Exhibit 99.1








                 AGREEMENT AND PLAN OF RESTRUCTURING AND MERGER

                                      Among

                             WESTERN RESOURCES, INC.


                             HVOLT ENTERPRISES, INC.


                      PUBLIC SERVICE COMPANY OF NEW MEXICO

                                    HVK, INC.


                                       and

                                   HVNM, INC.





                         Dated as of November 8, 2000








                                Table of Contents

                                                                            Page

Article I. The Transaction.....................................................2
        1.1.    The Split-Off..................................................2
        1.2.    The Merger.....................................................2
        1.3.    The Second Merger..............................................2
        1.4.    Effective Time.................................................2

Article II. The Surviving Corporation..........................................3
        2.1.    The Articles of Incorporation..................................3
        2.2.    The By-Laws....................................................3
        2.3.    Directors......................................................3
        2.4.    Officers.......................................................3

Article III. Effect of the Transaction on Capital Stock; Exchange of
              Certificates.....................................................4
        3.1.    Apportionment of Company Common Stock..........................4
        3.2.    Effect of the Transaction on Capital Stock.....................4
        3.3.    Exchange of Certificates Exchanged in the Split-Off............9
        3.4.    Exchange of Certificates in the Merger........................10
        3.5.    Dissenters' Rights............................................13
        3.6.    Adjustments to Prevent Dilution...............................14
        3.7.    Restructuring of the Mergers..................................14
        3.8.    Manzano Guaranty; Etc.........................................15

Article IV. The Closing15
        4.1.    Closing.......................................................15

Article V. Representations and Warranties.....................................16
        5.1.    Representations and Warranties of the Company.................16
        5.2.    Representations and Warranties of Parent, PNM, Merger Sub-1
                  and Merger Sub-2............................................28

Article VI. Conduct of Business Pending the Transactions......................39
        6.1.    Covenants of the Company......................................39
        6.2.    Covenants of Parent, Manzano, PNM, Merger Sub-1 and Merger
                  Sub 2.......................................................42
        6.3.    Necessary Action..............................................45

Article VII. Additional Agreements............................................45
        7.1.    Access........................................................45
        7.2.    Acquisition Proposals.........................................46
        7.3.    Information Supplied..........................................47
        7.4.    Shareholders Meetings.........................................48
        7.5.    Filings; Other Actions; Notification..........................48
        7.6.    Affiliates....................................................50
        7.7.    Stock Exchange Listing and De-listing.........................50
        7.8.    Publicity.....................................................50
        7.9.    Benefits and Other Employee Matters...........................50
        7.10.   Board of Directors; Corporate Headquarters and Community
                  Involvement.................................................52
        7.11.   Dividends.....................................................53
        7.12.   Indemnification; Directors' and Officers' Insurance...........53
        7.13.   Expenses......................................................55
        7.14.   Takeover Statute..............................................55
        7.15.   Manzano Vote..................................................55
        7.16.   Agreements Relating to the Split-Off..........................55
        7.17.   Redemption of Preferred Shares................................55
        7.18.   Conveyance Taxes..............................................56
        7.19.   Transition Steering Team......................................56
        7.20.   Termination of Tax Sharing Agreements.........................56
        7.21.   Tax Disaffiliation Agreement..................................57
        7.22.   Shared Services Agreement.....................................57
        7.23.   Interim Reporting.............................................57
        7.24.   Possible Exchange.............................................57

Article VIII.  Conditions.....................................................58
        8.1.    Conditions to Each Party's Obligation to Effect the
                  Transaction.................................................58
        8.2.    Conditions to Obligations of Parent, Merger Sub-1 and Merger
                  Sub-2.......................................................60
        8.3.    Conditions to Obligation of the Company.......................61

Article IX. Termination63
        9.1.    Termination by Mutual Consent.................................63
        9.2.    Termination by Either Parent or the Company...................63
        9.3.    Termination by the Company....................................63
        9.4.    Termination by Parent.........................................64
        9.5.    Effect of Termination and Abandonment.........................64

Article X. Miscellaneous and General..........................................66
        10.1.   Survival......................................................66
        10.2.   Modification or Amendment.....................................66
        10.3.   Waiver of Conditions..........................................66
        10.4.   Counterparts..................................................67
        10.5.   GOVERNING LAW AND VENUE.......................................67
        10.6.   Notices.......................................................67
        10.7.   Entire Agreement; NO OTHER REPRESENTATIONS....................68
        10.8.   No Third-Party Beneficiaries..................................69
        10.9.   Obligations of Parent and of the Company......................69
        10.10.  Severability..................................................69
        10.11.  Interpretation................................................69
        10.12.  Assignment....................................................69


EXHIBIT A - Split-Off Agreements

EXHIBIT B - Convertible Preference Certificate of Designation

EXHIBIT C - Parent Convertible Certificate of Designation

EXHIBIT D - Affiliates Letter

EXHIBIT E - Form of Stockholder Agreement

EXHIBIT F - Form of Registration Rights Agreement







                            Indexed of Defined Terms

                                                                            Page





1935 Act.....................................................................16
Acquisition Proposal.........................................................46
Additional Cash...............................................................5
Adjustment Calculation........................................................7
Adjustment Shares.............................................................7
Affiliates Letter............................................................50
Aggregate Share Number........................................................6
Agreement.....................................................................1
Allocation and Separation Agreement...........................................1
Audit Date...................................................................20
Bankruptcy and Equity Exception..............................................18
Base Shares...................................................................6
Business Day.................................................................15
By-Laws.......................................................................3
Certificate...................................................................8
Certificate of Merger.........................................................2
Charter.......................................................................3
Chase........................................................................27
Closing......................................................................15
Closing Consideration.........................................................8
Closing Date.................................................................15
Code..........................................................................2
Company.......................................................................1
Company Common Stock..........................................................4
Company Contracts............................................................19
Company Disclosure Letter....................................................16
Company Dissenting Holder....................................................13
Company ERISA Affiliate......................................................22
Company Intellectual Property Rights.........................................26
Company Material Adverse Effect..............................................17
Company Pension Plan.........................................................22
Company Reports..............................................................19
Company Required Statutory Approvals.........................................18
Company Requisite Vote.......................................................27
Compensation and Benefit Plans...............................................21
Confidentiality Agreements...................................................68
Contracts....................................................................19
Conversion...................................................................57
Convertible Preference Shares.................................................5
Costs........................................................................53
Current Premium..............................................................54
Cut Off Date..................................................................4
D&O Insurance................................................................54
Effective Time................................................................3
Employees....................................................................21
Environmental Law............................................................24
ERISA........................................................................21
Exchange.....................................................................57
Exchange Act.................................................................17
Exchange Agent...............................................................10
Exchange Agreement............................................................1
Exchange Fund................................................................10
Exchange Ratio................................................................8
Excluded Share................................................................6
Excluded Shares...............................................................6
FERC.........................................................................18
Final Order..................................................................59
First Redemption Date........................................................58
GAAP.........................................................................17
Governmental Entity..........................................................18
Hazardous Substance..........................................................24
HSR Act......................................................................18
Indemnified Parties..........................................................53
IRS..........................................................................22
JP Morgan....................................................................38
KGCC..........................................................................2
knowledge....................................................................17
Laws.........................................................................23
Manzano.......................................................................1
Manzano Certificate...........................................................9
Manzano Common Stock..........................................................8
Manzano Dissenting Holder....................................................13
Manzano Exchange..............................................................1
Manzano Excluded Share........................................................8
Manzano Excluded Shares.......................................................8
Manzano Merger Consideration..................................................8
Manzano Transition Date.......................................................1
Merger........................................................................1
Merger Consideration..........................................................8
Merger Portion................................................................4
Merger Sub-1..................................................................1
Merger Sub-2..................................................................1
Mergers.......................................................................1
Neutral Auditor...............................................................8
NMBCA.........................................................................2
NMPRC.........................................................................3
Non-Union Employees..........................................................51
NYSE.........................................................................18
Order........................................................................59
Parent........................................................................1
Parent Common Stock...........................................................8
Parent Compensation and Benefit Plans........................................33
Parent Contracts.............................................................31
Parent Convertible Debt......................................................57
Parent Convertible Shares.....................................................8
Parent Disclosure Letter.....................................................28
Parent Employees.............................................................33
Parent ERISA Affiliate.......................................................33
Parent Material Adverse Effect...............................................29
Parent Pension Plan..........................................................33
Parent Required Statutory Approvals..........................................30
Parent Requisite Vote........................................................37
Parent Stock Plans...........................................................29
Parent Voting Debt...........................................................30
PBGC.........................................................................22
person.......................................................................11
PNM...........................................................................1
PNM Audit Date...............................................................32
PNM Common Stock.............................................................29
PNM Exchange.................................................................14
PNM Exchange Agreement.......................................................14
PNM Intellectual Property Rights.............................................37
PNM Preferred Shares.........................................................29
PNM Reports..................................................................31
Power Act....................................................................16
Preferred Shares.............................................................17
Prospectus/Proxy Statement...................................................47
Representatives..............................................................45
S-4 Registration Statement...................................................47
Salomon......................................................................27
SEC...........................................................................5
Second Merger.................................................................1
Securities Act...............................................................18
Significant Subsidiary.......................................................17
Split-Off.....................................................................1
Split-Off Agreements..........................................................1
Split-Off Consideration.......................................................6
Split-Off Exchange Ratio......................................................6
Split-Off Portion.............................................................4
Stock Award..................................................................50
Stock Plans..................................................................17
Subsidiary...................................................................16
Superior Proposal............................................................47
Surviving Corporation.........................................................2
Takeover Statute.............................................................23
Tax..........................................................................25
Tax Disaffiliation Agreement.................................................42
Taxable......................................................................25
Taxes........................................................................25
Taxing.......................................................................25
Termination Date.............................................................63
Trading Day...................................................................5
Transaction...................................................................1
TransactionTaxes.............................................................56
Transition Steering Team.....................................................56
Utility Subsidiaries.........................................................16
Voting Debt..................................................................18
Westar........................................................................1
Westar Common Stock...........................................................4
Westar Subsidiaries...........................................................1





                 AGREEMENT AND PLAN OF RESTRUCTURING AND MERGER


     AGREEMENT AND PLAN OF  RESTRUCTURING  AND MERGER  (hereinafter  called this
"Agreement"),  dated as of November 8, 2000,  among Western  Resources,  Inc., a
Kansas corporation (the "Company"),  Public Service Company of New Mexico, a New
Mexico  corporation  ("PNM"),  HVOLT Enterprises,  Inc., a Delaware  corporation
("Parent"),  HVK, Inc., a Kansas  corporation  and a wholly owned  subsidiary of
Parent ("Merger  Sub-1") and HVNM,  Inc., a New Mexico  corporation and a wholly
owned subsidiary of Parent ("Merger Sub-2").


                                    RECITALS

     WHEREAS, PNM and Manzano Corporation, a New Mexico corporation ("Manzano"),
have entered into an Agreement and Plan of Share Exchange, dated as of April 17,
2000 (the "Exchange Agreement"), which provides for the mandatory share exchange
by the holders of the  outstanding  common stock of PNM for shares of the common
stock of Manzano at an exchange  ratio of one share of Manzano  common stock for
each  share  of PNM  common  stock,  whereby  PNM will  become  a  wholly  owned
subsidiary of Manzano (the "Manzano Exchange");

     WHEREAS,  upon  consummation  of  the  Exchange,  Manzano  will  execute  a
counterpart hereof as set forth below with the effect set forth herein (the date
on which PNM becomes a Subsidiary of Manzano and Manzano  executes a counterpart
of this Agreement being referred to as the "Manzano Transition Date");

     WHEREAS,  the  Company,  Parent,  PNM,  Merger  Sub-1 and Merger Sub-2 have
agreed to enter into an integrated  transaction (the "Transaction")  pursuant to
which,  first (x) the Company shall deliver to its  shareholders its then entire
ownership  interest  in Westar  Industries,  Inc.,  a Kansas  corporation  and a
subsidiary of the Company ("Westar", together with the subsidiaries of Westar at
the time of the Split-Off,  the "Westar  Subsidiaries")  (such transaction being
referred to as the  "Split-Off"),  in exchange  for a portion of their shares of
the Company Common Stock on the terms and conditions contained herein and in the
Asset  Allocation  and  Separation  Agreement  (the  "Allocation  and Separation
Agreement") and the other agreements and term sheets attached thereto  (together
with the  Allocation  and  Separation  Agreement,  the  "Split-Off  Agreements")
between the Company  and Westar in the forms  attached  hereto as Exhibit A, and
then (y) Merger Sub-1 will merge with and into the Company,  whereby the Company
will become a wholly owned subsidiary of Parent (the "Merger"), and Merger Sub-2
will merge with and into  Manzano,  whereby  Manzano and PNM will become  wholly
owned subsidiaries of Parent (the "Second Merger" and, together with the Merger,
the  "Mergers"),  pursuant  to the  terms  and  conditions  set  forth  in  this
Agreement;

     WHEREAS,  the respective Boards of Directors of the Company,  Parent,  PNM,
Merger Sub-1 and Merger Sub-2 (i) have determined that the Transaction and other
transactions  contemplated  hereby  are  fair  to,  advisable  and in  the  best
interests of the Company,  Parent,  PNM, Merger Sub-1 and Merger Sub-2 and their
shareholders,  respectively,  and (ii)  have  approved  this  Agreement  and the
transactions contemplated hereby; and

     WHEREAS, for federal income Tax (as defined below) purposes, it is intended
that (i) the  Split-Off  will be treated as a taxable  exchange of the Split-Off
Portion (as defined  below) of the Company Common Stock for Westar Common Stock,
and (ii) the Mergers taken  together will be treated as a transaction  described
in Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").

     NOW,   THEREFORE,   in   consideration   of  the   premises,   and  of  the
representations,  warranties,  covenants and agreements  contained  herein,  the
parties hereto agree as follows:

                                   Article I

                                 The Transaction

     1.1.  The Split-Off.

     The Company has or will enter into the Allocation and Separation  Agreement
and each other Split-Off  Agreement to which it is a party,  and,  provided that
all conditions precedent to the Split-Off have been satisfied, immediately prior
to the  Merger,  the  Company  shall  effect,  and cause  Westar to effect,  the
Split-Off.

     1.2. The Merger.

     Upon the terms and subject to the conditions  set forth in this  Agreement,
at the  Effective  Time,  Merger Sub-1 shall be merged with and into the Company
and the separate corporate  existence of Merger Sub-1 shall thereupon cease. The
Company shall be the surviving corporation in the Merger (sometimes  hereinafter
referred  to  as  the  "Surviving  Corporation"),  and  the  separate  corporate
existence of the Company with all its rights, privileges, immunities, powers and
franchises  shall  continue  unaffected  by the  Merger,  except as set forth in
Article III. The Merger shall have the effects  specified in the Kansas  General
Corporation Code (the "KGCC").

     1.3. The Second Merger.

     Upon the terms and subject to the conditions  set forth in this  Agreement,
at the  Effective  Time,  Merger Sub-2 shall be merged with and into Manzano and
the separate corporate existence of Merger Sub-2 shall thereupon cease.  Manzano
shall be the  surviving  corporation  in the  Second  Merger,  and the  separate
corporate  existence  of Manzano  with all its rights,  privileges,  immunities,
powers and franchises shall continue unaffected by the Second Merger. The Second
Merger shall have the effects  specified in the New Mexico Business  Corporation
Act (the "NMBCA").

     1.4. Effective Time.

     On the  Closing  Date (as  defined in Section  4.1),  or if not  reasonably
practicable,  as soon as practicable following the Closing Date, the Company and
Parent will cause a Certificate  of Merger (the  "Certificate  of Merger") to be
executed,  acknowledged  and filed with the  Secretary  of State of the State of
Kansas as provided in Sections 17-6003 and 17-6701 of the KGCC. The Merger shall
become  effective at the time when the Certificate of Merger has been duly filed
with the  Secretary  of State of the State of Kansas or upon such  later date as
agreed upon by the  parties and  specified  in such  Certificate  of Merger (the
"Effective  Time").  Not  later  than  simultaneously  with  the  filing  of the
Certificate of Merger,  Manzano and Parent will cause such certificates or other
instruments to be filed with the New Mexico Public  Regulation  Commission  (the
"NMPRC") as are required in accordance with the NMBCA to cause the Second Merger
to become effective at the Effective Time.

                                  Article II.

                            The Surviving Corporation

     2.1.  The Articles of Incorporation.

     The  restated  articles  of  incorporation  of  the  Company  as in  effect
immediately  prior to the Effective Time shall be the articles of  incorporation
of the Surviving  Corporation  (the  "Charter"),  until duly amended as provided
therein or by applicable law.

     2.2.  The By-Laws.

     The by-laws of the Company as in effect  immediately prior to the Effective
Time shall be the by-laws of the Surviving  Corporation (the  "By-Laws"),  until
thereafter amended as provided therein or by applicable law.

     2.3.  Directors.

     The directors of Merger Sub-1 at the Effective  Time shall,  from and after
the Effective  Time, be the directors of the Surviving  Corporation  until their
successors  have been duly  elected or  appointed  and  qualified or until their
earlier  death,  resignation  or removal in accordance  with the Charter and the
By-Laws.  The directors of Merger Sub-1 at the Effective Time shall be appointed
by Parent in its sole  discretion,  provided that at least three such  directors
shall be  resident  in the  service  territory  of the Company or Kansas Gas and
Electric Company in the State of Kansas.

     2.4.  Officers.

     The officers of Merger Sub-1 at the  Effective  Time shall,  from and after
the Effective  Time, be the officers of the  Surviving  Corporation  until their
successors  have been duly  elected or  appointed  and  qualified or until their
earlier  death,  resignation  or removal in accordance  with the Charter and the
By-Laws.

                               Article III.

      Effect of the Transaction on Capital Stock; Exchange of Certificates

      3.1.  Apportionment of Company Common Stock.

          (a) The Split-Off.

     At the Effective  Time and in  accordance  with the terms hereof and of the
Allocation and Separation Agreement, a portion (the "Split-Off Portion") of each
share of common stock,  par value $5.00 per share,  of the Company (the "Company
Common Stock") shall be exchanged for shares of common stock, par value $.01 per
share,  of Westar (the "Westar Common  Stock").  The Split-Off  Portion shall be
calculated  as follows:  the market  value of the shares of Westar  Common Stock
issued  to and held by the  Company  divided  by the  market  value of the total
number of issued and  outstanding  shares of Company Common Stock,  in each case
immediately prior to the effective time of the Split-Off and determined based on
the  average  (rounded  to the  nearest  thousandth,  or if there shall not be a
nearest thousandth, the next highest thousandth) of the volume weighted averages
(rounded  to  the  nearest  thousandth,  or if  there  shall  not  be a  nearest
thousandth,  the next highest  thousandth) of the trading price of Westar Common
Stock  or  Company  Common  Stock,  as the case  may be,  on the New York  Stock
Exchange as reported by Bloomberg Financial Markets, or if not reported thereby,
another reputable source, in the period of 20 consecutive Trading Days ending on
the close of business  on the second  Business  Day  immediately  preceding  the
effective  time of the  Split-Off;  provided  that if Westar Common Stock is not
listed for trading on the New York Stock  Exchange,  the market price for Westar
Common  Stock  shall be  determined  as the  average of price  quotes from three
investment  banking firms, one appointed by Westar, one appointed by the Company
and the third by the two other appointees.

          (b) The Merger.

     At the Effective  Time,  the portion of each share of Company  Common Stock
not included in the Split-Off  Portion (the "Merger Portion") shall be converted
into the right to  receive  the  Merger  Consideration  as set forth in  Section
3.2(b) below.

     3.2.  Effect of the Transaction on Capital Stock.

     (a) Permitted Intercompany Adjustments.

     For the period  from the date  hereof  through the close of business on the
day that is 15 Business Days prior to the Closing Date (the "Cut Off Date"), the
following  intercompany  transfers  between  the  Company  and  Westar  shall be
permitted and shall be adjustments to the Merger Consideration to the extent set
forth in subsection (b) below:

     (i) Westar may pay Additional Cash to the Company, at Westar's option, as:

          (A)  consideration  for the purchase of shares of Company Common Stock
     at a price based on the average (rounded to the nearest  thousandth,  or if
     there shall not be a nearest thousandth, the next higher thousandth) of the
     volume weighted  averages (rounded to the nearest  thousandth,  or if there
     shall not be a  nearest  thousandth,  the next  higher  thousandth)  of the
     trading  price of Company  Common  Stock on the New York Stock  Exchange as
     reported  by  Bloomberg  Financial  Markets,  or if not  reported  thereby,
     another  reputable  source,  in the period of 20  consecutive  Trading Days
     ending on the close of business on the Business Day  immediately  preceding
     the date of purchase; or

          (B) consideration for the purchase of convertible preference shares of
     the  Company  having  the terms set  forth on  Exhibit B hereto  (as may be
     amended following  approval by the Company's  shareholders of amendments to
     the  articles of  incorporation  of the Company  with respect to the voting
     rights of such shares) (the "Convertible  Preference Shares") in accordance
     with the terms thereof,  at the price specified thereon;  provided that (x)
     prior to purchasing any Convertible Preference Shares, Westar will purchase
     a number of shares of Company  Common  Stock that would be  converted  into
     9.9% of the issued and outstanding shares of Parent Common Stock on a fully
     diluted  basis  (based on the  Company's  good faith  determination  of the
     likely  number of shares of Parent  Common Stock to be  outstanding  at the
     Effective  Time  taking  into   consideration  the  most  recent  financial
     statements filed with the Securities and Exchange Commission (the "SEC") by
     the Company,  PNM and Manzano and the Company's  good faith estimate of the
     Adjustment  Shares to be issued  pursuant  to Section  3.2(b))  and (y) the
     aggregate  amount of cash paid by Westar to the  Company  pursuant  to this
     subsection (B) shall not exceed  $375,000,000.  The Convertible  Preference
     Shares may, but are not  required  to, be converted  into shares of Company
     Common Stock by the holder  thereof on or prior to the Effective  Time and,
     to the extent so converted,  shall be included in the calculation set forth
     in Section 3.2(b)(ii)(A); or

          (C)  consideration for the repurchase of shares of Westar Common Stock
     at a price based on the average (rounded to the nearest  thousandth,  or if
     there shall not be a nearest thousandth, the next higher thousandth) of the
     volume weighted  averages (rounded to the nearest  thousandth,  or if there
     shall not be a  nearest  thousandth,  the next  higher  thousandth)  of the
     trading  price of Westar  Common  Stock on the New York Stock  Exchange  as
     reported  by  Bloomberg  Financial  Markets,  or if not  reported  thereby,
     another  reputable  source,  in the period of 20  consecutive  Trading Days
     ending on the close of business on the Business Day  immediately  preceding
     the date of purchase or the initial  exercise  price for rights to purchase
     Westar  Common  Stock,  whichever is higher;  provided  that Westar may not
     redeem its Common Stock  pursuant  hereto unless the Westar Common Stock is
     listed  for  trading  on the New York  Stock  Exchange  or  other  national
     securities exchange; or

          (D) an increase in the amount of the  intercompany  receivable owed by
     the Company to Westar.

     As used herein,  the term  "Trading  Day" means a day on which the New York
     Stock Exchange is open for trading.  As used herein,  the term  "Additional
     Cash" means cash other than cash paid by Westar or any Split-Off Subsidiary
     to the  Company  pursuant  to (i) any of the  Company  Contracts  and other
     arrangements  specified in Section 5.1(u) of the Company  Disclosure Letter
     and  (ii)  the  Company's  tax  sharing  and  allocation   policy  (Company
     Accounting Manual Section No. 6.90) as in effect on the date hereof.

          (ii) At any time between the date hereof and the Cut Off Date,  Westar
     may  convert  any  amount of the  intercompany  receivable  into any of the
     securities listed in subsections  (i)(A), (B) or (C) hereto;  provided that
     any remaining  outstanding balance of the intercompany  receivable shall be
     so converted at the Effective  Time, in each case consistent with the terms
     of subsections  (i)(A), (B) or (C), with Westar providing written notice to
     the Company of its choice of conversion  options on or prior to the Cut Off
     Date.

          (iii)  The  Company  may  pay  cash to  Westar,  either  as an  equity
     contribution  or a reduction in the amount of the  intercompany  receivable
     (but not below zero) in an amount not to exceed the limitation set forth in
     Section 6.7(g) of the Company's $600 million  Credit  Agreement  dated June
     28, 2000, as in effect on the date hereof;  provided that any cash payments
     pursuant  to (i)  any of  the  Company  contracts  and  other  arrangements
     specified in Section 5.1(u) of the Company  Disclosure  Letter and (ii) the
     Company's tax sharing and  allocation  policy  (Company  Accounting  Manual
     Section No. 6.90) as in effect on the date hereof shall not be  adjustments
     to the Merger Consideration.

          (iv) The maximum  aggregate  value of Company Common Stock and Company
     Preference  Shares  purchased by Westar  pursuant to this  Section  3.2(a),
     including without  limitation as a result of the conversion of the existing
     intercompany receivable, shall not exceed $641,000,000.

          (b)  Closing Consideration.

     At the Effective  Time, as a result of the Split-Off and Merger and without
     any action on the part of the holder of any capital stock of the Company:

          (i) The Split-Off Portion of each share of Company Common Stock issued
     and outstanding  immediately prior to the Effective Time (except for shares
     of Company Common Stock owned by Parent,  Merger Sub-1, Merger Sub-2 or any
     other direct or indirect  subsidiary of Parent or shares of Company  Common
     Stock that are owned by the Company or any direct or indirect subsidiary of
     the Company but excluding any shares of Company  Common Stock issued to and
     owned directly or indirectly by Westar, and in each case not held on behalf
     of third parties (each,  an "Excluded  Share" and  collectively,  "Excluded
     Shares")), shall be exchanged for a number of shares of Westar Common Stock
     equal to the Split-Off Exchange Ratio (the "Split-Off Consideration").  The
     "Split-Off Exchange Ratio" shall be equal to the number of shares of Westar
     Common  Stock  issued to and owned by the Company  divided by the number of
     shares of Company  Common  Stock  issued and  outstanding  (other  than the
     Excluded Shares), in each case at the Effective Time.

          (ii) (A) Subject to the  provisions  hereof,  the aggregate  number of
     shares  of  Parent  Common  Stock  to be  issued  in the  Merger  shall  be
     55,000,000  (the "Base  Shares")  plus the  Adjustment  Shares (as  defined
     below) (the "Aggregate Share Number").

          The  "Adjustment  Shares"  shall be  determined  by  dividing  (A) the
     difference  (which may be a positive or a negative  number) between (x) the
     sum of: (i) the amount of any  proceeds  (net of expenses  relating to such
     sale) from the sale of Westar  securities  received by the Company from the
     date  hereof  through  the Cut Off Date  (excluding  the amount of any such
     proceeds  received  by  Westar  directly  and  transferred  to the  Company
     pursuant to clause  (iii) or (v) below);  (ii) for each  regular  quarterly
     record  date for payment of  dividends  on shares of Company  Common  Stock
     between  the date  hereof  and the  Closing  Date,  an amount  equal to the
     product of (A) the number of shares of Company Common Stock outstanding and
     entitled to receive a dividend  on such record date and (B) the  difference
     between  $0.30 and the  amount of the  actual  cash  dividend  or  dividend
     equivalent under the Stock Plans (as in effect on the date hereof except as
     such plans may be amended in conformity with this  Agreement)  declared per
     share of Common Stock  outstanding on such record date;  (iii) the value of
     any shares of Company Common Stock issued to Westar  pursuant to subsection
     (a)(i)(A) or (a)(ii)  above based on the  consideration  paid by Westar for
     such shares; (iv) the value of any shares of Company Common Stock issued to
     Westar pursuant to the conversion of Convertible  Preference  Shares issued
     to Westar in accordance with subsection (a)(i)(B) or (a)(ii) above based on
     the  consideration  paid by Westar for the  Convertible  Preference  Shares
     which were converted  into such Company  Common Stock (it being  understood
     that no  adjustment  shall be made  pursuant  hereto  with  respect  to any
     Convertible Preference Shares that will remain issued and outstanding at or
     after the  Effective  Time);  (v) the value of any shares of Westar  Common
     Stock  repurchased  by Westar in accordance  with  subsection  (a)(i)(C) or
     (a)(ii)  above based on the purchase  price paid by Westar for such shares;
     (vi) the amount of cash  received  as  consideration  for shares of Company
     Common  Stock  issued by the Company or the cash value of any  compensation
     paid to  employees  of the Company in the form of shares of Company  Common
     Stock,  as the case may be,  between  the date  hereof and the Cut Off Date
     pursuant to the  Company's  Direct Stock  Purchase Plan and the Stock Plans
     (as defined in Section 5.1(b));  and (vii) the amount of any cash (or other
     consideration  pursuant to a cashless  exercise) received from the exercise
     of  outstanding  options  (including  pursuant  to cashless  exercises)  to
     purchase shares of Company Common Stock between the date hereof and the Cut
     Off Date, and (y) the sum of (i) the amount of any cash paid by the Company
     to Westar as an equity  contribution  pursuant to subsection (a)(iii) above
     and (ii) $234 million,  by (B) $27.00.  On or prior to the Cut Off Date the
     Company  shall  deliver  to  Parent  a  statement  showing  the  adjustment
     calculated  in  accordance  with  this  Section  3.2(b)  (the   "Adjustment
     Calculation").  The Adjustment  Calculation shall have sufficient detail to
     enable Parent to ascertain  whether or not the  adjustment  proposed by the
     Company was made in conformity with the provisions of this Agreement.

          (B) Parent may  dispute  the  Adjustment  Calculation  provided by the
     Company by providing  notice in writing to the Company within five Business
     Days of receipt of the  Adjustment  Calculation.  If Parent and the Company
     are  unable to reach  resolution  of any  differences  with  respect to the
     Adjustment  Calculation  within ten  Business  Days of receipt of  Parent's
     written  notice of dispute to the  Company,  Parent and the  Company  shall
     submit  the  amounts  remaining  in  dispute  to one of  the  five  largest
     nationally  recognized  independent  auditing firms selected by the Company
     but not to include the auditing  firm who prepared the most recent  audited
     financial statements for Parent or the Company (the "Neutral Auditor"). The
     Neutral Auditor shall --------------- be instructed to determine and report
     to the parties,  within 20 Business Days after such  submission,  upon such
     remaining  disputed  amounts,  and such report shall be final,  binding and
     conclusive on the parties hereto with respect to the amounts disputed.  The
     fees and  disbursements  of the Neutral  Auditor shall be shared equally by
     Parent and the Company.

          (iii) The Merger  Portion of each share of the  Company  Common  Stock
     issued and outstanding  immediately prior to the Effective Time (other than
     the Excluded Shares) shall be converted into, and become exchangeable for a
     number of shares of common stock, par value $0.001 per share of Parent (the
     "Parent   Common   Stock")  equal  to  the  Exchange   Ratio  (the  "Merger
     Consideration" and together with the Split-Off Consideration,  the "Closing
     Consideration"). The "Exchange Ratio" shall be equal to the Aggregate Share
     Number divided by the number of outstanding  shares of Company Common Stock
     at the Effective Time (other than the Excluded Shares).

          (iv) Each Excluded Share shall,  by virtue of the Split-Off and Merger
     and  without  any  action on the part of the  holder  thereof,  cease to be
     outstanding,  shall  be  cancelled  and  retired  without  payment  of  any
     consideration therefor and shall cease to exist.

          (v) At the Effective Time, all shares of Company Common Stock shall no
     longer be outstanding and shall be cancelled and retired and shall cease to
     exist, and each  certificate (a  "Certificate")  formerly  representing any
     such shares of Company  Common Stock  (other than  Excluded  Shares)  shall
     thereafter  represent  only the right to receive the Closing  Consideration
     and the right,  if any, to receive  pursuant to Section 3.4(e) cash in lieu
     of  fractional  shares into which such shares of Company  Common Stock have
     been  converted  pursuant to this Section  3.2(b) and any  distribution  or
     dividend pursuant to Section 3.4(c).

          (vi) Each issued and outstanding Convertible Preference Share shall be
     converted  into one share of convertible  preferred  stock of Parent having
     the terms set forth on Exhibit C hereto (the "Parent Convertible Shares").

          (c) Second Merger Consideration.

          (i) Each share of common stock,  par value $0.001 per share of Manzano
     (the "Manzano Common Stock") issued and outstanding  prior to the Effective
     Time (excluding shares owned by Parent, PNM, Manzano or any of their direct
     or indirect  subsidiaries or by the Company or any Split-Off  Subsidiary or
     any other direct or indirect subsidiaries,  in each case not held on behalf
     of third parties,  each a "Manzano  Excluded Share" and  collectively  (the
     "Manzano Excluded  Shares")) shall be converted into, and exchangeable for,
     one share of Parent Common Stock (the "Manzano Merger Consideration").

          (ii) At the Effective  Time,  all shares of Manzano Common Stock shall
     no longer be outstanding and shall be cancelled and retired and shall cease
     to  exist,  and  each  certificate  (a  "Manzano   Certificate")   formerly
     representing  any such shares of Manzano  Common  Stock (other than Manzano
     Excluded  Shares)  shall  thereafter  represent  only the right to  receive
     shares of Parent  Common  Stock  pursuant to  subsection  (i) above and the
     right,  if any,  to  receive  pursuant  to Section  3.4(e)  cash in lieu of
     fractional  shares into which such shares of Manzano Common Stock have been
     converted  pursuant to this Section 3.2(c) and any distribution or dividend
     pursuant to Section 3.4(c).

          (iii)  Each  Manzano  Excluded  Share  shall,  by virtue of the Second
     Merger and without any action on the part of the holder  thereof,  cease to
     be  outstanding,  shall be  cancelled  and retired  without  payment of any
     consideration therefor and shall cease to exist.

          (d) Merger Sub-1.

          At the Effective  Time,  each share of Common Stock,  no par value, of
     Merger Sub-1 issued and outstanding immediately prior to the Effective Time
     shall  be  converted  into  one  share of  common  stock  of the  Surviving
     Corporation  and shall  constitute  the only shares of capital stock of the
     Surviving Corporation.

          (e) Merger Sub-2.

          At the Effective  Time,  each share of Common Stock,  no par value, of
     Merger Sub-2 issued and outstanding immediately prior to the Effective Time
     shall be  converted  into one  share of  Manzano  Common  Stock  and  shall
     constitute the only shares of capital stock of Manzano.

     3.3.  Exchange of Certificates Exchanged in the Split-Off.

     (a) At the  Effective  Time,  the Company  shall  deposit with the Exchange
Agent (as defined in Section  3.4 below) a stock  certificate  or  certificates,
endorsed in blank by the Company, representing the shares of Westar Common Stock
owned by the Company.

     (b) Following surrender of any Certificate formerly  representing shares of
Company Common Stock in accordance with Section 3.4(b), there shall be issued to
the holder thereof, the Split-Off Consideration to which such holder is entitled
pursuant to the Split-Off.

     (c) Holders of record at the Effective Time of  unsurrendered  Certificates
exchanged in the Split-Off shall be entitled to vote after the Effective Time at
any meeting of Westar  shareholders  the number of whole shares of Westar Common
Stock represented by such Certificates,  regardless of whether such holders have
exchanged their Certificates.

     3.4.  Exchange of Certificates in the Merger.

     (a) Exchange Agent.

     At  the  Effective  Time,  Parent  shall  deposit,  or  shall  cause  to be
deposited,  with an exchange  agent (the "Exchange  Agent"),  selected by Parent
with the Company's prior approval, which shall not be unreasonably withheld, for
the  benefit  of the  holders of shares of Company  Common  Stock,  certificates
representing  the  shares of  Parent  Common  Stock to be  issued in the  Merger
pursuant to Section 3.2 in exchange for outstanding shares of the Company Common
Stock (such  shares of Parent  Common  Stock and shares of Westar  Common  Stock
deposited  pursuant to Section 3.3, together with any dividends or distributions
with respect  thereto with a record date after the  Effective  Time and any cash
payable in lieu of any fractional shares of Parent Common Stock or Westar Common
Stock,  being hereinafter  referred to as the "Exchange Fund"). At the Effective
Time,  Parent shall also deposit with the Exchange  Agent, to be held as part of
the Exchange Fund, certificates representing shares of Parent Common Stock to be
issued in the Second Merger in exchange for outstanding shares of Manzano Common
Stock,  together with any dividends or distributions with respect thereto with a
record date after the Effective Time.

     (b) Exchange Procedures.

     As soon as reasonably practicable after the Effective Time, but in no event
later  than  three  Business  Days  after  the  Effective  Time,  the  Surviving
Corporation and Manzano shall cause the Exchange Agent to mail to each holder of
record  of shares of  Company  Common  Stock  and  Manzano  Common  Stock at the
Effective  Time  (other  than  holders  of  Excluded  Shares)  (i) a  letter  of
transmittal  specifying  that  delivery  of  the  Certificates  or  the  Manzano
Certificates,  as the case may be, shall be effected, and risk of loss and title
to the Certificates or the Manzano Certificates, as the case may be, shall pass,
only upon delivery of the Certificates or the Manzano Certificates,  as the case
may be, (or  affidavits  of loss in lieu  thereof) to the Exchange  Agent,  such
letter  of  transmittal  to be in such form and have such  other  provisions  as
Parent and the Company may reasonably  agree,  and (ii)  instructions for use in
effecting the surrender of the Certificates or the Manzano Certificates,  as the
case may be,  in  exchange  for (A)  Closing  Consideration,  in the case of the
Split-Off and Merger, or Manzano Merger Consideration, in the case of the Second
Merger and (B) any unpaid dividends and other  distributions and cash in lieu of
fractional shares to be paid pursuant to this Agreement (such instructions shall
include instructions for the payment of the Closing  Consideration,  in the case
of the Split-Off and Merger,  or, Manzano Merger  Consideration,  in the case of
the Second  Merger,  cash in lieu of fractional  shares,  and dividends or other
distributions  to a Person  other than the Person in whose name the  surrendered
Certificate,  or Manzano  Certificate,  as the case may be, is registered on the
transfer  books of the  Company or Manzano,  as the case may be,  subject to the
receipt of appropriate  documentation  for such  transfer).  Upon surrender of a
Certificate, or Manzano Certificate, as the case may be, (or evidence of loss in
lieu thereof) for  cancellation  to the Exchange Agent together with such letter
of transmittal,  duly executed in accordance with the provisions of this Section
3.4(b), the holder of such Certificate,  or Manzano Certificate, as the case may
be, shall be entitled to receive in exchange therefor (x) Merger  Consideration,
in the case of the Merger, or, Manzano Merger Consideration,  in the case of the
Second Merger,  in each case that such holder is entitled to receive pursuant to
this  Article  III, and (y) a check in the amount  (after  giving  effect to any
required tax withholdings) of (A) any cash in lieu of fractional shares plus (B)
any unpaid  non-stock  dividends and any other dividends or other  distributions
that such  holder has the right to receive  pursuant to the  provisions  of this
Article III, and the Certificate, or Manzano Certificate, as the case may be, so
surrendered shall forthwith be cancelled. No interest will be paid or accrued on
any  amount  payable  upon  due  surrender  of  the  Certificates,   or  Manzano
Certificates,  as the case may be. In the event of a transfer  of  ownership  of
shares of Company Common Stock or Manzano Common Stock that is not registered in
the  transfer  records of the Company or Manzano,  respectively,  payment may be
issued to such a transferee if the Certificate,  or Manzano Certificate,  as the
case may be,  formerly  representing  such  shares of  Company  Common  Stock or
Manzano  Common Stock is presented to the  Exchange  Agent,  accompanied  by all
documents  required  to  evidence  and  effect  such  transfer  and  the  person
requesting  such issuance pays any transfer or other taxes required by reason of
such payment to a person other than the registered  holder of such  Certificate,
or Manzano  Certificate,  as the case may be, or establishes to the satisfaction
of Parent and the Company that such tax has been paid or is not applicable.

     For the  purposes  of this  Agreement,  the term  "person"  shall  mean any
individual,  corporation  (including  not-for-profit  corporations),  general or
limited partnership,  limited liability company,  joint venture,  estate, trust,
association,  organization,  Governmental  Entity or other entity of any kind or
nature.

     (c) Distributions with Respect to Unexchanged Shares; Voting.

     (i) All shares of Parent Common Stock to be issued  pursuant to the Mergers
shall be deemed issued and  outstanding  as of the Effective Time and whenever a
dividend  or other  distribution  is declared by Parent in respect of the Parent
Common Stock,  the record date for which is at or after the Effective Time, that
declaration  shall include  dividends or other  distributions  in respect of all
shares of Parent Common Stock issuable pursuant to this Agreement.  No dividends
or other  distributions  in respect of the Parent  Common Stock shall be paid to
any holder of any unsurrendered Certificate, or Manzano Certificate, as the case
may be, until such Certificate,  or Manzano Certificate,  as the case may be, is
surrendered for exchange in accordance with this Article IV. Following surrender
of any Certificate,  or Manzano Certificate,  as the case may be, there shall be
issued and/or paid to the holder of the certificates  representing  whole shares
of Parent Common Stock issued in exchange therefor, without interest, (A) at the
time of such surrender, the dividends and other distributions with a record date
after the Effective Time  theretofore  payable with respect to such whole shares
of Parent  Common  Stock and not paid with respect to such shares and (B) at the
appropriate  payment date,  the dividends and other  distributions  payable with
respect to such whole shares of Parent Common Stock with a record date after the
Effective Time but with a payment date subsequent to surrender.

     (ii) Holders of record at the Effective Time of unsurrendered  Certificates
shall be  entitled  to vote after the  Effective  Time at any  meeting of Parent
shareholders  the number of whole shares of Parent Common Stock  represented  by
such  Certificates,  regardless  of whether such holders  have  exchanged  their
Certificates.  Holders of record at the Effective Time of unsurrendered  Manzano
Certificates  shall be entitled to vote after the Effective  Time at any meeting
of Parent  shareholders  the  number of whole  shares  of  Parent  Common  Stock
represented  by such Manzano  Certificates,  regardless  of whether such holders
have exchanged their Manzano Certificates.

     (d) Transfers, Etc.

     After the Effective Time, there shall be no transfers on the stock transfer
books of the  Company or Manzano  of shares of Company  Common  Stock or Manzano
Common Stock that were outstanding immediately prior to the Effective Time.

     (e) Fractional Shares.

     Notwithstanding  any other  provision of this Agreement to the contrary and
solely for convenience and not as a separately  bargained for consideration,  no
fractional shares of Parent Common Stock will be issued and any holder of shares
of Company Common Stock entitled to receive a fractional  share of Parent Common
Stock but for this Section 3.4(e) shall be entitled to receive a cash payment in
lieu thereof,  as follows.  The Exchange Agent will be directed to determine the
number of whole shares and fractional  shares of Parent Common Stock issuable to
each holder of record of certificates  formerly  representing  shares of Company
Common Stock as of the Effective  Time. Upon the  determination  by the Exchange
Agent of such number of  fractional  shares,  as soon as  practicable  after the
Effective  Time, the Exchange  Agent,  acting on behalf of the holders  thereof,
shall sell such  fractional  shares for cash on the open  market in each case at
the then prevailing  market prices and shall  distribute to each holder entitled
thereto,  in lieu of any  fractional  share,  without  interest,  that  holder's
ratable share of the proceeds of that sale, after making appropriate  deductions
of the amount  required,  if any, to be withheld  for United  States  income Tax
purposes.

     (f) Termination of Exchange Fund.

     Any portion of the Exchange  Fund relating to the Merger  Consideration  in
the case of the Merger or the Manzano Merger  Consideration,  in the case of the
Second Merger that remains  unclaimed by the  shareholders of the Company or the
shareholders  of Manzano for one year after the Effective Time shall be returned
to Parent.  At the same time,  any portion of the  Exchange  Fund  comprised  of
Split-Off  Consideration  shall be returned to Westar.  Any  shareholders of the
Company or of Manzano who have not  theretofore  complied  with this Article III
shall thereafter look only to (i) Parent for payment of the Merger Consideration
in the case of the Merger, or Manzano Merger  Consideration,  in the case of the
Second  Merger,  and any cash,  dividends  and other  distributions  in  respect
thereof payable and/or issuable  pursuant to Section 3.2 and Section 3.4(c) upon
due surrender of their Certificates,  or Manzano  Certificates,  as the case may
be, (or affidavits of loss in lieu thereof),  and (ii) Westar for payment of the
Split-Off   Consideration,   in  each  case,   without  any  interest   thereon.
Notwithstanding  the  foregoing,  none of  Parent,  the  Surviving  Corporation,
Manzano,  Westar,  the Exchange Agent or any other person shall be liable to any
former holder of shares of Company  Common Stock or Manzano Common Stock for any
amount properly delivered to a public official pursuant to applicable  abandoned
property, escheat or similar laws.

     (g) Lost, Stolen or Destroyed Certificates.

     In the event that any Certificate,  or Manzano Certificate, as the case may
be, shall have been lost,  stolen or destroyed,  upon the making of an affidavit
of that fact by the person claiming such Certificate, or Manzano Certificate, as
the case may be, to be lost, stolen or destroyed and, if required by Parent, the
posting by such person of a bond in customary  amount as  indemnity  against any
claim that may be made against it with respect to such  Certificate,  or Manzano
Certificates,  as the case may be, the Exchange Agent will issue in exchange for
such lost, stolen or destroyed Certificate,  or Manzano Certificate, as the case
may be, the Closing  Consideration  in the case of the Merger and the Split-Off,
or the Manzano Merger  Consideration,  in the case of the Second Merger, and, if
applicable,  any cash payable and any unpaid  dividends  or other  distributions
deliverable in respect thereof  pursuant to Section 3.4(c) upon due surrender of
the shares of the Company  Common Stock or Manzano  Common Stock  represented by
such Certificate,  or Manzano Certificate,  as the case may be, pursuant to this
Agreement.

     (h) Affiliates.

     Notwithstanding  anything herein to the contrary,  Certificates surrendered
by any "affiliate" (as determined  pursuant to Section 7.6) of the Company shall
not be exchanged until Parent shall have received a written  agreement from such
person as provided for in Section 7.6 hereof.

     3.5.  Dissenters' Rights.

     (a) In the event that appraisal  rights are available under Section 17-6712
of the KGCC to holders of shares of the Company  Common  Stock at the  Effective
Time,  any issued and  outstanding  shares of the Company Common Stock held by a
person  who  objects  to  the  Transaction  and  complies  with  all  applicable
provisions of the KGCC  concerning  the right of such person to dissent from the
Transaction and demands appraisal of shares ("Company  Dissenting Holder") shall
from and after the  Effective  Time  represent  only the right to  receive  such
consideration as may be determined to be due to such Company  Dissenting  Holder
with  respect to such shares  pursuant to the KGCC and shall not be converted as
described  in  Section  3.2(b);  provided,   however,  that  shares  outstanding
immediately prior to the Effective Time and held by a Company  Dissenting Holder
who shall  withdraw  the demand for  appraisal or lose the right of appraisal of
such  shares  pursuant  to the KGCC shall be deemed to be  converted,  as of the
Effective Time, into the right to receive the Closing Consideration.

     (b) Any issued and  outstanding  shares of Manzano  Common  Stock held by a
person who  objects  to the  Second  Merger  and  complies  with all  applicable
provisions of the NMBCA  concerning the right of such person to dissent from the
Second Merger and demands appraisal of such shares ("Manzano Dissenting Holder")
shall from and after the Effective Time represent only the right to receive such
consideration as may be determined to be due to such Manzano  Dissenting  Holder
with respect to such shares  pursuant to the NMBCA and shall not be converted as
described  in  Section  3.2(c);  provided,   however,  that  shares  outstanding
immediately prior to the Effective Time and held by a Manzano  Dissenting Holder
who shall withdraw the demand for  appraisal,  or lose the right of appraisal of
such shares  pursuant to the NMBCA  shall be deemed to be  converted,  as of the
Effective Time, into the right to receive the Manzano Merger Consideration.

     3.6.  Adjustments to Prevent Dilution.

     In the event  that the  Company  changes  the  number of shares of  Company
Common Stock or securities  convertible or exchangeable  into or exercisable for
shares  of  Company  Common  Stock  (other  than  the  issuance  of  Convertible
Preference Shares), Manzano changes the number of shares of Manzano Common Stock
or securities convertible or exchangeable for shares of Manzano Common Stock, or
Parent  changes  the  number  of shares of  Parent  Common  Stock or  securities
convertible  or  exchangeable  into or  exercisable  for shares of Parent Common
Stock,  in each case issued and  outstanding  prior to the  Effective  Time as a
result of a  reclassification,  stock split  (including a reverse  stock split),
stock dividend or distribution,  recapitalization,  merger, subdivision,  issuer
tender  or  exchange   offer,   or  other  similar   transaction,   the  Closing
Consideration,  the Exchange  Ratio and the  Split-Off  Exchange  Ratio shall be
equitably  adjusted  to  reflect  such  change in the case of the Merger and the
Split-Off, and the number of shares of Parent Common Stock into which each share
of Manzano  Common  Stock  shall be  converted  shall be  equitably  adjusted to
reflect such change, in the case of the Second Merger.

     3.7.  Restructuring of the Mergers.

     If for any  reason,  the  Manzano  Transition  Date can not  occur,  or the
regulatory  approvals  required  to permit it to occur are likely to  materially
delay the Effective Time,  then the parties agree to restructure  certain of the
transactions  contemplated  hereby and to exclude Manzano from  participation in
the transactions  contemplated hereby. In such event, PNM and Parent, in lieu of
the Manzano Exchange and the Second Merger, as provided for herein,  shall enter
into an agreement  and plan of share  exchange  (the "PNM  Exchange  Agreement")
(which agreement shall be substantially the same as the Exchange  Agreement with
such changes therein as are appropriate to reflect Parent's status as a Delaware
corporation,  except that Article VI of the Exchange Agreement shall be modified
to require all holders to  surrender  their  certificates  for  cancellation  or
cancellation and transfer) pursuant to which (i) the Exchange Agreement would be
terminated and the Manzano Exchange abandoned,  (ii) at the Effective Time, each
share of PNM Common Stock would be automatically converted into shares of Parent
Common Stock based on the Manzano Exchange Ratio (the "PNM Exchange") and Parent
would  thereby  acquire  and  become  the owner and  holder of each  issued  and
outstanding share of PNM Common Stock. In the event the Manzano  Transition Date
does not occur prior to the Effective  Time, PNM shall retain all of its rights,
obligations,  interests  and  liabilities  under  this  Agreement.  The  Parties
recognize that there may be other circumstances in which it may be preferable to
effectuate a business  combination  between Parent, PNM and the Company by means
of an  alternative  structure  to the  Transaction.  Accordingly,  if,  prior to
satisfaction  of the conditions  contained in Article VIII hereto,  either party
proposes  the  adoption  of an  alternative  structure  that  will not delay the
Effective Time and that otherwise  substantially  preserves for Parent, PNM, the
Company  and the  holders  of the  Company  Common  Stock the  economic  and Tax
benefits of the Transactions, then the parties shall make good faith to effect a
business  combination  among  themselves  by means  of a  mutually  agreed  upon
structure other than the Transactions that so preserves such benefits;  provided
that if the Company Requisite Vote or the Parent Requisite Vote has already been
obtained,  such alternative business combination does not require any additional
approval of the  shareholders of the Company under the KGCC or other  applicable
law or the  shareholders of PNM under the NMBCA or other  applicable law. In the
event that the parties adopt a restructured transaction,  the Agreement shall be
revised to reflect  such  transaction  as  determined  necessary  by the parties
hereto and prior to closing  any such  restructured  transaction,  all  material
third party and Governmental  Authority  declarations,  filings,  registrations,
notices, authorizations, consents or approvals necessary for the effectuation of
such  alternative  business  combination  shall have been obtained and all other
conditions to the parties'  obligations to consummate the  Transaction and other
transactions  contemplated  hereby,  as  applied  to such  alternative  business
combination, shall have been satisfied or waived.

     3.8. Manzano Guaranty; Etc.

     Effective from the Manzano  Transition  Date,  (i) Manzano  unconditionally
guarantees  the  obligations of Parent under this Agreement but only through the
Effective Time, it being the intent of the parties that such  obligations  shall
be  obligations  solely of Parent  from and  after the  Effective  Time and (ii)
Manzano assumes and agrees to perform all obligations of PNM hereunder and shall
succeed  to all  rights,  interests  and  liabilities  of PNM  hereunder  and be
substituted  for PNM for all purposes of this  Agreement as if originally  named
herein,  in each case  without  necessity  for further act by any party  hereto.
Manzano  agrees  promptly to execute a counterpart  of this  Agreement  upon PNM
becoming its Subsidiary.  PNM agrees to give written notice to all other parties
hereto of the occurrence of the Manzano Transition Date.

                                   Article IV.

                                   The Closing

     4.1.  Closing.

     The closing of the Transaction  (the "Closing") shall take place (i) at the
offices of LeBoeuf,  Lamb, Greene & MacRae,  L.L.P.,  125 West 55th Street,  New
York, New York at 10:00 A.M. on the twentieth  Business Day after the last to be
satisfied  or waived of the  conditions  set forth in Article  VIII  (other than
those  conditions  that by their nature are to be satisfied at the Closing,  but
subject to the satisfaction or waiver of those conditions) shall be satisfied or
waived (by the party  entitled to the benefit of such  condition)  in accordance
with this  Agreement  or (ii) at such other  place and time and/or on such other
date as the  Company  and  Parent  may agree in writing  (the  "Closing  Date");
provided  that in the event a dispute  resolution  process  pursuant  to Section
3.2(b)(ii)(B)  is pending,  the Closing Date shall  automatically be extended to
two business  days  following  the date of delivery of the report of the Neutral
Auditor. For purposes of this Agreement,  the term "Business Day" means a day on
which banks are not required or authorized by law to close in New York City.

                                   Article V.

                         Representations and Warranties

     5.1.  Representations and Warranties of the Company.

     Except as set forth in the  disclosure  letter  delivered  to Parent by the
Company on or prior to entering into this  Agreement  (the  "Company  Disclosure
Letter") or the Company Reports,  the Company hereby  represents and warrants to
Parent, PNM, Merger Sub-1 and Merger Sub-2 that:

     (a) Organization, Good Standing and Qualification.

     Each of the Company  and its Utility  Subsidiaries  is a  corporation  duly
organized,  validly  existing  and  in  good  standing  under  the  laws  of its
respective  jurisdiction  of  organization  and has all  requisite  corporate or
similar power and authority to own and operate its  properties and assets and to
carry on its  business as presently  conducted  in all material  respects and is
qualified to do business  and is in good  standing as a foreign  corporation  in
each jurisdiction  where the ownership or operation of its properties or conduct
of its business requires such  qualification,  except where the failure to be so
qualified  as a  foreign  corporation  or be  in  good  standing  would  not  be
reasonably  likely to have, either  individually or in the aggregate,  a Company
Material  Adverse  Effect.  Wolf  Creek  Nuclear  Operating   Corporation  is  a
corporation in good standing under the laws of the state of Kansas.  The Company
has made  available to Parent  complete and correct  copies of the Company's and
each of its  Utility  Subsidiaries'  articles of  incorporation  and by-laws (or
comparable  governing  instruments),  as amended to date.  The Company's and its
Utility  Subsidiaries'  articles of  incorporation  and  by-laws (or  comparable
governing instruments) so delivered are in full force and effect. Section 5.1(a)
of the Company  Disclosure  Letter sets forth a list, as of the date hereof,  of
all of the  Subsidiaries  of the  Company,  the  jurisdictions  under which such
Subsidiaries were incorporated, the percent of the equity interest therein owned
by the Company and each Subsidiary of the Company,  as applicable,  whether such
Subsidiary has active business operations, and specifies each Subsidiary that as
of the date  hereof,  (i) (A) owns or  operates  any  portion  of the  Company's
electric  utility  business as reflected  in the  unconsolidated  balance  sheet
included in Section  5.1(e)(ii) of the Company  Disclosure  Letter and (B) is to
remain a Subsidiary  of the Company after giving effect to the Split-Off or (ii)
otherwise holds the Company's  investments in affordable  housing tax credits as
shown  in  the  consolidated   financial  statements  of  the  Company  and  its
Subsidiaries  included in the Company Reports (the  Subsidiaries so specified in
the list being herein collectively called the "Utility  Subsidiaries").  Section
5.1(a) of the Company  Disclosure  Letter  specifies  the status of each Utility
Subsidiary under Section 2(a)(5), 2(a)(7), 2(a)(11), 32(a)(1) or 33(a)(3) of the
Public  Utility  Holding  Company Act of 1935,  as amended  (the "1935 Act") and
Section 201(e) of the Federal Power Act (the "Power Act").  No Subsidiary  which
is a Utility Subsidiary will be a Westar Subsidiary.

     As used in this Agreement, the term "Subsidiary" means, with respect to the
Company,  PNM,  Parent,  Merger Sub-1 or Merger  Sub-2,  as the case may be, any
entity, other than a Westar Subsidiary,  whether incorporated or unincorporated,
of which at least a majority of the securities or ownership  interests having by
their terms ordinary  voting power to elect a majority of the board of directors
or other persons performing similar functions is directly or indirectly owned or
controlled by such party or by one or more of its respective  Subsidiaries or by
such party and any one or more of its respective Subsidiaries.

     As  used in this  Agreement,  the  term  "Significant  Subsidiary"  means a
"significant  subsidiary"  (other than,  with  respect to the Company,  a Westar
Subsidiary)  within the meaning of Rule 1.02(w) of  Regulation  S-X  promulgated
pursuant to the Securities Exchange Act of 1934, as amended ("Exchange Act").

     As used in this Agreement, the term "Company Material Adverse Effect" means
a  material  adverse  effect on the  financial  condition,  business,  assets or
results of  operations  of the  Company and its  Subsidiaries  taken as a whole;
provided, however, that any such effect resulting from or arising out of (i) any
change in law,  rule,  regulation or generally  accepted  accounting  principles
("GAAP") or interpretations thereof, (ii) economic or business conditions in the
United  States  generally,  (iii)  conditions  generally  affecting the electric
utility  industry or (iv) the  execution  and  delivery of this  Agreement,  the
consummation  of  the  transactions  contemplated  hereby  or by  the  Split-Off
Agreements  shall not be  considered  when  determining  if a  Company  Material
Adverse  Effect has  occurred.  As used in this  Agreement,  the term " " or any
similar  formulation  of  knowledge  shall mean the actual  knowledge  of,  with
respect to the Company, those persons set forth in Section 5.1(a) of the Company
Disclosure  Letter and, with respect to Parent and PNM,  those persons set forth
in Section 5.2 of the Parent Disclosure Letter.  Notwithstanding  the foregoing,
the parties hereto  acknowledge and agree that in no event shall any matter that
is or  would  be a Westar  Group  Liability  (as  such  term is  defined  in the
Allocation and Separation  Agreement) constitute or give rise to, in whole or in
part, a Company  Material  Adverse  Effect;  provided that, such matter does not
also  constitute or result in a Western Group Liability (as such term is defined
in the Allocation and Separation Agreement).

     (b) Capital Structure.

     The  authorized  capital stock of the Company  consists of (x)  150,000,000
shares of Company Common Stock, of which  69,980,902  shares were outstanding as
of the close of business on November 6, 2000, (y) 6,600,000  shares of preferred
stock,  (the  "Preferred  Shares") of which 138,576 shares of 4 1/2% series were
outstanding,  60,000 shares of 4 1/4% series were outstanding, and 50,000 shares
of 5% series were  outstanding,  in each case,  as of November 6, 2000,  and (z)
4,000,000  shares  of  preference  stock,  none of which are  outstanding  as of
November 6, 2000. All of the issued and  outstanding  shares of capital stock of
the Company have been duly  authorized  and are validly  issued,  fully paid and
nonassessable.  Each  of the  outstanding  shares  of  capital  stock  or  other
securities of each of the Company's  Subsidiaries  is duly  authorized,  validly
issued,  fully paid and  nonassessable  and owned by the  Company or a direct or
indirect  wholly owned  Subsidiary  of the Company,  free and clear of any lien,
pledge,  security interest,  claim or other encumbrance.  Other than pursuant to
the Company Long Term  Incentive and Share Award Plan,  the Executive  Stock for
Compensation  Program,  the  Employee's  Stock Purchase Plan and the 401(k) Plan
(collectively,  the "Stock  Plans") and  pursuant to the  Company  Direct  Stock
Purchase Plan,  there are no preemptive or other  outstanding  rights,  options,
warrants,  conversion  rights,  stock  appreciation  rights,  redemption rights,
repurchase rights,  agreements,  arrangements or commitments to issue or to sell
any shares of capital  stock or other  securities  of the  Company or any of its
Subsidiaries or any securities or obligations  convertible or exchangeable  into
or  exercisable  for, or giving any Person a right to subscribe  for or acquire,
any securities of the Company or any of its  Subsidiaries,  and no securities or
obligations  evidencing such rights are authorized,  issued or outstanding.  The
Company  does  not  have  outstanding  any  bonds,  debentures,  notes  or other
obligations the holders of which have the right to vote (or convertible  into or
exercisable  for securities  having the right to vote) with the  shareholders of
the Company on any matter ("Voting Debt").

     (c) Corporate Authority.

          (i) The Company has all  requisite  corporate  power and authority and
     has taken all corporate action  necessary in order to execute,  deliver and
     perform its  obligations  under this  Agreement and to  consummate,  on the
     terms and subject to the  conditions of this  Agreement,  the  transactions
     contemplated hereby,  subject only to receipt of the Company Requisite Vote
     and the Company Required Statutory Approvals. This Agreement is a valid and
     legally binding agreement of the Company  enforceable against such party in
     accordance with its terms,  subject to bankruptcy,  insolvency,  fraudulent
     transfer,   reorganization,   moratorium   and  similar   laws  of  general
     applicability  relating to or  affecting  creditors'  rights and to general
     equity principles (the "Bankruptcy and Equity Exception").

          (ii) As of the date hereof the Board of  Directors  of the Company has
     approved and adopted this Agreement and the Merger, the Split-Off and other
     transactions  contemplated hereby and, subject to its fiduciary duties, has
     resolved to recommend  that the  shareholders  of the Company  approve this
     Agreement and the transactions contemplated hereby.

     (d) Governmental Filings; No Violations.

     (i)  Other  than any  reports,  filings,  registrations,  approvals  and/or
notices  (A)  required  to be  made  pursuant  to  Section  1.4  (B)  under  the
Hart-Scott-Rodino  Antitrust  Improvements  Act of 1976,  as  amended  (the "HSR
Act"),  the Securities Act of 1933, as amended (the  "Securities  Act"), and the
Exchange Act, (C) with, to or of the Federal Energy  Regulatory  Commission (the
"FERC"), (D) with, to or of the Kansas Corporation  Commission;  (E) with, to or
of the SEC under the 1935 Act; (F) to or with the Nuclear Regulatory Commission,
(G) to or with the Federal Communications  Commission,  (H) to comply with state
securities or "blue-sky"  laws; and (I) to comply with the rules and regulations
of the New York  Stock  Exchange,  Inc.  (the  "NYSE")  (items B through  I, the
"Company Required Statutory Approvals"),  no notices, reports,  registrations or
other filings are required to be made by the Company with, nor are any consents,
registrations,  approvals,  permits or authorizations required to be obtained by
the Company from, any governmental or regulatory authority,  agency, commission,
body or other governmental entity (each a "Governmental  Entity"), in connection
with the execution and delivery of this  Agreement and the  consummation  by the
Company  of the  transactions  contemplated  hereby,  except  for those that the
failure to make or obtain are not, individually or in the aggregate,  reasonably
likely to have a Company Material Adverse Effect or prevent, materially delay or
materially  impair the ability of the  Company to  consummate  the  transactions
contemplated by this Agreement.

     (ii) The  execution,  delivery and  performance  of this  Agreement and the
consummation  by the Company of the  transactions  contemplated  hereby will not
constitute or result in (A) a breach or violation of, or a default under, either
the  articles of  incorporation  of the Company or by-laws of the Company or the
comparable governing instruments of any Company Utility Subsidiary, (B) a breach
or violation of, or a default under, the  acceleration of any  obligations,  the
loss of any  right or  benefit,  or the  creation  of a lien,  pledge,  security
interest  or other  encumbrance  on the  assets of the  Company  or any  Company
Utility Subsidiary (with or without notice,  lapse of time or both) pursuant to,
any agreement, lease, contract, note, mortgage, indenture,  arrangement or other
obligation  not  otherwise  terminable by the other party thereto on 90 days' or
less  notice  ("Contracts")  binding  upon the  Company or any  Company  Utility
Subsidiary  (the "Company  Contracts") or any Law (as defined in Section 5.1(i))
or  governmental or  non-governmental  permit or license to which the Company or
any  Company  Utility  Subsidiary  is subject or (C) any change in the rights or
obligations of any party under any of the Company Contracts, except, in the case
of clause (B) or (C) above, for any breach,  violation,  default,  acceleration,
creation  or  change  that  would  not,  individually  or in the  aggregate,  be
reasonably  likely to have a Company  Material  Adverse  Effect or  prevent,  or
materially  impair the ability of the  Company to  consummate  the  transactions
contemplated by this Agreement.

     (e) Company Reports; Financial Statements.

     (i) The filings required to be made (A) by the Company and its Subsidiaries
since January 1, 1999 under the Securities  Act; the Exchange Act; the 1935 Act;
the Federal Power Act; and applicable  state public utility laws and regulations
have been filed with the SEC, FERC, or the  appropriate  state public  utilities
commission,  as the  case  may  be,  and  (B) by Wolf  Creek  Nuclear  Operating
Corporation  since  January  1, 1999 under the  Atomic  Energy  Act of 1954,  as
amended,  to the  knowledge  of the  Company,  have  been  filed  with  the NRC,
including all forms, statements,  reports,  agreements (oral or written) and all
documents,  exhibits,  amendments  and  supplements  appertaining  thereto,  and
complied,  as of their  respective  dates,  in all  material  respects  with all
applicable   requirements  of  the  appropriate   statutes  and  the  rules  and
regulations  thereunder,  except for such  filings  the failure of which to have
been made or so to comply would not result in a Company Material Adverse Effect.
The Company has made available to Parent each  registration  statement,  report,
proxy statement or information statement filed by it with the SEC (collectively,
including any amendments of any such reports, the "Company Reports") pursuant to
the  Securities  Act or the Exchange Act since January 1, 1999, and prior to the
date hereof,  including  (i) the  Company's  Annual  Report on Form 10-K for the
fiscal year ended December 31, 1999 and (ii) the Company's  Quarterly Reports on
Form 10-Q for the quarterly periods ended March 31, 2000 and June 30, 2000, each
in the form (including exhibits, annexes and any amendments thereto) promulgated
by the SEC under the  Securities  Act or the Exchange  Act.  None of the Company
Reports (in the case of Company  Reports filed pursuant to the Securities  Act),
as of their effective  dates,  contained any untrue statement of a material fact
or omitted to state a material fact  required to be stated  therein or necessary
to make the statements made therein,  in light of the circumstances  under which
they were made, not  misleading and none of the Company  Reports (in the case of
Company  Reports filed pursuant to the Exchange Act) as of the respective  dates
filed with the SEC or first mailed to shareholders, as applicable, contained any
statement which, at the time and in the light of the  circumstances  under which
it was made,  was false or  misleading  with  respect to any material  fact,  or
omitted to state any material  fact  necessary  in order to make the  statements
therein,  in  light  of the  circumstances  under  which  they  were  made,  not
misleading.  The  consolidated  financial  statements  of the  Company  and  its
Subsidiaries  included in such Company Reports comply as to form in all material
respects  with the  applicable  rules and  regulations  of the SEC with  respect
thereto.  Each of the consolidated balance sheets included in or incorporated by
reference into the Company  Reports  (including the related notes and schedules)
presents fairly, in all material respects, the financial position of the Company
and its Subsidiaries as of its date and each of the  consolidated  statements of
income and  consolidated  statements of cash flow included in or incorporated by
reference into the Company  Reports  (including any related notes and schedules)
fairly  presents in all material  respects the results of  operations,  retained
earnings and changes in financial  position,  as the case may be, of the Company
and its Subsidiaries for the periods set forth therein (subject,  in the case of
unaudited  statements,  to the  absence  of  notes  and  normal  year-end  audit
adjustments),  in each case in accordance with GAAP consistently  applied during
the periods involved, except as may be noted therein.

     (ii)  Section  5.1(e)(ii)  of the Company  Disclosure  Letter  contains the
unaudited  pro forma  consolidated  balance sheet of the Company and its Utility
Subsidiaries  as of September 30, 2000,  which  presents  information  as if the
Split-Off had occurred (on the terms and subject to the  conditions set forth in
the Split-Off  Agreements) as of the Audit Date. Such balance sheet is based on,
and should be read in conjunction  with, the historical  consolidated  financial
statements  included in the Company Reports.  Such balance sheet fairly presents
in all material respects the consolidated  financial position of the Company and
its  Subsidiaries as of its date, as if the Split-Off had occurred (on the terms
and subject to the  conditions  set forth in the Split-Off  Agreements)  on such
date,  subject to notes and normal year-end audit  adjustments  that will not be
material in amount or effect.  The accounts reflected in the unaudited pro forma
balance sheet  referred to in this  subsection  have been prepared in accordance
with GAAP on a basis consistent with the historical audited consolidated balance
sheets  of  the  Company  and  its   Subsidiaries   (including   the   Split-Off
Subsidiaries)  and were  prepared in  accordance  with the  requirements  of SEC
Regulation S-X as it relates to pro forma balance sheets.

     (f) Absence of Certain Changes.

     Since   December  31,  1999  (the  "Audit   Date"),   except  as  expressly
contemplated by this Agreement and the Split-Off Agreements, the Company and its
Subsidiaries  taken as a whole have  conducted  their business only in, and have
not engaged in any material  transaction  other than  according to, the ordinary
and usual  course of such  business and there has not been (i) any change in the
financial condition,  properties,  assets,  business or results of operations of
the Company and its Subsidiaries  that has had or would be reasonably  likely to
have a Company Material Adverse Effect;  (ii) any declaration,  setting aside or
payment of any dividend or other distribution in respect of the capital stock of
the Company or any repurchase, redemption or other acquisition by the Company or
any  Subsidiary of any  securities  of the Company other than regular  quarterly
dividends  on  shares  of  the  Company  Common  Stock  in the  ordinary  course
(including any periodic  increase  thereon  consistent with past  practice);  or
(iii) any change by the Company in accounting  principles,  practices or methods
which is not required or permitted by GAAP. Since the Audit Date and through the
date  hereof,  except as provided  for herein,  there has not been any  material
increase in the compensation payable or that could become payable by the Company
or any  of its  Subsidiaries  to  officers  or  key  employees  or any  material
amendment of any of the  Compensation  and Benefit Plans other than increases or
amendments in the ordinary course of business consistent with past practice.

     (g) Litigation.

          (i) There are no civil,  criminal or  administrative  actions,  suits,
     claims, hearings, investigations, reviews or proceedings pending or, to the
     knowledge  of the  Company,  threatened  against  the Company or any of its
     Utility Subsidiaries,  except for those that would not be reasonably likely
     to have,  either  individually  or in the  aggregate,  a  Company  Material
     Adverse Effect.

          (ii) To the knowledge of the Company,  there are no civil, criminal or
     administrative actions, suits, claims, hearings, investigations, reviews or
     proceedings  pending or  threatened  against Wolf Creek  Nuclear  Operating
     Corporation,  except for those that would not be reasonably likely to have,
     either individually or in the aggregate, a Company Material Adverse Effect.

     (h) Employee Benefits.

          (i)  A  copy  of  (i)  each  bonus,  deferred  compensation,  pension,
     retirement,  profit-sharing,  thrift,  savings,  employee stock  ownership,
     stock  bonus,  stock  purchase,  change in control,  retention,  restricted
     stock,  stock option,  employment,  termination,  severance,  compensation,
     medical,  health or other plan, agreement,  policy, practice or arrangement
     that  covers   employees  or  former  employees  of  the  Company  and  its
     Subsidiaries ("Employees"), or directors or former directors of the Company
     (the  "Compensation  and Benefit  Plans");  and (ii) any trust agreement or
     insurance  contract  forming a part of such  Compensation and Benefit Plans
     has been made available to Parent prior to the date hereof.  Section 5.1(h)
     of the Company  Disclosure  Letter lists all Compensation and Benefit Plans
     other than those that,  in the  aggregate,  are not material to the Company
     and its  Subsidiaries  and any  Compensation  and Benefit Plans  containing
     "change  of  control"  or  similar   provisions  therein  are  specifically
     identified in Section 5.1(h) of the Company Disclosure Letter.

          (ii) All  Compensation and Benefit Plans, to the extent subject to the
     Employee  Retirement  Income Security Act of 1974, as amended ("ERISA") are
     in substantial  compliance  with the applicable  provisions of ERISA.  Each
     Compensation  and Benefit Plan that is an "employee  pension  benefit plan"
     within the meaning of Section 3(2) of ERISA (a "Company  Pension Plan") and
     that is  intended  to be  qualified  under  Section  401(a) of the Code has
     received a favorable determination letter from the Internal Revenue Service
     (the "IRS"), and nothing has occurred, whether by action or failure to act,
     that would  cause the loss of such  qualification  or that would  result in
     costs to the Company or any of its Subsidiaries  under the Internal Revenue
     Service's  Employee  Plans  Compliance  Resolution  System  that  would  be
     reasonably likely to have a Company Material Adverse Effect. As of the date
     hereof,  there is no material  pending or to the  knowledge  of the Company
     threatened  litigation  relating to the  Compensation  and  Benefit  Plans.
     Neither the Company nor any of its  Subsidiaries  nor, to the  knowledge of
     the Company,  any other person has engaged in a transaction with respect to
     any Compensation and Benefit Plan that, assuming the taxable period of such
     transaction expired as of the date hereof, would subject the Company or any
     of its  Subsidiaries to a material tax or penalty imposed by either Section
     4975 of the Code or Section 502(i) of ERISA.

          (iii) No liability under Subtitle C or D of Title IV of ERISA has been
     or is expected  to be  incurred  by the Company or any of its  Subsidiaries
     with respect to any ongoing,  frozen or terminated  "single-employer plan",
     within the meaning of Section  4001(a)(15) of ERISA,  currently or formerly
     maintained by any of them, or the single-employer  plan of any entity which
     is considered  one employer with the Company under Section 4001 of ERISA or
     Section 414 of the Code (a "Company ERISA Affiliate").  The Company and its
     Subsidiaries  have not  incurred  and do not  expect to incur and would not
     expect to incur any withdrawal  liability  with respect to a  multiemployer
     plan under Subtitle E of Title IV of ERISA  (regardless of whether based on
     contributions of a Company ERISA Affiliate) if, as of the date hereof,  the
     Company  or a  Company  ERISA  Affiliate  were  to  engage  in a  "complete
     withdrawal" (as defined in Section 4203 of ERISA) or a "partial withdrawal"
     (as defined in Section  4205 of ERISA)  from such  multiemployer  plan.  No
     notice of a "reportable event", within the meaning of Section 4043 of ERISA
     for which the 30-day reporting requirement has not been waived or extended,
     other than the extension  provided by PBGC Reg. Section  4043.66,  has been
     required to be filed for any Company  Pension Plan or by any Company  ERISA
     Affiliate within the 12-month period ending on the date hereof.

          (iv) All  contributions  required  to be made  under  the terms of any
     Compensation  and Benefit  Plan as of the date hereof have been timely made
     or have been reflected on the most recent consolidated  balance sheet filed
     or  incorporated  by  reference  in the  Company  Reports  and all  premium
     payments to the Pension  Benefit  Guaranty  Corporation  ("PBGC") have been
     made when due for such  plans.  Neither any  Company  Pension  Plan nor any
     single-employer  plan of a  Company  ERISA  Affiliate  has an  "accumulated
     funding  deficiency"  (whether or not waived) within the meaning of Section
     412 of the Code or Section 302 of ERISA and no Company ERISA  Affiliate has
     an  outstanding  funding  waiver.  Neither  the  Company  nor  any  of  its
     Subsidiaries  has  provided,  or is required  to  provide,  security to any
     Company  Pension  Plan or to any  single-employer  plan of a Company  ERISA
     Affiliate pursuant to Section 401(a)(29) of the Code.

          (v) Neither the Company nor its Subsidiaries have any obligations for,
     or liabilities  with respect to, retiree health and life benefits under any
     Compensation and Benefit Plan,  except for benefits required to be provided
     under Section 4980B of the Code.

          (vi)  Notwithstanding  anything  to the  contrary  contained  in  this
     Section  5.1(h),  the  representations  and  warranties  contained  in this
     Section  5.1(h) shall be deemed to be true and correct unless such failures
     to be true and correct  are  reasonably  likely to have a Company  Material
     Adverse Effect.

          (i) Compliance with Laws.

     As of the date hereof,  the  business of the Company and its  Subsidiaries,
taken as a whole,  is not being  conducted in  violation of any federal,  state,
local or foreign law, statute,  ordinance,  rule, regulation,  judgment,  order,
injunction, decree, arbitration award, agency requirement,  license or permit of
any Governmental Entity (collectively, "Laws"), except for violations that would
not be reasonably  likely to have,  either  individually or in the aggregate,  a
Company Material  Adverse Effect or prevent or materially  impair the ability of
the Company to consummate the transactions contemplated by this Agreement. As of
the date hereof,  no  investigation  or review by any  Governmental  Entity with
respect  to the  Company  or  any of its  Subsidiaries  is  pending  or,  to the
knowledge of the Company,  threatened, nor has any Governmental Entity indicated
an  intention  to conduct the same,  except for those the outcome of which would
not be reasonably  likely to have,  either  individually or in the aggregate,  a
Company Material  Adverse Effect or prevent or materially  impair the ability of
the Company to consummate the transactions  contemplated by this Agreement.  The
Company and each of its Utility  Subsidiaries  each has all  permits,  licenses,
franchises, variances, exemptions, orders and other governmental authorizations,
consents  and  approvals  from  Governmental  Entities  necessary to conduct its
business as presently conducted, except for those the absence of which would not
be reasonably likely to have, either individually or in the aggregate, a Company
Material  Adverse  Effect or prevent  or  materially  impair the  ability of the
Company to consummate the transactions contemplated by this Agreements.

     (j) Takeover Statutes.

     Assuming the accuracy of the representation contained in Section 5.2(q), no
business  combination,   control  share,  fair  price,   moratorium  or  similar
anti-takeover  provision  (a "Takeover  Statute") of the KGCC or any  applicable
anti-takeover  provision in the certificate of  incorporation  of the Company or
the  bylaws  of the  Company  is  applicable  to the  Transaction  or any  other
transaction contemplated hereby.

     (k) Environmental Matters.

     Except  for such  matters  that would not,  either  individually  or in the
aggregate,  be reasonably likely to cause a Company Material Adverse Effect: (i)
the Company's  operations are in compliance  with all  applicable  Environmental
Laws; (ii) the Company  possesses and maintains in effect all  environmental and
natural resources permits, licenses, authorizations and approvals required under
applicable  Environmental  Laws with  respect to the  business of the Company as
presently   conducted;   (iii)  the  Company  has  not   received   any  written
environmental  claim,  notice or request for  information  during the past three
years   concerning  any  violation  or  alleged   violation  of  any  applicable
Environmental Law or concerning any liability under any applicable Environmental
Law;  and (iv) there are no  material  writs,  injunctions,  decrees,  orders or
judgments outstanding,  or any actions, suits or proceedings pending relating to
compliance   by  the  Company   with  any   environmental   permits,   licenses,
authorizations  and approvals  required under applicable  Environmental  Laws or
liability of the Company under any applicable Environmental Law.

     The  representations  and warranties in this Section 5.1(k)  constitute the
sole  representations  and  warranties  of  the  Company  with  respect  to  any
Environmental Law or Hazardous Substance.

     As used herein, the term  "Environmental  Law" means any federal,  state or
local laws  (including  common  law),  regulations,  codes,  rules,  ordinances,
permits,  authorizations,  decrees,  orders,  injunctions  or judgments  and any
binding  administrative  or judicial  interpretations  thereof  relating to: (a)
pollution;  (b) the protection of the environment  (including air, water,  soil,
subsurface strata,  biota and natural resources) or human health and safety from
exposure to Hazardous Substances; and (c) the regulation of the generation, use,
storage, handling,  transportation,  treatment, release, remediation or disposal
of Hazardous Substances.

     As used herein,  the term "Hazardous  Substance"  means (a) any substances,
mixtures,   chemicals,   products,   materials  or  wastes  that,   pursuant  to
Environmental Law, are defined by or regulated as or having the  characteristics
of "hazardous," "toxic," "pollutant,"  "contaminant,"  "flammable," "corrosive,"
"reactive,"  "explosive"  or  "radioactive";  or (b)  any  petroleum,  petroleum
products  or  by-products,   friable  asbestos  or  any  material  or  equipment
containing regulated concentrations of polychlorinated biphenyls.

     As used in this Section 5.1(k), the "Company" shall mean the
Company and each of its Subsidiaries.

     (l) Taxes.

     Except as would not have a Company Material Adverse Effect, the Company and
each of its Utility  Subsidiaries  (i) have duly and timely  filed  (taking into
account any  extension of time within which to file) all Tax Returns (as defined
below)  required  to be filed by any of them as of the date  hereof and all such
filed Tax Returns are  complete  and  accurate  in all  respects;  (ii) (A) have
timely  paid all Taxes that are shown as due on such filed Tax  Returns,  except
with respect to matters  contested in good faith and for which adequate reserves
have been  established  and (B) no  penalties or charges are due with respect to
the late filing of any Tax Return required to be filed by or with respect to any
of them on or before the  Effective  Time;  (iii) with  respect to any filed Tax
Returns,  have not waived any statute of  limitations  with  respect to Taxes or
agreed to any extension of time with respect to a Tax  assessment or deficiency;
(iv) as of the date hereof,  does not have any  deficiency,  or any such audits,
examinations,  investigations  or other  proceedings  in respect of Taxes or Tax
matters pending or proposed or threatened in writing; and (v) has not been or is
not a party to any Tax sharing agreement or similar arrangement. Except as would
not have a Company  Material  Adverse Effect when  aggregated with the preceding
sentence,  the Split-Off  will not result in any Member of the Mustang Group (as
defined  in  the  Allocation  and  Separation  Agreement)  or  their  Affiliates
recognizing income or gain pursuant to Treasury Regulation Section 1.1502-13.

     "Tax" (and the correlative meaning,  "Taxes", "Taxing" and "Taxable") shall
mean (i) any net income,  gross income,  gross  receipts,  alternative or add-on
minimum,  sales,  use, ad valorem,  franchise,  profits,  license,  withholding,
payroll, employment, excise, transfer, recording,  severance, stamp, occupation,
premium, property, environmental, custom duty, or other tax, governmental fee or
other  like  assessment  or charge  of any kind  whatsoever,  together  with any
interest  and any penalty,  addition to Tax or  additional  amount  imposed by a
Taxing Authority;  (ii) any liability of the Company, Westar or any Affiliate of
the  Company or Westar  (or,  in each case,  any  predecessor  or  successor  in
interest thereto by merger or otherwise), as the case may be, for the payment of
any amounts of the type described in clause (i) for any Taxable period resulting
from the application of Treasury  Regulation Section 1.1502-6 or, in the case of
any similar  provision  applicable under state,  local or foreign law; and (iii)
any  liability of the Company,  Westar or any Affiliate of the Company or Westar
(or, in each case, any predecessor or successor in interest thereto by merger or
otherwise) for the payment of any amounts described in clause (i) as a result of
any express or implied obligation to indemnify any other party.

     (m) Labor and Employment Matters.

          (i) Labor  Relations.  Except  as would  not have a  Company  Material
     Adverse  Effect,  (A) neither the Company nor any of its  Subsidiaries is a
     party to any collective  bargaining agreement or other labor agreement with
     any labor  union,  labor  organization,  employee  association  or  similar
     organization,  nor  does  the  Company  or  any of  its  Subsidiaries  have
     knowledge of any such union, labor  organization,  employee  association or
     similar  organization  that  represents  or claims to represent  any of the
     Company's or any of its Subsidiaries'  employees or intends to organize any
     of the Company's or any its Subsidiaries'  employees; (B) there is no labor
     strike,  dispute,  slowdown,  stoppage,  lockout  or  other  labor  dispute
     actually  pending,  nor  to the  knowledge  of  the  Company  or any of its
     Subsidiaries,  threatened  against or  affecting  the Company or any of its
     Subsidiaries;  (C) to the knowledge of the Company, neither the Company nor
     any of its Subsidiaries is engaged in any unfair labor practices as defined
     in the National Labor Relations Act or other  applicable law,  ordinance or
     regulation;  nor is there an unfair  labor  practice  charge  or  complaint
     against the Company or any of its Subsidiaries pending or, to the knowledge
     of the Company, threatened before the National Labor Relations Board or any
     similar state agency;  and (D) there is no grievance  pending,  nor, to the
     knowledge of the Company, is there any grievance  threatened arising out of
     any collective bargaining agreement or other grievance procedure.

          (ii)  Employment.  Except as would not have a Company Material Adverse
     Effect,  (A) neither the Company nor any of its Subsidiaries is in material
     violation of any  applicable  laws  respecting  employment  and  employment
     practices,  terms and  conditions of employment,  wages,  hours of work and
     occupational safety and health; (B) to the knowledge of the Company,  there
     are no charges  with  respect to or  relating  to the Company or any of its
     Subsidiaries pending before the Equal Employment  Opportunity Commission or
     any other agency  responsible  for the  prevention  of unlawful  employment
     practices; (C) to the knowledge of the Company, neither the Company nor any
     of its Subsidiaries received notice of the intent of any federal,  state or
     local agency responsible for the enforcement of labor or employment laws to
     conduct an investigation  with respect to or relating to the Company or any
     of its  Subsidiaries and no such  investigation is in progress;  and (D) to
     the knowledge of the Company,  there are no  complaints,  lawsuits or other
     proceedings  pending  or  threatened  in any  forum by or on  behalf of any
     present or former employee of the Company or any of its  Subsidiaries,  any
     applicant for employment or classes of the foregoing alleging breach of any
     express or implied contract for employment, any law or regulation governing
     employment or the termination thereof or other discriminatory,  wrongful or
     tortuous conduct in connection with the employment relationship.

          (iii)  WARN Act.  The  Company is  presently  in  compliance  with its
     notification  obligations with respect to the Company's  employees pursuant
     to the Worker  Adjustment and Retraining  Notification  (WARN) Act and will
     conduct any plant  closing or mass  layoff  prior to the date of Closing in
     accordance with WARN.

     (n) Intellectual Property.

          (i) After giving effect to the  Split-Off,  the Company or its Utility
     Subsidiaries will own, or will be licensed or otherwise possess  sufficient
     legally  enforceable rights to use, all patents,  trademarks,  trade names,
     service marks, copyrights, technology, know-how, computer software programs
     or   applications,   databases  and  tangible  or  intangible   proprietary
     information   or  materials   that  are  currently  used  in  its  and  its
     Subsidiaries'  businesses  (collectively,  "Company  Intellectual  Property
     Rights"), except for any such failures to own, be licensed or possess that,
     individually  or in the  aggregate,  are not  reasonably  likely  to have a
     Company Material Adverse Effect.

          (ii) Except as  disclosed  in the Company  Reports  filed prior to the
     date  hereof,  and except for such  matters  that,  individually  or in the
     aggregate,  are not reasonably  likely to have a Company  Material  Adverse
     Effect,  (i) to  the  knowledge  of the  Company,  the  use of the  Company
     Intellectual  Property  Rights by the Company or its  Utility  Subsidiaries
     does not  conflict  with,  infringe  upon,  violate  or  interfere  with or
     constitute  an  appropriation  of any right,  title,  interest or goodwill,
     including,  without limitation,  any intellectual  property right,  patent,
     trademark, trade name, service mark, copyright of any other Person and (ii)
     there  have been no claims  made and  neither  the  Company  nor any of its
     Utility  Subsidiaries has received written notice of any claim or otherwise
     knows that any Company Intellectual Property Right is invalid, or conflicts
     with the asserted right of any other Person.

     (o) Vote Required.

     Provided that the Preferred  Shares have been redeemed  pursuant to Section
7.17,  the  approval  of the  majority  of the  shares of Company  Common  Stock
outstanding on the record date for such vote (the "Company  Requisite  Vote") is
the only  vote of any  class  or  series  of the  capital  stock of the  Company
required to approve this Agreement and the transactions contemplated hereby.

     (p) Regulation as a Utility.

     The Company is a holding company exempt under Section  3(a)(1)  pursuant to
Rule 2 from all provisions of the 1935 Act except Section 9(a)(2)  thereof.  The
Company and Kansas Gas and  Electric  Company are  regulated  as public  utility
companies in the state of Kansas and by the FERC.  Except as set forth above and
in Section 5.1(p) of the Company  Disclosure  Letter or as  contemplated  by the
Split-Off  Agreements,  neither  the  Company  nor any  "subsidiary  company" or
"affiliate"  of the  Company  is subject to  regulation  as a public  utility or
public service company (or similar designation) by the Federal government of the
United  States,  any state in the  United  States or any  political  subdivision
thereof,  or any foreign  country.  As used in this  Section  5.1(p),  the terms
"subsidiary company" and "affiliate" shall have the respective meanings ascribed
to them in Section 2(a)(8) and Section 2(a)(11), respectively, of the 1935 Act.

     (q) Ownership of Parent, PNM, Merger Sub-1 or Merger Sub-2 Common Stock.

     None  of the  Company  or any of the  Company  Subsidiaries  or the  Westar
Subsidiaries  beneficially  owns any Parent Common Stock or common stock of PNM,
Merger Sub-1 or Merger Sub-2.

     (r) Brokers and Finders.

     Except for Chase Securities,  Inc.  ("Chase") and Salomon Smith Barney Inc.
("Salomon"), neither the Company nor any of its officers, directors or employees
has employed any broker or finder or incurred any  liability  for any  brokerage
fees,  commissions  or finders' fees in connection  with the  Transaction or the
other transactions contemplated hereby.

     (s) Opinion of Financial Advisor.

     The Company has received the opinions of Chase and Salomon  dated as of the
date hereof, each to the effect that, as of such date, the Closing Consideration
is fair from a financial point of view to holders of Company Common Stock.

     (t) Nuclear Power Plant Operations.

     To  the  knowledge  of the  Company,  the  operations  of  the  Wolf  Creek
Generating  Station are being conducted in compliance  with  applicable  health,
safety, regulatory and other legal requirements,  except where the failure to be
in  compliance  in the  aggregate  does not,  and insofar as can  reasonably  be
foreseen, would not have a Company Material Adverse Effect.

     (u) Affiliate Contracts.

     Section 5.1(u) of the Company Disclosure Letter lists all Company Contracts
and other  arrangements,  including those relating to goods,  rights or services
provided or licensed  between  the  Company or any  Utility  Subsidiary  and any
Westar Subsidiary other than Company Contracts or other  arrangements  which are
Split-Off Agreements.

(v)      No Other Representations or Warranties.

     Except for the  representations  and  warranties  contained in this Section
5.1, neither the Company nor any other Person makes any other express or implied
representation or warranty on behalf of the Company or any of its Subsidiaries.

     5.2. Representations and Warranties of Parent, PNM, Merger Sub-1 and Merger
Sub-2.

     Except as set forth in the  disclosure  letter  delivered to the Company by
Parent on or prior to  entering  into this  Agreement  (the  "Parent  Disclosure
Letter") or the PNM  Reports,  Parent,  PNM,  Merger Sub-1 and Merger Sub-2 each
represents and warrants to the Company that:

     (a) Capitalization of Merger Sub-1 and Merger Sub-2.

     The authorized  capital stock of Merger Sub-1 consists of 40,000,000 shares
of common stock,  no par value,  of which one was issued and  outstanding on the
date  hereof  and 10  million  shares of  preferred  stock,  no par  value.  The
authorized  capital  stock of Merger  Sub-2  consists of 1,000  shares of common
stock, no par value, of which one was issued and outstanding on the date hereof.
All of the issued and outstanding capital stock of Merger Sub-1 and Merger Sub-2
is, and at the  Effective  Time will be,  owned by Parent,  and there are (i) no
other shares of capital  stock or voting  securities  of Merger Sub-1 and Merger
Sub-2  authorized,   (ii)  no  securities  of  Merger  Sub-1  and  Merger  Sub-2
convertible  into  or  exchangeable  for  shares  of  capital  stock  or  voting
securities of Merger Sub-1 and Merger Sub-2 and (iii) no options or other rights
to acquire  from Merger Sub-1 and Merger  Sub-2,  and no  obligations  of Merger
Sub-1 and  Merger  Sub-2 to issue,  any  capital  stock,  voting  securities  or
securities  convertible  into  or  exchangeable  for  capital  stock  or  voting
securities of Merger Sub-1 and Merger Sub-2.  Merger Sub-1 and Merger Sub-2 have
not conducted any business prior to the date hereof and has no, and prior to the
Effective  Time will have no,  assets,  liabilities or obligations of any nature
other than those incident to its formation and pursuant to or in connection with
the this Agreement and the transactions contemplated hereby.

     (b) Organization, Good Standing and Qualification.

     Each of Parent  and its  Significant  Subsidiaries  is a  corporation  duly
organized,  validly  existing  and  in  good  standing  under  the  laws  of its
respective  jurisdiction  of  organization  and has all  requisite  corporate or
similar  power and  authority  to own and operate its  material  properties  and
assets and to carry on its  business  as  presently  conducted  in all  material
respects and is  qualified  to do business and is in good  standing as a foreign
corporation  in each  jurisdiction  where  the  ownership  or  operation  of its
properties or conduct of its business requires such qualification,  except where
the failure to be so qualified as a foreign  corporation  or be in good standing
would not be reasonably likely to have, either individually or in the aggregate,
a Parent  Material  Adverse  Effect.  Parent has made available to the Company a
complete and correct copy of Parent's,  Manzano's and PNM's and its  Significant
Subsidiaries' certificates of incorporation and by-laws (or comparable governing
instruments),  as  amended  to date and the  certificate  of  incorporation  and
by-laws  of Parent  are set forth in  Section  5.2(b) of the  Parent  Disclosure
Schedule.  Parent's,  Manzano's  and  PNM's  and its  Significant  Subsidiaries'
certificates of incorporation and by-laws (or comparable governing  instruments)
so delivered are in full force and effect.

     As used in this Agreement,  the term "Parent Material Adverse Effect" means
a  material  adverse  effect on the  financial  condition,  business,  assets or
results of  operations  of  Manzano  and PNM and their  Subsidiaries  taken as a
whole; provided,  however, that any such effect resulting from or arising out of
(i) any change in law, rule, regulation or GAAP or interpretations thereof, (ii)
economic or business conditions in the United States generally, (iii) conditions
generally affecting the electric or gas utility industries or (iv) the execution
and  delivery  of  this  Agreement,  or  the  contemplated  consummation  of the
transactions  contemplated hereby, shall not be considered when determining if a
Parent Material Adverse Effect has occurred.

     (c) Capital Structure.

     The authorized  capital stock of PNM consists of (x)  80,000,000  shares of
common  stock,  par  value  $5.00  per  share  ("PNM  Common  Stock"),  of which
39,082,599  shares were  issued and  outstanding  on  November 6, 2000,  and (y)
10,000,000  shares of preferred  stock (the "PNM  Preferred  Shares"),  of which
128,000  shares were  issued and  outstanding  on  November 6, 2000.  All of the
issued and outstanding  shares of PNM Common Stock and PNM Preferred Shares have
been duly authorized and are validly issued,  fully paid and nonassessable.  The
authorized  capital  stock of Parent  consists of  200,000,000  shares of Parent
Common  Stock,  one of which was issued and  outstanding  on the date hereof and
10,000,000 shares of preferred stock, none of which were outstanding on the date
hereof.  The authorized  capital stock of Manzano consists of 120,000,000 shares
of Manzano  Common Stock,  100 of which were issued and  outstanding on the date
hereof.  Each of the outstanding  shares of capital stock or other securities of
each of PNM's  Subsidiaries is duly authorized,  validly issued,  fully paid and
nonassessable and owned by PNM or a direct or indirect  wholly-owned  Subsidiary
of PNM, free and clear of any lien, pledge,  security  interest,  claim or other
encumbrance.  Other than  pursuant to the First  Restated  and Amended  Director
Retainer  Plan,  the Third  Restated  and Amended  Performance  Stock Plan,  the
Manzano  Omnibus  Performance  Equity Plan and the PNM Direct Plan (the  "Parent
Stock Plans"),  there are no preemptive or other  outstanding  rights,  options,
warrants,  conversion  rights,  stock  appreciation  rights,  redemption rights,
repurchase rights,  agreements,  arrangements or commitments to issue or to sell
any shares of capital stock or other securities of Parent, PNM or Manzano or any
of  their   Subsidiaries  or  any  securities  or  obligations   convertible  or
exchangeable  into or exercisable for, or giving any Person a right to subscribe
for  or  acquire,  any  securities  of  Parent,  Manzano,  PNM  or  any  of  its
Subsidiaries,  and no  securities  or  obligations  evidencing  such  rights are
authorized,  issued  or  outstanding.  Parent,  PNM  and  Manzano  do  not  have
outstanding  any bonds,  debentures,  notes or other  obligations the holders of
which have the right to vote (or convertible  into or exercisable for securities
having the right to vote) with the shareholders of Parent on any matter ("Parent
Voting Debt").

     (d) Corporate Authority and Approval.

          (i) Each of Parent,  Manzano,  PNM,  Merger Sub-1 and Merger Sub-2 has
     all  requisite  corporate  power and  authority and has taken all corporate
     action  necessary in order to execute,  deliver and perform its obligations
     under this Agreement, and to consummate, subject only to the receipt of the
     Parent  Requisite Vote and the Parent  Required  Statutory  Approvals,  the
     transactions contemplated hereby. This Agreement has been duly executed and
     delivered  by Parent,  Manzano,  PNM,  Merger  Sub-1 and Merger  Sub-2 and,
     assuming due  authorization,  execution  and delivery by the Company,  is a
     valid and legally binding agreement of Parent,  Manzano,  PNM, Merger Sub-1
     and Merger Sub-2, enforceable against each of Parent, PNM, Merger Sub-1 and
     Merger Sub-2 in accordance  with its terms,  subject to the  Bankruptcy and
     Equity Exception.

          (ii) As of the date hereof, the Board of Directors of Parent, Manzano,
     PNM, Merger Sub-1 and Merger Sub-2 have approved and adopted this Agreement
     and the Mergers and other  transactions  set forth  herein,  and subject to
     their  respective  fiduciary  duties,  the Boards of  Directors  of PNM and
     Manzano have resolved to recommend that the shareholders of PNM and Manzano
     approve this Agreement and the transactions contemplated hereby.

          (iii)  Prior  to the  Effective  Time,  Parent  will  have  taken  all
     necessary  action  to  permit  it to issue  the  number of shares of Parent
     Common  Stock  required  to be  issued  pursuant  to  Article  III and upon
     conversion  of any Parent  Convertible  Shares  held by Westar.  The Parent
     Common  Stock,  when  issued,  will  be  validly  issued,  fully  paid  and
     nonassessable,  and no shareholder of Parent will have any preemptive right
     of  subscription or purchase in respect  thereof.  The Parent Common Stock,
     when issued,  will be registered  under the Securities Act and Exchange Act
     and  registered  or exempt from  registration  under any  applicable  state
     securities or "blue sky" laws.

          (e) Governmental Filings; No Violations.

          (i) Other than any reports, filings,  registrations,  approvals and/or
     notices (A) required to be made pursuant to Section 1.4, (B) required to be
     made under the HSR Act, the  Securities Act and the Exchange Act, (C) with,
     to or of the SEC under the 1935 Act, (D) with, to or of the FERC,  (E) with
     or to the  Nuclear  Regulatory  Commission,  (F)  with  or to  the  Federal
     Communications  Commission,  (G) with or to the NMPRC,  (H) to comply  with
     state  securities or "blue sky" laws,  and (I) required to be made with the
     NYSE, (items B through I, the "Parent Required  Statutory  Approvals"),  no
     notices, reports, registrations or other filings are required to be made by
     Parent,  Manzano,  PNM,  Merger  Sub-1 or Merger  Sub-2  with,  nor are any
     consents,  registrations,  approvals, permits or authorizations required to
     be obtained by Parent, Manzano, PNM, Merger Sub-1 or Merger Sub-2 from, any
     Governmental  Entity, in connection with the execution and delivery of this
     Agreement by Parent,  Manzano,  PNM,  Merger Sub-1 and Merger Sub-2 and the
     consummation by Parent,  Manzano,  PNM, Merger Sub-1 or Merger Sub-2 of the
     Mergers and the other transactions  contemplated  hereby,  except for those
     that the failure to make or obtain would not be reasonably  likely to have,
     either  individually or in the aggregate,  a Parent Material Adverse Effect
     or prevent,  materially  delay or materially  impair the ability of Parent,
     Manzano,  PNM, Merger Sub-1 or Merger Sub-2 to consummate the  transactions
     contemplated hereby.

          (ii) The  execution,  delivery and  performance  of this  Agreement by
     Parent,  Manzano,  PNM,  Merger  Sub-1  or  Merger  Sub-2  do not,  and the
     consummation by Parent,  Manzano,  PNM, Merger Sub-1 or Merger Sub-2 of the
     Merger and the other transactions  contemplated hereby will not, constitute
     or result in (A) breach or  violation  of, or a default  under,  either the
     certificate of  incorporation  or by-laws of Parent,  Manzano,  PNM, Merger
     Sub-1 or Merger Sub-2 or the  comparable  governing  instruments  of any of
     PNM's Significant Subsidiaries,  (B) a breach or violation of, or a default
     under,  the  acceleration  of any  obligations,  the  loss of any  right or
     benefit or the  creation  of a lien,  pledge,  security  interest  or other
     encumbrance  on the  assets of PNM or any of its  Significant  Subsidiaries
     (with or without  notice,  lapse of time or both) pursuant to any Contracts
     binding  upon  PNM  or any of its  Significant  Subsidiaries  (the  "Parent
     Contracts")  or any  Law or  governmental  or  non-governmental  permit  or
     license to which PNM or any of its  Significant  Subsidiaries is subject or
     (C) any change in the rights or  obligations  of any party under any of the
     Parent  Contracts,  except, in the case of clause (B) or (C) above, for any
     breach, violation, default, acceleration, creation or change that would not
     be reasonably  likely to have, either  individually or in the aggregate,  a
     Parent Material  Adverse Effect or prevent,  materially delay or materially
     impair the ability of Parent, Manzano, PNM, Merger Sub-1 or Merger Sub-2 to
     consummate the transactions contemplated hereby.

     (f) PNM Reports; Financial Statements.

     The filings required to be made by PNM and its  Subsidiaries  since January
1, 1999 under the  Securities  Act; the Exchange  Act; the 1935 Act; the Federal
Power Act;  the Atomic  Energy Act of 1954,  as amended,  and  applicable  state
public utility laws and regulations  have been filed with the SEC, FERC, the NRC
or the  appropriate  state  public  utilities  commission,  as the  case may be,
including all forms, statements,  reports,  agreements (oral or written) and all
documents,  exhibits,  amendments  and  supplements  appertaining  thereto,  and
complied,  as of their  respective  dates,  in all  material  respects  with all
applicable   requirements  of  the  appropriate   statutes  and  the  rules  and
regulations  thereunder,  except for such  filings  the failure of which to have
been made or so to comply would not result in a Parent Material  Adverse Effect.
PNM has made available to the Company each registration statement, report, proxy
statement  or  information  statement  filed by it with  the SEC  (collectively,
including any amendments of any such reports, the "PNM Reports") pursuant to the
Securities  Act or the  Exchange Act since  December 31, 1999,  and prior to the
date hereof,  including  (i) PNM Annual  Report on Form 10-K for the fiscal year
ended  December  31,  1999 and (ii) PNM  Quarterly  Reports on Form 10-Q for the
quarterly  periods  ended  March 31,  2000 and June 30,  2000,  each in the form
(including exhibits,  annexes and any amendments thereto) promulgated by the SEC
under the  Securities  Act or the Exchange  Act. None of the PNM Reports (in the
case of PNM Reports filed pursuant to the Securities Act), as of their effective
dates,  contained any untrue  statement of a material fact or omitted to state a
material fact required to be stated  therein or necessary to make the statements
made  therein,  in light of the  circumstances  under which they were made,  not
misleading  and  none  of the PNM  Reports  (in the  case of PNM  Reports  filed
pursuant  to the  Exchange  Act) as of the  respective  dates  first  mailed  to
shareholders  contained any statement which, at the time and in the light of the
circumstances  under which it was made, was false or misleading  with respect to
any material  fact, or omitted to state any material fact  necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.  The consolidated  financial statements of the PNM and its
Subsidiaries  included  in such PNM  Reports  comply as to form in all  material
respects  with the  applicable  rules and  regulations  of the SEC with  respect
thereto.  Each of the consolidated balance sheets included in or incorporated by
reference  into the PNM  Reports  (including  the related  notes and  schedules)
presents fairly, in all material respects, the financial position of the PNM and
its  Subsidiaries  as of its  date and each of the  consolidated  statements  of
income and  consolidated  statements of cash flow included in or incorporated by
reference  into the PNM  Reports  (including  any related  notes and  schedules)
fairly  presents in all material  respects the results of  operations,  retained
earnings and changes in financial  position,  as the case may be, of the PNM and
its  Subsidiaries  for the periods set forth  therein  (subject,  in the case of
unaudited  statements,  to the  absence  of  notes  and  normal  year-end  audit
adjustments),  in each case in accordance with GAAP consistently  applied during
the periods involved, except as may be noted therein.

     (g) Absence of Certain Changes.

     Since  the  December  31,  1999  (the  "PNM  Audit  Date"),   PNM  and  its
Subsidiaries,  taken as a whole, have conducted their business only in, and have
not engaged in any material  transaction  other than  according to, the ordinary
and usual  course of such  business and there has not been (i) any change in the
financial condition,  properties,  assets,  business or results of operations of
PNM and its  Subsidiaries  that has had or would be reasonably  likely to have a
Parent Material Adverse Effect;  (ii) any declaration,  setting aside or payment
of any dividend or other  distribution in respect of the capital stock of PNM or
any repurchase,  redemption or other acquisition by PNM or any Subsidiary of any
securities  of  PNM  other  than  quarterly  dividends  in the  ordinary  course
(including any increase  thereon  consistent with past  practice);  or (iii) any
change  by PNM in  accounting  principles,  practices  or  methods  which is not
required  or  permitted  by GAAP.  Since the PNM Audit Date and through the date
hereof, except as provided for herein or as disclosed in the PNM Reports,  there
has not been any  material  increase in the  compensation  payable or that could
become payable by PNM or any of its Subsidiaries to officers or key employees or
any material  amendment of any of the PNM  Compensation  and Benefit Plans other
than increases or amendments in the ordinary course of business  consistent with
past practice.

     (h) Litigation.

     There are no civil,  criminal or  administrative  actions,  suits,  claims,
hearings, investigations, reviews or proceedings pending or, to the knowledge of
Parent  and PNM,  threatened  against  Parent,  PNM,  or any of its  Significant
Subsidiaries,  except  for those that  would not be  reasonably  likely to have,
either individually or in the aggregate, a Parent Material Adverse Effect.

     (i) Employee Benefits.

               (i) A copy of (i) each  bonus,  deferred  compensation,  pension,
          retirement, profit-sharing, thrift, savings, employee stock ownership,
          stock bonus, stock purchase, change in control, retention,  restricted
          stock, stock option, employment, termination, severance, compensation,
          medical,  health  or  other  plan,  agreement,   policy,  practice  or
          arrangement  that  covers  employees  or former  employees  of PNM and
          Parent and their Subsidiaries  ("Parent  Employees"),  or directors or
          former  directors  of PNM or  Parent  (the  "Parent  Compensation  and
          Benefit  Plans");  and (ii) any trust agreement or insurance  contract
          forming a part of such PNM  Compensation  and  Benefit  Plans has been
          made available to the Company prior to the date hereof. Section 5.2(i)
          of the Parent  Disclosure  Letter  lists all Parent  Compensation  and
          Benefit  Plans  other  than  those  that,  in the  aggregate,  are not
          material  to PNM or  Parent  and  their  Subsidiaries  and any  Parent
          Compensation  and  Benefit  Plans  containing  "change of  control" or
          similar  provisions  therein are  specifically  identified  in Section
          5.2(i) of the Parent Disclosure Letter.

               (ii) All Parent  Compensation  and Benefit  Plans,  to the extent
          subject to ERISA are in  substantial  compliance  with the  applicable
          provisions of ERISA. Each Parent Compensation and Benefit Plan that is
          an "employee  pension benefit plan" within the meaning of Section 3(2)
          of  ERISA  (a  "Parent  Pension  Plan")  and  that is  intended  to be
          qualified  under  Section  401(a) of the Code has  received  favorable
          determination  letter from the IRS, and nothing has occurred,  whether
          by  action  or  failure  to act,  that  would  cause  the loss of such
          qualification  or that would result in costs to PNM,  Parent or any of
          their Subsidiaries under the Internal Revenue Service's Employee Plans
          Compliance Resolution System that would reasonably be likely to have a
          Parent  Material  Adverse Effect.  As of the date hereof,  there is no
          material  pending  or to the  knowledge  of Parent  or PNM  threatened
          litigation relating to the PNM Compensation and Benefit Plans. Neither
          Parent nor any of its  Subsidiaries  nor, to the  knowledge of Parent,
          any other  person has  engaged in a  transaction  with  respect to any
          Parent Compensation and Benefit Plan that, assuming the taxable period
          of such  transaction  expired  as of the date  hereof,  would  subject
          Parent or any of its Subsidiaries to a material tax or penalty imposed
          by either Section 4975 of the Code or Section 502(i) of ERISA.

               (iii) No liability under Subtitle C or D of Title IV of ERISA has
          been or is  expected  to be  incurred  by Parent,  PNM or any of their
          Subsidiaries  with  respect  to  any  ongoing,  frozen  or  terminated
          "single-employer  plan",  within the meaning of Section 4001(a)(15) of
          ERISA,  currently  or  formerly  maintained  by  any of  them,  or the
          single-employer  plan of any entity which is  considered  one employer
          with Parent,  PNM or any of their  Subsidiaries  under Section 4001 of
          ERISA or Section 414 of the Code (a "Parent ERISA Affiliate"). Parent,
          PNM and their  Subsidiaries  have not  incurred  and do not  expect to
          incur and would not  expect  to incur any  withdrawal  liability  with
          respect to a multiemployer  plan under Subtitle E of Title IV of ERISA
          (regardless  of  whether  based on  contributions  of a  Parent  ERISA
          Affiliate)  if, as of the date hereof,  Parent,  PNM or a Parent ERISA
          Affiliate  were to engage in a  "complete  withdrawal"  (as defined in
          Section  4203 of ERISA)  or a  "partial  withdrawal"  (as  defined  in
          Section 4205 of ERISA) form such  multiemployer  plan.  No notice of a
          "reportable  event",  within the meaning of Section  4043 of ERISA for
          which  the  30-day  reporting  requirement  has  not  been  waived  or
          extended,  other  than the  extension  provided  by PBGC Reg.  Section
          4043.66,  has been required to be filed for any Parent Pension Plan or
          by any ERISA  Affiliate  within the 12-month period ending on the date
          hereof.

               (iv) All contributions required to be made under the terms of any
          Parent  Compensation  and Benefit Plan as of the date hereof have been
          timely made or have been  reflected  on the most  recent  consolidated
          balance  sheet filed or  incorporated  by reference in the PNM Reports
          and all premium  payments to the PBGC have been made when due for such
          plans. Neither any Parent Pension Plan nor any single-employer plan of
          a Parent  ERISA  Affiliate  has an  "accumulated  funding  deficiency"
          (whether or not waived)  within the meaning of Section 412 of the Code
          or  Section  302  of  ERISA  and  no  Parent  ERISA  Affiliate  has an
          outstanding  funding  waiver.  None  of  Parent,  PNM or any of  their
          Subsidiaries has provided, or is required to provide,  security to any
          Pension  Plan  or  to  any  single-employer  plan  of a  Parent  ERISA
          Affiliate pursuant to Section 401(a)(29) of the Code.

               (v) None of  Parent,  PNM or any of their  Subsidiaries  have any
          obligations  for, or  liabilities  with respect to, retiree health and
          life benefits under any PNM Compensation and Benefit Plan,  except for
          benefits required to be provided under Section 4980B of the Code.

               (vi)  Notwithstanding  anything to the contrary contained in this
          Section 5.2(i), the representations  and warranties  contained in this
          Section  5.2(i)  shall be deemed to be true and  correct  unless  such
          failures to be true and correct are reasonably likely to have a Parent
          Material Adverse Effect.

     (j) Compliance with Laws.

     As of the date hereof, the business of PNM and its Subsidiaries, taken as a
whole,  is not being  conducted in violation of any Laws,  except for violations
that  would not be  reasonably  likely to have,  either  individually  or in the
aggregate,  a Parent Material Adverse Effect or prevent or materially impair the
ability of Parent,  Manzano, PNM, Merger Sub-1 or Merger Sub-2 to consummate the
transactions  contemplated  hereby.  As of the date hereof,  no investigation or
review  by  any  Governmental  Entity  with  respect  to  Parent  or  any of its
Subsidiaries  is pending or to the knowledge of Parent  threatened,  nor has any
Governmental Entity indicated an intention to conduct the same, except for those
the outcome of which would not be reasonably likely to have, either individually
or in the aggregate,  a Parent Material  Adverse Effect or prevent or materially
impair the ability of Parent,  Manzano,  PNM,  Merger  Sub-1 or Merger  Sub-2 to
consummate  the  transactions  contemplated  hereby.  PNM  and  its  Significant
Subsidiaries each has all permits, licenses, franchises,  variances, exemptions,
orders  and other  governmental  authorizations,  consents  and  approvals  from
Governmental  Entities necessary to conduct its business as presently conducted,
except for those the  absence of which would not be  reasonably  likely to have,
either  individually or in the aggregate,  a Parent  Material  Adverse Effect or
prevent or materially impair the ability of Parent,  Manzano,  PNM, Merger Sub-1
or Merger Sub-2 to consummate the transactions contemplated hereby.

     (k) Takeover Statutes.

     Assuming the accuracy of the representation contained in Section 5.1(q), no
Takeover Statute of the NMBCA or any applicable  anti-takeover  provision in the
certificate  of  incorporation  of PNM,  Manzano  or Parent or  by-laws  of PNM,
Manzano  or  Parent  is  applicable  to the  Transaction  or  any  of the  other
transactions contemplated hereby.

     (l) Environmental Matters.

     Except  for such  matters  that would not be  reasonably  likely to cause a
Parent Material Adverse Effect:  (i) PNM's operations are in compliance with all
applicable  Environmental  Laws;  (ii) PNM possesses and maintains in effect all
environmental  and  natural  resources  permits,  licenses,  authorizations  and
approvals  required  under  applicable  Environmental  Laws with  respect to the
business of PNM as presently  conducted;  (iii) PNM has not received any written
environmental  claim,  notice or request for  information  during the past three
years   concerning  any  violation  or  alleged   violation  of  any  applicable
Environmental Law or concerning any obligation or liability under any applicable
Environmental Law; and (iv) there are no material writs,  injunctions,  decrees,
orders or judgments  outstanding,  or any actions,  suits or proceedings pending
relating  to  compliance  by  PNM  with  any  environmental  permits,  licenses,
authorizations  or approvals  required under  applicable  Environmental  Laws or
liability of PNM under any applicable Environmental Law.

     The  representations  and warranties in this Section 5.1(l)  constitute the
sole  representations  and  warranties  of  Parent  or PNM with  respect  to any
Environmental Law or Hazardous Substance.

     As used in this  Section  5.2(l),  "PNM"  shall  mean  PNM and  each of its
Subsidiaries.

     (m) Taxes.

     Except as would not have a Parent Material Adverse Effect,  PNM and each of
its Significant Subsidiaries (i) have duly and timely filed (taking into account
any extension of time within which to file) all Tax Returns required to be filed
by any of them as of the date hereof and all such filed Tax Returns are complete
and accurate in all respects; (ii) (A) have timely paid all Taxes that are shown
as due on such filed Tax Returns,  except with  respect to matters  contested in
good  faith and (B) no  penalties  or charges  are due with  respect to the late
filing of any Tax Return  required to be filed by or with respect to any of them
on or before the  Effective  Time;  (iii) with respect to any filed Tax Returns,
have not waived any statute of  limitations  with  respect to Taxes or agreed to
any extension of time with respect to a Tax assessment or deficiency; (iv) as of
the date hereof, does not have any deficiency, or any such audits, examinations,
investigations  or other  proceedings in respect of Taxes or Tax matters pending
or proposed or threatened in writing;  and (v) has not been or is not a party to
any Tax sharing  agreement  or similar  arrangement.  Except as would not have a
Parent  Material  Adverse Effect when  aggregated  with the preceding  sentence,
neither  PNM  nor  any  PNM  Subsidiary  (x)  has  engaged  in any  intercompany
transaction  within the meaning of Treasury  Regulation  Section  1.1502-13  for
which  any  income  or gain  remains  unrecognized  and (y)  has  constituted  a
"distributing  corporation" in a distribution  of stock  qualifying for tax-free
treatment under Section 355 of the Code (1) in the past 24-month period,  or (2)
in a distribution  which could otherwise  constitute part of a "plan" or "series
of related  transactions"  within the meaning of Section  355(e) of the Code, in
each case,  excluding  any  transactions  described in Section  355(e)(3) of the
Code.

     (n) Labor and Employment Matters.

          (i)  Labor  Relations.  Except  as would  not  have a Parent  Material
     Adverse Effect,  (A) neither PNM nor any of its  Subsidiaries is a party to
     any collective bargaining agreement or other labor agreement with any labor
     union, labor organization,  employee  association or similar  organization,
     nor does PNM or any of its  Subsidiaries  have knowledge of any such union,
     labor  organization,  employee  association  or similar  organization  that
     represents or claims to represent any of PNM's or any of its  Subsidiaries'
     employees  or intends  to  organize  any of PNM's or any its  Subsidiaries'
     employees;  (B)  there is no labor  strike,  dispute,  slowdown,  stoppage,
     lockout or other labor dispute  actually  pending,  nor to the knowledge of
     PNM, threatened against or affecting PNM or any of its Subsidiaries; (C) to
     the knowledge of Parent and PNM, neither PNM nor any of its Subsidiaries is
     engaged in any unfair  labor  practices  as defined in the  National  Labor
     Relations Act or other  applicable  law,  ordinance or  regulation;  nor is
     there an unfair labor  practice  charge or complaint  against PNM or any of
     its Subsidiaries pending or, to the knowledge of PNM, threatened before the
     National Labor Relations  Board or any similar state agency;  and (D) there
     is no  grievance  pending,  nor to the  knowledge  of  PNM,  is  there  any
     grievance threatened arising out of any collective  bargaining agreement or
     other grievance procedure.

          (ii)  Employment.  Except as would not have  Parent  Material  Adverse
     Effect,  (A)  neither  PNM  nor  any of  its  Subsidiaries  is in  material
     violation of any  applicable  laws  respecting  employment  and  employment
     practices,  terms and  conditions of employment,  wages,  hours of work and
     occupational  safety  and  health,  nor have  they  ever  been;  (B) to the
     knowledge  of the Parent and PNM,  there are no charges  with respect to or
     relating  to  PNM  or any of its  Subsidiaries  pending  before  the  Equal
     Employment  Opportunity  Commission or any other agency responsible for the
     prevention of unlawful  employment  practices;  (C) to the knowledge of the
     Parent and PNM, neither PNM nor any of its Subsidiaries  received notice of
     the  intent  of any  federal,  state or local  agency  responsible  for the
     enforcement of labor or employment  laws to conduct an  investigation  with
     respect  to or  relating  to PNM or any  of its  Subsidiaries  and no  such
     investigation  is in progress;  and (D) to the  knowledge of the Parent and
     PNM,  there are no  complaints,  lawsuits or other  proceedings  pending or
     threatened  in any forum by or on behalf of any present or former  employee
     of PNM or any of its Subsidiaries,  any applicant for employment or classes
     of the  foregoing  alleging  breach of any express or implied  contract for
     employment,  any law or regulation  governing employment or the termination
     thereof or other discriminatory, wrongful or tortuous conduct in connection
     with the employment relationship.

          (iii) WARN Act. PNM is presently in compliance  with its  notification
     obligations  with  respect  to  PNM's  employees  pursuant  to  the  Worker
     Adjustment  and  Retraining  Notification  (WARN) Act and will  conduct any
     plant  closing or mass  layoff  prior to the date of Closing in  accordance
     with WARN.

     (o) Intellectual Property.

          (i) PNM and its  Significant  Subsidiaries  own,  or are  licensed  or
     otherwise  possess  sufficient  legally  enforceable  rights  to  use,  all
     patents,  trademarks,  trade names, service marks, copyrights,  technology,
     know-how,  computer  software  programs  or  applications,   databases  and
     tangible  or  intangible  proprietary  information  or  materials  that are
     currently used in its and its Subsidiaries' businesses (collectively,  "PNM
     Intellectual  Property  Rights"),  except for any such  failures to own, be
     licensed  or  possess  that,  individually  or in the  aggregate,  are  not
     reasonably likely to have a Parent Material Adverse Effect.

          (ii) Except as  disclosed  in the PNM Reports  filed prior to the date
     hereof, and except for such matters that, individually or in the aggregate,
     are not reasonably likely to have a Parent Material Adverse Effect,  (i) to
     the knowledge of Parent, the use of the PNM Intellectual Property Rights by
     PNM or its Significant  Subsidiaries does not conflict with, infringe upon,
     violate or interfere  with or  constitute  an  appropriation  of any right,
     title,   interest  or  goodwill,   including,   without   limitation,   any
     intellectual property right, patent,  trademark,  trade name, service mark,
     copyright  of any other  Person and (ii) there have been no claims made and
     neither  the PNM  nor  any of its  Significant  Subsidiaries  has  received
     written  notice of any claim or otherwise  knows that any PNM  Intellectual
     Property  Right is invalid,  or conflicts  with the  asserted  right of any
     other Person.

     (p) Vote Required.

     The approval of the Second  Merger by  two-thirds of the holders of Manzano
Common Stock or PNM Common  Stock,  as the case may be, (the  "Parent  Requisite
Vote") is the only  vote of the  holders  of any class or series of the  capital
stock of Parent,  Manzano or PNM  required  to approve  this  Agreement  and the
transactions contemplated hereby.

     (q) Ownership of Company Common Stock.

     None of Parent,  Manzano,  PNM,  Merger  Sub-1 Merger Sub-2 or any of their
respective Subsidiaries beneficially owns any Company Common Stock.

     (r) Regulation as to Utility.

     None of Merger Sub-1, Merger Sub-2 or Parent is a "public utility company,"
or a "holding company" under the 1935 Act. None of Merger Sub-1, Merger Sub-2 or
Parent is subject to regulation as a public  utility  company in any state or by
the FERC. PNM is a public utility  company  subject to regulation as such in the
State of New Mexico and by the FERC.  At the Manzano  Transition  Date,  Manzano
will be a "holding company" exempt under Section 3(a)(1) pursuant to Rule 2 from
all provisions of the 1935 Act except Section 9(a)(2) thereof. Otherwise, except
as set forth in Section 5.2(r) of the Parent Disclosure Letter,  none of Parent,
PNM,  Merger  Sub-1,  Merger  Sub-2,  Manzano and their  respective  "subsidiary
companies"  and  "affiliates"  is subject to regulation  as a public  utility or
public service company (or similar designation) by the Federal government of the
United  States,  any state in the  United  States or any  political  subdivision
thereof,  or any  foreign  country.  As used in this  Section  5.2(r)  the terms
"subsidiary  companies" and "affiliates" have meanings  correlative to the terms
"subsidiary company" and "affiliate" as used in Section 5.1(p) of the Agreement.

     (s) Brokers and Finders.

     Except for J.P. Morgan  Securities  Inc. ("JP Morgan"),  neither Parent nor
any of its officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage  fees,  commissions or finders' fees in
connection with the Transaction or the other  transactions  contemplated by this
Agreement.

     (t) Opinion of Financial Advisor.

     PNM has  received  the opinion of JP Morgan  dated as of the date hereof to
the effect that, as of such date,  the PNM  ownership  percentage is fair from a
financial point of view to the holders of PNM Common Stock.

     (u) Nuclear Plant Operation.

     To the  knowledge  of  PNM,  the  operations  of  the  Palo  Verde  Nuclear
Generating  Station are being conducted in compliance  with  applicable  health,
safety, regulatory and other legal requirements,  except where the failure to be
in  compliance  in the  aggregate  does not,  and insofar as can  reasonably  be
foreseen, would not have a Parent Material Adverse Effect.

     (v) Shareholder Matters.

          (i) To the knowledge of PNM and Manzano,  (x) no  shareholders  of PNM
     (excluding  Manzano as sole shareholder of PNM following the effective time
     of the Manzano Exchange) or Manzano has entered into any agreement, written
     or unwritten,  express or implied, to act in concert with others to control
     the  management  and  policies  of  Parent  or  the  Surviving  Corporation
     immediately  following the Effective  Time and (y) no shareholder of PNM or
     Manzano  will own more  than 5% of the  outstanding  voting  securities  of
     Parent immediately following the Effective Time.

          (ii) No shareholder of PNM (excluding  Manzano as sole  shareholder of
     PNM following the  effective  time of the Manzano  Exchange) or Manzano has
     entered  into  any  agreement  or  arrangement  to  vote  in  favor  of any
     particular individual or individuals for election to the board of directors
     of the Surviving Corporation following the Effective Time.

     (w) No Other Representations or Warranties.

          Except  for  the  representations  and  warranties  contained  in this
     Section 5.2, neither Parent nor any other Person makes any other express or
     implied  representation  or  warranty  on  behalf  of  Parent or any of its
     Subsidiaries.

                                  Article VI.

                  Conduct of Business Pending the Transactions

     6.1. Covenants of the Company.

     The Company  covenants and agrees as to itself and its  Subsidiaries  that,
from the date  hereof  and prior to the  Effective  Time,  except  as  expressly
contemplated or permitted by this Agreement or the Split-Off Agreements,  as set
forth on Section 6.1 of the Company  Disclosure Letter, as required by Law or to
the extent Parent shall otherwise consent in writing,  which decision  regarding
consent  shall be made as soon as  reasonably  practicable,  and provided  that,
except as specifically stated therein,  the provisions of this Section 6.1 shall
not apply to the Westar  Subsidiaries  and the Company shall not be obligated to
cause the Westar  Subsidiaries  to comply with the  obligations  of this Section
6.1:

          (i)  the  business  of the  Company  and  its  Subsidiaries  shall  be
     conducted  only  in the  ordinary  and  usual  course  and,  to the  extent
     consistent  therewith,  it and its Subsidiaries  shall use their respective
     reasonable  best efforts to (a) subject to prudent  management of workforce
     needs and  ongoing  programs  currently  in force,  preserve  its  business
     organization  intact and maintain its existing  relations and goodwill with
     customers,  suppliers,  distributors,  creditors,  lessors,  employees  and
     business  associates,  (b) maintain and keep material properties and assets
     in good repair and  condition,  subject to  ordinary  wear and tear and (c)
     maintain in effect all material  governmental permits pursuant to which the
     Company or any of its Significant Subsidiaries currently operates;

          (ii) the Company shall not (w) amend its articles of  incorporation or
     by-laws or the comparable governing  instruments of any of its Subsidiaries
     except for such amendments that would not prevent or materially  impair the
     consummation of the transactions contemplated by this Agreement; (x) split,
     combine or reclassify its outstanding shares of capital stock; (y) declare,
     set aside or pay any dividend payable in cash, stock or property in respect
     of any capital stock (other than (A) dividends  from its direct or indirect
     wholly owned Subsidiaries to it or a wholly-owned  Subsidiary,  (B) regular
     quarterly dividends on shares of Common Stock with usual record and payment
     dates in amounts not to exceed $1.20  annually per share of Common Stock or
     (C)  dividends  required  to be  paid  on  Preferred  Shares  or  preferred
     securities  of  subsidiary  trusts  outstanding  on the date  hereof  until
     redeemed  pursuant  to Section  7.17 or on  Convertible  Preference  Shares
     issued to Westar,  in each case in accordance with their respective  terms)
     or (z)  repurchase,  redeem or otherwise  acquire any shares of its capital
     stock or any securities convertible into or exchangeable or exercisable for
     any  shares of its  capital  stock or  permit  any of its  Subsidiaries  to
     purchase  or  otherwise  acquire,  any shares of its  capital  stock or any
     securities  convertible  into or exchangeable or exercisable for any shares
     of its capital  stock  (other than for the purpose of funding or  providing
     benefits under the Stock Plans and the Direct Stock Purchase Plan);

          (iii)  neither the Company nor any of its  Subsidiaries  shall  issue,
     sell,  pledge,  dispose  of  or  encumber  any  shares  of,  or  securities
     convertible into or exchangeable or exercisable for, or options,  warrants,
     calls,  commitments  or rights of any kind to  acquire,  any  shares of its
     capital  stock of any class or any  Voting  Debt or any other  property  or
     assets (other than (A) shares of the Company Common Stock issuable pursuant
     to options or restricted share units (whether or not vested) outstanding on
     the date hereof under the Stock Plans,  issuances of additional  options or
     restricted  share units or rights to acquire  shares of the Company  Common
     Stock granted  pursuant to the terms of the Stock Plans as in effect on the
     date hereof in the ordinary and usual course of the operation of such Stock
     Plans and  issuances  of shares of the  Company  Common  Stock  pursuant to
     options or restricted share units granted after the date hereof pursuant to
     the Stock Plans;  or (B)  issuances of shares of the Company  Common Stock,
     including  restricted shares, in the ordinary and usual course of the Stock
     Plans and the Direct  Stock  Purchase  Plan,  each as in effect on the date
     hereof);

          (iv) neither the Company nor any of its Subsidiaries shall, other than
     in the ordinary  and usual  course of business and other than  transactions
     not in  excess  of  $50,000,000  in the  aggregate  in any  calendar  year,
     transfer, lease, license,  guarantee, sell, mortgage, pledge, dispose of or
     encumber any other  property or assets  (including  capital stock of any of
     its Subsidiaries);

          (v)  neither the Company  nor any of its  Subsidiaries  shall,  by any
     means,   make  any  acquisition  of,  or  investment  (other  than  capital
     expenditures) in, assets or stock (whether by way of merger, consolidation,
     tender offer,  share exchange or other  activity) in any transaction or any
     series of transactions  (whether or not related) for an aggregate  purchase
     price or  prices,  including  the  assumption  of any  debt,  in  excess of
     $50,000,000 in the aggregate in any calendar year;

          (vi) neither the Company nor any of its Subsidiaries shall, other than
     in the  ordinary  and usual  course of  business,  (i)  modify,  amend,  or
     terminate any Contract that is material to the Company and its Subsidiaries
     taken as a whole,  (ii)  waive,  release,  relinquish  or  assign  any such
     Contract  (or  any of the  material  rights  of the  Company  or any of its
     Subsidiaries  thereunder),  right or claim,  or (iii) cancel or forgive any
     material indebtedness owed to the Company or any of its Subsidiaries;

          (vii) neither the Company nor any of its Subsidiaries will (i) adopt a
     plan   of   complete   or   partial   liquidation,   dissolution,   merger,
     consolidation,  recapitalization  or other  similar  reorganization  of the
     Company or any Significant Subsidiary of the Company, or (ii) accelerate or
     delay  collection  of notes or accounts  receivable in advance of or beyond
     their  regular due dates,  other than in the usual and  ordinary  course of
     business;

          (viii)  neither  the  Company  nor  any  of  its  Subsidiaries   shall
     terminate,  establish,  adopt,  enter  into,  make any new grants or awards
     under,  amend or otherwise modify any Compensation and Benefit Plans (other
     than  issuances of additional  shares of Company Common Stock or options or
     rights to acquire  shares of Common Stock granted  pursuant to the terms of
     the Stock Plans as in effect on the date hereof in the  ordinary  and usual
     course of the operation of such Stock Plans), or increase the salary, wage,
     bonus or other  compensation  of any  employees  except  for (A)  grants or
     awards or increases under existing Compensation and Benefit Plans occurring
     in the ordinary and usual course of business  (which shall  include  normal
     periodic   performance   reviews  and  related   compensation  and  benefit
     increases),  (B) annual  reestablishment  of Compensation and Benefit Plans
     and  the  provision  of  individual   compensation  or  benefit  plans  and
     agreements  for newly hired or  appointed  officers  and  employees  of the
     Company  and  its  Subsidiaries  comparable  in  form  and  amount  to such
     individual compensation or benefit plans or agreements currently maintained
     by the Company and its  Subsidiaries,  provided such  individual  plans and
     agreements  (other than award agreements issued under existing plans) shall
     not include change of control provisions which would be triggered solely by
     the  execution  and delivery of this  Agreement,  the  consummation  of the
     transactions  contemplated  hereby and  voluntary  action by an  individual
     employee  or  (C)  actions   necessary  to  satisfy  existing   contractual
     obligations under Compensation and Benefit Plans or agreements  existing as
     of the date hereof or applicable law;

          (ix) the Company shall,  and shall cause its Subsidiaries to, maintain
     with  financially   responsible   insurance   companies  (or  through  self
     insurance)  insurance  in such amounts and against such risks and losses as
     are  consistent  with  the  insurance  maintained  by the  Company  and its
     Subsidiaries  in the  ordinary  course  of  business  consistent  with past
     practice;

          (x) except in the  ordinary  and usual course of business or as may be
     required by applicable Law, neither the Company nor any of its Subsidiaries
     shall change any accounting principle,  practice or method in a manner that
     is inconsistent  with past practice,  except to the extent required by GAAP
     as advised by the Company's regular independent accountants;

          (xi) neither the Company nor any of its  Subsidiaries  shall engage in
     or allow  any  transfer  of  assets or  liabilities  or other  transactions
     between the Company and its  Subsidiaries,  on the one hand, and the Westar
     Subsidiaries,  on the  other  hand  except  (a)  transactions  relating  to
     services  rendered  in the  ordinary  course of  business  pursuant  to the
     Contracts  specified in Section 5.1(u) of the Company  Disclosure Letter or
     which individually,  or in the aggregate, do not involve payments in excess
     of $250,000  per year or are  terminable  upon 90 days' notice in any event
     prior to the Effective  Time, (b) as permitted under Section 3.2(a) hereof,
     including  without  limitation  the  conversion of  Convertible  Preference
     Shares into Convertible  Preference Shares having amended voting terms on a
     one-for-one  basis;  provided that any interest  accruing or payable on the
     intercompany  receivable  shall be at a rate not in excess of 8 1/2% or (c)
     as contemplated by the Split-Off Agreements to occur prior to the Effective
     Time;

          (xii) except as may be required by applicable Law, neither the Company
     nor any of its  Subsidiaries  shall make  capital  expenditures  during any
     fiscal year in excess of $400,000,000;

          (xiii) the Company  shall  promptly  notify PNM of any change or event
     that has had or could  reasonably  be expected  to have a Company  Material
     Adverse Effect or a material adverse effect under Section 8.2(f) hereto and
     shall provide  copies,  in advance of filing the same,  of any  significant
     regulatory  filings  proposed  to be made by or on behalf of the Company or
     any of its Utility Subsidiaries;

          (xiv)  except  as  otherwise  required  by law and only to the  extent
     material,  all Tax Returns of the Company and any of its  Subsidiaries  and
     Affiliates  that are filed  between the date  hereof and the  Closing  Date
     shall  be  prepared  in a manner  consistent  with  the  allocation  of tax
     liability  principles set forth in the agreement to be entered into between
     the  Company  and Westar  allocating  Taxes  between the Company and Westar
     after the Split-Off (the "Tax Disaffiliation Agreement"); and

          (xv) neither the Company nor any of its Subsidiaries will authorize or
     enter into an agreement to do anything prohibited by the foregoing.

     6.2. Covenants of Parent, Manzano, PNM, Merger Sub-1 and Merger Sub-2.

     Parent,  PNM and  Manzano  each  covenants  and agrees as to itself and its
Subsidiaries  that after the date hereof and prior to the Effective Time, except
as  expressly  contemplated  or  permitted  by this  Agreement,  as set forth on
Section 6.2 of the Parent Disclosure Letter, as required by Law or to the extent
the Company shall otherwise consent in writing, which decision regarding consent
shall be made as soon as reasonably practicable:

          (i) the business of PNM and its  Subsidiaries  shall be conducted only
     in the ordinary and usual course and, to the extent  consistent  therewith,
     it and its Subsidiaries shall use their respective  reasonable best efforts
     to (a)  subject  to  prudent  management  of  workforce  needs and  ongoing
     programs currently in force,  preserve its business organization intact and
     maintain its existing  relations  and goodwill with  customers,  suppliers,
     distributors,  creditors,  lessors,  employees and business associates, (b)
     maintain  and keep  material  properties  and  assets  in good  repair  and
     condition, subject to ordinary wear and tear and (c) maintain in effect all
     existing material  governmental permits pursuant to which PNM or any of its
     Significant Subsidiaries currently operates;

          (ii) PNM,  Manzano and Parent shall not (w) amend its  certificate  of
     incorporation or by-laws or the comparable governing  instruments of any of
     its  Subsidiaries  except for such  amendments  that  would not  prevent or
     materially delay the consummation of the transactions  contemplated by this
     Agreement;  (x) split,  combine or  reclassify  its  outstanding  shares of
     capital stock; (y) declare,  set aside or pay any dividend payable in cash,
     stock or property in respect of any capital stock (other than (A) dividends
     from its direct or indirect  wholly  owned  Subsidiaries  to it or a wholly
     owned Subsidiary,  (B) dividends required to be paid on any preferred stock
     of any Subsidiary of PNM  outstanding on the date hereof or preferred stock
     issued to refinance currently outstanding preferred stock, in each case, in
     accordance with their respective terms and (C) regular quarterly  dividends
     on  shares  of PNM  Common  Stock  with  usual  record  and  payment  dates
     (including any periodic increase thereon  consistent with past practice) or
     (z) repurchase, redeem or otherwise acquire any shares of its capital stock
     or any securities  convertible  into or exchangeable or exercisable for any
     shares of its capital stock or permit any of its  Subsidiaries  to purchase
     or otherwise  acquire,  any shares of its capital  stock or any  securities
     convertible  into or  exchangeable  or  exercisable  for any  shares of its
     capital  stock (other than (A) as required by the  respective  terms of any
     preferred  stock of any Subsidiary of PNM outstanding on the date hereof or
     preferred stock issued to refinance currently  outstanding  preferred stock
     in accordance with the terms of the this Agreement,  (B) in connection with
     refunding  preferred stock of any Subsidiary of PNM with preferred stock or
     debt at a lower cost of funds (calculating such cost on an after-tax basis)
     and (C) for the  purpose  of funding or  providing  benefits  under the PNM
     Stock Plans and any  dividend  reinvestment  plan in  accordance  with past
     practice);

          (iii) none of Parent,  Manzano, PNM or any of their Subsidiaries shall
     issue,  sell,  pledge,  dispose of or encumber any shares of, or securities
     convertible into or exchangeable or exercisable for, or options,  warrants,
     calls,  commitments  or rights of any kind to  acquire,  any  shares of its
     capital stock of any class or any Parent Voting Debt or any other  property
     or assets (other than (A) shares of PNM Common Stock  issuable  pursuant to
     options  (whether or not vested)  outstanding  on the date hereof under the
     Parent Stock Plans,  issuances of  additional  options or rights to acquire
     shares of PNM  Common  Stock  granted  pursuant  to the terms of the Parent
     Stock  Plans as in effect  on the date  hereof  in the  ordinary  and usual
     course of the  operation of such Parent Stock Plans and issuances of shares
     of PNM Common  Stock  pursuant  to options  granted  after the date  hereof
     pursuant to the Parent Stock Plans,  (B)  issuances of shares of PNM Common
     Stock in the ordinary and usual course of Parent  Compensation and Benefits
     Plans,  each as in effect on the date  hereof,  and (C) the issuance of PNM
     preferred  shares  in  connection  with the  repurchase  or  redemption  of
     preferred  stock  outstanding on the date of this  Agreement  either at its
     stated  maturity or at a lower cost of funds  (calculating  such cost on an
     after-tax basis));

          (iv) neither PNM nor any of its Subsidiaries  shall, other than in the
     ordinary and usual course of business  and other than  transactions  not in
     excess of  $50,000,000  in the  aggregate in any calendar  year,  transfer,
     lease, license,  guarantee,  sell, mortgage, pledge, dispose of or encumber
     any  other  property  or  assets  (including  capital  stock  of any of its
     Subsidiaries);

          (v) neither PNM nor any of its Subsidiaries  shall, by any means, make
     any acquisition  of, or investment  (other than capital  expenditures)  in,
     assets or stock  (whether by way of merger,  consolidation,  tender  offer,
     share  exchange  or other  activity)  in any  transaction  or any series of
     transactions  (whether or not related) for an aggregate  purchase  price or
     prices,  including the  assumption of any debt, in excess of $50,000,000 in
     any calendar year;

          (vi) neither PNM nor any of its Significant  Subsidiaries shall, other
     than in the ordinary and usual course of business,  (i) modify,  amend,  or
     terminate any Contract that is material to PNM and its  Subsidiaries  taken
     as a whole,  (ii) waive,  release,  relinquish  or assign any such material
     contract (or any of the material  rights of PNM or any of its  Subsidiaries
     thereunder),  right or claim,  or (iii)  cancel  or  forgive  any  material
     indebtedness owed to PNM or any of its Subsidiaries;

          (vii) neither PNM nor any of its Subsidiaries will (i) adopt a plan of
     complete  or  partial  liquidation,   dissolution,  merger,  consolidation,
     recapitalization or other similar  reorganization of PNM or any Significant
     Subsidiary of Parent,  or (ii)  accelerate or delay  collection of notes or
     accounts  receivable in advance of or beyond their regular due dates, other
     than in the usual and ordinary course of business;

          (viii)  neither  PNM  nor  any of its  Subsidiaries  shall  terminate,
     establish, adopt, enter into, make any new grants or awards under, amend or
     otherwise  modify,  any Parent  Compensation  and Benefit Plans (other than
     issuances of additional  shares of PNM Common Stock or options or rights to
     acquire  shares of PNM Common  Stock  granted  pursuant to the terms of the
     Parent  Stock  Plans as in effect on the date  hereof in the  ordinary  and
     usual course of the operation of such Parent Stock Plans),  or increase the
     salary,  wage, bonus or other  compensation of any employees except for (A)
     grants  or awards or  increases  under  existing  Parent  Compensation  and
     Benefit Plans occurring in the ordinary and usual course of business (which
     shall include normal periodic  performance reviews and related compensation
     and benefit increases),  (B) annual  reestablishment of Parent Compensation
     and Benefit Plans and the provision of individual  compensation  or benefit
     plans and agreements for newly hired or appointed officers and employees of
     PNM and its  Subsidiaries  comparable in form and amount to such individual
     compensation  or benefit  plans or agreements  currently  maintained by the
     Parent and its Subsidiaries,  provided such individual plans and agreements
     shall not include  change of control  provisions  which would be  triggered
     solely by the execution and delivery of this Agreement and the consummation
     of the transactions contemplated hereby or (C) actions necessary to satisfy
     existing  contractual  obligations  under Parent Stock Plans or  agreements
     existing as of the date hereof or applicable law;

          (ix) PNM shall,  and shall cause its  Subsidiaries  to,  maintain with
     financially  responsible  insurance  companies (or through self  insurance)
     insurance  in such  amounts  and  against  such  risks  and  losses  as are
     consistent with the insurance maintained by PNM and its Subsidiaries in the
     ordinary course of business consistent with past practice;

          (x) except in the  ordinary  and usual course of business or as may be
     required by applicable Law, neither PNM nor any of its  Subsidiaries  shall
     change any  accounting  principle,  practice  or method in a manner that is
     inconsistent  with past practice,  except to the extent required by GAAP as
     advised by Parent's regular independent accountants;

          (xi) except as may be required by applicable Law,  neither PNM nor any
     of its Subsidiaries shall make capital  expenditures during any fiscal year
     in excess of $400,000,000;

          (xii) PNM, Manzano and Parent shall promptly notify the Company of any
     change or event  that has had or could  reasonably  be  expected  to have a
     Parent Material  Adverse Effect or a material  adverse effect under Section
     8.2(e) hereto and shall provide  copies,  in advance of filing the same, of
     any significant  regulatory  filings proposed to be made by or on behalf of
     PNM or any Subsidiary;

          (xiii)  except as  otherwise  required  by law and only to the  extent
     material,  all Tax returns of PNM, Manzano,  Parent and their  Subsidiaries
     that are filed  between the date hereof and the Closing Date shall be filed
     in a manner consistent with past practices; and

          (xiv) none of PNM, Manzano,  Parent or any of their  Subsidiaries will
     authorize  or enter into an  agreement  to do  anything  prohibited  by the
     foregoing.

     (b) 1935 Act.

     None of the parties  hereto  shall,  nor shall any such party permit any of
its Subsidiaries to, except as required or contemplated by this Agreement or the
Split-Off Agreements,  engage in any activities that would cause a change in its
status,  or that of its  Subsidiaries,  under the 1935 Act if such change  would
prevent  or delay the  consummation  of the  transactions  contemplated  by this
Agreement.

     6.3. Necessary Action.

     (a) Neither the Company nor PNM, nor any of their respective  Subsidiaries,
shall take or fail to take any action that is reasonably likely to (i) result in
any failure of the  conditions  to the Mergers set forth in Article  VIII,  (ii)
prevent  or  delay  consummation  of  the  transactions   contemplated  by  this
Agreement,  (iii) make any  representation  or  warranty  of the  Company,  PNM,
Manzano or Parent contained herein  inaccurate in any material respect at, or as
of any time  prior  to,  the  Effective  Time,  or (iv)  individually  or in the
aggregate,  have a Company  Material Adverse Effect or a Parent Material Adverse
Effect, as the case may be.

     (b) The parties  shall  cooperate and use their best efforts to ensure that
the Effective  Time does not occur at a time when any of the  adjustment  events
listed in Sections  3.2(b)(ii)(A)(vi)  or (vii) would take place in the ordinary
course between the Cut Off Date and the Effective Time.

                                  Article VII.

                              Additional Agreements

     7.1. Access.

     PNM and the Company agree that upon  reasonable  notice,  and except as may
otherwise  be  required  by  applicable  Law,  each shall  (and shall  cause its
Subsidiaries to) afford the other's officers,  employees,  counsel,  accountants
and other  authorized  representatives  ("Representatives")  reasonable  access,
during normal business hours  throughout the period prior to the Effective Time,
to its executive officers, to its properties,  books, contracts and records and,
during  such  period,  each  shall (and each shall  cause its  Subsidiaries  to)
furnish  promptly  to  the  other  all  information   concerning  its  business,
properties  and personnel as may  reasonably be requested but only to the extent
such access does not unreasonably  interfere with the business and operations of
such party;  provided that no  investigation  pursuant to this Section 7.1 shall
affect or be  deemed  to  modify  any  representation  or  warranty  made by the
Company,  Parent,  Manzano,  PNM,  Merger  Sub-1 or Merger  Sub-2,  and provided
further that the foregoing shall not require any party to permit any inspection,
or to disclose any information,  that in the reasonable  judgment of such party,
would (i) result in the  disclosure of any trade secrets of third parties or the
loss  of  any  applicable  attorney-client  privilege,   work-product  doctrine,
self-audit  privilege or other  privilege or (ii) violate any of its obligations
with respect to confidentiality if such party shall have used reasonable efforts
to obtain the consent of such third party to such inspection or disclosure.  All
requests for information  made pursuant to this Section 7.1 shall be directed to
an executive  officer of Manzano,  PNM or the Company,  as  applicable,  or such
Person  as may be  designated  by  either of its  executive  officers.  All such
information shall be governed by the terms of the Confidentiality Agreements.

     7.2. Acquisition Proposals.

     Except pursuant to the Exchange  Agreement,  each of the Company,  Manzano,
and PNM agrees that neither it nor any of its Subsidiaries nor any of its or its
Subsidiaries' officers and directors shall, and that it shall direct and use its
reasonable  best  efforts  to cause its and its  Subsidiaries'  agents and other
representatives   (including  any  investment  banker,  attorney  or  accountant
retained  by it or any of its  Subsidiaries)  not to,  directly  or  indirectly,
initiate, solicit, encourage or otherwise facilitate any inquiries or the making
of any  proposal or offer with  respect to (i) a merger,  reorganization,  share
exchange,  consolidation or similar transaction  involving it or its Significant
Subsidiaries or, in the case of the Company, its Utility Subsidiaries,  (ii) any
sale,  lease,  exchange,  mortgage,  pledge,  transfer  or  purchase  of  all or
substantially   all  of  the  assets  or  equity   securities  of,  it  and  its
Subsidiaries,  taken as a whole,  in a single  transaction  or series of related
transactions  or (iii) any tender offer or exchange offer for 20% or more of the
outstanding  shares of the Company  Common  Stock or PNM Common Stock or Manzano
Common  Stock (any such  proposal or offer being  hereinafter  referred to as an
"Acquisition  Proposal").  Each of the Company,  Manzano and PNM further  agrees
that neither it nor any of its Subsidiaries nor any of its or its  Subsidiaries'
officers and directors  shall,  and that it shall direct and use its  reasonable
best efforts to cause its and its Subsidiaries'  agents and  representatives not
to, directly or indirectly,  engage in any negotiations  concerning,  or provide
any  confidential  information  or data to, or have any  discussions  with,  any
person relating to an Acquisition  Proposal,  or otherwise facilitate any effort
or attempt to make or implement an Acquisition Proposal; provided, however, that
nothing  contained in this Agreement shall prevent the Board of Directors of the
Company or of Manzano and PNM, or their respective  representatives  from, prior
to the time their respective required shareholders  approvals have been obtained
(A) complying with Rule 14e-2  promulgated under the Exchange Act with regard to
an  Acquisition  Proposal or  otherwise  complying  with the  Exchange  Act; (B)
providing information in response to a request therefor by a person who has made
a bona fide unsolicited  Acquisition Proposal;  (C) engaging in any negotiations
or discussions with any person who has made a bona fide unsolicited  Acquisition
Proposal  or  otherwise  facilitating  any  effort or attempt  to  implement  an
Acquisition   Proposal;   or  (D)  withdrawing  or  modifying  the  approval  or
recommendation  by such  Board of  Directors  of this  Agreement,  approving  or
recommending  any Acquisition  Proposal or causing the applicable party to enter
into any letter of intent,  agreement  in  principle,  acquisition  agreement or
other similar agreement  relating to any Acquisition  Proposal,  if, and only to
the extent that in each such case  referred to in clause (B),  (C) or (D) above,
the Board of  Directors  of the  Company,  Manzano  or PNM,  as the case may be,
determines  in good faith,  after  consultation  with outside legal counsel that
such  action is  necessary  to act in a manner  consistent  with the  directors'
fiduciary  duties  under  applicable  law and  determines  in good  faith  after
consultation  with its  financial  advisors that the person or group making such
Acquisition  Proposal has  adequate  sources of  financing  to  consummate  such
Acquisition  Proposal and that such  Acquisition  Proposal,  if  consummated  as
proposed,  is materially more favorable to the shareholders of such party from a
financial  point of view (any such more  favorable  Acquisition  Proposal  being
referred  to as a "Superior  Proposal")  and (y) in the case of clause (D) above
the Board of  Directors  of the  Company or Manzano or PNM,  as the case may be,
determines in good faith that such Acquisition Proposal is reasonably capable of
being consummated,  taking into account legal,  financial,  regulatory and other
aspects of the proposal and the person making the proposal,  and prior to taking
any such  action  set forth in clause  (B),  (C) or (D) above  (other  than with
respect to actions related to entering into a  confidentiality  agreement),  the
Company or Manzano or PNM, as the case may be, provides reasonable notice to the
other party to the effect that it is taking  such action and  receives  from the
person making the Acquisition Proposal an executed confidentiality  agreement in
reasonably  customary  form and, in any event,  containing  terms not materially
more favorable to such third party than those  contained in the  Confidentiality
Agreements   (as   defined  in  Section   10.7).   Prior  to  or   substantially
contemporaneous   with  providing  any  information  to  or  entering  into  any
discussions or  negotiations  with any person in connection  with an Acquisition
Proposal  by such  person,  the  Company or Manzano or PNM,  as the case may be,
shall notify the other party of such Acquisition  Proposal  (including,  without
limitation,  the material terms and  conditions  thereof and the identity of the
person making it), and, subject to the confidentiality  agreement required to be
entered into, as specified  above,  shall provide the other party with a copy of
any written  Acquisition  Proposal or amendment or supplements thereto and shall
thereafter  inform the other party on a prompt basis of any material  changes to
the terms and conditions of such Acquisition  Proposal.  Each of the Company and
Manzano and PNM agrees that it will immediately cease and cause to be terminated
any existing  discussions or negotiations with any parties conducted  heretofore
with  respect  to any  Acquisition  Proposal.  Each of the  Company  and each of
Manzano and PNM agrees that it will take the necessary  steps to promptly inform
the  individuals  or entities  referred to in the first  sentence  hereof of the
obligations undertaken in this Section 7.2.

     7.3. Information Supplied.

     The  Company,  Parent,  Manzano and PNM each  agrees,  as to itself and its
Subsidiaries,  that none of the information  supplied or to be supplied by it or
its  Subsidiaries  for  inclusion  or  incorporation  by  reference  in (i)  the
Registration  Statement  on Form  S-4 to be  filed  with  the SEC by  Parent  in
connection  with the  issuance of shares of Parent  Common  Stock in the Mergers
(including  the joint proxy  statement  and  prospectus  (the  "Prospectus/Proxy
Statement")  constituting  a part  thereof) (the "S-4  Registration  Statement")
will, at the time the S-4  Registration  Statement  becomes  effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any  material  fact  required  to be stated  therein  or  necessary  to make the
statements  therein,  in light of the circumstances  under which they were made,
not  misleading,  and (ii) the  Prospectus/Proxy  Statement and any amendment or
supplement  thereto will, at the date of mailing to  shareholders of the Company
and  shareholders  of Manzano or PNM, as the case may be, and at the time of the
meeting of  shareholders  of the  Company  and at the time of the meeting of the
shareholders  of  Manzano or PNM,  as the case may be, to be held in  connection
with this Agreement and the transactions contemplated hereby, contain any untrue
statement of a material  fact or omit to state any material  fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.

     7.4. Shareholders Meetings.

     The Company will take, in accordance  with  applicable law and its restated
articles of  incorporation,  as amended,  and by-laws,  all action  necessary to
convene a meeting of holders of Company  Common Stock as promptly as practicable
after the Proxy  Statement/Prospectus  is mailed to its shareholders to consider
and vote upon the approval of this Agreement and the  transactions  contemplated
hereby.  Manzano  or PNM will  take,  in  accordance  with its  certificate  and
by-laws,  all action necessary to convene a meeting of holders of Manzano Common
Stock or PNM Common Stock, as the case may be, as promptly as practicable  after
the Proxy  Statement/Prospectus  is mailed to its  shareholders  to consider and
vote upon the  approval  of this  Agreement  and the  transactions  contemplated
hereby.  Subject to fiduciary  obligations  under  applicable  law,  each of the
Company's and Manzano's or PNM' board of directors shall recommend such approval
and shall take all lawful action to solicit such approval.

     7.5. Filings; Other Actions; Notification.

     (a) Parent,  Manzano or PNM and the Company shall  promptly,  following the
date hereof, prepare and file with the SEC the Prospectus/Proxy  Statement,  and
Parent shall promptly,  following the date hereof, prepare and file with the SEC
the S-4 Registration  Statement.  Parent and the Company each shall use its best
efforts to have the S-4  Registration  Statement  declared  effective  under the
Securities  Act as promptly as  practicable  after such  filing,  and as soon as
practicable  thereafter mail the Prospectus/Proxy  Statement to the shareholders
of the Company and the  shareholders of Manzano or PNM, as the case may be, and,
if necessary after the Prospectus/Proxy  Statement is mailed, promptly circulate
amended supplemental proxy material, and, if required, resolicit proxies. Parent
shall also use its best efforts to obtain prior to the effective date of the S-4
Registration  Statement all necessary state securities law or "blue sky" permits
and  approvals  required in connection  with the Mergers and to  consummate  the
other  transactions  contemplated  hereby  and  will pay all  expenses  incident
thereto.

     (b) The  Company,  Manzano or PNM,  as the case may be,  each shall use its
reasonable  best  efforts to cause to be  delivered  to the other  party and its
directors a letter of its independent auditors,  dated (i) the date on which the
S-4 Registration Statement shall become effective and (ii) the Closing Date, and
addressed to the other party and its directors,  in form and substance customary
for "comfort" letters delivered by independent  public accountants in connection
with registration statements similar to the S-4 Registration Statement.

     (c) Each party  hereto  shall  file or cause to be filed  with the  Federal
Trade Commission and the Department of Justice any notifications  required to be
filed under the HSR Act, and the rules and  regulations  promulgated  thereunder
with respect to the transactions contemplated hereby. Each party hereto will use
all commercially  reasonable efforts to make such filings in a timely manner and
to respond on a timely basis to any requests for additional  information made by
either of such agencies.

     (d) The Company,  Manzano and PNM shall  cooperate  with each other and use
(and  shall  cause  their  respective  Subsidiaries  to  use)  their  respective
reasonable  best  efforts  to take or cause to be taken all  actions,  and do or
cause to be done all things,  necessary,  proper or  advisable on its part under
this  Agreement  and  applicable  Laws to  consummate  and  make  effective  the
Transaction  and  the  other  transactions   contemplated   hereby  as  soon  as
practicable,   including  preparing  and  filing  as  soon  as  practicable  all
documentation to effect all necessary notices,  reports and other filings and to
obtain as soon as practicable all consents,  registrations,  approvals,  permits
and  authorizations  necessary or advisable to be obtained  from any third party
and/or any Governmental  Entity in order to consummate the Transaction or any of
the other transactions  contemplated hereby. Subject to applicable Laws relating
to  the  exchange  of  information  and  the   preservation  of  any  applicable
attorney-client privilege,  work-product doctrine, self-audit privilege or other
similar privilege,  each of Manzano, PNM and the Company shall have the right to
review  and  comment on in  advance,  and to the  extent  practicable  each will
consult the other on, all the  information  relating  to such party,  and any of
their respective  Subsidiaries,  that appear in any filing made with, or written
materials  submitted  to,  any third  party  and/or any  Governmental  Entity in
connection with the Transaction and the other transactions  contemplated hereby.
In exercising the foregoing  right,  each of the Company,  Manzano and PNM shall
act reasonably and as promptly as practicable.

     (e)  Subject to  applicable  Laws and the  preservation  of any  applicable
attorney-client privilege, the Company, PNM and Manzano each shall, upon request
by the other,  furnish the other with all  information  concerning  itself,  its
Subsidiaries, directors, officers and shareholders and such other matters as may
be  reasonably  necessary or advisable in connection  with the  Prospectus/Proxy
Statement, the S-4 Registration Statement or any other statement, filing, notice
or application made by or on behalf of Parent,  Manzano, PNM, the Company or any
of their  respective  Subsidiaries  to any third party  and/or any  Governmental
Entity in connection  with the Mergers and the other  transactions  contemplated
hereby.

     (f) Subject to any confidentiality  obligations and the preservation of any
attorney-client  privilege,  the Company and Manzano and PNM each shall keep the
other  apprised  of  the  status  of  matters  relating  to  completion  of  the
transactions  contemplated hereby,  including promptly furnishing the other with
copies of notices or other  communications  received by Parent,  Manzano, PNM or
the  Company,  as the case may be,  or any of its  Subsidiaries,  from any third
party and/or any  Governmental  Entity with respect to the  Transaction  and the
other transactions contemplated hereby.

     7.6. Affiliates.

     At least  10 days  prior to the  date of the  shareholders  meeting  of the
Company with respect to this  Agreement,  the Company  shall deliver to Parent a
list of names and addresses of those Persons who the Company expects will be, as
of 30 days prior to the Effective  Time,  "affiliates" of the Company within the
meaning of Rule 145 under the Securities  Act. There shall be added to such list
the names and  addresses  of any other  Person  subsequently  identified  by the
Company as a Person who may be deemed within 30 days prior to the Effective Time
to be an affiliate of the Company for the purposes  described above. The Company
shall  exercise  commercially  reasonable  efforts  to  deliver  or  cause to be
delivered to Parent,  prior to the date of its shareholders meeting with respect
to  this  Agreement,  from  each  affiliate  of the  Company  identified  in the
foregoing list (as the same may be supplemented as aforesaid), a letter dated as
of the date of such shareholders  meeting  substantially in the form attached as
Exhibit D (the "Affiliates Letter").

     7.7. Stock Exchange Listing and De-listing.

     Parent  shall use its best  efforts  to cause the  shares of Parent  Common
Stock to be  issued in the  Mergers  to be  approved  for  listing  on the NYSE,
subject to official notice of issuance, prior to the Closing Date. The Surviving
Corporation  shall use its best  efforts to cause the  shares of Company  Common
Stock to be  removed  from  quotation  on the NYSE and  de-registered  under the
Exchange Act as soon as practicable following the Effective Time.

     7.8. Publicity.

     The initial press release shall be a joint press release and thereafter the
Company  and PNM each shall  consult  with the other  prior to issuing any press
releases or otherwise  making public  announcements  with respect to the Mergers
and the other transactions  contemplated  hereby and prior to making any filings
with any third party and/or any Governmental Entity with respect thereto, except
as may be required by Law or by  obligations  pursuant to any listing  agreement
with or rules of any national securities exchange or national market system.

     7.9. Benefits and Other Employee Matters.

     (a) Stock Plans.

     With  respect  to each  Stock Plan that  remains  in effect  following  the
Effective  Time and each award granted prior to the Effective Time pursuant to a
Stock Plan that is to be settled  in shares of  Company  Common  Stock (a "Stock
Award") which Stock Award remains outstanding  following the Effective Time, the
Company and Parent shall take all corporate  action  necessary or appropriate to
(i)  provide for the  issuance  or purchase in the open market of Parent  Common
Stock rather than Company Common Stock pursuant thereto, (ii) obtain shareholder
approval  with  respect  to such  Stock  Plans to the extent  such  approval  is
required for purposes of the Code or other  applicable  law,  (iii)  reserve for
issuance  under such Stock Plans or  otherwise  provide a  sufficient  number of
shares of Parent  Common Stock for delivery  upon payment of benefits,  grant of
awards or exercise of options  under such Stock Plans or Stock Award and (iv) as
soon as practicable  after the Effective Time, file  registration  statements on
Form S-8 or amendments on such forms to the Form S-4 Registration  Statement, as
the case may be (or any successor or other appropriate  forms),  with respect to
the shares of Parent  Common Stock subject to such Stock Plans or Stock Award to
the extent such  registration  statement is required under  applicable  law, and
Parent  shall  use its  best  efforts  to  maintain  the  effectiveness  of such
registration  statements  (and maintain the current  status of the  prospectuses
contained  therein) for so long as such benefits and grants  remain  payable and
such  options  remain  outstanding.   With  respect  to  those  individuals  who
subsequent  to the Merger will be subject to the  reporting  requirements  under
Section 16(a) of the Exchange Act, the Surviving  Corporation  shall  administer
the Stock Plans after the Effective  Time,  where  applicable,  in a manner that
complies with Rule 16b-3 promulgated under the Exchange Act.

     (b) Contributions to Rabbi Trusts.

     Prior to the  Effective  Time,  the Company  shall  contribute to the rabbi
trusts  maintained or to be established by the Company and its  Subsidiaries for
(i) the Executive Stock  Compensation  Program under the Long Term Incentive and
Share Award Plan,  (ii) the  Restricted  Share Unit Program  under the Long Term
Incentive  and Share Award Plan,  and (iii) the  Executive  Salary  Continuation
Plan,  the amount of cash or shares of Company  Common Stock that it  reasonably
believes  will be required to satisfy  outstanding  awards or other  obligations
under such plans  (other than any such awards that will be  converted  to Merger
Consideration that is immediately  distributed to the holder thereof), and at or
prior to the end of each  year  commencing  with the year in which  the  Closing
occurs,  Parent shall  contribute or cause to be  contributed to the rabbi trust
any amount of cash or  securities  required to make up any shortfall in earnings
and any  additional  amounts to keep all benefits and estimated  expenses  fully
funded.

     (c) Employee Benefits.

     Parent agrees that,  during the period commencing at the Effective Time and
ending on the second anniversary thereof, the non-union employees of the Company
and its Subsidiaries who continue to be employees of the Surviving  Corporation,
Parent  or  their  respective  Subsidiaries  (the  "Non-Union  Employees")  will
continue to be provided with benefits under  employee  benefit plans that are no
less favorable in the aggregate than those currently provided by the Company and
its Subsidiaries to such employees.  Following the Effective Time,  Parent shall
cause service by Non-Union  Employees of the Company and its  Subsidiaries  (and
any predecessor  entities) to be taken into account for all purposes (including,
without  limitation,   eligibility  to  participate,   eligibility  to  commence
benefits,  vesting,  benefit accrual and severance)  under the  Compensation and
Benefit Plans or any other benefit plans of Parent or its  Subsidiaries in which
such employees participate.

     From and after the Effective Time,  Parent shall (i) cause to be waived any
pre-existing condition limitations under benefit plans, policies or practices of
Parent or its Subsidiaries in which employees of the Company or its Subsidiaries
participate  and (ii) cause to be credited  any  deductibles  and  out-of-pocket
expenses  incurred by such  employees  and their  beneficiaries  and  dependents
during the portion of the calendar  year prior to  participation  in the benefit
plans provided by Parent and its Subsidiaries.

     Parent  shall,  and shall cause the  Surviving  Corporation  to,  honor all
employee benefit obligations to current and former employees and directors under
the  Compensation  and  Benefit  Plans  and to honor all  collective  bargaining
agreements or other labor  agreements in effect at the  Effective  Time.  Parent
shall  cause the  Surviving  Corporation  to assume in  writing  the  rights and
obligations under the employment  agreements and change of control agreements to
which  the  Company  is a  party  at the  Effective  Time  as  required  by such
agreements;  provided,  however,  that the foregoing shall not prevent Parent or
the Surviving  Corporation from enforcing such employment  agreements and change
of control  agreements  in  accordance  with  their  terms,  including,  without
limitation,  any reserved right to amend, modify,  suspend,  revoke or terminate
any such employment agreements and change of control agreements.

     Parent  acknowledges  that the transactions  contemplated by this Agreement
meet the definition of, and shall  constitute,  a "change in control" under each
Compensation  and Benefit  Plan listed in Section 7.9 of the Company  Disclosure
Letter.

     (d) Employees.

     It is the present  intention of Parent and the Company that  following  the
Effective  Time,  there will be no  involuntary  reductions  in workforce at the
Surviving  Corporation  or its  Subsidiaries,  and that  Parent,  the  Surviving
Corporation and their  respective  Subsidiaries  will continue  Parent's and the
Company's present strategy of achieving  workforce  reductions through attrition
or other voluntary means; provided, however, that if any reductions in workforce
in respect of employees of Parent and its Subsidiaries,  including the Surviving
Corporation and its Subsidiaries, become necessary, they shall be made on a fair
and equitable  basis,  in light of the  circumstances  and the  objectives to be
achieved,  giving  consideration  to  previous  work  history,  job  experience,
qualifications, and business needs without regard to whether employment prior to
the  Effective  Time was with the Company or its  Subsidiaries  or Parent or its
Subsidiaries,  and any  employees  whose  employment  is  terminated or jobs are
eliminated  by Parent,  the  Surviving  Corporation  or any of their  respective
Subsidiaries  shall be entitled to participate on a fair and equitable  basis in
the job opportunity and employment  placement  programs  offered by Parent,  the
Surviving  Corporation or any of their  respective  Subsidiaries.  Any workforce
reductions  carried out following the Effective  Time by Parent or the Surviving
Corporation and their respective  Subsidiaries  shall be done in accordance with
all applicable  collective bargaining  agreements,  and all Laws and regulations
governing the employment relationship and termination thereof including, without
limitation,   the  Worker   Adjustment  and  Retraining   Notification  Act  and
regulations promulgated thereunder, and any comparable state or local law.

     7.10. Board of Directors; Corporate Headquarters and Community Involvement.

     (a) Election to Parent's Board of Directors.

     At the Effective Time, Parent shall take such action as may be necessary to
cause two individuals  selected by Parent from a pool of nominees  designated by
the Company,  including members of the Board of Directors of the Company,  to be
appointed to the Board of Directors of Parent with each such designee serving in
a different class on the Parent Board of Directors.  The directors designated by
the Company shall comply with the Parent's  criteria for membership on its Board
of Directors as in effect for PNM as of the date hereof and set forth in Section
7.10 of the Parent Disclosure Schedule.  Each of the directors designated by the
Company  shall be  appointed  to serve on a  committee  of the  Parent  Board of
Directors.  The rights set forth in this Section  7.10 are separate  from and in
addition to any rights  Westar shall have to  designate  members of the Board of
Directors of Parent pursuant to the terms of the Stockholder  Agreement  between
Westar and Parent to be entered into as of the Effective Time.

     (b) Regional Headquarters.

     Following the Effective Time, the Surviving  Corporation shall maintain its
regional headquarters in Topeka, Kansas.

     (c) Community Involvement.

     Parent  acknowledges  that after the Effective  Time, it intends to provide
charitable  contributions  and community support within the service areas of the
Company and its Subsidiaries at levels consistent with past practice.

     7.11. Dividends.

     The Company and Parent shall  coordinate  with each other the  declaration,
setting  of  record  dates and  payment  dates of  dividends  on shares of their
respective common stock so that holders of shares of Company Common Stock do not
receive dividends on both shares of Company Common Stock and Parent Common Stock
received  in the Merger in respect  of any  single  calendar  quarter or fail to
receive a dividend on either  shares of Company  Common  Stock or Parent  Common
Stock received in the Merger in respect of any single calendar quarter.

     7.12. Indemnification; Directors' and Officers' Insurance.

     (a)  Parent  shall  indemnify  and hold  harmless,  to the  fullest  extent
permitted  under  applicable  law  and as  required  pursuant  to  the  existing
indemnity  agreements of the Company (and Parent shall also advance  expenses as
incurred to the fullest extent  permitted  under  applicable law and as required
pursuant to the existing indemnity agreements of the Company provided the Person
to whom expenses are advanced  provides an undertaking to repay such advances if
it  is   ultimately   determined   that   such   Person  is  not   entitled   to
indemnification),  each present and former director, officer and employee of the
Company and its Subsidiaries  (collectively,  the "Indemnified Parties") against
any costs or  expenses  (including  attorneys'  fees and  expenses),  judgments,
fines, losses, claims, damages or liabilities  (collectively,  "Costs") incurred
in connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal,  administrative or investigative,  arising out of or pertaining
to matters  existing or occurring at or prior to the Effective  Time,  including
the  transactions  contemplated  hereby.  In the event  any claim or claims  are
asserted  or made  within  six years  after the  Effective  Time,  all rights to
indemnification  in  respect of any such claim or claims  shall  continue  until
final disposition of any and all such claims.

     (b) Any Indemnified Party wishing to claim  indemnification under paragraph
(a) of this Section 7.12, upon receiving written notification of any such claim,
action, suit,  proceeding or investigation,  shall promptly notify the Surviving
Corporation  thereof,  but the  failure  to so  notify  shall  not  relieve  the
Surviving  Corporation of any liability it may have to such Indemnified Party if
such failure does not materially and irreversibly prejudice Parent. In the event
of any such claim,  action, suit,  proceeding or investigation  (whether arising
before or after the Effective  Time), (i) Parent shall pay the fees and expenses
of counsel selected by the Indemnified  Party, which counsel shall be reasonably
satisfactory to Parent,  promptly after  statements  therefor are received,  and
otherwise  advance to such  Indemnified  Party  upon  request  reimbursement  of
documented  expenses  reasonably  incurred,  (ii) Parent will  cooperate  in the
defense of any such matter, and (iii) any determination required to be made with
respect to whether an Indemnified  Party's  conduct  complies with the standards
set forth under  applicable  Law shall be made by independent  counsel  mutually
acceptable to Parent and the  Indemnified  Party;  provided,  however,  that (A)
Parent shall be  obligated  pursuant to this  paragraph  (b) to pay for only one
firm of counsel for all Indemnified  Parties in any jurisdiction,  except to the
extent  there is, in the  opinion  of  counsel to an  Indemnified  Party,  under
applicable  standards of  professional  conduct,  a conflict on any  significant
issue between the positions of such Indemnified  Party and any other Indemnified
Party or  Indemnified  Parties,  in which  case each  Indemnified  Party  with a
conflicting position on a significant issue shall be entitled to retain separate
counsel  mutually  satisfactory to Parent and such  Indemnified  Party,  (B) the
Indemnified  Parties  shall  cooperate in the defense of any such matter and (C)
Parent shall not be liable for any settlement effected without its prior written
consent (which consent may not be unreasonably withheld or delayed).

     (c)  The  Surviving  Corporation  shall  maintain  the  Company's  existing
officers' and directors'  liability  insurance ("D&O Insurance") for a period of
six years after the Effective Time so long as the annual premium therefor is not
in excess of 200% of the last annual  premium paid prior to the date hereof (the
"Current  Premium");  provided,  however,  if  the  existing  D&O  Insurance  is
terminated or cancelled during such six-year period,  the Surviving  Corporation
shall use its best  efforts to obtain as much D&O  Insurance  as can be obtained
for the  remainder of such period for a premium not in excess (on an  annualized
basis) of 200% of the Current Premium and shall agree to indemnify the directors
and officers for any Costs not covered by such D&O  Insurance;  and (iii) if the
annual  premiums  for the  existing  D&O  Insurance  exceed  200% of the Current
Premium, the Surviving  Corporation shall obtain as much D&O Insurance as can be
obtained  for the  remainder  of such  period for a premium not in excess (on an
annualized basis) of 200% of the Current Premium.

     (d) If Parent or the  Surviving  Corporation  or any of its  successors  or
assigns (i) shall consolidate with or merge into any other corporation or entity
and shall  not be the  continuing  or  surviving  corporation  or entity of such
consolidation or merger or (ii) shall transfer all or  substantially  all of its
properties and assets to any individual,  corporation or other entity, then, and
in each such case,  proper  provisions  shall be made so that the successors and
assigns  of  Parent  or  the  Surviving  Corporation  shall  assume  all  of the
obligations set forth in this Section 7.12.

(e) The  provisions  of this Section 7.12 are intended to be for the benefit of,
and shall be enforceable  by, each of the Indemnified  Parties,  their heirs and
their representatives.

     7.13. Expenses.

     Subject to  Sections  9.5(b)  through  (e),  whether or not the Mergers are
consummated,  all costs and expenses incurred in connection with the Mergers and
the other transactions  contemplated hereby shall be paid by the party incurring
such  expense,  except  that  each of the  Company  and PNM  shall  bear and pay
one-half  of the costs and  expenses  incurred  in  connection  with the filing,
printing and mailing of the S-4 Registration  Statement and the Prospectus/Proxy
Registration Statement (including SEC filing fees).

     7.14. Takeover Statute.

     If any Takeover  Statute is or may become  applicable to the Mergers or the
other transactions  contemplated  hereby, each of Parent,  Manzano,  PNM, Merger
Sub-1 Merger Sub-2 and the Company and their respective Board of Directors shall
grant  such  approvals  and take  such  actions  as are  necessary  so that such
transactions  may be  consummated  as  promptly  as  practicable  on  the  terms
contemplated  hereby and  otherwise  act to eliminate or minimize the effects of
such statute or regulation on such transactions.

     7.15. Manzano Vote.

     Parent and Manzano  shall vote (or consent  with respect to) or cause to be
voted (or a consent to be given with  respect  to) any shares of Company  Common
Stock  and any  shares  of  common  stock  of  Merger  Sub-1  and  Merger  Sub-2
beneficially owned by it or any of its Affiliates or with respect to which it or
any of its Affiliates has the power (by agreement,  proxy or otherwise) to cause
to be  voted  (or to  provide  a  consent),  in favor  of the  approval  of this
Agreement  and  the   transactions   contemplated   hereby  at  any  meeting  of
shareholders  of the Company,  Merger Sub-1 or Merger  Sub-2,  respectively,  at
which this Agreement shall be submitted for approval and at all  adjournments or
postponements  thereof  (or, if  applicable,  by any action of  shareholders  of
either  the  Company,  Merger  Sub-1 or  Merger  Sub-2 by  consent  in lieu of a
meeting).

     7.16. Agreements Relating to the Split-Off.

         The terms of the Split-Off Agreements may be amended by the Company and
Westar; provided however, that Parent's consent, which shall not be unreasonably
withheld,  shall be required in connection with any revision to the terms of the
Split-Off  Agreements  in the  forms  attached  hereto as  Exhibit A that  would
reasonably be expected to be adverse in any manner to the Company or to Parent.

     7.17. Redemption of Preferred Shares.

     Prior to the  Effective  Time,  the Board of Directors of the Company shall
call  for  redemption  all  outstanding  Preferred  Shares  (not  including  the
Convertible  Preference  Shares) at a  redemption  price equal to the amount set
forth in the restated  articles of incorporation  of the Company,  together with
all  dividends  accrued and unpaid to the date of such  redemption  and take all
other required action so that all Preferred Shares shall be redeemed and no such
Preferred  Shares shall be deemed to be  outstanding  at the  Effective  Time or
entitled  to  vote  on the  approval  of this  Agreement  and  the  transactions
contemplated   hereby.  The  parties  agree  to  cooperate  in  connection  with
registering Parent as a "holding company" under Section 5 of the 1935 Act to use
the provisions of subparagraph (iv) of subdivision (c) of paragraph 6 of section
A of Article IV of the restated  articles of  incorporation  of the Company as a
means  of  obviating  the  need  to seek  approval  of  this  Agreement  and the
transactions  contemplated  hereby  by the  holders  of  Preferred  Shares  as a
separate  class,  in which case the  outstanding  Preferred  Shares shall not be
called for redemption and shall remain outstanding notwithstanding the Merger.

     7.18. Conveyance Taxes.

     The Company,  Parent,  PNM and Manzano shall cooperate in the  preparation,
execution  and  filing of all  returns,  questionnaires,  applications  or other
documents  regarding any real property transfer or gains,  sales, use, transfer,
value  added,   stock  transfer  and  stamp  Taxes,  any  transfer,   recording,
registration  and other fees,  and any similar  Taxes  which  become  payable in
connection with the  transactions  contemplated by this Agreement  ("Transaction
Taxes") that are  required or  permitted  to be paid on or before the  Effective
Time. The Company shall pay, without deduction or withholding (except where such
deduction or withholding is required by applicable  law) from any amount payable
to the holders of any shares of the Company Common Stock,  any such  Transaction
Taxes which become  payable in  connection  with the  Split-Off  and Merger,  on
behalf of the shareholders of the Company.  Manzano, or PNM, as the case may be,
shall pay,  without  deduction or  withholding  (except where such  deduction or
withholding  is  required  by  applicable  law) from any  amount  payable to the
holders of any  shares of Manzano  Common  Stock or PNM Common  Stock,  any such
Transfer Taxes which become payable in connection with the Transaction.

     7.19. Transition Steering Team.

     As soon as  reasonably  practicable  after  the  date  hereof,  PNM and the
Company  shall  create a  special  transition  steering  team  (the  "Transition
Steering Team"), with representation from PNM and the Company, that will develop
recommendations  concerning the future structure and operations of the Surviving
Corporation after the Effective Time,  subject to applicable law. The members of
the Transition  Steering Team shall be appointed by the Chief Executive Officers
of PNM and the Company.  The  functions of the  Transition  Steering  Team shall
include (i) to direct the  exchange of  information  and  documents  between the
parties and their  subsidiaries  as  contemplated  by Section  7.1, and (ii) the
development of regulatory  plans and  proposals,  corporate  organizational  and
management plans,  workforce  combination  proposals,  and such other matters as
they deem appropriate.

     7.20. Termination of Tax Sharing Agreements.

     At the  effective  time of the  Split-Off,  the Company shall cause the Tax
sharing agreement with Protection One, Inc. and all other tax sharing agreements
and arrangements  (other than the Disaffiliation  Agreement) to be terminated or
no longer in effect with respect to periods  following the date of the Split-Off
as between any member of the Western  Group and its  Affiliates  (as those terms
are defined in the Tax Disaffiliation  Agreement) on the one hand and any member
of the Westar  Group and its  Affiliates  (as those terms are defined in the Tax
Disaffiliation Agreement) on the other hand.

     7.21. Tax Disaffiliation Agreement.

     At the Effective  Time,  Parent shall succeed to the rights and obligations
of the Company  under the Tax  Disaffiliation  Agreement  and shall  perform all
agreements and covenants contained therein.

     7.22. Shared Services Agreement.

     Effective  upon the  Closing,  the Company or such other  affiliate  of the
Company as shall be  designated  by Parent  subject to Westar's  approval  shall
enter  into a  Shared  Services  Agreement  in  form  and  substance  reasonably
satisfactory  to each party and  satisfying  all  requirements  of the 1935 Act,
pursuant to which the Company shall provide  services to Westar on the terms and
conditions  specified in Exhibit B to the Allocation  and Separation  Agreement.
Effective as of the Closing Date, the Company will assign the Service  Agreement
between the Company and Protection  One, Inc.,  dated April 1, 1999, as amended,
to Westar.

     7.23. Interim Reporting.

     No later than the tenth  Business Day of each  calendar  month  through the
Cut-Off  Date,  the  Company  will  deliver  a  statement  with  respect  to the
immediately preceding calendar month, of (i) Additional Cash paid to the Company
(including information as to the source) during such month, (ii) the application
of such  Additional  Cash, and (iii) the option  selected by Westar  pursuant to
Section  3.2(a)(i),  such  statement  also to  include a summary  of  cumulative
amounts and any changes in amounts since the date hereof.

     7.24. Possible Exchange.

     The parties recognize that it would be beneficial for Parent if, in lieu of
the conversion of the Convertible  Preference Shares into the Parent Convertible
Shares pursuant to Section 3.2(b)(iv) hereof (the "Conversion"), the Convertible
Preference  Shares were instead exchanged (an "Exchange") for a principal amount
of  7.5%  subordinated  debt  instruments  of  Parent  equal  to  the  aggregate
liquidation   preference  of  the  Convertible   Preference  Shares  which  debt
instruments  ("Parent Convertible Debt") would be (i) convertible into shares of
Parent Common Stock at the same conversion  ratio as the Convertible  Preference
Shares,  (ii)  otherwise  substantially  in the  form  of the  Company's  7-7/8%
Cumulative Quarterly Income Preferred Shares,  Series A, and (iii) redeemable at
the option of Parent at par plus accrued  interest on the same date on which the
Parent  Convertible  Shares  would have been first  redeemable  at the option of
Parent.  Accordingly,  if, prior to satisfaction of the conditions  contained in
Article VIII hereof,  Parent  proposes that an Exchange  occur and such Exchange
would (i) not delay the Effective Time and (ii)  otherwise  preserves for Westar
the economic and tax  benefits of  ownership of Parent  Convertible  Shares that
otherwise would have been received upon conversion of the Convertible Preference
Shares including, but not limited to, the payment to Westar of cash in an amount
that reasonably  compensates Westar for the reasonably  estimated additional Tax
payments,  if any,  resulting from the Proposed  Exchange  (taking into account,
among other things,  the amount (as reasonably  projected on the Effective Date)
of (x) Westar's  additional  tax liability  from the Exchange  being taxable and
Westar subsequently  receiving interest instead of dividends until the date that
the Parent Convertible Debt could have first been redeemed by Parent (the "First
Redemption  Date") and (y) the  utilization  of or loss of any current or future
tax benefits of the Westar  Group that could be used to offset tax  liability of
any member of the  Westar  Group in any Tax  period  through  the end of the Tax
period which includes the First Redemption  Date), then the parties shall make a
good faith  effort to effect an  Exchange  instead of a  Conversion  by means of
mutually  agreed  customary  documentation  that  so  preserves  such  benefits;
provided that if the Company  Requisite  Vote or the Parent  Requisite  Vote has
already been obtained, such Exchange does not require any additional approval of
the  shareholders  of the Company under the KGCC or other  applicable law or the
shareholders  of PNM or Parent under the NMBCA or other  applicable  law. In the
event that the parties  adopt an  Exchange,  the  Agreement  shall be revised to
reflect such transaction as determined necessary by the parties hereto and prior
to  effecting  any such  Exchange,  all  material  third party and  Governmental
Authority  declarations,   filings,  registrations,   notices,   authorizations,
consents or approvals necessary for the effectuation of such Exchange shall have
been obtained and all other conditions to the parties' obligations to consummate
the Transaction and other transactions  contemplated  hereby, as applied to such
Exchange, shall have been satisfied or waived.

                                 Article VIII.

                                   Conditions

     8.1. Conditions to Each Party's Obligation to Effect the Transaction.

     The respective obligation of each party to effect the Mergers is subject to
the  satisfaction  or  waiver at or prior to the  Effective  Time of each of the
following conditions:

     (a) Shareholder Approval.

     The Company  Requisite  Vote and the Parent  Requisite Vote shall have been
obtained.  This  Agreement  shall have been approved by the sole  shareholder of
Merger Sub-1 and Merger Sub-2.

     (b) NYSE Listing.

     The shares of Parent  Common  Stock  issuable  to the  shareholders  of the
Company  and  Manzano  in the  Mergers  pursuant  to  Article II shall have been
authorized for listing on the NYSE upon official notice of issuance.

     (c) HSR.

     The waiting period  applicable to the consummation of the Mergers under the
HSR Act shall have expired or been earlier terminated.

     (d) Other Regulatory Consents.

     The Parent Required Statutory  Approvals and the Company Required Statutory
Approvals  shall have been  obtained  at or prior to the  Effective  Time,  such
approvals shall have become Final Orders (as hereinafter  defined),  and no such
Final Order  shall  impose  terms or  conditions  that would  have,  or would be
reasonably likely to have a material adverse effect on the financial  condition,
business,  assets or  results of  operations  of  Parent,  Manzano,  PNM and the
Company (together with their respective Subsidiaries) taken as a whole; it being
understood  that the  effect  of any law,  regulation,  ruling,  order or decree
referred to in  Sections  8.2(f) and 8.3(e)  shall not be taken into  account in
making such determination.  A "Final Order" means action (including the approval
of  transfer,  assignment  or  modification  of  Environmental  Permits)  by the
relevant regulatory authority that has not been reversed,  stayed, enjoined, set
aside,  annulled  or  suspended,  with  respect  to  which  any  waiting  period
prescribed by law before the transactions contemplated hereby may be consummated
has  expired,  and as to  which  all  conditions  to the  consummation  of  such
transactions prescribed by law, regulation or order have been satisfied.

     (e) Injunction.

     No court or  Governmental  Entity  of  competent  jurisdiction  shall  have
enacted, issued,  promulgated,  enforced or entered any statute, law, ordinance,
rule, regulation,  judgment, decree, injunction or other order that is in effect
and permanently  enjoins or otherwise  prohibits  consummation of the Mergers or
the other transactions contemplated hereby (collectively, an "Order").

     (f) S-4.

     The S-4  Registration  Statement  shall  have  become  effective  under the
Securities  Act.  No  stop  order  suspending  the   effectiveness  of  the  S-4
Registration  Statement  shall have been  issued,  and no  proceedings  for that
purpose shall have been initiated or be threatened, by the SEC.

     (g) Split-Off.

     The Split-Off  shall have been  consummated  in  accordance  with the terms
hereof and of the Allocation and Separation Agreement and the Company shall have
received  copies of the "solvency  opinions"  delivered in  connection  with the
Split-Off.

     (h) Stockholder and Registration Rights Agreement.

     Each of the Stockholder  Agreement between Parent and Westar  substantially
in the form attached hereto as Exhibit E and the  Registration  Rights Agreement
between Parent and Westar substantially in the form attached hereto as Exhibit F
shall have been executed by the parties thereto.

     (i) Blue Sky Approvals.

     Parent shall have received all state  securities and "blue sky" permits and
approvals necessary to consummate the Mergers.

     8.2. Conditions to Obligations of Parent, Merger Sub-1 and Merger Sub-2.

     The  obligations  of Parent and Merger Sub 1 and Merger Sub-2 to effect the
Mergers are also subject to the  satisfaction or waiver by Parent at or prior to
the Effective Time of the following conditions:

     (a) Representations and Warranties.

     The  representations  and  warranties  of the  Company  set  forth  in this
Agreement which are not modified by the words "Material Adverse Effect" shall be
true and correct as of the Closing  Date as though made on and as of the Closing
Date,  except for  failures to be true and correct that  individually  or in the
aggregate  would not  reasonably  be likely to have a Company  Material  Adverse
Effect  (except to the  extent any such  representation  or  warranty  expressly
speaks as of an earlier date, which representations and warranties shall be true
and  correct as of such date in the same  manner as  specified  above),  and the
representations  and warranties of the Company set forth in this Agreement which
are modified by the words "Material Adverse Effect" shall be true and correct as
of the Closing  Date as though made on and as of the Closing Date (except to the
extent any such  representation  or warranty  expressly  speaks as of an earlier
date, which  representations and warranties shall be true and correct as of such
date in the same manner as specified  above),  and Parent shall have  received a
certificate  signed on behalf of the  Company  by an  executive  officer  of the
Company to such effect.

     (b) Performance of Obligations of the Company.

     The Company  shall have  performed  in all  material  respects all material
obligations  required to be performed by it under this  Agreement at or prior to
the Closing Date, and Parent shall have received a certificate  signed on behalf
of the Company by an executive officer of the Company to such effect.

     (c) Tax Opinion.

     Parent shall have  received an opinion  from  Winthrop,  Stimson,  Putnam &
Roberts, tax counsel to Parent, in form and substance reasonably satisfactory to
Parent,  dated as of the  Closing  Date,  substantially  to the effect  that the
Mergers,  taken together,  will be treated as a transaction described in Section
351 of the Code or the Second Merger will be treated as a transaction  described
in Section  368(a) of the Code, in each case in which neither the holders of PNM
Common  Stock or the holders of Company  Common  Stock  (other than  Westar) nor
Parent or the Company will  recognize  taxable gain or loss.  In rendering  such
opinion,  Winthrop,  Stimson,  Putnam  &  Roberts  may  require  and  rely  upon
representations  reasonably satisfactory to Winthrop,  Stimson, Putnam & Roberts
contained in certificates of officers of the Company,  Westar, Parent,  Manzano,
PNM, Merger Sub-1 and Merger Sub-2.

     (d) Consents Under Agreements.

     The  Company  shall have  obtained  the  consent or approval of each person
whose consent or approval shall be required under any material  Company Contract
except for such  consents or approvals  the failure of which to obtain would not
be reasonably  likely to result in a material  adverse  effect on Parent and the
Company  (together with the Subsidiaries of Parent and the Company),  taken as a
whole.

     (e) Affiliates Letters.

     Parent shall have received an Affiliates Letter from each person identified
as an affiliate of the Company pursuant to Section 7.6.

     (f) No Adverse Regulatory Change.

     Since the date of this  Agreement,  no law,  regulation,  ruling,  order or
decree (or new interpretation of any of the foregoing)  affecting the Company or
Kansas Gas and Electric Company shall have been adopted, amended or issued that,
individually  or in the aggregate,  would have a material  adverse effect on the
financial  condition,  business,  assets or  results  of  operations  of Parent,
Manzano, PNM and the Company (together with their respective Subsidiaries) taken
as a whole. In determining whether this condition has been satisfied, Parent (i)
shall also take into  account the effects of any ruling,  order or decree by any
Governmental  Entity issued  between the date hereof and the Closing Date on the
electric rates and charges of the Company and Kansas Gas and Electric Company or
on the revenue  potential of the Company and Kansas Gas and Electric  Company as
existing on the date of this Agreement, and (ii) shall not take into account the
Parent  Required   Statutory   Approvals  and  the  Company  Required  Statutory
Approvals.

     8.3. Conditions to Obligation of the Company.

     The  obligation  of the Company to effect the Merger is also subject to the
satisfaction  or waiver by the Company at or prior to the Effective  Time of the
following conditions:

     (a) Representations and Warranties.

     The representations  and warranties of Parent,  PNM, Manzano,  Merger Sub-1
and Merger Sub-2 set forth in this Agreement which are not modified by the words
"Material  Adverse  Effect"  shall be true and correct as of the Closing Date as
though made on and as of the Closing  Date,  except for  failures to be true and
correct that  individually or in the aggregate would not reasonably be likely to
have  a  Parent  Material   Adverse  Effect  (except  to  the  extent  any  such
representation  or  warranty  expressly  speaks  as of an  earlier  date,  which
representations  and warranties shall be true and correct as of such date in the
same  manner as  specified  above) and the  representations  and  warranties  of
Parent, PNM, Manzano,  Merger Sub-1 and Merger Sub-2 set forth in this Agreement
which are  modified by the words  "Material  Adverse  Effect"  shall be true and
correct as of the  Closing  Date as though  made on and as of the  Closing  Date
(except to the extent any such representation or warranty expressly speaks as of
an earlier date, which  representations and warranties shall be true and correct
as of such date in the same manner as specified  above),  and the Company  shall
have received a certificate  signed on behalf of Parent by an executive  officer
of Parent to such effect.

     (b) Performance of Obligations of Parent and Merger Sub.

     Each of Parent,  Manzano,  PNM,  Merger  Sub-1 and Merger  Sub-2 shall have
performed in all  material  respects  all  material  obligations  required to be
performed by it under this  Agreement at or prior to the Closing  Date,  and the
Company  shall  have  received  a  certificate  signed on behalf of Parent by an
executive officer of Parent to such effect.

     (c) Tax Opinion.

     The Company  shall have received an opinion from  LeBoeuf,  Lamb,  Greene &
MacRae  L.L.P.,  tax counsel to the Company,  in form and  substance  reasonably
satisfactory to the Company, dated as of the Closing Date,  substantially to the
effect  that (i) the  Split-Off  will be  treated as a taxable  exchange  of the
Split-Off  Portion of the Company Common Stock for shares of Westar Common Stock
and (ii) the Mergers, taken together, will be treated as a transaction described
in  Section  351 of the Code or the  Merger  will be  treated  as a  transaction
described in Section 368(a) of the Code; provided,  however,  that the condition
set forth in clause (i) above shall also be  satisfied to the extent the Company
receives a private letter ruling from the Internal Revenue Service,  in form and
substance  reasonably  satisfactory  to the Company,  substantially  to the same
effect as the opinion  described in clause (i) above.  In rendering such opinion
LeBoeuf, Lamb, Greene & MacRae, L.L.P. may require and rely upon representations
reasonably  satisfactory to LeBoeuf,  Lamb, Greene & MacRae, L.L.P. contained in
certificates of officers of the Company,  Westar,  Parent,  Manzano, PNM, Merger
Sub-1 or Merger Sub-2.

     (d) Consents Under Agreements.

     Parent  shall have  obtained  the consent or approval of each Person  whose
consent or approval shall be required under any material  Parent Contract except
for such  consents  or  approvals  the  failure of which to obtain  would not be
reasonably  likely to  result in a  material  adverse  effect on Parent  and the
Company  (together with the  Subsidiaries  of Parent and the Company) taken as a
whole.

     (e) No Adverse Regulatory Change.

     Since the date of this  Agreement,  no law,  regulation,  ruling,  order or
decree (or new  interpretation  of any of the  foregoing)  affecting  the Parent
shall  have  been  adopted,  amended  or  issued  that,  individually  or in the
aggregate,  would have a material  adverse  effect on the  financial  condition,
business,  assets or  results of  operations  of  Parent,  Manzano,  PNM and the
Company  (together  with their  respective  Subsidiaries)  taken as a whole.  In
determining  whether this  condition has been  satisfied,  the Company (i) shall
also  take  into  account  the  effects  of any  ruling,  order or decree by any
Governmental  Entity issued  between the date hereof and the Closing Date on the
rates and charges of PNM (or any successor regulated as to rates by the NMPRC or
the FERC) or on the revenue  potential of the Company and PNM (or any  successor
regulated  as to rates by the NMPRC or the FERC) as existing on the date of this
Agreement,  and (ii) shall not take into account the Parent  Required  Statutory
Approvals and the Company Required Statutory Approvals.

     (f) Ownership Percentage.

     At the Effective Time, the holders of outstanding  shares of Company Common
Stock, excluding Westar, will receive an amount of shares of Parent Common Stock
in excess of the  number of shares  of Parent  Common  Stock to be  received  by
shareholders of PNM or Manzano at the Effective Time.

                                   Article IX.

                                   Termination

     9.1. Termination by Mutual Consent.

     This  Agreement may be  terminated  and the Mergers may be abandoned at any
time prior to the Effective Time, whether before or after receipt of the Company
Requisite Vote or the Parent  Requisite  Vote, by mutual written  consent of the
Company and PNM by action of their respective Boards of Directors.

     9.2. Termination by Either Parent or the Company.

     This  Agreement may be  terminated  and the Mergers may be abandoned at any
time prior to the  Effective  Time by action of the Board of Directors of either
PNM or the  Company  if (a) the  Mergers  shall  not have  been  consummated  by
December 31,  2001,  whether such date is before or after the date of receipt of
the  Company  Requisite  Vote or the  Parent  Requisite  Vote (the  "Termination
Date"),  provided that the Termination Date shall be automatically  extended for
twelve months if, on the  Termination  Date any of the  conditions  set forth in
Section 8.1(c),  (d) or (g) shall not have been satisfied or waived but (x) each
of the other  conditions to the consummation of the Mergers set forth in Article
VIII has been satisfied or waived or remains  capable of  satisfaction,  and (y)
any approvals  required by Section 8.1(c) or (d) that have not yet been obtained
are being pursued  diligently and in good faith, (b) the Company  Requisite Vote
or the Parent  Requisite  Vote shall not have been  obtained  at a meeting  duly
convened  therefor or at any  adjournment or  postponement  thereof,  or (c) any
Order permanently  restraining,  enjoining or otherwise prohibiting consummation
of the Mergers shall become final and non-appealable after the parties have used
their respective best efforts to have such Order removed, repealed or overturned
(whether  before or after the  approval  by the  shareholders  of the  Company);
provided,  that the right to  terminate  this  Agreement  pursuant to clause (a)
above shall not be  available  to any party that has  breached  in any  material
respect  its  obligations  under this  Agreement  in any manner  that shall have
proximately  caused  the  occurrence  of  the  failure  of  the  Mergers  to  be
consummated.

     9.3. Termination by the Company.

     This Agreement may be terminated and the Mergers may be abandoned by action
of the Board of Directors of the Company at any time prior to (a) receipt of the
Company  Requisite Vote, if the Board of Directors of the Company shall adopt an
agreement  providing for a Superior Proposal;  provided,  however,  that (i) the
Company is not then in breach of Section 7.2 and (ii) the  termination  pursuant
to this Section  9.3(a) shall not be  effective  unless the Company  shall at or
prior to the time of such  termination  make the  payment  required  by  Section
9.5(b);  or (b) the  Effective  Time,  whether  before or after  receipt  of the
Company  Requisite  Vote,  if there has been a material  breach by Parent,  PNM,
Manzano, Merger Sub-1 or Merger Sub-2 of any material representation,  warranty,
covenant or  agreement  contained in this  Agreement  that is not curable or, if
curable,  is not cured  within 20 days after  written  notice of such  breach is
given by the Company to the party committing such breach or (c) to the Effective
Time if the Board of Directors of PNM or Manzano withdraws or adversely modifies
its adoption of this Agreement or its  recommendation  that the  shareholders of
PNM or Manzano approve this Agreement.
     9.4. Termination by Parent.

     This Agreement may be terminated and the Mergers may be abandoned by action
of the Board of  Directors of PNM at any time prior to (a) receipt of the Parent
Requisite  Vote,  if the Board of  Directors  of PNM or Manzano  shall  adopt an
agreement providing for a Superior Proposal;  provided,  however,  that (i) such
party is not then in breach of Section 7.2 and (ii) the termination  pursuant to
this Section  9.4(a) shall not be effective  unless PNM shall at or prior to the
time of such termination make the payment required by Section 9.5(c); or (b) the
Effective Time, whether before or after receipt of the Parent Requisite Vote, if
there has been a material breach by the Company of any material  representation,
warranty,  covenant or agreement contained in this Agreement that is not curable
or, if curable,  is not cured within 20 days after written notice of such breach
is  given  by PNM to the  Company  or (c) the  Effective  Time if the  Board  of
Directors of the Company  withdraws  or adversely  modifies its adoption of this
Agreement or its  recommendation  that the  shareholders  of the Company approve
this Agreement.

     9.5. Effect of Termination and Abandonment.

     (a) In the event of termination  of this  Agreement and the  abandonment of
the Mergers pursuant to this Article IX, this Agreement (other than as set forth
in Section  10.1) shall  become void and of no effect with no  liability  on the
part of any  party  hereto  (or of any of its  directors,  officers,  employees,
agents,  legal  and  financial  advisors  or other  representatives);  provided,
however,  that except as otherwise  provided herein,  no such termination  shall
relieve any party hereto of any liability or damages  resulting  from any breach
of this Agreement.

     (b) In the event that this Agreement is terminated by the Company  pursuant
to Section 9.3(a),  then the Company shall promptly,  but in no event later than
two days  after  the date of such  termination,  pay PNM a  termination  fee (as
liquidated  damages)  of $35  million by wire  transfer  of same day funds to an
account  previously  designated  in writing by PNM to the Company.  In the event
that an Acquisition  Proposal shall have been made to the Company after the date
hereof  or any  person  (other  than PNM or any of its  Affiliates)  shall  have
publicly   announced  after  the  date  hereof  an  intention  (whether  or  not
conditional)  to make an  Acquisition  Proposal  with respect to the Company and
thereafter  this  Agreement  is  terminated  (i) by  either  PNM or the  Company
pursuant  to  Section  9.2(b)  (following  the  failure  to obtain  the  Company
Requisite Vote at a time when such Acquisition  Proposal remains outstanding) or
(ii) by PNM  pursuant  to Section  9.4(c)  (following  withdrawal  or failure to
affirm  the  recommendation  by the  Company's  Board of  Directors),  pay PNM a
termination fee (as liquidated  damages) of $35 million by wire transfer of same
day funds to an account previously designated by PNM to the Company in writing.

     (c) In the event that this  Agreement  is  terminated  by PNM  pursuant  to
Section  9.4(a),  then PNM shall  promptly,  but in no event later than two days
after  the date of such  termination,  pay the  Company  a  termination  fee (as
liquidated  damages)  of $35  million by wire  transfer  of same day funds to an
account  previously  designated  in writing by the  Company to PNM. In the event
that an  Acquisition  Proposal  shall have been made to PNM or Manzano after the
date  hereof or any person  (other  than the  Company or any of its  Affiliates)
shall have publicly announced after the date hereof an intention (whether or not
conditional) to make an Acquisition  Proposal with respect to PNM and thereafter
this  Agreement  is  terminated  (i) by either the  Company or PNM  pursuant  to
Section 9.2(b)  (following the failure to obtain the Parent  Requisite Vote at a
time when  such  Acquisition  Proposal  remains  outstanding)  or (ii) or by the
Company  pursuant to Section 9.3(c)  (following  withdrawal or failure to affirm
the  recommendation by Board of Directors of PNM or Manzano),  pay the Company a
termination fee (as liquidated damages) of $35 million, by wire transfer of same
day funds to an account previously designated by the Company to PNM in writing.

     (d) In the event that this  Agreement  is  terminated  by either PNM or the
Company  pursuant to Section 9.2(b) as a result of failure to obtain the Company
Requisite Vote and at the time of the related meeting of Company Shareholders no
Acquisition  Proposal  for the Company is  outstanding,  then the Company  shall
promptly,  but  in no  event  later  than  two  days  after  the  date  of  such
termination,  pay to PNM by  wire  transfer  of same  day  funds  to an  account
previously  designated by PNM to the Company in writing an amount equal to $17.5
million. In the event that this Agreement is terminated by either the Company or
PNM  pursuant  to  Section  9.2(b) as a result of  failure  to obtain the Parent
Requisite  Vote  and at  the  time  of the  related  meeting  of PNM or  Manzano
shareholders,  as the case may be, no Acquisition Proposal for PNM or Manzano is
outstanding, then PNM shall promptly, but in no event later than five days after
the date of such  termination,  pay to the Company by wire  transfer of same day
funds to an account  previously  designated  by the Company to PNM in writing an
amount equal to $17.5 million.

     (e) In the event that this  Agreement  is  terminated  by PNM  pursuant  to
Section 9.4(c) following  withdrawal or failure to affirm the  recommendation by
the Company's  Board of Directors and at such time no  Acquisition  Proposal for
the Company is  outstanding,  then the Company shall  promptly,  but in no event
later  than two days  after  the  date of such  termination,  pay to PNM by wire
transfer  of same day funds to an account  previously  designated  by PNM to the
Company in writing an amount equal to $25 million.  In the event this  Agreement
is terminated by the Company pursuant to Section 9.3(c) following  withdrawal or
failure to affirm the recommendation by the Board of Directors of PNM or Manzano
and at such time no Acquisition Proposal for PNM or Manzano is outstanding, then
PNM shall  promptly,  but is no event later than two days after the date of such
termination, pay to the Company by wire transfer of same day funds to an account
previously  designated  by the Company to PNM in writing as amount  equal to $25
million.

     (f) The  parties  acknowledge  that the  agreements  contained  in Sections
9.5(b) through (e) are an integral part of the transactions contemplated by this
Agreement,  and that,  without these  agreements  the other party would not have
entered into this Agreement; accordingly, if any party fails to promptly pay any
amounts due pursuant to Sections  9.5(b) through (e) and in order to obtain such
payment the other party  commences a suit which  results in a judgement  against
the defaulting  party for payment of all or a portion of a termination  fee, the
defaulting party shall pay to the other party its costs and expenses  (including
its reasonable  attorneys' fees) incurred in connection with such suit, together
with interest from the date of termination of this Agreement on the amounts owed
at the prime rate of  Citibank,  N.A.  in effect  from time to time  during such
period.  The  payment of such  termination  fee shall be the sole and  exclusive
remedy of the other  party with  respect to the facts and  circumstances  giving
rise to such payment  obligation and the  Termination  Fee is payable whether or
not there has been a breach of this Agreement.

                                   Article X.

                            Miscellaneous and General

     10.1. Survival.

     This Article X and the  agreements of the Company,  Parent,  Manzano,  PNM,
Merger Sub-1 and Merger Sub-2 contained in Sections 7.7 (Stock Exchange  Listing
and   De-listing),   7.9   (Benefits   and   Other   Employee   Matters),   7.12
(Indemnification;  Directors' and Officers' Insurance), 7.13 (Expenses) and 7.21
(Tax  Disaffiliation  Agreement)  shall survive the consummation of the Mergers.
This  Article X, the  agreements  of the  Company,  Parent,  Manzano and PNM Sub
contained in Section 7.13  (Expenses),  Section 9.5 (Effect of  Termination  and
Abandonment) and the Confidentiality Agreements shall survive the termination of
this Agreement. All other representations,  warranties, covenants and agreements
in this  Agreement  shall not  survive  the  consummation  of the Mergers or the
termination of this Agreement.

     10.2. Modification or Amendment.

     Subject  to the  provisions  of  applicable  Law,  at any time prior to the
Effective  Time,  the  parties  hereto may modify or amend  this  Agreement,  by
written  agreement  executed and  delivered by duly  authorized  officers of the
respective parties.

     10.3. Waiver of Conditions.

     The  conditions  to each of the  parties'  obligations  to  consummate  the
Mergers  are for the sole  benefit of such party and may be waived by such party
in whole or in part to the extent permitted by applicable law.

     10.4. Counterparts.

     This  Agreement  may be executed in any number of  counterparts,  each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.

     10.5. GOVERNING LAW AND VENUE.

     THIS  AGREEMENT  SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE
INTERPRETED,  CONSTRUED  AND GOVERNED BY AND IN  ACCORDANCE  WITH THE LAW OF THE
STATE OF NEW YORK APPLICABLE TO CONTRACTS TO BE WHOLLY  PERFORMED IN SUCH STATE.
The parties hereby  irrevocably  submit to the jurisdiction of the courts of the
State of New York and the Federal courts of the United States of America located
in the  State of New York in each case in the  borough  of  Manhattan  solely in
respect  of the  interpretation  and  enforcement  of  the  provisions  of  this
Agreement and of the documents referred to in this Agreement,  and in respect of
the Transactions, and hereby waive, and agree not to assert, as a defense in any
action,  suit or proceeding for the  interpretation or enforcement  hereof or of
any such document,  that it is not subject thereto or that such action,  suit or
proceeding may not be brought or is not  maintainable in said courts or that the
venue thereof may not be appropriate or that this Agreement or any such document
may not be enforced in or by such  courts,  and the parties  hereto  irrevocably
agree that all claims with respect to such action or  proceeding  shall be heard
and determined in such a State of New York or Federal court.  The parties hereby
consent to and grant any such court jurisdiction over the person of such parties
and over the subject matter of such dispute and agree that mailing of process or
other  papers in  connection  with any such action or  proceeding  in the manner
provided  in Section  10.6 or in such other  manner as may be  permitted  by law
shall be valid and sufficient service thereof.

     10.6. Notices.

     Any notice, request, instruction or other document to be given hereunder by
any party to the others shall be in writing and delivered  personally or sent by
registered or certified mail, postage prepaid, or by facsimile:

        if to Parent, PNM, Manzano, Merger Sub-1 or Merger Sub-2

        Public Service Company of New Mexico and
        Manzano Corporation
        Alvarado Square,
        Albuquerque, NM 87158
        Attention:  Chief Financial Officer

        Fax:  (505) 241-2368

        with a copy to

        Winthrop, Stimson, Putnam & Roberts
        One Battery Park Plaza
        New York, New York  10004
        Attn:    Timothy Michael Toy, Esq.
                 Stephen R. Rusmisel, Esq.
        Fax:     (212) 858-1500


        if to the Company

        Western Resources, Inc.
        818 South Kansas Avenue
        Topeka, KS  66612
        Attention:        Richard D. Terrill, Esq.
                          Executive Vice President and
                          General Counsel
        Fax:              (785) 575-1936

        with a copy to

        LeBoeuf, Lamb, Greene & MacRae, L.L.P.
        125 West 55th Street
        New York, New York  10019
        Attn:    William S. Lamb, Esq.
                 Benjamin G. Clark, Esq.
        Fax:     (212) 424-8500

     or to such other  persons or addresses as may be  designated  in writing by
the party to receive such notice as provided above.

     10.7. Entire Agreement; NO OTHER REPRESENTATIONS.

     This Agreement  (including  any exhibits  hereto),  the Company  Disclosure
Letter,  the Parent  Disclosure Letter and the  Confidentiality  Agreement dated
July 25 2000,  between  PNM and the Company  and the  Confidentiality  Agreement
dated  October  24,  2000  between  the  Company  and  PNM  (collectively,   the
"Confidentiality Agreements") constitute the entire agreement, and supersede all
other prior  agreements,  understandings,  representations  and warranties  both
written and oral, among the parties,  with respect to the subject matter hereof.
EACH PARTY HERETO AGREES THAT,  EXCEPT FOR THE  REPRESENTATIONS  AND  WARRANTIES
CONTAINED IN THIS AGREEMENT,  NEITHER PARENT, MERGER SUB-1 AND MERGER SUB-2, NOR
THE  COMPANY  MAKES ANY OTHER  REPRESENTATIONS  OR  WARRANTIES,  AND EACH HEREBY
DISCLAIMS ANY OTHER  REPRESENTATIONS  OR WARRANTIES MADE BY ITSELF OR ANY OF ITS
OFFICERS,  DIRECTORS,  EMPLOYEES,  AGENTS, FINANCIAL AND LEGAL ADVISORS OR OTHER
REPRESENTATIVES, WITH RESPECT TO THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR
THE TRANSACTIONS, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO THE OTHER OR THE
OTHER'S  REPRESENTATIVES  OF ANY DOCUMENTATION OR OTHER INFORMATION WITH RESPECT
TO ANY ONE OR MORE OF THE FOREGOING.

     10.8. No Third-Party Beneficiaries.

     Other  than  with  respect  to  the  matters  set  forth  in  Section  7.12
(Indemnification;  Directors'  and  Officers'  Insurance)  and Section 7.21 (Tax
Disaffiliation  Agreement),  this  Agreement  is not intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder.

     10.9. Obligations of Parent and of the Company.

     Except as otherwise  specifically provided herein,  whenever this Agreement
requires a  Subsidiary  of Parent or PNM to take any  action,  such  requirement
shall be deemed to include an  undertaking on the part of Parent or PNM to cause
such  Subsidiary  to take  such  action.  Whenever  this  Agreement  requires  a
Subsidiary of the Company to take any action,  such requirement  shall be deemed
to include an undertaking on the part of the Company to cause such Subsidiary to
take such action and,  after the  Effective  Time,  on the part of the Surviving
Corporation to cause such Subsidiary to take such action.

     10.10. Severability.

     The  provisions  of  this  Agreement  shall  be  deemed  severable  and the
invalidity or unenforceability of any provision shall not affect the validity or
enforceability  of the  other  provisions  hereof.  If  any  provision  of  this
Agreement,  or the  application  thereof to any Person or any  circumstance,  is
invalid  or  unenforceable,  (a) a suitable  and  equitable  provision  shall be
substituted  therefor  in  order  to  carry  out,  so far as  may be  valid  and
enforceable,  the intent and purpose of such invalid or unenforceable  provision
and (b) the remainder of this Agreement and the application of such provision to
other  Persons or  circumstances  shall not be  affected by such  invalidity  or
unenforceability,  nor shall  such  invalidity  or  unenforceability  affect the
validity or enforceability of such provision, or the application thereof, in any
other jurisdiction.

     10.11. Interpretation.

     The table of contents and headings  herein are for convenience of reference
only, do not constitute  part of this Agreement and shall not be deemed to limit
or  otherwise  affect any of the  provisions  hereof.  Where a reference in this
Agreement is made to a Section or Exhibit,  such reference shall be to a Section
of or Exhibit to this Agreement unless otherwise  indicated.  Whenever the words
"include,"  "includes" or "including" are used in this Agreement,  they shall be
deemed to be followed by the words "without limitation."

     10.12. Assignment.

     This  Agreement  shall not be  assignable by operation of law or otherwise;
provided,  however, that Parent may designate, by written notice to the Company,
another  wholly  owned  direct  or  indirect  subsidiary  to  be  a  constituent
corporation in lieu of Merger Sub-1 or Merger Sub-2, so long as such designation
would not  reasonably  be  expected  to (i)  impose  any  material  delay in the
obtaining  of, or  significantly  increase the risk of not  obtaining any Parent
Required  Statutory  Approval  or Company  Required  Statutory  Approval  or the
expiration or termination of any applicable  waiting period,  (ii) significantly
increase the risk of any Governmental  Entity entering an order  prohibiting the
consummation of the Mergers,  (iii) significantly increase the risk of not being
able to remove any such order on appeal or  otherwise or (iv)  materially  delay
the consummation of the Mergers.  If the  requirements of the previous  sentence
are met and Parent wishes to designate  another  wholly owned direct or indirect
subsidiary  to be a  constituent  corporation  in lieu of Merger Sub-1 or Merger
Sub-2,  then, all references herein to Merger Sub-1 or Merger Sub-2, as the case
may be, shall be deemed  references  to such other  subsidiary,  except that all
representations  and  warranties  made  herein with  respect to Merger  Sub-1 or
Merger  Sub-2,  as the case may be,  as of the date of this  Agreement  shall be
deemed representations and warranties made with respect to such other subsidiary
as of the date of such designation.




         IN WITNESS WHEREOF, this Agreement has been duly executed, acknowledged
and delivered by the duly  authorized  officers of the parties  hereto as of the
date first written above.

                                           WESTERN RESOURCES, INC.



                                           By:  /s/David C. Wittig
                                                --------------------------------
                                                Name:  David C. Wittig
                                                Title: Chairman of the Board,
                                                       President and Chief
                                                       Executive Officer



                                           HVOLT ENTERPRISES, INC.



                                           By:  /s/ Jeffry E. Sterba
                                                --------------------------------
                                                Name:  Jeffry E. Sterba
                                                Title: President



                                           HVK, INC.



                                           By:  /s/ Jeffry E. Sterba
                                                --------------------------------
                                                Name:  Jeffry E. Sterba
                                                Title: President



                                           HVNM, INC.



                                           By:  /s/ Jeffry E. Sterba
                                                --------------------------------
                                                Name:  Jeffry E. Sterba
                                                Title: President



                                           PUBLIC SERVICE COMPANY OF NEW MEXICO



                                           By:  /s/ Jeffry E. Sterba
                                                --------------------------------
                                                Name:  Jeffry E. Sterba
                                                Title: Chairman, President &
                                                       Chief Executive Officer

     Pursuant to Section 3.8 of this foregoing Agreement, the undersigned hereby
joins in such Agreement this __ day of ___________, 2001.

                                           MANZANO CORPORATION



                                           By:
                                                --------------------------------
                                                Name:
                                                Title: