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                           SCHEDULE 14A INFORMATION

          Proxy Statement Pursuant to Section 14(a) of the Securities
                    Exchange Act of 1934 (Amendment No.  )
        
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Filed by a Party other than the Registrant / /[_] 

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/ /[_]  Preliminary Proxy Statement        / /[_]  Confidential, for Use of the 
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                                             Rule 14a-6(e)(2))
/X/[X]  Definitive Proxy Statement 

/ /[_]  Definitive Additional Materials 

/ /[_]  Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

                     PUBLIC SERVICE COMPANY OF NEW MEXICOPublic Service Company of New Mexico
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               (Name of Registrant as Specified In Its Charter)


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   (Name of Person(s) Filing Proxy Statement, if other than the Registrant)

   
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         pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
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Notes:



 
[LOGO]Public Service Company
of New Mexico
Alvarado Square
Albuquerque, NM  87158                           [LOGO OF PUBLIC SERVICE COMPANY
                                                     OF NEW MEXICO ALVARADO SQUARE
                         ALBUQUERQUE, NEW MEXICO 87158

                            ------------------------APPEARS HERE]



                    NOTICE OF ANNUAL MEETING OF STOCKHOLDERSSHAREHOLDERS
                            TUESDAY, APRIL 25, 1995
                             ---------------------

To the Holders of Common Stock of
PUBLIC SERVICE COMPANY OF28, 1998
                       9:30 A.M., MOUNTAIN DAYLIGHT TIME

                   UNM CONTINUING EDUCATION CONFERENCE CENTER
                        1634 UNIVERSITY BOULEVARD, N. E.
                            ALBUQUERQUE, NEW MEXICO
                                        
                                                                  Notice  is hereby  given thatMarch 23, 1998

Dear Shareholder:

     You are cordially invited to attend the 1998 Public Service Company of New
Mexico Annual Meeting of Stockholders of PUBLIC
SERVICE COMPANY OF NEW MEXICO ("PNM") will be held in the auditorium of the  UNM
Continuing  Education Conference Center  at 1634 University  Boulevard, N.E., in
the City of Albuquerque, New Mexico, on  April 25, 1995, at 9:30 a.m.,  Mountain
Daylight Time, for the following purposes:

    1.   To electShareholders to:

     . Elect three directors of PNM to hold  office in accordance with the
       Restated Articles of  Incorporation of  PNM until the  Annual Meeting  of
       Stockholders in 1998, or until their successors shall be duly elected and
       qualified.

    2.   To consider and vote upon the approval of the selection by the Board of
       Directors of PNMdirectors.

     . Approve appointment of Arthur Andersen LLP as independent auditors to  audit
       the  consolidated financial  statements of  PNM and  subsidiariespublic
       accountants for the
       fiscal year ending December 31, 1995.

    3.  To consider and act upon such1998.

     . Conduct other matters as maybusiness properly come  beforebrought up at the meeting.

     Only holders of PNM Common StockShareholders of record at the close of business on March 6,  1995 will be entitled9, 1998 may vote
at the meeting.

     Your vote is important.  Whether you plan to notice ofattend or not, please sign,
date, and to vote on all matters to come beforereturn the enclosed proxy card in the envelope provided.  If you
attend the meeting and any adjournment thereof.

                                          By Order ofprefer to vote in person, you may do so.

     This Proxy Statement, proxy card and PNM's Annual Report to Shareholders
are being distributed on or about March 23, 1998.

     I look forward to seeing you at the Board of Directors

                                          Patrickmeeting.

                                         Sincerely,
 
                                         /s/ J.T. ACKERMAN
                                         John T. Ortiz
                                          CORPORATE SECRETARY

March 22, 1995

YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON,
PLEASE MARK, EXECUTE,  DATEAckerman
                                         Chairman

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                               TABLE OF CONTENTS
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PROXY STATEMENT - --------------- Notice of Annual Meeting...................................... Cover Attendance and Voting Matters................................. 1 The PNM Board of Directors.................................... 2 PNM Common Stock Owned by Executive Officers and Directors.... 7 Persons Owning More than Five Percent of PNM Common Stock..... 8 Performance Graph............................................. 9 Compensation and Human Resources Committee Report on Executive Compensation.............................. 10 Executive Compensation........................................ 13 Appointment of Arthur Andersen LLP............................ 17 Other Matters Section 16(a) Beneficial Ownership Reporting Compliance.. 18 Annual Report and Other Matters.......................... 18 Shareholder Proposals for the 1999 Annual Meeting........ 18 Solicitation............................................. 18 Revocability of Proxy.................................... 18
- ------------------------------------------------------------------------------- ATTENDANCE AND RETURN THE ACCOMPANYING PROXY CARD AS SOON AS POSSIBLE, USING THE ENCLOSED SELF-ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE. ------------------------ PROXY STATEMENT --------------------- (PNM LOGO) PUBLIC SERVICE COMPANY OF NEW MEXICO ANNUAL MEETING OF STOCKHOLDERS APRIL 25, 1995 A proxyVOTING MATTERS - ------------------------------------------------------------------------------- ADMISSION TICKETS Admission Tickets will be distributed at the registration tables in the accompanying form is solicited on behalf of the Board of Directors of PUBLIC SERVICE COMPANY OF NEW MEXICO ("PNM") for use at the 1995 Annual Meeting of Holders of the Common Stock of PNM, to be held on April 25, 1995 in the auditoriumlobby of the UNM Continuing Education Conference Center at 1634 University Boulevard, N.E., in Albuquerque, New Mexico, at 9:30 a.m., Mountain Daylight Time, and at any adjournments thereof, forprior to the purposes set forthAnnual Meeting. Attendance is limited to shareholders of record on March 9, 1998. If your shares are held in the accompanying notice. Stockholders may revoke their proxy by attendance atname of your broker, bank, or other nominee, please bring an account statement or letter from the nominee indicating that you are the beneficial owner of the shares as of the record date. VOTING METHODS You can vote on matters to come before the meeting in two ways: . You can come to the Annual Meeting and cast your vote there; or . You can vote by voting theirsigning and returning the enclosed proxy card. If you do so, your shares in person or by executing a later proxy changing the vote on the earlier proxy. A proxy, when executed and not so revoked, will be voted in accordance with the instructions thereon.manner you indicate. In the absence of specific instructions, proxies will be voted by those named in the proxy FOR the election of directors nominated, FOR the approval of the selection of Arthur Andersen LLP as independent auditors of PNM and subsidiaries,public accountants, and on all other matters in accordance with their best judgment. This Proxy Statement is first being mailed to the holdersEach share of PNM Common Stock on or aboutcommon stock you own entitles you to one vote. As of March 22, 1995, in connection with the solicitation of proxies by PNM's Board of Directors for use at the Annual Meeting. In addition to soliciting proxies through the mail, certain employees of PNM may solicit proxies in person and by telephone. PNM has retained Beacon Hill Partners, Inc. to assist in the solicitation of proxies, primarily from brokers, banks and other nominees, for an estimated fee of $2,500. The cost of soliciting proxies will be borne by PNM. PNM will, upon request, reimburse brokers, banks, nominees, custodians and other record holders for their out-of-pocket expenses of forwarding proxy materials to the beneficial owners of the shares. VOTING INFORMATION Only holders of PNM Common Stock of record at the close of business on March 6, 1995 will be entitled to vote at the Annual Meeting. At such date,9, 1998, there were 41,774,083 shares of PNM Common Stockcommon stock outstanding. Each such shareTHE QUORUM REQUIREMENT A quorum of PNM Common Stockshareholders is entitlednecessary to one vote on eachhold a valid meeting. If at least a majority of the matters properly brought before the Annual Meeting. In order to elect directors and approve the selection of auditors, a quorum must be present oroutstanding common stock is represented at the meetingAnnual Meeting, in person or by proxy, a quorum will exist. VOTE NECESSARY FOR ACTION A quorum and the affirmative vote of the holders of a majority of the shares of PNM Common Stockcommon stock present, in person or by proxy, and entitled to vote at the Annual Meeting is required. 1 Under PNM's By-laws,are required to elect directors, approve the presence atselection of independent public accountants, and to approve other actions. Abstentions have the meeting, either in person or by properly executed proxy, of the holderseffect of a majority ofvote against the outstanding shares of PNM Common Stock is necessary to constitute a quorum to conduct business at the Annual Meeting. The aggregate number of votes entitled to be cast by all stockholders present in person or represented by proxy at the meeting, whether those stockholders vote FOR, AGAINST, or ABSTAIN from voting, will generally be counted for purposes of determining the minimum number of affirmative votes required for approval of those matters requiring only the affirmative vote of a majority of the shares present at the meeting, and the total number of votes cast FOR each of these matters will be counted for purposes of determining whether sufficient affirmative votes have been cast. An abstention from votingmatter. Shares not voted on a matter by a stockholder present in person or represented by proxy at the meeting has the same legal effect as a vote AGAINST the matter even though the stockholder or interested parties analyzing the results of the voting may interpret such a vote differently. Shares not voted by brokers and other entities holding shares on behalf offor beneficial owners will not be counted in calculating voting results on those matters for which the broker or other entity hasthat matter. MATTERS RAISED AT THE MEETING NOT INCLUDED IN THIS STATEMENT We do not voted. PNM is not awareknow of any arrangements, the operation of which might at a subsequent date result in a change in control of PNM. PRINCIPAL HOLDERS OF VOTING SECURITIES The following persons are the only persons known to PNM, as of March 8, 1995,matters to be acted upon at the beneficial owners of moremeeting other than 5% of PNM's voting securities:
NAME & ADDRESS OF NATURE OF BENEFICIAL NUMBER PERCENT TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP OF SHARES OF CLASS - ------------------ -------------------------------- -------------------------- --------------- --------- Common Stock The Prudential Insurance Company Sole Voting & Dispositive 8,700(1) of America Power Prudential Plaza Shared Voting & 2,125,430(1) Newark, NJ 07102-3777 Dispositive Power TOTAL 2,134,130(1) 5.1% Common Stock Mellon Bank Corporation Sole Voting Power 3,367,000(2) One Mellon Bank Center Shared Voting Power 323,239(2) Pittsburgh, PA 15258 Sole Dispositive Power 4,006,000(2) Shared Dispositive Power 83,000(2) TOTAL 4,399,239(2) 10.53% - ------------------------ (1) As reported on Amendment No. 4 to Schedule 13G dated February 2, 1995 and filed with the Securities and Exchange Commission by The Prudential Insurance Company of America. PNM makes no representation as to the accuracy or completeness of such information. (2) As reported on Amendment No. 2 to Schedule 13G dated March 8, 1995 filed with the Securities and Exchange Commission by Mellon Bank Corporation. PNM makes no representation as to the accuracy or completeness of such information.
2those discussed in this statement. If any other matter is presented, proxy holders will vote on the matter in their discretion. 1 ELECTION- -------------------------------------------------------------------------------- THE PNM BOARD OF DIRECTORS Three directors will be- -------------------------------------------------------------------------------- STRUCTURE Our Board of Directors is divided into three classes for purposes of election. One class is elected at theeach Annual Meeting of Shareholders to hold officeserve for a three-year term. At the ensuing three years in accordance with PNM's Restated Articles1998 Annual Meeting of Incorporation providing for staggeredShareholders, the terms of three directors of three years each. The threeare expiring. Those directors elected at this meetingAnnual Meeting will hold office until the Annual Meeting of Stockholders of PNMfor a three-year term expiring in 1998, or until their successors have been elected2001. The other directors are not up for election this year and qualified. It is intended that votes will be cast pursuant to proxiescontinue in office for the following nominees:
NAME ADDRESS - ---------------------------------------- ------------------------------- John T. Ackerman........................ Albuquerque, New Mexico Joyce A. Godwin......................... Albuquerque, New Mexico Manuel Lujan, Jr........................remainder of their terms. If a nominee is unavailable for election, proxy holders will vote for another nominee proposed by the Board. DIRECTORS NOMINATED THIS YEAR FOR TERMS EXPIRING IN 2001 JOHN T. ACKERMAN, 56, is a resident of Albuquerque, New Mexico
If at the timeand has been a director since June 1990. Mr. Ackerman has served as Chairman of the meeting any of the nominees named herein should be unable to serve in this capacity, a circumstance not now anticipated by management, it is intended that the proxies will vote for such substitute nominees as may be designated by PNM's Board of Directors. Proxies cannot be voted for a greater number of persons than three, the number of nominees named above. A vacancy on the Board of Directors, created on December 8, 1993 by the resignationPNM since 1990 and served as President and Chief Executive Officer of PNM from 1991 until his retirement in 1993. JOYCE A. GODWIN, 54, is a resident of Albuquerque, New Mexico and has been a director was filled onsince May 1989. Ms. Godwin served as Vice President and Secretary of Presbyterian Healthcare Services of Albuquerque, New Mexico, from 1979 until her retirement in December 1993. Ms. Godwin also served as Chairman and President of Southwest Business Ventures, Inc., a holding company for Presbyterian Healthcare Services' for-profit ventures, from 1986 until her retirement in December 1993. Other directorships: TJ International and Charter Bank, Albuquerque, New Mexico. MANUEL LUJAN, JR., 69, is a resident of Albuquerque, New Mexico and has been a director since April 5, 1994 by the appointment of1994. Mr. Lujan has been an insurance agent with Manuel Lujan Jr. Mr. Lujan's term expires with the 1995 Annual Meeting.Insurance, Inc. since 1948. Mr. Lujan ishas been a nominee for electionconsultant on U.S. governmental matters, focusing on Western U.S. issues, since 1993. Mr. Lujan served as U.S. Secretary of the Interior from 1989 to 1993 and served in the BoardU. S. House of Directors at such meeting. THERepresentatives from 1969 to 1989. Other directorships: SODAK Gaming, Inc. and Bank 1st, Albuquerque, New Mexico. YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES. Each2 DIRECTORS WITH TERMS EXPIRING IN 2000 ROBERT G. ARMSTRONG, 51, is a resident of Roswell, New Mexico and has been a director since May 1991. Mr. Armstrong is the President of Armstrong Energy Corporation, Roswell, New Mexico, an oil and gas exploration and production company. REYNALDO U. ORTIZ, 51, is a resident of Denver, Colorado and has been a director since April 1992. Mr. Ortiz is the International Managing Director and Senior Vice President of Qwest Communications International, a telecommunications company. Mr. Ortiz served as President and Chief Executive Officer of Sophia Communications, Inc., a startup wireless communications company, from January 1997 through December 1997. He served as President and Chief Executive Officer of LyncStar Communications, Inc. (a provider of integrated network communications services) from March through December 1996, served as Chief Executive Officer of Jones Education Networks, Inc. (a cable television programming company) from March 1994 through February 1996, and was Senior Vice President, Jones Financial Group, Inc. from January through March 1994. Mr. Ortiz served as Vice President, Corporate Public Policy of U S WEST, Inc. from 1991 to 1994. PAUL F. ROTH, 65, is a resident of Sanibel, Florida and has been a director since May 1991. Mr. Roth served as the President of the directorsDallas Chamber of Commerce, Dallas, Texas, from 1991 to 1992. Between 1956 and 1991, Mr. Roth served in various executive positions, including President, of the Texas Division of Southwestern Bell Telephone Company, Dallas, Texas. DIRECTORS WITH TERMS EXPIRING IN 1999 LAURENCE H. LATTMAN, 74, is a resident of Albuquerque, New Mexico and has been a director since May 1993. Dr. Lattman served as President of New Mexico Institute of Mining and Technology from 1983 until his retirement in 1993. BENJAMIN F. MONTOYA, 62, is a resident of Rio Rancho, New Mexico and has been a director since October 1993. Mr. Montoya has served as President and Chief Executive Officer of PNM since August 1993, and eachpreviously served as Senior Vice President and General Manager, Gas Supply Business Unit, Pacific Gas and Electric Company (1991-1993). Other directorships: Norwest Corporation, a bank holding company, and Furr's Supermarkets, Inc. ROBERT M. PRICE, 67, is a resident of the nominees for election at the Annual MeetingEdina, Minnesota and has advised PNM that, asbeen a director since July 1992. Mr. Price has been President of February 1, 1995, he or she beneficially owned directly or indirectly equity securitiesPSV Inc., a technology consulting business located in Burnsville, Minnesota, since 1990. Between 1961 and 1990, Mr. Price served in various executive positions, including Chairman and Chief Executive Officer, of PNM as set forth below:Control Data Corporation, a mainframe computer manufacturer and business services provider. Other directorships: Tupperware Corporation, International Multifoods Corp., Fourth Shift Corporation, and Affinity Technology Group, Inc. 3 BOARD MEETINGS AND COMMITTEES
SHARES OF COMMON STOCK OWNED BENEFICIALLY AS OF NAME, AGE, ADDRESS AND PRINCIPAL OCCUPATION AND BUSINESS FEBRUARY 1, 1995 WHEN TERM OF OFFICE WILL EXPIRE EXPERIENCE DURING PAST FIVE YEARS (H)(I)(J) - ------------------------------------------ -------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------------------- MEMBERSHIP ROSTER (STANDING BOARD COMMITTEES) - ----------------------------------------------------------------------------------------------------------------------------- (a)(b) John Compensation & Customer & Public Nominating & Name Board Audit Human Resources Policy Executive Finance Governance - ----------------------------------------------------------------------------------------------------------------------------- J. T. Ackerman (53) Chairman of the Board since August 1993 10,933 Albuquerque, New Mexico Chairman, President and Chief Executive Officer of (a director since June 1990); PNM (May 1991 to August 1993) 1998 Annual Meeting President and Chief Executive Officer of PNM (June 1990 to May 1991) President and Chief Operating Officer, Gas Operations of PNM (February 1985 to June 1990)
3
SHARES OF COMMON STOCK OWNED BENEFICIALLY AS OF NAME, AGE, ADDRESS AND PRINCIPAL OCCUPATION AND BUSINESS FEBRUARY 1, 1995 WHEN TERM OF OFFICE WILL EXPIRE EXPERIENCE DURING PAST FIVE YEARS (H)(I)(J)x* x* - ------------------------------------------ -------------------------------------------------- ----------------- (a)(b)(d)(f)(g) Joyce----------------------------------------------------------------------------------------------------------------------------- R. G. Armstrong x x* x x - ----------------------------------------------------------------------------------------------------------------------------- J. A. Godwin (51) Retired since December 1993 2,434 Albuquerque, New Mexico Vice President and Secretary, Presbyterian (a director since May 1989); Healthcare Services, Albuquerque, New Mexico, a 1998 Annual Meeting company which owns, leases or manages 13 hospitals and related health care concerns in New Mexico and Colorado (1979 to December 1993) Chairman and President, Southwest Business Ventures, Inc., a holding company for Presbyterian Healthcare Services' for-profit ventures (1986 to December 1993) (a)(c)(g) Manuelx x x* x x* - ----------------------------------------------------------------------------------------------------------------------------- L. H. Lattman x x x x - ----------------------------------------------------------------------------------------------------------------------------- M. Lujan, Jr. (66) Insurance Agent, Manuel Lujan 3,000 Albuquerque, New Mexico Insurance, Inc., a local, independent insurance (a director since April 1994); agency, since 1948 1998 Annual Meeting Consultant on U.S. governmental matters, focusing on Western U.S. issues, since 1993 U.S. Secretary of the Interior (1989-1993) Director, SODAK Gaming, Inc. (b)(c)(d) Robert G. Armstrong (48) President, Armstrong Energy 2,824 Roswell, New Mexico Corporation, Roswell, New Mexico (oil and gas (a director since May 1991); exploration and production) 1997 Annual Meeting Director, Sunwest Bank of Roswell, N.A. (c)(g) Reynaldox x x - ----------------------------------------------------------------------------------------------------------------------------- B. F. Montoya x x - ----------------------------------------------------------------------------------------------------------------------------- R. U. Ortiz (48) Chief Executive Officer, Jones Education 1,224 Denver, Colorado Networks, Inc. (a cable television programming (a director since April 1992); company) since March 1994 1997 Annual Meeting Senior Vice President, Jones Financial Group, Inc. (a cable-multiple system operator) (January-March 1994) Vice President, Corporate Public Policy, U S WEST, Inc. (a telecommunications company) (1991-1994) President, U S WEST New Vector, Inc. (1990-1991) (a subsidiary of U S WEST, Inc.) President, U S WEST International (1988-1990) (a subsidiary of U S WEST, Inc.)
4
SHARES OF COMMON STOCK OWNED BENEFICIALLY AS OF NAME, AGE, ADDRESS AND PRINCIPAL OCCUPATION AND BUSINESS FEBRUARY 1, 1995 WHEN TERM OF OFFICE WILL EXPIRE EXPERIENCE DURING PAST FIVE YEARS (H)(I)(J)x x x - ------------------------------------------ -------------------------------------------------- ----------------- (b)(d)(e)(f) Paul----------------------------------------------------------------------------------------------------------------------------- R. M. Price x x x x* - ----------------------------------------------------------------------------------------------------------------------------- P. F. Roth (62) Retired since October 1992 2,624 Sanibel, Florida President, Greater Dallas Chamberx x* x x x - ----------------------------------------------------------------------------------------------------------------------------- No. of Commerce, (a director since May 1991); Dallas, Texas (September 1991Meetings in 1997 10 4 6 10 2 7 4 - September 1992) 1997 Annual Meeting President, Texas Division of Southwestern Bell Telephone Company, Dallas, Texas (November 1988 to March 1991) (c)(f)(g) Laurence H. Lattman (71) Retired since July 1993 1,500 Albuquerque, New Mexico President, New Mexico Institute of Mining and (a director since May 1993); Technology (1983-July 1993) 1996 Annual Meeting (e) Benjamin F. Montoya (59) President and Chief Executive Officer of 1,000 Albuquerque, New Mexico PNM since August 1993 (a director since October 1993); Senior Vice President and General Manager, Gas 1996 Annual Meeting Supply Business Unit, Pacific Gas and Electric Company (1991 to August 1993) Vice President, Sacramento Valley Region, Pacific Gas and Electric Company (1990-1991) Manager, Sacramento Division, Sacramento Valley Region, Distribution Business Unit, Pacific Gas and Electric Company (1989-1990) (b)(d)(e) Robert M. Price (64) Retired in 1990 1,200 Edina, Minnesota Chairman and Chief Executive Officer, Control Data (a director since July 1992); Corporation, a computer manufacturing company 1996 Annual Meeting (prior to 1990) Director, Rohr Industries, Inc. Director, Premark International, Inc. Director, International Multifoods Corp. - ------------------------ (a) A nominee for election at the Annual Meeting. (b) A member of the Executive Committee. (c) A member of the Audit Committee. (d) A member of the Management Development and Compensation Committee. (e) A member of the Finance Committee. (f) A member of the Nominating Committee.-----------------------------------------------------------------------------------------------------------------------------
5 (g) A member of the Corporate and Public Responsibility Committee. (h) As used herein, beneficial ownership means the sole or shared power to vote, or to direct the voting of, a security and/or investment power with respect to a security. (i) As of February 1, 1995, directors and executive officers of PNM*Chair In 1997, the full Board met ten times. In addition, the outside directors met three times during 1997. Directors attended meetings of individual Board committees as a group owned beneficially 34,693 shares of PNM Common Stock, or less than 1% of the total number of shares outstanding. Such number of shares does not include 917 shares of PNM Common Stock owned by the spouse of an executive officer, as to which shares beneficial ownership is disclaimed. Included in the shares shown above for Mr. Ackerman as well as in the 34,693 shares for directors and executive officers as a group are shares currently allocated to executive officers and held in trust under the terms of the Employee Stock Ownership Plan ("ESOP"), in which the participant has voting rights. The Board of Directors has voted to take the steps necessary to terminate the ESOP as of March 1, 1993. Upon termination, which is awaiting Internal Revenue Service action, the shares will be distributed to the participants. (j) Included in the shares shown above for Mr. Armstrong, Ms. Godwin, Mr. Lattman, Mr. Lujan, Mr. Ortiz and Mr. Roth are shares held under the Director Restricted Stock Retainer Plan, in which the directors have voting rights. (See "COMPENSATION OF DIRECTORS").
PNM is advised that none of its directors or nominees for director owns beneficially any shares of PNM Cumulative Preferred Stock, the only other class of equity securities of PNM presently outstanding, or any shares in its subsidiary companies. See "STOCK OWNERSHIP OF CERTAIN EXECUTIVE OFFICERS" and "CERTAIN LEGAL PROCEEDINGS" for certain information relating to executive officers. BOARD AND COMMITTEE MEETINGS During 1994, the Board held nine meetings. The following standing committees of the Board held the number of meetings indicated: Audit, five; Corporate and Public Responsibility, eight; Executive, three; Finance, five; Management Development and Compensation, seven; and Nominating, six. None of the directors attended fewer than 75% of the aggregate of all meetings held by the Board and by all committees of the Board on which he or she served. BOARD AND COMMITTEE POLICIES In January 1991, the Board modified existing Board service policies and adopted a new policy to provide for an orderly rotation of the membership of the Board. This policy was clarified in an amendment adopted in December 1993. The Board has also adopted certain policies with regard to committee appointments. The following is a summary of these policies. RETIREMENT POLICIES. Upon attaining the age of 72 years, a director will submit a written resignation to the Board for acceptance by the Board at such time as the Board in its discretion deems advisable. A director who is an employee of PNM will, on the date of such person's retirement as an employee of PNM, submit a resignation to the Board for acceptance by the Board at such time as the Board in its discretion deems advisable. The retirement policy does not apply to any member of the Board with service as chief executive officer of PNM. 6 MAXIMUM TERM OF OFFICE. Under the Board policies, no person who is presently serving or who hereafter serves as a director of PNM shall be nominated to serve more than four times. It is the intent of this policy that each member of the Board will normally serve for a period of no more than twelve years, plus a portion of an unexpired term, if any, if the director was initially appointed to serve out an unexpired term of a director who resigned, retired or died in office. Terms of office served prior to adoption of the policies will be counted in determining whether the four-term limitation has been reached. The maximum term of office policy does not apply to any member of the Board with service as chief executive officer of PNM. In adopting the four-term limitation, the Board made it clear that the policy is not to be construed to mean that renomination for a second, third or fourth term will be routine. An evaluation process will be implemented by the Nominating Committee of the Board to determine that each renomination is in the best interest of PNM. COMMITTEE APPOINTMENT POLICIES. Under the policies pertaining to committee appointments, members of the Management Development and Compensation Committee and the Audit Committee must be non-employee directors only, and the Chairman of the Nominating Committee must be a non-employee director. COMMITTEES OF THE BOARD The members of the standing committees of the Board are shown in the foregoingabove table. The responsibilities ofFor the committees areBoard as follows: THEa whole, attendance in 1997 at full Board and committee meetings exceeded 93%. The AUDIT COMMITTEE consists entirely of three outside membersnon-employee directors. It assesses the work of PNM's internal auditors and independent public accountants and the effectiveness of the Board of Directors.business control structure. It also reviews the financial statements of PNM and meets with and receives reports and other communications from its internal and outside independent auditors.oversees PNM's financial reporting. The Committeecommittee represents the Board of Directors in accounting and auditing related activities of PNM. It has the responsibility to make recommendations to the Board with respect to appointment of the independent public accountants, to approve the scope of the annual audit and to monitor and review the effectiveness of PNM's management of the accounting functions. THE CORPORATEThe committee also has the responsibility to monitor and report to the Board the status of PNM's activities to assure that its computers and other systems will operate at year 2000. The COMPENSATION AND HUMAN RESOURCES COMMITTEE consists entirely of non- employee directors. It reviews PNM's compensation policies and benefit programs and their relationship to the attainment of business goals. The committee recommends to the Board the compensation philosophy and guidelines for the entire executive and managerial group, giving emphasis to rewarding long-term results and maximizing shareholder value. The committee reviews PNM's affirmative action program, conducts an annual performance evaluation of the chief executive officer, and assures management continuity through annual review and approval of a management development and succession program. The committee also has oversight of PNM's code of conduct and compliance program and interacts with PNM's employee organizations. 4 The CUSTOMER AND PUBLIC RESPONSIBILITYPOLICY COMMITTEE consists entirely of non-employee directors. It reviews and monitors policies and their implementation that deal with PNM's responsibility to the communities in which it does businessbusiness. The subject matter of policies reviewed and determinesmonitored includes: the standards which govern business transactions. These policies include, but are not limited to, environmental, affirmative action,environment, charitable contributions, PNM's political action committee,activities, and communications to various constituencies. THEconstituencies of PNM. The committee meets with public officials, the media and other opinion leaders throughout the year to obtain an independent assessment of PNM's public reputation. The EXECUTIVE COMMITTEE consists of the Chairman of the Board of Directors and the Chairschairs of thePNM's standing Board committees. It exercises the powerpowers of the Board of Directors in the management of the business affairs and property of PNM during intervals between the meetings of the Board of Directors. THEmeetings. The FINANCE COMMITTEE consists of a majority of outsidenon-employee directors. It reviews and recommends to the Board the capital structure and financial strategy for PNM, including dividend policy. It has overviewoversight of PNM's financial performance, investment procedures and policies, pension fund performance and funding level, and risk management strategies and policies. The Committeecommittee specifically has responsibility for the review and approval of all singlecertain capital expenditures in excess of $1 million$1,000,000 and reviewsof all capital expenditures in excess of $100,000 and the quarterly capital appropriation reports. 7 THE MANAGEMENT DEVELOPMENT$2,500,000. The NOMINATING AND COMPENSATIONGOVERNANCE COMMITTEE consists entirely of outside directors. It reviews the compensation policies and benefit programs of PNM and how they relate to the attainment of goals. The Committee recommends to the Board the compensation philosophy and guidelines for the entire executive and managerial group, including members of the Board of Directors, giving emphasis to rewarding long term results and maximizing shareholder value. The Committee conducts an annual performance evaluation of the chief executive officer and is also charged with assuring management continuity through annual review and approval of a management development and succession program. THE NOMINATING COMMITTEE currently consists entirely of outsidenon-employee directors. It has the responsibility to make recommendations to the Board with respect tofor nominees to be designated by the Board for election as directors, as well as recommendations concerning the effectiveness, structure, size, composition and compositioncompensation of the Board, including committee assignments and candidates for election as Chairman of the Board. The Nominating and Governance Committee expects normallyconducts an annual evaluation of Board performance and effectiveness, and, at least annually, reviews conflict of interest questionnaires submitted by directors to be able to identify from its own resourcesdetermine whether any conflict of interest exists. In 1995, the namesBoard approved a Nominations Policy which describes the guidelines, procedures, and selection criteria for filling vacancies on the Board, recognizing the importance of qualifieda well-balanced Board which reflects the interests of PNM's shareholders, customers, employees and the communities it serves. The Nominating and Governance Committee seeks potential nominees but itfor Board membership in various ways and will accept from security holders recommendations of individuals to be considered as nominees. Security holder recommendations for the 1996 Annual Meeting,consider suggestions submitted by shareholders. Suggestions, together with a description of the proposedpotential nominee's qualifications, relevantappropriate biographical information, and the proposedpotential nominee's signed consent to serve, should be submitted in writing to the Secretary of PNM and received by that office on or before Octoberprior to August 1, 1995. The determination of nominees recommended by the Nominating Committee1998. In addition to the standing committees described above, in 1997 the Board formed an AD HOC COMMITTEE to conduct an independent investigation concerning a regulatory ruling that accused management of improper acts. The AD HOC COMMITTEE completed its investigation in 1997 and issued a report finding that management had not committed the improper acts, but recommended improvements in some internal processes. The Board members who served on the AD HOC COMMITTEE were John Ackerman, Robert Armstrong, Joyce Godwin and Paul Roth. The AD HOC COMMITTEE met 20 times in 1997. 5 DIRECTOR COMPENSATION Of PNM's current Board members, only one, Mr. Montoya, is withina salaried employee. Mr. Montoya receives no compensation for serving on the sole discretionBoard or its committees. Board members who are not salaried employees of PNM receive compensation for Board service. That compensation, for other than the Committee, and the final selection of the Board's nominees is within the sole discretionChairman of the Board, of Directors. CERTAIN LEGAL PROCEEDINGS Bellamah Community Development ("BCD"), a general partnership that engaged in real estate operations in the southwestern United States, is the debtor in a proceeding in the United States Bankruptcy Courtincludes: ANNUAL RETAINER: $20,000 ATTENDANCE FEES: $750 per Board meeting $500 for the District of New Mexico that commenced on June 1, 1989 under Chapter 11 of the Bankruptcy Code and convertedeach Board committee meeting Expenses related to a Chapter 7 proceeding by order entered on January 29, 1990. The general partners of BCD include Meadows Resources, Inc., a wholly-owned subsidiary of PNM. Certain former executive officers of PNM had served on the managementattendance COMMITTEE CHAIRS: $200 for each Board committee of BCD.meeting (in addition to attendance fees) In addition, Mr. Max H. Maerki, Senior Vice President and Chief Financial Officer of PNM, had served as an executive officer of Meadows and as vice chairman of the executive committee of BCD. SELECTION OF AUDITORS Action is to be taken with respect to the approval of the selection, byDecember 1993, the Board of Directors restructured the duties and compensation of the firmposition of Arthur Andersen LLP as independent auditorsChairman of the Board, increasing the duties and establishing the level of compensation. The Chairman receives an annual retainer that is four times the amount paid to auditother non-employee directors, of which one-fourth is paid on terms identical to the consolidated financial statements of PNMretainer paid to other non- employee directors and subsidiariesthe remaining three-fourths in cash, and is only paid meeting fees for attending Board and Executive Committee meetings. The meeting fees for the fiscalChairman are three times the meeting fees paid to other non- employee directors. Under PNM's Director Retainer Plan, approved by shareholders in 1996, directors may choose to receive their annual retainer in the form of cash, restricted stock or stock options. The restrictions on the restricted stock generally lapse one-third each year ending December 31, 1995. The firm has beenfollowing the independent auditors of PNM since 1993. Arthur Andersen LLP has no financial interest in PNM or any of its subsidiaries. A representative of Arthur Andersen LLP will be present at the Annual Meeting of Stockholders to answer appropriate questions and to make any statement the representative might desire. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE SELECTION OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS. 8 REPORT OF THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE* THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE PHILOSOPHY Two basic principles guide PNM's compensation program. First, senior management's compensation program should reflect both individual performance and the achievement of PNM's goals. Second, the program should be as competitive, relative to the utility industry, as possible in order to attract, motivate, and retain key management members. New Mexico compensation trends are also considered in determining competitivenessyear of the program. COMPENSATION ELEMENTSgrant. The senior management compensation program, which is designedoptions generally vest (become exercisable) one year from the date they were granted and allow the director to meet the philosophypurchase 2,000 shares of the Management Development and Compensation Committee (the "Committee"), has three components: base salary, management benefits, and incentive plans. BASE SALARIES. In 1994, base salaries, the fixed component of pay, were conservatively tied to the average level of base salaries among gas and electric utilities which are included in compensation surveys sponsored by the Edison Electric Institute and the American Gas Association.common stock. The Committee believes that direct competitors for executive talent comprise a larger group than the group of companies included in the peer group established to compare shareholder returns. For incumbent members of senior management, base salaries were unchanged in 1994 in keeping with the provisions of PNM's Performance Stock Plan. MANAGEMENT BENEFITS. The benefits provided for senior management are based upon benefits provided to all employees. The benefits focus on retirement, life insurance, health care, severance and retention. INCENTIVE PLANS. The Committee believes that the third component of the compensation program, incentive plans, is critically important to PNM's compensation philosophy and in achieving PNM's goals. The Committee believes this third element should have both a short-term and long-term focus. The short-term element should consist of "at risk" pay or rewards paid out in cash while the long-term element should be equity or stock-based compensation. Currently, management is in the process of implementing a results-based reward program. The Committee expects this program to be in place by the end of the first quarter of 1995. The program would introduce an "at risk" cash compensation element to PNM's existing compensation program. The long-term focus is addressed through implementation of the Performance Stock Plan. The Performance Stock Plan is a stock option incentive plan which provides grants in two different ways. The first, initial grants, are granted in lieu of base salary merit increases. The second provides for grants based on a formula, where achievement of equally weighted goals determines if the options will be granted. These goals are approved by the Board of Directors. The grants are then adjusted based on PNM's total return to shareholders compared to the industry peer group discussed in the "Stock - ------------------------ *The Report of the Management Development and Compensation Committee shall not be deemed to be incorporated into any filing by PNM under the Securities Act of 1933 or the Securities Exchange Act of 1934. 9 Performance" section of the Proxy Statement. Individual awards are based on the participant's position with PNM. Previous years' grants are not considered in determining the number of awards granted. In 1994, there were two goals: one based on earnings per share and one based on customer satisfaction. PNM achieved both of these goals. Therefore, 250,794 options, with an exercise price of $13.00, were granted effective December 31, 1994the option is equal to the executive officer participants. In December 1994,fair market value of the Board approved management's proposal for a one-time cash bonus to be paid to employees. The bonus was based on PNM's 1994 performance. Bonuses to all PNM officers, in the aggregate amount of $200,000, will not be paid until PNM resumes paying a dividend. When the dividend is resumed, the amounts to be paid to executive officers will be determined. Mr. Montoya, President and CEO, elected, and the Board agreed, that he will not receive any portion of this bonus amount. CHIEF EXECUTIVE OFFICER COMPENSATION FOR 1994 In July 1993, the Board offered Mr. Montoya the position of President and CEO. Data provided by an executive compensation consultant and an executive search firm were considered in determining Mr. Montoya's compensation. Mr. Montoya's 1994 base compensation remained unchanged from the amount originally set when he was hired. In 1994, Mr. Montoya received an initial grant under the Performance Stock Plan of 8,306common stock options and he also earned 86,332 stock options based on the attainmentdate of PNM's earnings per share and customer satisfaction goals. Thegrant less the annual retainer divided by 2000, subject to a minimum exercise prices for these options are $11.50 and $13.00, respectively. CERTAIN TAX MATTERSprice. 6 - ------------------------------------------------------------------------------- PNM has no policyCOMMON STOCK OWNED BY EXECUTIVE OFFICERS AND DIRECTORS (AS OF FEBRUARY 2, 1998) - -------------------------------------------------------------------------------
Amount and Nature of Shares Beneficially Owned(a) - ---------------------------------------------------------------------------------------------------------------------------- Name Aggregate No. Right to Acquire Percent of Shares of Shares Held(b) Within 60 Days(c) Beneficially Owned - ---------------------------------------------------------------------------------------------------------------------------- John T. Ackerman 10,935 -0- * - ---------------------------------------------------------------------------------------------------------------------------- Robert G. Armstrong 3,856 1,000 * - ---------------------------------------------------------------------------------------------------------------------------- Roger J. Flynn 1,000 16,042 * - ---------------------------------------------------------------------------------------------------------------------------- Joyce A. Godwin 3,502 1,000 * - ---------------------------------------------------------------------------------------------------------------------------- Laurence H. Lattman 3,123 -0- * - ---------------------------------------------------------------------------------------------------------------------------- Manuel Lujan, Jr. 3,428 -0- * - ---------------------------------------------------------------------------------------------------------------------------- Max H. Maerki 817 37,127 * - ---------------------------------------------------------------------------------------------------------------------------- Benjamin F Montoya 2,461 134,094 * - ---------------------------------------------------------------------------------------------------------------------------- Patrick T. Ortiz 507 50,387 * - ---------------------------------------------------------------------------------------------------------------------------- Reynaldo U. Ortiz 2,224 1,000 * - ---------------------------------------------------------------------------------------------------------------------------- Robert M. Price 3,000 1,000 * - ---------------------------------------------------------------------------------------------------------------------------- Paul F. Roth 4,909 -0- * - ---------------------------------------------------------------------------------------------------------------------------- Jeffry E. Sterba 1,523 13,490 * - ---------------------------------------------------------------------------------------------------------------------------- Directors and Executive Officers as a Group (17) 43,698 442,594 1.2% - ----------------------------------------------------------------------------------------------------------------------------
(a) Beneficial ownership means the sole or shared power to vote, or to direct the voting of, a security and/or investment power with respect to qualifying compensation paid toa security. (b) Shares held in the individual's name, individually or jointly with others, or in the name of a bank, broker or nominee for the individual's account. The total for directors and executive officers for deductibility under Section 162(m) of the Internal Revenue Code because PNM's compensation levels doas a group does not approach the limits as definedinclude 914 shares owned by the Codespouse of one executive officer. The executive officer disclaims beneficial ownership of those shares. (c) The number of shares directors and it is not anticipated that the compensationexecutive officers have a right to acquire through stock option exercises within 60 days after February 2, 1998. - -------------------------------------------------------------------------------- *Less than 1% of PNM's management will approach those limits in the foreseeable future. COMMITTEE PROCESS The executive compensation program is administered by the Committee. The Committee consistsoutstanding shares of independent directors who are notcommon stock. 7 - -------------------------------------------------------------------------------- PERSONS OWNING MORE THAN FIVE PERCENT OF PNM employees and who qualify as disinterested persons for the purposes of SEC Rule 16b-3 adopted under the Securities Exchange Act of 1934. The Committee is accountable for all compensation matters for PNM's senior management. The Committee has retained an independent executive compensation consulting firm whose recommendations are considered by the Committee in making decisions regarding the appropriateness of the executive compensation program. Management Development and Compensation Committee Paul F. Roth, Chair Robert G. Armstrong Joyce A. Godwin Robert M. Price 10 EXECUTIVE COMPENSATION The following table sets forth certain information regarding compensation paid during each of the last three fiscal years for the current chief executive officer and each of the four most highly compensated executive officers serving at the end of the year, based on salary and bonus earned during 1994. SUMMARY COMPENSATION TABLECOMMON STOCK (AS OF MARCH 13, 1998) - --------------------------------------------------------------------------------
LONG TERM COMPENSATION -------------- AWARDS ANNUAL COMPENSATION -------------- ------------------------------------- SECURITIES OTHER ANNUAL UNDERLYING ALL OTHER- ---------------------------------------------------------------------------------------------------------------- VOTING DISPOSITIVE AUTHORITY AUTHORITY PERCENT -------------------------------------------- TOTAL OF NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION (AS OF DECEMBER 31, 1994) YEAR ($) ($)(A) ($)(B) (#) ($)ADDRESS SOLE SHARED SOLE SHARED AMOUNT CLASS - ---------------------------------- --------- ----------- --------- ------------- -------------- ----------------------------------------------------------------------------------------------------------------------------- B. F. Montoya 1994 $ 317,967 0 -- 94,638 $ 37,528(d)Group filing by: President and CEO 1993 164,578(c)Fellows of Harvard College 3,802,800 None 3,802,800 None 3,802,800 9.1% The Harvard University Master Trust Fund 72,700 None 72,700 None 72,700 0.2% John Stevens Trust 2,900 None 2,900 None 2,900 0.0% Nancy Stevens Trust 4,300 None 4,300 None 4,300 0.0% Harvard College Trust 9,900 None 9,900 None 9,900 0.0% 600 Atlantic Avenue Boston, MA 02210 - ---------------------------------------------------------------------------------------------------------------- Boston Partners Asset Management, L.P. and Affiliates 0 --3,247,422 0 $ 6,924(d) M. P. Bourque 1994 126,537 -- -- 30,7483,247,422 3,247,422 7.8% One Financial Center Boston, MA 02111 - ---------------------------------------------------------------------------------------------------------------- Morgan Stanley, Dean Witter, Discover & Co. 1585 Broadway 0 Senior Vice President, 1993 126,5282,751,080 0 -- 7,889 0 Energy Services 1992 126,169 0 -- 0 0 M. H. Maerki 1994 172,243(e) -- -- 30,748 0 Senior Vice President 1993 162,240 0 -- 7,889 0 and Chief Financial 1992 161,028 0 -- 0 0 Officer P. T. Ortiz 1994 126,384 -- -- 30,748 0 Senior Vice President, 1993 126,384 0 -- 7,889 0 General Counsel 1992 125,203 0 -- 0 0 and Secretary J. E. Sterba 1994 126,903(e) -- -- 0 0 Senior Vice President, 1993 124,501 0 -- 0 0 Bulk Power Services 1992 130,105 0 -- 0 0 - ------------------------ (a) A deferred bonus fund of $200,000 was established in December 1994, based on PNM's 1994 performance, from which lump sum awards to all officers of PNM, excluding the President and CEO, will be paid at such time as PNM pays a dividend to its shareholders. The amount of the individual awards will be determined by the President and CEO at that time. Amounts ultimately payable to each of the above-named executive officers are currently unknown. (b) The dollar value of perquisites and other personal benefits for each of the named executive officers was less than the established reporting thresholds. (c) Mr. Montoya became an employee of PNM in August 1993. (d) These amounts represent relocation, home sale and interim living expenses paid to Mr. Montoya in 1993 and 1994. (e) These amounts include vacation sales during 1994, and do not reflect an increase in base salaries.
11 OPTION GRANTS IN 1994 FISCAL YEAR
INDIVIDUAL GRANTS ------------------------------------------------------------ NUMBER OF SECURITIES PERCENT OF TOTAL UNDERLYING OPTIONS/SARS OPTIONS/SARS GRANTED TO EXERCISE OR GRANT DATE GRANTED EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE NAME (#)(A) FISCAL YEAR ($/SH) DATE ($)(B) - --------------------------------------- ------------- ----------------- ----------- ------------- ------------- B. F. Montoya.......................... 8,306 1.0% $ 11.50 06/30/2004 $ 23,402 86,332 10.7% $ 13.00 12/31/2004 $ 275,399 M. P. Bourque.......................... 30,748 3.8% $ 13.00 12/31/2004 $ 98,086 M. H. Maerki........................... 30,748 3.8% $ 13.00 12/31/2004 $ 98,086 P. T. Ortiz............................ 30,748 3.8% $ 13.00 12/31/2004 $ 98,086 J. E. Sterba........................... 0 0 0 0 0 - ------------------------ (a) These nonqualified options are exercisable following vesting on June 30, 1996. These options may also become fully exercisable upon the occurrence of certain other events such as a change in control (as defined in the Performance Stock Plan) of PNM. (b) These amounts represent a theoretical present valuation based on the Black-Scholes Option Pricing Model. The actual value, if any, an executive officer may realize ultimately depends on the market value of PNM's Common Stock at a future date. This valuation is provided pursuant to Securities and Exchange Commission disclosure rules. There is no assurance that the value realized will be at or near the value estimated by the Black-Scholes model. Assumptions used to calculate this value are: price volatility, 24.35%; risk-free rate of return, 7.83%; dividend yield, 3%; and time to exercise, four years. These amounts or any of the assumptions should not be used to predict future performance of stock price or dividends. PNM has not declared common dividends since January 1989. The inclusion of a dividend yield assumption for the sole purpose of calculations using the Black-Scholes Option Pricing Model is not to be construed as a projection of the resumption of dividend payments.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND DECEMBER 31, 1994 OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT DECEMBER 31, 1994 DECEMBER 31, 1994(A) ----------------------- ----------------------- NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE - ------------------------------------------------ ----------------------- ----------------------- B. F. Montoya................................... 0/94,638 $0/$12,459 M. P. Bourque................................... 0/38,637 $0/$0 M. H. Maerki.................................... 0/38,637 $0/$0 P. T. Ortiz..................................... 0/38,637 $0/$0 J. E. Sterba.................................... 0/0 $0/$0 - ------------------------ (a) Computed by reference to the2,759,043 2,759,043 6.6% New York, Stock Exchange composite transaction closing priceNY 10036 - ---------------------------------------------------------------------------------------------------------------- The Prudential Insurance Company of PNM's Common Stock on December 31, 1994 of $13.00 per share.America 751 Broad Street 25,700 2,573,041 25,700 2,573,041 2,598,741 6.2% Newark, NJ 07102-3777 - ---------------------------------------------------------------------------------------------------------------- Franklin Resources, Inc. and Affiliates 777 Mariners Island Boulevard 2,140,700 None 2,140,700 None 2,140,700 5.1% San Mateo, CA 94404 - ----------------------------------------------------------------------------------------------------------------
12 STOCK OWNERSHIP OF CERTAIN EXECUTIVE OFFICERS EachThe information provided above is based on reports filed with the Securities and Exchange Commission. PNM makes no representation as to the accuracy or completeness of such information. These are the executive officers named in the above table (except Mr. Montoya, whose stock ownership is reported above under "ELECTION OF DIRECTORS") has advisedonly persons known to PNM, that, as of February 1, 1995, he or she beneficially owned directly or indirectly Common StockMarch 13, 1998, to be the beneficial owners of more than 5% of PNM's common stock. 8 - -------------------------------------------------------------------------------- PERFORMANCE GRAPH - -------------------------------------------------------------------------------- COMPARISON OF FIVE YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN AMONG PNM, as set forth below:
SHARES OF COMMON STOCK OWNED BENEFICIALLY AS OF FEBRUARY 1, 1995 NAME (A)(B)(C) - ----------------------------------------------------------- ------------------------- M. P. Bourque.............................................. 365 M. H. Maerki............................................... 504 P. T. Ortiz................................................ 507 J. E. Sterba............................................... 1,847 - ------------------------ (a) As used herein, beneficial ownership means the sole or shared power to vote, or to direct the voting of, a security and/or investment power with respect to a security. (b) Includes shares currently allotted to such executive officers and held in trust under the terms of the ESOP. See footnote (i) to the table under "ELECTION OF DIRECTORS". (c) All such amounts are less than one percent of the outstanding Common Stock of PNM.
PNM is advised that none of its executive officers owns beneficially any shares of PNM Cumulative Preferred Stock, the only other class of equity securities of PNM presently outstanding, or any shares in its subsidiary companies.A PEER GROUP* AND S&P 500 STOCK PERFORMANCE*INDEX The following graph compares the yearly percentage changeassumes that $100 was invested on December 31, 1992 in the cumulative total shareholder return on PNM'sPNM Common Stock, during the five fiscal years ended December 31, 1994, with the cumulative total return oncombination gas and electric peer group and the S&P 500 Stock Index, and the cumulative total return on an index of peer companies selected by PNM. Companies in thethat all dividends were reinvested. Historical performance does not necessarily predict future results. [PERFORMACE GRAPH APPEARS HERE] ----------------------------------------------------------------------- FISCAL YEAR ENDED DECEMBER 31, 1992 1993 1994 1995 1996 1997 ----------------------------------------------------------------------- PNM 100 91 105 142 162 202 ----------------------------------------------------------------------- PEER GROUP 100 111 94 119 114 153 ----------------------------------------------------------------------- S&P 500 100 110 112 153 189 252 ----------------------------------------------------------------------- * The peer group companies are combinedcombination electric and gas utilities each of which has an investment in a nuclear power generating station. The peer group companies are as follows: Baltimore Gas & Electric Company, Central Hudson Gas and& Electric Company, CMS Energy Corp., Commonwealth Energy System, Consolidated Edison, Company of New York,Inc., Delmarva Power & Light Company, Enova Corp., IES Industries, Inc., Iowa-Illinois Gas & Electric Company, Long Island Lighting Company, New York State Electric & Gas Corp., Niagara Mohawk Power Corp., Northern States Power Company, Pacific Gas and& Electric Company, PECO Energy Company, Public Service Enterprises Group, Rochester Gas & Electric Corp., San Diego Gas & Electric Company, SCANA Corporation, Wisconsin Energy Corp., WPL Holdings, Inc., and WPS Resources, Corp., 9 - -------------------------------------------------------------------------------- COMPENSATION AND HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION - -------------------------------------------------------------------------------- COMPENSATION POLICIES The Compensation and WPL Holdings, Inc. - ------------------------ *The "STOCK PERFORMANCE" sectionHuman Resources Committee ("Committee") establishes compensation guidelines and targets based upon the performance of PNM, business units within PNM, and individual executive officers. The Committee consists of four independent directors who are not PNM employees. The Committee's goal is to establish a compensation program that: . links the interests of management and shareholders . links executive compensation with long-term PNM performance . attracts and retains executives of high caliber and ability For 1997, that program consisted of base salary, short-term incentive compensation, and long-term incentive compensation. The Committee believes this Proxy Statement shallcompensation program was a significant factor contributing to PNM's success this past year, including earnings per share of $1.92 and record operating revenues of $1.14 billion. As the performance graph indicates, PNM stock has provided shareholders with a cumulative return over the past five years that exceeds PNM's peer group. BASE SALARIES EXECUTIVE OFFICERS ------------------ Each year the Committee reviews base salaries of individual executive officers and their salary ranges. In 1997, base salaries were conservatively tied to the average level of base salaries among gas and electric utilities included in compensation surveys sponsored by the Edison Electric Institute and the American Gas Association, as well as other industries. CHIEF EXECUTIVE OFFICER ----------------------- Mr. Montoya became the President and CEO of PNM in 1993. At that time, data provided by an executive compensation consultant and an executive search firm were considered in determining Mr. Montoya's compensation. Mr. Montoya's salary remained unchanged until 1996, when the common stock dividend was reinstated. In 1996, his compensation was increased by $30,000 to $350,000. In 1997, Mr. Montoya's compensation was increased by $25,000 to $375,000. In setting Mr. Montoya's 1997 salary, the Committee evaluated his performance in the prior year. Determinative factors included: 10 . strategic planning . cost reduction . customer retention and targeted market strategy . financial targets . human resources targets . external relations targets Some of the significant achievements considered are set forth below: . continued improvement in shareholder returns . advancement of position as a customer-focused energy services company . implementation of a strategic planning process . continued improvement in financial credit rating criteria . implementation of new business development opportunities SHORT-TERM INCENTIVE COMPENSATION EXECUTIVE OFFICERS ------------------ In 1997, executive officers, together with all other PNM employees, participated in a results-pay plan. The plan has an "at risk" cash compensation element tied to the success of the individual business units and to the overall success of PNM. Goals are approved annually by the Board of Directors. Business unit goals for 1997 were generally centered on customer satisfaction, cost control, and efficiency in operations and an earnings per share ("EPS") goal. The business unit goals for 1997 were partially achieved and the EPS goal was fully achieved. Partial payments were made in February 1998. CHIEF EXECUTIVE OFFICER ----------------------- Mr. Montoya was not be deemeda participant in the results-pay plan; however, based on his performance noted above, the Board of Directors awarded Mr. Montoya a bonus of $75,000 in 1997. LONG-TERM INCENTIVE COMPENSATION EXECUTIVE OFFICERS AND CHIEF EXECUTIVE OFFICER ---------------------------------------------- In 1997, all executive officers, including Mr. Montoya, as well as other key employees, were granted non-qualified stock options under PNM's Performance Stock Plan ("PSP"). Under the plan, grants were awarded based on achievement of goals approved annually by the Board of Directors. For 1997, there were two goals: one based on EPS and one based on customer 11 satisfaction. The EPS goal was fully achieved. The customer satisfaction goal was not achieved. Partial awards of 1997 grants were approved in February 1998. The number of stock option grants awarded was based on a formula with the following components: . annual base salary; . percentage of achievement of the EPS goal; and . percentage of achievement of the customer service goal; and . total return to shareholders. The number of grants awarded to executive officers, including Mr. Montoya, in 1997 are reflected in the Summary Compensation Table and Option Grants Table. The plan, as amended in March 1998, provides for the Committee, in its sole and absolute discretion, to declare annually the level of options to be incorporatedgranted, based on performance data presented by reference into any filing bythe President. The President will establish the criteria for the performance data to be used in recommending the awards to the Committee. CERTAIN TAX MATTERS Under Section 162(m) of the Internal Revenue Code ("Code"), PNM under either the Securities Actmay not deduct certain forms of 1933 or the Securities Exchange Actcompensation in excess of 1934. 13$1 million. PNM has no policy with respect to Section 162(m). Compensation and Human Resources Committee Paul F. Roth (Chair) Joyce A. Godwin Robert G. Armstrong Robert M. Price 12 COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN(1) AMONG PUBLIC SERVICE COMPANY OF NEW MEXICO, A PEER GROUP AND THE S&P 500 STOCK INDEX EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC- -------------------------------------------------------------------------------- EXECUTIVE COMPENSATION - --------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994- -------------------------------------------------------------------------------------------------------------------- SUMMARY COMPENSATION TABLE ---------------------------------------------------------------------- LONG-TERM COMPENSATION ------------ ANNUAL COMPENSATION AWARDS - -------------------------------------------------------------------------------------------------------------------- SECURITIES NAME AND OTHER ANNUAL UNDERLYING ALL OTHER PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(A) OPTIONS(#) COMPENSATION - -------------------------------------------------------------------------------------------------------------------- Public Svc Co N Mex 100 57 67 85 77 88 PEER GROUP 100 99 127 140 156 132 S&P 500 100 97 126 136 150 152B. F. Montoya 1997 $358,657 $ 75,000(b) -- 20,902 -0- President and CEO 1996 341,927 -0- -- 32,802 -0- 1995 320,205 -0- -- 39,456 -0- - -------------------------------------------------------------------------------------------------------------------- R. J. Flynn 1997 $155,574 $ 9,975(c) -- 7,432 -0- Senior Vice President, 1996 153,995 1,183(d) -- 12,301 -0- Electric Services 37,400(c) 1995 154,056 25,624(c) -- 13,490 $16,045(e) - -------------------------------------------------------------------------------------------------------------------- M. H. Maerki 1997 $178,346(f) $ 12,408(c) -- 7,432 -0- Senior Vice President 1996 174,095(g) 14,201(d) -- 12,301 -0- and Chief Financial 39,101(c) Officer 1995 173,486(f) 19,240(c) -- 13,490 -0- - -------------------------------------------------------------------------------------------------------------------- P. T. Ortiz 1997 $142,884 $ 11,093(c) -- 7,432 -0- Senior Vice President, 1996 135,000 14,201(d) -- 10,853 -0- General Counsel and 34,500(c) Secretary 1995 132,017 16,757(c) -- 11,750 -0- - -------------------------------------------------------------------------------------------------------------------- J. E. Sterba 1997 $195,033(f) $ 19,968(c) -- 13,935 -0- Executive Vice President 1996 146,965(g) 14,201(d) -- 12,301 -0- and Chief Operating 40,801(c) Officer 1995 142,911(f) 12,836(c) -- 13,490 -0- 123,201(h) - --------------------------------------------------------------------------------------------------------------------
(a) These amounts are less than the established reporting thresholds. (b) Bonus paid in August 1997 for previous performance. (c) In 1995, a results-based reward program was implemented which was designed to tie a portion of cash rewards awarded employees to the success of their business unit and a portion of the success of PNM as a whole. Goals are approved annually by the Board of Directors. These amounts reflect incentive award amounts paid in 1998 for 1997 achievements, in 1997 for 1996 achievements and in 1996 for 1995 achievements. (d) A deferred bonus fund of $200,000 was established in December 1994, based on PNM's 1994 performance, from which lump sum awards to all officers of PNM, excluding the President and CEO, were to be paid at such time as PNM paid a dividend to shareholders. Upon the reinstatement of the dividend in 1996, the amounts noted were paid, as determined by the President and CEO. (e) This amount represents relocation, home sale and interim living expenses paid to Mr. Flynn in 1995. (f) These amounts include sales of accrued vacation hours during 1997 and 1995 and also reflect increases in base salaries. (g) These amounts include sales of accrued vacation hours during 1996 and do not reflect increases in base salaries. (h) This amount was an incentive payment under previously disclosed incentive plans for efforts leading to the sales of gas gathering and processing assets and water utility assets which occurred in 1995. - -------------------------------------------------------------------------------- 13
- ----------------------------------------------------------------------------------------------------------------------------- OPTION GRANTS IN 1997 ------------------------------------------------------------------------------------------------------------- INDIVIDUAL GRANTS - ----------------------------------------------------------------------------------------------------------- % OF TOTAL GRANT DATE NUMBER OF SECURITIES OPTIONS GRANTED PRESENT NAME UNDERLYING OPTIONS TO EMPLOYEES IN EXERCISE PRICE EXPIRATION VALUE(b) GRANTED(a) FISCAL YEAR 1997 PER SHARE DATE - ----------------------------------------------------------------------------------------------------------------------------- B. F. Montoya 20,902 7% $23.6875 12/31/2007 $88,206 R. J. Flynn 7,432 2% 23.6875 12/31/2007 31,363 M. H. Maerki 7,432 2% 23.6875 12/31/2007 31,363 P. T. Ortiz 7,432 2% 23.6875 12/31/2007 31,363 J. E. Sterba 13,935 5% 23.6875 12/31/2007 58,806 - ------------------------ (1) This illustration assumes $100 invested-----------------------------------------------------------------------------------------------------------------------------
(a) Options are exercisable following vesting on December 31, 2000. Options may also become fully exercisable upon death, disability, retirement, or a change in control. (b) The Black-Scholes option-pricing model was used to determine the fair value of options. Assumptions used to calculate this value are: price volatility - 20%; risk-free rate of return - 5.69%; dividend yield - 3%; and time of exercise - four years. Neither these amounts nor any of the assumptions should be used to predict future performance of stock price or dividends. The real value of the options in this table depends on the actual performance of PNM's common stock during the applicable period and when they are exercised. - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------- AGGREGATED OPTION EXERCISES IN 1997 AND 1997 YEAR-END OPTION VALUES ------------------------------------------------------------------------- NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT DECEMBER 31, 1989 in PNM Common Stock, the S&P 500 Stock Index and the combination gas and electric company peer group. Each mark on the axis displaying the years 1989 through 1994 represents December1997 DECEMBER 31, of that year. Total Return includes reinvestment of all dividends. The historical shareholder return shown above may not be indicative of future performance.1997(a) - ------------------------------------------------------------------------------------------------------------------------------- NAME SHARES ACQUIRED VALUE ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------------------------------------------------------------------------------------------------------------- B. F. Montoya -0- -- 134,094 53,704 $1,263,105 $133,258 R. J. Flynn -0- -- 16,042 19,733 109,058 49,973 M. H. Maerki -0- -- 37,127 19,733 328,487 49,973 P. T. Ortiz -0- -- 50,387 18,285 478,251 44,090 J. E. Sterba -0- -- 13,490 26,236 81,783 49,973 - -------------------------------------------------------------------------------------------------------------------------------
(a) Value equals the year-end stock price ($23.6875) minus the exercise price, times the number of shares underlying the option. "In-the-Money" means that the year-end stock price was greater than the exercise price of the option. - -------------------------------------------------------------------------------- RETIREMENT PLAN AND RELATED MATTERS. PNM and its subsidiaries have a non-contributoryMATTERS In December 1996, the Board of Directors approved changes to PNM's non- contributory defined benefit plan (the "Retirement("Retirement Plan") coveringand implementation of a 401(k) defined contribution plan effective January 1, 1998. Salaries used in Retirement Plan benefit calculations were frozen as of December 31, 1997. Additional credited service can be accrued under the Retirement Plan up to a limit determined by age and years of service. PNM contributions to the 401(k) plan consist of a 3 percent non-matching contribution, and a 75 percent match on the first 6 percent contributed by the employee on a before-tax basis. 14 Through December 31, 1997, the Retirement Plan covered employees who havehad at least one year of service and havehad attained the age of 21. During 1994 and 1995,Vesting occurred after five years of service. PNM made contributions in 1997 to the Retirement Plan for plan year 19941996 in the amount of $7,090,847.$6,000,000. The amount of any contribution with respect to any one person cannot be determined. Directors who arewere not employees dodid not participate in the Retirement Plan. 14 The following table illustrates the annual benefits that would be provided under the Retirement Plan to employees who retire at the indicated compensation and year of service levels and who elect to receive the benefits, which are calculated on a straight-life annuity basis, over their remaining lives. Benefits shown are maximum annual benefits payable at age 65 to participants who retire at age 65. The table is based on the Retirement Plan. The amounts shown in the table are not subject to any deduction for Social Security benefits or other offset amounts.
- --------------------------------------------------------------------------------------------------------------------------------- PENSION PLAN TABLE
- --------------------------------------------------------------------------------------------------------------------------------- AVERAGE OF HIGHEST ANNUAL BASE CREDITED YEARS OF SERVICE ANNUAL BASE SALARY FOR ----------------------------------------------------------------------------------- 3 CONSECUTIVE YEARS(A) 5(B)------------------------------------------------------------------------------------------------------------------- YEARS(a) 5(b) 10 15 20 25 30 32 1/2(C)2(c) - -------------------------- --------- --------- --------- ----------- ----------- ----------- -------------------------------------------------------------------------------------------------------------------------------------------- $ 50,000.................. $ 5,000 $ 10,000 $ 15,000 $ 20,000 $ 25,000$100,000 $10,000 $20,000 $ 30,000 $ 32,500 100,000.................. 10,000 20,000 30,000 40,000 $ 50,000 $ 60,000 $ 65,000 150,000..................$150,000 15,000 30,000 45,00045.000 60,000 75,000 90,000 97,500 200,000..................$200,000 20,000 40,000 60,000 80,000 100,000 120,000 130,000 250,000..................!30,000 $250,000 25,000 50,000 75,000 100,000 125,000 150,000 162,500 300,000..................$300,000 30,000 60,000 90,000 120,000 150,000 180,000 195,000 350,000..................$350.000 35,000 70,000 105,000 140,000 175,000 210,000 227,500 400,000..................$400,000 40,000 80,000 120,000 160,000 200,000 240,000 260,000 450,000..................$450,000 45,000 90,000 135,000 180,000 225,000 270,000 292,500 500,000.................. 50,000 100,000 150,000 200,000 250,000 300,000 325,000 - ------------------------ (a) For these purposes, compensation consists of base salaries and includes any amount voluntarily deferred under the---------------------------------------------------------------------------------------------------------------------------------
(a) For these purposes, compensation consists of base salaries and includes any amount voluntarily deferred under PNM's Master Employee Savings Plan. It generally does not include bonuses, payments for accrued vacations, or overtime pay. (b) Although years of service begin accumulating from the date of employment, vesting occurs after five years of service. (c) The maximum number of years generally taken into account for purposes of calculating benefits under the Retirement Plan. Generally, compensation for these purposes does not include bonuses, payments for accrued vacation, or overtime pay. (b) Although years of service begin accumulating from the date of employment, vesting occurs after five years of service. (c) The maximum number of years generally taken into account for purposes of calculating benefits under the non-contributory defined benefit plan. Under limited circumstances, an additional 3% retirement benefit could be earned by an employee working beyond age 62.
The amounts shown in the table above are not subject to any deduction for Social Security benefits or other offset amounts.- -------------------------------------------------------------------------------- Credited years of service which can be used to calculate benefits as shown in the above table have been accumulated by executive officers under the Retirement Plan, the Accelerated Management Performance Plan discussed below and the supplemental employee retirement agreementsarrangements discussed below. Credited years of service so computed as of December 31, 19941997, are as follows: Mr. Montoya, 1.42 years; Ms. Bourque, 8 years (however, Mr. Montoya will not be entitled to any retirement benefits until June 1, 1998); Mr. Flynn, 3.08 years; Mr. Maerki, 22.3625.57 years; Mr. Ortiz, 3.256.25 years; and Mr. Sterba, 19.7623.29 years. The executive officers' remuneration which would be used to calculate benefits is determined by reference to the Retirement Plan and the supplemental employee retirement agreementarrangements discussed below. Such amounts asAs of December 31, 1994 are1997, the remuneration used to calculate benefits would be as follows: Mr. Montoya, $320,004; Ms. Bourque, $134,932;$373,336; Mr. Flynn, $161,163; Mr. Maerki, $170,312;$170,900; Mr. Ortiz, $134,456;$138,332; and Mr. Sterba, $124,832.$167,412. 15 Federal tax legislation imposes a $160,000 limitation beginning in 1997 on compensation that can be considered in determining retirement benefits under qualified retirement plans. A PNM plan provides non-qualified deferred compensation benefits to executives to the extent their retirement benefits under the Retirement Plan, the Accelerated Management Performance Plan and supplemental employee retirement agreements are limited as a result of the $160,000 compensation limitation. In January 1981, the Board of Directors approved an executive retirement program for a group of management employees. The program was intended to attract, motivate and retain key management employees. Messrs. Maerki and Sterba and certain other key management employees are eligible to participate in one or more of the plans in the program. Under the program, as originally adopted, key 15 management employees had the opportunity to earn additional credit for years of service toward retirement (the "Accelerated("Accelerated Management Performance Plan" or "AMPP"). The Accelerated Management Performance Plan,AMPP, as amended and restated, phased out the accumulation of additional credits by January 1, 1990. In addition, the amended and restated plan includes a provision allowingwhich allows key management employees who have not attained the maximum credits for years of service to receive a reduced benefit from the plan upon attainingaccepting early retirement without having attained the maximum credits for years of service.retirement. Monthly benefits received pursuant to the Accelerated Management Performance PlanAMPP are offset by monthly benefits received pursuant to the Retirement Plan. As approved by the Board in 1989, a supplemental employee retirement agreement was entered into with Mr. Maerki. Under the agreement, with Mr. Maerki, hisMaerki's retirement benefits would be computed as if he had been in the continuous employmentan employee of PNM since February 15, 1974. Under the terms of employment agreements with Mr. Montoya, he will be eligible to receive supplemental retirement benefits if he completes five years of service. The Board of Directors has approved the establishment of an irrevocable grantor trust, under provisions of the Internal Revenue Code, generally in connection with the management benefit plans discussed in the preceding two paragraphsAMPP and the supplemental retirement agreementsarrangements with Mr. Montoya, Mr. Maerki, Mr. Sterba, and certain former executive officers. Under the terms of the trust, PNM may, but is not obligated to, provide funds to the trust, which has beenwas established with an independent trustee, to aid in meeting its obligations under such plans.arrangements. Funds in the amount of approximately $12.7 million were provided to the trust in 1989. Distributions have been made from the trust since 1989. No additional funds have been provided to the trust. The Retirement Plan was amended in 1993. The amendment affected the officers and managers who participated in the Performance Stock Plan and were ineligible for base salary merit increases. The retirement benefit calculation was adjusted so that such persons would not be penalized for participating in the Performance Stock Plan. Federal tax legislation enacted in 1993 imposed a $150,000 limitation on compensation that can be considered in determining retirement benefits under qualified retirement plans. A PNM plan adopted in 1993 provides nonqualified deferred compensation benefits to executives to the extent their retirement benefits under the Retirement Plan, the Accelerated Management Performance Plan and supplemental employee retirement agreements are limited as a result of the $150,000 compensation limitation imposed by the 1993 tax legislation. COMPENSATION OF DIRECTORS Shareholders approved the "Director Restricted Stock Retainer Plan" at the May 1992 Annual Meeting. Subsequent to that Annual Meeting, each non-employee director received a restricted stock grant of 924 shares (fair market value of $12,012). Portions of that stock vested in 1993 and 1994 in accordance with the terms of the plan. Mr. Robert M. Price, Dr. Laurence H. Lattman, and Mr. Manuel Lujan, Jr. were not directors at the date of grant and did not receive the 1992 restricted stock grant. The Director Restricted Stock Retainer Plan was amended to provide for a cash retainer to be paid in lieu of restricted stock in the event PNM is unable to grant restricted stock because of regulatory, legal or contractual restrictions on issuing or repurchasing stock for the plan and to allow directors the election, upon specified prior notice, to receive cash instead of restricted stock. A trust was established for the purpose of purchasing and holding restricted stock grants pending the lapse of restrictions. The trustee of such trust is an independent third party. Directors who were not full-time employees received $350 in 1994 for each meeting of the Board or a committee thereof attended. Any director who is an employee of PNM or one of its subsidiaries 16 receives no compensation for services as director. In December 1993, the Board of Directors restructured the duties and compensation of the position of Chairman of the Board, increasing the duties and establishing the level of compensation. The Chairman now receives an annual retainer that is four times the amount paid to other non-employee directors, of which one-fourth is paid on terms identical to the retainer paid to other non-employee directors, and is paid meeting fees for attending Board and Executive Committee meetings. The meeting fees for the Chairman are three times the meeting fees paid to non-employee directors. Effective January 1, 1995, the fees for attendance at Board meetings and committee meetings were increased to $600 and $450, respectively, per meeting. The Chair of each committee, excluding the Executive Committee, receives an additional $200 per committee meeting. Directors are also reimbursed for expenses incurred in connection with service as a director. EMPLOYMENT CONTRACTS, AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROLCHANGE IN CONTROL ARRANGEMENTS An Executive Retention Plan (the "Retention("Retention Plan") was adopted by the Board of Directors effective January 1, 1992. The Retention Plan covers executive officers and other key employees designated by the Board. Mr. Montoya has been provided with substantially similar benefits by agreement with PNM. The Retention Plan provides certain severance benefits should the employee's employment with PNMemployee be terminated from PNM subsequent to a change in control of PNM or as the result of a sale or other disposition of all or substantially all the assets of a major operating unit, if suchthat termination is (a) for death or by PNM for reasons other than cause, or (b) by the employee due to constructive termination. The severance benefits include: (i) lump sum severance equal to 2.5 16 times current base salary for executive officers; (ii) reimbursement of all legal fees and expenses incurred as a result of termination of employment; and (iii) certain insurance benefits which are substantially similar to those received by the employee immediately prior to termination of employment. The Retention Plan was effective for an initial term through December 31, 1992, and is subject to automatic extension for additional one year terms unless revoked by the Board by the October 1 date immediately preceding the commencement of the next successive one year term. The plan was reaffirmed in 1994. The Retention Plan is also subject to automatic extension, or revival if it has been revoked, in the event of a change in control during certain time periods. PNM also has a non-union severance pay plan that covers any non-union employee who is terminated due to the elimination of his or her position (an "impacted("impacted employee"), including executive officers. Benefits include severance pay in the amount of two months of base salary plus one additional week of base salary for each year of service, which may be enhanced if the participant signs a release agreement with PNM. Under a program adopted in 1993,1992, an impacted employee would have the option to remain with PNM for up to an additional year but would give up the option to receive enhanced benefits. Also inyear. In 1993, the Board approved an amendment to the non-union severance pay plan. The amendment provides a benefit for impacted executives under which an executive would receive a lump sum distribution in lieu of the option that other employees have to remain with PNM for an additional year and reimbursement for placement assistance expenses incurred during the year after impactionbeing impacted up to 5% of base salary. Under the amendment,salary, plus certain employees, including one executive officer, who are members of the team of employees involved in PNM's asset restructuring effort described below, would receive executive severance benefits if they are impacted because of the 17 sale, or withdrawal from sale, of assets for which they are responsible.insurance benefits. If an employee is eligible to receive benefits under the Retention Plan, benefits are not available to that employee under the severance pay plan. Mr. Montoya became President and CEO of PNM in August 1993. Under the terms of employment agreements entered into between PNM and Mr. Montoya, if Mr. Montoya willwere to be eligible to receive supplemental retirement benefits ifterminated by the Board, he completes five years of service with PNM. He will alsowould receive severance benefits substantially equal to the level of benefits provided to other members of senior management (discussed above) in the event he is terminated by the Board. Reference is made to the first footnote in the "OPTION GRANTS IN 1994 FISCAL YEAR" table.discussed above. - -------------------------------------------------------------------------------- APPOINTMENT OF ARTHUR ANDERSEN LLP - -------------------------------------------------------------------------------- The options referred to in the table may become exercisable upon certain events such as change in control (as defined in the Performance Stock Plan) of PNM. RELATED TRANSACTION On January 11, 1993, PNM announced specific actions which were determined to be necessary in order to accelerate PNM's preparation for the new challenges in the competitive electric energy market. As part of this announcement, PNM stated its intention to attempt to sell its interest in Palo Verde Nuclear Generating Station ("PVNGS") Unit 3. PNM also announced its intention to disposeAudit Committee of the Sangre de Cristo Water CompanyBoard of Directors selects and PNM's natural gas gathering and natural gas processing assets. Mr. J. E. Sterba was assignedhires independent public accountants to headaudit the asset restructuring effort. The Board approved an incentive plan for a team of employees involved in the asset restructuring, and Mr. Sterba is one of the participants in the plan. Mr. Sterba is eligible for incentive payments under the plan upon certain asset dispositions. On February 12, 1994, an agreement was executed with Williams Gas Processing - - Blanco, Inc., for the sale of substantially all of the natural gas gathering and processing assetsconsolidated financial statements of PNM and two subsidiariessubsidiaries. The Audit Committee's selection for a cash selling price1998 must be approved by you. The Audit Committee selected Arthur Andersen LLP to audit PNM's books of $155 million, subject to certain adjustments. Subject to a numberaccount and other corporate records for 1998. This firm has audited PNM's books since 1993, and no relationship exists other than the usual relationship between independent public accountant and client. A representative of conditions and approvals, including New Mexico Public Utility Commission ("NMPUC") approval, the sale of the gas assets is expected to close by the end of the second quarter of 1995. However, PNM cannot predict the ultimate timing or outcome of the NMPUC action. In addition, on February 28, 1994, PNM reached agreement with the City of Santa Fe for the sale of the utility assets of PNM's water division, the Sangre de Cristo Water Company, and operation of the water system by a subsidiary of PNM for up to four years following the sale. The purchase price, as currently adjusted, is approximately $56 million. Closing of the sale of the water utility is anticipated in the second quarter of 1995, subject to a number of conditions, including NMPUC approval. Certain other assets of Sangre de Cristo Water Company may alsoArthur Andersen LLP will be sold. Although the specific amount of the incentive payments is presently unknown, PNM currently estimates the aggregate of the incentive payments to Mr. Sterba resulting from completing such asset sales would be approximately $171,000. OTHER BUSINESS The management of PNM knows of no other business which is likely to be brought before the meeting. If other matters not now known to management come beforeavailable at the Annual Meeting to respond to questions and to make any statement the representative may desire. YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL. 17 - -------------------------------------------------------------------------------- OTHER MATTERS - -------------------------------------------------------------------------------- SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE The Securities Exchange Act of 1934 requires PNM's executive officers and directors to file certain reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC"). Based upon a review of reports filed with the SEC and written representations by persons named inrequired to report, all reports required to be filed pursuant to Section 16(a) of the accompanying proxy expectExchange Act with respect to vote in accordance with their judgment1997 reporting were filed on such matters. 18 REQUESTS FOR REPORTS A COPYa timely basis, except that one transaction by M. D. Christensen, Senior Vice President, New Mexico Retail Services, was reported late on a Form 5 rather than on a Form 4. ANNUAL REPORT AND OTHER MATTERS PNM's Annual Report, including consolidated financial statements, accompanies this Proxy Statement. COPIES OF THE 1994PNM'S 1997 ANNUAL REPORT ON FORM 10-K IS INCLUDED AS PART OF PNM'S ANNUAL REPORT TO SHAREHOLDERS MAILED ON MARCH 22, 1995. ADDITIONAL COPIES OF THE REPORT ARE AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO PATRICK T. ORTIZ, SENIORBARBARA BARSKY, VICE PRESIDENT, GENERAL COUNSELSTRATEGY, ANALYSIS AND SECRETARY,INVESTOR RELATIONS, ALVARADO SQUARE MS 2720, ALBUQUERQUE, NEW MEXICO 87158. DEADLINENM 87158, or electronically at bbarsky@mail.pnm.com. You may also obtain our SEC filings through the internet at http://www.sec.gov. SHAREHOLDER PROPOSALS FOR PROPOSALS BY STOCKHOLDERS In orderTHE 1999 ANNUAL MEETING Any proposal to be considered for possible inclusion in PNM's 1999 Proxy Statement for the 1996 Annual Meeting of Stockholders, proposals from stockholders must be received by PNM, atAttention: Secretary, Alvarado Square, Mail Stop 2828,2822, Albuquerque, New MexicoNM 87158, on or before November 23, 1995.1998. SOLICITATION The enclosed proxy is being solicited on behalf of PNM's Board of Directors. This solicitation is being made by mail but also may be made in person, by telephone or other means of electronic communication. We have hired Beacon Hill Partners, Inc. to assist in the solicitation, for an estimated fee of $2,500. PNM will pay all costs related to solicitation. REVOCABILITY OF PROXY You may revoke the enclosed proxy by attending the Annual Meeting and voting your shares in person or by providing a later executed proxy. By Order of the Board of Directors /s/ PATRICK T. ORTIZ Patrick T. Ortiz CORPORATE SECRETARY 19Secretary 18 PUBLIC SERVICE COMPANY OF NEW MEXICO PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS PROXY The undersigned does hereby constitute and appoint R.G.R. G. Armstrong, R.U.R. U. Ortiz and P.F.P. F. Roth, and each or any one of them, the true and lawful attorney-in-fact and proxy for the undersigned, with full power of substitution, to represent and vote the common stockCommon Stock of the undersigned at the Annual Meeting of StockholdersShareholders of Public Service P Company of New Mexico to be held in the auditorium of the UNM Continuing Education Conference Center at 1634 University Boulevard, N.E., Albuquerque, New Mexico, at 9:30 a.m.9.30 am., Mountain Daylight Time, on April 25, 1995,28, 1998 and at any adjournments thereof, on all matters coming before said meeting. R A VOTE FOR THE FOLLOWING PROPOSALS IS RECOMMENDED BY THE BOARD OF DIRECTORS. O 1. Election of Directors (John T. 2. Selection of Arthur Andersen LLP Ackerman, Joyce A. Godwin and as independent auditors forThis proxy, when properly executed, will be voted in the Manuel Lujan, Jr.). current year. X Mark one: FOR all nominees listed above. / / FOR / / AGAINST / / ABSTAIN FOR all nominees 3. In their discretion,manner directed herein by the proxies listed above except are authorized to vote upon Y . such other matters as may WITHHOLD AUTHORITY to properly come before this vote for all nominees listed meeting, or any adjournment or above. adjournments thereof. (Please turn over) THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE COMMON STOCKHOLDER.undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2. PLEASE DATEPlease date and sign exactly as name appears hereon. When signing as attorney, executor, administrator, trustee, guardian, etc., give full title. If stock is held jointly, each owner should sign. If stock is owned by a corporation, please sign full corporate name by duly authorized officer. If a partnership, please sign in partnership name by authorized person. [LOGO OF PUBLIC SERVICE COMPANY APPEARS HERE] The Annual Meeting of Shareholders of Public Service Company of New Mexico will be held in the Auditorium of the UNM Continuing Education Conference Center at 1634 University Boulevard, NE, Albuquerque, New Mexico, at 9:30 a.m., Mountain Daylight Time, on April 28, 1998. (VOTING INSTRUCTIONS ARE ON BACK) V FOLD AND SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE, GUARDIAN, ETC., GIVE FULL TITLE. IF STOCK IS HELD JOINTLY, EACH JOINT OWNER SHOULD SIGN. IF P STOCK IS OWNED BY A CORPORATION, PLEASE SIGN FULL CORPORATE NAME BY DULY AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. R Signature O Signature X Dated: , 1995DETACH HERE V - ------------------------------------------------------------------------------- A vote FOR the following proposals is recommended by the Board of Directors. 1. Election of Directors (John T. Ackerman, Joyce A. Godwin, 2. Selection of Arthur Andersen LLP as independent and Manuel Lujan Jr.) public accountants for the current year. Mark one: _______ FOR all nominees listed above. [_] FOR [_] AGAINST [_] ABSTAIN _______ FOR all nominees listed above except _______________________________________. _______ WITHHOLD AUTHORITY to vote for all 3. In their discretion, the proxies are nominees listed above. authorized to vote upon such other matters as may properly come before this meeting, or any adjournment or adjournments thereof. p ______________________________________________ [ ] R Signature O X ______________________________________________ Y Signature Dated: _______________________________________, 1998 [ ] --------------------------------------------- PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED ENVELOPE ---------------------------------------------