISE,

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AGAINST THE LENDER, THE ADMINISTRATIVE AGENT, THE DEPOSITORY BANK OR ANY OF THEIR RESPECTIVE RELATED PARTIES IN ANY WAY RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS RELATING HERETO OR THERETO, IN ANY FORUM OTHER THAN THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE JURISDICTION OF SUCH COURTS AND AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION, LITIGATION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION, LITIGATION 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 OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST THE BORROWER OR ANY OTHER LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.

(c) WAIVER OF VENUE . THE BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (b) OF THIS SECTION. THE BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

(d) SERVICE OF PROCESS . EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 11.02. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.

Section 11.14 Waiver of Jury Trial .

EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (a) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON 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 BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

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Section 11.15 Subordination . Each Loan Party (a “ Subordinating Loan Party ”) hereby subordinates the payment of all obligations and indebtedness of any other Loan Party owing to it, whether now existing or hereafter arising, including but not limited to any obligation of any such other Loan Party to the Subordinating Loan Party as subrogee of the Lender or resulting from such Subordinating Loan Party’s performance under this Agreement, to the indefeasible payment in full in cash of all Secured Obligations. If the Lender so requests, any such obligation or indebtedness of any such other Loan Party to the Subordinating Loan Party shall be enforced and performance received by the Subordinating Loan Party as trustee for the Lender and the proceeds thereof shall be paid over to the Lender on account of the Secured Obligations, but without reducing or affecting in any manner the liability of the Subordinating Loan Party under this Agreement.

Section 11.16 No Advisory or Fiduciary Responsibility . In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), the Borrower and each other Loan Party acknowledges and agrees, and acknowledges its Affiliates’ understanding, that: (a) (i) the services regarding this Agreement provided by the Lender, the Administrative Agent, the Depository Bank, and any of their respective Affiliates are arm’s-length commercial transactions between the Borrower, each other Loan Party and their respective Affiliates, on the one hand, and the Lender, the Administrative Agent or the Depository Bank and their respective Affiliates, on the other hand, (ii) each of the Borrower and the other Loan Parties has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (iii) the Borrower and each other Loan Party is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (b) (i) the Lender, the Administrative Agent and the Depository Bank and their respective Affiliates each is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary, for Borrower, any other Loan Party or any of their respective Affiliates, or any other Person and (ii) none of the Lender, the Administrative Agent, the Depository Bank or any of their respective Affiliates has any obligation to the Borrower, any other Loan Party or any of their respective Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; and (c) the Lender, the Administrative Agent, the Depository Bank and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower, the other Loan Parties and their respective Affiliates, and none of the Lender, the Administrative Agent, the Depository Bank or any of their respective Affiliates has any obligation to disclose any of such interests to the Borrower, any other Loan Party or any of their respective Affiliates. To the fullest extent permitted by law, each of the Borrower and each other Loan Party hereby waives and releases any claims that it may have against the Lender, the Administrative Agent, the Depository Bank or any of their respective Affiliates with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transactions contemplated hereby.

Section 11.17 Electronic Execution . The words “delivery,” “execute,” “execution,” “signed,” “signature,” and words of like import in any Loan Document or any other document executed in connection herewith shall be deemed to include electronic signatures, the electronic matching of assignment terms and contract formations on electronic platforms approved by the Lender, or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable Law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act; provided that notwithstanding anything contained herein to the contrary, none of the Lender, the

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Depository Bank or the Administrative Agent is under any obligation to agree to accept electronic signatures in any form or in any format unless expressly agreed to by the Lender, the Depository Bank or the Administrative Agent, respectively, pursuant to procedures approved by it; provided further without limiting the foregoing, upon the request of the Lender, the Depository Bank or the Administrative Agent, as applicable, any electronic signature shall be promptly followed by such manually executed counterpart.

Section 11.18 USA PATRIOT Act Notice . Each of the Lender, the Administrative Agent and the Depository Bank hereby notifies the Borrower and the other Loan Parties that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “ Act ”), it is required to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of each Loan Party and other information that will allow the Lender, the Administrative Agent and the Depository Bank to identify each Loan Party in accordance with the Act. The Borrower and the Loan Parties agree to, promptly following a request by the Lender, the Administrative Agent and the Depository Bank, provide all such other documentation and information that the Lender, the Administrative Agent and the Depository Bank requests in order to comply with its ongoing obligations under applicable “know your customer” and anti-money laundering rules and regulations, including the Act.

Section 11.19 Lender as Collateral Agent . The Administrative Agent and the Depository Bank hereby appoint the Lender as agent for the Secured Parties for the purposes of holding and, as provided in this Agreement and the Collateral Documents, enforcing the Liens established under this Agreement and the Collateral Documents as security for the Secured Obligations of the respective Loan Parties. Except as otherwise specifically provided herein and in the Collateral Documents, the Secured Parties agree that each determination of whether to enforce any such Lien or otherwise exercise the rights of the holder of any such Lien, and the manner of such enforcement or exercise of rights, shall be within the sole discretion of the Lender.

Section 11.20 Time of the Essence . Time is of the essence of the Loan Documents.

Section 11.21 ENTIRE AGREEMENT . THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]

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IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be duly executed as of the date first above written.


BORROWER:	WESTMORELAND SAN JUAN, LLC

By: /s/ Jennifer S. Grafton

Name: Jennifer S. Grafton

Title: Vice President


GUARANTORS:	WESTMORELAND SAN JUAN HOLDINGS, INC.

By: /s/ Jennifer S. Grafton

Name: Jennifer S. Grafton

Title: Vice President

SAN JUAN COAL COMPANY

By: /s/ Joseph E. Micheletti

Name: Joseph E. Micheletti

Title: Vice President

SAN JUAN TRANSPORTATION COMPANY

By: /s/ Joseph E. Micheletti

Name: Joseph E. Micheletti

Title: Vice President

LENDER: NM CAPITAL UTILITY CORPORATION

By: /s/ Elisabeth A. Eden

Name: Elisabeth A. Eden

Title: President

ADMINISTRATIVE AGENT: THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.

By: /s/ Chi-Cheng Chen

Name: Chi-Cheng Chen

Title: Director

DEPOSITORY BANK: MUFG UNION BANK, N.A.

By: /s/ Enrico (BOBBY) Reyes

Name: Enrico (BOBBY Reyes

Title: Vice President

SCHEDULE I

PRINCIPAL PAYMENT SCHEDULE



Principal Payment Date	Principal Installment	Principal Payment Date	Principal Installment
		11/1/2018	$894,000
8/1/2016	$15,000,000	2/1/2019	$2,155,000
11/1/2016	$15,000,000	5/1/2019	$2,155,000
2/1/2017	$9,590,000	8/1/2019	$2,155,000
5/1/2017	$9,590,000	11/1/2019	$2,155,000
8/1/2017	$9,590,000	2/1/2020	$5,820,000
11/1/2017	$9,590,000	5/1/2020	$5,820,000
2/1/2018	$894,000	8/1/2020	$5,820,000
5/1/2018	$894,000	11/1/2020	$5,820,000
8/1/2018	$894,000	2/1/2021	$21,164,000

SCHEDULE II

CERTAIN ADDRESSES FOR NOTICES AND PAYMENTS



Party	Address for Notices	Address for Payments (if different from Address for Notices)
Loan Parties:	If to Holdings: Westmoreland San Juan Holdings, Inc. 9450 South Maroon Circle, Suite 200 Englewood, CO 80112 Attn: Jennifer S. Grafton Phone: 720-354-4476 Facsimile: 720-354-4558 Email: jgrafton@westmoreland.com If to the Borrower: Westmoreland San Juan, LLC 9450 South Maroon Circle, Suite 200 Englewood, CO 80112 Attn: Jennifer S. Grafton Phone: 720-354-4476 Facsimile: 720-354-4558 Email: jgrafton@westmoreland.com If to SJCC: San Juan Coal Company c/o Westmoreland Coal Company 9450 South Maroon Circle, Suite 200 Englewood, CO 80112 Attn: Joseph E. Micheletti Phone: 720-354-4470 Facsimile: 720-354-4558 Email: jmichele@westmoreland.com If to SJTC: San Juan Transportation Company c/o Westmoreland Coal Company 9450 South Maroon Circle, Suite 200 Englewood, CO 80112 Attn: Joseph E. Micheletti



	Phone: 720-354-4470 Facsimile: 720-354-4558 Email: jmichele@westmoreland.com Website Address: http://westmoreland.com/ In the event any notice hereunder is to be given to Westmoreland, such notice is to be given to Westmoreland at: Westmoreland Coal Company 9450 South Maroon Circle, Suite 200 Englewood, CO 80112 Attn: Jennifer S. Grafton Phone: 720-354-4476 Facsimile: 720-354-4558 Email: jgrafton@westmoreland.com
Lender:	NM Capital Utility Corporation c/o PNM Resources, Inc. 414 Silver Ave. SW, MS0905 Albuquerque, New Mexico 87102-3289 Attention: Elisabeth Eden, Treasurer Telephone No.: (505) 241-2691 Fax No.: (505) 241-4386 E-mail: Elisabeth.Eden@pnmresources.com
Administrative Agent	The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Administrative Agent 1251 Avenue of the Americas New York, NY 10020 Attention: Lawrence Blat
Depository Bank	MUFG Union Bank, N.A., as Depository Bank 1251 Avenue of the Americas, 19 ^th Floor New York, New York 10020 Attn: Cheryl Clark Tel. No.: 646-452-4790 Email: ctny1@unionbank.com

EXHIBIT A

FORM OF NOTE

[see attached]



Albuquerque, New Mexico		$125,000,000.00
February 1, 2016

PROMISSORY NOTE

FOR VALUE RECEIVED, the undersigned, WESTMORELAND SAN JUAN, LLC, a Delaware limited liability company (the “ Borrower ”), hereby promises to pay to NM CAPITAL UTILITY CORPORATION, a Delaware corporation (the “ Lender ”), in accordance with the provisions of the Loan Agreement (as hereinafter defined), the principal amount of ONE HUNDRED TWENTY-FIVE MILLION and 00/100 DOLLARS ($125,000,000.00), being the Loan made by the Lender to the Borrower under that certain Loan Agreement, dated as of the date hereof (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “ Loan Agreement”), among the Borrower, the Guarantors named therein, the Lender and the Administrative Agent named therein. This Promissory Note (this “ Note ”) is the “Note” referred to in the Loan Agreement. Any capitalized term used herein and not otherwise defined herein shall have the meaning ascribed to such term in the Loan Agreement, and the rules of interpretation set forth in Article 1 of the Loan Agreement shall be applicable to this Note.

The Borrower hereby promises to pay the principal of the Loan together with interest on the unpaid principal amount of the Loan from the date hereof until such principal amount is paid in full, at such interest rates and at such times and in such amounts as provided in the Loan Agreement. All payments of principal and interest shall be made to the Lender in Dollars in immediately available funds in accordance with the Loan Agreement and otherwise as Lender shall from time to time direct. If any amount is not paid in full when due hereunder, such unpaid amount shall bear interest, to be paid upon demand, from the due date thereof until the date of actual payment (and before as well as after judgment) computed at the Default Rate set forth in the Loan Agreement.

This Note is entitled to the benefits of the Loan Agreement and may be prepaid in whole or in part subject to the terms and conditions provided in the Loan Agreement. This Note is secured by the Collateral. Upon the occurrence of any of the Events of Default specified in the Loan Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Loan Agreement. The Loan shall be evidenced by one or more loan accounts or records maintained by the Lender (or by the Administrative Agent for the Lender) in the ordinary course of administration of the Loan. The Lender may also attach schedules to this Note and endorse thereon the date of disbursement, amounts and due dates of the principal amounts of the Loan and the payments received with respect thereto. The Lender and the Administrative Agent may also document such information on its books and records. Such schedule and the Lender’s and the Administrative Agent’s books and records shall be binding and conclusive on the Borrower absent manifest error.

The Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Note.

THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

IN WITNESS WHEREOF , the Borrower has executed this Note as of the date first above written.


BORROWER:	WESTMORELAND SAN JUAN, LLC

By:

Name:

Title:

EXHIBIT B

FORM OF COMPLIANCE CERTIFICATE

[see attached]

FORM OF COMPLIANCE CERTIFICATE

Financial Statement Date:_________, 20__

TO: NM Capital Utility Corporation, as lender (the “ Lender ”)

RE:

Loan Agreement, dated as of February 1, 2016, by and among Westmoreland San Juan, LLC, a Delaware limited liability company (the “ Borrower ”), the Guarantors, and the Lender (as amended, modified, extended, restated, replaced, or supplemented from time to time, the “ Loan Agreement ”; capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Loan Agreement)

DATE: _____________, 20___

______________________________________________________________________________________

The undersigned Responsible Officer hereby certifies as of the date hereof that [he/she] is the [_________________] of the Borrower, and that, as such, [he/she] is authorized to execute and deliver this Certificate to the Lender on the behalf of the Borrower and the other Loan Parties, and that:

1. Financial Statements.

[This Compliance Certificate (this “Certificate”) accompanies the delivery of (i) the year- end audited financial statements required by Section 6.01(a)(ii) of the Loan Agreement for the fiscal year of the Borrower ended as of the above date, together with the report and opinion of an independent certified public accountant required by such section and (ii) the consolidating balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year and the related consolidating statements of income or operations, shareholders’ equity and cash flows for such fiscal year. Such consolidating statements are fairly stated in all material respects when considered in relation to the consolidated financial statements of the Borrower and its Subsidiaries.]

[This Compliance Certificate (this “Certificate”) accompanies the delivery of the unaudited financial statements required by Section 6.01(b)(ii) of the Loan Agreement for the fiscal quarter of the Borrower ended as of the above date. Such financial statements fairly present the financial condition, results of operations, shareholders’ equity and cash flows of the Borrower and its Subsidiaries in accordance with GAAP as at such date and for such period, subject only to normal year-end audit adjustments and the absence of footnotes].

2. The undersigned has reviewed and is familiar with the terms of the Loan Agreement and has made, or has caused to be made under [his/her] supervision, a detailed review of the transactions and condition (financial or otherwise) of the Borrower and its Subsidiaries during the accounting period covered by such financial statements.

3. To the best knowledge of the undersigned, [during such fiscal period, each of the Loan Parties performed and observed each covenant and condition of the Loan Documents applicable to it, and no Default has occurred and is continuing.] [the following covenants or conditions have not been performed or observed and a detailed list and description of each such Default and its nature and status is attached hereto as Schedule C :]

4. The representations and warranties of the Borrower and each other Loan Party contained in Article V of the Loan Agreement or any other Loan Document, or which are contained in any document furnished at any time under or in connection therewith are true and correct in all material

respects on and as of the date hereof, and except that for purposes of this Certificate, the representations and warranties contained in subsections (a) and (b) of Section 5.05 of the Loan Agreement shall be deemed to refer to the most recent statements furnished pursuant to clauses (a)(ii) and (b)(ii), respectively, of Section 6.01 of the Loan Agreement, including the statements in connection with which this Certificate is delivered.

5. The financial covenant analyses and information set forth on Schedule A attached hereto are true and accurate on and as of the date of this Certificate.

6. There has been no change to any of the information set forth in Schedules attached to the Loan Agreement, except as set forth and described on Schedule B attached hereto

Delivery of an executed counterpart of a signature page of this Certificate by fax transmission or other electronic mail transmission (e.g. “pdf” or “tif”) shall be effective as delivery of a manually executed counterpart of this Certificate.

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WESTMORELAND SAN JUAN, LLC,

a Delaware limited liability company

By:

Name:

Title:

Schedule A

Financial Covenant Calculations

1. Loan Parties shall not permit the Debt Service Coverage Ratio to be less than 1.05 to 1.00, as of the last day of the fiscal quarter of the Borrower.

Actual Debt Service Coverage Ratio for reporting period: to 1.00

In Compliance (check one): Yes ¨ No ¨

2. Loan Parties shall maintain Reserve Tail of no less than 15%.

Actual Reserve Tail for reporting period: %

In Compliance (check one): Yes ¨ No ¨

Schedule B

Schedules

EXHIBIT C

FORM OF CLOSING CERTIFICATE

[see attached]

FORM OF CLOSING CERTIFICATE

TO: NM Capital Utility Corporation, as lender (the “ Lender ”)

RE:

DATE: February 1, 2016

___________________________________________________________________________________________

1. The undersigned has reviewed and is familiar with the terms of the Loan Agreement and has made, or has caused to be made under [his/her] supervision, a detailed review of the transactions and condition (financial or otherwise) of the Borrower and its Subsidiaries during the accounting periods covered by the Historic Financial Statements of SJTC and SJCC and of the Borrower, and of the assets and liabilities of as well as the transactions involving and the financial condition of the Borrower and its Subsidiaries as of the Closing Date immediately after giving effect to the Acquisition and the making of the Loan.

2. The representations and warranties of the Borrower and each other Loan Party contained in Article V of the Loan Agreement or any other Loan Document, are true and correct on and as of the date hereof, immediately after giving effect to the closing of the Acquisition and the making of the Loan.

3. Without limiting the foregoing, no event or circumstance which constitutes a Default has occurred and is continuing and no event or circumstance that would reasonably be expected to result in a Material Adverse Effect has occurred and is continuing.

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WESTMORELAND SAN JUAN, LLC,

a Delaware limited liability company

By: Name: Title:

EXHIBIT D

FORM OF NOTICE OF LOAN PREPAYMENT

[see attached]

FORM OF NOTICE OF LOAN PREPAYMENT

TO: NM Capital Utility Corporation, as lender (the “ Lender ”)

RE:

Loan Agreement, dated as of February 1 2016, by and among Westmoreland San Juan, LLC, a Delaware limited liability company (the “ Borrower ”), the Guarantors, and the Lender (as amended, modified, extended, restated, replaced, or supplemented from time to time, the “ Loan Agreement ”; capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Loan Agreement)


DATE:	______________, 20__

________________________________________________________________________________

The Borrower hereby notifies the Lender that on ____________, 20__ pursuant to the terms of Section 2.04(a) of the Loan Agreement, the Borrower intends to make a prepayment of the Loan in a principal amount of $______________, to be applied as provided in such Section 2.04(a) and the other provisions of the Loan Agreement. The Borrower acknowledges that although such prepayment is not subject to penalty or premium, it is subject to the payment of any amounts due under the Loan Agreement as a result of such prepayment, including any amounts due pursuant to Section 3.04 of the Loan Agreement.

Delivery of an executed counterpart of a signature page of this notice by fax transmission or other electronic mail transmission (e.g. “pdf” or “tif”) shall be effective as delivery of a manually executed counterpart of this notice.

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WESTMORELAND SAN JUAN, LLC,

a Delaware limited liability company

By: Name: Title:

EXHIBIT E

FORM OF WITHDRAWAL CERTIFICATE

____________, 20__

MUFG Union Bank, N.A., as Depository Bank

1251 Avenue of the Americas, 19 ^th Floor

New York, New York 10020

Attn: Cheryl Clark

Tel. No.: 646-452-4790

Email: ctny1@unionbank.com

Re:

Funds in Cash Management Collection Account Under Loan Agreement dated as of February 1, 2016 (including any amendments thereto, the “Loan Agreement”) among NM Capital Utility Corporation, as Lender, Westmoreland San Juan, LLC, Westmoreland San Juan Holdings, Inc., San Juan Coal Company and San Juan Transportation Company, as Loan Parties, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Administrative Agent, and MUFG Union Bank, N.A., as Depository Bank

Ladies and Gentlemen:

This Withdrawal Certificate is made by the Lender pursuant to Section 6.19 of the Loan Agreement.

1. The direction under this Section 1 is made by NM Capital Utility Corporation (the “Lender,” “we” or “us”) to MUFG Union Bank, N.A. (the “Depository Bank” or “you”) pursuant to Section 6.19.2(b) of the Loan Agreement. We hereby direct you to allocate the amounts held in the Cash Management Collection Account and not heretofore allocated to a Subaccount thereunder as follows:

(a) to the Operating Expenses Subaccount, $_________ ¹ ;

(b) to the Loan Payments Subaccount, $__________ ² or so much thereof as shall remain after application pursuant to clause (a);

__________________________

¹ To be completed with the amount equal to 105% of the amount of monthly operating expenses shown on the Operating Budget.

² To be completed with the sum of (i) all amounts (if any) then due and payable under the Loan Documents (including principal, interest, fees and indemnity payments), and (ii) an amount equal to one third of the total of (x) the principal of and interest on the Loan and (y) fees (including any such fees payable to the Administrative Agent) and other amounts scheduled to become due and payable to the Lender, the Administrative Agent or the Depository Bank, respectively, on or before the next quarterly payment date for principal, interest and fees under the Loan Agreement, provided that if no further amounts are expected to be received for deposit into the Cash Management Collection Account before the next quarterly payment date for principal, interest and fees under the Loan Agreement, the amount allocated to the Loan Payments Subaccount shall be the amount, which when added to all

MUFG Union Bank, N.A., as Depository Bank

_______________, 20__

Page 2

(c) to the Capital Expenditures Subaccount, $__________ ³ or so much thereof as shall remain after application pursuant to clauses (a) and (b);

(d) to the Operating Reserve Subaccount, $____________ ⁴ ; and

(e) to the Loan Prepayments Subaccount, all amounts remaining after application pursuant to clauses (a), (b), (c) and (d) above.

The allocations described above are to be made by you on the Business Day immediately following the Business Day on which you receive this Withdrawal Certificate, provided that if you receive this Withdrawal Certificate after 12:00 noon New York City time on a Business Day, it will be deemed to be received by you on the next following Business Day.

2. The direction under this Section 2 is made by us to you pursuant to Section 6.19.3 of the Loan Agreement. We hereby direct you to apply amounts held in the Subaccounts under the Cash Management Collection Account as follows, on the Business Day following the Business Day on which you receive this Withdrawal Certificate (provided that if you receive this Withdrawal Certificate after 12:00 noon New York City time on a Business Day, it will be deemed to be received by you on the next following Business Day), except in the case of clause (b) and clause (e) below, which shall be applied on the Business Day specified in such clause (b) or clause (e), as the case may be, if such date is at least one Business Day after the Business Day you receive or are deemed to have received this Withdrawal Certificate (provided that the direction for application in accordance with clause (b) or clause (e) may be superseded by a subsequent Withdrawal Certificate received by you not late r than 12:00 noon New York City time on the Business Day preceding the Business Day on which application in accordance with clause (b) or clause (d), as the case may be, is to be made):

(a) the amounts in the Operating Expenses Subaccount shall be transferred to the SJCC Operating Account;

(b) on ________, 20__ (or, if such day is not a Business Day, the next Business Day), ⁵ the amounts in the Loan Payments Subaccount, together with any additional amounts deposited to the Loan Payments Subaccount between the date hereof and _________, 20__, shall be remitted to the Administrative Agent for application to the payment of amounts becoming due and payable under the Loan Agreement and the Fee Letter on __________, 20__ ⁵ (including principal, interest, fees and other amounts scheduled to become due and payable);

______________________________________________________________________________

amounts already on deposit in the Loan Payments Subaccount, will be sufficient to pay all amounts of principal, interest, fees and other amounts scheduled to become due and payable on the next quarterly payment date for such amounts. The Administrative Agent shall provide the Lender with information needed to complete this blank.

³ To be completed with the amount equal to 105% of the amount of monthly Capital Expenditures shown on the Operating Budget for the period ending on the last day of the current month.

⁴ To be completed with the lesser of (x) 10% of the amount remaining after application pursuant to clauses (a), (b) and (c), determined by Lender using information obtained from the Depository Bank’s on-line account information, and (y) the Operating Reserve Deficiency.

⁵ Complete with the next quarterly Interest Payment Date or other relevant payment date.

MUFG Union Bank, N.A., as Depository Bank

_______________, 20__

Page 3

(d) The amounts in the Operating Reserve Subaccount shall be transferred to the Operating Reserve Account; and

(e) on ___________, 20__, ⁶ the amounts in the Loan Prepayments Subaccount, together with any additional amounts deposited to the Loan Prepayments Subaccount between the date hereof and ____________, 20__, shall be remitted to the Administrative Agent for application on such date to a prepayment pursuant to Section 2.04(b) of the Loan Agreement.

3. Promptly upon the allocation pursuant to Section 1 and the application of funds pursuant to clauses (a), (c) and (d), please provide the Administrative Agent and the Lender with a written statement of the funds so allocated and applied, including a statement of the balances remaining in the Loan Payments Subaccount and the Loan Prepayments Subaccount. Upon the application of amounts pursuant to clauses (b) and (e) of Section 2, please provide the Administrative Agent and the Lender with a written statement of the amounts so applied.

4. Terms defined in the Loan Agreement shall, when used herein, have the respective meanings given in the Loan Agreement. A copy of this Withdrawal Certificate given by telecopier or other electronic means in accordance with Section 11.02(b) of the Loan Agreement shall be effective as an original. This Withdrawal Certificate may be revoked, superseded or modified only by a subsequent written direction issued by the Lender in accordance with Section 6.19 of the Loan Agreement (any such subsequent written direction may be delivered by telecopier or other electronic means in accordance with Section 11.02(b) of the Loan Agreement), provided that any superseding Withdrawal Certificate or any modification or revocation hereof must be received by you not later than 12:00 noon New York City time on the Business Day preceding the Business Day on which the affected action is to be taken by you pursuant to this Withdrawal Certificate.

[Signature page follows.]



	NM CAPITAL UTILITY CORPORATION By:_____________________________________ Name:__________________________________ Title:___________________________________

^{_____________________________________________}

⁶ Complete with the next date on which any mandatory prepayment is due and payable pursuant to Section 2.04(b) of the Loan Agreement (i.e., the next quarterly payment date)

MUFG Union Bank, N.A., as Depository Bank

_______________, 20__

Page 4


cc:	The Bank of Tokyo-Mitsubishi UFG, Ltd., as Administrative Agent

1251 Avenue of the Americas

New York, NY 10020
Attention: Lawrence Blat

EXHIBIT F

FORM OF SOLVENCY CERTIFICATE

[see attached]

FORM OF SOLVENCY CERTIFICATE

TO: NM Capital Utility Corporation, as lender (the “ Lender ”)

RE:

DATE : ______________, 20___

__________________________________________________________________

The undersigned Responsible Officer of the Borrower is familiar with the properties, businesses, assets and liabilities, and financial condition of the Loan Parties and is duly authorized to execute this certificate on behalf of the Borrower and the other Loan Parties.

The undersigned certifies that [he/she] has made such investigation and inquiries as to the financial condition of the Loan Parties and their Subsidiaries as the undersigned deems necessary and prudent for the purpose of providing this Certificate. The undersigned acknowledges that the Lender is relying on the truth and accuracy of this Certificate in connection with the making of the Loan and the other transactions contemplated under the Loan Agreement.

The undersigned certifies that the financial information, projections and assumptions which underlie and form the basis for the representations made in this Certificate were reasonable when made and were made in good faith and continue to be reasonable as of the date hereof.

BASED ON THE FOREGOING, the undersigned certifies that, both before and after giving effect to the transactions contemplated by the Loan Agreement:

(a) The fair value of the property of each Loan Party, individually and together with its Subsidiaries on a consolidated basis, is greater than the total amount of liabilities, including contingent liabilities, of such Loan Party, individually and together with its Subsidiaries on a consolidated basis.

(b) The present fair salable value of the assets of each Loan Party, individually and together with its Subsidiaries on a consolidated basis, is not less than the amount that will be required to pay the probable liability of such Loan Party individually and together with its Subsidiaries on a consolidated basis, on their debts as they become absolute and matured.

(c) Each Loan Party, individually and together with its Subsidiaries on a consolidated basis, does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s individual or consolidated ability to pay such debts and liabilities as they mature.

(d) No Loan Party is engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Loan Party’s property would constitute an unreasonably small capital.

(e) Each Loan Party, individually and together with its Subsidiaries on a consolidated basis, is able to pay its individual and consolidated debts and liabilities, contingent obligations and other commitments as they mature in the ordinary course of business.

(f) The amount of contingent liabilities at any time have been computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

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WESTMORELAND SAN JUAN, LLC,

a Delaware limited liability company

By:

Name:

Title:

EXHIBIT G

SINGLE PURPOSE ENTITY REQUIREMENTS

•

The Borrower’s operating agreement (the “ Operating Agreement ”) shall provide that the business and affairs of the Borrower shall be managed by or under the direction of a board of managers (the “ Board of Managers ”), and at all times there shall be at least two (2) duly appointed Independent Managers on the Board of Managers acting as independent managers of the Borrower, and the Borrower will not take any action requiring the unanimous affirmative vote of the Board of Managers unless, at the time of such action there are at least two (2) Independent Managers, and all Independent Managers shall have participated in such vote. " Independent Manager " shall mean an individual who has prior experience as an independent director, independent manager or independent member with at least three years of employment experience and who is provided by Corporation Service Company, CT Corporation, Lord Securities Corporation, National Registered Agents, Inc., Stewart Management Company, Wilmington Trust Company, or, if none of those companies is then providing professional independent managers, another nationally-recognized company reasonably approved by Lender, in each case that is not an Affiliate of the Borrower and that provides professional independent managers and other corporate services in the ordinary course of its business, and which individual is duly appointed as an Independent Manager and is not, and has never been, and will not while serving as Independent Manager be, any of the following: (i) a member, partner, equityholder, manager, director, officer or employee of the Borrower, Westmoreland Coal Company (“ Westmoreland ”), or any of their respective equityholders or Affiliates (other than as an Independent Manager of the Borrower or an Affiliate of the Borrower that is not in the direct chain of ownership of the Borrower and that is required by a creditor to be a single purpose bankruptcy remote entity, provided that such Independent Manager is employed by a company that routinely provides professional independent directors in the ordinary course of its business); (ii) a creditor, supplier or service provider (including provider of professional services) to the Borrower, or any of its equityholders or Affiliates (other than a nationally-recognized company that routinely provides professional independent managers and other corporate services to the Borrower or any of its equityholders or Affiliates in the ordinary course of its business); (iii) a family member of any such member, partner, equityholder, manager, director, officer, employee, creditor, supplier or service provider; or (iv) any individual, corporation, partnership, limited liability company, joint venture, estate, trust, real estate investment trust, unincorporated association, any other entity, any governmental authority and any fiduciary acting in such capacity on behalf of any of the foregoing (collectively, “ Person ”) that controls (whether directly, indirectly or otherwise) any of (i), (ii) or (iii) above. A natural person who otherwise satisfies the foregoing definition and satisfies subparagraph (i) by reason of being the Independent Manager of a "special purpose entity" Affiliated with the Borrower shall be qualified to serve as an Independent Manager of the Borrower, provided that the fees that such individual earns from serving as Independent Manager of Affiliates of the Borrower in any given year constitute in the aggregate less than five percent (5%) of such individual's annual income for that year. The same persons may not serve as Independent Managers of the Borrower or SJCC or Westmoreland.

•

The Operating Agreement shall further provide that, as long as any Loan Obligations remain outstanding, (A) upon the occurrence of any event that causes Westmoreland to cease to be a member of the Borrower (other than (x) upon an assignment by Westmoreland of all of its limited liability company interest in the Borrower and the admission of the transferee as a substitute member of the Borrower, if permitted pursuant to the organizational documents of the Borrower and the Loan documentation and agreements ancillary thereto (collectively, the “ Loan Documents ”), or (y) the resignation of Westmoreland and the admission of an additional member

of the Borrower, if permitted pursuant to the organizational documents of the Borrower and the Loan Documents), one of the persons acting as an Independent Manager of the Borrower shall, without any action of any Person and simultaneously with Westmoreland ceasing to be a member of the Borrower, automatically be admitted as the sole member of the Borrower (the " Special Member ") and shall preserve and continue the existence of the Borrower without dissolution, (B) no Special Member may resign or transfer its rights as Special Member unless (x) a successor Special Member has been admitted to the Borrower as a Special Member, and (y) such successor Special Member has also accepted its appointment as an Independent Manager and (C) except as expressly permitted pursuant to the terms of the Operating Agreement, Westmoreland may not resign and no additional member shall be admitted to the Borrower. “ Loan Obligations ” means all obligations now or hereafter existing under or in respect of the Loan Documents (including, without limitation, any extensions, modifications, substitutions, amendments or renewals of any or all of the foregoing), whether direct or indirect, absolute or contingent, and whether for principal, interest, reimbursement obligations, premiums, fees, indemnities, contract causes of action, costs, expenses or otherwise, including, without limitation, the obligation of the Company to pay principal, interest, charges, expenses, fees, attorneys’ fees and disbursements, indemnities and other amounts payable by the Company under any Loan Document. “ Affiliate ” means, as to any Person, any other Person that (i) owns directly or indirectly twenty percent (20%) or more of all equity interests in such Person, (ii) is in Control of, is Controlled by or is under common ownership or Control with such Person, (iii) is a director or executive officer of such Person or of an Affiliate of such Person, and/or (iv) is the spouse, issue or parent of such Person. “ Control ” means 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 or general partnership or managing member interests, by contract or otherwise. “Controlling” and “Controlled” shall have correlative meanings. Without limiting the generality of the foregoing, a Person shall be deemed to Control any other Person in which it owns, directly or indirectly, a majority of the ownership interests.

•

The Operating Agreement shall also provide that, as long as any Loan Obligations remain outstanding, (A) the Borrower shall be dissolved, and its affairs shall be wound up only upon the first to occur of the following: (x) the termination of the legal existence of the last remaining member of the Borrower or the occurrence of any other event which terminates the continued membership of the last remaining member of the Borrower in the Borrower unless the business of the Borrower is continued in a manner permitted by its Operating Agreement or the Delaware Limited Liability Company Act or (y) the entry of a decree of judicial dissolution under Section 18-802 of the Delaware Limited Liability Company Act; (B) upon the occurrence of any event that causes the last remaining member of the Borrower to cease to be a member of the Borrower or that causes Westmoreland to cease to be a member of the Borrower (other than (x) upon an assignment by Westmoreland of all of its limited liability company interest in the Borrower and the admission of the transferee as a substitute member of the Borrower, if permitted pursuant to the organizational documents of the Borrower and the Loan Documents, or (y) the resignation of Westmoreland and the admission of an additional member of the Borrower, if permitted pursuant to the organizational documents of the Borrower and the Loan Documents), to the fullest extent permitted by law, the personal representative of such member shall be authorized to, and shall, within 90 days after the occurrence of the event that terminated the continued membership of such member in the Borrower, agree in writing to continue the existence of the Borrower and to the admission of the personal representative or its nominee or designee, as the case may be, as a substitute member of the Borrower, effective as of the occurrence of the event that terminated the continued membership of such member in the Borrower; (C) the bankruptcy of Westmoreland or a Special Member shall not cause such member or Special Member, respectively, to cease to be a member of the Borrower and upon the occurrence of such an event, the business of the Borrower

shall continue without dissolution; (D) in the event of dissolution of the Borrower, the Borrower shall conduct only such activities as are necessary to wind up its affairs (including the sale of the assets of the Borrower in an orderly manner), and the assets of the Borrower shall be applied in the manner, and in the order of priority, set forth in Section 18-804 of the Act; and (E) to the fullest extent permitted by law, each of Westmoreland and the Special Member shall irrevocably waive any right or power that they might have to cause Borrower or any of its assets to be partitioned, to cause the appointment of a receiver for all or any portion of the assets of Borrower, to compel any sale of all or any portion of the assets of Borrower pursuant to any applicable law or to file a complaint or to institute any proceeding at law or in equity to cause the dissolution, liquidation, winding up or termination of Borrower.

•

Notwithstanding any other provision of the Operating Agreement and any provision of law that otherwise so empowers the Borrower, Westmoreland or any other Person, so long as any Loan Obligations remain outstanding, neither Westmoreland nor any other Person shall be authorized or empowered, nor shall they permit the Borrower, without the prior unanimous written consent of the Board of Managers, to take any Material Action, provided, however, that, so long as any Loan Obligations remain outstanding, the Board of Managers may not authorize the taking of any Material Action, unless there are at least two Independent Manager then serving in such capacity. " Material Action " means, with respect to any Person, to institute proceedings to have such Person be adjudicated bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency proceedings against such Person or file a petition seeking, or consent to, reorganization or relief with respect to such Person under any applicable federal, state, local or foreign law relating to bankruptcy, or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of such Person or a substantial part of its property, or make any assignment for the benefit of creditors of such Person, or admit in writing such Person’s inability to pay its debts generally as they become due, or declare or effectuate a moratorium on the payment of any obligation, or take action in furtherance of any such action.


•	Notwithstanding anything to the contrary in the Operating Agreement or in any other document governing the Borrower, the Borrower shall be operated in such a manner that it would not be substantively consolidated in the estate of any Person in the event of a bankruptcy or insolvency of such Person and in such regard, the Borrower shall:


(i)	not engage in any business unrelated to the ownership of SJCC;


(ii)	not own any asset or property other than (i) the capital stock of SJCC and (ii) incidental personal property necessary for the ownership, management or operation of SJCC;


(iii)	not engage, seek or consent to any dissolution, winding up, liquidation, consolidation, merger, asset sale or transfer of membership interests;


(iv)	do all things necessary to observe organizational formalities and preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises;


(v)	not terminate or fail to comply with the provisions of its Organizational Documents or, unless Lender has consented, amend, modify or otherwise change the Organizational Documents of the Company;


(vi)	not own any subsidiary other than SJCC or make an investment in any Person without the prior written consent of Lender;


(vii)	not commingle its assets with the assets of any of its members, managers, Affiliates, principals or of any other Person, not participate in a cash management system with any other Person or fail to use its own separate stationary, invoices and checks;


(viii)	not fail to conduct its business and hold its assets in its own name and strictly comply with all organizational formalities to maintain its separate existence;


(ix)	not incur any indebtedness, secured or unsecured, direct or contingent (including guaranteeing any obligation), other than indebtedness permitted to be incurred by the Loan Documents;


(x)	not to fail to pay its debts and liabilities (including, as applicable, shared personnel and overhead expenses) as the same shall become due to the extent the Borrower has the assets required to do so;


(xi)	maintain all of its accounts, books, records, financial statements and bank accounts separate from those of its Affiliates and any other Person;

(xii)

maintain its own separate financial statements and not allow its assets to be listed as assets on the financial statements of any other Person; provided , however , that Westmoreland may file its tax return including the Company’s income and expenses as the Company is a disregarded entity for tax purposes, and the Company’s assets may be included in a consolidated financial statement of its Affiliates if (i) appropriate notation shall be made on such consolidated financial statements to indicate the separateness of the Company and such Affiliates and to indicate that the Company’s assets and credit are not available to satisfy the debts and other obligations of such Affiliates or any other Person, and (ii) such assets shall be listed on the Company’s own separate balance sheet;

(xiii)

other than as contemplated by the Loan Documents, maintain an arm’s length relationship with its Affiliates and only enter into a contract, agreement or transaction with any member, manager, guarantor or affiliate that is in the ordinary course of business and on terms and conditions that are intrinsically fair and substantially similar to those that are available on an arm’s length basis with an unrelated third party;


(xiv)	at all times hold itself out to the public as a legal entity separate and distinct from any other entity (including any Affiliate or any constituent party of the Borrower), and shall correct any known misunderstanding regarding its status as a separate entity;


(xv)	other than as contemplated by the Loan Documents, not assume or guarantee or become obligated for the debts of any other Person and not hold itself out to be responsible for or have its credit available to satisfy the debts or obligations of any other Person;

(xvi)

not fail either to hold itself out to the public as a legal entity separate and distinct from any other Person or to conduct its business solely in its own name or a name franchised or licensed to it by an entity other than an Affiliate of the Borrower, and not as a division or part of any other entity in order not (i) to mislead others as to the identity with which such other party is transacting business, or (ii) to suggest that the Borrower is responsible for the debts of any third party (including any member, manager, principal or Affiliate of the Borrower, or any member, manager, principal of Affiliate thereof);


(xvii)	remain solvent and maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations;


(xviii)	not fail to allocate fairly and reasonably any overhead expenses that are shared with an Affiliate, including paying for office space and services performed by any employee of an Affiliate;


(xix)	not make any loans or advances to any third party, including any of its members, managers, principals or Affiliates or any member, manager, principal or Affiliate thereof, and not acquire obligations or securities of any member, manager, principal or Affiliate of the Borrower or any member, manager or Affiliate thereof;


(xx)	not pledge its assets or credit for the benefit of any other Person other than pursuant to the Loan Documents


(xxi)	maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any Affiliate or constituent party or any other Person;


(xxii)	comply with or cause the compliance with all the representations, warranties and covenants in the Loan Documents and all the organizational documents of the Borrower;


(xxiii)	have no obligation to indemnify its officers, managers, members, as the case may be, or if it has any such obligation, such obligation is fully subordinated to the Obligations and will not constitute a claim against the Borrower if cash flow in excess of the amount required to pay the Obligations is insufficient to pay such Obligations;

(xxiv)

in acting or otherwise voting on any matter provided for in the Operating Agreement, to the fullest extent permitted by law, including, without limitation, Section 18-1101(c) of the Act, and notwithstanding any duty otherwise existing at law or in equity, require that duties of the Independent Managers shall (a) require them to consider only (i) the interests of the Borrower as a stand-alone entity and (ii) Lender (which is an intended third-party beneficiary of this provision), and (b) not require or permit them to consider the interest of any Member (or any direct or indirect beneficial owner of any Member) of the Borrower.


(xxv)	except as provided in the Loan Documents, not have any of its obligations guaranteed by any Affiliate;


(xxvi)	file its own tax returns separate from those of any other Person, except to the extent it is treated as an “entity disregarded as separate from its owner” for tax purposes and not required to file tax returns under applicable law, and pay any taxes so required to be paid under applicable law to the extent there is sufficient cash flow from the operation of SJCC to do so; and

(xxvii)

maintain a sufficient number of employees in light of its contemplated business operations and pay its own liabilities, including the salaries of its own employees, if any, only out of its own funds, provided , however , the foregoing shall not require the Member to make any additional capital contributions to the Company, and provided further that this paragraph (xxvii) shall not prohibit San Juan Coal Company from receiving the services to be provided by Westmoreland under the Westmoreland Services Agreement (as defined in the Loan Documents);.

NOTE: Corporate analogues of the above provisions shall also be inserted into the governing documents (bylaws) of the other Loan Parties.

EXHIBIT H

MORTGAGED PROPERTY SUPPORT DOCUMENTATION


1.	The title searches in San Juan County real estate records relating to the Mortgaged Property that do not show any liens or encumbrances other than those (i) set forth in Section 7.01(g) of the Loan Agreement, or (ii) for which Loan Parties obtain discharges.


2.	Property and liability insurance policies covering the Mortgaged Property with Lender named as loss payee and additional insured.

Exhibit 10.4

EXECUTION

RECLAMATION BOND AGREEMENT

This RECLAMATION BOND AGREEMENT (“ Agreement ”) is entered into this 31st day of January, 2016 by and between PNM RESOURCES, INC. , a New Mexico corporation (“PNM Resources”), WESTMORELAND COAL COMPANY , a Delaware corporation (“Westmoreland”), SAN JUAN COAL COMPANY , a Delaware corporation (“SJCC”) and ZURICH AMERICAN INSURANCE COMPANY , a New York corporation (“Zurich”). PNM Resources, Westmoreland, SJCC and Zurich are sometimes referred to herein individually as a “Party” and collectively as the “Parties.”

WHEREAS , pursuant to a Stock Purchase Agreement dated as of July 1, 2015 (the “Stock Purchase Agreement”), Westmoreland San Juan, LLC (as assignee of Westmoreland) has agreed to purchase the stock of SJCC and San Juan Transportation Company from BHP Billiton New Mexico Coal, Inc.;

WHEREAS , SJCC owns and operates the San Juan Mine located near Farmington, New Mexico (the “San Juan Mine”);

WHEREAS , Public Service Company of New Mexico, a New Mexico corporation (“PNM”), a subsidiary of PNM Resources, Tucson Electric Power Company (“Tucson Electric”) and certain other entities (the “Other SJGS Owners”) jointly own and operate the San Juan Generating Station, which purchases from SJCC and uses in its operation coal from the San Juan Mine;

WHEREAS , pursuant to an Amended and Restated Mine Reclamation and Trust Funds Agreement dated July 31, 2015 (the “Mine Reclamation and Trust Funds Agreement”), by and

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among PNM, Tucson Electric, the Other SJGS Owners, and PNMR Development and Management Corporation, a New Mexico corporation (collectively, the “Participants”), each of the Participants has agreed to establish and fund an irrevocable trust to be maintained to fund the reclamation of the San Juan Mine site (each such trust, a “Reclamation Trust”);

WHEREAS , in connection with certain mining permits relating to the San Juan Mine, Westmoreland and SJCC has requested that Zurich issue, effective as of the date of closing under the Stock Purchase Agreement (the “Closing Date”), a reclamation bond or bonds in the amount of $162,000,000 on behalf of SJCC, in favor of the New Mexico Energy, Minerals and Natural Resources Department (“NMEMNRD”) (collectively, the “Reclamation Bond”), in connection with SJCC’s mining permits; and

WHEREAS , the execution and delivery of this Agreement, and the performance of certain obligations by PNM Resources hereunder, on or before the Closing Date are conditions to Zurich’s agreement to issue the Reclamation Bond.

NOW, THEREFORE , in consideration of the agreements, representations, warranties and conditions set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

1. Issuance of the Reclamation Bond

1.1 Obligations of PNM Resources

(a) PNM Resources will, prior to the Closing Date, cause Wells Fargo Bank, N.A. (the “Issuing Bank”) to issue a $40,000,000 irrevocable standby letter of credit for the

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benefit of Zurich, with an effective date as of the Closing Date, substantially in the form of Exhibit A attached to this Agreement (the “Initial Letter of Credit”).

(b) Within one hundred eighty (180) days after the Closing Date, PNM Resources will cause to be provided to Zurich (subject to Section 2.3(a)) a security interest in all parties’ interests in and assets of the PNM Reclamation Trust and the Tucson Electric Reclamation Trust to secure the performance of the aggregate payment and performance obligations covered by the Reclamation Bond. All documentation of such security interest, together with all terms, conditions, remedies, and third-party consents, must be acceptable to Zurich in its sole discretion, and must give Zurich the first right, effective against all creditors and lienholders, to access and use the funds of or in such Reclamation Trusts, subject to Section 1.2(b) below. A security interest meeting the requirements of this Section 1.1(b) is referred to herein as an “Acceptable Security Interest”).

(c) PNM Resources also will use reasonable commercial efforts to cause SJCC and each of the Participants other than PNM and Tucson Electric (the “Other Participants”) to provide to Zurich, within one hundred eighty (180) days after the Closing Date, either (i) Acceptable Security Interests in the Reclamation Trusts of the Other Participants or (ii) other cash collateral, letters of credit or security arrangements in form and amount acceptable to Zurich in its sole discretion (“Cash Collateral”).

1.2 Obligations of Zurich and Limitation on Zurich’s Use of Collateral

(a) If PNM Resources has caused the Initial Letter of Credit to be issued to Zurich on or before the Closing Date as required under Section 1.1(a), Zurich will issue the Reclamation Bond to NMEMNRD effective as of the Closing Date.

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(b) Zurich may draw on any letter of credit, or realize upon collateral in any form, solely for expenses incurred by Zurich associated with reclamation of the San Juan Mine site and (i) resulting from Zurich’s participation in a plan approved by PNM Resources to mitigate the risk of default leading to forfeiture of the Reclamation Bonds or (ii) arising upon or after initiation of bond forfeiture proceedings under Title 19.8.14.1413 NMAC by the NMENMRD. Zurich may also draw upon any letter of credit following notice of non-renewal or termination from the issuer, unless (i) the Reclamation Bonds have been released or (ii) Zurich has been provided with Additional Collateral (as defined in Section 2.3(a) below.

2. Post-Closing Adjustments

2.1 If PNM Resources has complied with its obligations to provide Acceptable Security Interests in the Reclamation Trusts of PNM and Tucson Electric, as set forth in Section 1.1(b), and is also successful in causing SJCC and each of the Other Participants to provide Acceptable Security Interests in the Reclamation Trusts of the Other Participants in accordance with Section 1.1(c), within one hundred eighty (180) days after the Closing Date, the Initial Letter of Credit will be immediately cancelled and terminated.

2.2 If Acceptable Security Interests are provided by some, but not all, of the Other Participants within one hundred eighty (180) days after the Closing Date, the Initial Letter of Credit will be reduced by a percentage of such stated amount equal to the quotient (expressed as a percentage) arrived at by dividing (x) the total amount of funds held in the Reclamation Trusts of the Other Participants that provided Acceptable Security Interests, by (y) the total amount of funds held in the Reclamation Trusts of all of the Other Participants. Zurich agrees in any such case that it will sign all such documents, and otherwise take all such actions, as are reasonably

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requested by PNM Resources to effect such cancellation and termination, or reduction in amount, of the Initial Letter of Credit.

2.3

(a) In the event that PNM Resources is unable to comply with its obligations set forth in Section 1.1(b) to provide Acceptable Security Interests in the Reclamation Trusts of PNM and Tucson Electric within one hundred eighty (180) days after the Closing Date, PNM Resources, Westmoreland (subject to Section 2.3(b) below) and SJCC will be obligated, jointly and severally, to (i) cause issuing banks acceptable to Zurich to issue to Zurich an additional irrevocable standby letter of credit or letters of credit for the benefit of Zurich, substantially in the form of the Initial Letter of Credit, or (ii) provide other Cash Collateral (any such additional letter of credit or Cash Collateral, the “Additional Collateral”) in an amount to be determined by Zurich in its sole discretion (but subject to Section 3.1 below) and will maintain such Additional Collateral in place until such time as Acceptable Security Interests in the Reclamation Trust of PNM and the Reclamation Trust of Tucson Electric have been provided to Zurich as described in Section 1.1(b).

(b) The Parties specifically acknowledge and agree that Westmoreland’s obligations under Section 2.3(a) above are subject to Westmoreland obtaining certain amendments to or waivers of certain provisions of its senior debt and senior credit facilities which currently prohibit Westmoreland from performing its obligations under Section 2.3(a). Westmoreland agrees to use commercially reasonable efforts to obtain all such necessary amendments and waivers within one hundred eighty (180) days after the Closing Date.

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(c) PNM Resources, Westmoreland and SJCC agree and acknowledge that their respective rights and obligations as among themselves under this Agreement or otherwise shall not impair, delay, limit or otherwise affect Zurich’s rights under against any or all of them or their respective obligations to Zurich, and each of them expressly waives, as against Zurich, any defenses or claims under this Agreement based on rights to notice of or consent to any action or failure to act by Zurich, including without limitation any impairment of collateral or of recourse, or any release of, or failure to maintain or take action against, any collateral, any of the Parties, or any third party.

2.4 At any time after the expiration of one hundred eighty (180) days after the Closing Date, assuming that PNM Resources has complied with its obligation to provide Zurich with Acceptable Security Interests under Section 1.1(b) or PNM Resources, Westmoreland (subject to Section 2.3(b) above) and SJCC have complied with their obligations to provide Additional Collateral under Section 2.3, and some or all of the Other Participants have also provided Acceptable Security Interests for their Reclamation Trusts, the Initial Letter of Credit and the Additional Collateral will be reduced or cancelled, as applicable, using the methodology set forth in Section 2.2. In any such event, Zurich agrees that it will sign all such documents, and otherwise take all such actions, as are reasonably requested by PNM Resources to effect the applicable cancellation and termination, or reduction in amount, of the Initial Letter of Credit and the Additional Collateral.

3. Other Adjustments to Collateral

3.1 Notwithstanding anything to the contrary contained in this Agreement, the Parties agree that the sum of (i) the face amount of the Initial Letter of Credit, (ii) the aggregate amount

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maintained in the Reclamation Trusts in which Zurich has an Acceptable Security Interest, and (iii) the amount of any Additional Collateral, all as they exist from time to time (collectively, the “Collateral Value”) will not be required to exceed the aggregate penal amount of the Reclamation Bond as it exists from time to time (the “Bond Penal Amount”).

3.2 In the event that the Collateral Value exceeds the Bond Penal Amount at any time, as a result of a reduction in the Bond Penal Amount, an increase in the amounts held in the applicable Reclamation Trusts, or otherwise, the Collateral Value shall be reduced until such excess Collateral Value is eliminated (i) first, by reducing the amount of the Initial Letter of Credit, (ii) next, to the extent required, by reducing the amount of the Additional Collateral, and (iii) next, to the extent required, proportionately reducing the amount of Reclamation Trust funds subject to Zurich’s security interest. Zurich agrees that it will sign all such documents, and otherwise take all such actions, as are reasonably requested by PNM Resources to effect any such reduction in the Collateral Value.

3.3 To the extent that the Collateral Value is ever reduced under Section 3.2, Zurich will not thereafter require it to be increased.

4. Release of Reclamation Bond

It is agreed that the Reclamation Bond may be replaced or otherwise released at any time by SJCC with the concurrence of the NMEMNRD. In the event that the Reclamation Bond is replaced or otherwise released, and Zurich is fully discharged and released from any and all liability under the Reclamation Bond (and has been reimbursed for related losses and/or expenses previously incurred), the Parties agree that the Initial Letter of Credit and the Additional Collateral shall be immediately cancelled and terminated, and the security interest in

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the Reclamation Trusts shall be immediately released. Zurich agrees that it shall execute and deliver all such documents, and otherwise take all such actions, as are reasonably requested by PNM Resources to effect any such cancellation and termination of the Initial Letter of Credit and the Additional Collateral and release of such security interests.

5. Representations and Warranties

5.1 Each Party represents and warrants to the other Parties that:

(a) Such Party is a corporation duly organized and validly existing in good standing under the laws of its state of incorporation, and it has the corporate power to own its property and to carry on its business as now being conducted.

(b) Such Party has full power and authority to enter into this Agreement and to perform its obligations under this Agreement, all of which have been duly authorized by all proper and necessary corporate action by such Party. No consent or approval of stockholders or consent or approval of, notice to or filing with any governmental authority is required as a condition to the validity or enforceability of this Agreement as to such Party.

(c) This Agreement constitutes the valid and legally binding agreement of such Party enforceable in accordance with its terms.

(d) There are no proceedings pending or threatened before any court or governmental or administrative agency that would reasonably be expected to affect the validity or enforceability of this Agreement as to such Party.

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5.2 The representations and warranties contained in this Section 5 will survive the execution and delivery of this Agreement.

6. Miscellaneous

6.1 Publicity . No Party will issue any press release or make any other public statement or filing concerning this Agreement or the relationship among the Parties without prior consultation with and prior approval of the other Party, except for any such press release or other public statement or filing which is required by applicable law or necessary to inform any regulatory agencies and any statements or filings made in judicial or administrative actions.

6.2 Limitation of Damages . No Party will be responsible to any other Party for any punitive, incidental, special or consequential damages (other than consequential damages resulting from actions by such Party which a court of competent jurisdiction finally determines to constitute fraud or willful misconduct by such Party), and each Party hereby irrevocably waives any right it would otherwise have to collect any such damages.

6.3 Notices . All communications, notices and disclosures required or permitted by this Agreement will be in writing and will be deemed to have been given on the date when delivered personally, by messenger, by overnight delivery service or otherwise, in all cases addressed to the Party to which it is intended at its address set forth below, unless and until a Party notifies the other Parties in writing of a change:

If to PNM Resources :

PNM Resources, Inc.

414 Silver Ave. SW, MS0905

Albuquerque, New Mexico 87102-3289

Attention: Elisabeth Eden, Treasurer

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With a copy to:

PNM Resources, Inc.

414 Silver Ave. SW, MS0905

Albuquerque, New Mexico 87102-3289

Attention: General Counsel

If to Westmoreland :

Westmoreland Coal Company

9450 South Maroon Circle, Suite 200

Edglewood, CO 80112

Attention: General Counsel

With a copy to:

Holland & Hart LLP

555 17 ^th Street, #3200

Denver, CO 80202

Attention: Amy Bowler

If to SJCC :

San Juan Coal Company

P O Box 561

Waterflow, NM 87421

Attention: General Manager

With a copy to:

9450 South Maroon Circle, Suite 200

Edglewood, CO 80112

Attention: General Manager

If to Zurich :

1400 American Lane, Tower 1, 18 ^th Floor

Shaumburg, IL 60196-1056

Attention: General Counsel

With a copy to:

Zurich North America

500 Enterprise Drive

Rocky Hill, CT 06067

Attention: Commercial Surety

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6.4 Governing Law . (a) This Agreement and the rights and obligations of the Parties hereunder will be governed by and construed and interpreted in accordance with the laws of the State of New York (including Sections 5-1401 and 5-1402 of the New York General Obligation Law), but excluding all other choice of law and conflicts of law rules.

(b) Any legal action or proceeding with respect to this Agreement may be brought in the Supreme Court of the State of New York sitting in New York County, New York and in the United States District Court for the Southern District of New York, and any appellate court from any thereof, and, by execution and delivery of this Agreement, each Party hereby irrevocably accepts for itself and with respect to its property, generally and unconditionally, the jurisdiction of such courts, and each Party 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 court or, to the extent permitted by law, in such Federal court.

(c) Each Party 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 in any court referred to in paragraph (a) of this Section 6.4. Each Party hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such suit, action or proceeding in any such court.

6.5 Modifications . No modification, amendment or waiver of any provision of this Agreement will in any event be effective unless it is in writing and signed by all Parties.

6.6 Binding Agreement; Assignment . This Agreement will be binding on and inure to the benefit of PNM Resources, Westmoreland, SJCC and Zurich and their respective

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successors and assigns. No Party may assign this Agreement, delegate any obligations hereunder or assign any rights granted to it hereunder without the prior written consent of the other Parties. Any purported assignment in contravention of this Section 6.6 will be null and void and of no force or effect.

6.7 Expenses . Unless otherwise agreed to in writing by the Parties, each Party will bear all of its own costs and expenses incurred in the negotiation, execution and performance of this Agreement.

6.8 Counterparts . This Agreement may be executed in any number of counterparts and by each Party hereto in a separate counterpart, each of which when so executed and delivered will be deemed to be an original and all of which taken together will constitute but one and the same agreement.

6.9 Headings . The headings of the various sections of this Agreement have been inserted for the purpose of convenience only, and those headings will not be deemed in any manner to modify, enlarge or restrict any of the provisions of this Agreement.

6.10 Further Assurances . Each Party agrees to execute such documents and take such other action as any other Party may reasonably request to implement the terms hereof. PNM Resources, Westmoreland and SJCC acknowledge, however, that (i) the documentation, terms and conditions of any security interest granted to Zurich must be acceptable to Zurich in its sole and absolute discretion in order to constitute an Acceptable Security Interest as defined herein, (ii) the documentation, terms and conditions of any letter of credit, Cash Collateral or Additional Collateral provided to Zurich must be acceptable to Zurich in its sole and absolute discretion, and

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(iii) in any event, Zurich’s acceptance may depend on requirements, consents, and conditions that are not specified in this Agreement.

6.11 SJCC Joinder . Simultaneously with the closing of the acquisition of SJCC under the Stock Purchase Agreement, Westmoreland agrees to cause SJCC to execute the signature page hereto and to become a party to this Agreeement.

6.12 Entire Agreement . This Agreement (including the Exhibits hereto) constitutes the entire agreement among PNM Resources, Westmoreland, SJCC and Zurich with respect to the subject matter hereto.

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IN WITNESS WHEREOF, PNM Resources, Westmoreland, SJCC and Zurich have caused this Agreement to be duly executed by their duly authorized officers.

PNM RESOURCES, INC.

By: /s/ Elisabeth Eden

Its: Vice President and Treasurer

WESTMORELAND COAL COMPANY

By: /s/

Its: Chief Financial Officer

SAN JUAN COAL COMPANY

By: /s/

Its: Vice President

ZURICH AMERICAN INSURANCE COMPANY

By: /s/ Aaron T. Ort

Its: Senior Vice President

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ACKNOWLEDGED :

WESTMORELAND SAN JUAN, LLC

By: /s/

Its: Vice President

Exhibit A

Form of Initial Letter of Credit

SEE ATTACHED

COMPROMISE LETTER OF CREDIT FORM

(Name of Bank)

(Address)

FOR INTERNAL IDENTIFICATION PURPOSES ONLY

Our No. Other

Accountholder/Applicant

Beneficiary’s State of Domicile: NEW YORK

Issue Date

Irrevocable Clean Letter of Credit No.

To Beneficiary: Fidelity and Deposit Company of Maryland

c/o Zurich American Insurance Company

1400 American Lane

Tower 2, 11 ^th Floor

Schaumburg, Illinois 60196-1056

Attention: Direct Collateral

We have established this clean, irrevocable, and unconditional Letter of Credit in your favor as Beneficiary for drawings up to U.S. $___________ effective immediately. This Letter of Credit is issued, presentable and payable to our office is ( issuing bank address ) and expires with our close of business on ___________. Except when the amount of this Letter of Credit is increased, this Credit cannot be modified or revoked without your consent.

The term “Beneficiary” includes any successor by operation of law of the named Beneficiary including without limitation any liquidator, rehabilitator, receiver or conservator. Drawings by any liquidator, rehabilitator, receiver or conservator shall be for the benefit of all the Beneficiary’s policyholders.

We hereby undertake to promptly honor your sight draft(s) drawn on us, indicating our Credit No. _________, for all or any part of the Credit upon presentation of your draft drawn on us at our office specified in paragraph one on or before the expiration date hereof or any automatically extended expiry date.

Except as expressly stated herein, this undertaking is not subject to any agreement, requirement or qualification. The obligation of ( issuing bank ) under this Credit is the independent obligation of ( issuing bank ), and is in no way contingent upon reimbursement with respect thereto, or upon our ability to perfect any lien, security interest or any other reimbursement, or upon the Beneficiary establishing, in the event of the Applicant’s bankruptcy, that all or any part of the Credit drawn upon is an actual, necessary cost or expense of preserving the Applicant’s bankruptcy estate.

This Letter of Credit is deemed to be automatically extended without amendment for one ( 1 ) year from the expiration date or any future expiration date, unless thirty ( 30 ) days prior to such expiration date we notify you by Registered Mail that Letter of Credit will not be renewed for any such additional period.

This Letter of Credit is subject to and governed by the Laws of the State of New York and the 2007 Revision of the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce ( Publication No. 600 ) and in the event of any conflict, the Laws of the State of New York will control. If this Credit expires during an interruption of business as described in Article 36 of said Publication No. 600, the bank hereby specifically agrees to affect payment if this Credit is drawn against without thirty ( 30 ) days after the resumption of business.

Very truly yours,

Exhibit 10.5

PNM RESOURCES, INC.
2016 LONG-TERM INCENTIVE PLAN

Introduction

•

The 2016 Long-Term Incentive Plan (the “Plan” or the “2016 Plan”) provides eligible Officers of PNM Resources, Inc. (the “Company” or “PNMR”) with the opportunity to earn Performance Share Awards (70% of the total opportunity) and time-vested Restricted Stock Rights Awards (30% of the total opportunity). For purposes of the Plan, “Officer” means any Officer of the Company who has the title of Chief Executive Officer, Chief Operating Officer, Executive Vice President, Senior Vice President or Vice President and who is in salary grade H18 or higher.

•

The number of Performance Shares earned by an Officer for the Performance Period (as described below) will depend on the Officer’s position ( e.g. , Chief Executive Officer, Chief Operating Officer, Executive Vice President, Senior Vice President or Vice President) and base salary and the Company’s level of attainment of (1) a Relative TSR Goal, (2) an FFO/Debt Ratio Goal and (3) an Earnings Growth Goal, as described below and in Attachment A.


•	The number of time-vested Restricted Stock Rights granted to an Officer at the end of each Performance Period will depend on the Officer’s position, the Officer’s base salary and the discretion of the Company’s Compensation and Human Resources Committee (the “Committee”).

Performance Period


•	The Performance Period began on January 1, 2016 and will end on December 31, 2018.

Performance Goals


•	The number of Performance Shares that an Officer will receive for the Performance Period will depend on the Company’s level of attainment of a Relative TSR Goal, an FFO/Debt Ratio Goal and an Earnings Growth Goal.


•	These Goals and the corresponding Awards are described in the Performance Goal Table (Attachment A).

Performance Share Award Opportunities


•	The Company’s level of attainment (Threshold, Target or Maximum) of the Relative TSR Goal, the FFO/Debt Ratio Goal and the Earnings Growth Goal determines the level of the Officer’s Performance Share Awards.


•	An Officer’s Performance Share Award opportunities also will vary depending on the Officer’s position and the Officer’s base salary, all as determined in accordance with the Performance Share Award Opportunity Table (Attachment B).


•	For purposes of determining the number of Performance Shares to which an Officer is entitled at any particular Award Level, the value of one Performance Share shall be equal to the Fair Market Value of one share of the Company’s Stock on the relevant Grant Date

and the Officer’s base salary shall equal the Officer’s base salary as of the first day of the Performance Period.

Time-Vested Restricted Stock Rights Award Opportunities


•	After the Performance Period (generally between the next following January 1 and March 15), the Committee will consider whether to grant time-vested Restricted Stock Rights Awards to the participating Officers.


•	If the Committee, with the approval of the Company’s Board of Directors (the “Board”), decides to make a time-vested Restricted Stock Rights Award to a particular Officer, it must adopt a written resolution to that effect. In the resolution, the Committee will establish the Grant Date for the time-vested Restricted Stock Rights Award.

•

An Officer’s time-vested Restricted Stock Rights Award opportunity will vary depending on the Officer’s position and the Officer’s base salary, all as determined in accordance with the attached Time-Vested Restricted Stock Rights Award Opportunity Table (Attachment C). The Committee reserves the discretion to grant an Award that is less than the opportunity set forth in the Table or to grant no time-vested Restricted Stock Rights Award to a particular Officer.


•	For purposes of determining the number of time-vested Restricted Stock Rights to which an Officer will be entitled, the value of one time-vested Restricted Stock Right shall be equal to the Fair Market Value of one share of the Company’s Stock on the Grant Date specified in the Committee’s resolution and the Officer’s base salary shall equal the Officer’s base salary on the Grant Date.

Other Provisions


•	All of the Awards will be made pursuant to the PNM Resources, Inc. 2014 Performance Equity Plan (the “PEP”) or any successor to the PEP. Any references in the Plan to the PEP shall be deemed to be a reference to the corresponding provisions of any successor to the PEP.


•	All of the Awards will be subject to the standard Terms and Conditions attached hereto as Attachment D.


•	The Grant Date for the Performance Share Awards is March 2, 2016 (the first trading day after expiration of the current black-out period, as determined in accordance with the Company’s Equity Compensation Awards Policy).

•

A prorated Performance Share Award will be provided to an Officer who Separates from Service in the second half of the Performance Period (in other words, between July 1, 2017 and December 31, 2018) due to death, Disability, Retirement or Impaction. A prorated Award will not be paid to an Officer who incurs a Separation from Service for any of these reasons during the first half of the Performance Period or to an Officer who incurs a Separation from Service for any other reason prior to the last day of the Performance Period.


•	The prorated Award will be calculated at the end of the Performance Period based on actual performance during the Performance Period. The proration will be made based on the number of full months of service completed by the Officer

during the Performance Period, using the proration rules described in Section 11.1(a)(iv)(2) of the PEP. The prorated Award then will be paid at the same time as Awards are paid to other participants in the Plan.


•	If an individual ceases to be an Officer during a Performance Period but remains employed by the Company or its Affiliates, the Committee may grant a pro-rata Performance Share Award to the former Officer on such terms and conditions as the Committee deems to be appropriate as long as the individual was an Officer for at least half of the Performance Period.


•	If an individual becomes an Officer during a Performance Period, the Committee may grant a pro-rata Performance Share Award to the new Officer on such terms and conditions as the Committee deems to be appropriate.


•	All Performance Share Awards payable to Officers who are Covered Employees for the Company’s tax year that coincides with the end of the Performance Period are intended to qualify as Performance-Based Awards granted pursuant to Section 10 of the PEP. As a result, all such Awards are subject to the requirements of Section 10 of the PEP.


•	All Awards issued under this Plan are subject to potential forfeiture or recovery to the fullest extent called for by any Clawback Policy that may be adopted by the Company. By accepting an Award, an Officer consents to the Clawback Policy and agrees to be bound by and comply with the Clawback Policy and to return the full amount required by the Clawback Policy.

/s/ Patrick V. Apodaca

Patrick V. Apodaca

SVP and General Counsel

Dated: March 22 , 2016

ATTACHMENT A

Performance Goal Table



Goal	Threshold Level ¹	Target Level	Maximum Level ²
Relative TSR ³ If the Company’s Relative TSR for the Performance Period places it in the Threshold, Target or Maximum Level range shown to the right, the Officer will be entitled to receive 40% of the Threshold, Target or Maximum Award as determined in accordance with the Performance Share Award Opportunity Table.	Greater than the 35th percentile, but not greater than the 50th percentile	Greater than the 50th percentile, but not greater than the 95th percentile	Greater than the 95th percentile
FFO/Debt Ratio ⁴ If the Company’s FFO/Debt Ratio on the last day of the Performance Period places it in the Threshold, Target or Maximum Level range for the Performance Period, the Officer will be entitled to receive 30% of the Threshold, Target or Maximum Award as determined in accordance with the Performance Share Award Opportunity Table.	At least 15%, but less than 17%	At least 17%, but less than 19%	At least 19%
Earnings Growth ⁵ If the Company’s Earnings Growth on the last day of the Performance Period places it in the Threshold, Target or Maximum Level range for the Performance Period, the Officer will be entitled to receive 30% of the Threshold, Target or Maximum Award as determined in accordance with the Performance Share Award Opportunity Table.	At least 3%, but less than 5%	At least 5%, but less than 8%	At least 8%

_________________________

¹ If the Company’s Relative TSR, FFO/Debt Ratio or Earnings Growth falls between two Award levels ( e.g. , the Threshold Level and the Target Level shown in the Performance Goal Table), the number of Performance Shares to which an Officer is entitled will be interpolated between the two Award levels in accordance with uniform procedures prescribed by the Committee.

² In no event will an Officer receive more than the Maximum Award for an Officer of his or her level as listed in the Award Opportunity Table.

³ The “Relative TSR” Goal refers to the Company’s “Total Shareholder Return” for the Performance Period as compared to the “Total Shareholder Return” of the other utilities included in the S & P 400 Mid-Cap Utility Index.

For this purpose, the Total Shareholder Return of the Company and the other utilities included in the Index will be determined by adding any dividends paid by the Company (or such other utilities) to the appreciation in the value of the Company’s Stock (or the other utilities’ common stock). The appreciation shall be measured by comparing the

A-1

_____________________________________________________________________________________________

“Beginning Stock Price” and “Ending Stock Price.” The “Beginning Stock Price” is the average closing price of the Company’s Stock (or the common stock of the other utilities) on the 20 trading days immediately preceding the first day of the Performance Period. The “Ending Stock Price” is the average closing price of the Company’s Stock (or the common stock of the other utilities) on the last 20 trading days of the Performance Period.

⁴ Equals PNMR’s funds from operations for the fiscal year ending December 31, 2018, divided by PNMR’s total debt outstanding (including any long-term leases and unfunded pension plan obligations) as of December 31, 2018. Funds from operations are equal to the amount of PNMR’s net cash flow from operating activities (as reflected on the Consolidated Statement of Cash Flows) as reported in the Company’s Form 10-K for PNM Resources adjusted by the following items: (1) including amounts attributable to principal payments on imputed debt from long-term leases, (2) excluding changes in PNMR’s working capital, including bad debt expense, (3) excluding the impacts of any consolidation required by the Variable Interest Entities accounting rules and regulations, (4) subtracting the amount of capitalized interest, (5) excluding any contributions to the PNMR or TNMP qualified pension plans, and (6) by making the same adjustments associated with the Westmoreland transaction as Moody's to calculate funds from operations or total debt outstanding for the fiscal year ending December 31, 2018. The calculation is intended to be consistent with Moody’s calculation of FFO/Debt (which Moody’s refers to as “CFO Pre-WC/Debt”) and if Moody’s modifies its calculation methodology prior to December 31, 2018 and communicates such changes in writing to Company representatives or the general public prior to December 31, 2018, the Moody’s calculation methodology in effect as of December 31, 2018 will be utilized.

⁵ Earnings Growth, for the period 2016 to 2018, will be calculated by measuring the compounded annual growth rate by dividing the Earnings Per Share (as defined below) as of December 31, 2018 by the Earnings Per Share (as defined below) as of December 31, 2015. The resulting earnings growth multiple will then be multiplied to the 1/3 power and subtract 1. The calculation would be as follows: [(2018 Earnings Per Share/2015 Earnings Per Share) ^ (1/3)] - 1.

Earnings Per Share for the performance period noted above equals PNMR’s diluted EPS for the fiscal years ending December 31, 2015 and 2018 calculated in accordance with Generally Accepted Accounting Principles and reported in the Company’s Form 10-K for PNM Resources adjusted to exclude the following items: (1) mark-to-market impact of economic hedges, (2) regulatory disallowances, (3) net change in unrealized impacts of plant decommissioning and coal mine reclamation trust securities, (4) gains or losses on reacquired debt, (5) goodwill or other intangible asset impairments, (6) impacts of acquisition and disposition activities, including particularly but not limited to pension expense or income associated with PNM’s former gas utility operations, (7) adoption of a new accounting pronouncement or a change in the interpretation of an existing accounting standard, (8) the loss, impairment, or write-up of any deferred tax asset or liability that was earned and recognized in a prior tax year, but that must be revalued in the current year due to changes in state or federal tax law, (9) judgments entered or settlements reached in litigation or other regulatory proceedings, (10) increases or decreases in the expenses associated with PNM’s retired generating stations, including but not limited to expenses incurred in demolition or environmental work of such retired generating stations, (11) costs associated with process improvement initiatives, and (12) changes to the liabilities associated with mine reclamation costs that are attributable to changes in the discount rates used to measure those liabilities, collateral costs associated with providing the required surety bond for reclamation with the State of New Mexico or changes due to actions taken by the New Mexico Public Regulation Commission. Diluted EPS expands on basic EPS by including the dilutive effect of common stock equivalents such as stock options and restricted stock awards.

A-2

ATTACHMENT B

Performance Share Award Opportunity Table



Officer Level	Threshold Award	Target Award	Maximum Award
CEO	Performance Shares = 78.75% of base salary	Performance Shares = 157.5% of base salary	Performance Shares = 315% of base salary
EVP	Performance Shares = 38.5% of base salary	Performance Shares = 77% of base salary	Performance Shares = 154% of base salary
SVP, COO	Performance Shares = 31.5% of base salary	Performance Shares = 63% of base salary	Performance Shares = 126% of base salary
SVP	Performance Shares = 29.75% of base salary	Performance Shares = 59.5% of base salary	Performance Shares = 119% of base salary
SVP for Public Policy	Performance Shares = 26.25% of base salary	Performance Shares = 52.5% of base salary	Performance Shares = 105% of base salary
VP	Performance Shares = 15.75% of base salary	Performance Shares = 31.5% of base salary	Performance Shares = 63% of base salary

B-1

ATTACHMENT C

Time-Vested Restricted Stock Rights Award Opportunity Table



Officer Level	Award
CEO	Restricted Stock Rights = 67.5% of base salary
EVP	Restricted Stock Rights = 33% of base salary
SVP, COO	Restricted Stock Rights = 27% of base salary
SVP	Restricted Stock Rights = 25.5% of base salary
SVP for Public Policy	Restricted Stock Rights = 22.5% of base salary
VP	Restricted Stock Rights = 13.5% of base salary

C-1

ATTACHMENT D

2016 LONG-TERM INCENTIVE PLAN

TERMS AND CONDITIONS

PNM Resources, Inc. (the “Company” or “PNMR”) has adopted the PNM Resources, Inc. 2014 Performance Equity Plan (the “PEP”) or any successor to the PEP. Pursuant to the PEP, the Company’s Compensation and Human Resources Committee (the “Committee”) has developed the PNM Resources, Inc. 2016 Long-Term Incentive Plan (the “Plan” or the “2016 Plan”) pursuant to which eligible Officers may receive Performance Share Awards and time-vested Restricted Stock Rights Awards.

All of the Awards granted under the 2016 Plan are made pursuant to the PEP and are subject to the provisions of the PEP. In addition, all of the Awards under the 2016 Plan are made subject to these Terms and Conditions. All of the terms of the PEP are incorporated into this document by reference. Capitalized terms used in but not otherwise defined in this document shall have the meanings given to them in the PEP. Any references in the Plan to the PEP shall be deemed to be a reference to the corresponding provisions of any successor to the PEP.

1. Performance Share Awards .

(a) Determination of Relative TSR, FFO/Debt Ratio and Earnings Growth . The Committee will determine the Relative TSR, the FFO/Debt Ratio and the Earnings Growth for the Performance Period and the Officer’s corresponding Performance Share Award, if any, within 75 days following the end of the Performance Period. The Committee then will certify and submit its determinations with respect to the Relative TSR, FFO/Debt Ratio and Earnings Growth and the number of Performance Shares to which an Officer is entitled to the Board of Directors for review and approval. The Performance Shares to which an Officer is entitled shall become payable at the times described below.

(b) Separation from Service; Forfeiture . Unless an Officer qualifies for a prorated Award, as described in the Plan, as a result of the Officer’s Separation from Service during the second half of the Performance Period due to death, Disability, Retirement, or Impaction, the Officer’s Award will be forfeited upon the Officer’s Separation from Service prior to the end of the Performance Period. If the Company terminates an Officer’s employment for Cause during or following the expiration of the Performance Period, all vested and unvested Performance Shares shall be canceled and forfeited immediately, regardless of whether the Officer elects Retirement.

(c) Form and Timing of Delivery of Stock . All of the Performance Shares awarded and vested pursuant to the Plan will be paid in Stock within the first 90 days of the calendar year following the end of the Performance Period. The Performance Shares granted under this Plan are subject to the requirements of Section 409A of the Code. Accordingly, the restrictions described in Section 18.3 of the PEP apply to the Performance Shares.

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2. Time-Vested Restricted Stock Rights Awards .

(a) Vesting .

(1) Except as set forth below, the time-vested Restricted Stock Rights shall vest in the following manner: (i) 33% of the time-vested Restricted Stock Rights will vest on March 7, 2020; (ii) an additional 34% of the time-vested Restricted Stock Rights will vest on March 7, 2021; and (iii) the final 33% of the time-vested Restricted Stock Rights will vest on March 7, 2022.

(2) Upon an Officer’s involuntary or voluntary Separation from Service for any reason other than those set forth in Section 2(a)(3), the time-vested Restricted Stock Rights, if not previously vested, shall be canceled and forfeited immediately.

(3) Upon an Officer’s Separation from Service due to death, Disability, Retirement, Impaction or a Qualifying Change in Control Termination, any unvested time-vested Restricted Stock Rights shall become 100% vested in accordance with the applicable provisions of the PEP.

(b) Form and Timing of Delivery of Certificate . All of the time-vested Restricted Stock Rights awarded pursuant to this Plan will be paid in Stock in accordance with the following provisions:

(1) If any time-vested Restricted Stock Rights vest in accordance with Section 2(a)(1), the Officer will receive the Stock payable with respect to such vested time-vested Restricted Stock Rights within 90 days following the dates on which the time-vested Restricted Stock Rights vest.

(2) If any time-vested Restricted Stock Rights vest in accordance with Section 2(a)(3), the Officer will receive the Stock payable with respect to such time-vested Restricted Stock Rights within 90 days following the date of the Officer’s Separation from Service.

(3) If the 90‑day period during which payments may be made pursuant to Section 2(a)(1) or (3) begins in one calendar year and ends in another, the Officer will receive the Stock in the second calendar year.

(4) All Stock will be awarded in accordance with the requirements of Section 409A of the Code and Section 18.3 of the PEP.

3. Adjustments . Neither the existence of the Plan nor the Awards shall affect, in any way, the right or power of the Company to make or authorize: any or all adjustments, recapitalizations, reorganizations, or other changes in the Company’s capital structure or its business; or any merger or consolidation of the Company; or any corporate act or proceeding, whether of a similar character or otherwise; all of which, and the resulting adjustments in, or impact on, the Awards are more fully described in Section 4.3 of the PEP.

D-2

4. Dividend Equivalents . An Officer will not be entitled to receive a dividend equivalent for any of the Performance Shares or time-vested Restricted Stock Rights granted under the Plan.

5. Withholding . Pursuant to Section 16.1 of the PEP, the Company has concluded that an Officer shall be required to satisfy federal, state, and local income tax withholding and employment tax requirements on any Award made pursuant to the Plan by directing the sale of a sufficient number of the shares acquired upon payment of the Award to cover the minimum withholding requirements, by means of the mandatory withholding of a number of shares sufficient to satisfy such requirements, or by such other means as the Company may direct from time to time.

6. Status of Plan and Administration . The Plan and these Terms and Conditions shall at all times be subject to the terms and conditions of the PEP and shall in all respects be administered by the Committee in accordance with the terms of and as provided in the PEP. The Committee shall have the sole and complete discretion with respect to the interpretation of the Plan, these Terms and Conditions and the PEP, and all matters reserved to it by the PEP. The decisions of the majority of the Committee shall be final and binding upon an Officer and the Company. In the event of any conflict between the terms and conditions of the Plan or these Terms and Conditions and the PEP, the provisions of the PEP shall control.

6. Waiver and Modification . The provisions of the Plan and these Terms and Conditions may not be waived or modified unless such waiver or modification is in writing signed by an authorized representative of the Committee.

7. Amendment or Suspension . The Committee, in its sole discretion, reserves the right to adjust, amend or suspend the Plan and these Terms and Conditions during the Performance Period except as otherwise provided in the PEP. The Senior Vice President and General Counsel is hereby authorized to correct any typographical or similar errors in the Plan, the Terms and Conditions and any other documents issued in connection with the Plan.

8. Ethics . The purpose of the Plan is to fairly reward performance achievement. Any Officer who manipulates or attempts to manipulate the Plan for personal gain at the expense of customers, shareholders, other employees, or the Company or its Affiliates will be subject to disciplinary action, up to and including termination of employment, and will forfeit and be ineligible to receive any Award under the Plan.

D-3

Exhibit 10.6

PNM RESOURCES, INC.

2016 OFFICER ANNUAL INCENTIVE PLAN

Introduction

PNM Resources, Inc. (the “Company” or “PNMR”) has adopted this 2016 Officer Annual Incentive Plan (the “Plan”) for the purpose of providing annual cash-based incentive awards (each an “Award”) to eligible Officers (as defined below). The Awards payable to Officers under the Plan are intended to qualify as Performance Cash Awards granted pursuant to Section 7.2 of the PNM Resources, Inc. 2014 Performance Equity Plan (the “PEP”). In the case of Officers who are Covered Employees as defined in the PEP, the Awards also are intended to qualify as Performance-Based Awards granted pursuant to Section 10 of the PEP.

Capitalized terms used in the PEP and not otherwise defined in this Plan document have the meanings given to them in the PEP.

Eligibility

All Officers of the Company are eligible to participate in the Plan. For purposes of the Plan, the term “Officer” means any employee who has the title of Chief Executive Officer, Chief Operating Officer, Executive Vice President, Senior Vice President or Vice President and who is in salary grade H18 or higher.

Award Determinations in General

Awards are based on the Incentive Earnings Per Share (“Incentive EPS”) levels for the Performance Period as set forth in Table 1 of Attachment A, the weighting between Corporate and Business Area Goals as described in Table 2 of Attachment A and Award levels achieved during the Performance Period as described in Table 3 of Attachment A. The Performance Period began on January 1, 2016 and will end on December 31, 2016.

An Officer’s Award will equal the Officer’s share of the Incentive EPS Award Pool described below. If the Officer’s share of the appropriate Performance Award Pool described below is less than the Officer’s share of the Incentive EPS Award Pool; however, the Officer will receive the smaller amount.

An Officer’s share of the Incentive EPS Award Pool or the Performance Award Pool (individually, an “Award Pool”), as applicable, will be based upon the amount potentially payable to the Officer for the attained level of performance (Threshold, Target or Maximum), as determined in accordance with Table 3 of Attachment A, as compared to the aggregate amounts potentially payable for the attained level of performance to all of the Officers who are entitled to share in that Award Pool. In determining the amount potentially payable to an Officer, the base salaries will be determined as of January 1, 2016. In no event will the amount payable to an Officer exceed the indicated percentage of the Officer’s base salary for the attained performance

level as set forth in Table 3 of Attachment A. In addition, in no event will the amount payable to one Officer be increased due to a decrease in the amount payable to any other Officer.

Incentive EPS Award Pool

In order for any Awards to be payable to eligible Officers, the Company must achieve the Threshold Incentive EPS level set forth in Table 1 of Attachment A. If the Company does not achieve the Threshold Incentive EPS level (calculated before any charges for amounts due pursuant to this Plan), no Awards are payable under the Plan to any Officer. If the Company achieves the Threshold Incentive EPS level (calculated before any charges for amounts due pursuant to this Plan), but the charges for amounts due pursuant to this Plan reduce the Incentive EPS to an amount below the Threshold Incentive EPS level, the Threshold level Incentive EPS Award Pool shall be reduced by the amount necessary to assure that the Incentive EPS is equal to the Threshold Incentive EPS level, unless the Committee, in the exercise of its discretion concludes that no Awards should be payable.

If the Threshold, Target or Maximum Incentive EPS levels, as listed in Table 1, are achieved, the aggregate potential Awards payable to the Officers at that level of performance ( e.g. , the aggregate level of Awards payable at Threshold, Target or Maximum as shown in Table 3 of Attachment A) will make up the “Incentive EPS Award Pool.” If the actual Incentive EPS exceeds the minimum level for a performance level by at least $0.01, but is less than the maximum level for that performance level ( e.g. , if the actual Incentive EPS exceeds $1.49 but is less than $1.55), the Incentive EPS Award Pool will be increased by using straight-line interpolation between the size of the Incentive EPS Award Pool based on the attained level ( e.g. , Threshold) and the size of the Incentive EPS Award Pool at the next higher level ( e.g. , Target). The Committee has the discretion to increase the Incentive EPS Award Pool by an amount less than the amount determined by using straight-line interpolation. The Incentive EPS Award Pool is capped by the aggregate Maximum Awards shown in Table 3 for all eligible Officers.

Performance Award Pools

A Corporate Goals Scorecard and Business Area Goals Scorecard listing each performance measure established by the Committee will be maintained by the PNM Resources, Inc. Management Systems group. As set forth in Table 2 of Attachment A, the performance of the Chief Executive Officer and the Senior Officers (the Chief Operating Officer, the Executive Vice President and the Senior Vice Presidents) are measured 100% on the Corporate Goals Scorecard. Vice Presidents are measured 60% on the Corporate Goals Scorecard and 40% on the Business Area Goals Scorecard.

The “Performance Award Pool” for each Business Area is the amount that could be paid in the aggregate to the Vice Presidents assigned to that Business Area based on performance alone, determined by using the following multi-step process:


a)	Select the Scorecard results from the appropriate Corporate Goals and Business Area Goals Scorecards;


b)	Then multiply each result by the appropriate weighting for the Scorecard as set forth in Table 2 of Attachment A;


c)	Then multiply the total Vice President salaries for that Business Area by the Target Award Level as set forth in Table 3 of Attachment A;


d)	Then multiply the result of each Scorecard (Step b), expressed as a percentage of Target, by the aggregate base salaries of the Vice Presidents included in that Business Area (Step c); and


e)	Sum the results for the Vice President participants.

The Performance Award Pool for the Chief Executive Officer and the Senior Officers will be constructed by using the same process but will be based solely upon the Corporate Goals Scorecard.

Award Approval and Payout Timing

In February 2017, the Committee will determine and certify the level of Awards, if any, payable for the Performance Period in the manner described above. The final Awards calculation and recommendation to the Committee by management will be reviewed and certified by the Vice-President, Human Resources; Director, Audit and Cost of Service; Director, Management Systems group; and Vice President, Corporate Controller, respectively. The independent directors of the Board then will approve the Chief Executive Officer’s Award and the Committee will approve the Awards for all other Officers. To the extent Awards are payable under the Plan, the Company will make the payment on or before March 15, 2017 in a single lump sum cash payment, subject to applicable withholding.

The Committee shall retain the authority to adjust the Incentive EPS Award Pool and the Performance Award Pool, to adjust the level of attainment of the Incentive EPS or Corporate Goals and Business Area Goals Scorecards or to otherwise increase or decrease the amount payable with respect to any Award made pursuant to this Plan. Notwithstanding the foregoing, the Committee’s authority to increase Awards made pursuant to this Plan does not apply to Covered Employees.

Provisions for a Change in Control

If a Change in Control occurs during the Performance Period and the Officer remains employed by the Company or an Affiliate at the end of the Performance Period, the Officer may be entitled to receive an Award for the Performance Period as determined in accordance with the provisions of this Plan. If the Plan is modified after the occurrence of a Change in Control in a manner that has the effect of reducing the amounts otherwise payable under the Plan, an Officer who remains employed by the Company or an Affiliate at the end of the Performance Period will receive, at a minimum, an Award equal to 50% of the Maximum Award available under this Plan for the Performance Period.

If an Officer terminates employment with the Company or an Affiliate during the Performance Period due to a Qualifying Change in Control Termination, the Officer may be entitled to receive a special payment pursuant to the PNM Resources, Inc. Officer Retention Plan in lieu of any payments under this Plan.

Pro-rata Awards for Partial Service Periods

In certain circumstances (as set forth below) Officers may or may not be eligible for a Pro-rata Award under the Plan.

The following Officers may be eligible for a Pro-rata Award:


-	Officers who are newly hired during the Performance Period and are employed by the Company or an Affiliate on the day on which Awards are distributed for the Performance Period.


-	Employees or Officers who are promoted, transferred or demoted during the Performance Period and are employed by the Company or an Affiliate on the day on which Awards are distributed for the Performance Period.


-	Officers who are on leave of absence for any full month(s) during the Performance Period and are employed by the Company or an Affiliate on the day on which Awards are distributed for the Performance Period.


-	Officers who terminate employment with the Company or an Affiliate during the Performance Period due to Impaction (as defined in the PNM Resources, Inc. Non-Union Severance Pay Plan), Retirement or Disability.


-	Officers who die during the Performance Period, in which case the Award will be paid to the spouse of a married Officer, including a same sex spouse, or the estate of an unmarried Officer.

The following Officers are not eligible for any Award, including a Pro-rata Award:

Officers who terminate employment with the Company or an Affiliate on or before the date on which Awards are distributed for the Performance Period for any reason other than death, Impaction (as defined in the PNM Resources, Inc. Non-Union Severance Pay Plan), Retirement or Disability. As noted above, Officers who terminate employment with the Company or an Affiliate during the Performance Period due to a Qualifying Change in Control Termination may be entitled to receive a special payment pursuant to the PNM Resources, Inc. Officer Retention Plan in lieu of any payments under this Plan.


-	Officers who elect voluntary separation or Retirement in lieu of termination for performance or misconduct.

If an Officer is eligible for a Pro-rata Award, it will be calculated based on the number of full month(s) that the Officer was actively employed at each eligibility level during the Performance Period compared to the number of full months included in the Performance Period. (Note: Only months in which the Officer is actively employed on the payroll on the first and last day of the month will count as a full month.) Any Pro-rata Award to which an Officer becomes eligible pursuant to this paragraph will be paid to the Officer in a single lump sum cash payment subject to applicable withholding, on or before March 15, 2017.

Ethics

The purpose of the Plan is to fairly reward performance achievement. Any Officer who manipulates or attempts to manipulate the Plan for personal gain at the expense of customers, shareholders, other employees or the Company or its Affiliates will be subject to disciplinary action, up to and including termination of employment, and will forfeit and be ineligible to receive any Award under the Plan.

Continuation of Employment

This Plan does not confer upon any Officer any right to continue in the employment of the Company or any Affiliate and does not limit the right of the Company or any Affiliate, in its sole discretion, to terminate the employment of any Officer at any time. This Plan also does not limit any right that the Company or any Affiliate has to terminate the employment of any Officer in accordance with any written employment agreement the Company and Officer may have.

Clawbacks

All Awards issued under this Plan are subject to potential forfeiture or recovery to the fullest extent called for by any Clawback Policy that may be adopted by the Company. By accepting an Award, an Officer consents to the Clawback Policy and agrees to be bound by and comply with the Clawback Policy and to return the full amount required by the Clawback Policy.

Amendments

The Committee, in its sole discretion, reserves the right to adjust, amend or suspend the Plan during the Performance Period. The Senior Vice President and General Counsel is hereby authorized to correct any typographical or similar errors in the Plan and any other documents issued in connection with the Plan.

/s/ Patrick V. Apodaca

Patrick V. Apodaca,

SVP and General Counsel

Dated: March _22_ , 2016

ATTACHMENT A

Incentive EPS Table

(Table 1)



	Incentive EPS ¹
No Award	Less than $1.49
Threshold	Greater than or equal to $1.49 and less than $1.55
Target	Greater than or equal to $1.55 and less than $1.67
Maximum	Greater than or equal to $1.67

Scorecard Weighting Table

(Table 2)



Scorecard Results
Scorecard Level	Corporate Weighting	Business Area Weighting
CEO & Senior Officers	100%	0%
Vice Presidents	60%	40%

Award Levels Table

(Table 3)



Award Levels	Threshold	Target	Maximum
CEO	55%	110%	220%

EVP	35%	70%	140%
SVP	27.5%	55%	110%

Vice-Presidents	20%	40%	80%

_________________________

¹ Equals PNMR’s diluted EPS for the fiscal year ending December 31, 2016 calculated in accordance with Generally Accepted Accounting Principles and reported in the Company’s Form 10-K for PNM Resources adjusted to exclude the following items: (1) mark-to-market impact of economic hedges, (2) regulatory disallowances, (3) net change in unrealized impacts of plant decommissioning and coal mine reclamation trust securities, (4) gains or losses on reacquired debt, (5) goodwill or other intangible asset impairments, (6) impacts of acquisition and disposition activities, including particularly but not limited to pension expense or income associated with PNM’s former gas utility operations, (7) adoption of a new accounting pronouncement or a change in the interpretation of an existing accounting standard, (8) the loss, impairment, or write-up of any deferred tax asset or liability that was earned and recognized in a prior tax year, but that must be revalued in the current year due to changes in state or federal tax law, (9) judgments entered or settlements reached in litigation or other regulatory proceedings, (10) increases or decreases in the expenses associated with PNM’s retired generating stations, including but not limited to expenses incurred in demolition or environmental work of such retired generating stations, (11) costs associated with process improvement initiatives, and (12) changes to the liabilities associated with mine reclamation costs that are attributable to changes in the discount rates used to measure those liabilities, collateral costs associated with providing the required surety bond for reclamation with the State of New Mexico or changes due to actions taken by the New Mexico Public Regulation Commission. Diluted EPS expands on basic EPS by including the dilutive effect of common stock equivalents such as stock options and restricted stock awards.

A-1

Exhibit 10.7

FIRST AMENDMENT

TO THE

PNM RESOURCES, INC.

EXECUTIVE SAVINGS PLAN II

Effective as of December 15, 2004, PNM Resources, Inc. (the “Company”) adopted the PNM Resources, Inc. Executive Savings Plan II (the “Plan”). The Plan has been amended or restated on a number of occasions, with the most recent restatement being generally effective as of January 1, 2015. By this instrument, the Company now desires to amend the Plan as set forth below.

1. This First Amendment shall be effective as of January 1, 2016.

2. This First Amendment amends only the provisions of the Plan as set forth herein, and those provisions not expressly amended hereby shall be considered in full force and effect. Notwithstanding the foregoing, this First Amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions and intent of this First Amendment.

3. Section 3.4 ( Supplemental Credits ) of the Plan is hereby amended and restated in its entirety to read as follows:

3.4 Supplemental Credits .

(a) General Rule . For Participants who became Eligible Officers prior to January 1, 2016, the Plan Administrator shall instruct the Recordkeeper to allocate Supplemental Credits to an Eligible Officer’s Supplemental Credits Account as of December 1 of each Plan Year. The Supplemental Credit shall be an amount calculated by the Plan Administrator pursuant to Section 3.4(b). The purpose of the Supplemental Credit is to provide the Eligible Officer with retirement income approximately equal to a specified target percentage (the “Target Replacement Income Percentage”) of the Eligible Officer’s anticipated pre‑retirement income. The relevant Target Replacement Income Percentage will be determined by the Plan Administrator, with the advance advice and consent of the Compensation and Human Resources Committee, and will be set forth in a letter or other written instrument provided by the Plan Administrator to the

Eligible Officer. The Target Replacement Income Percentage may be modified from time to time in the same manner. In determining the Target Replacement Income Percentage for a particular Eligible Officer, the Plan Administrator, and the Compensation and Human Resources Committee, will act in their discretion and will not be bound by the Target Replacement Income Percentage determined for any other current or former Eligible Officer.

For Participants who become Eligible Officers on or after January 1, 2016, the Plan Administrator, with the advance advice and consent of the Compensation and Human Resources Committee, will determine the amount of Supplemental Credits that an Eligible Officer shall receive, if any, based on the market conditions as of the date that the Eligible Officer is hired or becomes eligible for a Supplemental Credit. The Supplemental Credit, if any, will be expressed as a percentage of the Eligible Officer’s Compensation for the relevant Plan Year and will be set forth in a letter or other written instrument provided by the Plan Administrator to the Eligible Officer. The Supplemental Credit may be modified from time to time in the same manner. In determining the Supplemental Credit for a particular Eligible Officer, the Plan Administrator, and the Compensation and Human Resources Committee, will act in their discretion and will not be bound by the Supplemental Credit determined for any other current or former Eligible Officer.

(b) Determination of Supplemental Credit . For Participants who became Eligible Officers prior to January 1, 2016, the Plan Administrator’s calculation of the Supplemental Credit shall be made on the basis of advice received by an actuarial or other consultant retained by the Plan Administrator and with the advice and consent of the Compensation and Human Resources Committee. In determining the amount of the Supplemental Credits necessary to achieve the desired Target Replacement Income Percentage, anticipated retirement income from the following sources shall be considered: (1) amounts attributable to Company credits to this Plan (including investment earnings on such amounts); (2) amounts attributable to Company contributions to the RSP (including investment earnings on such amounts); (3) benefits provided pursuant to the PNM Resources, Inc. Employees’ Retirement Plan; (4) benefits provided pursuant to the After-Tax Retirement Plan and any supplemental employee retirement plans or agreements (“SERPs”) entered into by the Eligible Officer and the Company or an Affiliate; (5) benefits provided pursuant to the Social Security Act; and (6) amounts provided pursuant to other employers’ benefit plans. When determining the amount of the Supplemental Credits, the Plan Administrator shall use actuarial assumptions (interest and mortality), compensation assumptions, rate of return assumptions

and such other assumptions as it deems appropriate. All interest and investment earnings calculations will be based on an assumed rate set by the Plan Administrator in the exercise of its discretion. No adjustments will be made to reflect the difference between the assumed rate set by the Plan Administrator and the actual rate of return on the Participant’s Accounts calculated pursuant to Section 5.2(f) ( Investment Direction – Rate of Return ). The Plan Administrator will review all of the assumptions periodically and may change the assumptions as it deems appropriate. The assumptions used will have a significant impact on the amount of the Supplemental Credits. Because these assumptions (and the Target Replacement Income Percentage) may be altered at any time as described above, no Eligible Officer will have a contractual or other right to any particular level or amount of Supplemental Credit for any Plan Year until such Supplemental Credit is actually declared and allocated to the Eligible Officer’s Supplemental Credit Account.

For Participants who become Eligible Officers on or after January 1, 2016, the Plan Administrator’s determination of the Supplemental Credit shall be made on the basis of market data and advice received from an executive compensation consultant retained by the Plan Administrator and with the advice and consent of the Compensation and Human Resources Committee. The Plan Administrator and the Compensation and Human Resources Committee may rely on such market data and advice as they deem appropriate. The Supplemental Credit may be altered at any time. No Eligible Officer will have a contractual or other right to any particular level or amount of Supplemental Credit for any Plan Year until such Supplemental Credit is actually declared and allocated to the Eligible Officer’s Supplemental Credit Account.

(c) Termination During the Plan Year . An Eligible Officer must be employed on December 1 of the relevant Plan Year in order to receive the Supplemental Credit called for by Section 3.4 ( Supplemental Credits ) for that Plan Year. Notwithstanding the prior sentence, an Eligible Officer shall receive a pro-rata Supplemental Credit if the Eligible Officer incurs a Separation from Service before December 1 of any Plan Year under any of the following circumstances: (1) after reaching Normal Retirement Date; (2) under circumstances that entitle the Eligible Officer to receive benefits under the Officer Retention Plan; (3) due to Disability; or (4) due to the death of the Eligible Officer. The pro-rata Supplemental Credit shall be calculated based on the time elapsed between December 1 of the prior Plan Year and the date of the Eligible Officer’s Separation from Service as compared to 365 days and shall be credited to the Eligible Officer’s Supplemental Credit Account within thirty (30) days of the Eligible Officer’s Separation from Service. For example, if an

Eligible Officer terminates employment on June 1, 2012 due to retirement, the Eligible Officer will receive 50% of the Supplemental Credits for the 2012 Plan Year and that amount will be credited to the Eligible Officer’s Supplemental Credit Account by July 1, 2012.

IN WITNESS WHEREOF, the Company has caused this First Amendment to be executed as of this 15 ^th day of April , 2016.

PNM RESOURCES, INC.



By:	/s/ Patrick V. Apodaca

Patrick V. Apodaca

Senior Vice President and General Counsel

Exhibit 10.8

FIRST AMENDMENT TO TERM LOAN AGREEMENT

THIS FIRST AMENDMENT TO TERM LOAN AGREEMENT (this “ Amendment ”) is entered into as of April 26, 2016, among NM CAPITAL UTILITY CORPORATION, a Delaware corporation (the “ Borrower ”), the Lender party hereto and THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., as Administrative Agent for the Lender (in such capacity, the “ Administrative Agent ”). Capitalized terms used herein and not otherwise defined shall have the meanings assigned thereto in the Loan Agreement (as defined below).

R E C I T A L S

WHEREAS, the Borrower, the Lender party thereto and the Administrative Agent are parties to that certain Term Loan Agreement, dated as of February 1, 2016 (as amended or modified from time to time, the “ Loan Agreement ”);

WHEREAS, the Borrower has requested certain modifications to the Loan Agreement as described below; and

WHEREAS, the Lender party hereto is willing to agree to such modifications, subject to the terms set forth herein as more fully set forth below.

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

A G R E E M E N T

1. Amendments to Loan Agreement .

(a) Section 3.4(b) of the Loan Agreement is hereby amended and restated in its entirety to read as follows:

“(b) Notwithstanding subsection (a) above, and for the avoidance of doubt, (i) no portion of the amounts deposited and maintained in the Cash Management Collection Account (as defined in the San Juan Loan Agreement) pursuant to the San Juan Loan Agreement shall be deemed to be received by the Borrower for purposes of subsection (a) above until and to the extent such amounts are applied (A) to pay or prepay the loan made pursuant to the San Juan Loan Agreement or (B) to pay any other amounts (including, without limitation, interest and fees) due and payable to the Borrower in respect of such loan, in each case as provided in the San Juan Loan Agreement; (ii) unless and until an Event of Default has occurred and is continuing, the Borrower shall have the right, upon written notice to the Administrative Agent at least one (1) Business Day prior to the required due date of such prepayment pursuant to subsection (a) above, to use a portion of the funds and amounts described in clauses (i), (ii) and (iii) of subsection (a) above to pay Taxes and other governmental assessments, charges or levies imposed upon it, or upon its income or profits, or upon any of its properties, or to repay any loan advance made to the Borrower by the Guarantor to the extent the proceeds of

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such loan advance were used by the Borrower to pay any such Taxes or other governmental assessments, charges or levies, and to the extent such funds and amounts are used by the Borrower for such purposes, the Borrower shall have no prepayment obligation pursuant to subsection (a) above with regard to such funds and amounts; and (iii) unless and until an Event of Default has occurred and is continuing, the Borrower shall have the right, upon written notice to the Administrative Agent at least one (1) Business Day prior to the required due date of such prepayment pursuant to subsection (a) above, to make any prepayment of Eurodollar Loans required under subsection (a) above on the last day of the applicable Interest Period or Interest Periods thereof next occurring after such required due date, provided that the amount of such prepayment has been deposited in the Designated Account on or before such required due date (to be applied to such prepayment on the last day of the applicable Interest Period or Interest Periods).”

(b) Section 8.5 of the Loan Agreement is hereby amended and restated in its entirety to read as follows:

“8.5. Indebtedness; Liens .

The Borrower will not contract, create, incur, assume or permit to exist any Indebtedness, other than the Borrower Obligations and other than unsecured Indebtedness owing to the Guarantor in a principal amount not to exceed $1,000,000 in the aggregate at any time outstanding ( provided , that such unsecured Indebtedness is subordinated to the Borrower Obligations pursuant to the terms of a written subordination agreement acceptable to the Administrative Agent and the Lenders). The Borrower will not contract, create, incur, assume or permit to exist any Lien with respect to any of its property or assets of any kind (whether real or personal, tangible or intangible), whether now owned or hereafter acquired, other than the following: (a) Liens securing the Borrower Obligations, (b) Liens for taxes not yet due or Liens for taxes being contested in good faith by appropriate proceedings for which adequate reserves determined in accordance with GAAP have been established (and as to which the property subject to any such Lien is not yet subject to foreclosure, sale or loss on account thereof), (c) Liens arising from good faith deposits in connection with or to secure performance of statutory obligations and surety and appeal bonds, (d) judgment Liens that would not constitute an Event of Default, and (e) Liens arising by virtue of any statutory or common law provision relating to banker’s liens, rights of setoff or similar rights as to deposit accounts or other funds maintained with a creditor depository institution.”

2. Effectiveness; Conditions Precedent .

This Amendment shall be effective on the date upon which the Administrative Agent receives copies of this Amendment duly executed by the Borrower and the Required Lenders.

3. Ratification of Loan Agreement . The term “Loan Agreement” as used in each of the Loan Documents shall hereafter mean the Loan Agreement as amended and modified by this Amendment. Except as herein specifically agreed, the Loan Agreement, as amended by this Amendment, is hereby ratified and confirmed and shall remain in full force and effect according

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to its terms. Each party hereto acknowledges and consents to the modifications set forth herein and agrees that, other than as explicitly set forth in Section 1 above, this Amendment does not impair, reduce or limit any of its obligations under the Loan Documents (including, without limitation, the indemnity obligations set forth therein) and that, after the date hereof, this Amendment shall constitute a Loan Document. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Loan Documents or constitute a waiver of any provision of any of the Loan Documents.

4. Authority/Enforceability . The Borrower represents and warrants as follows:

(a) It has taken all necessary action to authorize the execution, delivery and performance of this Amendment.

(b) This Amendment has been duly executed and delivered by the Borrower and constitutes the Borrower’s legal, valid and binding obligation, enforceable in accordance with its terms, except as such enforceability may be subject to (i) bankruptcy, solvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity).

(c) No consent, approval, authorization or order of, or filing, registration or qualification with, any court or governmental authority or third party is required in connection with the execution, delivery or performance by the Borrower of this Amendment.

5. Representations and Warranties . The Borrower represents and warrants to the Lenders that (a) the representations and warranties of the Borrower set forth in Section 6 of the Loan Agreement are true and correct as of the date hereof, unless they specifically refer to an earlier date (in which case such representations and warranties are true and correct as of such earlier date), (b) no event has occurred and is continuing which constitutes a Default or an Event of Default, and (c) it has no claims, counterclaims, offsets, credits or defenses to its obligations under the Loan Documents, or to the extent it has any, they are hereby released in consideration of the Lender party hereto entering into this Amendment.

6. No Conflicts . The Borrower represents and warrants that the execution and delivery of this Amendment, the consummation of the transactions contemplated herein and in the Loan Agreement (before and after giving effect to this Amendment), and the performance of and compliance with the terms and provisions hereof by the Borrower will not (a) violate, contravene or conflict with any provision of its articles or certificate of incorporation, bylaws or other organizational or governing document, (b) violate, contravene or conflict with any law, rule, regulation (including, without limitation, Regulation U and Regulation X), order, writ, judgment, injunction, decree or permit applicable to the Borrower, (c) violate, contravene or conflict with contractual provisions of, or cause an event of default under, any indenture, loan agreement, mortgage, deed of trust, contract or other agreement or instrument to which the Borrower is a party or by which it or its properties may be bound, the violation of which would have or would reasonably be expected to have a Material Adverse Effect or (d) result in or require the creation of any Lien upon or with respect to the Borrower’s properties.

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7. Counterparts/Telecopy . This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. Delivery of executed counterparts by telecopy or by electronic format (pdf) shall be effective as an original.

8. GOVERNING LAW . THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

[remainder of page intentionally left blank]

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Each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written.

BORROWER : NM CAPITAL UTILITY CORPORATION ,

a Delaware corporation

By: /s/ Timothy P. Nichols

Name: Timothy P. Nichols

Title: Vice President and Secretary

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ADMINISTRATIVE AGENT :	THE BANK OF TOKYO-MITSUBISHI UFJ, LTD. , as Administrative Agent

By: /s/ Paul V. Farrell

Name: Paul V. Farrell

Title: Managing Director

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LENDER :	THE BANK OF TOKYO-MITSUBISHI UFJ, LTD. , as Lender

By: /s/ Paul V. Farrell

Name: Paul V. Farrell

Title: Managing Director

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The undersigned Guarantor has executed the foregoing Amendment to acknowledge and agree to the terms of such Amendment and to acknowledge and agree that the foregoing Amendment does not impair, reduce or limit any of its obligations under the Guaranty Agreement dated as of February 1, 2016, made by the undersigned Guarantor in favor of the Lenders and the Administrative Agent. The term “Loan Agreement” as used in such Guaranty Agreement shall hereafter mean the Loan Agreement as amended and modified by the foregoing Amendment.

PNM RESOURCES, INC.,

a New Mexico corporation

By: /s/ Elisabeth Eden

Name: Elisabeth Eden

Title: Vice President and Treasurer

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Exhibit 12.1
PNM RESOURCES, INC. AND SUBSIDIARIES
Ratio of Earnings to Fixed Charges
(In thousands, except ratio)

	Three Months Ended				Year Ended December 31,
	March 31, 2016				2015				2014				2013				2012			2011
Fixed charges, as defined by the Securities and Exchange Commission:

Interest expensed and capitalized	$	31,742			$	117,932			$	117,337			$	118,880			$	125,379		$	122,998
Amortization of debt premium, discount, and expenses	972				3,575				4,194				3,716				4,023			3,695
Estimated interest factor of lease rental charges	687				3,298				4,686				5,847				5,585			6,665
Preferred dividend requirements of subsidiary	200				784				809				800				769			864
Total Fixed Charges	$	33,601			$	125,589			$	127,026			$	129,243			$	135,756		$	134,222

Earnings, as defined by the Securities and Exchange Commission:

Earnings from continuing operations before income taxes and non-controlling interest	$	21,122			$	46,153			$	200,647			$	175,069			$	175,035		$	321,469
Fixed charges as above	33,601				125,589				127,026				129,243				135,756			134,222
Interest capitalized	(1,999		)		(9,753		)		(6,256		)		(5,209		)		(5,432		)	(2,697		)
Non-controlling interest in earnings of Valencia	(3,287		)		(14,910		)		(14,127		)		(14,521		)		(14,050		)	(14,047		)
Preferred dividend requirements of subsidiary	(200		)		(784		)		(809		)		(800		)		(769		)	(864		)
Earnings Available for Fixed Charges	$	49,237			$	146,295			$	306,481			$	283,782			$	290,540		$	438,083

Ratio of Earnings to Fixed Charges	1.47			¹	1.16			²	2.41			³	2.20			³	2.14			3.26			⁴

1 Earnings from continuing operations before income taxes and non-controlling interest for the three months ended March 31, 2016 includes a pre-tax loss of $0.8 million due to the write-off of regulatory disallowances and restructuring costs at PNM. If that loss were excluded, the Ratio of Earnings to Fixed Charges would have been 1.49.

² Earnings from continuing operations before income taxes and non-controlling interest for the year ended December 31, 2015 includes a pre-tax loss of $167.5 million due to the write-off of regulatory disallowances and restructuring costs at PNM. If that loss were excluded, the Ratio of Earnings to Fixed Charges would have been 2.50 for 2015.

³ Earnings from continuing operations before income taxes and non-controlling interest for the years ended December 31, 2014 and December 31, 2013 includes pre-tax loss of $1.1 million and $12.2 million due to the write-off of regulatory disallowances at PNM. If those losses were excluded, the Ratio of Earnings to Fixed Charges would have been 2.42 for 2014 and 2.29 for 2013.

⁴ Earnings from continuing operations before income taxes and non-controlling interest for the year ended December 31, 2011 includes pre-tax losses of $21.4 million due to the write-off of regulatory disallowances at PNM and TNMP. If those losses were excluded, the Ratio of Earnings to Fixed Charges would have been 3.42. In addition, 2011 includes a pre-tax gain on the sale of First Choice of $174.9 million. If that gain were also excluded, the Ratio of Earnings to Fixed Charges would have been 1.96.



Exhibit 12.2
PUBLIC SERVICE COMPANY OF NEW MEXICO
Ratio of Earnings to Fixed Charges
(In thousands, except ratio)

	Three Months Ended				Year Ended December 31,
	March 31, 2016				2015				2014				2013				2012			2011
Fixed charges, as defined by the Securities and Exchange Commission:

Interest expensed and capitalized	$	22,230			$	84,695			$	79,834			$	79,769			$	82,864		$	75,217
Amortization of debt premium, discount and expenses	567				1,978				1,944				1,879				1,818			1,325
Estimated interest factor of lease rental charges	314				1,532				2,541				3,732				3,743			4,139
Total Fixed Charges	$	23,111			$	88,205			$	84,319			$	85,380			$	88,425		$	80,681

Earnings, as defined by the Securities and Exchange Commission:

Earnings (loss) from continuing operations before income taxes and non-controlling interest	$	11,171			$	(13,082	)		$	154,086			$	151,480			$	156,314		$	105,965
Fixed charges as above	23,111				88,205				84,319				85,380				88,425			80,681
Non-controlling interest in earnings of Valencia	(3,287		)		(14,910		)		(14,127		)		(14,521		)		(14,050		)	(14,047		)
Interest capitalized	(1,658		)		(8,530		)		(5,211		)		(4,420		)		(4,314		)	(1,761		)

Earnings Available for Fixed Charges	$	29,337			$	51,683			$	219,067			$	217,919			$	226,375		$	170,838

Ratio of Earnings to Fixed Charges	1.27			¹	0.59			²	2.60			³	2.55			⁴	2.56			2.12			⁵

¹ Earnings (loss) from continuing operations before income taxes and non-controlling interest for the three months ended March 31, 2016 include a pre-tax loss of $0.8 million due to the write-off of regulatory disallowances and restructuring costs. If these losses were excluded, the Ratio of Earnings to Fixed Charges would have been 1.30.

² The shortfall in earnings available for fixed charges to achieve a ration of earnings to fixed charges of 1.00 amounted to $36.5 million for the year ended December 31, 2015. Earnings (loss) from continuing operations before income taxes includes a pre-tax loss of $167.5 million due to the write-off of regulatory disallowances and restructuring costs. If those losses were excluded, the Ratio of Earnings to Fixed Charges would have been 2.48 for 2015.

³ Earnings (loss) from continuing operations before income taxes and non-controlling interest for the year ended December 31, 2014 include a pre-tax loss of $1.1 million due to the write-off of regulatory disallowances. If these losses were excluded, the Ratio of Earnings to Fixed Charges would have been 2.61 for 2014.

⁴ Earnings (loss) from continuing operations before income taxes and non-controlling interest for the year ended December 31, 2013 include a pre-tax loss of $12.2 million due to the write-off of regulatory disallowances. If these losses were excluded, the Ratio of Earnings to Fixed Charges would have been 2.70 for 2013.

⁵ Earnings (loss) from continuing operations before income taxes and non-controlling interest for the year ended December 31, 2011 includes a pre-tax loss $17.5 million due to the write-off of regulatory disallowances. If that loss were excluded, the Ratio of Earnings to Fixed Charges would have been 2.33.



Exhibit 12.3
TEXAS-NEW MEXICO POWER COMPANY
Ratio of Earnings to Fixed Charges
(In thousands, except ratio)


	Three Months Ended			Year Ended December 31,
	March 31, 2016			2015			2014			2013			2012			2011
Fixed charges, as defined by the Securities and Exchange Commission:

Interest expensed and capitalized	$	6,859		$	25,875		$	24,941		$	24,481		$	26,233		$	27,914
Amortization of debt premium, discount and expenses	297			1,100			1,195			1,159			1,493			1,679
Estimated interest factor of lease rental charges	293			1,229			1,311			1,241			956			1,202

Total Fixed Charges	$	7,449		$	28,204		$	27,447		$	26,881		$	28,682		$	30,795


Earnings, as defined by the Securities and Exchange Commission:

Earnings from continuing operations before income taxes	$	11,793		$	66,088		$	60,330		$	46,711		$	42,099		$	36,138
Fixed charges as above	7,449			28,204			27,447			26,881			28,682			30,795
Interest capitalized	(112		)	(593		)	(609		)	(361		)	(706		)	(593		)

Earnings Available for Fixed Charges	$	19,130		$	93,699		$	87,168		$	73,231		$	70,075		$	66,340

Ratio of Earnings to Fixed Charges	2.57			3.32			3.18			2.72			2.44			2.15			¹

¹ Earnings from continuing operations before income taxes for the year ended December 31, 2011 includes a pre-tax loss of $3.9 million due to the write-off of regulatory disallowances. If that loss were excluded, the Ratio of Earnings to Fixed Charges would have been 2.28.

PNM Resources

414 Silver Ave. SW

Albuquerque, NM 87102-3289

EXHIBIT 31.1

CERTIFICATION

I, Patricia K. Collawn, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of PNM Resources, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (each registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	May 2, 2016	By:	/s/ Patricia K. Collawn
			Patricia K. Collawn
			President and Chief Executive Officer
			PNM Resources, Inc.

PNM Resources

414 Silver Ave. SW

Albuquerque, NM 87102-3289

EXHIBIT 31.2

CERTIFICATION

I, Charles N. Eldred, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of PNM Resources, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (each registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	May 2, 2016	By:	/s/ Charles N. Eldred
			Charles N. Eldred
			Executive Vice President and
			Chief Financial Officer
			PNM Resources, Inc.

Public Service Company of New Mexico

414 Silver Ave. SW

Albuquerque, NM 87102-3289

EXHIBIT 31.3

CERTIFICATION

I, Patricia K. Collawn, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of Public Service Company of New Mexico;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (each registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	May 2, 2016	By:	/s/ Patricia K. Collawn
			Patricia K. Collawn
			President and Chief Executive Officer
			Public Service Company of New Mexico

Public Service Company of New Mexico

414 Silver Ave. SW

Albuquerque, NM 87102-3289

EXHIBIT 31.4

CERTIFICATION

I, Charles N. Eldred, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of Public Service Company of New Mexico;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (each registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	May 2, 2016	By:	/s/ Charles N. Eldred
			Charles N. Eldred
			Executive Vice President and
			Chief Financial Officer
			Public Service Company of New Mexico

Texas-New Mexico Power Company

577 N. Garden Ridge Blvd.

Lewisville, Texas 75067

EXHIBIT 31.5

CERTIFICATION

I, Patricia K. Collawn, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of Texas-New Mexico Power Company;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (each registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	May 2, 2016	By:	/s/ Patricia K. Collawn
			Patricia K. Collawn
			Chief Executive Officer
			Texas-New Mexico Power Company

Texas-New Mexico Power Company

577 N. Garden Ridge Blvd.

Lewisville, Texas 75067

EXHIBIT 31.6

CERTIFICATION

I, Charles N. Eldred, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of Texas-New Mexico Power Company;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (each registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	May 2, 2016	By:	/s/ Charles N. Eldred
			Charles N. Eldred
			Executive Vice President and
			Chief Financial Officer
			Texas-New Mexico Power Company

PNM Resources

414 Silver Ave. SW

Albuquerque, NM 87102-3289

www.pnmresources.com

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO § 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q for the period ended March 31, 2016 , for PNM Resources, Inc. (“Company”), as filed with the Securities and Exchange Commission on May 2, 2016 (“Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:


(1)	the Report fully complies with the requirements of § 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and


(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date:	May 2, 2016	By:	/s/ Patricia K. Collawn
			Patricia K. Collawn
			President and Chief Executive Officer
			PNM Resources, Inc.

		By:	/s/ Charles N. Eldred
			Charles N. Eldred
			Executive Vice President and
			Chief Financial Officer

Public Service Company of New Mexico

414 Silver Ave. SW

Albuquerque, NM 87102-3289

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO § 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q for the period ended March 31, 2016 , for Public Service Company of New Mexico (“Company”), as filed with the Securities and Exchange Commission on May 2, 2016 (“Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:


(1)	the Report fully complies with the requirements of § 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and


(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date:	May 2, 2016	By:	/s/ Patricia K. Collawn
			Patricia K. Collawn
			President and Chief Executive Officer
			Public Service Company of New Mexico

		By:	/s/ Charles N. Eldred
			Charles N. Eldred
			Executive Vice President and
			Chief Financial Officer

Texas-New Mexico Power Company

577 N. Garden Ridge Blvd.

Lewisville, Texas 75067

EXHIBIT 32.3

CERTIFICATION PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO § 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q for the period ended March 31, 2016 , for Texas-New Mexico Power Company (“Company”), as filed with the Securities and Exchange Commission on May 2, 2016 (“Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:


(1)	the Report fully complies with the requirements of § 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and


(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date:	May 2, 2016	By:	/s/ Patricia K. Collawn
			Patricia K. Collawn
			Chief Executive Officer
			Texas-New Mexico Power Company

		By:	/s/ Charles N. Eldred
			Charles N. Eldred
			Executive Vice President and
			Chief Financial Officer