MANZANO CORP, S-4/A, 2000-04-18

MANZANO CORP
S-4/A, 2000-04-18
ELECTRIC SERVICES

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As filed with the Securities and Exchange Commission on April 18, 2000.
Registration No. 333-32170

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

PRE-EFFECTIVE
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AMENDMENT NO. 1
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FORM S-4

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MANZANO CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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NEW MEXICO 6749 85-0468296
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
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Alvarado Square
Albuquerque, New Mexico 87158
(505) 241-2700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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M.H. Maerki
Senior Vice President and Chief Financial Officer
Manzano Corporation
Alvarado Square
Albuquerque, New Mexico 87158
(505) 241-2700

(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:

CHARLES L. MOORE, ESQ. TIMOTHY M. TOY, ESQ.
KELEHER & MCLEOD, P.A.. WINTHROP, STIMSON, PUTNAM & ROBERTS
201 THIRD NW, 12TH FLOOR ONE BATTERY PARK PLAZA
ALBUQUERQUE, NEW MEXICO 87102 NEW YORK, NEW YORK 10004-1490
(505)346-4646 (212) 858-1000

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
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If the securities being registered on this Form are being offered
in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. |_| _____

If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering.
|_| _______

If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| _______

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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Public Service Company of New Mexico
Alvarado Square
Albuquerque, New Mexico 87158

[GRAPHIC OMITTED]

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TUESDAY, JUNE 6, 2000
9:30 A.M., MOUNTAIN DAYLIGHT SAVINGS TIME

SOUTH BROADWAY CULTURAL CENTER
1025 BROADWAY S.E.
ALBUQUERQUE, NEW MEXICO

April 24, 2000

Dear Shareholder:

You are cordially invited to attend the 2000 Public Service Company of
New Mexico Annual Meeting of Shareholders to:

- Consider and vote upon an agreement and plan of share exchange
under which Public Service Company of New Mexico, or PNM, will
reorganize into a holding company structure. If approved, Manzano
Corporation, a New Mexico corporation formed by PNM, will become
the parent company of PNM and will trade on the New York Stock
Exchange under the symbol "MZO."

- Elect three directors.

- Consider and vote upon the Manzano Corporation Omnibus
Performance Equity Plan, which will only become effective if the
share exchange is consummated.

- Approve the appointment of Arthur Andersen LLP as independent
public accountants for 2000.

- Conduct other business properly brought up at the meeting.

Shareholders of record at the close of business on April 17, 2000 are
entitled to notice of, and may vote at, the annual meeting.

Your vote is important. Whether you plan to attend or not, please sign,
date, and return the enclosed proxy card in the envelope provided. If you attend
the meeting and prefer to vote in person, you may do so.

This proxy statement/prospectus and proxy card are being distributed on
or about April 24, 2000. I look forward to seeing you at the meeting.

Sincerely,

/s/ Benjamin F. Montoya
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Chairman of the Board of Directors and
Chief Executive Officer

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THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILE WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROXY
STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION DATED APRIL 18, 2000

PROXY STATEMENT

PUBLIC SERVICE COMPANY OF NEW MEXICO

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PROSPECTUS

MANZANO CORPORATION

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This proxy statement/prospectus combines a proxy statement for the 2000
annual meeting of shareholders of Public Service Company of New Mexico, or PNM,
with a prospectus of Manzano Corporation, or Manzano. The proxy which
accompanies this proxy statement/prospectus is being solicited by PNM's Board of
Directors. The 2000 annual meeting of shareholders will be held at 9:30 a.m.,
Mountain Daylight Savings Time, on June 6, 2000 at the South Broadway Cultural
Center, 1025 Broadway S.E., Albuquerque, New Mexico.

The Board of Directors proposes to reorganize PNM into a holding
company structure as a means of achieving the corporate and asset separations
required by New Mexico's Electric Utility Industry Restructuring Act of 1999, or
the Restructuring Act. Under the terms of the agreement and plan of share
exchange, all of the outstanding shares of PNM common stock will be exchanged on
a share-for-share basis for shares of Manzano common stock. Thus, when the share
exchange is completed, each person who owned PNM common stock immediately prior
to the share exchange will own the same number of shares (and percentage) of
Manzano common stock after the share exchange. Manzano will own all of the
outstanding shares of PNM common stock. For your convenience, we have attached a
copy of the legal document which creates the holding company structure to this
proxy statement/prospectus as Exhibit A.

Prior to completion of the proposed share exchange, PNM will form
another wholly-owned subsidiary, referred to in this proxy statement/prospectus
as "UtilityCo," which, after completion of the proposed share exchange and
related transactions, will be a wholly-owned subsidiary of Manzano and a sister
company to PNM. After completion of the proposed share exchange and related
transactions, UtilityCo will acquire the name "Public Service Company of New
Mexico" and the existing PNM will be renamed Manzano Energy Corporation. For
purposes of this proxy statement/prospectus, the term "PNM" refers to the
current integrated utility, Public Service Company of New Mexico. In addition,
the term "Energy" refers to the subsidiary (currently PNM) that will own PNM's
existing electric generation and related assets and the term "UtilityCo" refers
to the future Public Service Company of New Mexico which will own PNM's existing
electric and gas transmission and distribution assets. You will own, through
your ownership of Manzano, all of the common stock of Energy and UtilityCo.

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After completion of the proposed share exchange and receipt of all
necessary regulatory and other approvals, to comply with the Restructuring Act,
all of PNM's electric and gas distribution and transmission assets will be
transferred to UtilityCo. This proxy statement/prospectus is not soliciting your
vote for this asset transfer to UtilityCo since shareholder approval is not
required.

In the event the shareholders of PNM approve the proposed
reorganization into a holding company structure, Manzano will issue up to 39.7
million shares of its common stock in exchange for shares of PNM common stock.
Manzano's common stock is not currently listed on any stock exchange. However,
we anticipate that shares of Manzano common stock will be listed on the New York
Stock Exchange following completion of the proposed reorganization and that it
will be traded under the symbol "MZO."

If the share exchange is implemented, you will not be required to
surrender your PNM common stock certificates. Instead, your PNM common stock
certificates will automatically represent the same number of shares of Manzano
common stock.

Holders of PNM common stock of record at the close of business on April
17, 2000 are entitled to notice of, and may vote at, the annual meeting. Holders
of PNM common stock may be entitled to assert dissenters' rights under Sections
53-15-3 and 53-15-4 of the New Mexico Business Corporation Act, or the BCA, in
connection with the share exchange. This proxy statement/prospectus contains a
summary of the dissenters' rights provisions of the BCA (see "Proposal No.
1--The Agreement and Plan of Share Exchange--Rights of Dissenting Shareholders")
anD a copy of Sections 53-15-3 and 53-15-4 of the BCA (Exhibit E).

SEE "RISK FACTORS" ON PAGES 7 TO 11 OF THIS PROXY STATEMENT/PROSPECTUS
FOR CERTAIN CONSIDERATIONS RELEVANT IN DETERMINING WHETHER OR NOT TO VOTE FOR
THE SHARE EXCHANGE.

In addition, at the annual meeting, the shareholders of PNM will be
asked to elect three persons to PNM's Board of Directors, each to serve a term
of three years. If elected and the share exchange becomes effective, two of
these directors, Robert G. Armstrong and Theodore F. Patlovich, will also be
directors of Manzano, and the third, Paul F. Roth, will be a director of
UtilityCo.

Also, at the annual meeting, the shareholders of PNM will be asked to
approve the Manzano Corporation Omnibus Performance Equity Plan, or the Omnibus
Plan. If approved by the shareholders, this plan will only become effective
immediately if the share exchange is consummated.

Lastly, at the annual meeting, the shareholders of PNM will be asked to
approve the appointment of Arthur Andersen LLP as independent public accountants
for 2000.

The principal executive offices of both PNM and Manzano are located at
Alvarado Square, Albuquerque, New Mexico 87158, telephone number (505) 241-2700.

PNM will mail this proxy statement/prospectus, together with the
accompanying proxy solicited by the Board of Directors, to PNM's shareholders on
or about April 24, 2000. The date of this proxy statement/prospectus is April
24, 2000.

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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED IN
CONNECTION WITH THE SHARE EXCHANGE OR PASSED UPON THE ADEQUACY OR ACCURACY OF
THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

THIS PROXY STATEMENT/PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT PNM THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS
DOCUMENT. PLEASE SEE "WHERE YOU CAN FIND MORE INFORMATION" FOR MORE INFORMATION
REGARDING WHAT DOCUMENTS HAVE BEEN INCORPORATED AND HOW YOU CAN OBTAIN COPIES OF
THOSE DOCUMENTS.

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TABLE OF CONTENTS

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Page

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SUMMARY......................................................................................1

RISK FACTORS.................................................................................7

INFORMATION ABOUT THE 2000 ANNUAL MEETING...................................................12

PUBLIC SERVICE COMPANY OF NEW MEXICO........................................................14

WHERE YOU CAN FIND MORE INFORMATION.........................................................14

FORWARD LOOKING STATEMENTS..................................................................15

PROPOSAL 1: THE AGREEMENT AND PLAN OF SHARE EXCHANGE.......................................17

PROPOSAL 2: ELECTION OF DIRECTORS..........................................................43

PROPOSAL 3: APPROVAL OF OMNIBUS PERFORMANCE EQUITY PLAN....................................60

PROPOSAL 4: APPROVAL OF INDEPENDENT ACCOUNTANTS............................................65

VALIDITY OF MANZANO COMMON STOCK............................................................65

EXPERTS.....................................................................................65

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.....................................66

DEADLINE FOR SHAREHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING..............................66
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EXHIBITS

Exhibit A - Agreement and Plan of Share Exchange
Exhibit B - Articles of Incorporation of Manzano Corporation
Exhibit C - Bylaws of Manzano Corporation
Exhibit D - Manzano Corporation Omnibus Performance Equity Plan
Exhibit E - New Mexico Business Corporation Act Provisions - Rights of
Dissenting Shareholders

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SUMMARY

THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION ON THE MATTERS TO
BE VOTED ON AT THE ANNUAL MEETING, WHICH WILL BE HELD AT 9:30 A.M., MOUNTAIN
DAYLIGHT SAVINGS TIME, ON JUNE 6, 2000 AT THE SOUTH BROADWAY CULTURAL CENTER,
1025 BROADWAY S.E., ALBUQUERQUE, NEW MEXICO. HOLDERS OF PNM COMMON STOCK OF
RECORD AT THE CLOSE OF BUSINESS ON APRIL 17, 2000 ARE ENTITLED TO NOTICE OF, AND
MAY VOTE AT, THE ANNUAL MEETING. FOR A MORE COMPLETE DISCUSSION OF PNM AND THE
MATTERS TO BE VOTED ON AT THE ANNUAL MEETING, YOU SHOULD READ CAREFULLY THIS
ENTIRE DOCUMENT, THE ATTACHED EXHIBITS AND THE DOCUMENTS THAT ARE INCORPORATED
BY REFERENCE.

PROPOSAL 1: THE AGREEMENT AND PLAN OF SHARE EXCHANGE

1. WHAT IS THE AGREEMENT AND PLAN OF SHARE EXCHANGE? The agreement and plan of
share exchange is the legal document that creates the holding company structure.
It provides that each share of PNM common stock will be exchanged for one share
of Manzano common stock. As a result of the share exchange, you will own Manzano
common stock and Manzano will own all of the outstanding shares of PNM common
stock. In connection with the share exchange, PNM will distribute the
outstanding shares of common stock of UtilityCo to Manzano by way of a dividend
so that UtilityCo will also be a wholly-owned subsidiary of Manzano. PNM, or
Manzano Energy Corporation, as it will be referred to after completion of the
share exchange, will continue to own all of the outstanding shares of common
stock of its other existing subsidiaries, including Avistar, Inc., or Avistar,
an unregulated subsidiary of PNM engaged in providing energy and utility-related
services. Although our organizational structure will change, Manzano will
continue to conduct PNM's current businesses through UtilityCo, the future PNM,
Energy and Avistar, and Manzano shareholders will continue to have the same
rights and proportionate ownership inherent in PNM common stock.

2. WHY IS THE HOLDING COMPANY STRUCTURE BEING PROPOSED? Primarily as a result of
federal and state regulatory reforms, the electric generation industry is
undergoing a fundamental transformation into a competitive marketplace. The
Restructuring Act enacted in New Mexico in April 1999 begins to open the state's
electric generation market to customer choice in 2001. The Restructuring Act
also requires that assets and activities subject to the jurisdiction of the New
Mexico Public Regulation Commission, or the PRC, and the Federal Energy
Regulatory Commission, or the FERC, primarily electric and gas distribution and
transmission assets and activities, be separated from competitive, deregulated
businesses, primarily electric generation assets and service and other energy
services. This separation is required by the Restructuring Act to be
accomplished through the use of at least two separate corporations.

PNM has decided to accomplish this mandated separation by the formation
of a holding company and the transfer of the regulated business to UtilityCo,
subject to various regulatory and other approvals. Under a holding company
structure, PNM's regulated business (that is, electric and gas transmission and
distribution service and other non-competitive ancillary services, including
metering and billing) and its competitive, deregulated businesses (that is,
electric generation, energy supply and ancillary supply services) would each be
grouped under separate companies. This structure will limit the amount of direct
regulation to which the holding company is subject and permit it to establish
and fund new competitive businesses without

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regulatory approval and the delay and complexity inherent in that approval
process. This will increase financial and regulatory flexibility, enhance
Manzano's ability to take advantage of new business opportunities in a timely
manner, and broaden the range of financing techniques available to Manzano. As a
result, Manzano will be in a better position to adapt to the rapidly changing
energy marketplace and to meet and take advantage of future challenges and
opportunities while continuing to operate its regulated business through
UtilityCo.

3. WILL I HAVE TO EXCHANGE MY PNM COMMON STOCK CERTIFICATES FOR NEW MANZANO
COMMON STOCK CERTIFICATES? No. The agreement and plan of share exchange provides
that your PNM common stock certificates will automatically represent Manzano
common stock instead of PNM common stock.

4. WILL MY DIVIDENDS BE AFFECTED? There is currently no reason to expect that
dividends to common shareholders will be affected by the reorganization. The
ability of Manzano to pay dividends will depend initially on the dividends and
other distributions that UtilityCo and Energy pay to Manzano and the capital
requirements of Manzano and its direct and indirect subsidiaries. It is
anticipated that the dividends paid to Manzano by UtilityCo and Energy will be
sufficient to enable Manzano to pay dividends on its common stock initially at
the same rate and on the same schedule that PNM currently pays dividends.
However, the ability of UtilityCo and Energy to pay dividends to Manzano will
depend on a number of factors, including the extent to which cash flows will
support dividends, the availability of retained earnings, the financial
circumstances and performance of UtilityCo and Energy, the PRC's decisions on
PNM's various regulatory cases currently pending and market and economic
conditions generally. The most recent quarterly dividend declared on PNM common
stock was $0.20 per share, payable on May 19, 2000 to shareholders of record on
May 2, 2000. See "Risk Factors--Dividends on Manzano Common Stock Will Depend
Initially on Common Stock Dividends Paid by UtilityCo and Energy."

5. WILL THE VALUE OF MY SHARES BE AFFECTED BY THE SHARE EXCHANGE? The value of a
company's stock is affected by a number of factors including market and economic
conditions. Consequently, no prediction can be made as to what the value of the
Manzano common stock will be after the share exchange.

The future performance of Manzano common stock will depend, in part, on
the results of operations of UtilityCo, Energy and Energy's subsidiaries,
currently existing or created in the future. PNM believes that Manzano common
stock should initially perform as if it were the common stock of an integrated
domestic public utility. Over time, to the extent that Manzano's investments
increase (for example, by expanding existing businesses, acquiring new assets or
adding new businesses, particularly in competitive markets), the investment
performance of Manzano's common stock will be affected increasingly by the
results of operations of these businesses.

6. WHEN WILL THE SHARE EXCHANGE BE CONSUMMATED? Consummation of the share
exchange is subject to the satisfaction of certain conditions, including the
receipt of certain regulatory approvals and the listing of Manzano common stock
on the New York Stock Exchange. Following satisfaction of these conditions, the
share exchange will become effective upon filing (or at a specified time
thereafter) with the Corporations Bureau of the PRC the

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Articles of Exchange relating to the share exchange. PNM expects that the share
exchange will be consummated as soon as practicable following approval of the
share exchange by the holders of PNM's common stock and receipt of the other
necessary approvals. PNM management believes that implementation of the share
exchange could occur by the end of 2000.

Even if the shareholders approve the agreement and plan of share
exchange, the Board of Directors of PNM may terminate the agreement and plan of
share exchange at any time prior to its effectiveness if the Board of Directors
of PNM determines, in its sole judgment, that consummation of the share exchange
would for any reason be inadvisable or not in the best interests of PNM or its
shareholders. In addition, the Boards of Directors of PNM and Manzano, acting
together, may amend the agreement and plan of share exchange at any time prior
to its effectiveness. Once the shareholders have approved the agreement and plan
of share exchange, however, the Boards may not amend the agreement and plan of
share exchange if the amendment, in the sole judgment of the Board of Directors
of PNM, would materially and adversely affect the rights of the shareholders of
PNM.

7. WHO MUST APPROVE THE FORMATION OF THE HOLDING COMPANY STRUCTURE AND THE SHARE
EXCHANGE? Approval of the proposed holding company structure and the share
exchange is required from the PRC, the FERC, and the Nuclear Regulatory
Commission, or the NRC. PNM received an order from the PRC in February 2000
authorizing it to form Manzano and UtilityCo as wholly-owned shell subsidiaries
of PNM. Applications for approval of the proposed holding company structure and
the share exchange have been or will be filed with each commission, including an
additional application with the PRC to approve the share exchange and the
separation of PNM's regulated business and competitive, deregulated businesses
into two separate corporations. Also, the agreement and plan of share exchange
requires a two-thirds favorable vote from PNM's common shareholders. The
separation of assets requires additional approvals. See "Risk Factors--Necessary
Regulatory Approvals of Proposed Separation Plan May Not Be Obtained."

8. HOW WILL MY RIGHTS AS A SHAREHOLDER BE AFFECTED? Following consummation of
the share exchange, the former holders of PNM common stock will automatically
become holders of Manzano common stock and their rights will be governed by
Manzano's Articles of Incorporation and Bylaws (the forms of which are included
as Exhibits B and C, respectively, to this proxy statement/prospectus) rather
than those of PNM.

Manzano's Articles of Incorporation provide Manzano with broad
corporate powers to engage in any lawful act or activity for which a corporation
may be formed under New Mexico law. Manzano's Articles of Incorporation and
Bylaws will be similar to PNM's Restated Articles of Incorporation and Bylaws in
several respects. See "Proposal 1: The Agreement and Plan of Share
Exchange--Comparison of PNM Common Stock and Manzano Common Stock" for a
comparison of PNM's and Manzano's Articles of Incorporation and Bylaws.

9. WILL PNM'S EXISTING INDEBTEDNESS OR PREFERRED STOCK BE EXCHANGED? The share
exchange itself will not result in any change in the outstanding indebtedness of
PNM. In addition, PNM's preferred stock will remain an equity security of Energy
after the share exchange unless an exchange offer for the preferred stock is
made by UtilityCo and accepted by

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all the holders or the preferred stock is redeemed. See "Proposal 1: The
Agreement and Plan of Share Exchange--Treatment of PNM Existing Indebtedness and
Preferred Stock."

10. HOW WILL MY PARTICIPATION IN THE PNM DIVIDEND REINVESTMENT AND STOCK
PURCHASE PLAN BE AFFECTED? All shares of PNM common stock held under the
dividend reinvestment and stock purchase plan, or PNM Direct, will be
automatically exchanged for the same number of shares of Manzano common stock.
Manzano will become the sponsor of the dividend reinvestment and stock purchase
plan and will continue the plan with Manzano common stock after the share
exchange.

11. HOW WILL THE PNM PERFORMANCE STOCK PLAN AND THE PNM DIRECTOR RETAINER PLAN
BE AFFECTED? The PNM Performance Stock Plan and the PNM Director Retainer Plan
will be amended to provide for ownership of common stock of Manzano instead of
PNM and Manzano rather than PNM will become the sponsor of these plans. All
existing shares of PNM common stock held in these plans, or subject to plan
options, will automatically become an equal number of shares of common stock or
stock options of Manzano, and Manzano will be the issuer of future stock
options. If shareholders approve the Omnibus Plan at the annual meeting and the
share exchange is approved and consummated, no new option grants will be made
under the PNM Performance Stock Plan but instead will be made under the Omnibus
Plan.

12. WHAT DO I NEED TO DO NOW? Just mail your signed proxy card in the enclosed
postage-paid return envelope as soon as possible so that your shares of PNM
common stock may be represented at the annual meeting.

13. ARE THERE RIGHTS OF DISSENTING SHAREHOLDERS? Holders of shares of PNM common
stock who do not vote their shares in favor of the share exchange and who meet
all of the requisite statutory requirements contained in Sections 53-15-3 and
53-15-4 of the BCA, the full text of which is reproduced as Exhibit E to this
proxy statement/prospectus, are entitled to demand in writing that PNM pay to
that shareholder the fair value of the shares of PNM common stock held by that
shareholder. Any shareholder entitled to dissenters' rights who wishes to make a
demand for appraisal is urged to review carefully the information set forth
under "Proposal 1: The Agreement and Plan of Share Exchange - Rights of
Dissenting Shareholders" and the provisions of Sections 53-15-3 and 53-15-4 of
the BCA, particularly the provisions setting forth the procedural steps required
to perfect these rights. Dissenters' rights will be lost if the procedural
requirements are not fully satisfied. ANY SHAREHOLDER ENTITLED TO DISSENTERS'
RIGHTS WHO DESIRES TO EXERCISE THESE RIGHTS SHOULD CAREFULLY REVIEW THE BCA AND
IS ADVISED TO CONSULT LEGAL COUNSEL BEFORE EXERCISING OR ATTEMPTING TO EXERCISE
THESE RIGHTS.

14. WHAT ARE THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATING
IN THE SHARE EXCHANGE? You will not recognize any gain or loss for United States
federal income tax purposes if you exchange your PNM common stock for Manzano
common stock. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR REGARDING THE TAX
CONSEQUENCES TO YOU OF EXERCISING YOUR DISSENTERS' RIGHTS.

15. WHERE WILL MY MANZANO COMMON STOCK BE TRADED? We expect the Manzano common
stock to be listed on the New York Stock Exchange and, after the share exchange,
to trade under the stock symbol "MZO." PNM common stock is currently listed and
traded on the New York

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Stock Exchange. The reported closing price of PNM common stock on April 14, 2000
was $16.44.

16. WHO WILL MANAGE MANZANO? The initial Board of Directors of Manzano
consists of six of the nine directors of the Board of Directors of PNM
(including one of the directors standing for election at the annual meeting,
Robert G. Armstrong) and a seventh member, Theodore F. Patlovich, who has
been nominated for election to the PNM Board of Directors at the annual
meeting. The initial term of each of the directors of Manzano will be until
the first election of Manzano directors at its annual meeting of shareholders
in 2001. There will be minimal overlap between the Manzano Board of Directors
and the UtilityCo Board of Directors and between the Manzano Board of
Directors and the Energy Board of Directors. There will be no overlap between
the Boards of UtilityCo and Energy or its subsidiaries that are involved in a
competitive business. However, we anticipate that Manzano and Energy, and
Manzano and UtilityCo, may have some common officers. The existence of common
directors and officers among Manzano, Energy and UtilityCo will comply with
the PRC Code of Conduct and PNM's Statement of Policy and Procedure after
they become effective.

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THE AFFIRMATIVE VOTE OF THE HOLDERS OF TWO-THIRDS OF THE SHARES OF PNM
COMMON STOCK ENTITLED TO VOTE AT THE ANNUAL MEETING IS REQUIRED TO APPROVE THE
AGREEMENT AND PLAN OF SHARE EXCHANGE.

PROPOSAL 2: ELECTION OF DIRECTORS

Three persons have been nominated for election as directors of PNM to
serve a term of three years expiring in 2003. If elected and the share exchange
becomes effective, two of these directors, Robert G. Armstrong and Theodore F.
Patlovich, will also be directors of Manzano, and the third, Paul F. Roth, will
be a director of UtilityCo.

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THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES OF PNM
COMMON STOCK PRESENT, IN PERSON OR BY PROXY, AND ENTITLED TO VOTE AT THE ANNUAL
MEETING IS REQUIRED TO ELECT DIRECTORS TO THE PNM BOARD.

PROPOSAL 3: APPROVAL OF OMNIBUS PLAN

At the annual meeting, the shareholders will be asked to consider and
vote on the creation of the Omnibus Plan. The Omnibus Plan, if approved by the
requisite shareholder vote, will only become effective if the share exchange is
approved and consummated.

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THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES OF PNM
COMMON STOCK ENTITLED TO VOTE AT THE ANNUAL MEETING IS REQUIRED TO APPROVE THE
OMNIBUS PLAN.

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PROPOSAL 4: APPROVAL OF INDEPENDENT ACCOUNTANTS

At the annual meeting, the shareholders will be asked to approve the
selection by the Audit Committee of PNM's Board of Directors of Arthur Andersen
LLP as the independent public accountants to audit the consolidated financial
statements of PNM and its subsidiaries for 2000. If the share exchange is
approved and consummated, Arthur Andersen LLP will also become, and be approved
as, the independent public accountants of Manzano and its subsidiaries for 2000.

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THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES OF PNM
COMMON STOCK PRESENT, IN PERSON OR BY PROXY, AND ENTITLED TO VOTE AT THE ANNUAL
MEETING IS REQUIRED TO APPROVE THE SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS.

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RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROXY
STATEMENT/PROSPECTUS, OR INCORPORATED BY REFERENCE, INCLUDING THE ELEMENTS OF
PNM'S PROPOSED SEPARATION PLAN PURSUANT TO THE RESTRUCTURING ACT, YOU SHOULD
CONSIDER CAREFULLY THE FOLLOWING FACTORS IN EVALUATING WHETHER OR NOT TO VOTE
FOR THE SHARE EXCHANGE.

FUTURE PERFORMANCE OF MANZANO COMMON STOCK IS DIFFICULT TO PREDICT

The purpose of the share exchange is to establish a holding company
structure that will comply with the requirements of the Restructuring Act and
will enhance the ability of PNM to take advantage of competitive business
opportunities beyond its present regulated business that, after the share
exchange and corporate separation are consummated, will be conducted by
UtilityCo. PNM's Board of Directors believes that the share exchange and the
holding company structure are in the best interests of PNM, its shareholders and
its customers. Nevertheless, the success of Manzano in realizing its goals and
the future performance of Manzano common stock are difficult to predict with
certainty.

DIVIDENDS ON MANZANO COMMON STOCK WILL DEPEND INITIALLY ON COMMON STOCK
DIVIDENDS PAID BY UTILITYCO AND ENERGY

The ability of Manzano to pay dividends will depend initially on the
dividends and other distributions that UtilityCo and Energy pay to Manzano and
the capital requirements of Manzano and its direct and indirect subsidiaries. It
is anticipated that the dividends paid to Manzano by UtilityCo and Energy will
be sufficient to enable Manzano to pay dividends on its common stock initially
at the same rate and on the same schedule that PNM currently pays dividends.
However, the ability of UtilityCo and Energy to pay dividends to Manzano will
depend on a number of factors, including the extent to which cash flows will
support dividends, the availability of retained earnings, the financial
circumstances and performance of UtilityCo and Energy, the PRC's decisions on
PNM's various regulatory cases currently pending, the effect of deregulating
generation markets, and market and economic conditions generally.

Because UtilityCo will remain subject to regulation by the PRC after
the share exchange and corporate separation are consummated, the amount of its
earnings and the ability to pay dividends will be affected by the manner in
which the PRC regulates UtilityCo. The amount of Energy's earnings and dividends
will be affected by the manner in which Energy and its subsidiaries operate in
the competitive, deregulated businesses that they will be engaged in after the
completion of the share exchange and corporate separation. The ability to
recover stranded costs in deregulation, future growth plans and the related
capital requirements and standard business considerations will also affect
UtilityCo's and Energy's ability to pay dividends to Manzano and meet ongoing
operating costs. See "--Competition Will Increase Under Deregulation and May
Involve More Risk".

The ability of UtilityCo and Energy to pay dividends on their
respective common stock will be subject to the preferential dividend rights of
the holders of any preferred stock of UtilityCo that may be issued in connection
with an exchange offer for the currently outstanding

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PNM preferred stock or any PNM preferred stock that will continue to be an
equity security of Energy after the share exchange. In addition, it is possible
that Manzano, UtilityCo and Energy may need to issue preferred stock in the
future to meet their capital requirements. If additional preferred stock is
issued in the future, it will also have preferential dividend rights.

Current PNM debt instruments and the PNM Articles of Incorporation have
dividend payment restrictions. It is likely that future financings on behalf of
UtilityCo or Energy would have similar restrictions that could affect future
dividend payments by UtilityCo or Energy to Manzano.

Accordingly, there can be no guarantee of the amount of the initial
quarterly dividend on Manzano common stock or of the payment of future dividends
on Manzano common stock.

SHARE EXCHANGE MAY HAVE CERTAIN ANTI-TAKEOVER EFFECTS

Certain provisions of Manzano's Articles of Incorporation and Bylaws
that will be in effect when the proposed share exchange becomes effective could
discourage certain types of transactions that may involve an actual or
threatened change of control of Manzano. These provisions include the ability to
classify the Manzano Board of Directors at its option if the number of directors
on the Manzano Board of Directors is at least nine (the initial number is
seven), although directors may be removed without cause by shareholders at a
meeting expressly called for that purpose, increased amounts of authorized
shares of capital stock over currently issued and outstanding amounts and super
majority voting requirements to amend Manzano's Articles of Incorporation and
for certain other matters. For a detailed description of these provisions,
please read the information under the caption "Proposal 1: The Agreement and
Plan of Share Exchange--Possible Anti-Takeover Effect of Certain Provisions of
Manzano's Articles and Bylaws."

While these provisions are designed to improve the ability of the
Manzano Board of Directors to prevent transactions that, in the Board's opinion,
do not have the effect of maximizing long-term shareholder value or are
otherwise not in the best interests of Manzano's shareholders, they may,
individually or in the aggregate, delay, discourage or prevent an unsolicited
takeover attempt that a shareholder might believe to be in the shareholders'
interest, including those attempts that might result in a premium over the
market price for Manzano common stock. These provisions may also adversely
affect the market price for Manzano common stock.

ENERGY MAY NOT MEET NRC FINANCIAL ASSURANCE REQUIREMENTS

Pursuant to NRC rules on financial assurance requirements for the
decommissioning of nuclear power plants, PNM has a program for funding its share
of decommissioning costs for Palo Verde Nuclear Generating Station through a
sinking fund mechanism. The NRC rules on financial assurance provide that a
licensee may use an external sinking fund as the exclusive financial assurance
mechanism if the licensee recovers amounts equal to the estimated total
decommissioning costs through cost of service rates or a "non-bypassable
charge". Other mechanisms are prescribed, such as prepayment, surety methods,
insurance and other guarantees, to the extent that the requirements for
exclusive reliance on the fund mechanism are not met.

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The Restructuring Act allows for the recoverability of at least 50% and
up to 100% of stranded costs including decommissioning costs (See "Proposal 1:
The Agreement and Plan of Share Exchange--Significant Factors Affecting PNM's
Present Businesses--Recovery of Stranded Costs"). To the extent that Energy is
unable to meet the requirements of the NRC rules permitting the use of an
external sinking fund because it is unable to recover its estimated
decommissioning costs through a non-bypassable charge, Energy may have to
pre-fund or find some other, perhaps capital intensive, means to meet the NRC
rules. There can be no assurance that such an event will not negatively affect
the funding of growth plans of Energy.

In addition, as part of the determination and quantification of the
stranded costs related to the decommissioning, PNM will have to estimate future
decommissioning costs. These costs will be collected by UtilityCo as Energy's
agent and paid to the decommissioning trusts. If PNM's estimate proves to be
less than the actual costs of decommissioning, any cost in excess of the amount
allowed through stranded cost recovery may not be recoverable. Such excess
costs, if any, will also be subject to potential pre-funding requirements as
discussed above.

NECESSARY REGULATORY APPROVALS OF PROPOSED SEPARATION PLAN MAY NOT BE OBTAINED

PNM is filing its transition plan with the PRC pursuant to the
Restructuring Act in three parts. In November 1999, PNM filed the first two
parts of the transition plan with the PRC. Part one, which has been approved,
requested approval to create Manzano and UtilityCo as wholly-owned shell
subsidiaries of PNM. Part two of PNM's transition plan requested that all PRC
approvals necessary for PNM to implement the formation of the holding company
structure, the share exchange and the separation plan be granted by June 1,
2000. The part two hearing is currently scheduled for July 19, 2000.
Accordingly, PNM management now believes that implementation of the separation
plan could occur by the end of 2000. If PNM can obtain a stipulated settlement
with all involved parties, it is possible that implementation of the separation
plan could be accelerated. However, there is no assurance that implementation of
the separation plan will occur in 2000. As discussed, this separation plan
involves the transfer of the regulated business of PNM (generally, electric and
gas distribution and transmission assets) to UtilityCo so that Energy will
maintain ownership of the competitive, deregulated businesses (generally,
electric generation and related assets). Part three of PNM's transition plan,
which is currently planned to be filed by PNM no later than June 1, 2000 (the
deadline set for all New Mexico utilities by the PRC), will address transition
costs, stranded costs, UtilityCo's cost of service and other issues required to
be considered under the Restructuring Act.

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This proxy statement/prospectus is soliciting your vote for the share
exchange. If the shareholders of PNM approve the share exchange at the annual
meeting, and the other necessary approvals are obtained, PNM expects to
consummate the share exchange as soon as practicable. If shareholder approval of
the share exchange is obtained, PNM will still need to receive separate approval
from the PRC of its separation plan to comply with the Restructuring Act, as
well as other approvals. This proxy statement/prospectus is not soliciting your
vote for this separation plan since shareholder approval is not required. As
discussed above, PNM has submitted its separation plan to the PRC for approval
as part two of the transition plan required by the Restructuring Act.

If the separation plan as proposed by PNM is not approved by the PRC,
PNM cannot predict the form that the separation of its regulated activities and
its competitive, deregulated activities would take pursuant to the Restructuring
Act. Significant changes to the proposed capital structure of UtilityCo and
Energy would affect the debt ratings of each proposed company and could result
in increased transactional costs and capital costs for each. Likewise, changes
or modifications to the proposed asset and liability transfers among UtilityCo,
Energy and Manzano could require that material supply contracts and leases be
renegotiated and could result in increased operating costs for UtilityCo or
Energy. In addition, such changes may impact Energy's ability to compete in
non-regulated markets. Therefore, PNM believes that modifications to its
proposed separation plan could materially affect the financial results and
position of Manzano and its subsidiaries if the share exchange is consummated.

The Restructuring Act does not require, nor does it permit the PRC to
require, PNM to divest itself of any of its assets.

COMPETITION WILL INCREASE UNDER DEREGULATION AND MAY INVOLVE MORE RISK

PNM is not in any direct retail competition with any other regulated
electric and gas utility. Nevertheless, PNM is subject to varying degrees of
competition in certain territories adjacent to or within areas it serves that
are also currently served by other utilities in its region as well as
cooperatives, municipalities, electric districts and similar types of government
organizations.

The Restructuring Act opens the New Mexico electric power market to
customer choice for certain customers beginning in 2001 and the balance of
customers in 2002, although these dates could be delayed up to a year by the
PRC. As a result, after the completion of the share exchange and corporate
separation, Energy may face competition from companies with greater financial
and other resources. Accordingly, there can be no assurance that Energy will not
face competition in the future that would adversely affect its results.

It is the current intention to have Manzano's competitive, deregulated
subsidiaries, Energy and its subsidiaries including Avistar, engage primarily in
energy-related businesses that will not be regulated by state or federal
agencies as traditionally regulated public utilities (other than the FERC and
the NRC). These competitive, deregulated businesses, including the generation
business that will be engaged in by Energy after the completion of the share
exchange and corporate separation, will encounter competitive and other factors
not previously

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experienced by PNM, and may have different, and perhaps greater, investment
risks than those involved in the regulated business that will be engaged in by
UtilityCo after completion of the share exchange and corporate separation.

Specifically, the passage of the Restructuring Act and deregulation in
the electric utility industry generally is likely to have an impact on the price
and margins for electric generation and, thus, the return on the investment in
electric generation assets. In response to competition and the need to gain
economies of scale, electricity producers will need to continue to control costs
to maintain margins, profitability and cash flow that will be adequate to
support investments in new technology and infrastructure. Energy will have to
compete directly with independent power producers, many of whom will be larger
in scale, thus creating a competitive advantage for such producers due to scale
efficiencies. Energy's current five year business plan includes a 300% increase
in sales by doubling the construction or acquisition of additional power
generation assets in its surrounding region of operations. Such growth will be
dependent upon Manzano's ability to generate $400 to $600 million to fund
Energy's expansion. There can be no assurance that these competitive,
deregulated businesses, particularly the generation business, will be successful
or, if unsuccessful, that they will not have a direct or indirect adverse effect
on Manzano.

PNM DEPENDS ON CERTAIN KEY EXECUTIVE OFFICERS AND MANAGERS

PNM is dependent on the management experience and continued services
of its executive officers and key managers. The loss of the services of these
officers or managers could have a material adverse effect on PNM's results of
operations and financial condition. In addition, PNM's continued growth and
the success of the proposed holding company structure and separation of
assets (which will result in three corporate entities) depends on the ability
of Manzano, UtilityCo and Energy to attract and retain experienced key
employees. Competition for qualified employees is intense, and the loss of
such persons, or an inability to attract, retain and motivate additional
highly skilled employees, could have a material adverse effect on the results
of operations and financial condition and prospects of Manzano, UtilityCo and
Energy. There can be no assurance that Manzano, Energy or UtilityCo will be
able to retain its existing personnel or attract and retain additional
qualified employees. Furthermore, the PRC Code of Conduct and PNM's proposed
Statement of Policy and Procedure prohibit the overlap of directors and
officers between UtilityCo and Energy.

Benjamin F. Montoya, Chief Executive Officer and Chairman of the Board
has announced his decision to retire sometime within the next 18 months. In
January 2000, Jeffry E. Sterba was hired to succeed Mr. Montoya. Mr. Sterba
assumed the duties of President in March 2000. He will assume the duties of
Chief Executive Officer in June 2000 and become Chairman of the Board upon Mr.
Montoya's retirement. Mr. Sterba was appointed to the PNM Board of Directors in
March 2000 and has also been selected to serve on the first Manzano Board of
Directors.

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INFORMATION ABOUT THE 2000 ANNUAL MEETING

ADMISSION TICKETS

Admission tickets will be distributed at the registration tables in the
lobby of the South Broadway Cultural Center prior to the annual meeting.
Attendance is limited to shareholders of record on April 17, 2000. If your
shares are held in the name of your broker, bank or other nominee, please bring
an account statement or letter from the broker, bank or nominee indicating that
you are the beneficial owner of the shares as of the record date.

ANNUAL REPORT

PNM has mailed a copy of its annual report for the year ended December
31, 1999, which includes consolidated financial statements, to all of its
shareholders of record.

OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS

The close of business on April 17, 2000 has been fixed as the record
date for determining the holders of PNM common stock entitled to vote at the
2000 annual meeting. As of April 17, 2000, PNM had outstanding 39,535,699 shares
of common stock. Shareholders of record are entitled to one vote per share on
each matter to be considered at the 2000 annual meeting. No other class of
securities, including PNM's currently outstanding preferred stock, is entitled
to vote at the 2000 annual meeting.

VOTING METHODS

You can vote on matters to come before the meeting in two ways:

- You can come to the annual meeting and cast your vote there; or

- You can vote by signing and returning the enclosed proxy card. If
you do so, your shares will be voted in the manner you indicate.
In the absence of any specific instructions on the proxy card,
proxies will be voted by those named in the proxy FOR approval of
the agreement and plan of share exchange, FOR the election of
directors nominated, FOR the approval of the Omnibus Plan, FOR
the approval of the selection of Arthur Andersen LLP as
independent public accountants for 2000, and on all other matters
in accordance with their best judgment.

If you beneficially own shares which your broker holds in street name
on your behalf, you will be provided with a form of proxy instructing the broker
how to vote for you. If you do not provide voting instructions to your broker,
your broker may, in accordance with the rules of the New York Stock Exchange,
vote your shares in his or her discretion in the election of directors or the
approval of the selection of independent public accountants. However, your
broker may not vote your shares in his or her discretion on the proposed
agreement and plan of share exchange or the approval of the Omnibus Plan.
Therefore, to vote your shares in favor of

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<PAGE>

the agreement and plan of share exchange or the Omnibus Plan, you must so
instruct your broker on the form of proxy.

QUORUM AND VOTE NECESSARY FOR ACTION

A quorum of shareholders is necessary to hold a valid meeting. If at
least a majority of the outstanding PNM common stock is represented at the
annual meeting, in person or by proxy, a quorum will exist. A quorum and the
affirmative vote of the holders of two-thirds of the shares of PNM common stock
entitled to vote at the annual meeting are required to approve the agreement and
plan of share exchange. A quorum and the affirmative vote of the holders of a
majority of the shares of PNM common stock entitled to vote at the annual
meeting are required to approve the Omnibus Plan. Abstentions and "broker
non-votes" will have the effect of a vote against these matters. A quorum and
the affirmative vote of the holders of a majority of the shares of PNM common
stock present, in person or by proxy, and entitled to vote at the annual meeting
are required to elect directors, approve the selection of independent public
accountants and to approve other actions. Abstentions will have the effect of a
vote against these matters while "broker non-votes" will not be counted in
calculating voting results on these matters.

REVOCATION OF PROXIES

You may revoke your proxy by attending the annual meeting and voting
your shares in person or by providing a written revocation or a later executed
proxy to the Secretary of PNM. Attendance at the annual meeting, in and of
itself, will not constitute revocation of a proxy.

ADJOURNMENT OF ANNUAL MEETING

PNM reserves the right to adjourn the annual meeting one or more times,
and to continue to solicit proxies, if insufficient affirmative votes are
present, in person or by proxy, to adopt the agreement and plan of share
exchange or the other matters being considered at the annual meeting.

COST OF SOLICITATION

The accompanying proxy is being solicited on behalf of PNM's Board of
Directors. PNM will pay the costs of this solicitation, including reimbursing
brokerage firms and others for their expenses in forwarding proxy material to
beneficial owners of PNM's common stock. Directors, officers and employees of
PNM may solicit proxies by telephone, other electronic means or in person
without additional compensation. In addition, PNM has retained ChaseMellon
Shareholder Services to assist in soliciting proxies at an anticipated fee of
approximately $8,000, plus out-of-pocket expenses.

MATTERS RAISED AT THE ANNUAL MEETING NOT INCLUDED IN THIS PROXY
STATEMENT/PROSPECTUS

We do not know of any matters to be acted upon at the annual meeting
other than those discussed in this proxy statement/prospectus. If any other
matter is presented, proxy holders will vote on the matter in their discretion.

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PUBLIC SERVICE COMPANY OF NEW MEXICO

PNM was organized under the laws of the State of New Mexico in 1917.
PNM is an integrated public utility primarily engaged in the generation,
transmission, distribution and sale of electricity and in the transmission,
distribution and sale of natural gas within the State of New Mexico. Avistar, a
wholly-owned, unregulated subsidiary of PNM, operates the City of Santa Fe's
water system under a contract that will expire on July 1, 2000, and is not
expected to be renewed.

The total population of the area served by one or more of PNM's utility
services is estimated to be approximately 1.35 million, of which 52.2% live in
the greater Albuquerque area. For the year ended December 31, 1999, 78.8% of
PNM's operating revenues were derived from electric operations, 20.4% from
natural gas operations and 0.8% from unregulated businesses. As of December 31,
1999, PNM employed 2,667 persons.

WHERE YOU CAN FIND MORE INFORMATION

PNM is subject to the informational requirements of the Securities
Exchange Act of 1934, or the Exchange Act. PNM files annual and quarterly
reports, proxy statements and other information with the Securities and Exchange
Commission, or the SEC, in accordance with the Exchange Act. You may read and
copy any of these reports, proxy statements and other information at the SEC's
public reference facilities in New York and Chicago as well as in the SEC's
Public Reference Room located at 450 Fifth Street, NW, Washington, D.C. 20549.
You can obtain information about the operation of the Public Reference Room by
calling 1-800-SEC-0330. The SEC also maintains an Internet web site at
www.sec.gov that contains reports, proxy statements and other information
regarding reporting companies like PNM. You may also read and copy any of these
reports, proxy statements and other information concerning PNM at the offices of
the New York Stock Exchange at 20 Broad Street, New York, New York 10005.

The SEC allows PNM to "incorporate by reference" certain information
into this proxy statement/prospectus. This means that PNM can disclose important
information by referring you to another document filed separately with the SEC.
The information incorporated by reference is deemed to be part of this proxy
statement/prospectus unless it is superseded by information in this proxy
statement/prospectus. This proxy statement/prospectus incorporates by reference
PNM's annual report on Form 10-K for the year ended December 31, 1999 and PNM's
current reports on Form 8-K dated January 27, 2000, January 27, 2000, February
17, 2000, February 17, 2000, March 7, 2000, March 7, 2000, March 27, 2000 and
April 18, 2000 that have been filed with the SEC. The annual report and current
reports contain important information about PNM and its operations and financial
condition.

PNM is also incorporating by reference any additional documents that it
may file with the SEC between the date of this proxy statement/prospectus and
the termination of the offering made by this proxy statement/prospectus. Manzano
has filed a registration statement on Form S-4 with the SEC under the Securities
Act of 1933. The primary purpose of the registration statement is to register
the shares of Manzano common stock that it will issue under the proposed share
exchange. As permitted by the rules and regulations of the SEC, this proxy

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statement/prospectus does not contain all of the information set forth in the
registration statement.

PNM will provide you without charge, upon written or oral request, a
copy of any documents that have been or may be incorporated by reference into
this proxy statement/prospectus, other than certain lengthy exhibits to the
documents. Written or telephone requests for such materials should be directed
to Barbara L. Barsky, Senior Vice President, Planning and Investor Services,
Public Service Company of New Mexico, Alvarado Square, Albuquerque, New Mexico
87158, telephone number (505) 241-2700. Please make your request no later than
May 30, 2000 in order to ensure timely delivery.

The Board of Directors has not authorized anyone to provide you with
information that is different from what is contained in this proxy
statement/prospectus. This proxy statement/prospectus does not constitute an
offer to sell or a solicitation of an offer to buy shares of Manzano common
stock by any person in any jurisdiction or in any circumstance in which such
offer or solicitation would be unlawful.

Neither the delivery of this proxy statement/prospectus nor any offer
or sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of PNM or Manzano since the date of
this proxy statement/prospectus.

Manzano is applying to have its common stock listed on the New York
Stock Exchange. It is expected that such listing will become effective when the
share exchange becomes effective. Once listed, Manzano's stock will be
registered under, and Manzano will be subject to the continuous reporting
requirements of, the Exchange Act. Following consummation of the share exchange,
PNM common stock will no longer trade, will be delisted from the New York Stock
Exchange and will no longer be registered.

FORWARD LOOKING STATEMENTS

This proxy statement/prospectus contains statements which are not
historical fact and which can be classified as forward looking. The Private
Securities Litigation Reform Act of 1995 provides a "safe harbor" for
forward-looking statements to encourage companies to provide prospective
information about their companies without fear of litigation so long as those
statements are identified as forward-looking and are accompanied by meaningful,
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in the statement. Words such
as "estimates," "expects," "anticipates," "plans," "believes," "projects," and
similar expressions identify forward-looking statements. For example, such
forward-looking statements may include, without limitation, statements in
connection with the future payment of dividends, statements as to the pursuit of
business in new markets, statements in connection with the regulatory approval
process or future regulation of Manzano and its subsidiaries, statements in
connection with future businesses or management of Manzano and its subsidiaries,
and statements in connection with the effects or benefits of a holding company
structure.

In addition to the assumptions and other factors referred to
specifically in connection with such statements, Manzano and PNM hereby identify
the following important factors which

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<PAGE>

could cause our actual financial results to differ materially from any such
results that might be projected, forecasted, estimated or budgeted by Manzano
and PNM in forward-looking statements including, among others:

- adverse actions of utility regulatory commissions;

- utility industry restructuring;

- failure to recover stranded costs;

- failure to recover transition costs;

- our inability to successfully compete outside our traditional
regulated market;

- the success of our expansion strategies, particularly as it
relates to Energy;

- regional economic conditions, which could affect customer growth;

- adverse impacts resulting from environmental regulations;

- loss of favorable fuel supply contracts or inability to negotiate
favorable new fuel arrangements;

- failure to obtain water rights and rights-of-way;

- operational and environmental problems at generating stations;

- the cost of debt and equity capital;

- weather conditions;

- the ability of Manzano to manage profitably its new competitive,
deregulated operations, including the management of Energy's
competitive businesses;

- technical developments in the utility industry; and

- other considerations that may be disclosed from time to time in
the publicly disseminated documents or filings of PNM or Manzano
and its subsidiaries.

Manzano and PNM undertake no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.

<PAGE>

PROPOSAL 1: THE AGREEMENT AND PLAN OF SHARE EXCHANGE
(PROPOSAL 1 ON YOUR PROXY CARD)

TERMS

PNM proposes to reorganize its operations by forming a holding company
structure as a means of achieving the corporate and asset separations required
by the Restructuring Act. Under the terms of the agreement and plan of share
exchange, all of the outstanding shares of PNM common stock will be exchanged on
a share-for-share basis for shares of Manzano common stock. Thus, when the share
exchange is completed, each person who owned PNM common stock immediately prior
to the share exchange will own the same number of shares (and percentage) of
Manzano common stock. Likewise, Manzano will own all of the outstanding shares
of PNM common stock. If the share exchange is implemented, shareholders will not
be required to surrender their existing PNM stock certificates for stock
certificates of Manzano.

The Board of Directors of PNM has approved the agreement and plan of
share exchange because it believes the share exchange is in the best interests
of the shareholders, PNM and its customers and, furthermore, because it complies
with the requirements of the Restructuring Act. If the shareholders approve the
agreement and plan of share exchange, and if the applicable regulatory approvals
are obtained and other conditions are satisfied, the share exchange will become
effective upon the filing of the Articles of Exchange relating to the share
exchange with the Corporations Bureau of the PRC. PNM believes that the
consummation of the share exchange could occur by the end of 2000. The share
exchange proposal requires the affirmative vote of the holders of two-thirds of
the shares of PNM common stock entitled to vote at the annual meeting.

Shareholder approval of the agreement and plan of share exchange will
also result in the approval of several amendments to the PNM Performance Stock
Plan and the PNM Director Retainer Plan. These amendments provide for the future
use of Manzano common stock instead of PNM common stock under these common stock
plans. Moreover, after the share exchange is completed, Manzano will become the
sponsor of these common stock plans instead of PNM.

After the share exchange, Manzano common shareholders will have the
right to vote on corporate action concerning Manzano (but not PNM) in accordance
with Section 53-11-33 of the BCA.

If PNM receives PRC approveal for part two of its transition plan
and all other necessary regulatory and other approvals, all of PNM's electric
and gas distribution and transmission assets and certain related liabilities
will be transferred to UtilityCo after completion of the share exchange.
After this asset transfer, UtilityCo will acquire the name "Public Service
Company of New Mexico" and the existing PNM will be renamed Manzano Energy
Corporation. Energy will continue to own PNM's existing electric generation
and related assets after completion of the transfer of the regulated business
to UtilityCo. Your approval is not required, and is therefore not being
solicited, for this asset and liability transfer to UtilityCo, which will
occur after the completion of the share exchange if PNM receives all
necessary approvals. After the asset and liability transfer,

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UtilityCo is expected to have approximately $1.3 billion of assets, $0.3 billion
of liabilities and $1.0 billion of capital, $592 million of debt and $396
million of equity, including preferred stock. These amounts are based on the
unaudited pro forma financial statements contained in PNM's Current Report on
Form 8-K filed on April 18, 2000.

The share exchange itself will not result in any change in the
outstanding indebtedness of PNM. In addition, PNM's preferred stock will remain
an equity security of Energy after the share exchange unless an exchange offer
for the preferred stock is made by UtilityCo and accepted by all the holders or
the preferred stock is redeemed by PNM. See "--Treatment of PNM Existing
Indebtedness and Preferred Stock."

RECOMMENDATION OF THE BOARD OF DIRECTORS

The Board of Directors has unanimously approved the agreement and plan
of share exchange and unanimously recommends that shareholders vote FOR the
agreement and plan of share exchange. In making its decision to recommend the
agreement and plan of share exchange, the Board of Directors has considered the
following material factors:

The energy industry is evolving at an accelerated pace and undergoing a
fundamental transformation into a competitive marketplace. This is primarily a
result of state and federal regulatory developments, including the passage of
the Federal Energy Policy Act of 1992, or the Energy Policy Act, and the
Restructuring Act, and escalating competitive pressures. To respond effectively
to the increased competition and restructured regulatory environment mandated by
the Restructuring Act, the Board of Directors has determined that PNM must
position itself to take advantage of potential business opportunities outside of
its present markets and legally separate its regulatory assets.

In the opinion of the Board of Directors, it is desirable in the long
run for PNM and its shareholders to pursue the new business opportunities
created by the Restructuring Act through a holding company structure. The
structure is a well-established form of organization for companies engaging in
multiple lines of business, is expressly authorized by the Restructuring Act and
is increasingly prevalent in the utility industry. Under a holding company
structure, Manzano would not be subject to PRC regulation and, therefore, would
be able to pursue non-utility business opportunities in a timely manner and
without the delay associated with a regulated business. The proposed holding
company structure also would permit the use of financing techniques and
strategies that are better suited to the particular requirements,
characteristics and risks of non-utility operations without affecting the
capital structure or creditworthiness of UtilityCo. This may increase Manzano's
financial flexibility by allowing it

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<PAGE>

to establish different debt-to-equity ratios and appropriate leverage levels for
each individual line of business.

The Board of Directors considered the financial cost to PNM of
implementing the agreement and plan of share exchange and concluded that the
benefits of implementing the holding company structure outweighed these
costs. These costs include (1) expenses associated with obtaining the
required regulatory and other approvals to implement the structure and the
related separation of businesses, (2) expenses incurred in connection with
registering the Manzano common stock with the SEC and (3) other transaction
related expenses, including professional fees. These costs are currently
estimated to be approximately $30 million to $40 million. It is expected that
transition costs will be recoverable through a separate wires charge. See
"--Significant Factors Affecting PNM's Present Business--Transition Cost
Recovery".

PRESENT BUSINESSES

PNM was organized under the laws of the State of New Mexico in 1917.
PNM is an integrated public utility primarily engaged in the generation,
transmission, distribution and sale of electricity and in the transmission,
distribution and sale of natural gas within the State of New Mexico. For the
year ended December 31, 1999, 78.8% of its operating revenues were derived from
electric operations, 20.4% from natural gas operations and 0.8% from unregulated
businesses. PNM's service area has a population of approximately 1.35 million of
which 52.2% live in the greater Albuquerque area.

PNM is currently subject to the jurisdiction of the PRC with respect to
its retail electric and gas rates, service, accounting, issuance of securities,
construction of major new generation and transmission facilities and other
matters. The FERC has jurisdiction over rates and other matters related to
transmission service and wholesale electric sales. As a co-licensee with respect
to three nuclear generating units, PNM is also subject to the authority of the
NRC.

SIGNIFICANT FACTORS AFFECTING PNM'S PRESENT BUSINESSES

The following are significant factors affecting PNM's present
businesses irrespective of the occurrence of the share exchange and proposed
separation of assets pursuant to the Restructuring Act.

TRANSITION COST RECOVERY. Pursuant to the Restructuring Act,
utilities will be allowed to recover in full any prudent and reasonable costs
incurred in implementing full open access ("transition costs"). These
transition costs will be recovered through 2007 by means of a separate wires
charge. The PRC may extend this date by up to one year. PNM is still
evaluating its expected transition costs and has not made a final
determination of those costs. PNM, however, currently estimates that these
costs will be approximately $30 million to $40 million. Transition costs for
which PNM will seek recovery include costs of this solicitation, professional
fees, financing costs including underwriting fees, consents relating to the
transfer of assets, management information system changes including billing
system changes and public and customer education and communications.
Recoverable transition costs are currently being capitalized and will be
amortized over the recovery period to match related revenues. Recovery of any
transition costs

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<PAGE>

which are not deemed recoverable by the PRC may be vigorously pursued through
all remedies available to PNM with the ultimate outcome uncertain. Costs not
recoverable will be expensed when incurred unless these costs are otherwise
permitted to be capitalized under current and future accounting rules. If the
amount of nonrecoverable transition costs is material, the resulting charge to
earnings may have a material effect on the future consolidated financial results
and position of Manzano.

RECOVERY OF STRANDED COSTS. The Restructuring Act recognizes that
electric utilities should be permitted a reasonable opportunity to recover an
appropriate amount of the costs incurred previously in providing electric
service ("stranded costs"). Stranded costs represent all electric power
generating costs, currently in rates, in excess of the expected competitive
market price and include plant decommissioning costs, regulatory assets, and
lease and lease-related costs. Utilities will be allowed to recover no less
than 50% of such costs through a non-bypassable charge on all customer bills
for five years after implementation of customer choice. The PRC could
authorize a utility to recover up to 100% of its stranded costs if the PRC
finds that recovery of more than 50%: (1) is in the public interest; (2) is
necessary to maintain the financial integrity of the public utility; (3) is
necessary to continue adequate and reliable service; and (4) will not cause
an increase in rates to residential or small business customers during the
transition period. The Restructuring Act also allows for the recovery of
nuclear decommissioning costs by means of a separate wires charge. PNM
expects to recover its regulatory assets along with other stranded costs
associated with the deregulated business through its stranded costs recovery.
Stranded costs include other operating costs in excess of the established
regulatory assets. PNM is still evaluating its expected stranded costs and
has not made a final determination of those costs. PNM's current estimate of
its stranded costs ranges from $650 million to $750 million which reflects
the present value of these costs as calculated in 2002 dollars based on its
most current set of assumptions as of April 18, 2000 and a strict
interpretation of the language of the Restructuring Act. PNM has not yet
finalized the amount of stranded cost recovery it will actually seek from the
PRC pursuant to the Restructuring Act. The calculation of stranded costs is
subject to a number of highly sensitive assumptions, including the date of
open access and projected market prices, among others. PNM believes that the
Restructuring Act if properly applied provides an opportunity for recovery of
a reasonable amount of stranded costs. If regulatory orders do not provide
for reasonable recovery, PNM is prepared to vigorously pursue judicial
remedies.

While recoverable stranded costs will be collected as part of the
regulated business by UtilityCo, the collections would be paid to Energy under
an agency agreement to be executed between UtilityCo and Energy and be part of
the revenues available to Energy subsequent to the restructuring. Final
determination and quantification of stranded cost recovery has not been made by
the PRC. The determination will have an effect on the recoverability of the
related assets and may have a material effect on the future consolidated
financial results and position of Manzano.

EFFECTS OF PNM'S DEPENDENCE ON FUEL, WATER AND GAS. PNM's generation
mix for 1999 was 69.0% coal, 30.0% nuclear and 1.0% gas and oil. Due to locally
available natural gas and oil supplies, the utilization of locally available
coal deposits and the generally abundant supply of nuclear fuel, PNM believes
that adequate sources of fuel are available for its generating stations.

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<PAGE>

Water for the Four Corners Power Plant, or Four Corners, and San
Juan Generating Station, or SJGS, is obtained from the San Juan River. BHP
Minerals International, Inc. holds rights to San Juan River water and
committed a portion of such rights to Four Corners through the life of the
project. PNM and Tucson Electric Power Company have a contract with the
United States Bureau of Reclamation, or USBR, for consumption of 16,200 acre
feet of water per year for the SJGS, which contract expires in 2005, and in
addition, PNM was granted the authority to consume 8,000 acre feet of water
per year under a state permit that is held by BHP Minerals International,
Inc. PNM is of the opinion that sufficient water is under contract for the
SJGS through 2005. Currently, PNM is in discussions with the Jicarilla Apache
Tribe for a twenty-seven year contract, beginning in 2006, for a replacement
of the current USBR contract for 16,200 acre feet of water. PNM cannot
predict the outcome of the discussions but expects to obtain a replacement
water supply for the USBR contract that expires in 2005. Various
environmental approvals will likely be required for a replacement water
supply. PNM is actively involved in the San Juan River Recovery
Implementation Program to mitigate any concerns with the taking of the
negotiated water supply from a river that contains endangered species and
critical habitat. As a result, PNM believes that adequate sources of water
are available for its generating stations.

Public Service Company of New Mexico Gas Services, or PNMGS, obtains
its supply of natural gas primarily from sources within New Mexico pursuant to
contracts with producers and marketers. These contracts are generally sufficient
to meet PNMGS' peak-day demand. PNMGS serves certain cities which depend on El
Paso Natural Gas or Transwestern Pipeline Company for transportation of gas
supplies. Because these cities are not directly connected to PNMGS transmission
facilities, gas transported by these companies is the sole supply source for
those cities. PNM believes that adequate sources of gas are available for its
distribution systems.

COMPLIANCE WITH ENVIRONMENTAL LAWS AND REGULATIONS. PNM's operations
are subject to various federal, state, local and tribal environmental laws and
regulations, including, but not limited to, those governing discharges into the
air and water, the storage, handling and disposal of solid and hazardous wastes,
the remediation of soil and groundwater contaminated by hazardous substances or
wastes, and the health and safety of employees particularly as it relates to
PNM's coal, gas and nuclear based electric generation assets. These assets will
be assets of Energy upon completion of PNM's proposed corporate separation under
the Restructuring Act. Compliance with environmental laws, stricter
interpretations of or amendments to these laws, or changes in enforcement
policies by regulatory agencies may require material expenditures by PNM. The
nature of PNM's current and former operations and the history of industrial uses
at some of its facilities result in exposure to the risk of liabilities or
claims with respect to environmental and worker health and safety matters. In
addition, under certain environmental laws, a current or previous owner or
operator of property may be jointly and severally liable for the costs of
investigation, removal or remediation of certain substances on, under, or in
such property, without regard to negligence or fault. The presence of, or
failure to remediate properly, such substances may adversely affect the ability
to sell or rent the property or to borrow using the property as collateral. In
addition, persons who generate, arrange for the disposal or treatment of, or
dispose of, hazardous substances may be jointly and severally liable for the
costs of investigation, remediation or removal of the hazardous substances at or
from the disposal or treatment facility, regardless of whether the facility is
owned or operated by such person.

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<PAGE>

Responsible parties also may be subject to common law claims by third parties
based on damages and costs resulting from environmental contamination emanating
from a site.

REQUIRED COLLECTIVE BARGAINING NEGOTIATIONS WITH ELECTRICAL WORKERS.
PNM and the International Brotherhood of Electrical Workers, Local Union 611
have entered into negotiations with respect to new collective bargaining
agreement(s). The current collective bargaining agreement, which covers the
654 bargaining unit employees in PNM's regulated and competitive, deregulated
operations, expires on May 1, 2000. Management negotiating committee
representatives are evaluating the various options in the event the parties
do not negotiate a new agreement by the expiration date. The union has filed
a charge with the National Labor Relations Board, or NLRB, alleging that PNM
has bargained in bad faith and by its actions has committed an unfair labor
practice. Management negotiating committee representatives will respond to
the union's allegations during the normal course of the NLRB's investigation
process. While PNM believes that its relations with its employees are
satisfactory, a dispute between PNM and its employees' representative could
have a material adverse effect on PNM.

EFFECTS OF CERTAIN PENDING EVENTS ON FUTURE REVENUES. PNM's contract
with San Diego Gas and Electric Company, or SDG&E, to provide electricity will
expire in April 2001. SDG&E has notified PNM that it will not renew its
contract. PNM currently estimates that the net revenue reduction resulting from
the expiration of the SDG&E contract will be approximately $20 million annually.
In addition, there is currently ongoing litigation at the FERC between PNM and
SDG&E regarding prior years' contract pricing.

On October 4, 1999, the Western Area Power Administration, or Western,
filed a petition at the FERC requesting the FERC to consider, on an expedited
basis, ordering PNM to provide network transmission service to Western under
PNM's Open Access Transmission Tariff on behalf of the United States Department
of Energy as contracting agent for Kirtland Air Force Base. PNM intends to
litigate this matter vigorously. The net revenue reduction to PNM if PNM is
replaced as the power supplier to Kirtland Air Force Base is estimated to be
approximately $7.0 million annually.

A MORE DETAILED DISCUSSION OF MATTERS AFFECTING PNM'S PRESENT
BUSINESSES CAN BE FOUND IN PNM'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1999, INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS.
SEE "WHERE YOU CAN FIND MORE INFORMATION."

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<PAGE>

PNM'S CORPORATE STRUCTURE

PUBLIC SERVICE COMPANY OF NEW MEXICO. PNM's corporate structure
(including the planned formation of UtilityCo) prior to the completion of the
share exchange is as follows:

[CHART]

The above chart does not show any of PNM's other existing subsidiaries
since these subsidiaries are either inactive or immaterial to PNM.

MANZANO CORPORATION. Manzano, a New Mexico corporation, was organized
in March 2000 for the purpose of carrying out the reorganization of PNM into a
holding company structure. Manzano is currently a direct, wholly-owned shell
subsidiary of PNM. Upon the consummation of the share exchange, Manzano will
become the parent of PNM. As part of the reorganization, PNM will distribute the
outstanding shares of common stock of UtilityCo to Manzano by way of a dividend
so that UtilityCo will also be a wholly-owned subsidiary of Manzano after the
consummation of the share exchange. Manzano is not expected to be an operating
company. Thus, all the business and operations conducted by PNM and its
subsidiaries immediately before the share exchange will continue to be conducted
by UtilityCo and Energy (the former PNM) immediately after the share exchange.

Similarly, the consolidated assets and liabilities of PNM and its
subsidiaries immediately before the share exchange will be the same as the
consolidated assets and liabilities of Manzano and its subsidiaries (UtilityCo
(the future PNM) and Energy (the former PNM)) immediately after the share
exchange. Although Manzano is not expected to be an operating company, Manzano
will engage in those activities that are necessary for it to meet its fiduciary
and financial obligations as a publicly-traded company. These activities include
financial risk management, cash management, compliance, credit management, trust
and corporate investments, planning and capital management, financial accounting
and reporting, budgeting, tax planning and strategy, audit, general counsel
services, corporate governance, strategic planning and analysis, shareholder
records and alliance, investor relations and government relations. In addition,
Manzano will have a division that will provide its subsidiaries with various
finance and accounting services, information services (including
telecommunications), human resources, certain legal services, document control
and records center, building and property management, environmental services and
corporate governance support. To establish this division, PNM will transfer the
relevant assets to Manzano at the time the share exchange is consummated.

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<PAGE>

UTILITYCO. PNM expects to form a new wholly-owned shell subsidiary,
UtilityCo, as a New Mexico corporation prior to consummation of the share
exchange. To comply with the Restructuring Act, UtilityCo will be formed so that
PNM can transfer all of its electric and gas distribution and transmission
assets to UtilityCo after the consummation of the share exchange. In addition,
the names "PNM" and "Public Service Company of New Mexico" will be transferred
to UtilityCo. As discussed, as a result of a dividend by PNM of all of the
outstanding shares of UtilityCo common stock, after the consummation of the
share exchange, UtilityCo will be a wholly-owned subsidiary of Manzano. After
completion of the share exchange and the separation of PNM's regulated business
and competitive, deregulated businesses, the PRC will retain the authority to
regulate the distribution rates and services of UtilityCo and FERC will have
jurisdiction over transmission rates and services. This separation, as
discussed, will not occur until the necessary regulatory and other approvals are
obtained.

MANZANO ENERGY CORPORATION. Upon consummation of the share exchange,
the former PNM will be renamed Manzano Energy Corporation and will be a direct,
wholly-owned subsidiary of Manzano. After the transfer of the regulated business
to UtilityCo, assuming the receipt of all necessary regulatory and other
approvals, Energy will be a generation, power supply and energy-related services
company that ultimately will provide these services pursuant to the
Restructuring Act on a competitive, deregulated basis. The competitive,
deregulated businesses that will be retained by Energy include PNM's interests
in the Palo Verde Nuclear Generating Station, Four Corners and SJGS as well as
less significant generation assets. Avistar will continue to be a wholly-owned
subsidiary of Energy as will the other existing subsidiaries of PNM that are
currently either inactive or immaterial. In the future, as business conditions
warrant, Energy may form new subsidiaries to take advantage of competitive,
deregulated business opportunities.

AVISTAR INC. PNM's wholly-owned subsidiary, Avistar, was formed in
August 1999 as a New Mexico corporation and is currently engaged in certain
non-utility businesses, including energy and utility-related services previously
operated by PNM. In February 2000, Avistar invested $3 million in AMDAX.com, a
start-up company that will provide an on-line auction service to bring together
electricity buyers and sellers in the deregulated electric power market. In
addition, Avistar operates and manages the City of Santa Fe's water system under
a contract due to expire on July 1, 2000. That contract is not expected to be
renewed. Pursuant to PRC authority, PNM could invest up to $50 million in equity
in Avistar and entered into a reciprocal loan agreement with Avistar for up to
$30 million. PNM has currently invested $25 million in Avistar and has no
amounts outstanding under the reciprocal loan agreement.

PNM expects the reorganized corporate structure of Manzano immediately
after the share exchange and corporate separation to be as follows:

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<PAGE>

[CHART]

The above chart does not show any of PNM's other existing subsidiaries
since these subsidiaries are either inactive or immaterial to PNM. Manzano may
also establish other subsidiaries in the future to engage in competitive or
other businesses.

REASONS FOR THE HOLDING COMPANY STRUCTURE AND THE SHARE EXCHANGE

The primary purpose of the formation of a holding company structure is
to establish a corporate structure that will respond to increased competition in
the electric and natural gas utility industries and to comply with the recently
adopted Restructuring Act.

In recent years, federal and state initiatives have promoted the
development of competition in the sale of electricity and gas. In general, these
initiatives have sought to unbundle the integrated services that electric and
gas utilities have traditionally provided and to enable customers to purchase
electricity and gas directly from suppliers other than their local utilities
while continuing to have this electricity and gas delivered by their local
utilities.

FEDERAL ELECTRIC INITIATIVES. Beginning with the passage of the Public
Utility Regulatory Policies Act of 1978 and, subsequently, the Energy Policy
Act, there has been a significant increase in the level of competition in the
market for the generation and sale of electricity. The Energy Policy Act reduced
barriers to market entry for companies wishing to build, own and operate
electric generating facilities, and it also promoted competition by authorizing
the FERC to require transmission service for wholesale power transactions. In
this regard, in 1996, the FERC issued Order 888 which, among other things,
required electric utilities controlling transmission facilities to file open
access transmission tariffs that would make the utility transmission systems
available to wholesale sellers and buyers of electric energy on a
non-discriminatory basis. PNM filed its open access transmission tariffs with
the FERC in April 1996.

Order 888 encouraged utilities to investigate the formation of
independent system operators, or ISOs, to operate transmission assets and
provided criteria under which the formation, operation and governance of ISOs
would be reviewed. The FERC issued an order relating to regional transmission
organizations, or RTOs, establishing timelines for transmission

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<PAGE>

asset-owning entities to join an RTO and defined the minimum characteristics and
functions that an RTO must satisfy.

Since early 1997 PNM has been informally discussing the formation of an
ISO in the southwestern United States. In January 1998, PNM entered into a
development agreement with other transmission service providers and users to
form an ISO in the Southwest. The development agreement called for the
development of the ISO to be separated into two phases. The first phase defined
the operating, pricing, planning and legal parameters of the ISO. The second
phase, which is still underway, was to develop the by-laws, articles of
incorporation and various tariffs and agreements required to operate the ISO.

Desert STAR, Inc., was incorporated as a non-profit organization in the
State of Arizona on September 21, 1999. Desert STAR is being developed to
satisfy the FERC's characteristics and functions as defined in Order 2000. PNM
is unable to predict the ultimate timing of the formation or the ultimate
outcome of the proposed Desert STAR RTO.

THE RESTRUCTURING ACT. At the retail level, the Restructuring Act in
New Mexico was enacted into law on April 8, 1999, opening the state's electric
power market to certain customers beginning in 2001 and the remainder in 2002.
The law requires the competitive unregulated activities of a public utility to
be separated from its regulated activities through the creation of at least two
separate corporations. The law also requires that public utilities be allowed to
recover at least half of their stranded costs through a non-bypassable wires
charge on all customer bills for five years after the implementation of customer
choice. The PRC could authorize a public utility to recover up to 100% of its
stranded costs if certain criteria specified in the law are met. Public
utilities will also be allowed to recover in full prudent and reasonable costs
incurred in implementing full open access or transition costs. These transition
costs may be recovered through 2007 by means of a separate wires charge. PNM was
initially required to file a transition plan with the PRC by March 1, 2000, for
approval on or before December 1, 2000, which plan had to include, among other
things, proposals for separating regulated and competitive business activities
and proposed charges for the recovery of stranded costs and transition costs.
The PRC has the authority under the Restructuring Act to extend the deadline for
filing a transition plan and the commencement date for customer choice by up to
one year.

On January 18, 2000, the PRC extended the deadline for the transition
plan filing for all New Mexico utilities by three months to June 1, 2000. The
PRC also asked for written comments within 60 days about extending the open
access starting dates but no extensions or changes have been made thus far.

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<PAGE>

July 19, 2000. Accordingly, PNM management now believes that implementation
of the separation plan could occur by the end of 2000. If PNM can obtain a
stipulated settlement with all involved parties, it is possible that
implementation of the separation plan could be accelerated. However, there is
no assurance that implementation of the separation plan will occur in 2000.
As discussed, this separation plan involves the transfer of the regulated
business of PNM (generally, electric and gas distribution and transmission
assets) to UtilityCo so that PNM, or Manzano Energy as it will be called
after the transfer, will maintain ownership of the competitive, deregulated
businesses (generally, electric generation and related assets). This transfer
is expected to take place after the consummation of the share exchange
assuming the receipt of all necessary regulatory and other approvals. Part
three of PNM's transition plan, which is currently planned to be filed by PNM
no later than June 1, 2000, will address transition costs, stranded costs,
UtilityCo's cost of service, standard offer service and other issues required
to be considered under the Restructuring Act.

INCREASED FLEXIBILITY OF A HOLDING COMPANY STRUCTURE. Currently, PNM is
subject to the regulation of the PRC with respect to almost all aspects of its
business, including the making of investments and the issuance of securities.
Under a holding company structure, Manzano would not be subject to PRC
regulation and, therefore, would be able to pursue non-utility business
opportunities in a timely manner and without the delay associated with a
regulated business. The proposed holding company structure also would permit the
use of financing techniques and strategies that are better suited to the
particular requirements, characteristics and risks of non-utility operations
without affecting the capital structure or creditworthiness of UtilityCo. This
would increase Manzano's financial flexibility by allowing it to establish
different debt-to-equity ratios and appropriate leverage levels for each
individual line of business. In addition, the holding company structure is
expressly authorized by the Restructuring Act as complying with the
Restructuring Act's requirements to separate regulated businesses from
competitive deregulated businesses.

REGULATORY APPROVALS

Approval of the proposed holding company structure and the share
exchange is required from the PRC, the FERC and the NRC.

As discussed above, PNM received an order from the PRC on
February 15, 2000 authorizing it to form Manzano and UtilityCo as
wholly-owned shell subsidiaries of PNM. PNM filed an application with the PRC
in November 1999 that is still pending seeking by June 1, 2000 all PRC
approvals necessary for PNM to implement the formation of the holding company
structure, the share exchange and the separation plan, including necessary
financing transactions, pursuant to the Restructuring Act. The part two
hearing is currently scheduled for July 19, 2000. Accordingly, PNM management
now believes that implementation of the separation plan could occur by the
end of 2000. If PNM can obtain a stipulated settlement with all involved
parties, it is possible that implementation of the separation

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<PAGE>

plan could be accelerated. However, there is no assurance that implementation of
the separation plan will occur in 2000.

The FERC has held that transfer of control of a public utility company
from its existing shareholders to shareholders of a holding company constitutes
a transfer of the "ownership and control" of facilities subject to its
jurisdiction under the Federal Power Act. Such an exchange must therefore be
reviewed and approved by the FERC under Section 203 of the Federal Power Act.
PNM currently plans to file an application with the FERC requesting this
approval shortly after its PRC part three transition filing.

As a co-licensee with respect to three nuclear generating units, PNM is
subject to the authority of the NRC. The formation of a holding company and the
separation of PNM's competitive, deregulated and regulated businesses will
involve two matters requiring NRC approval: (1) consent to the indirect transfer
of control of PNM's NRC license for its minority interests in Palo Verde Nuclear
Generating Station Units 1, 2 and 3 to a holding company and (2) approval of
amendments to the operating licenses for Palo Verde Nuclear Generating Station
Units 1, 2 and 3 to reflect the change in PNM's name. PNM filed an application
with the NRC requesting this approval in March 2000. The application is
currently pending with the NRC.

In addition to the regulatory approvals described above that are
necessary to implement the formation of the holding company structure and the
share exchange, PNM must obtain the approval of the SEC under Section 9(a)(2) of
the Public Utility Holding Company Act of 1935, or the 1935 Act, to effect the
separation of the regulated business and the competitive, deregulated
businesses. PNM filed an application under the 1935 Act with the SEC in March
2000 requesting its approval. This application is currently pending with the
SEC. In addition, PNM must obtain the approval of the FCC and obtain certain
financial consents to effect the separation of the regulated business and the
competitive, deregulated businesses. Receipt of these approvals which are
required for separation will not be a condition to the implementation of the
share exchange.

CONDITIONS TO THE SHARE EXCHANGE

The agreement and plan of share exchange is subject to the satisfaction
of the following conditions (in addition to approval of the agreement and plan
of share exchange by the holders of PNM common stock as described in this proxy
statement/prospectus):

- all necessary orders, authorizations, approvals or waivers
from the PRC, FERC, NRC and any other jurisdictional
regulatory bodies, boards or agencies, or other parties, have
been received, remain in full force and effect, and do not
include, in the sole judgment of PNM's Board of Directors,
unacceptable conditions;

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<PAGE>

- shares of the Manzano common stock to be issued in connection
with the share exchange have been listed, subject to official
notice of issuance, on the New York Stock Exchange;

- a registration statement is effective under the Securities Act
relating to the shares of Manzano common stock to be issued in
connection with the share exchange and is not subject to any
stop order thereunder;

- the receipt of an opinion of counsel or an opinion from PNM's
independent public accountants, in form and substance
satisfactory to PNM's and Manzano's Boards of Directors, as to
the United States federal income tax consequences of the share
exchange; and

- the receipt of an opinion, in form and substance satisfactory
to PNM's Board of Directors, from Keleher & McLeod, P.A.,
counsel to PNM, as to the legality of Manzano common stock to
be issued by Manzano in connection with the share exchange.

Following satisfaction of these conditions, the share exchange will
become effective upon filing (or at a specified time thereafter) with the
Corporations Bureau of the PRC the Articles of Exchange relating to the share
exchange. PNM cannot predict when all conditions will be satisfied but believes
that the share exchange could occur by the end of 2000.

CONSEQUENCES OF FAILURE TO OBTAIN SHAREHOLDER APPROVAL OF THE SHARE EXCHANGE

The holding company structure being proposed is PNM's response to the
transformation of the energy generation industry into a competitive marketplace.
As required by the Restructuring Act, PNM must separate its regulated businesses
from its competitive businesses through the use of at least two separate
corporations. PNM believes that its proposed holding company structure achieves
the mandate of the Restructuring Act while enhancing its ability to compete in
deregulated markets. The holding company structure limits the amount of direct
regulation to which the holding company is subject and permits it to establish
and fund new competitive businesses without regulatory approval.

If the holding company structure is not approved by shareholders, PNM's
competitive businesses would be materially affected. Developing and implementing
an alternative form to meet the requirements of the Restructuring Act and
position PNM to grow its competitive businesses would be costly and protracted.
PNM would experience a significant delay in creating a new form of organization
to take advantage of new business opportunities in a timely manner. In addition,
any alternative form of separation could materially affect both the competitive,
deregulated businesses as well as the regulated business (see "Risk
Factors--Necessary Regulatory Approvals of Proposed Separation Plan May Not Be
Obtained"). If PNM is unable to implement the proposed holding company
structure, its growth plans for its competitive, deregulated businesses may be
negatively affected.

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<PAGE>

REGULATION OF MANZANO AND ITS SUBSIDIARIES AFTER THE SHARE EXCHANGE
AND CORPORATE SEPARATION

Upon consummation of the share exchange and corporate separation,
Manzano, as the owner of all the outstanding UtilityCo and Energy common stock,
will be a "holding company" under the 1935 Act. Manzano will claim an exemption
under Section 3(a)(1) of the 1935 Act on the basis that Manzano, UtilityCo and
Energy are each organized and carry on their businesses substantially in the
State of New Mexico. This exemption is available only so long as the utility
businesses of UtilityCo and Energy, and of any other public utility subsidiary
from which Manzano derives a material portion of its income, remain
predominantly within New Mexico. The exemption would exempt Manzano from all
provisions of the 1935 Act except Section 9(a)(2), which requires SEC approval
for any person to acquire any security of a public utility company if the person
owns, controls or holds with the power to vote 5% or more of the outstanding
voting securities of the utility and of any other public utility or holding
company, or will by virtue of the acquisition, own, control or hold with the
power to vote 5% or more of the outstanding voting securities of the utility. To
maintain this exemption, Manzano must file an exemption statement each year
prior to March 1 with the SEC. The exemption may be revoked by the SEC if a
substantial question of law or fact exists as to whether Manzano is within the
parameters of the exemption, or if it appears that the exemption may be
detrimental to the public interest or the interest of investors or consumers.

Manzano will not be subject to regulation by the PRC, the FERC or the
NRC, except to the extent that the statutes and rules and orders of these
agencies impose restrictions on Manzano's relationships with UtilityCo or
Energy, or UtilityCo's or Energy's relationships with any future subsidiaries of
Manzano, or potential transactions involving Manzano and other public utilities
or holding companies that own public utilities subject to Federal Power Act
jurisdiction.

One of the purposes of the Restructuring Act and PNM's separation plan
is to functionally separate the regulated business from the competitive,
deregulated businesses. However, since implementation of customer choice in New
Mexico under the Restructuring Act will not be complete until at least January
1, 2002, there will be an interim period during which UtilityCo will function as
PNM traditionally has functioned--as a public utility offering fully bundled
electric generation, transmission and distribution service--even though it will
not own electric generation assets after PNM's regulated and competitive,
deregulated businesses have been separated. UtilityCo intends to provide fully
bundled service with the same level of reliability PNM has traditionally
provided and at rates in accordance with the rate freeze approved by the PRC.
These rates will remain in effect for each class of customer until customer
choice is available for each class, or until 2003, whichever occurs first.
UtilityCo will be able to continue to provide fully bundled electric service
because it will enter into power purchase and other ancillary agreements with
Energy allowing it to procure the same resources traditionally available to PNM
for providing fully bundled service. These agreements will terminate on the date
of full open access.

During the interim period between the implementation of PNM's
separation plan, and the implementation of customer choice for medium, large
commercial and industrial customers on January 1, 2002, or a later date
determined by the PRC, Energy will provide electric supply to

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<PAGE>

UtilityCo as described above. Otherwise, Energy will continue to provide
wholesale electric service as it has in the past and currently does, and will
also function as a competitive, deregulated firm offering and providing retail
electric supply and energy-related services after it receives its license from
the PRC.

After the implementation of the share exchange and PNM's proposed
separation plan, aside from the indirect regulatory oversight occasioned by the
interim period prior to complete customer choice as described above, UtilityCo
will continue to be subject to the regulation of the PRC and the FERC, and
Energy will generally not be subject to the regulation of the PRC, although it
will be required to obtain a competitive power supplier license in order to sell
retail power in New Mexico and comply with customer protection rules adopted by
the PRC in accordance with the Restructuring Act. Energy will continue to be
subject to the regulation of the NRC, as a co-licensee with respect to three
nuclear generating units, and the FERC.

TREATMENT OF PNM EXISTING INDEBTEDNESS AND PREFERRED STOCK

The share exchange itself will not result in any change in the
consolidated outstanding indebtedness of PNM. In connection with the transfer of
the regulated business by PNM to UtilityCo and the permanent debt financing for
the assets to be transferred, subject to the receipt of the necessary regulatory
and other approvals, UtilityCo may make an offer to holders of PNM's public
senior unsecured notes ($403 million outstanding as of December 31, 1999) to
exchange these notes for newly-issued senior unsecured notes of UtilityCo with
substantially the same terms as the existing PNM notes. Alternatively, some or
all of these notes could continue to be debt of Energy depending on the results
of any exchange offer or if it is more appropriate to capitalize UtilityCo with
newly issued debt and use the proceeds from this debt issue to purchase a
portion of the assets to be transferred to UtilityCo from Energy. It is
currently planned that $586 million of currently outstanding pollution control
revenue bonds (secured by senior unsecured notes and first mortgage bonds) will
remain as debt instruments of Energy after the share exchange and corporate
separation since these bonds were issued to finance the ownership and operation
of electric generation assets.

PNM's preferred stock ($12.8 million outstanding as of December 31,
1999) will remain an equity security of Energy after the share exchange unless
an exchange offer is made by UtilityCo and accepted by all the holders or the
preferred stock is redeemed by PNM. Depending on the results of any exchange
offer for PNM's preferred stock, some or all of this preferred stock could
remain an equity security of Energy or become a new equity security of
UtilityCo.

DIVIDEND POLICY

There is currently no reason to expect that dividends to common
shareholders will be affected by the reorganization. The ability of Manzano to
pay dividends will depend initially on the dividends and other distributions
that UtilityCo and Energy pay to Manzano and the capital requirements of Manzano
and its direct and indirect subsidiaries. It is anticipated that the dividends
paid to Manzano by UtilityCo and Energy will be sufficient to enable Manzano to
pay dividends on its common stock initially at the same rate and on the same
schedule that PNM currently pays dividends. However, the ability of UtilityCo
and Energy to pay dividends to

31
<PAGE>

Manzano will depend on a number of factors, including the extent to which cash
flows will support dividends, the availability of retained earnings, the
financial circumstances and performance of UtilityCo and Energy, the PRC's
decisions on PNM's various regulatory cases currently pending and market and
economic conditions generally. See "Risk Factors--Dividends on Manzano Common
Stock Will Depend Initially on Common Stock Dividends Paid by UtilityCo and
Energy."

RIGHTS OF DISSENTING SHAREHOLDERS

THE FOLLOWING SUMMARY OF THE AVAILABILITY OF DISSENTERS' RIGHTS AND
STATUTORY PROCEDURES TO BE FOLLOWED BY A HOLDER OF PNM COMMON STOCK IN ORDER TO
PERFECT DISSENTERS' RIGHTS UNDER NEW MEXICO LAW IS NECESSARILY INCOMPLETE AND
SELECTIVE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECTIONS 53-15-3 AND
53-15-4 OF THE BCA THE TEXT OF WHICH IS ATTACHED TO THIS PROXY
STATEMENT/PROSPECTUS AS EXHIBIT E.

The BCA gives holders of PNM common stock the right to dissent from
certain corporate actions, including share exchanges to which PNM is a party.
The BCA sets forth the procedure whereby a shareholder who desires to dissent
from any such proposed action must file with the corporation, a written
objection to the action prior to or at the meeting of shareholders at which the
proposed action is submitted to a vote. A shareholder need not vote against the
proposed action to perfect his or her dissenters' rights, which may be done only
by a written notice of objection to PNM. PNM intends to take the position that
voting in person or by proxy against the proposed action will not constitute the
written objection required.

If the action is consummated and a shareholder who has given written
notice of objection has not voted in favor of the action, the shareholder may,
within ten days after the date on which the vote was taken, make written demand
on PNM for payment of the fair value of his or her shares of PNM stock. Within
twenty days after demanding payment, each holder of shares represented by
certificates demanding payment must submit the certificates for notation that
such demand has been made. Failure to do so, at the option of PNM, terminates
the shareholder's dissenters' rights unless a court of competent jurisdiction,
for good and sufficient cause shown, decides otherwise.

Within ten days after the corporate action is effected, the corporation
is required to give written notice of the action to each dissenting shareholder
who has made demand and to make a written offer to each such shareholder to pay
for their shares at a specified price deemed by the corporation to be their fair
value. If the corporation and the shareholder can agree upon the fair value of
the shares, that value will be paid and all rights of the dissenting shareholder
will cease. If agreement as to the fair value cannot be reached, the
corporation, within the time limits prescribed by Section 53-15-4 of the BCA, is
to file suit in any court of competent jurisdiction in the county in which the
registered office of the company is located, asking for a finding and
determination of the fair value of the shares. If the corporation fails to
institute the proceeding, any dissenting shareholder may do so in the name of
the corporation. All dissenting shareholders of the corporation, wherever they
reside, must be made parties to the proceeding. The fair value of the shares, as
determined by the court, is payable immediately to the holders of uncertificated
shares and, to the holders of shares represented by certificates, only upon and
concurrently with the surrender to the corporation of the certificates
representing the shares. Upon payment of the

32
<PAGE>

fair value, the dissenting shareholder will cease to have any interest in the
shares. The costs and expenses of any such proceeding will be determined by the
court and assessed against the corporation, but all or any part of the costs and
expenses may be apportioned and assessed as the court deems equitable against
any or all of the dissenting shareholders who are parties to the proceeding to
whom the corporation made an offer to pay for the shares if the court finds that
the action of the shareholders in failing to accept the offer was arbitrary or
vexatious or not in good faith. The fair value of the shares will be their value
as of the day before the vote was taken authorizing the corporate action,
excluding any appreciation or depreciation in anticipation of the action.

IT IS SUGGESTED THAT SHAREHOLDERS CONSIDERING EXERCISING STATUTORY
DISSENTERS' RIGHTS CONSULT WITH THEIR OWN TAX ADVISORS WITH REGARD TO THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF THE ACTION.

PNM DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN

Shares of PNM common stock held in its dividend reinvestment and stock
purchase plan, known as the PNM Direct Plan (including uncertificated whole and
fractional shares), will automatically become a like number of shares of Manzano
common stock at the consummation of the share exchange. As of the consummation
of the share exchange, Manzano will succeed to this plan as sponsor as in effect
immediately prior to the consummation of the share exchange, and shares of
Manzano common stock will be issued under this plan after the consummation of
the share exchange. Manzano will file a post-effective amendment to PNM's
registration statement on Form S-3 for this plan shortly after the share
exchange is consummated.

PNM PERFORMANCE STOCK PLAN AND PNM DIRECTOR RETAINER PLAN

The agreement and plan of share exchange provides that the PNM
Performance Stock Plan and the PNM Director Retainer Plan will be amended to
provide that upon consummation of the share exchange, Manzano will become the
sponsor of these plans. If the share exchange is consummated, shares of PNM
common stock then held under the PNM Director Retainer Plan will automatically
become a like number of shares of Manzano common stock.

Upon consummation of the share exchange, all outstanding options under
the Performance Stock Plan and the Director Retainer Plan will be converted into
options to acquire, on the same terms and conditions as were applicable under
these stock options immediately prior to the consummation of the share exchange,
such number of shares of Manzano common stock as the holders of these options
would have been entitled to receive pursuant to the share exchange had these
holders exercised these stock options in full immediately prior to the share
exchange, at a price per share of Manzano common stock equal to the per share
option price of PNM common stock. Also, a vote in favor of the agreement and
plan of share exchange will also constitute approval, under these plans, as
amended, for shares of Manzano common stock, instead of PNM common stock, to be
issued and delivered in the future under these plans. Except as otherwise
described below, Manzano may issue future options on its common stock under
these plans. Manzano will file post-effective amendments to PNM's registration
statements on Form S-8 for these amended plans shortly after the consummation of
the share exchange.

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<PAGE>

During the seven years that the Performance Stock Plan has been in
existence, of the 5,000,000 million options available to be granted, PNM has
granted 4,061,835 options to members of management. As of April 1, 2000,
employees held 2,614,505 options that have not been exercised. These options
have the potential to be dilutive. However, to date, PNM has used market
purchases to satisfy the exercise of options by employees and, therefore, no
share dilution has occurred. PNM and Manzano currently intend to continue to
satisfy the exercise of options with market purchases.

If shareholders approve the Omnibus Plan at the annual meeting and the
share exchange is consummated, no new option grants will be made under the
Performance Stock Plan and instead will be made under the Omnibus Plan. In any
event, no new options will be awarded under the Performance Stock Plan after
December 31, 2000 in accordance with the terms of the plan.

LISTING OF MANZANO COMMON STOCK

We expect the Manzano common stock to be approved for listing on the
New York Stock Exchange and to trade under the stock symbol "MZO." At the time
of the listing of Manzano common stock, we will de-list the PNM common stock.

TRANSFER AGENT AND REGISTRAR

Manzano will act as transfer agent and registrar for its common stock.
The address for the transfer agent and registrar will be Manzano Corporation
Shareholder Records Department, Alvarado Square - MS 1104, Albuquerque, New
Mexico 87158.

MARKET PRICE OF PNM COMMON STOCK

PNM's common stock is currently listed and traded on the New York Stock
Exchange. On October 5, 1999, the day before PNM filed a press release
announcing its intention to form a holding company, the high and low sales
prices of PNM's common stock were $18.375 and $17.8125, respectively. The
reported closing price of PNM common stock on April 14, 2000 was $16.44.

DIRECTORS AND EXECUTIVE OFFICERS

The initial Board of Directors of Manzano consists of six of the nine
directors of the Board of Directors of PNM (including one of the directors
standing for election at the annual meeting) and a seventh member who has been
nominated for election to the PNM Board of Directors at the annual meeting.
These directors are identified in Exhibit B hereto. The initial term of each of
the directors of Manzano will be until the first election of Manzano directors
at its annual meeting of shareholders in 2001. There will be minimal overlap
between the Manzano Board of Directors and the UtilityCo Board of Directors and
between the Manzano Board of Directors and the Energy Board of Directors. There
will be no overlap between the Boards of UtilityCo and Energy or its
subsidiaries that are involved in a competitive business. However, we anticipate
that Manzano and Energy, and Manzano and UtilityCo, may have some common
officers. The existence of common directors and officers among Manzano, Energy
and UtilityCo will

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<PAGE>

comply with the PRC Code of Conduct and PNM's Statement of Policy and Procedure
after they become effective.

DESCRIPTION OF PNM CAPITAL STOCK

GENERAL. PNM is authorized to issue:

- 80,000,000 shares of common stock having a par value of $5
each, of which 39,535,699 shares were issued and outstanding
as of April 17, 2000; and

- 10,000,000 shares of cumulative preferred stock without par
value, of which 128,000 shares were issued and outstanding as
of April 17, 2000.

The outstanding preferred stock has preference over the outstanding
common stock as to dividends and assets on liquidation.

PREFERRED STOCK. The PNM Restated Articles of Incorporation, as
amended, or the PNM Articles, provide that, to the extent permitted by the BCA,
the PNM Board of Directors is authorized, at any time or from time to time, to
establish and designate one or more series of preferred stock and to fix the
number of shares and the relative rights, preferences and limitations of each
series. However, certain of the characteristics of PNM preferred stock, such as
voting rights, are fixed in the PNM Articles.

DIVIDENDS. After giving effect to any prior rights of PNM preferred
stock, if any are outstanding, PNM will pay dividends on its common stock as
determined by its Board of Directors out of legally available funds. The PNM
Articles contain certain restrictions on dividends so long as PNM preferred
stock is outstanding.

VOTING RIGHTS. The holders of PNM common stock are entitled to one vote
for each share held by them on all matters submitted to the shareholders of PNM.
Holders of PNM common stock do not have cumulative voting rights in the election
of directors. The PNM Articles and Bylaws generally require the affirmative vote
of a majority of the shares represented at the annual meeting and entitled to
vote for shareholder action, including the election of directors. As a result of
the application of certain provisions of the BCA, some corporate actions,
including amending the PNM Articles and approving a plan of merger,
consolidation or share exchange, require the affirmative vote of two-thirds of
the outstanding shares entitled to vote.

LIQUIDATION. In the event PNM is liquidated or dissolved, either
voluntarily or involuntarily, the holders of any PNM preferred stock established
by its Board of Directors would have priority (after PNM's creditors) with
respect to the distribution of PNM's assets. After the holders of any such
preferred stock are paid their aggregate liquidation preference, the holders of
PNM common stock would be entitled, to the exclusion of the holders of any such
preferred stock, to share ratably (according to the number of shares held by
them) in all remaining assets of PNM available for distribution.

PREEMPTIVE AND OTHER RIGHTS. The holders of PNM capital stock do not
have any preemptive rights to purchase shares of PNM common or preferred stock
(or their equivalents).

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<PAGE>

The PNM common stock is not subject to redemption or to any further calls or
assessments and is not entitled to the benefit of any sinking fund provisions.

DESCRIPTION OF MANZANO CAPITAL STOCK

GENERAL. Manzano is authorized to issue:

- 120,000,000 shares of common stock, of which 100 shares are
currently outstanding and issued to PNM; and

- 50,000,000 shares of preferred stock, of which none are
currently issued and outstanding.

PREFERRED STOCK. Like the PNM Articles, the Manzano Articles of
Incorporation, or the Manzano Articles, provide that, to the extent permitted by
the BCA, the Manzano Board of Directors is authorized, at any time or from time
to time, to establish and designate one or more series of preferred stock and to
fix the number of shares and the relative rights, preferences and limitations of
each such series. The Manzano Articles limit the Manzano Board of Directors to
designating voting rights only when dividends on the preferred stock are not
paid and when proposed changes to the Articles would adversely affect preferred
shareholder rights.

DIVIDENDS. After giving effect to any prior rights of Manzano preferred
stock, if any should become outstanding, Manzano will pay dividends on its
common stock as determined by its Board of Directors out of legally available
funds.

VOTING RIGHTS. The holders of Manzano common stock are entitled to one
vote for each share held by them on all matters submitted to the shareholders of
Manzano. Holders of Manzano common stock do not have cumulative voting rights in
the election of directors. The Manzano Articles and Bylaws generally require the
affirmative vote of a majority of the shares represented at the annual meeting
and entitled to vote for shareholder action, including the election of
directors. Under the Manzano Articles, some corporate actions, including
amending the Manzano Articles and approving a plan of merger, consolidation or
share exchange, require the affirmative vote of two-thirds of the outstanding
shares entitled to vote.

LIQUIDATION. In the event Manzano is liquidated or dissolved, either
voluntarily or involuntarily, the holders of any Manzano preferred stock
established by its Board of Directors would have priority (after Manzano's
creditors) with respect to the distribution of Manzano's assets. After the
holders of any such preferred stock are paid their aggregate liquidation
preference, the holders of Manzano common stock would be entitled, to the
exclusion of the holders of preferred stock, to share ratably (according to the
number of shares held by them) in all remaining assets of Manzano available for
distribution.

PREEMPTIVE AND OTHER RIGHTS. The holders of Manzano capital stock do
not automatically have any preemptive rights to purchase shares of Manzano
common or preferred stock (or their equivalents). The Manzano common stock is
not subject to redemption or to any further calls or assessments and is not
entitled to the benefit of any sinking fund provisions. The shares of Manzano
common stock to be issued to PNM common shareholders in connection with the
share exchange will be fully paid and non-assessable once the share exchange is
completed.

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<PAGE>

COMPARISON OF PNM COMMON STOCK AND MANZANO COMMON STOCK

As New Mexico corporations, both PNM and Manzano are governed by the
BCA. As a result of the share exchange, holders of PNM common stock, whose
rights as shareholders are currently governed by the BCA and PNM's Articles and
Bylaws, will become holders of Manzano common stock, whose rights as
shareholders will be governed by the BCA and Manzano's Articles and Bylaws.

The following table summarizes and compares the principal rights of
Manzano shareholders and the principal rights of PNM shareholders under the BCA
and the respective Articles and Bylaws of PNM and Manzano. It is qualified in
its entirety, however, by reference to the full texts of the Manzano Articles
and Bylaws and the PNM Articles and Bylaws. We have attached the Manzano
Articles and Bylaws as Exhibits B and C to this proxy statement/prospectus for
your convenience. The PNM Articles and Bylaws are incorporated by reference as
exhibits to the registration statement of which this proxy statement/prospectus
is a part.

PNM MANZANO
COMMON SHAREHOLDERS COMMON SHAREHOLDERS
------------------- -------------------

<S> <C>
AUTHORIZED SHARES

80 million shares of common stock and 10 120 million shares of common stock and 50
million shares of cumulative preferred stock. million shares of preferred stock.

PREEMPTIVE RIGHTS

None. None, except as determined by the Manzano
Board of Directors.

ADVANCE NOTICE OF BUSINESS TO BE BROUGHT BEFORE
SHAREHOLDER MEETINGS BY A SHAREHOLDER

None required. 90 days prior to the anniversary date of the
previous year's proxy statement mailing.

NUMBER OF DIRECTORS

Nine. Variable, between five and twelve, as
determined by the Manzano Board of
Directors. The initial Manzano Board of
Directors will have seven members.
</TABLE>

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<PAGE>

PNM MANZANO
COMMON SHAREHOLDERS COMMON SHAREHOLDERS
------------------- -------------------

<S> <C>
CHANGE IN NUMBER OF DIRECTORS

Amend the PNM Articles upon the affirmative The Manzano Board of Directors can increase
vote of two-thirds of the outstanding shares or decrease the number of directors between
entitled to vote. five and twelve as established in the Manzano
Articles. Changing this range would require an
amendment to the Manzano Articles and,
therefore, would require the affirmative vote of
two-thirds of the outstanding shares entitled to
vote.

CLASSIFIED BOARD

Three classes of directors, with each class If there are nine or more directors, the
serving staggered three-year terms. Manzano Board of Directors, at its option, may
classify itself to the extent permitted under the
Manzano Articles and the BCA into two or
three classes with staggered terms.

CUMULATIVE VOTING FOR DIRECTORS

None. None.

REMOVAL OF DIRECTORS

With or without cause at a meeting of Same.
shareholders called expressly for that purpose
by the vote of a majority of the shares then
entitled to vote on the election of directors.

ELECTION OF DIRECTORS TO FILL VACANCIES

By a majority of the remaining directors. Same.

SPECIAL MEETINGS OF SHAREHOLDERS

May be called by a majority of the Board of May be called by a majority of the Board of
Directors, the Executive Committee, the Directors, the Chairman of the Board, the
Chairman of the Board, the President or President or the holders of not less than one-
the holders of not less than one-tenth of all tenth of all the shares entitled to vote at the
the shares entitled to vote at the meeting. meeting.
</TABLE>

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<PAGE>

PNM MANZANO
COMMON SHAREHOLDERS COMMON SHAREHOLDERS
------------------- -------------------

<S> <C>
SHAREHOLDER ACTION BY WRITTEN CONSENT

Only if the consent is signed by all Same.
shareholders entitled to vote with respect to the
subject matter at issue.

SUPER MAJORITY VOTING PROVISIONS

Two-thirds shareholder approval required for Two-thirds shareholder approval required for
any plan of merger, consolidation or share any plan of merger, consolidation or share
exchange or to amend the PNM Articles. exchange or to amend the Manzano Articles.

SHAREHOLDER APPROVAL OF STOCK RIGHTS OR OPTIONS

The BCA requires shareholder approval of The Manzano Articles vest in the Manzano
stock rights or options issued to directors, Board of Directors the authority to create and
officers or employees and not to shareholders issue stock rights and options without
generally, unless otherwise provided in shareholder approval.
the articles of incorporation.

LIMITATION ON DIRECTOR LIABILITY

The PNM Articles have no provision. The Manzano Articles contain a limitation on
director liability provision that would be
effective if the BCA is amended to provide for
such a limitation.

</TABLE>

POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MANZANO'S ARTICLES AND
BYLAWS

The Board of Directors of Manzano does not believe that there are any
provisions in the Manzano Articles or Bylaws that have potential anti-takeover
effects other than the provisions described below. Although it is not the
intention of the Manzano Board of Directors to discourage legitimate offers to
enhance shareholder value, the overall effect of these provisions of the Manzano
Articles may be to render more difficult or to discourage unsolicited attempts
to acquire and take over Manzano. By discouraging potential takeover bids, these
provisions might diminish the opportunity for Manzano's shareholders to sell
their shares at a premium over then prevailing market prices. The PNM Board of
Directors decided to include these provisions to ensure that the Manzano Board
of Directors would have the ability to evaluate any proposed acquisition or
change in control based on the interests of Manzano and all of its
constituencies without undue pressure. The Manzano Board of Directors believes
that these anti-takeover provisions will provide additional protection and
potential stability for Manzano and its shareholders, thus increasing Manzano's
ability to maximize shareholder value.

CAPITALIZATION AND PREFERRED STOCK. The Manzano Board of Directors
believes that the shares of Manzano preferred stock authorized to be issued from
time to time with such rights, preferences and limitations as the Manzano Board
of Directors shall determine will provide the

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<PAGE>

Manzano Board of Directors with desirable flexibility in structuring possible
future financings and acquisitions and in meeting other possible future
corporate needs.

The Manzano preferred stock will be issuable from time to time in one
or more series by the Manzano Board of Directors without further action by
shareholders. The Manzano Board of Directors is authorized, subject to certain
limitations, prior to the issuance of any shares of a particular series of
preferred stock, to fix the designations, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations and restrictions of such rights, including, without limitation, the
dividend rights, conversion rights, rights and terms of redemption (including
sinking fund provisions) and liquidation rights of each series. In addition, the
Manzano Board of Directors is authorized to determine the number of shares
constituting each series of Manzano preferred stock. The ability of Manzano's
Board of Directors to designate preferential rights of the Manzano preferred
stock as to dividends or redemption or in connection with any liquidation,
dissolution or winding-up of Manzano could diminish funds otherwise available to
the holders of Manzano common stock.

SUPER MAJORITY VOTING PROVISIONS. Absent a specific amendment to the
PNM Articles, PNM is not subject to certain amendments, effective June 17, 1983,
to the BCA that lowered the shareholder voting requirements on certain matters,
including mergers, sales of assets, charter amendments and certain exchanges of
stock, such as the share exchange, from two-thirds of the outstanding shares
entitled to vote thereon to a majority of the outstanding shares entitled to
vote thereon. Accordingly, under current New Mexico law applicable to PNM, the
affirmative vote of the holders of two-thirds of the shares of PNM common stock
entitled to vote is required to approve the agreement and plan of share
exchange.

Unlike PNM, Manzano is subject to the 1983 amendments to the BCA which,
as indicated below, lowered the shareholder voting requirements in certain
circumstances to a majority of the outstanding shares entitled to vote on a
matter. Despite the availability of these lowered voting requirements to
Manzano, the Manzano Articles provide that the affirmative vote of the holders
of two-thirds of the outstanding Manzano common stock is required to effect a
merger, consolidation or sale of all or substantially all of its assets, to
amend the provisions of the Manzano Articles and to effect certain exchanges of
stock.

NON-CUMULATIVE VOTING. Like PNM, Manzano will not provide for
cumulative voting in the election of directors. Cumulative voting means that the
total number of votes which a holder of common stock may cast for the election
of directors shall equal the number of directors to be elected multiplied by the
number of shares held, and the shareholder may cast all of his or her votes for
a single nominee for director or may distribute them among all or several
nominees, as the shareholder sees fit.

Under cumulative voting, it is possible for representation on a board
of directors to be obtained by an individual or group of individuals who own
less than a majority of the voting stock. Such a shareholder or group may have
interests and goals which are not consistent with, and indeed might be in
conflict with, those of a majority of the shareholders. The Manzano Board of
Directors believes that each director should represent all shareholders, rather
than the interests of any special constituency, and that the presence on the
Manzano Board of Directors of one or more directors representing such a
constituency could disrupt and impair the efficient

40
<PAGE>

management of Manzano. The lack of cumulative voting could discourage the
accumulation of blocks of common stock and therefore could tend to make
increases in the market price of Manzano common stock, which could result
therefrom, less likely to occur. Therefore, shareholders may not be able to sell
their shares of Manzano common stock at a market price influenced by this type
of activity.

OTHER PROVISIONS. Some other provisions of the Manzano Articles or
Bylaws may also tend to discourage potential offers to take over and acquire the
business of Manzano. The initial Manzano Board of Directors will not be
classified since it will only have seven members. The Manzano Articles and
Bylaws, however, provide directors with the ability to increase the number of
directors, between five and twelve as set forth in the Manzano Articles, and to
elect, by majority vote, the additional directors. If the Manzano Board of
Directors in the future consists of nine or more persons, at the option of the
Manzano Board of Directors, it may be divided into classes, with directors in
each class generally being elected to serve multi-year terms. However, under the
BCA, shareholders may remove directors at any time, with or without cause, at a
meeting of shareholders called expressly for that purpose. Thus, these
classified board provisions, which are generally comparable to the current PNM
provisions, may not have the usual effect of prolonging the time required for a
shareholder or shareholders with significant voting power to gain majority
representation on the Manzano Board of Directors. In addition, as is currently
the case under the BCA, shareholders can only act by written consent if the
consent is unanimous. Lastly, unlike under the PNM Bylaws, the Manzano Bylaws
require that shareholders give at least ninety days advance notice to properly
bring business before an annual meeting of Manzano. This Manzano bylaw provision
may provide sufficient time for Manzano to institute litigation or take other
steps to respond to such business, or to prevent such business from being acted
upon, if such response or prevention is thought to be necessary or desirable.

ACCOUNTING TREATMENT

The consolidated assets and liabilities of Manzano and its subsidiaries
(including UtilityCo and Energy) immediately after the share exchange will be
the same as the consolidated assets and liabilities of PNM and its subsidiaries
(including UtilityCo and Manzano) immediately before the share exchange.
Manzano, on an unconsolidated basis, will record its investment in PNM and in
the subsidiaries transferred by PNM to Manzano at their net book value. The
share exchange will result in Manzano becoming the owner of all of the
outstanding shares of PNM common stock and all the outstanding shares of
UtilityCo common stock. This change in ownership will have no accounting effect
on Manzano and its subsidiaries nor will it have any effect on consolidated
results of operations or cash flows of Manzano. The transfers of subsidiaries by
PNM to Manzano and its subsidiaries will reduce PNM's retained earnings by an
amount equal to the net book value of the subsidiaries and related assets and
liabilities.

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

The following is a discussion of the material United States federal
income tax consequences of the share exchange and, insofar as it relates to
matters of United States Federal income tax law, constitutes the opinion of
Arthur Andersen LLP. This discussion is based upon the Internal Revenue Code of
1986, as amended, or the Code, existing income tax regulations,

41
<PAGE>

and administrative and judicial interpretations of the Code and income tax
regulations, all as in effect as of the date of this document. Those authorities
are subject to change, possibly with retroactive effect, which could result in
United States federal income tax consequences different from those described
here.

This discussion does not address any consequences of the share exchange
under the tax laws of any state, local or foreign jurisdiction. It also does not
address every aspect of United States federal income taxation that may be
relevant to a PNM shareholder in light of the shareholder's particular
circumstances, or to PNM shareholders subject to special rules, including
shareholders that are foreign entities or nonresident foreign individuals for
United States federal income tax purposes, financial institutions, insurance
companies, tax-exempt entities, dealers in securities and persons who acquired
shares of PNM common stock pursuant to the exercise of an employee option or
otherwise as compensation. This discussion assumes that PNM shareholders hold
their shares of PNM common stock as capital assets within the meaning of Code
Section 1221.

Further if a PNM shareholder can trace existing PNM shares or lots of
shares to specific purchase dates and specific purchase prices, the shareholder
is expected to be entitled to use the specific share identification method to
determine the tax basis of his or her new Manzano shares. However, a prudent
shareholder should consult an independent tax advisor for the proper calculation
of tax basis in the Manzano shares received.

THIS DISCUSSION DOES NOT ADDRESS ANY TAX CONSEQUENCES TO PNM
SHAREHOLDERS THAT EXERCISE DISSENTERS' RIGHTS. YOU SHOULD CONSULT YOUR OWN TAX
ADVISOR REGARDING THE TAX CONSEQUENCES TO YOU OF EXERCISING DISSENTERS' RIGHTS.

YOUR INDIVIDUAL CIRCUMSTANCES MAY AFFECT THE TAX CONSEQUENCES TO YOU OF
PARTICIPATING IN THE SHARE EXCHANGE. THOSE CIRCUMSTANCES MAY NOT BE ADDRESSED IN
THIS DISCUSSION. ACCORDINGLY, YOU SHOULD CONSULT YOUR OWN TAX ADVISOR TO
DETERMINE THE TAX EFFECT TO YOU, IN LIGHT OF YOUR INDIVIDUAL CIRCUMSTANCES, OF
PARTICIPATING IN THE SHARE EXCHANGE, INCLUDING THE APPLICATION AND EFFECT OF
UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS AND IN PARTICULAR,
WHETHER FOR UNITED STATES FEDERAL INCOME TAXES, YOU MAY BE ENTITLED TO USE THE
SPECIFIC SHARE IDENTIFICATION METHOD TO DETERMINE THE TAX BASIS AND HOLDING
PERIOD OF YOUR MANZANO COMMON SHARES RECEIVED IN EXCHANGE FOR INDIVIDUAL
SHARES OR LOTS OF SHARES OF PNM ACQUIRED FOR DIFFERENT AMOUNTS AND AT DIFFERENT
TIMES.

THE SHARE EXCHANGE. For the share exchange to be completed, PNM must
receive an opinion from Arthur Andersen LLP to the effect that the share
exchange will constitute a tax-free exchange under Code Section 354(a)(1).

The opinion will be based upon customary assumptions and
representations of fact, including representations of fact contained in
certificates of officers of PNM and Manzano. No ruling has been or will be
sought from the IRS, as to the United States federal income tax consequences of
the share exchange, and the opinion is not binding on the IRS or any court.
Accordingly, there can be no assurances that the IRS will not contest the
conclusions expressed in the opinion or that a court will not sustain such
contest.

42
<PAGE>

The following discussion assumes that the share exchange will
constitute a tax-free exchange under Code Section 354(a)(1).

TAX CONSEQUENCES TO PNM SHAREHOLDERS. For United States federal income
tax purposes, no gain or loss will be recognized by a PNM shareholder that
participates in the share exchange and receives solely common stock of Manzano
in exchange for PNM common stock. The shareholder's aggregate tax basis in the
shares of Manzano common stock received in the share exchange will equal the
shareholder's aggregate tax basis in the shares of PNM common stock held by the
shareholder immediately before the share exchange. A shareholder's holding
period for the shares of Manzano common stock received in the share exchange
will include the period during which the shareholder held the shares of PNM
common stock exchanged, provided the shares of PNM common stock were held as
capital assets on the date of the share exchange.

TAX CONSEQUENCES TO PNM AND MANZANO. For United States federal income
tax purposes, neither PNM nor Manzano will recognize gain or loss as a result of
the share exchange.

Your Board of Directors recommends a vote FOR this proposal.

PROPOSAL 2: ELECTION OF DIRECTORS

(PROPOSAL 2 ON YOUR PROXY CARD)

STRUCTURE

PNM's Board of Directors is divided into three classes for purposes of
election. One class is elected at each annual meeting of shareholders to serve
for a three-year term.

At the 2000 annual meeting, the terms of three directors are expiring.
The nominees, if elected at this annual meeting, will hold office for a
three-year term expiring in 2003. Two of these nominees, Robert G. Armstrong
and Theodore F. Patlovich, will also serve as directors on the first Board of
Directors of Manzano if the share exchange is approved and becomes effective.
The other directors are not up for election this year and will continue in
office until their successors are elected and qualified.

If a nominee is unavailable for election, proxy holders will vote for
another nominee proposed by the Board of Directors.

DIRECTORS NOMINATED THIS YEAR FOR TERMS EXPIRING IN 2003

ROBERT G. ARMSTRONG, 53, is a resident of Roswell, New Mexico, and has
been a director since May 1991. Mr. Armstrong is the President of Armstrong
Energy Corporation, Roswell, New Mexico, an oil and gas exploration and
production company.

THEODORE F. PATLOVICH, 72, is a resident of Albuquerque, New Mexico and
will be a new director. Mr. Patlovich is a businessman, entrepreneur, and
teacher. He joined Loctite Corporation in 1956, serving in various executive
positions including President of the Loctite Pacific Group from 1974 to 1975,
President of Loctite-Japan from 1975 to 1983, Corporate

43
<PAGE>

Senior Vice President from 1985 to 1991 and served as Vice Chairman of the Board
of Directors from 1985 until his retirement in 1991. Other directorships
include: SVS, Inc., Fresnel Corporation, Reflexite Corporation, and American
Home Furnishings.

PAUL F. ROTH, 67, is a resident of Santa Fe, New Mexico and has been a
director since May 1991. Mr. Roth served as the President of the Dallas Chamber
of Commerce, Dallas, Texas, from 1991 to 1992. Between 1956 and 1991, Mr. Roth
served in various executive positions, including President of the Texas Division
of Southwestern Bell Telephone Company, Dallas, Texas.

Your Board of Directors recommends a vote FOR these nominees.

CONTINUING DIRECTORS - CLASS II (TERM EXPIRING IN 2001)

JOHN T. ACKERMAN, 58, is a resident of Corrales, New Mexico and has
been a director since June 1990. Mr. Ackerman is Chairman Emeritus of PNM. Mr.
Ackerman served as Chairman of the Board of PNM from 1991 to 1999 and served as
President and Chief Executive Officer of PNM from 1990 until his retirement in
1993.

JOYCE A. GODWIN, 56, is a resident of Albuquerque, New Mexico, and has
been a director since May 1989. Ms. Godwin served as Vice President and
Secretary of Presbyterian Healthcare Services of Albuquerque, New Mexico from
1979 until her retirement in December 1993. Ms. Godwin also served as Chairman
and President of Southwest Business Ventures, Inc., a holding company for
Presbyterian Healthcare Services' for-profit ventures from 1986 until her
retirement in December 1993. Other directorships include: Charter Bank,
Albuquerque, New Mexico.

MANUEL LUJAN, JR., 72, is a resident of Albuquerque, New Mexico, and
has been a director since April 1994. Mr. Lujan has been a consultant on United
States governmental matters, focusing on western United States issues since
1993. Mr. Lujan served as United States Secretary of the Interior from 1989 to
1993 and served in the United States House of Representatives from 1969 to 1989.
Mr. Lujan has been an insurance agent with Manuel Lujan Insurance, Inc. since
1948. Other directorships include: Bank 1st, Albuquerque, New Mexico, and SODAK
Gaming, Inc.

CONTINUING DIRECTORS - CLASS III (TERM EXPIRING IN 2002)

BENJAMIN F. MONTOYA, 64, is a resident of Rio Rancho, New Mexico, and
has been a director since October 1993. Mr. Montoya has served as President and
Chief Executive Officer of PNM since August 1993 and as Chairman of the Board of
PNM since June 1999. He previously served as Senior Vice President and General
Manager, Gas Supply Business Unit, Pacific Gas and Electric Company (1991-1993).
Other directorships include: Wells Fargo (formerly Norwest Corporation) and
Furr's Supermarkets, Inc.

ROBERT M. PRICE, 69, is a resident of Edina, Minnesota, and has been a
director since July 1992. Mr. Price has been President of PSV Inc., a technology
consulting business located in Burnsville, Minnesota, since 1990. Between 1961
and 1990, Mr. Price served in various executive positions, including Chairman
and Chief Executive Officer of Control Data Corporation, a mainframe computer
manufacturer and business services provider. Other

44
<PAGE>

directorships include: Tupperware Corporation, International Multifoods Corp.,
Fourth Shift Corporation, Affinity Technology Group, Inc. and Data Link Corp.

JEFFRY E. STERBA, 45, was elected to the PNM Board of Directors in
March 2000, and was appointed President of PNM on January 26, 2000, with an
effective date of March 6, 2000. Mr. Sterba comes from Bethesda, Maryland, where
he served as Executive Vice President of USEC, Inc., or USEC, from January 1999
to February 2000. Mr. Sterba was responsible for leading new initiatives in
USEC's revenue development, market growth and business strategy. He oversaw
USEC's corporate development, marketing and sales, international trade and
information technology functions. USEC is the world leader in the sale of
uranium fuel enrichment services for commercial nuclear power plants. Before
joining USEC in January 1999, Mr. Sterba was Executive Vice President and Chief
Operating Officer of PNM, overseeing all of PNM's business units. During his 21
years at PNM, Mr. Sterba held various executive positions and was responsible
for bulk power services, corporate strategy and asset restructuring, retail
electric and water services, and electric business development and finance.

DIRECTOR COMPENSATION

Of PNM's current Board members, only two, Mr. Montoya and Mr. Sterba,
are salaried employees. They receive no compensation for serving on the PNM
Board of Directors or its committees. Board members who are not salaried
employees of PNM receive compensation for Board of Director service. That
compensation includes:

Annual Retainer*: $20,000

Attendance Fees: $750 per Board meeting
$500 for each Board committee meeting

Committee Chairs: $200 for each Board committee meeting
(in addition to attendance fees)

In June 1999, the PNM Board of Directors assigned temporary additional
duties to the Chairman of the Executive Committee, currently Mr. Ackerman, to
oversee PNM's development of a corporate governance plan for the regulated
utility company under a holding company system. The current Chairman of the
Executive Committee receives additional Board of Director fees in the amount of
$7,000 per month during the period that he is performing these additional
duties.

*Under PNM's Director Retainer Plan, approved by shareholders in 1996,
directors may choose to receive their annual retainer in the form of cash,
restricted stock or stock options. The restrictions on the restricted stock
generally lapse one-third each year following the year of the grant. The options
generally vest (become exercisable) one year from the date they were granted and
allow the director to purchase 2,000 shares of common stock. The exercise price
of the option is equal to the fair market value of the common stock on the date
of grant less the annual retainer divided by 2,000, subject to a minimum
exercise price.

45
<PAGE>

------------------------------------------------------------------------------
PNM COMMON STOCK OWNED BY EXECUTIVE OFFICERS AND DIRECTORS
AS OF APRIL 1, 2000
------------------------------------------------------------------------------

- ---------------------------- -------------------------------------------------------------------------
Amount and Nature of Shares Beneficially Owned(a)
- ---------------------------- -------------------------------------------------------------------------
Aggregate No. of Shares Right to Acquire Within Percent of Shares
Name Held(b) 60 Days(c) Beneficially Owned
- ---------------------------- ------------------------- ------------------------- ---------------------
<S> <C> <C> <C>
John T. Ackerman 10,935 -0- *
- ---------------------------- ------------------------- ------------------------- ---------------------
Robert G. Armstrong 4,183 5,000 *
- ---------------------------- ------------------------- ------------------------- ---------------------
Roger J. Flynn 1,000 12,301 *
- ---------------------------- ------------------------- ------------------------- ---------------------
Joyce A. Godwin 3,758 5,000 *
- ---------------------------- ------------------------- ------------------------- ---------------------
Manuel Lujan, Jr. 5,291 -0- *
- ---------------------------- ------------------------- ------------------------- ---------------------
Max H. Maerki 1,279 25,791 *
- ---------------------------- ------------------------- ------------------------- ---------------------
Benjamin F. Montoya 3,046 166,896 *
- ---------------------------- ------------------------- ------------------------- ---------------------
Patrick T. Ortiz 669 61,240 *
- ---------------------------- ------------------------- ------------------------- ---------------------
Reynaldo U. Ortiz(d) 3,224 2,000 *
- ---------------------------- ------------------------- ------------------------- ---------------------
Theodore F. Patlovich(e) -0- -0- *
- ---------------------------- ------------------------- ------------------------- ---------------------
Robert M. Price 3,000 5,000 *
- ---------------------------- ------------------------- ------------------------- ---------------------
William J. Real 972 22,603 *
- ---------------------------- ------------------------- ------------------------- ---------------------
Paul F. Roth 5,378 -0- *
- ---------------------------- ------------------------- ------------------------- ---------------------
Jeffry E. Sterba 1,520 -0- *
- ---------------------------- ------------------------- ------------------------- ---------------------
Directors and Executive 46,285 354,715 *
Officers as a Group (19)
- ---------------------------- ------------------------- ------------------------- ---------------------
</TABLE>

(a) Beneficial ownership means the sole or shared power to vote, or to direct
the voting of, a security or investment power with respect to a security.

(b) Shares held in the individual's name, individually or jointly with others,
or in the name of a bank, broker or nominee for the individual's account.

(c) The number of shares directors and executive officers have a right to
acquire through stock option exercises within 60 days after April 1, 2000.

(d) Mr. Ortiz is not standing for re-election at the annual meeting. (e) Mr.
Patlovich is a director nominee standing for election at the annual
meeting.

*Less than 1% of PNM's outstanding shares of common stock.

46
<PAGE>

- --------------------------------------------------------------------------------
PERSONS OWNING MORE THAN FIVE PERCENT OF PNM COMMON STOCK
AS OF APRIL 1, 2000
- --------------------------------------------------------------------------------

- ---------------------------------------- ------------------------- ------------------------- ------------ ------------
DISPOSITIVE
VOTING AUTHORITY AUTHORITY
------------------------- ------------------------- TOTAL PERCENT OF
NAME AND ADDRESS SOLE SHARED SOLE SHARED AMOUNT CLASS
- ---------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------

<S> <C> <C> <C> <C> <C> <C>
The Prudential Insurance Company of 134,200 2,629,656 134,200 2,596,024 2,642,056 6.81%
America
751 Broad Street
Newark, NJ 07102-3777
- ---------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>

The information provided above is based on reports filed with the SEC.
PNM makes no representation as to the accuracy or completeness of this
information. This is the only person known to PNM, as of April 1, 2000, to be
the beneficial owner of more than 5% of PNM's common stock.

<PAGE>

MEETINGS AND STANDING COMMITTEES OF THE BOARD OF DIRECTORS

MEMBERSHIP ROSTER (STANDING BOARD COMMITTEES)

Compensation Customer & Nominating
& Human Public &
Name Board Audit Resources Policy Executive Finance Governance
- ---- ----- ----- --------- ------ --------- ------- ----------

J. T. Ackerman x* x*

R. G. Armstrong x x* x x

J. A. Godwin x x x* x x*

L. H. Lattman x x x x

M. Lujan, Jr x x x

B. F. Montoya x* x

R. U. Ortiz x x x

R. M. Price x x x x*

P. F. Roth x x* x x x

J. E. Sterba x x

No. of Meetings in 1999 9 6 5 11 0 6 7

</TABLE>

- -------------------

* Chair

Notes:

1. J.T. Ackerman was Chairman of the Board through June 8, 1999. B.F. Montoya
was elected Chairman of the Board on June 8, 1999 to succeed J.T. Ackerman,
who is now Chairman Emeritus.

2. B.F. Montoya was a member of the Finance Committee through June 8, 1999.
J.T. Ackerman was appointed as a member of the Finance Committee on June 8,
1999.

3. J.E. Sterba was elected to the PNM Board of Directors in March 2000 to
complete the term of L.H. Lattman who retired in March 2000.

4. Mr. Ortiz is not standing for re-election at the annual meeting.

In 1999, the full PNM Board of Directors met nine times. In addition,
the outside directors met three times during 1999. Directors attended meetings
of individual Board committees as shown in the above table. For the PNM Board of
Directors as a whole, attendance in 1999 at full Board and committee meetings
exceeded 96%. Only one director, Mr. Ortiz, attended less than 75% of all
meetings.

The AUDIT COMMITTEE consists entirely of non-employee directors. It
assesses the work of PNM's internal auditors and independent public accountants
and the effectiveness of the business control structure. It also reviews the
financial statements of PNM and oversees PNM's financial reporting. The
committee represents the PNM Board of Directors in accounting and auditing
related activities of PNM. It has the responsibility to make recommendations to
the Board of Directors with respect to appointment of the independent public
accountants, to approve the scope of the annual audit and to monitor and review
the effectiveness of PNM's

<PAGE>

management of accounting functions. The committee also had the responsibility to
monitor and report to the Board of Directors the status of PNM's activities to
assure that its computers and other systems were year 2000 compliant.

The COMPENSATION AND HUMAN RESOURCES COMMITTEE consists entirely of
non-employee directors. It reviews PNM's compensation policies and benefit
programs and their relationship to the attainment of business goals. The
committee recommends to the Board of Directors the compensation philosophy and
guidelines for the entire executive and managerial group, giving emphasis to
rewarding long-term results and maximizing shareholder value. The committee
reviews PNM's affirmative action program, conducts an annual performance
evaluation of the chief executive officer, and ensures management continuity
through annual review and approval of a management development and succession
program. The committee also has oversight of PNM's code of conduct and
compliance program and interacts with PNM's employee organizations.

The CUSTOMER AND PUBLIC POLICY COMMITTEE consists entirely of
non-employee directors. It reviews and monitors policies that deal with PNM's
responsibility to the communities in which it does business. The subject matter
of policies reviewed and monitored includes: customer service, the environment,
charitable contributions, government relations and communications to various
constituencies of PNM. The committee meets with public officials, the media and
other opinion leaders throughout the year to obtain an independent assessment of
PNM's public reputation.

The EXECUTIVE COMMITTEE consists of directors appointed by a majority
of the Board of Directors. The Board of Directors appoints the Chair of the
Executive Committee who is a director other than the Chairman of the Board of
Directors. It exercises the powers of the PNM Board of Directors during
intervals between Board meetings.

The FINANCE COMMITTEE consists of a majority of non-employee directors.
It reviews and recommends to the Board of Directors the capital structure and
financial strategy for PNM, including dividend policy. It has oversight of PNM's
financial performance, investment procedures and policies, pension fund
performance and funding level and risk management strategies and policies. The
committee specifically has responsibility for the review and approval of certain
capital expenditures in excess of $1,000,000 and of all capital expenditures in
excess of $2,500,000.

The NOMINATING AND GOVERNANCE COMMITTEE consists entirely of
non-employee directors. It has the responsibility to make recommendations to the
PNM Board of Directors for nominees for election as directors, as well as
recommendations concerning the effectiveness, structure, size, composition and
compensation of the Board of Directors, including committee assignments and
candidates for election as Chairman of the Board. The Nominating and Governance
Committee conducts an annual evaluation of Board performance and effectiveness,
and, at least annually, reviews conflict of interest questionnaires submitted by
directors to determine whether any potential or actual conflict of interest
exists. In 1995, the Board of Directors approved a Nominations Policy which
describes the guidelines, procedures, and selection criteria for filling
vacancies on the Board of Directors, recognizing the importance of a
well-balanced Board of Directors which reflects the interests of PNM's
shareholders, customers,

<PAGE>

employees and the communities it serves. The Nominating and Governance Committee
seeks potential nominees for Board membership in various ways and will consider
suggestions submitted by shareholders. Suggestions, together with a description
of the potential nominee's qualifications, appropriate biographical information,
and the potential nominee's signed consent to serve, should be submitted to the
Secretary of PNM prior to December 28, 2000, for consideration at PNM's (or
Manzano's, after consummation of the share exchange) 2001 annual meeting.

<PAGE>

- --------------------------------------------------------------------------------
PERFORMANCE GRAPH
- --------------------------------------------------------------------------------

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN AMONG PNM, A PEER
GROUP* AND S&P 500 STOCK INDEX

The following graph assumes that $100 was invested on December 31, 1994
in PNM common stock, the combination gas and electric peer group and the S&P 500
Stock Index, and that all dividends were reinvested. Historical performance does
not necessarily predict future results.

FISCAL YEAR ENDED
DECEMBER 31, 1994 1995 1996 1997 1998 1999
- ------------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>

PNM 100 136 158 193 173 143

Peer Group 100 125 116 155 193 148

S&P 500 100 138 169 226 290 351

</TABLE>

* The peer group companies are combination electric and gas utilities each of
which has an investment in a nuclear power generating station. The peer group
companies are as follows: Central Hudson Gas & Electric Company, CMS Energy
Corp., Consolidated Edison, Inc., Niagara Mohawk Holdings, Inc., Northern
States Power Company, Pacific Gas & Electric Corp., PECO Energy Company,
Public Service Enterprise Group, RGS Energy Group, Inc., SCANA Corporation,
Wisconsin Energy Corp. and WPS Resources Corp. The comparative total return
for 1998 varied from that reported in 1999 due to mergers and/or
consolidations occurring within the Peer Group.

<PAGE>
- --------------------------------------------------------------------------------
COMPENSATION AND HUMAN RESOURCES COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------

COMPENSATION POLICIES

The Compensation and Human Resources Committee (the "Committee")
establishes compensation guidelines and targets based upon the performance of
PNM, business units within PNM, and individual executive officers. The Committee
consists of four independent directors who are not PNM employees. The
Committee's goal is to establish a compensation program that:

- links the interests of management and shareholders,

- links executive compensation with long-term PNM performance, and

- attracts and retains executives of high caliber and ability.

For 1999, that program consisted of base salary, short-term incentive
compensation and long-term incentive compensation.

The Committee believes this compensation program was a factor
contributing to PNM's success this past year, including earnings per share of
$2.01 and operating revenues of $1.16 billion.

BASE SALARIES

EXECUTIVE OFFICERS

Each year the Committee reviews base salaries of individual executive
officers and their salary ranges. In 1999, base salaries were conservatively
tied to the median base salaries of executives in comparable positions within
electric and gas utilities together with general industry practices as reported
in compensation surveys sponsored by the Edison Electric Institute, the American
Gas Association and William M. Mercer, Inc.

CHIEF EXECUTIVE OFFICER

Mr. Montoya became the President and Chief Executive Officer of PNM in
1993. At that time, data provided by an executive compensation consultant and an
executive search firm were considered in determining Mr. Montoya's compensation.
Mr. Montoya's salary remained unchanged until 1996, when the common stock
dividend was reinstated. In 1996, his salary was increased by $30,000 to
$350,000. In 1997, Mr. Montoya's salary was increased by $25,000 to $375,000. In
1998, his salary remained at the same level. In 1999, Mr. Montoya's salary was
increased by $50,000 to $425,000, and he became Chairman, President and Chief
Executive Officer. In setting Mr. Montoya's salary, the Committee evaluated his
performance in the prior year. Determinative factors included:

<PAGE>

- strategic planning

- company restructuring for deregulation

- financial targets

- Y2K critical systems transition

- succession planning o external relations targets

Some of the significant achievements considered are set forth below:

- development of an initial holding company transition plan

- development of a competitive strategic direction plan

- achievement of generation cost reduction targets

- continued improvement in financial credit rating criteria

- continued improvement in community acceptance and customer
satisfaction indicators

SHORT-TERM INCENTIVE COMPENSATION

EXECUTIVE OFFICERS

In 1999, executive officers, together with all other PNM employees,
participated in a results pay plan. The plan has an "at risk" cash compensation
element tied to the success of the individual business units combined with
company-wide earnings per share ("EPS") performance. EPS goals are approved
annually by the PNM Board of Directors. Business unit goals for 1999 were
generally focused on customer satisfaction, cost control, operations efficiency
and business unit earnings per share, with performance targets established for
threshold, stretch and optimal achievements. Overall business unit goals for
1999 were achieved at the optimal performance level and the company-wide EPS
goal was achieved at 110% of the business plan goal. Award payments were made to
participants in February 2000.

CHIEF EXECUTIVE OFFICER

Mr. Montoya was not a participant in the results pay plan; however,
based on his 1999 performance, the PNM Board of Directors awarded Mr. Montoya a
bonus of $100,000 in 2000.

<PAGE>

LONG-TERM INCENTIVE COMPENSATION

EXECUTIVE OFFICERS AND CHIEF EXECUTIVE OFFICER

Under PNM's Performance Stock Plan, or the PSP, non-qualified stock
option grants are awarded to all executive officers, including Mr. Montoya, as
well as other key employees. The PSP provides that the Committee, in its sole
and absolute discretion, will declare the level of options to be granted. Grants
for 1999 were approved and awarded in February 1999 and are reported in this
proxy statement/prospectus under "--Option Grants in 1999" below.

CERTAIN TAX MATTERS.

Under Section 162(m) of the Code, PNM may not deduct certain forms of
compensation in excess of $1 million. PNM has no policy with respect to Section
162(m) because no executive of PNM earns in excess of $1 million.

Compensation and Human Resources Committee

Paul F. Roth (Chair) Joyce A. Godwin
Robert G. Armstrong Robert M. Price

<PAGE>
- --------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
------------
AWARDS
----------
ANNUAL COMPENSATION SECURITIES
NAME AND ---------------------------------- OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(A) OPTIONS(#) COMPENSATION
- ------------------ ---- ------ ----- --------------- ---------- ------------

<S> <C> <C> <C> <C> <C> <C>
B. F. Montoya 1999 $415,376 $100,000(b) -- 45,000 $ 19,153(d)
Chairman and CEO 1998 389,423 25,000(b) -- -0- (c) 22,327(d)
1997 358,657 75,000(b) -- 20,902 -0-

R. J. Flynn 1999 $193,110 $ 64,400(e) -- 16,000 $ 5,555(d)
Executive Vice President 1998 166,320 49,223(e) -- -0- (c) 1,842(d)
of Electric and Gas 1997 155,574 9,975(e) -- 7,432 -0-
Services

M. H. Maerki 1999 $188,732 $ 55,200(e) -- 16,000 $ 5,281(d)
Senior Vice President 1998 190,432(f) 49,927(e) -- -0- (c) 3,024(d)
and Chief Financial 1997 178,346(f) 12,408(e) -- 7,432 -0-
Officer

P. T. Ortiz 1999 $170,670 $ 39,900(e) -- 16,000 $ 3,446(d)
Senior Vice President, $ 75,000(f) -- -0- (c) 982(d)
General Counsel and 1998 155,699 41,588(e) 7,432 -0-
Secretary 1997 142,884 11,093(e)

W. J. Real 1999 $173,139 $ 45,600(e) -- 16,000 $ 3,752(d)
Executive Vice President 1998 145,335 18,685(e) -- -0- (c) 301(d)
of Power Production and 1997 137,596(g) 30,000(e) -- 7,432 -0-
Energy Services

</TABLE>

(a) These amounts are less than the established reporting thresholds.

(b) The bonus was paid in February 2000 for 1999 performance. There was no
bonus paid in 1999 for 1998 performance. Bonuses paid in June 1998 and
August 1997 were for previous performance. (c) Due to Performance Stock
Plan amendments approved in 1998 which changed the timing of the grants, no
grants were awarded with a 1998 effective date.

(d) These amounts are pursuant to a plan that provides executives with
contribution benefits for earning more than IRS limits imposed for
qualified plans.

(e) In 1995, a results-based reward program was implemented which was designed
to tie a portion of cash compensation awarded to employees to the success
of their business unit, combined with company-wide earnings per share
("EPS") results. EPS goals are approved annually by the Board of Directors.
These amounts reflect incentive award amounts paid in 2000 for 1999
achievements, in 1999 for 1998 achievements, and in 1998 for 1997
achievements. In addition, these amounts include any lump sum awards
granted for individual performance.

(f) Award paid in March 2000 for previous performance.

(g) These amounts include sales of accrued vacation hours during 1998 and 1997
and also reflect increases in base salaries.

<PAGE>
- --------------------------------------------------------------------------------
OPTION GRANTS IN 1999
- --------------------------------------------------------------------------------

Under PNM's PSP, non-qualified stock option grants are awarded to all
executive officers, including Mr. Montoya, as well as other key employees.
Grants for 1999 were approved and awarded in February 1999 and are reported in
this proxy statement/prospectus.

OPTION GRANTS IN LAST FISCAL YEAR (1999)

INDIVIDUAL GRANTS (1)
------------------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE PRICE PRESENT
NAME GRANTED (#) FISCAL YEAR ($/SHARE) EXPIRATION DATE VALUE ($) (2)
- ---- ----------- ----------- --------- --------------- -------------

<S> <C> <C> <C> <C> <C>
B. F. Montoya 45,000 7.8% $17.50 02/08/2009 165,600
R. J. Flynn 16,000 2.8% $17.50 02/08/2009 58,880
M. H. Maerki 16,000 2.8% $17.50 02/08/2009 58,880
P. T. Ortiz 16,000 2.8% $17.50 02/08/2009 58,880
W. J. Real 16,000 2.8% $17.50 02/08/2009 58,880

</TABLE>

(1) The options shown in this table were granted in 1999 under the Third
Restated and Amended Public Service Company of New Mexico Performance Stock
Plan.

(2) The grant date valuation was calculated using the Black-Scholes option
pricing model assuming stock price volatility of 25%, a risk-free rate of
return of 4.58% and an annual dividend yield of 4.369%. The weighted
average grant date option fair value is $3.68.

AGGREGATED OPTION EXERCISES IN 1999
AND 1999 YEAR-END OPTION VALUES

NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999(A)
SHARES ACQUIRED VALUE --------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
B. F. Montoya -0- 166,896 65,902 $320,033 -0-
R. J. Flynn -0- 12,301 23,432 -0- -0-
M. H. Maerki -0- 25,791 23,432 -0- -0-
P. T. Ortiz -0- 61,240 23,432 119,654 -0-
W. J. Real -0- 22,603 23,432 -0- -0-

</TABLE>

(a) Value equals the year-end stock price ($16.25) minus the exercise price,
times the number of shares underlying the option. "In-the-Money" means that
the year-end stock price was greater than the exercise price of the option.
All unexercisable options, as of December 31, 1999 were not "In-the-Money".

RETIREMENT PLAN AND RELATED MATTERS

In December 1996, the Board of Directors approved changes to the PNM
defined benefit plan ("Retirement Plan") and implementation of matching and
non-matching contributions to the 401(k) defined contribution plan effective
January 1, 1998. PNM contributions to the 401(k) plan

<PAGE>

consist of a 3 percent non-matching contribution, and a 75 percent match on the
first 6 percent contributed by the employee on a before-tax basis.

Through December 31, 1997, the Retirement Plan covered employees who
had at least one year of service and had attained the age of 21. Vesting
occurred after five years of service. Directors who were not employees did not
participate in the Retirement Plan. PNM made no contribution in 1999 to the
Retirement Plan for plan year 1998, as the Retirement Plan was frozen effective
December 31, 1997.

Salaries used in Retirement Plan benefit calculations were frozen as of
December 31, 1997. Additional credited service can be accrued under the
Retirement Plan up to a limit determined by age and years of service. PNM made
contributions in 1998 to the Retirement Plan for plan year 1997 in the amount of
$185,000. The amount of any contribution with respect to any one person cannot
be determined. The contribution amount is actuarially determined based upon the
number of Plan participants, the participants' age, salary, and years of
service. Directors who were not employees did not participate in the Retirement
Plan.

The following table illustrates the annual benefits that would be
provided under the Retirement Plan to employees who retire at the indicated
compensation and year of service levels and who elect to receive the benefits,
which are calculated on a straight-life annuity basis, over their remaining
lives. Vesting of accrued benefits would also occur in the event of a change in
control of PNM. Benefits shown are maximum annual benefits payable at age 65 to
participants who retire at age 65. The table is based on the Retirement Plan.
The amounts shown in the table are not subject to any deduction for Social
Security benefits or other offset amounts.

- --------------------------------------------------------------------------------
PENSION PLAN TABLE
- --------------------------------------------------------------------------------

AVERAGE OF
HIGHEST ANNUAL
BASE SALARY
FOR 3 CREDITED YEARS OF SERVICE
CONSECUTIVE -------------------------------------------------------------------------------------
YEARS(A) 5(B) 10 15 20 25 30 321/2(C)
-------- ------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000 $ 10,000 $ 20,000 $ 30,000 $ 40,000 $ 50,000 $ 60,000 $ 65,000
$150,000 15,000 30,000 45,000 60,000 75,000 90,000 97,500
$200,000 20,000 40,000 60,000 80,000 100,000 120,000 130,000
$250,000 25,000 50,000 75,000 100,000 125,000 150,000 162,500
$300,000 30,000 60,000 90,000 120,000 150,000 180,000 195,000
$350.000 35,000 70,000 105,000 140,000 175,000 210,000 227,500
$400,000 40,000 80,000 120,000 160,000 200,000 240,000 260,000
$450,000 45,000 90,000 135,000 180,000 225,000 270,000 292,500
-------- ------- ------- -------- -------- -------- -------- --------
</TABLE>

(a) For these purposes, compensation consists of base salaries and includes any
amount voluntarily deferred under PNM's Master Employee Savings Plan.
Generally, compensation for these purposes does not include bonuses,
payments for accrued vacation, or overtime pay.

(b) Although years of service begin accumulating from the date of employment,
vesting occurs after five years of service.

(c) The maximum number of years generally taken into account for purposes of
calculating benefits under the non-contributory defined benefit plan. Under
limited circumstances, an employee working beyond age 62 could earn an
additional 3% retirement benefit.

<PAGE>

Credited years of service, which can be used to calculate benefits as
shown in the above table, have been accumulated by executive officers under the
Retirement Plan, the Accelerated Management Performance Plan discussed below and
the supplemental employee retirement arrangements discussed below. Credited
years of service computed as of December 31, 1999, are as follows: Mr. Montoya,
10 years; Mr. Flynn, 5.08 years; Mr. Maerki, 27.57 years; Mr. Ortiz, 8.25 years;
and Mr. Real, 21.33 years. The executive officers' remuneration which would be
used to calculate benefits is determined by reference to the Retirement Plan and
the supplemental employee retirement arrangements discussed below. As of
December 31, 1999, the remuneration used to calculate benefits were as follows:
Mr. Montoya, $373,336; Mr. Flynn, $161,163; Mr. Maerki, $170,900; Mr. Ortiz,
$138,332; and Mr. Real, $135,000. The remunerator used by the plan was frozen as
of December 31, 1997.

Under Section 401(a)(17) of the Code there is a limitation on the
amount of compensation that can be considered in determining retirement benefits
under qualified retirement plans. In June 1998, the Board of Directors approved
a plan to give executives with earnings in excess of the Code Section 401(a)(17)
limitation ($160,000 for 1999) an opportunity to more fully participate in PNM's
401(k) plan and enable them to receive the 3% company contribution and a 75 cent
on the dollar match for the first 6% contributed by the employee for eligible
earnings in excess of the compensation limitation. The plan also permits
executives to contribute amounts in excess of the Code Section 402(g)
limitations on elective deferrals. Six executive officers participated in the
executive savings plan in 1999.

In January 1981, the Board of Directors approved a non-qualified
executive benefit program for a group of management employees. The Accelerated
Management Performance Plan, or AMPP, was intended to attract, motivate and
retain key management employees. Mr. Maerki and certain other key management
employees are eligible to participate in one or more of the plans in the
program. Under the program, as originally adopted, key management employees had
the opportunity to earn additional credit for years of service toward
retirement. The AMPP, as amended and restated, phased out the accumulation of
additional credits by January 1, 1990. In addition, the amended and restated
plan includes a provision which allows key management employees who have not
attained the maximum credits for years of service to receive a reduced benefit
from the plan upon accepting early retirement. Monthly benefits received
pursuant to the AMPP are offset by monthly benefits received pursuant to the
Retirement Plan.

As approved by the Board of Directors in 1989, a supplemental employee
retirement agreement was entered into with Mr. Maerki. Under the agreement, Mr.
Maerki's retirement benefits will be computed as if he had been an employee of
PNM since February 15, 1974.

As approved by the Board of Directors in 2000, a supplemental employee
retirement agreement was entered into with Mr. Ortiz. Under the terms of the
agreement, Mr. Ortiz will earn additional years of credited service so that, if
he remains employed by PNM until January 1, 2010, he will be credited with 30
years of service. The agreement also provides that, until Mr. Ortiz reaches the
age of 55, his eligibility for retiree medical benefits will be determined as if
he had attained 20 years of credited service with PNM at age 45.

<PAGE>

Under the terms of employment agreements with Mr. Montoya, he will be
eligible to receive supplemental retirement benefits computed as if he had been
an employee of PNM since August 1, 1990.

The Board of Directors has approved the establishment of an irrevocable
grantor trust, under provisions of the Code, generally in connection with the
AMPP and the supplemental retirement arrangements with Mr. Montoya, Mr. Maerki,
and certain former executive officers. PNM may, but is not obligated to, provide
funds to the trust, which was established with an independent trustee, to aid in
meeting its obligations under such arrangements. Funds in the amount of $12.7
million have been provided to the trust since 1989. Distributions have been made
from the trust since 1989. No additional funds have been provided to the trust.
In connection with amendments to the Executive Retention Plan discussed below,
the executive savings program and supplemental retirement arrangements would be
required to be funded through the trust upon a change in control of PNM.

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE IN CONTROL ARRANGEMENTS

The PNM Board of Directors adopted the Executive Retention Plan, or the
Retention Plan, effective January 1, 1992. The Retention Plan covers executive
officers and other key employees designated by the Board. Mr. Montoya's
agreement, which provided him with substantially similar benefits, was
discontinued in 1998, and he is now also covered by the Retention Plan. The
Retention Plan, as recently amended, provides certain severance benefits should
the employee be terminated from PNM as a result of a change in control of PNM,
and the employee is not immediately re-employed by the successor company, if
that termination is (a) for reasons other than cause, or (b) by the employee due
to constructive termination. The severance benefits include: (i) lump sum
severance equal to 2.5 times current base compensation for executive officers;
(ii) reimbursement of reasonable legal fees and expenses incurred as a result of
termination of employment; (iii) certain insurance benefits which are
substantially similar to those received by the employee immediately prior to
termination of employment; (iv) certain other amounts; and (v) if an employee
receives any payment due to a change in control which is subject to the excise
tax provided in Section 4999 of the Code, then PNM will reimburse the employee
in an amount equal to that which places the employee in the same after-tax
position as if no excise tax had been imposed. The Retention Plan was effective
for an initial term through December 31, 1992, and is to continue in effect
until terminated by the Board. The Retention Plan is also subject to automatic
extension, or revival if it has been terminated, as to certain events relating
to potential changes in control.

<PAGE>

PNM also has a non-union severance pay plan that covers non-union
employees terminated due to the elimination of their positions. Benefits include
continuation of certain insurance benefits plus regular severance pay in the
amount of two months of base salary plus one additional week of base salary for
each year of service, which may be enhanced if the participant signs a release
agreement with PNM. Executives are also eligible, upon signing a release
agreement, for a lump sum payment equal to one year of base salary and
reimbursement for placement assistance expenses incurred during the year after
being terminated up to 5% of base salary. If an employee is eligible to receive
benefits under the Retention Plan, severance benefits are not available to that
employee under the non-union severance pay plan.

PROPOSAL 3: APPROVAL OF OMNIBUS PERFORMANCE EQUITY PLAN
(PROPOSAL 3 ON YOUR PROXY CARD)

On December 7, 1999, the PNM Board of Directors adopted a new employee
stock incentive plan. Subject to approval by PNM's shareholders and the
consummation of the share exchange, the Omnibus Performance Equity Plan, or the
Omnibus Plan, will expand Manzano's flexibility to structure compensation
incentives for Manzano officers and other key employees by rewarding long-term
growth and profitability incentives in the emerging competitive environment.
Accordingly, certain key employees may be granted Non-Qualified Stock Options,
Incentive Stock Options, Restricted Stock Rights, Performance Shares,
Performance Units and Stock Appreciation Rights under the Omnibus Plan as
described below. While it puts more pay at risk, ownership of stock assists in
the attraction and retention of eligible employees and provides them with
additional incentives to devote their best efforts to pursue and sustain
Manzano's financial success as well as to perform in the best interest of
shareholders, customers and employees.

SUMMARY OF OMNIBUS PLAN FEATURES

GENERAL. The Omnibus Plan contemplates that from time to time, grants
of stock-related awards of four general types will be made to selected eligible
employees: (1) options to purchase shares of Manzano common stock ("Options");
(2) rights to receive, upon exercise, the appreciation of the fair market value
of shares of Manzano common stock ("Stock Appreciation Rights" or "SARs"); (3)
outright grants of shares of Manzano common stock, subject to transfer
restrictions and risk of forfeiture for a specified restriction period
("Restricted Stock Rights"); and (4) rights to receive (a) shares of Manzano
common stock ("Performance Shares") or (b) a specified dollar amount or, in lieu
of all or any portion of such amount, shares of Manzano common stock having the
same fair market value ("Performance Units"), both conditional upon the
attainment during a specified performance period of specified performance
measures. Options meeting the requirements of Section 422 of the Code and
intended to be afforded the federal income tax treatment of Section 422 options
("Incentive Stock Options"), as well as other Options ("Nonqualified Stock
Options" or "NQSOs"), may be awarded under the Omnibus Plan.

<PAGE>

SARs granted under the Omnibus Plan may be awarded either in tandem with Options
("Tandem SARs") or standing alone ("Freestanding SARs").

The full text of the Omnibus Plan is attached to this proxy
statement/prospectus as Exhibit D. The discussion which follows provides
additional information concerning the Omnibus Plan features highlighted above,
as well as certain other noteworthy features. Since such discussion necessarily
is in the nature of a summary and does not cover all aspects of the Omnibus
Plan, shareholders should review Exhibit D in its entirety as they consider
whether to approve the Omnibus Plan.

SHARES AVAILABLE FOR AWARD. The total number of shares of common stock
subject to awards under the Omnibus Plan may not exceed five million
(5,000,000), subject to adjustment upon the occurrence of any of the events
specified in the Omnibus Plan. The shares of Manzano common stock to be
delivered under the Omnibus Plan may consist, in whole or in part, of
authorized, but unissued, shares of Manzano common stock or shares purchased on
the open market or, if it becomes allowable under New Mexico law, treasury stock
not reserved for any other purpose.

Subject to the express provisions of the Omnibus Plan, if any award
granted under the Omnibus Plan terminates, expires, lapses for any reason, or is
paid in cash, any common stock subject to or surrendered for such award will
again be common stock available for the grant of an award. With respect to
awards made to insiders under Section 16 of the Exchange Act, shares of such
stock may be reused to the maximum extent permitted under Section 16 of the
Exchange Act.

ADMINISTRATION AND ELIGIBILITY. The Omnibus Plan will be administered
by a committee ("Committee") designated by the Manzano Board of Directors. The
membership of such committee shall not contain less than two (2) members of the
Manzano Board of Directors. All Committee members must be "non-employee
directors." The Committee, by majority action thereof, is authorized to
interpret the Omnibus Plan, to prescribe, amend, and rescind rules and
regulations relating to the Omnibus Plan, to provide for conditions and
assurances deemed necessary or advisable to protect the interests of Manzano,
and to make all other determinations necessary or advisable for the
administration of the Omnibus Plan.

The Committee shall have the authority, in its sole discretion, to
determine the types of awards, the times when awards will be granted, the number
of awards, the purchase price or exercise price, the period(s) during which the
awards shall be exercisable (whether in whole or in part), the restrictions
applicable to such awards, and other terms and provisions (which need not be
identical). The Committee will have the authority to modify existing awards,
subject to specified provisions of the Omnibus Plan. Awards may be made only to
those participants who are employees of Manzano or a subsidiary that has adopted
the Omnibus Plan on the grant date of the award.

GRANT OF OPTIONS. Subject to the provisions of the Omnibus Plan,
Options may be granted to participants at any time and from time to time as
determined by the Committee. The Committee will have complete discretion in
determining the number of Options granted as well as the type, size, and other
terms and conditions of each granted award, subject to the parameters

<PAGE>

set forth in the Omnibus Plan. The Committee may make grants to employees under
any or a combination of all of the various categories of awards that are
authorized under the Omnibus Plan. No Option may be exercised more than ten
years from the date of grant. Upon exercise of any Option, payment must be made
in full and may be either (1) in cash, (2) in stock valued at its fair market
value on the date of exercise, or (3) by a combination thereof as determined by
the Committee. The participant shall have none of the rights of a shareholder
with respect to Options until the record date of the stock purchase.

RESTRICTED STOCK RIGHTS. A grant of Restricted Stock Rights involves
the grant of a right to acquire Manzano common stock in the future at no
monetary cost to the participant. Shares of Manzano common stock are not issued
until specified restrictions lapse, typically the achievement of specified
performance targets or the continued employment of the participant until a
specified date. Voting rights, dividend equivalents and other distributions,
form and timing of payments are specified in the Omnibus Plan.

PERFORMANCE SHARES AND PERFORMANCE UNITS. These award vehicles provide
shares of Manzano common stock or rewards for achieving specific, long-term
performance targets. Each Performance Share and each Performance Unit will have
a value determined by the Committee at the time of grant. The Committee will
also set forth performance goals it deems appropriate. For Performance Shares, a
payment will be made in Manzano common stock. For Performance Units, payment
will be made in cash, Manzano common stock or a combination thereof as
determined by the Committee.

STOCK APPRECIATION RIGHTS. This award vehicle provides a payment equal
to the appreciation in market value of the Manzano common stock and may be
granted to participants at any time and from time to time as shall be determined
by the Committee. SARs may be granted in connection with the grant of an Option,
in which case the exercise of SARs will result in the surrender of the right to
purchase the shares under the Option as to which the SARs were exercised.
Alternatively, SARs may be granted independently of Options. Payment for SARs
shall be made in cash, stock or a combination thereof and shall be exercisable
at the time and be subject to such restrictions and conditions as the Committee
approves.

RESTRICTIONS. The Committee may impose restrictions on any awards under
the Omnibus Plan as it may deem advisable, including restrictions under
applicable federal securities law, under the requirements of any stock exchange
upon which the Manzano common stock is then listed and under any blue sky or
state securities law applicable to the awards.

TERMINATION OF EMPLOYMENT. Dispositions of Awards when termination of
employment occurs due to death, disability, retirement, or change in control are
specified in the Omnibus Plan.

NON-TRANSFERABILITY. The Committee may, in it sole discretion,
determine the right of a participant to transfer any award granted under the
Omnibus Plan. Unless otherwise determined by the Committee, no award granted
under the Omnibus Plan may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, otherwise than by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended, or the

<PAGE>

regulations thereunder, or, if applicable, until the termination of any
restricted or performance period as determined by the Committee.

AMENDMENT, MODIFICATION AND TERMINATION OF OMNIBUS PLAN. The Manzano
Board of Directors has discretion to terminate, amend or modify the Omnibus
Plan. Any such action of the Manzano Board of Directors is subject to the
approval of the Manzano shareholders to the extent required by law. To the
extent permitted, the Manzano Board of Directors may delegate to the Committee
or the President the authority to approve non-substantive amendments to the
Omnibus Plan.

TAX WITHHOLDING. Manzano will have the power to withhold, or require a
participant to remit to Manzano, an amount sufficient to satisfy federal, state,
and local withholding tax requirements on any award under the Omnibus Plan. To
the extent that alternative methods of withholding are available under
applicable laws, Manzano will have the power to choose among such methods.

NEW PLAN BENEFITS. To date, no awards of any kind have been granted
under the Omnibus Plan, and no executive officer, other officer or other
employee has been selected to receive any such award in the future.

The rules of the SEC require disclosure of the awards individuals will
receive pursuant to such a plan if such awards are determinable. Since awards of
Options, SARs, Restricted Stock Rights, Performance Shares and Performance Units
will be made by the Committee in its discretion under the Omnibus Plan, it is
not possible to determine the amounts of such awards that will be made.

EFFECT OF CONSUMMATION OF PLAN OF SHARE EXCHANGE. Subject to the
approval of the shareholders of PNM of the Omnibus Plan, the Omnibus Plan
provides that the Omnibus Plan will only become effective immediately if the
share exchange is consummated. If the PNM shareholders approve the Omnibus Plan
and the share exchange is approved and consummated, no new options will be made
under the PNM Performance Stock Plan.

FEDERAL INCOME TAX CONSEQUENCES OF OMNIBUS PLAN

The following is a brief summary of certain of the Federal income tax
consequences of certain transactions under the Omnibus Plan based on Federal
income tax laws in effect on January 1, 2000. This summary is not intended to be
exhaustive and does not describe state or local tax consequences.

NONQUALIFIED STOCK OPTIONS ("NQSOS"). In general: (i) no income will
be recognized by an optionee at the time an NQSO is granted; (ii) at the time of
exercise of an NQSO, ordinary income (subject to income tax withholding) will be
recognized by the optionee in an amount equal to the difference between the
option price paid for the shares and the fair market value of the shares if they
are nonrestricted on the date of exercise (see "Restricted Stock Rights" below
for the tax consequences of receiving restricted shares on date of exercise);
and (iii) at the time of sale of shares acquired pursuant to the exercise of an
NQSO, any appreciation (or depreciation) in the value of the shares after the
date of exercise will be treated as either short-

<PAGE>

term or long-term capital gain (or loss) depending on how long the shares have
been held after exercise and prior to sale.

INCENTIVE STOCK OPTIONS. No income generally will be recognized by an
optionee upon the grant or exercise of an Incentive Stock Option. The spread on
an Incentive Stock Option at the time of exercise is, however, an item of tax
preference that may result in the imposition of the alternative minimum tax. If
common shares are issued to an optionee pursuant to the exercise of an Incentive
Stock Option and the optionee holds the shares before selling them for at least
two years after the date of grant and one year after exercise, then upon the
sale of the shares any amount realized in excess of the option price will be
taxed to the optionee as long-term capital gain and any loss sustained will be a
long-term capital loss.

If shares acquired upon the exercise of an Incentive Stock Option are
disposed of prior to the expiration of either holding period described above,
the optionee generally will recognize ordinary income in the year of disposition
in an amount equal to any excess of the fair market value of the shares at the
time of exercise (or, if less, the amount realized on the disposition of the
shares in a sale or exchange) over the option price paid for the shares. Any
further gain (or loss) realized by the optionee generally will be taxed as
short-term or long-term capital gain (or loss) depending on how long the shares
have been held.

STOCK APPRECIATION RIGHTS. No income will be recognized by a holder in
connection with the grant of a Tandem SAR or a Freestanding SAR. When the SAR is
exercised, the recipient normally will be required to include as taxable
ordinary income (subject to income tax withholding) in the year of exercise an
amount equal to the amount of cash received and the fair market value of any
nonrestricted shares of common stock received on the exercise.

RESTRICTED STOCK RIGHTS. A recipient of Restricted Stock Rights
generally will be subject to tax at ordinary income rates on the fair market
value of the shares of Restricted Stock received on exercise of the rights
(reduced by any amount paid by the recipient for such shares) which fair market
value shall be determined at such time as the shares are no longer subject to a
risk of forfeiture or restrictions on transfer for purposes of Section 83 of the
Code. However, a recipient who so elects under Section 83(b) of the Code within
30 days of the date of transfer of the shares will have taxable ordinary income
on the date of transfer of the shares equal to the excess of the fair market
value of the shares (determined on the date of transfer without regard to the
risk of forfeiture or restrictions on transfer) over any purchase price paid for
the shares. If a Section 83(b) election has not been made, any dividends
received with respect to shares of Restricted Stock that are subject at that
time to a risk of forfeiture or restrictions on transfer generally will be
treated as compensation that is taxable as ordinary income to the recipient.

PERFORMANCE SHARES AND PERFORMANCE UNITS. No income generally will be
recognized upon the grant of Performance Shares or Performance Units. Upon
payment in respect of the earn-out of Performance Shares or Performance Units,
the recipient generally will be required to include as taxable ordinary income
(subject to income tax withholding) in the year of receipt an amount equal to
the amount of cash received and the fair market value of any nonrestricted
shares of common stock received.

<PAGE>

SPECIAL RULES APPLICABLE TO OFFICERS. In limited circumstances where
the sale of stock that is received as the result of a grant of an award could
subject an officer to suit under Section 16(b) of the Exchange Act, the tax
consequences to the officer may differ from the tax consequences described
above. In these circumstances, unless a special election has been made, the
principal difference usually will be to postpone valuation and taxation of the
stock received so long as the sale of the stock received could subject the
officer or director to suit under Section 16(b) of the Exchange Act, but not
longer than six months.

TAX CONSEQUENCES TO MANZANO OR ITS SUBSIDIARIES. To the extent that an
employee recognizes ordinary income in the circumstances described above,
Manzano or the subsidiary for which the employee performs services will be
entitled to a corresponding deduction provided that, among other things, the
income meets the test of reasonableness, is an ordinary and necessary business
expense, is not an "excess parachute payment" within the meaning of Section 280G
of the Code and is not disallowed by the $1 million limitation on certain
executive compensation.

Your Board of Directors recommends a vote FOR this proposal.

PROPOSAL 4: APPROVAL OF INDEPENDENT ACCOUNTANTS
(PROPOSAL 4 ON YOUR PROXY CARD)

The Audit Committee of the Board of Directors selects and hires
independent public accountants to audit the consolidated financial statements of
PNM and its subsidiaries. The Audit Committee's selection for 2000 must be
approved by you.

The Audit Committee selected Arthur Andersen LLP to audit PNM's books
of account and other corporate records for 2000. This firm has audited PNM's
books since 1993, and no relationship exists other than the usual relationship
between independent public accountant and client. A representative of Arthur
Andersen LLP will be available at the annual meeting to respond to questions and
to make any statement the representative may desire. If the share exchange is
approved and becomes effective, Arthur Andersen LLP will also become, and be
approved as, the independent public accountants of Manzano and its subsidiaries
for 2000.

Your Board of Directors recommends a vote FOR this proposal.

VALIDITY OF MANZANO COMMON STOCK

The validity of the shares of the Manzano common stock will be passed
upon by Keleher & McLeod, P.A., Albuquerque, New Mexico.

EXPERTS

The financial statements and schedules incorporated by reference in
this proxy statement/prospectus and elsewhere in the registration statement of
which this proxy statement/prospectus is a part have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are incorporated by reference herein

<PAGE>

in reliance upon the authority of said firm as experts in accounting and
auditing in giving said reports.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires PNM's directors and
executive officers to file certain reports of ownership and changes in ownership
with the SEC and the New York Stock Exchange. Based solely on our review of
copies of the reports received by us, and on the written representations of
certain reporting persons, we believe that during 1999 all filing requirements
were timely satisfied by the directors and executive officers of PNM, except
that one transaction by Benjamin F. Montoya was reported late on a Form 4.

DEADLINE FOR SHAREHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING

Any proposal to be considered for possible inclusion in PNM's 2001
annual meeting of shareholders (or at Manzano's 2001 annual meeting if the
agreement and plan of share exchange is approved) must be received by the
Secretary of PNM (or Manzano) at Alvarado Square, Mail Stop 2822, Albuquerque,
New Mexico 87158 no later than December 26, 2000 in order to be eligible for
inclusion in PNM's (or Manzano's) proxy materials relating to that meeting.

A shareholder proposal submitted outside the processes of the SEC's
proxy rules will be considered untimely if notice is received by PNM, if the
share exchange is not consummated, after March 11, 2001, or by Manzano, if the
share exchange is consummated, after January 25, 2001, and the proxy for the
meeting may confer discretionary authority to vote on a matter for which notice
is not timely received.

By Order of the Board of Directors

/s/ Patrick T. Ortiz

Patrick T. Ortiz

Senior Vice President, General Counsel
and Secretary

Dated: April 24, 2000
Albuquerque, New Mexico

66
<PAGE>

EXHIBIT A

AGREEMENT AND PLAN OF SHARE EXCHANGE

THIS AGREEMENT AND PLAN OF SHARE EXCHANGE (this "Agreement"), dated as
of April 17, 2000, is between PUBLIC SERVICE COMPANY OF NEW MEXICO, a New Mexico
corporation (the "Company") and the corporation whose shares of Common Stock,
$5.00 par value per share (the "Company Common Stock"), will be acquired
pursuant to the Exchange (as hereinafter defined) provided for herein, and
MANZANO CORPORATION, a New Mexico corporation ("Manzano") and the corporation
which will acquire the Company Common Stock. The Company and Manzano are
hereinafter referred to, collectively, as the "Companies".

WITNESSETH:

WHEREAS, the authorized capital stock of the Company consists of (a)
80,000,000 shares of Company Common Stock, of which 39,535,699 shares are issued
and outstanding as of the date hereof, and (b) 10,000,000 shares of Cumulative
Preferred Stock, no par value ("Company Preferred Stock"), of which 128,000
shares are issued and outstanding in one series as of the date hereof;

WHEREAS, Manzano is a wholly-owned subsidiary of the Company with
authorized capital stock consisting of (a) 120,000,000 shares of Common Stock,
without par value ("Manzano Common Stock"), of which 100 shares are issued and
outstanding as of the date hereof and owned of record by the Company, and (b)
50,000,000 shares of Preferred Stock, without par value ("Manzano Preferred
Stock"), of which no shares are issued and outstanding as of the date hereof;

WHEREAS, the Boards of Directors of the respective Companies deem it
desirable and in the best interests of the Companies and their shareholders
that, at the Effective Time (as hereinafter defined), Manzano acquire each share
of Company Common Stock issued and outstanding immediately prior to the
Effective Time and that each such share of Company Common Stock be automatically
exchanged for one share of Manzano Common Stock with the result that Manzano
becomes the owner of all outstanding Company Common Stock and that each holder
of Company Common Stock becomes the owner of an equal number of shares of
Manzano Common Stock, all on the terms and conditions hereinafter set forth;

WHEREAS, the implementation of the Exchange is subject, to the extent
required, and among other things as provided herein, to the receipt of orders,
authorizations and approvals of the New Mexico Public Regulation Commission (the
"PRC"), the Federal Energy Regulatory Commission (the "FERC") and the Nuclear
Regulatory Commission (the "NRC"); and

WHEREAS, the Board of Directors of the Company has recommended that the
Company's shareholders approve the Exchange and this Agreement, and the Exchange
and this Agreement will be submitted to a vote of the holders of Company Common
Stock pursuant to the New Mexico Business Corporation Act (the "Act").

NOW THEREFORE, in consideration of the premises, and of the agreements,
covenants and conditions hereinafter

A-1

<PAGE>

contained, and subject to satisfaction of the conditions herein contained, the
parties hereto agree with respect to the acquisition and exchange provided for
herein (the "Exchange") that at the Effective Time each share of Company Common
Stock issued and outstanding immediately prior to the Effective Time will be
automatically exchanged for one share of Manzano Common Stock, and that the
terms and conditions of the Exchange and the method of carrying the same into
effect are as follows:

ARTICLE I

Subject to the satisfaction of the terms and conditions contained
herein, the Exchange will be effective upon the filing of Articles of Exchange
(the "Articles") with respect to the Exchange with the Corporations Bureau of
the PRC or at such later time as may be stated in the Articles (the time at
which the Exchange becomes effective being referred to herein as the "Effective
Time").

ARTICLE II

At the Effective Time:

(1) each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be automatically exchanged for one
share of Manzano Common Stock, which shares of Manzano Common Stock shall
thereupon be fully paid and non-assessable;

(2) Manzano shall acquire and become the owner and holder of each
issued and outstanding share of Company Common Stock so exchanged;

(3) each share of Manzano Common Stock issued and outstanding
immediately prior to the Effective Time shall be cancelled and shall thereupon
constitute an authorized and unissued share of Manzano Common Stock; and

(4) the former holders of Company Common Stock shall be entitled only
to receive shares of Manzano Common Stock in exchange therefor as provided
herein subject to statutory dissenters' rights under Sections 53-15-3 and
53-15-4 of the Act that may be applicable to such former holders.

Shares of Company Preferred Stock shall not be exchanged or otherwise
affected in connection with the Exchange. Subject to the terms thereof, each
share of Company Preferred Stock issued and outstanding immediately prior to the
Effective Time shall continue to be issued and outstanding following the
Exchange and shall continue to be a share of Company Preferred Stock of the
applicable series designation.

ARTICLE III

The consummation of the Exchange is subject to the following conditions
precedent at or prior to the Effective Time:

(1) the receipt and continued effectiveness of (a) the approval by the
holders of Company Common Stock as required by the Act and (b) such orders,
authorizations, approvals

A-2
<PAGE>

or waivers from the PRC, the FERC, the NRC and any other jurisdictive regulatory
bodies, boards or agencies, or other parties, which are required to consummate
the Exchange at the Effective Time and which do not include, in the sole
judgment of the Company's Board of Directors, unacceptable conditions;

(2) a registration statement relating to the shares of Manzano Common
Stock to be issued or reserved for issuance in connection with the Exchange
shall be effective under the Securities Act of 1933, as amended, and shall not
be the subject of any stop order pursuant to Section 8 thereunder;

(3) the approval for listing, upon official notice of issuance, by the
New York Stock Exchange of the shares of Manzano Common Stock to be issued in
connection with the Exchange;

(4) the receipt of an opinion of counsel or an opinion from the
Company's independent public accountants, in form and substance satisfactory to
the Board of Directors of the Company and of Manzano, as to the United States
federal income tax consequences of the Exchange; and

(5) the receipt of an opinion, in form and substance satisfactory to
the Company's Board of Directors, from Keleher & McLeod, P.A., counsel to the
Company, as to the legality of Manzano Common Stock to be issued by Manzano in
connection with the Exchange.

ARTICLE IV

This Agreement may be amended, modified or supplemented, or compliance
with any provision or condition hereof may be waived, at any time prior to the
Effective Time (including, without limitation after receipt of the affirmative
vote of holders of the Company Common Stock as provided in Article V hereof), by
the mutual consent of the Boards of Directors of the Company and of Manzano;
provided, however, that, after receipt of such holder approval, no such
amendment, modification, supplement or waiver shall be made or effected if such
amendment, modification, supplement or waiver would, in the sole judgment of the
Board of Directors of the Company, materially and adversely affect the rights of
the shareholders of the Company.

This Agreement may be terminated and the Exchange abandoned at any time
prior to the Effective Time (including, without limitation, after receipt of the
affirmative vote of holders of the Company Common Stock as provided in Article V
hereof), if the Board of Directors of the Company determines, in its sole
judgment, that consummation of the Exchange would for any reason be inadvisable
or not in the best interests of the Company or its shareholders.

ARTICLE V

The Exchange and this Agreement will be submitted to the holders of
Company Common Stock for approval pursuant to the Act. As required by the Act,
the affirmative vote of the holders of two-thirds of the outstanding shares of
Company Common Stock will be required to approve the Exchange and this
Agreement.

A-3
<PAGE>

ARTICLE VI

Following the Effective Time, each holder of an outstanding certificate
or certificates theretofore representing shares of Company Common Stock may, but
shall not be required to, surrender the same to Manzano for cancellation and
reissuance of a new certificate or certificates in such holder's name or for
cancellation and transfer, and each such holder or transferee will be entitled
to receive a certificate or certificates representing the same number of shares
of Manzano Common Stock as the shares of Company Common Stock previously
represented by the certificate or certificates surrendered. Until so surrendered
or presented for transfer, each outstanding certificate which, immediately prior
to the Effective Time, represents Company Common Stock shall be deemed and
treated for all corporate purposes to represent the ownership of the same number
of shares of Manzano Common Stock as though such surrender or transfer and
exchange had taken place. The holders of Company Common Stock at the Effective
Time shall have no right to have their shares of Company Common Stock
transferred on the stock transfer books of the Company, and such stock transfer
books shall be deemed to be closed for this purpose at the Effective Time, and
at and after the Effective Time, such stock transfer books may be deemed to be
the stock transfer books of Manzano.

ARTICLE VII

Prior to or as of the Effective Time, the Company shall cause those
directors of the Company identified as Manzano directors in the Company's Proxy
Statement for the Company's 2000 Annual Meeting to be elected directors of
Manzano, and such directors shall remain as directors of Manzano at and after
the Effective Time until Manzano's 2001 Annual Meeting. Each director of the
Company as of the Effective Time shall also remain a director of the Company at
and after the Effective Time until otherwise determined by Manzano.

ARTICLE VIII

At the Effective Time, Manzano shall become sponsor of a dividend
reinvestment and stock purchase plan ("Manzano Direct Plan") by amendment to the
Company's PNM Direct Plan as in effect immediately prior to the Effective Time.
At the Effective Time, all shares of Company Common Stock held under the PNM
Direct Plan (including fractional and uncertificated shares) immediately prior
to the Effective Time shall be automatically exchanged for a like number of
shares (including fractional and uncertificated shares) of Manzano Common Stock
and shall be held under and pursuant to the Manzano Direct Plan. At the
Effective Time, Manzano shall become the sponsor of, and agree to issue Manzano
Common Stock on and after the Effective Time in connection with, the Company's
Performance Stock Plan and the Company's Director Retainer Plan, each as in
effect immediately prior to the Effective Time, by appropriate amendments to
these plans.

IN WITNESS WHEREOF, each of the Company and Manzano, pursuant to
authorization and approval given by its Board of Directors, has caused this
Agreement to be executed by its President and Chief Executive Officer and its
corporate seal to be affixed hereto and attested by its Secretary as of the date
first above written.

A-4
<PAGE>

PUBLIC SERVICE COMPANY
OF NEW MEXICO

By: /s/ BENJAMIN F. MONTOYA
---------------------------
Chairman of the Board
and Chief Executive Officer

ATTEST:

/s/ PATRICK T. ORTIZ
- ----------------------------
Secretary

MANZANO CORPORATION

By: /s/ BENJAMIN F. MONTOYA
---------------------------
Chairman of the Board
and Chief Executive Officer

ATTEST:

/s/ PATRICK T. ORTIZ
- ---------------------------
Secretary

A-5
<PAGE>

EXHIBIT B

ARTICLES OF INCORPORATION

MANZANO CORPORATION

The undersigned acting as incorporator of a Corporation under the New
Mexico Business Corporation Act adopts the following Articles of Incorporation
for the Corporation.

ARTICLE I

NAME

The name of the Corporation is MANZANO CORPORATION.

ARTICLE II

PERIOD OF DURATION

The period of its duration is perpetual.

ARTICLE III

PURPOSE

The purposes of the Corporation are to hold the voting securities of
other companies and to engage in any other lawful business for which
corporations may be incorporated under the laws of the State of New Mexico. The
Corporation shall have all the powers that are lawful for a corporation to
exercise under New Mexico law.

ARTICLE IV

AUTHORIZED NUMBER OF SHARES

A. AUTHORIZED CAPITAL SHARES. The total number of shares of stock which
the Corporation shall have the authority to issue is One Hundred Seventy (170)
Million shares, of which One Hundred Twenty (120) Million shares shall be Common
Stock, no par value, and Fifty (50) Million shares shall be Preferred Stock, no
par value. Common Stock and Preferred Stock shall be issued for such minimum
consideration as authorized by the Board of Directors.

B. COMMON STOCK. The Board of Directors is authorized by resolution to
provide from time to time for the issuance of shares of Common Stock subject to
the following restrictions and qualifications:

B-1
<PAGE>

(1) DIVIDENDS. Subject to any rights of holders of Preferred Stock,
such dividends (payable in cash, stock or otherwise) as may be determined by the
Board of Directors may be declared and paid on the Common Stock from time to
time from any available funds, property or shares.

(2) VOTING RIGHTS. Subject to any rights of holders of Preferred Stock
to vote on a matter as a class or series, each outstanding share of Common Stock
shall be entitled to one vote on each matter submitted to a vote of holders of
Common Stock at a meeting of shareholders. Cumulative voting for the election of
directors of the Corporation shall not be permitted.

(3) LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any
liquidation, dissolution or winding up of the Corporation, the holders of Common
Stock shall be entitled to receive the net balance of any assets of the
Corporation remaining after any distribution of the assets of the Corporation to
the holders of Preferred Stock to the extent necessary to satisfy any
preferences to the assets.

C. PREFERRED STOCK. The Board of Directors is authorized by resolution
to provide from time to time for the issuance of shares of Preferred Stock in
series and to fix, from time to time before issuance, the designation,
preferences, privileges and voting powers of the shares of each series of
Preferred Stock and its restrictions or qualifications, limited to the
following:

(1) the serial designation, authorized number of shares and the stated
value;

(2) the dividend rate, if any, the date or dates on which the dividends
will be payable, and the extent to which the dividends may be cumulative;

(3) the price or prices at which shares may be redeemed, and any terms,
conditions and limitations upon any redemption;

(4) the amount or amounts to be received by the holders in the event of
dissolution, liquidation, or winding up of the Corporation;

(5) any sinking fund provisions for redemption or purchase of shares of
any series;

(6) the terms and conditions, if any, on which shares may be converted
into, or exchanged for, shares of other capital stock, or of other series of
Preferred Stock, of the Corporation; and

(7) the voting rights, if any, for the shares of each series, limited
to circumstances when:

(a) the Corporation fails to pay dividends on the applicable
series; and

(b) when a proposed amendment to these Articles would have an
adverse impact on the rights and privileges of the preferred
stockholders.

B-2
<PAGE>

D. PREEMPTIVE RIGHTS. The holders of Common Stock or Preferred Stock
shall not have a preemptive right to acquire authorized but unissued shares,
securities convertible into shares or carrying a right to subscribe to or
acquire shares, except under such terms and conditions as may be provided by the
Board of Directors in its sole judgment.

ARTICLE V

STOCK RIGHTS AND OPTIONS

The Board of Directors in its sole judgment may create and issue rights
or options entitling the holders, which may include directors, officers or
employees of the Corporation, to purchase from the Corporation shares of any
class of stock.

ARTICLE VI

AMENDMENTS

The affirmative vote of the holders of two-thirds of the outstanding
capital stock of the Corporation entitled to vote shall be required in order to
amend, alter, change or repeal any provisions of these Articles of
Incorporation.

ARTICLE VII

DIRECTORS

The number of directors of the Corporation shall be as specified in the
Bylaws but shall be no less than five (5) and no more than twelve (12). The
number of directors may be increased or decreased from time to time as provided
in the Bylaws so long as no decrease shall have the effect of shortening the
term of any incumbent director. To the extent and in the manner provided by law,
the directors may be classified as to the time for which they severally hold
office, in accordance with the Bylaws of the Corporation.

The initial Board of Directors shall consist of seven members,
and the names and addresses of the persons who are to serve as the initial
Directors until the first annual meeting of shareholders, or until their
successors shall have been elected and qualified, are:

B-3
<PAGE>

NAME ADDRESS
- ---- -------

<S> <C>
John T. Ackerman 165 Sol de Oro Court
Corrales, NM 87048

Robert G. Armstrong 2608 North Washington
Roswell, NM 88201

Joyce A. Godwin 904 Brazos Place SE
Albuquerque, NM 87123

Benjamin F. Montoya Alvarado Square, MS 2824
Albuquerque, NM 87158

Theodore F. Patlovich 11109 Bobcat NE
Albuquerque, NM 87122

Robert M. Price 14579 Grand Ave. S., Suite 100
Burnsville, MN 55306

Jeffry E. Sterba Alvarado Square, MS 2802
Albuquerque, NM 87158
</TABLE>

ARTICLE VIII

LIMITATION ON LIABILITY

The liability of the directors of the Corporation for monetary damages
shall be eliminated or limited to the fullest extent permissible under New
Mexico law as may be amended from time to time.

ARTICLE IX

SHAREHOLDERS

The affirmative vote of the holders of two-thirds of the outstanding
capital stock of the Corporation entitled to vote shall be required in order to
approve any merger, consolidation, plan to exchange all the issued or
outstanding shares of one or more classes of stock of this Corporation for
shares of another corporation or sale of all or substantially all of the
Corporation's assets.

B-4
<PAGE>

ARTICLE X

ADDRESS OF INITIAL REGISTERED OFFICE AND NAME OF INITIAL REGISTERED AGENT

The address of the Corporation's initial registered office is: Alvarado
Square, MS 2822, Albuquerque, NM 87158. The name of the Corporation's initial
registered agent at that address is Patrick T. Ortiz.

ARTICLE XI

INCORPORATOR

The name and address of the Incorporator is Public Service Company of
New Mexico, Alvarado Square, Albuquerque, New Mexico 87158.

Incorporator

PUBLIC SERVICE COMPANY
OF NEW MEXICO

By: /S/ BENJAMIN F. MONTOYA
-----------------------------------
BENJAMIN F. MONTOYA
Chairman and Chief Executive Officer

DATED: MARCH 3, 2000
-------------------

B-5
<PAGE>

EXHIBIT C

BYLAWS
OF

MANZANO CORPORATION

ARTICLE I

MEETINGS OF SHAREHOLDERS

SECTION 1. MEETINGS

The annual meeting of shareholders shall be held at the time and place
set by resolution of the Board of Directors for the election of directors and
the transaction of such other business as may properly come before the meeting.

Special meetings may be called by a majority of the Board of Directors,
the Chairman of the Board, the President or by holders of not less than
one-tenth of all the shares entitled to vote at the meeting.

SECTION 2. NOTICE

Written notice of any meeting stating the time and place, and if a
special meeting, the purpose, of the meeting shall be mailed to each shareholder
of record entitled to vote at the meeting at the address of the shareholder as
it appears on the stock transfer books of the Corporation, except as otherwise
provided by law. Notices of special meetings called by a majority of the Board
of Directors, the Chairman of the Board or the President, and of annual meetings
shall be mailed not less than ten (10) days nor more than fifty (50) days before
the meeting. Notices of other special shareholder meetings shall be mailed not
less than forty (40) days nor more than fifty (50) days before the date of the
meeting.

SECTION 3. ADJOURNMENT

Whenever a quorum is not present at any meeting of the shareholders, or
whenever it may be deemed desirable, a majority in interest of the shareholders
present in person or by proxy may adjourn the meeting from time to time to any
future date, without notice other than by announcement at the meeting. At any
continuation of the adjourned meeting at which a quorum is present, any business
may be transacted which might have been transacted at the meeting originally
scheduled.

SECTION 4. ORDER OF BUSINESS

(a) The Chairman of the Board, or in the absence of the Chairman, the
President, or in their absence, a director designated by the Board of Directors,
shall call meetings of the shareholders to order and shall act as Chairman of
the meeting. The shareholders may appoint any shareholder or the proxy of

C-1
<PAGE>

any shareholder to act as Chairman of any meeting of the shareholders in the
absence of the Chairman of the Board, President and a director designated by the
Board to serve as Chairman of the meeting. The Secretary, or in the absence of
the Secretary, an Assistant Secretary, shall act as Secretary at all meetings of
the shareholders, but in the absence of the Secretary and Assistant Secretary at
any meetings of the shareholders, the Chairman of the meeting may appoint any
person to act as Secretary of the meeting.

(b) The Chairman of the meeting shall have the right to determine the
order of business at the meeting, to prescribe the rules and procedures for the
conduct of the meeting, and to do all things necessary or desirable for the
proper conduct of the meeting, including maintenance of order and safety and
limitations on the time allotted to questions or comments on the affairs of the
Corporation.

(c) The only business that may be conducted at an annual meeting of
shareholders is that business which has been brought before the meeting: (i) by
or at the direction of the Chairman of the meeting; (ii) pursuant to the notice
of the meeting; or (iii) by any shareholder who is a holder of record at the
time of the giving of the notice of the meeting who is entitled to vote at the
meeting and who complies with the procedures set forth in Section 4 (d).

(d) For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice of the proposal in
proper written form to the Secretary of the Corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
Secretary's office at least ninety (90) days before the date on which the proxy
materials for the prior year's annual meeting of shareholders were first mailed.
To be in proper written form, a shareholder's notice to the Secretary shall set
forth in writing as to each matter the shareholder proposes to bring before the
annual meeting: (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting the business at the
annual meeting; (ii) the name and address of the shareholder proposing the
business and all persons or entities acting in concert with the shareholder;
(iii) the class and number of shares of the Corporation which are beneficially
owned by the shareholder and all persons or entities acting in concert with the
shareholder; and (iv) any material interest of the shareholder in the proposed
business. These notice requirements will be satisfied by a shareholder if the
shareholder has notified the Secretary of the Corporation of his or her
intention to present a proposal at an annual meeting and the proposal has been
included in a proxy statement that has been prepared by management of the
Corporation to solicit proxies for the annual meeting. If, however, the
shareholder does not appear or send a qualified representative to present the
proposal at the annual meeting, the proposal shall not be presented for a vote
at the meeting, even though proxies regarding that vote have been received by
the Corporation.

SECTION 5. INSPECTORS

At each meeting of the shareholders at which a vote by ballot is taken,
the polls shall be opened and closed, the proxies and ballots shall be
collected, and the validity of proxies and the acceptance or rejection of votes
shall be decided by two inspectors. No person who is a candidate for the office
of director shall act as inspector of any election for directors. The inspectors
shall be appointed by the Board of Directors before the meeting or, if no
appointment

C-2
<PAGE>

has been made, then by the Chairman of the meeting. If for any reason any of the
inspectors previously appointed fails to attend or refuses or is unable to
serve, those inspectors not serving shall be replaced by inspectors appointed by
the Chairman of the meeting.

SECTION 6. VOTING

At meetings of shareholders, every shareholder having voting rights as
provided for in the Articles of Incorporation shall be entitled to one (1) vote
for each share of stock outstanding in the name of the shareholder on the books
of the Corporation on the date on which shareholders entitled to vote are
determined or as otherwise provided for in the Articles of Incorporation. Each
shareholder may be represented and vote by a proxy or proxies appointed by an
instrument in writing or other manner authorized by the Board of Directors to
the extent permitted by law. If the instrument designates two (2) or more
persons to act as proxies, a majority of the proxies present at the meeting may
exercise all of the powers conferred by the instrument unless the instrument
provides otherwise. No proxy shall be voted at any meeting or continuation of an
adjourned meeting other than that for which the proxy is given.

In all elections for directors, voting shall be by written ballot, or
by electronic, telephonic or other process as the Board of Directors may
authorize, to the extent permitted by law.

The Board of Directors may fix a date in advance not exceeding fifty
(50) days before the date of any meeting of shareholders as a record date for
the determination of shareholders entitled to notice of and to vote at the
meeting. Only shareholders of record on the date so fixed shall be entitled to
notice of and to vote at the meeting.

ARTICLE II

DIRECTORS

SECTION 1. NUMBER, ELECTION AND TERMS

The business and property of the Corporation shall be managed under the
direction of the Board of Directors. The Board of Directors shall, by
resolution, fix the number of directors which shall be no less than five (5) and
no more than twelve (12) in number. If less than nine directors, the directors
shall be elected at the first annual meeting by the shareholders and each
director shall serve until the next annual meeting and until his or her
successor shall be elected and qualify. If there are nine or more directors,
directors may be elected in classes as authorized by the Articles of
Incorporation in the manner provided by law.

SECTION 2. COMPENSATION

Directors shall receive compensation for their services as directors as
may be fixed by resolution of the Board of Directors, including reimbursement
for expenses for Board related services.

C-3
<PAGE>

SECTION 3. MEETINGS

The meetings of the Board of Directors shall be held at the times and
places designated by the Board of Directors. The annual meeting of the Board of
Directors for the election of officers and such other business as may properly
come before the meeting shall be held immediately following the annual meeting
of shareholders. Special meetings of the Board of Directors shall be held
whenever called at the direction of the Chairman of the Board, the President, or
any two (2) directors if there are less than nine (9) directors on the Board, or
any three (3) directors if there are nine (9) or more directors on the Board.

SECTION 4. NOTICE

No notice shall be required of any annual or regular meeting of the
Board of Directors unless the place has been changed from that last designated
by the Board of Directors. Notice of any annual or regular meeting, when
required, or of any special meeting, of the Board of Directors shall be given to
each director in writing or by telephone at least twenty-four (24) hours before
the time fixed for the meeting. Notice may be waived by any director. Unless
otherwise indicated in the notice, any and all business may be transacted at a
special meeting. At any meeting at which every director is present, even without
notice, any business may be transacted.

SECTION 5. ADJOURNMENTS

Any annual, regular or special meeting of the Board of Directors may be
adjourned from time to time by the members present whether or not a quorum is
present, and no notice shall be required of any continuation of an adjourned
meeting beyond the announcement at the adjourned meeting.

SECTION 6. INDEMNIFICATION

Each person serving as a director or an officer of the Corporation, or,
at the request of the Corporation, as a director or an officer of any other
company in which the Corporation has a financial interest and regardless of
whether or not the person is then in office, and the heirs, executors,
administrators and personal representatives of the person, shall be indemnified
by the Corporation to the full extent of the authority of the Corporation to so
indemnify as authorized by New Mexico law.

SECTION 7. COMMITTEES

The Board of Directors may designate from among its members one (1) or
more committees, to exercise the power and authority and perform the functions
that the Board may determine, except as may be limited by law.

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<PAGE>

ARTICLE III

CONTRACTS AND NEGOTIABLE INSTRUMENTS

SECTION 1. AUTHORITY TO SIGN CONTRACTS

Unless the Board of Directors shall otherwise specifically direct, all
contracts, instruments, documents or agreements of the Corporation shall be
executed in the name of the Corporation by the President, or any Vice President,
or any other employee, if approved by the President by either administrative
policy letter or specific written designation. It shall not be necessary that
the corporate seal be affixed to any contract.

SECTION 2. AUTHORITY TO SIGN NEGOTIABLE INSTRUMENTS

Except as otherwise authorized by the Board of Directors, all checks,
drafts, bills of exchange, promissory notes, electronic funds transfer
documents, and other negotiable instruments shall be signed by the Chairman of
the Board, President, any Vice President, Secretary or Treasurer. Facsimile
signatures shall be sufficient to meet the requirements of this section.

SECTION 3. APPROVAL BY SHAREHOLDERS

The Board of Directors in its discretion may submit any contract, or
act, for approval or ratification at any annual meeting of the shareholders, or
at any special meeting of the shareholders called for the purpose of considering
the act or contract. Except as provided for in the Articles of Incorporation,
any contract or act that shall be approved or ratified by the vote of the
holders of a majority of the capital stock of the Corporation which is
represented in person or by proxy at the meeting shall be valid and binding upon
the Corporation.

ARTICLE IV

OFFICERS

SECTION 1. NUMBER, ELECTION AND TERM

The officers of the Corporation shall be a Chairman of the Board, a
President, one or more Vice Presidents, a Secretary, a Treasurer, and a
Controller, who shall be elected annually by the Board of Directors at the
annual meeting and who shall hold office until the next annual meeting or until
a successor is elected and qualifies. The Board of Directors may designate the
Chairman of the Board or the President as Chief Executive Officer. The Board of
Directors may elect one person to serve as both Chairman of the Board and
President. The Board of Directors may designate one or more Vice Presidents as
"Executive" Vice Presidents and one or more Vice Presidents as "Senior" Vice
Presidents. The title of any Vice President may include words indicative of the
area of responsibility of the Vice President. The Board of Directors shall
designate one of the Vice Presidents as the chief financial officer of the
Corporation. The Board of Directors may from time to time appoint such
additional officers as the interest of the

C-5
<PAGE>

Corporation may require and fix their terms and duties of office. A vacancy
occurring in any office may be filled by the Board of Directors. All officers
shall hold office at the discretion of the Board of Directors and shall be
subject to removal at any time by the affirmative vote of a majority of the
whole Board of Directors. Election of any person as an officer of the
Corporation shall not of itself create contract rights.

SECTION 2. CHAIRMAN OF THE BOARD OF DIRECTORS

The Chairman of the Board shall be elected annually by the Board of
Directors at the annual meeting and shall hold that office until a successor is
elected and qualifies. In the event of the incapacity of the Chairman of the
Board, the Board of Directors shall, by a majority vote of the Board of
Directors, designate an Acting Chairman who shall, during the incapacity of the
Chairman of the Board, assume and perform all functions and duties which the
Chairman of the Board is authorized or required by law to do. The Chairman of
the Board shall have the power to call special meetings of the shareholders and
of the directors for any purpose. The Chairman of the Board shall preside at all
meetings of the shareholders and of the Board of Directors unless the Chairman
of the Board is absent or incapacitated. The Chairman of the Board, subject to
the authority of the Board of Directors, shall generally do and perform all acts
incident to the office of the Chairman of the Board and which are authorized or
required by law.

SECTION 3. PRESIDENT

The President shall provide active management over all operations of
the Corporation subject to control of the Board of Directors. The President
shall have the power to appoint and discharge, subject to the general approval
or review by the Board of Directors, employees and agents of the Corporation and
to fix their compensation, to make and sign contracts and agreements in the name
of and on behalf of the Corporation and direct the general management and
control of the business and affairs of the Corporation. The President may
delegate authority to officers of the Corporation as the President may
determine. The President shall have the power to segregate the operations of the
Corporation into areas of responsibility. The President shall see that the
books, reports, statements and certificates required by law are properly kept,
made, and filed, and shall generally do and perform all acts which are
authorized or required by law. The President shall designate a Vice President
who shall, during the absence or incapacity of the President, assume and perform
all functions and duties which the President might lawfully do if present in
person and not under any incapacity.

SECTION 4. VICE PRESIDENTS

Each Vice President designated as "Executive" or "Senior Vice
President" shall be responsible for the areas and activities assigned by the
President, shall be subject to the authority of the President and shall assist
in the general control and management of the business and affairs of the
Corporation.

All other Vice Presidents shall be responsible for the areas and
activities assigned by the President and shall perform other duties as may be
required, including those assigned to an

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<PAGE>

Executive or Senior Vice President during the absence or incapacity of the
Executive or Senior Vice President.

SECTION 5. SECRETARY

The Secretary shall keep a record in the proper books provided for that
purpose of meetings and proceedings of shareholders, the Board of Directors and
Committees of the Board of Directors, and shall record all votes of the
directors and shareholders in a book to be kept for that purpose. The Secretary
shall notify the directors and shareholders of meetings as required by law or by
the Bylaws of the Corporation and shall perform other duties as may be required
by law or the Bylaws of the Corporation, or which may be assigned from time to
time by the Board of Directors, Chairman of the Board or President. The
Secretary is authorized to appoint one or more assistants from time to time as
the Secretary deems advisable, the assistant or assistants to serve at the
pleasure of the Secretary, and to perform the duties that are delegated by the
Secretary. An assistant shall not be an officer of the Corporation.

SECTION 6. TREASURER

The Treasurer shall have the custody of all the funds and securities of
the Corporation, and shall have the power on behalf of the Corporation to sign
checks, notes, drafts and other evidences of indebtedness, to borrow money for
the current needs of the business of the Corporation and to make short-term
investments of surplus funds of the Corporation. The Treasurer shall render to
the Board of Directors, the Chairman of the Board or the President, whenever
requested, an account of all transactions performed as Treasurer and of the
financial condition of the Corporation. The Treasurer shall perform other duties
as may be assigned by the Board of Directors, the Chairman of the Board or the
President. The Treasurer is authorized to appoint one or more assistants from
time to time as the Treasurer deems advisable, the assistant or assistants to
serve at the pleasure of the Treasurer, and to perform the duties that are
delegated by the Treasurer. An assistant shall not be an officer of the
Corporation.

SECTION 7. CONTROLLER

The Controller shall be the chief accounting officer of the Corporation
and have full responsibility and control of the accounting practices of the
Corporation The Controller shall, subject to the approval of the Board of
Directors, the Chairman of the Board or the President, establish accounting
policies. The Controller shall standardize and coordinate accounting practices,
supervise all accounting records and the presentation of all financial
statements and tax returns. The Controller shall have other powers and duties
as, from time to time, may be conferred by the Board of Directors, the Chairman
of the Board or the President. The Controller is authorized to appoint one or
more assistants from time to time as the Controller deems advisable, the
assistant or assistants to serve at the pleasure of the Controller, and to
perform the duties that are delegated by the Controller. An assistant shall not
be an officer of the Corporation.

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<PAGE>

SECTION 8. FORM OF APPOINTMENT

In making any appointments of assistants, the Secretary, Treasurer and
Controller shall use the following form:

I, ________________ (Name), the duly elected _______________
(Title) of Manzano Corporation do hereby appoint
________________ (Name) to serve as Assistant
________________ (Title) for the period of ________________
(Date) to ________________ (Date), unless this appointment
is terminated earlier in writing, to assume or perform all
functions and duties which I might require and, in my
absence or incapacity, which I might lawfully do if present
and not under any incapacity.

Any appointments of assistants by the Secretary, Treasurer or
Controller and any terminations of appointments shall be maintained in the
records of the Secretary's office.

ARTICLE V

CAPITAL STOCK

SECTION 1. CERTIFICATES OF STOCK

The name of the person owning shares of the capital stock of the
Corporation, together with the number of shares and the date of issue, shall be
entered on the Corporation's books. All certificates surrendered to the
Corporation shall be canceled, and no new certificates shall be issued until a
certificate or certificates aggregating the same number of shares of the same
class have been surrendered or canceled. The Board of Directors may make proper
provision, from time to time, for the issuance of new certificates in place of
lost, destroyed or stolen certificates.

SECTION 2. TRANSFER AGENTS AND REGISTRARS

The Corporation shall, if and whenever the Board of Directors
determines, maintain one or more transfer offices or agencies, each in charge of
a transfer agent designated by the Board of Directors, where the shares of the
capital stock of the Corporation will be directly transferable, and also one or
more registry offices, each in charge of a registrar designated by the Board of
Directors, where shares of stock will be registered, and no certificates for
shares of the capital stock of the Corporation, in respect of which one or more
transfer agents and registrars shall have been designated, shall be valid unless
countersigned by one of such transfer agents and registered by one of such
registrars. The Board of Directors may also make additional rules and
regulations as it may deem expedient concerning the issue, transfer and
registration of certificates for shares of the capital stock of the Corporation.

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<PAGE>

SECTION 3. SHARES HELD FOR ACCOUNT

The Board of Directors may adopt by resolution a procedure whereby a
shareholder of the Corporation may certify in writing to the Corporation that
all or a portion of the shares registered in the name of the shareholder are
held for the account of a specified person or persons as provided for by New
Mexico law.

SECTION 4. TRANSFER OF SHARES

Transfers of shares shall be made only upon the books of the
Corporation by the holder or by the holder's attorney in fact upon surrender of
certificates for a like number of shares.

SECTION 5. LOST, DESTROYED OR STOLEN CERTIFICATES

A new certificate of stock may be issued in the place of any
certificate previously issued by the Corporation, or any predecessor of the
Corporation, alleged to have been lost, destroyed or stolen. The Board of
Directors may, in its discretion, require the owner of the lost, destroyed or
stolen certificate to give to the Corporation satisfactory evidence that the
certificate was lost, destroyed or stolen. The Board of Directors may also
require a bond sufficient to indemnify it and its transfer agent, against any
claim that may be made on account of the alleged loss of the certificate or the
issuance of any new certificate.

SECTION 6. FIXING OF RECORD DATES

For the purpose of determining shareholders entitled to notice of any
meeting of shareholders, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purpose, the
Board of Directors may, by resolution, provide that the stock transfer books be
closed for a stated period not to exceed fifty (50) days. If the stock transfer
books are closed for the purpose of determining shareholders entitled to notice
of a meeting of shareholders, the books shall be closed for at least ten (10)
days immediately prior to the meeting.

In lieu of closing the stock transfer books, the Board of Directors
may, by resolution, fix in advance a date as the record date for any
determination of shareholders, the date to be not more than fifty (50) days and,
in case of a meeting of shareholders, not less than ten (10) days prior to the
date on which the action requiring the determination of shareholders is to be
taken.

ARTICLE VI

MISCELLANEOUS PROVISIONS

SECTION 1. BOOKS

The books of the Corporation, except as otherwise provided by law, may
be kept outside of the State of New Mexico, at such place or places as may be
designated by the Board of Directors. The Board of Directors shall determine
whether and to what extent, and at what time

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<PAGE>

and places, and under what conditions and regulations, the accounts and the
books of the Corporation, or any of them, shall be open to the inspection of
shareholders; and no shareholder shall have any right to inspect any book or
account or document of the Corporation except as conferred by the statutes of
New Mexico, or authorized by the Board of Directors.

SECTION 2. CORPORATE SEAL

The common corporate seal is, and until otherwise ordered by the Board
of Directors shall be, an impression circular in form upon paper or wax bearing
the words "Manzano Corporation Incorporated 2000." The seal shall be in the
charge of the Secretary. If and when directed by the Board of Directors, a
duplicate of the seal may be kept and used by the Treasurer or by an Assistant
Secretary or Assistant Treasurer.

SECTION 3. FISCAL YEAR

The fiscal year of the Corporation shall be as determined by the Board
of Directors.

SECTION 4. PRINCIPAL OFFICE

The principal office shall be established and maintained at a place
designated by the Board of Directors.

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<PAGE>

EXHIBIT D

MANZANO CORPORATION

OMNIBUS

PERFORMANCE EQUITY PLAN

Effective ________, 2000

<PAGE>

TABLE OF CONTENTS

<TABLE>

<S> <C>
SECTION 1: ESTABLISHMENT, PURPOSE, AND EFFECTIVE DATE OF PLAN.....................................................1
1.1 ESTABLISHMENT...........................................................................................1
1.2 PURPOSE................................................................................................ 1
1.3 EFFECTIVE DATE..........................................................................................1

SECTION 2: DEFINITIONS............................................................................................1
2.1 DEFINITIONS.............................................................................................1
2.2 GENDER AND NUMBER.......................................................................................5

SECTION 3: ELIGIBILITY AND PARTICIPATION..........................................................................5

SECTION 4: ADMINISTRATION.........................................................................................5
4.1 ADMINISTRATION..........................................................................................5
4.2 AWARDS..................................................................................................5
4.3 AWARD AGREEMENT.........................................................................................5
4.4 CLAIMS..................................................................................................6

SECTION 5: STOCK SUBJECT TO PLAN..................................................................................6
5.1 NUMBER..................................................................................................6
5.2 AVAILABILITY OF STOCK FOR GRANT.........................................................................6
5.3 ADJUSTMENT IN CAPITALIZATION............................................................................6

SECTION 6: DURATION OF PLAN.......................................................................................6

SECTION 7: STOCK OPTIONS..........................................................................................7
7.1 GRANT OF OPTIONS........................................................................................7
7.2 EXERCISE PRICE..........................................................................................7
7.3 DURATION OF OPTIONS.....................................................................................7
7.4 EXERCISABILITY OF OPTIONS...............................................................................7
7.5 NO OBLIGATIONS TO EXERCISE OPTIONS......................................................................7
</TABLE>

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<PAGE>

<TABLE>

<S> <C>
7.6 PAYMENT.................................................................................................7
7.7 DELIVERY OF SHARES......................................................................................8

SECTION 8: RESTRICTED STOCK RIGHTS................................................................................8
8.1 GRANT OF RESTRICTED STOCK RIGHTS........................................................................8
8.2 VOTING RIGHTS...........................................................................................8
8.3 DIVIDEND EQUIVALENTS AND OTHER DISTRIBUTIONS............................................................8
8.4 FORM AND TIMING OF PAYMENT..............................................................................8

SECTION 9: PERFORMANCE SHARES AND PERFORMANCE UNITS...............................................................8
9.1 GRANT OF PERFORMANCE SHARES OR PERFORMANCE UNITS........................................................8
9.2 VALUE OF PERFORMANCE SHARES AND PERFORMANCE UNITS.......................................................8
9.3 FORM AND TIMING OF PAYMENT..............................................................................9

SECTION 10: STOCK APPRECIATION RIGHTS.............................................................................9
10.1 GRANT OF STOCK APPRECIATION RIGHTS......................................................................9
10.2 EXERCISABILITY OF SARS..................................................................................9
10.3 EXERCISE OF SARS........................................................................................9
10.4 FORM AND TIMING OF PAYMENT..............................................................................9
10.5 RULE 16B-3 REQUIREMENTS.................................................................................9
10.6 TERM OF SAR.............................................................................................9

SECTION 11: RESTRICTIONS.........................................................................................10

SECTION 12: TERMINATION OF EMPLOYMENT............................................................................10

12.1 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, RETIREMENT, IMPACTION OR CHANGE IN CONTROL.........10
12.2 VOLUNTARY TERMINATION OR INVOLUNTARY TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN IMPACTION
OR CAUSE...............................................................................................11
12.3 TERMINATION OF EMPLOYMENT FOR CAUSE....................................................................12
12.4 DISPOSITION OF VESTED AWARDS UPON DEATH................................................................12
</TABLE>

D-ii

<PAGE>

<TABLE>

<S> <C>

12.5 DISCRETION OF COMMITTEE................................................................................12

SECTION 13: NON-TRANSFERABILITY..................................................................................12

SECTION 14: EMPLOYER DISCRETION..................................................................................12
14.1 EMPLOYMENT.............................................................................................12
14.2 PARTICIPANT............................................................................................12

SECTION 15: SUBSTITUTION OF AWARDS...............................................................................12

SECTION 16: AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN.....................................................13

SECTION 17: TAX WITHHOLDING......................................................................................14
17.1 TAX WITHHOLDING........................................................................................14
17.2 FORM OF PAYMENT........................................................................................14
17.3 TAX UPON DISPOSITION OF SHARES SUBJECT TO SS.422 RESTRICTIONS..........................................14

SECTION 18: INDEMNIFICATION......................................................................................14

SECTION 19: REQUIREMENTS OF LAW..................................................................................15
19.1 REQUIREMENTS OF LAW....................................................................................15
19.2 GOVERNING LAW..........................................................................................15
19.3 CODE SECTION 162(M)....................................................................................15

SECTION 20: FUNDING..............................................................................................15
</TABLE>

D-iii

<PAGE>

MANZANO CORPORATION
OMNIBUS PERFORMANCE EQUITY PLAN

SECTION 1

ESTABLISHMENT, PURPOSE, AND EFFECTIVE DATE OF PLAN

1.1 ESTABLISHMENT. Manzano Corporation (the "Company"), a New
Mexico corporation, hereby establishes the "MANZANO CORPORATION OMNIBUS
PERFORMANCE EQUITY PLAN" (the "Plan") for Employees. The Plan permits the grant
of Stock Options, Restricted Stock Rights, Performance Shares, Performance
Units, and Stock Appreciation Rights.

1.2 PURPOSE. The purpose of the Plan is to advance the interests
of the Company by encouraging and providing for the acquisition of an equity
interest in the Company by Employees, by providing additional incentives and
motivation toward superior performance of the Company, and by enabling the
Company to attract and retain the services of Employees upon whose judgment,
interest, and special effort the successful conduct of its operations is largely
dependent.

1.3 EFFECTIVE DATE. Subject to shareholder approval, the Plan
shall become effective immediately upon the effective date of the closing of the
mandatory share exchange under the New Mexico Business Corporation Act, NMSA
1978, ss. 53-13-13 (1983), which will result in the Company becoming the holding
company for the Public Service Company of New Mexico.

SECTION 2

DEFINITIONS

2.1 DEFINITIONS. Whenever used herein, the following terms will have
their respective meanings set forth below:

(a) "Award" means any Option, Restricted Stock Right, Performance
Share, Performance Unit or Stock Appreciation Right granted under this Plan.

(b) "Board" means the Board of Directors of the Company.

(c) "Cause," subject to the exception and modification set forth
at the end of this Subsection (c), shall mean termination of employment due to
the willful engaging by the Participant in conduct which is demonstrably and
materially injurious to an Employer, monetarily or otherwise, such as acts of
fraud, misappropriation or embezzlement for personal gain at the expense of an
Employer, conviction of a felony, or conviction of a misdemeanor involving
immoral acts.

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<PAGE>

For purposes of this definition, an act or failure to act by a Participant shall
not be deemed "willful" if done, or omitted to be done, by the Participant in
good faith and with reasonable belief that his or her action was in the best
interest of the Employer.

(d) "Change in Control," subject to the exceptions and
modifications set forth at the end of this Subsection (d), shall be deemed to
have occurred (any required approval, including any final nonappealable
regulatory order, having been obtained):

i. if any "person," as such term is used in Sections
13(d) and 14(d) of the Exchange Act (as hereinafter defined), becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing twenty percent (20%) or
more of the combined voting power of the Company's then outstanding securities;

ii. if, during any period of two (2) consecutive
years, the following individuals cease, for any reason, to constitute a majority
of the Board:

a. directors who were directors at the
beginning of such period; and

b. any new directors, whose election by the
Board or nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds (2/3rds) of the directors then still in office, who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved (such new directors being
referred to as "Approved New Directors");

iii. upon the effective date of a merger or
consolidation of the Company with any other corporation; or

iv. upon the effective date of the adoption of a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets.

Subsection (d)(i) shall not apply if the "person" as referred to
therein is, or shall be, (a) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or (b) a corporation owned,
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company.

In Subsection (d)(ii), the Approved New Director shall not include a
director designated by a person who has entered into an agreement with the
Company to effect a transaction described in Subsection (d)(i), (d)(iii) or
(d)(iv) hereof.

Subsection (d)(iii) shall not apply to a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least eighty
percent (80%) of the combined voting power of the voting securities of the
Company or such surviving

D-2
<PAGE>

entity outstanding immediately after such merger or consolidation.

(e) "Code" means the Internal Revenue Code of 1986, as
amended.

(f) "Committee" means the Compensation and Human Resources
Committee of the Board or any such other committee as may be designated by the
Board to administer the Plan, the membership of such committee not being less
than two (2) members of the Board. All Committee members must be "non-employee
directors" (as defined in Rule 16b-3 under the Exchange Act) if required to meet
the conditions for exemption of the Awards under the Plan from Section 16(b) of
the Exchange Act.

(g) "Company" means Manzano Corporation, a New Mexico
corporation.

(h) "Disability" shall have the same meaning as provided in
the Company's long term disability plan for the provision of long term
disability benefits.

(i) "Employee" means any full-time or part-time employee of an
Employer who was not hired for a specific job of limited duration, or for a
position designated for students.

(j) "Employer" means the Company, or any of its subsidiaries
which has by resolution of the subsidiary's Board affirmatively adopted the
Plan.

(k) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended, or the rules thereunder.

(l) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.

(m) "Fair Market Value" means the closing sale price of one
share of Stock for "New York Stock Exchange Composite Transactions," as reported
in the Western Edition of the WALL STREET JOURNAL, or a successor comparable
publication, on the date such value is determined (or if Stock is not traded on
such date, on the first immediately preceding business day on which Stock was so
traded).

(n) "Grant Date" means the date the Committee approves the
Award.

(o) "Impaction" means involuntary termination due to
elimination of job, position, department or work unit or general downsizing.

(p) "Option" means the right to purchase Stock at a stated
price for a specified period of time. For purposes of the Plan an Option may be
either (i) a "nonstatutory stock option" (an option which is not an incentive
stock option), or (ii) an "incentive stock option" within the meaning of Section
422 of the Code.

(q) "Participant" means any Employee who is selected by an
Employer from time to time to participate in the Plan; provided, however, that
all Employees who are selected to participate in the Plan shall be subject to
approval by the President, in his or her sole discretion.

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<PAGE>

Notwithstanding the above, the President's right to participate in the Plan
shall be determined in the sole discretion of the Committee.

(r) "Performance Period" means the time period during which
the performance goals must be met as determined by the Committee.

(s) "Performance Share" means a right to receive a payment in
the form of Stock equal to the value of a Performance Share as determined by the
Committee.

(t) "Performance Unit" means a right to receive a payment in
cash or Stock or a combination thereof equal to the value of a Performance Unit
as determined by the Committee.

(u) "Plan" shall mean the Manzano Corporation Omnibus
Performance Equity Plan as set forth in this document and as amended from time
to time.

(v) "President" means the President of the Company.

(w) "Restricted Period" means the period during which a
Restricted Stock Right, Performance Share or Performance Unit is subject to
restrictions pursuant to the relevant provisions of the Plan.

(x) "Restricted Stock Right" means the right to receive a
share of Stock at no monetary cost to the Participant.

(y) "Retirement," for purposes of this Plan, shall mean
termination of employment and attainment of:

(i) age forty-five (45) and twenty (20) years of
service;

(ii) age fifty five (55) and ten (10) years of
service;

(iii) the age at which the early distribution
penalty no longer applies as specified in
Codess.72(t) and five (5) years of service;
or

(iv) any age and thirty (30) years of service.

(z) "Stock" means the Common Stock of the Company, no par
value.

(aa) "Stock Appreciation Right" and "SAR" mean the right to
receive a payment from the Company equal to the excess of the Fair Market Value
of the share of Stock at the date of exercise over a specified price fixed by
the Committee, which shall not be less than one hundred percent (100%) of the
Fair Market Value of the Stock on the Grant Date. In the case of a Stock
Appreciation Right which is granted in conjunction with an Option, the specified
price shall be the Option exercise price.

D-4
<PAGE>

2.2 GENDER AND NUMBER. Except when otherwise indicated by the context,
words in the masculine gender when used in the Plan will include the feminine
gender, the singular will include the plural, and the plural will include the
singular.

SECTION 3

ELIGIBILITY AND PARTICIPATION

Awards may be made only to those Participants who are Employees of an
Employer on the Grant Date of the Award.

SECTION 4

ADMINISTRATION

4.1 ADMINISTRATION. The Committee shall be responsible for the
administration of the Plan. The Committee, by majority action thereof, is
authorized to interpret the Plan, to prescribe, amend, and rescind rules and
regulations relating to the Plan, to provide for conditions and assurances
deemed necessary or advisable to protect the interests of the Company, and to
make all other determinations necessary or advisable for the administration of
the Plan, but only to the extent not contrary to the express provisions of the
Plan. Determinations, interpretations, or other actions made or taken by the
Committee in good faith pursuant to the provisions of the Plan shall be final,
binding and conclusive for all purposes of the Plan.

4.2 AWARDS. The Committee shall have the authority, in its sole
discretion, to determine the types of Awards, the times when Awards shall be
granted, the number of Awards, the purchase price or exercise price, the
period(s) during which such Awards shall be exercisable (whether in whole or in
part), the restrictions applicable to Awards, and the other terms and provisions
thereof (which need not be identical). The Committee shall have the authority to
modify existing Awards, subject to Section 16 of this Plan.

4.3 AWARD AGREEMENT. Each Award shall be evidenced by an agreement that
shall specify the type of Award granted and such other provisions and
restrictions as the Committee shall determine.

D-5
<PAGE>

4.4 CLAIMS. Any claim relating to an Award granted under this Plan
shall be submitted to the Committee or its designee. The Committee shall render
a written decision and, if there is an adverse determination with respect to the
claim, either in whole or in part, the decision will set forth the basis for the
determination. If the Committee does not render a decision within one hundred
and twenty (120) days, the claim shall be deemed denied.

SECTION 5

STOCK SUBJECT TO PLAN

5.1 NUMBER. The total number of shares of Stock subject to Awards under
the Plan may not exceed five million (5,000,000), subject to adjustment upon
occurrence of any of the events indicated in Section 5.3. The shares to be
delivered under the Plan may consist, in whole or in part, of authorized but
unissued Stock or shares purchased on the open market or, if it becomes
allowable under New Mexico law, treasury Stock not reserved for any other
purpose.

5.2 AVAILABILITY OF STOCK FOR GRANT. Subject to the express provisions
of the Plan, if any Award granted under the Plan terminates, expires, lapses for
any reason, or is paid in cash, any Stock subject to or surrendered for such
Award will again be Stock available for the grant of an Award. With respect to
Awards made to insiders under Section 16 of the Exchange Act, shares of such
Stock may be reused to the maximum extent permitted under Section 16 of the
Exchange Act.

5.3 ADJUSTMENT IN CAPITALIZATION. In the event of any change in the
outstanding shares of Stock by reason of a Stock dividend or split,
recapitalization, merger, consolidation, combination, exchange of shares, or
other similar corporate change, the aggregate number of shares of Stock
available under the Plan and subject to each outstanding Award, and its stated
exercise price or the basis upon which the Award is measured, shall be adjusted
appropriately by the Committee, whose determination shall be conclusive;
provided, however, that fractional shares shall be rounded to the nearest whole
share. Any adjustment to an incentive stock option shall be made consistent with
the requirements of Section 424 of the Code.

SECTION 6

DURATION OF PLAN

The Plan shall remain in effect, subject to the Board's right to
terminate the Plan earlier pursuant to Section 16 herein, until all Awards
hereunder shall have expired or terminated or shall have been exercised or fully
vested, and any Stock subject thereto shall have been purchased or acquired
pursuant to the provisions thereof. Notwithstanding the foregoing, no Award may
be granted under the Plan after December 31, 2010.

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SECTION 7

STOCK OPTIONS

7.1 GRANT OF OPTIONS. Subject to the provisions of Sections 5 and 6,
Options may be granted to Participants at any time and from time to time as
shall be determined by the Committee. The Committee shall have complete
discretion in determining the number of Options granted to each Participant. The
Committee may grant any type of Option to purchase Company Stock that is
permitted by law at the time of grant except discounted options. To the extent
the aggregate Fair Market Value (determined at the time the Option is granted)
of the Stock with respect to which incentive stock options are exercisable for
the first time by a Participant in any calendar year (under this Plan and any
other plans of the Company) exceeds the limitations set forth in Code Section
422(d), as amended, such Options shall not be deemed incentive stock options. In
determining which Options may be treated as non-qualified options under the
preceding sentence, Options will be taken into account in the order of their
Grant Dates. No incentive stock option may be granted to any person who owns,
directly or indirectly, more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company. Nothing in this Section 7 of the
Plan shall be deemed to prevent the grant of nonstatutory stock options in
amounts which exceed the maximum established by Section 422 of the Code.

7.2 EXERCISE PRICE. No Option shall be granted pursuant to the Plan at
an exercise price that is less than the Fair Market Value of the Stock on the
Grant Date.

7.3 DURATION OF OPTIONS. Each Option shall expire at such time or times
as the Committee shall determine at the time it is granted, provided, however,
that no incentive stock option may be granted later than ten years from the date
the Plan is adopted or approved by the shareholders, whichever is earlier.

7.4 EXERCISABILITY OF OPTIONS. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall in each instance approve, which need not be the same for all
Participants; provided, however, that no Option shall be exercisable later than
ten (10) years from the Grant Date.

7.5 NO OBLIGATIONS TO EXERCISE OPTIONS. The granting of an Option will
impose no obligation upon the Participant to exercise such Option.

7.6 PAYMENT. The purchase price of Stock upon exercise of any Option
shall be paid in full either (i) in cash, (ii) in Stock valued at its Fair
Market Value on the date of exercise, or (iii) by a combination thereof as
determined by the Committee. The Committee in its sole discretion may also
permit payment of the purchase price upon exercise of any Option to be made by
(i) having shares withheld from the total number of shares of Stock to be
delivered upon exercise or (ii) delivering a properly executed notice together
with irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds to pay the exercise price. The proceeds from
payment of exercise prices shall be added to the general funds of the Company
and shall be used for general corporate purposes.

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7.7 DELIVERY OF SHARES. Within an administratively reasonable period of
time after the exercise of an Option, and the payment of the full exercise
price, and the satisfaction of all withholding obligations incurred pursuant to
such exercise, the Participant shall receive a Stock certificate evidencing his
or her ownership of such Stock. A Participant shall have none of the rights of a
shareholder with respect to Options until the record date of the Stock purchase.
No adjustment will be made for dividends or other rights for which the record
date is prior to the date such Stock certificate is issued in the Participant's
name.

SECTION 8

RESTRICTED STOCK RIGHTS

8.1 GRANT OF RESTRICTED STOCK RIGHTS. Subject to the provisions of
Sections 5 and 6, the Committee, at any time and from time to time, may grant
Restricted Stock Rights under the Plan to such Participants and in such amounts
as it shall determine.

8.2 VOTING RIGHTS. During the Restricted Period, Participants holding
the Restricted Stock Rights granted hereunder shall have no voting rights with
respect to the shares subject to such Restricted Stock Rights prior to the
issuance of such shares pursuant to the Plan.

8.3 DIVIDEND EQUIVALENTS AND OTHER DISTRIBUTIONS. During the Restricted
Period, at the discretion of the Committee, Participants holding Restricted
Stock Rights may be entitled to receive dividend equivalents and other
distributions paid with respect to those Rights while they are so held.

8.4 FORM AND TIMING OF PAYMENT. Upon the satisfaction of the
restrictions, shares will be issued to the Participant. If any shares are to be
issued on a deferred basis, the Committee may provide for the payment of
dividend equivalents or interest during the deferral period.

SECTION 9

PERFORMANCE SHARES AND PERFORMANCE UNITS

9.1 GRANT OF PERFORMANCE SHARES OR PERFORMANCE UNITS. Subject to the
provisions of Sections 5 and 6, Performance Shares or Performance Units may be
granted to Participants at any time and from time to time as shall be determined
by the Committee. The Committee shall have complete discretion in determining
the number of Performance Shares or Performance Units granted to each
Participant.

9.2 VALUE OF PERFORMANCE SHARES AND PERFORMANCE UNITS. Each Performance
Share and each Performance Unit shall have a value determined by the Committee
at the time of grant. The Committee shall set performance goals in its
discretion which, depending on the extent to which they are met, will determine
the ultimate value of the Performance Share or Performance Unit to the
Participant. The time period during which the performance goals must be met
shall be called a Performance Period and shall be determined by the Committee.

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9.3 FORM AND TIMING OF PAYMENT. For Performance Shares, payment shall
be made in Stock. For Performance Units, payment shall be made in cash, Stock or
a combination thereof as determined by the Committee. Payment may be made in a
lump sum or installments as prescribed by the Committee. If any payment is to be
made on a deferred basis, the Committee may provide for the payment of dividend
equivalents or interest during the deferral period.

SECTION 10

STOCK APPRECIATION RIGHTS

10.1 GRANT OF STOCK APPRECIATION RIGHTS. Subject to the provisions of
Sections 5 and 6, Stock Appreciation Rights ("SARs") may be granted to
Participants at any time and from time to time as shall be determined by the
Committee. SARs may be granted in connection with the grant of an Option, in
which case the exercise of SARs will result in the surrender of the right to
purchase the shares under the Option as to which the SARs were exercised.
Alternatively, SARs may be granted independently of Options.

10.2 EXERCISABILITY OF SARS. SARs granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall in each instance approve, which need not be the same for all
Participants; provided, however, that no SAR shall be exercisable later than ten
(10) years from the Grant Date.

10.3 EXERCISE OF SARS. Upon exercise of the SAR, the Participant shall
be entitled to receive payment of an amount determined by multiplying:

(a) The difference between the Fair Market Value of a share of
Stock at the date of exercise over the price fixed by the Committee at the Grant
Date, by

(b) The number of shares with respect to which the SAR is
exercised.

10.4 FORM AND TIMING OF PAYMENT. At the sole discretion of the
Committee, payment for SARs may be made in cash or Stock, or in a combination
thereof.

10.5 RULE 16B-3 REQUIREMENTS. Notwithstanding any other provision of
the Plan, the Committee may impose such conditions on exercise of an SAR
(including, without limitation, the right of the Committee to limit the time of
exercise to specified periods) as may be required to satisfy the requirements of
Rule 16b-3 (or any successor rule), under the Exchange Act.

10.6 TERM OF SAR. The term of an SAR granted under the Plan shall not
exceed ten (10) years.

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SECTION 11

RESTRICTIONS

The Committee shall impose such restrictions on any Awards under the
Plan as it may deem advisable, including, without limitation, restrictions under
applicable federal securities law, under the requirements of any stock exchange
upon which the Stock is then listed and under any blue sky or state securities
laws applicable to such Awards.

SECTION 12

TERMINATION OF EMPLOYMENT

12.1 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, RETIREMENT,
IMPACTION OR CHANGE IN

Control.

(a) NONVESTED AWARDS.

i. OPTIONS AND SARS. If a Participant holds any
nonvested Options or SARs upon a termination of employment due to death,
Disability, Retirement, Impaction, or Change in Control, all such nonvested
Options or SARs shall become one hundred percent (100%) vested.

ii. RESTRICTED STOCK RIGHTS, PERFORMANCE SHARES AND
PERFORMANCE UNITS. If a Participant holds any nonvested Restricted Stock Rights,
Performance Shares or Performance Units upon a termination of employment due to
death, Disability, Retirement, Impaction or Change in Control, all such
nonvested Restricted Stock Rights, Performance Shares or Performance Units shall
vest as follows:

a. If the restriction is based on meeting
certain service requirements, the Restricted Stock Rights, Performance Shares or
Performance Units shall vest at termination of employment. The Participant shall
receive pro rata shares and/or cash payment based on the number of full months
of service during the Restricted Period.

b. If the restriction is based on meeting
certain performance requirements, the Restricted Stock Right, Performance Share
or Performance Unit shall vest at the end of the Performance Period. The
Participant shall receive pro rata shares and/or cash payment based on the
achievement of performance goals during the entire Performance Period, pro rated
for the number of full months of service during the Performance Period.
Distribution of shares and/or cash payment shall be made at the same time as
payment is made to those Participants who did not terminate service during the
Performance Period.

(b) VESTED AWARDS.

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<PAGE>

i. OPTIONS AND SARS. If a Participant holds any
vested Options or SARs upon a termination of employment due to death,
Disability, Retirement, Impaction or Change in Control, vested Options or SARs
shall be exercisable on or before the earlier of: (i) three (3) years following
the termination of employment or (ii) the tenth (10th) anniversary date of the
Grant Date of the Options or SARs.

ii. INCENTIVE STOCK OPTIONS. Notwithstanding the
foregoing, in the case of an incentive stock option, the favorable tax treatment
described in Section 422 of the Code shall not be available if such Option is
exercised after the date prescribed in Section 422(a)(2), as amended, following
a termination of employment except as otherwise allowed by Sections 421(c)(1)(A)
and 422(c)(6).

iii. RESTRICTED STOCK RIGHTS, PERFORMANCE SHARES AND
PERFORMANCE UNITS. If a Participant holds any vested Restricted Stock Rights,
Performance Shares or Performance Units subject to a deferral period, payment
shall be made at termination of employment.

12.2 VOLUNTARY TERMINATION OR INVOLUNTARY TERMINATION OF EMPLOYMENT FOR
REASONS OTHER THAN IMPACTION OR CAUSE.

(a) NONVESTED AWARDS. If a Participant holds any nonvested
Awards upon voluntary termination or involuntary termination of employment for
reasons other than Impaction or Cause, all such nonvested Awards shall be
canceled.

(b) VESTED AWARDS.

i. OPTIONS AND SARS. If a Participant holds any
vested Options or SARs upon voluntary termination or involuntary termination of
employment for reasons other than Impaction or Cause, such vested Options or
SARs shall be exercisable on or before the earlier of: (i) three (3) months
following the termination date or (ii) the tenth (10th) anniversary of the Grant
Date of the Options or SARs.

ii. RESTRICTED STOCK RIGHTS, PERFORMANCE SHARES AND
PERFORMANCE UNITS. If a Participant holds any vested Restricted Stock Rights,
Performance Shares and Performance Units which are subject to a deferral period
upon voluntary termination or involuntary termination of employment for reasons
other than Impaction or Cause, payment shall be made at termination of
employment.

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<PAGE>

12.3 TERMINATION OF EMPLOYMENT FOR CAUSE. If a Participant holds any
Awards, whether vested or nonvested, all Awards shall terminate immediately and
shall be forfeited upon a termination of employment for Cause.

12.4 DISPOSITION OF VESTED AWARDS UPON DEATH. If a Participant dies
without having fully exercised his or her vested Awards, the estate or
beneficiary, if such designation was made for purposes of the Plan, shall have
the right to exercise the Awards pursuant to the terms and conditions contained
herein. If a Participant dies holding Restricted Stock Rights, Performance
Shares or Performance Units issued on a deferred basis, payment shall be made to
the Participant's estate or beneficiary, if such designation was made for
purposes of the Plan.

12.5 DISCRETION OF COMMITTEE. Notwithstanding the above, the Committee
may, at any time and in its sole discretion, alter the vesting and exercise
provisions for all or part of the Awards which have been or will be granted to
Participants, subject to Section 16 of the Plan.

SECTION 13

NON-TRANSFERABILITY

The Committee may, in its sole discretion, determine the right of a
Participant to transfer any Award granted under the Plan. Unless otherwise
determined by the Committee, no Award granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated,
otherwise than by will or by the laws of descent and distribution or pursuant to
a qualified domestic relations order as defined by the Code or Title I of ERISA,
or the rules thereunder, or, if applicable, until the termination of any
Restricted or Performance Period as determined by the Committee.

SECTION 14

EMPLOYER DISCRETION

14.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in
any way the right of any Employer to terminate any Participant's employment at
any time, nor confer upon any Participant any right to continue in the employ of
the Employer.

14.2 PARTICIPANT. No Employee shall have a right to be selected as a
Participant, or, having been so selected, to be selected again as a Participant.

SECTION 15

SUBSTITUTION OF AWARDS

Any Award may be granted under this Plan in substitution for Awards
held by employees of other corporations who are about to become Employees of an
Employer as the result of a merger, consolidation or reorganization of the
employing corporation with an Employer, or the

D-12
<PAGE>

acquisition by an Employer of the assets of the employing corporation, or the
acquisition by an Employer of stock of the employing corporation as the result
of which it becomes a subsidiary of an Employer. The terms and conditions of the
Awards so granted may vary from the terms and conditions set forth in this Plan
to such extent as the Committee at the time of granting the Award may deem
appropriate to conform, in whole or in part, to the provisions of the Award in
substitution for which they are granted. However, in the event that the Award
for which a substitute Award is being granted is an incentive stock option, no
variation shall adversely affect the status of any substitute Award as an
incentive stock option under the Code.

SECTION 16

AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN

The Board may at any time, and from time to time, terminate, amend or
modify the Plan; provided however, that any such action of the Board shall be
subject to approval of the shareholders to the extent required by law.
Notwithstanding the above, to the extent permitted by law, the Board may
delegate to the Committee or the President the authority to approve
non-substantive amendments to the Plan. No amendment, modification, or
termination of the Plan or any Award under the Plan shall in any manner
adversely affect any Award theretofore granted under the Plan without the
consent of the holder thereof (unless such change is required in order to cause
the benefits under the Plan to qualify as performance-based compensation within
the meaning of Section 162(m) of the Code and applicable interpretive authority
thereunder).

D-13
<PAGE>

SECTION 17

TAX WITHHOLDING

17.1 TAX WITHHOLDING. The Company shall have the power to withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
federal, state, and local withholding tax requirements on any Award under the
Plan. To the extent that alternative methods of withholding are available under
applicable tax laws, the Company shall have the power to choose among such
methods.

17.2 FORM OF PAYMENT. To the extent permissible under applicable tax,
securities, and other laws, the Company may, in its sole discretion, permit the
Participant to satisfy a tax withholding requirement by (i) using already owned
shares; (ii) a cashless transaction; or (iii) directing the Company to apply
shares of Stock to which the Participant is entitled as a result of the exercise
of an Option or the lapse of a Restricted Period (including, for this purpose,
the filing of an election under Section 83(b) of the Code), to satisfy such
requirement.

17.3 TAX UPON DISPOSITION OF SHARES SUBJECT TO SS. 422 RESTRICTIONS. In
the event that a Participant shall dispose (whether by sale, exchange, gift, the
use of a qualified domestic relations order as defined by the Code or Title I of
ERISA, or the rules thereunder, or any like transfer) of any shares of Stock of
the Company (to the extent such shares are deemed to be purchased pursuant to an
incentive stock option) acquired by him within two (2) years of the Grant Date
of the related Option or within one (1) year after the acquisition of such
shares, he will notify the secretary of the Company no later than fifteen (15)
days from the date of such disposition of the date or dates and the number of
shares disposed of by him and the consideration received, if any, and, upon
notification from the Company, promptly forward to the secretary of the Company
any amount requested by the Company for the purpose of satisfying its liability,
if any, to withhold federal, state or local income or earnings tax or any other
applicable tax or assessment (plus interest or penalties thereon, if any, caused
by delay in making such payment) incurred by reason of such disposition.

SECTION 18

INDEMNIFICATION

Each person who is or shall have been a member of the Committee or of
the Board shall be indemnified and held harmless by the Company against and from
any loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him in connection with or resulting from any claim, action, suit, or
proceeding to which he may be a party or in which he may be involved by reason
of any action taken or failure to act under the Plan and against and from any
and all amounts paid by him in settlement thereof, with the Company's approval,
or paid by him in satisfaction of any judgment in any such action, suit, or
proceeding against him, provided he shall give the Company an opportunity, at
its own expense, to handle and defend the same before he undertakes to handle
and defend it on his own behalf. The foregoing right of indemnification shall
not be exclusive of any other rights of indemnification to which such person may
be entitled under the Company's articles of incorporation, bylaws, resolution or
agreement, as a

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<PAGE>

matter of law, or otherwise, or any power that the Company may have to indemnify
him or hold him harmless.

SECTION 19

REQUIREMENTS OF LAW

19.1 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
shares and/or cash under the Plan shall be subject to all applicable laws,
rules, and regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be required.

19.2 GOVERNING LAW. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of New
Mexico. This Plan is an unfunded performance-based bonus plan for a select group
of management or highly compensated employees and is not intended to be either
an employee pension or welfare benefit plan subject to ERISA.

19.3 CODE SECTION 162(M). If the Plan is subject to Section 162(m) of
the Code, it is intended that the Plan comply fully with and meet all the
requirements of Section 162(m) of the Code so that Awards granted hereunder
shall constitute "performance-based" compensation within the meaning of such
section. If any provision of the Plan would disqualify the Plan or would not
otherwise permit the Plan to comply with Section 162(m) as so intended, such
provision shall be construed or deemed amended to conform to the requirements or
provisions of Section 162(m); provided that no such construction or amendment
shall have an adverse effect on the economic value to a Participant of any Award
previously granted hereunder.

SECTION 20

FUNDING

The Company shall not be required to segregate any of its assets to
ensure the payment of any Award under the Plan. Neither the Participant nor any
other persons shall have any interest in any fund or in any specific asset or
assets of the Company or any other entity by reason of any Award, except to the
extent expressly provided hereunder. The interests of each Participant and
former Participant hereunder are unsecured and shall be subject to the general
creditors of the Company.

MANZANO CORPORATION:

By:
----------------------------------
Benjamin F. Montoya,
Chairman and Chief Executive Officer

Date:
--------------------------------

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EXHIBIT E

NEW MEXICO BUSINESS CORPORATION ACT PROVISIONS

SECTION 53-15-3. RIGHT OF SHAREHOLDERS TO DISSENT AND OBTAIN PAYMENT FOR SHARES.

A. Any shareholder of a corporation may dissent from, and obtain
payment for the shareholder's shares in the event of, any of the following
corporate actions:

(1) any plan of merger or consolidation to which the
corporation is a party, except as provided in
Subsection C of this section;

(2) any sale or exchange of all or substantially all of
the property and assets of the corporation not made
in the usual and regular course of its business,
including a sale in dissolution, but not including a
sale pursuant to an order of a court having
jurisdiction in the premises or a sale for cash on
terms requiring that all or substantially all of the
net proceeds of sale be distributed to the
shareholders in accordance with their respective
interests within one year after the date of sale;

(3) any plan of exchange to which the corporation is a
party as the corporation the shares of which are to
be acquired;

(4) any amendment of the articles of incorporation which
materially and adversely affects the rights
appurtenant to the shares of the dissenting
shareholder in that it:

(a) alters or abolishes a preferential right of
such shares;

(b) creates, alters or abolishes a right in
respect of the redemption of such shares,
including a provision respecting a sinking
fund for the redemption or repurchase of
such shares;

(c) alters or abolishes an existing preemptive
right of the holder of such shares to
acquire shares or other securities; or

(d) excludes or limits the right of the holder
of such shares to vote on any matter, or to
cumulate his votes, except as such right may
be limited by dilution through the issuance
of shares or other securities with similar
voting rights; or

(5) any other corporate action taken pursuant to a
shareholder vote with respect to which the articles
of incorporation, the bylaws or a resolution of the
board of directors directs that dissenting
shareholders shall have a right to obtain payment for
their shares.

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B. (1) A record holder of shares may assert dissenters'
rights as to less than all of the shares registered
in his name only if the holder dissents with respect
to all the shares beneficially owned by any one
person and discloses the name and address of the
person and persons on whose behalf the holder
dissents. In that event, his rights shall be
determined as if the shares as to which he has
dissented and his other shares were registered in the
names of different shareholders.

(2) A beneficial owner of shares who is not the record
holder may assert dissenters' rights with respect to
shares held on his behalf, and shall be treated as a
dissenting shareholder under the terms of this
section and Section 53-15-4 NMSA 1978 if he submits
to the corporation at the time of or before the
assertion of these rights a written consent of the
record holder.

C. The right to obtain payment under this section shall not apply to
the shareholders of the surviving corporation in a merger if a vote of the
shareholders of such corporation is not necessary to authorize such merger.

D. A shareholder of a corporation who has a right under this section to
obtain payment for his shares shall have no right at law or in equity to attack
the validity of the corporate action that gives rise to his right to obtain
payment, or to have the action set aside or rescinded, except when the corporate
action is unlawful or fraudulent with regard to the complaining shareholder or
to the corporation.

SECTION 53-15-4. RIGHTS OF DISSENTING SHAREHOLDERS.

A. Any shareholder electing to exercise his right of dissent shall file
with the corporation, prior to or at the meeting of shareholders at which the
proposed corporate action is submitted to a vote, a written objection to the
proposed corporate action. If the proposed corporate action is approved by the
required vote and the shareholder has not voted in favor thereof, the
shareholder may, within ten days after the date on which the vote was taken or
if a corporation is to be merged without a vote of its shareholders into another
corporation any of its shareholders may, within twenty-five days after the plan
of the merger has been mailed to the shareholders, make written demand on the
corporation, or, in the case of a merger or consolidation, on the surviving or
new corporation, domestic or foreign, for payment of the fair value of the
shareholder's shares, and, if the proposed corporate action is effected, the
corporation shall pay to the shareholder, upon the determination of the fair
value, by agreement or judgment as provided herein, and, in the case of shares
represented by certificates, the surrender of such certificates the fair value
thereof as of the day prior to the date on which the vote was taken approving
the proposed corporate action, excluding any appreciation or depreciation in
anticipation of the corporate action. Any shareholder failing to make demand
within the prescribed ten-day or twenty-five day period shall be bound by the
terms of the proposed corporate action. Any shareholder making such demand shall
thereafter be entitled

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<PAGE>

only to payment as in this section provided and shall not be entitled to vote or
to exercise any other rights of shareholder.

B. No such demand may be withdrawn unless the corporation consents
thereto. If, however, the demand is withdrawn upon consent, or if the proposed
corporate action is abandoned or rescinded or the shareholders revoke the
authority to effect the action, or if, in the case of a merger, on the date of
the filing of the articles of merger the surviving corporation is the owner of
all the outstanding shares of the other corporation, domestic and foreign, that
are parties to the merger, or if no demand or petition for the determination of
fair value by a court has been made or filed within the time provided in this
section, or if a court of competent jurisdiction determines that the shareholder
is not entitled to the relief provided by this section, then the right of the
shareholder to be paid the fair value of his shares ceases and his status as a
shareholder shall be restored, without prejudice, to any corporate proceedings
which may have been taken during the interim.

C. Within ten days after such corporate action is effected, the
corporation, or, in the case of a merger or consolidation, the surviving or new
corporation, domestic or foreign, shall give written notice thereof to each
dissenting shareholder who has made demand as provided in this section and shall
make a written offer to each such shareholder to pay for such shares at a
specified price deemed by the corporation to be the fair value thereof. The
notice and offer shall be accompanied by a balance sheet of the corporation, the
shares of which the dissenting shareholder holds, as of the latest available
date and not more than twelve months prior to the making of the offer, and a
profit and loss statement of the corporation for the twelve-months' period ended
on the date of the balance sheet.

D. If within thirty days after the date on which the corporate action
was effected the fair value of the shares is agreed upon between any dissenting
shareholder and the corporation, payment therefor shall be made within ninety
days after the date on which the corporate action was effected, and, in the case
of shares represented by certificates, upon surrender of the certificates. Upon
payment of the agreed value, the dissenting shareholder shall cease to have any
interest in the shares.

E. If, within the period of thirty days, a dissenting shareholder and
the corporation do not so agree, then the corporation, within thirty days after
receipt of written demand from any dissenting shareholder, given within sixty
days after the date on which corporate action was effected, shall, or at its
election at any time within the period of sixty days may, file a petition in any
court of competent jurisdiction in the county in this state where the registered
office of the corporation is located praying that the fair value of the shares
be found and determined. If, in the case of a merger or consolidation, the
surviving or new corporation is a foreign corporation without a registered
office in this state, the petition shall be filed in the county where the
registered office of the domestic corporation was last located. If the
corporation fails to institute the proceeding as provided in this section, any
dissenting shareholder may do so in the name of the corporation. All dissenting
shareholders, wherever residing, shall be made parties to the proceeding as an
action against their shares quasi in rem. A copy of the petition shall be served
on each dissenting shareholder who is a resident of this state and shall be
served by registered or certified mail on each dissenting shareholder who is a
nonresident. Service on nonresidents shall

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also be made by publication as provided by law. The jurisdiction of the court
shall plenary and exclusive. All shareholders who are parties to the proceeding
shall be entitled to judgment against the corporation for the amount of the fair
value of their shares. The court may, if it so elects, appoint one or more
persons as appraisers to receive evidence and recommend a decision on the
question of fair value. The appraisers shall have such power and authority as
specified in the order of their appointment or on an amendment thereof. The
judgment shall be payable to the holders of uncertificated shares immediately,
but to the holders of shares represented by certificates only upon and
concurrently with the surrender to the corporation of certificates. Upon payment
of the judgment, the dissenting shareholder ceases to have any interest in the
shares.

F. The judgment shall include an allowance for interest at such rate as
the court may find to be fair and equitable, in all the circumstances, from the
date on which the vote was taken on the proposed corporate action to the date of
payment.

G. The costs and expenses of any such proceeding shall be determined by
the court and shall be assessed against the corporation, but all or any part of
the costs and expenses may be apportioned and assessed as the court deems
equitable against any or all of the dissenting shareholders who are parties to
the proceeding to whom the corporation made an offer to pay for the shares if
the court finds that the action of the shareholders in failing to accept the
offer was arbitrary or vexatious or not in good faith. Such expenses include
reasonable compensation for and reasonable expenses of the appraisers, but
exclude the fees and expenses of counsel for and experts employed by any party;
but if the fair value of the shares as determined materially exceeds the amount
which the corporation offered to pay therefor, or if no offer was made, the
court in its discretion may award to any shareholder who is a party to the
proceeding such sum as the court determines to be reasonable compensation to any
expert employed by the shareholder in the proceeding, together with reasonable
fees of legal counsel.

H. Upon receiving a demand for payment from any dissenting shareholder,
the corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty days after demanding payment for his shares, each holder
of shares represented by certificates demanding payment shall submit the
certificates to the corporation for notation thereon that such demand has been
made. His failure to do so shall, at the option of the corporation, terminate
his rights under this section unless a court of competent jurisdiction, for good
and sufficient cause shown, otherwise directs. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made is [are] transferred, any new certificate issued
therefor shall bear similar notation, together with the name of the original
dissenting holder of the shares, and a transferee of the shares acquires by such
transfer no rights in the corporation other than those which the original
dissenting shareholder had after making demand for payment of the fair value
thereof.

I. Shares acquired by a corporation pursuant to payment of the agreed
value therefor or to payment of the judgment entered therefor, as in this
section provided, may be held and disposed of by the corporation as in the case
of other treasury shares, except that, in the case of a merger or consolidation,
they may be held and disposed of as the plan of merger or consolidation may
otherwise provide.

E-4
<PAGE>

MAP

[MAP PROVIDING SHAREHOLDERS WITH
DIRECTIONS TO THE ANNUAL MEETING LOCATION]

<PAGE>

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 6 of Article II of Manzano's Bylaws contains the following
provisions with respect to indemnification of directors and officers:

"Each person who shall have served as a director or an officer of the
Corporation, or, at the request of the Corporation, as a director or an
officer of any other company in which the Corporation has a financial
interest and regardless of whether or not such person is then in
office, and the heirs, executors, administrators and personal
representatives of the person, shall be indemnified by the Corporation
to the full extent of the authority of the Corporation to so indemnify
as authorized by New Mexico law."

Section 53-11-4.1 of the Business Corporation Act of the State of New
Mexico ("BCA") provides that a corporation shall have power to indemnify any
person made (or threatened to be made) a party to any proceeding (whether
threatened, pending or completed) by reason of the fact that the person is or
was a director (or, while a director, is or was serving in any of certain other
capacities) if: (1) the person acted in good faith; (2) the person reasonably
believed: (a) in the case of conduct in the person's official capacity with the
corporation, that the person's conduct was in its best interests; and (b) in all
other cases, that the person's conduct was at least not opposed to its best
interests; and (3) in the case of any criminal proceeding, the person had no
reasonable cause to believe the person's conduct was unlawful. Indemnification
may be made against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by the person in connection with the proceeding, but
may be limited or unavailable with respect to certain proceedings. In some
instances, indemnification of a director may be mandatory or, upon the
application of a director, may be ordered by a court. Reasonable expenses
incurred by a director may, under certain circumstances, be paid or reimbursed
in advance of a final disposition of a proceeding. Unless limited by its
articles of incorporation, a corporation may (or, as the case may be, shall)
indemnify and advance expenses to an officer of the corporation to the same
extent as to a director under Section 53-11-4.1 of the BCA.

Also, unless limited by its articles of incorporation, a corporation
has (1) the power to indemnify and to advance expenses to an employee or agent
of the corporation to the same extent that it may indemnify and advance expenses
to directors under the statute and (2) additional power to indemnify and to
advance reasonable expenses to an officer, employee or agent who is not a
director to such further extent, consistent with law, as may be provided by its
articles of incorporation, bylaws, general or specific action of its Board of
Directors, or contract.

Section 53-11-4.1 of the BCA was amended in 1987 to provide that the
indemnification authorized thereunder shall not be deemed exclusive of any
rights to which those seeking indemnification may be entitled under the articles
of incorporation, the by-laws, an agreement, a resolution of shareholders or
directors or otherwise. At PNM's 1987 Annual Meeting of Stockholders, the
stockholders approved certain agreements with PNM's directors and officers
relating to indemnification of directors and officers. Such agreements have been
entered into

II-1
<PAGE>

with each director and officer. The agreements provide for indemnification of
directors and officers to the fullest extent permitted by law, including
advancement of litigation expenses where appropriate. The agreements provide for
the appointment of a reviewing party by the Board of Directors to make a
determination whether claimed indemnification is permitted under applicable law.
Similar agreements will be entered into by Manzano with its directors and
officers.

Insurance is maintained on a regular basis by PNM against liabilities
arising on the part of directors and officers out of their performance in such
capacities or arising on the part of PNM out of its identical indemnification
provisions, subject to certain exclusions and to the policy limits. It is
anticipated that Manzano would maintain substantially similar insurance.

II-2

<PAGE>

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES1

EXHIBIT NUMBER DESCRIPTION

2 Form of Agreement and Plan of Share Exchange (attached to the
proxy statement/prospectus as Exhibit A).

3.1 Articles of Incorporation of Manzano Corporation (attached to
the proxy statement/prospectus as Exhibit B).

3.2 Bylaws of Manzano Corporation (attached to the proxy
statement/prospectus as Exhibit C).

3.3 Restated Articles of Incorporation of Public Service Company
of New Mexico as amended through May 10, 1985 (incorporated by
reference to Exhibit 4-(b) of PNM's Registration Statement No.
2-99990).

3.4 Bylaws of Public Service Company of New Mexico (incorporated
by reference to Exhibit 3.2 to PNM's Annual Report on Form
10-K for the year ended December 31, 1999).

5 Opinion of Keleher & McLeod, P.A. with respect to the legality
of the securities registered hereunder.

*8 Tax opinion of Arthur Andersen LLP.

10 Manzano Corporation Omnibus Performance Equity Plan (attached
to the proxy statement/prospectus as Exhibit D).

23.1 Consent of Keleher & McLeod, P.A. (included in Exhibit 5).

*23.2 Consent of Arthur Andersen LLP (included in Exhibit 8).

*23.3 Consent of Arthur Andersen LLP dated March 8, 2000.

23.4 Consent of Arthur Andersen LLP dated April 18, 2000.

*24 Power of Attorney (included on signature page hereof).

*99 Form of Proxy Card.

- ------------------------

*PREVIOUSLY FILED.

- ------------------------

1 Reference is made to a duplicate list of exhibits being filed as part of
this registration statement, which list, prepared in accordance with
Item 102 of Regulation S-T of the Securities and Exchange Commission,
immediately precedes the exhibits being physically filed with this
registration statement.
II-3
<PAGE>

ITEM 22. UNDERTAKINGS

The undersigned registrant hereby undertakes:

(1) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.

(2) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.

(3) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-4

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has duly caused this Pre-Effective Amendment No. 1
to Registration Statement No. 333-32170 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Albuquerque, State of New
Mexico, on the 17th day of April, 2000.

Manzano Corporation

By: /S/ M. H. MAERKI
----------------------------------
M. H. Maerki
Senior Vice President and
Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to Registration Statement No. 333-32170 has been
signed below by the following persons in the capacities and on the dates
indicated.

SIGNATURE TITLE DATE

<S> <C> <C>
Chief Executive Officer and Chairman of the
* Board of Directors April 17, 2000
- -----------------------
B.F. Montoya (Principal Executive Officer)

Senior Vice President and
/s/ M.H. Maerki Chief Financial Officer April 17, 2000
- -----------------------
M.H. Maerki (Principal Financial Officer)

Vice President,
* Corporate Controller and April 17, 2000
- --------------------------
J.R. Loyack Chief Accounting Officer
(Principal Accounting Officer)

* Director April 17, 2000
- ----------------------
J.T. Ackerman

* Director April 17, 2000
- --------------------
R.G. Armstrong

* Director April 17, 2000
- ------------------------
J.A. Godwin
</TABLE>

II-5
<PAGE>

<TABLE>

* President and Director April 17, 2000
- ---------------------------
J.E. Sterba

* Director April 17, 2000
- --------------------------
T.F. Patlovich

* Director April 17, 2000
- --------------------------
R.M. Price

*BY /S/ M.H. MAERKI
- --------------------------
M.H. Maerki
Attorney-in-fact
</TABLE>

II-6
<PAGE>

EXHIBIT INDEX

Exhibit DESCRIPTION
NUMBER
<S> <C>
2 Form of Agreement and Plan of Share Exchange (attached to the proxy
statement/prospectus as Exhibit A).

3.1 Articles of Incorporation of Manzano Corporation (attached to the proxy
statement/prospectus as Exhibit B).

3.2 Bylaws of Manzano Corporation (attached to the proxy statement/prospectus as
Exhibit C).

3.3 Restated Articles of Incorporation of Public Service Company of New Mexico as
amended through May 10, 1985 (incorporated by reference to Exhibit 4-(b) of PNM's
Registration Statement No. 2-99990).

3.4 Bylaws of Public Service Company of New Mexico (incorporated by reference to
Exhibit 3.2 to PNM's Annual Report on Form 10-K for the year ended December 31,
1999).

5 Opinion of Keleher & McLeod, P.A. with respect to the legality of the securities
registered hereunder.

*8 Tax opinion of Arthur Andersen LLP.

10 Manzano Corporation Omnibus Performance Equity Plan (attached to the proxy
statement/prospectus as Exhibit D).

23.1 Consent of Keleher & McLeod, P.A. (included in Exhibit 5).

*23.2 Consent of Arthur Andersen LLP (included in Exhibit 8).

*23.3 Consent of Arthur Andersen LLP dated March 8, 2000.

23.4 Consent of Arthur Andersen LLP dated April 18, 2000.

*24 Power of Attorney (included on signature page hereof).

*99 Form of Proxy Card.
</TABLE>

- ------------------------

*Previously filed.

<PAGE>

EXHIBIT 5
OPINION RE: LEGALITY

April 18, 2000

Manzano Corporation
Alvarado Square
Albuquerque, New Mexico 87158

Re: Issuance of Common Stock in Connection with Formation of a
Holding Company Structure for Public Service Company of New Mexico

Ladies and Gentlemen:

We are acting as counsel to Manzano Corporation ("Manzano"), a New
Mexico corporation, in connection with Registration Statement on Form S-4 (No.
333-32170), as amended (the "Registration Statement"), under the Securities Act
of 1933. The Registration Statement relates to the issuance of up to 39,700,000
shares of Manzano's common stock, without par value (the "Shares"), which are to
be issued pursuant to the Agreement and Plan of Share Exchange (the
"Agreement"), dated April 17, 2000 between Manzano and Public Service Company of
New Mexico ("PNM"), a New Mexico corporation. Pursuant to the Agreement, each
share of PNM common stock will be exchanged for one share of Manzano common
stock. As a result of the share exchange, Manzano will become the parent holding
company of PNM.

We have examined the Registration Statement, the Agreement and such
other corporate records, certificates and other documents and instruments, and
have made such investigations of law, as we have considered necessary or
appropriate for the purposes of this opinion.

Based upon and subject to the foregoing, it is our opinion that the
Shares, when issued in accordance with the terms outlined in the Registration
Statement, including the Agreement constituting Exhibit A to the Proxy Statement
and Prospectus portion of the Registration Statement, will be legally issued,
fully paid and nonassessable.

This opinion only addresses the law of New Mexico and the federal law
of the United States. This opinion is being rendered solely for your benefit in
connection with the issuance of the Shares in accordance with the Agreement.

We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as Exhibit 5 to Pre-Effective Amendment No. 1 to the
Registration Statement and we consent to being identified in the Proxy Statement
and Prospectus portion of the Registration Statement under the caption "Validity
of Manzano Common Stock." In giving this consent, we do not thereby admit
that we are within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933 or the rules and regulations of the
Securities and Exchange Commission thereunder.

Very truly yours,

KELEHER & McLEOD, P.A.

By /s/ Charles L. Moore
Charles L. Moore

<PAGE>

EXHIBIT 23.4

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation by
reference in this Pre-Effective Amendment No. 1 to Registration Statement No.
333-32170 of our reports dated January 26, 2000 included in Public Service
Company of New Mexico's Form 10-K for the year ended December 31, 1999 and to
all references to our Firm included in this Pre-Effective Amendment No. 1 to
Registration Statement No. 333-32170.

Albuquerque, New Mexico
April 18, 2000

/s/ Arthur Andersen LLP