Exhibit 10.12

DELEGATION AGREEMENT

between

SHARYLAND UTILITIES, L.P.

and

INFRAREIT, INC.

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TABLE OF CONTENTS

 

ARTICLE 1.    DEFINITIONS; GENERAL REFERENCES      1   

1.1

   Definitions      1   

1.2

   Rules of Construction      4   

1.3

   Precedence      4    ARTICLE 2.    DELEGATION OF POWER      4   

2.1

   Delegation of Power      4   

2.2

   Amendments to Delegation      6   

2.3

   Corporate Affiliates and Contractors      7    ARTICLE 3.    SHARYLAND
RESERVATION OF POWER AND ADDITIONAL RESPONSIBILITIES      7   

3.1

   Reservation of Power      7   

3.2

   No Delegation of Power Prohibited by Applicable Law or Regulatory Authorities
     7   

3.3

   Sharyland’s Responsibilities      8    ARTICLE 4.    COMPENSATION      8   

4.1

   No Internal Expenses      8   

4.2

   Third Party Expenses      8    ARTICLE 5.    INDEMNIFICATION      8   

5.1

   Indemnification By Delegatee      8   

5.2

   Indemnification by Sharyland      8   

5.3

   Limitation of Liability      9    ARTICLE 6.    TERM AND TERMINATION      9
  

6.1

   Term      9   

6.2

   Termination      9   

6.3

   Rights Upon Termination      9    ARTICLE 7.    REPRESENTATIONS AND
WARRANTIES      10   

7.1

   Representations and Warranties by Both Parties      10    ARTICLE 8.   
DISPUTE RESOLUTION      10   

8.1

   Arbitration      10   

8.2

   Continued Performance      11    ARTICLE 9.    MISCELLANEOUS      12   

9.1

   Confidentiality and Non-Disclosure      12   

9.2

   Assignment      13   

9.3

   Not for Benefit of Third Parties      13   

9.4

   Amendments      13   

9.5

   Survival      13   

9.6

   No Waiver      13   

9.7

   Notices      13   

 

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9.8

  

Counterparts

     14   

9.9

  

Governing Law

     14   

9.10

  

Captions

     14   

9.11

  

Severability

     14   

9.12

  

Entire Agreement

     14   

9.13

  

Further Assurances

     15   

 

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DELEGATION AGREEMENT

This DELEGATION AGREEMENT (this “Agreement”), entered into on January 29, 2015
to be effective as of the Effective Date (as hereinafter defined), is by and
between Sharyland Utilities, L.P., a Texas limited partnership (“Sharyland”),
and InfraREIT, Inc., a Maryland corporation (“Delegatee”). Each of Sharyland and
Delegatee may be referred to herein as a “Party” and together as the “Parties.”

RECITALS

WHEREAS, Sharyland and Transmission and Distribution Company, L.L.C., a Texas
limited liability company (the “TDC Member”, together with Sharyland, the
“Members”) formed Sharyland Transmission Services, L.P. as a Texas limited
partnership (the “Company”) and entered into an Agreement of Limited Partnership
as of June 28, 2006 and subsequently changed the name of the Company to
“Sharyland Distribution & Transmission Services, L.P.”;

WHEREAS, the Members converted the Company from a Texas limited partnership to a
Texas limited liability company as provided for under the Act and the Company
became “Sharyland Distribution & Transmission Services, L.L.C.”;

WHEREAS, Sharyland is the managing member of the Company and has the power and
authority on behalf of the Company to manage, control, administer and operate
the properties, business and affairs of the Company subject to, and in
accordance with, the Third Amended and Restated Company Agreement of the
Company, effective as of the Effective Date (as amended from time to time, the
“Company Agreement”);

WHEREAS, pursuant to Section 5.1(a) of the Company Agreement, Sharyland has the
right to delegate such power and authority to a third party;

WHEREAS, consistent with the power and authority granted to Sharyland under the
Company Agreement, Sharyland desires to enter into this Agreement with Delegatee
pursuant to which Sharyland will delegate certain of its power and authority to
perform duties in connection with the management of the business and affairs of
the Company; and

WHEREAS, notwithstanding anything to the contrary herein, Sharyland shall
reserve for itself and shall not delegate any power or authority (i) to operate
any of the T&D Assets; (ii) to cause the Company to fund necessary Footprint
Projects (as defined in the Company Agreement) in order to maintain the safety
or reliability of the T&D Assets; or (iii) to take certain other actions as more
fully described herein.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and other valuable consideration, the Parties hereby agree as
follows:

ARTICLE 1. DEFINITIONS; GENERAL REFERENCES

1.1 Definitions. For all purposes of this Agreement (including the preceding
recitals) unless otherwise required by the context in which any defined term
appears, capitalized terms have the meanings specified in this Article 1.

 

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“Act” shall mean the Texas Limited Liability Company Law as set forth in the
Texas Business Organizations Code, as the same may be amended from time to time.

“Affiliate” means, with respect to any Person, any other Person that, directly
or indirectly through one or more intermediaries, controls, is controlled by or
is under common control with such first Person. The term “control” (including
correlative terms such as “controlled by” and “under common control with”) means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise; provided, however,
that the Affiliates of Delegatee shall not include Sharyland, Sharyland’s
subsidiaries and parent companies with ownership interests in Sharyland, and the
Affiliates of Sharyland shall not include Delegatee or Delegatee’s subsidiaries.

“Agreement” has the meaning set forth in the preamble.

“Annual Business Plan” has the meaning ascribed to such term in the Company
Agreement.

“Applicable Law” means any and all laws, ordinances, statutes, orders and
regulations of any Governmental Authorities, including any securities exchange
listing requirements.

“Approved Annual Business Plan” has the meaning ascribed to such term in the
Company Agreement.

“Approved Capital Expenditure Budget” means a Capital Expenditure Budget that
has been submitted by Sharyland and Approved (as defined in the Company
Agreement) by the Delegatee in accordance with Section 8.1 of the Company
Agreement.

“Arbitration Panel” has the meaning set forth in Section 8.1(a).

“Bankruptcy” means a situation in which a Person (i) is generally not paying, or
admits in writing its inability to pay, its debts as they become due,
(ii) files, or consents by answer or otherwise to the filing against it of, a
petition for relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction, (iii) makes
an assignment for the benefit of its creditors, (iv) consents to the appointment
of a custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property, (v) is
adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for
the purpose of any of the foregoing.

“Capital Expenditure Budget” shall mean the rolling three-year capital
expenditure budget that Sharyland provides to the Delegatee, the provisions of
which are reflected in the Company Agreement.

“Company” has the meaning set forth in the recitals.

“Company Agreement” has the meaning set forth in the recitals.

 

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“Confidential Information” has the meaning set forth in Section 9.1(a).

“Delegatee” has the meaning set forth in the preamble and shall be deemed to
include any successor by operation of law or any permitted assign pursuant to
Section 9.2.

“Delegatee Indemnitees” has the meaning set forth in Section 5.2.

“Delegatee Panel Member” has the meaning set forth in Section 8.1(b).

“Effective Date” means the date on which the initial public offering of the
Delegatee is consummated.

“ERCOT” means the Electric Reliability Council of Texas.

“Footprint Project(s)” has the meaning set forth in the recitals.

“Good Utility Practice” shall be as defined from time to time by the PUCT and,
as of the date hereof, means any of the practices, methods, and acts engaged in
or approved by a significant portion of the electric utility industry during the
relevant time period, or any of the practices, methods, and acts that, in the
exercise of reasonable judgment in light of the facts known at the time the
decision was made, could have been expected to accomplish the desired result at
a reasonable cost consistent with good business practices, reliability, safety,
and expedition. Good Utility Practice is not intended to be limited to the
optimum practice, method, or act, to the exclusion of all others, but rather is
intended to include acceptable practices, methods, and acts generally accepted
in the region.

“Governmental Authority” means any federal, state, or local government,
regulatory or administrative authority, any agency or commission thereof, or any
court or tribunal and any self-regulatory organization, including, but not
limited to, a national securities exchange registered with the Securities and
Exchange Commission.

“Liabilities” has the meaning set forth in Section 5.1.

“Members” has the meaning set forth in the recitals.

“New Project” has the meaning ascribed to such term in the Company Agreement.

“Non-Breaching Party” has the meaning set forth in Section 9.1(b).

“Party” or “Parties” has the meaning set forth in the preamble.

“Person” means any Party, individual, partnership, corporation, association,
limited liability company, business trust, government or political subdivision
thereof, governmental agency or other entity.

“PUCT” means the Public Utility Commission of Texas.

“PURA” means the Public Utility Regulatory Act, as amended.

 

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“Regulatory Authority(ies)” means the PUCT, ERCOT, the Texas Regional Entity,
FERC and any similar Governmental Authority having jurisdiction over the T&D
Assets.

“Sharyland” has the meaning set forth in the preamble.

“Sharyland Indemnitees” has the meaning set forth in Section 5.1.

“Sharyland Panel Member” has the meaning set forth in Section 8.1(b).

“T&D Assets” shall mean all electric transmission and/or distribution assets
that are owned by the Company at the time of reference.

“TDC Member” has the meaning set forth in the recitals.

“Term” has the meaning set forth in Section 6.1.

“Third Panel Member” has the meaning set forth in Section 8.1(b).

1.2 Rules of Construction. As used in this Agreement, the terms “herein” and
“hereof” are references to this Agreement, taken as a whole; the term “includes”
or “including” shall mean “including, without limitation”; and references to a
“Section” or “Article” shall mean a Section or Article of this Agreement, as the
case may be, unless in any such case the context requires otherwise. All
references to a given agreement, instrument or other document shall be a
reference to that agreement, instrument or other document as modified, amended,
supplemented and restated through the date as of which such reference is made,
and reference to a law includes any amendment or modification thereof. The
singular shall include the plural, as the context requires, and the masculine
shall include the feminine and neuter, and vice versa.

1.3 Precedence. In the event of a conflict or discrepancy between this Agreement
and the Company Agreement, the interpretation of this Agreement or any amendment
thereof shall have precedence over the provisions of the Company Agreement or
any amendment thereof.

ARTICLE 2. DELEGATION OF POWER

2.1 Delegation of Power. During the Term, Sharyland irrevocably delegates to
Delegatee, to the fullest extent permitted under the Company Agreement and
Applicable Law, the power and authority to perform the duties of managing the
business and affairs of the Company that are set below:

(a) sourcing, evaluating and obtaining on the Company’s or any of its
subsidiaries’ behalf any loan, indebtedness or other financing arrangements
necessary or appropriate in connection with the Company’s or such subsidiary’s
business;

(b) causing the Company or any subsidiary thereof to negotiate and enter into
any such loan, indebtedness or other financing arrangements, and any amendments
thereto, and causing the Company to enter into and perform any obligations under
any related financing documents;

 

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(c) causing the Company or any subsidiary thereof to provide any contractual or
other support for any loan, indebtedness or equity financing arrangements
obtained by the TDC Member or Affiliate thereof;

(d) causing the Company or any subsidiary thereof to provide any necessary
information or support related to communications, compliance or other matters
related to equity capital that the TDC Member or any Affiliate thereof has
raised;

(e) conducting the business of the Company or any subsidiary thereof (or any of
their respective joint ventures or co-investments) under its name or such other
names as may be determined as necessary by Delegatee;

(f) causing the Company and its subsidiaries to comply with all Applicable Laws
of any Governmental Authorities (other than the Applicable Laws (x) of any
Regulatory Authorities and (y) related to the operation of the T&D Assets);

(g) causing the Company or any subsidiary thereof to negotiate and enter into
contracts (including any leases), to incur and be bound by any related
obligations thereto, and to enforce any rights therein, including, but not
limited to, determining any breach of contract and seeking and enforcing any
remedies available under contract, law or equity;

(h) participating with Sharyland in the preparation of the Capital Expenditure
Budget and any amendments thereto;

(i) preparing the portions of the Annual Business Plan that relate to matters
other than capital expenditures;

(j) monitoring the insurance required under any lease of the T&D Assets and
enforcing the Company’s and any subsidiary’s rights under the applicable
insurance policies; provided that, Sharyland shall determine from time to time
the amount of insurance coverage with respect to the operations and Footprint
Projects and other assets of the Company as reasonably required for ownership
and prudent operation of the T&D Assets;

(k) causing the Company or any subsidiary thereof to negotiate and enter into
any renewals or supplements of any leases with Sharyland, any Affiliate thereof
or any other third party;

(l) keeping the books of accounts and other financial and corporate records of
the Company and any subsidiary thereof; provided that, Sharyland shall continue
to maintain, or cause to be maintained, all logs, drawings, manuals,
specifications and data and inspection, modification and maintenance records and
other materials required to be maintained in respect of the T&D Assets required
by Applicable Laws or consistent with Good Utility Practices;

(m) preparing and distributing any periodic financial reports and annual audits
of the Company and any subsidiary thereof and coordinating with Sharyland in
preparing those reports;

 

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(n) preparing, documenting and updating any accounting or other internal
controls of the Company and any subsidiary thereof, including internal controls
over financial reporting;

(o) assisting any Affiliate of the Company in satisfying reporting and
compliance obligations under applicable securities laws or the rules of any
exchange on which the securities of such Affiliate may trade;

(p) opening and managing bank accounts and Treasury/cash management activities
on behalf of the Company or any subsidiary thereof;

(q) managing all tax matters and administration thereof on behalf of the Company
and any subsidiary thereof;

(r) planning, sourcing and managing all capital needs of the Company and any
subsidiary thereof, including but not limited to, forecasting the needs for
capital (subject to Sharyland’s participation), determining uses for capital,
and raising capital;

(s) managing all investor communications and relations and preparing the annual
reports of the Company or any subsidiary thereof;

(t) causing the Company or a subsidiary thereof to acquire or dispose of
transmission, distribution or other assets and negotiating and causing the
Company or any such subsidiary to perform its obligations under any related
acquisition or disposition agreements; provided that, the delegation of
Sharyland’s power to Delegatee will not affect Sharyland’s authority to cause
the Company to take such actions, subject to the negative control rights of the
TDC Member in the Company Agreement;

(u) causing the Company or a subsidiary thereof to negotiate, enter into and
perform its obligations under contracts for the construction of transmission and
distribution projects and related engineering, procurement and construction
(EPC) or other contracts;

(v) electing, removing and replacing officers and managing the corporate minute
books of the Company and any subsidiary thereof; provided that, in all
circumstances at least one designated employee of Sharyland will remain as a
senior vice president or other officer of the Company;

(w) directing Sharyland to file a rate case proceeding with the PUCT with
respect to the T&D Assets pursuant to the leases between the Company or any
subsidiary thereof and Sharyland or any subsidiary thereof; and

(x) any other responsibilities, rights or duties to manage the affairs of the
Company other than those reserved for Sharyland as set forth below.

2.2 Amendments to Delegation. If the power and/or authority of Sharyland as the
managing member of the Company are modified pursuant to a subsequent amendment
and/or restatement to the Company Agreement, changes in Applicable Law or
otherwise, then the power and authority delegated to the Delegatee shall be
modified on the same basis.

 

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2.3 Corporate Affiliates and Contractors. Delegatee shall be authorized to
utilize the services of its Affiliates or third-party contractors, in each case,
that are necessary or appropriate for the exercise of the powers and authorities
delegated to it hereunder.

ARTICLE 3. SHARYLAND RESERVATION OF POWER AND ADDITIONAL RESPONSIBILITIES.

3.1 Reservation of Power. Notwithstanding anything to the contrary herein,
subject to any limitation set forth in the Company Agreement, Sharyland
expressly reserves the following powers, rights and responsibilities:

(a) operational control over the T&D Assets, including but not limited to,
maintenance, planning Footprint Projects, managing quality of service, handling
customer and community relations matters, accounting for operating and
maintenance costs, operating in compliance with all environmental, safety and
other Applicable Laws applicable to operating the T&D Assets;

(b) compliance with all Applicable Laws (x) of any Regulatory Authorities and
(y) related to the operation of the T&D Assets and managing all regulatory
matters and relationships with any such Regulatory Authorities;

(c) rights under Section 3.2(d) of the Company Agreement to either contribute
capital to fund certain Footprint Projects or to seek and obtain reasonable
alternative capital sources for such Footprint Projects in accordance with the
terms of Section 3.2(d) of the Company Agreement;

(d) rights under Section 5.2(b) of the Company Agreement to take certain actions
on behalf of the Company in its reasonable judgment in accordance with
Section 5.2(b) of the Company Agreement, notwithstanding the approval rights of
the TDC Member;

(e) participation and coordination with Delegatee in forecasting the capital
needs of the Company and preparing the Capital Expenditure Budget and any
amendments thereto;

(f) rights (i) to propose amendments to an Approved Capital Expenditure Budget
or Approved Annual Business Plan or (ii) to exceed an Approved Capital
Expenditure Budget or Approved Annual Business Plan in certain circumstances in
accordance with the Company Agreement; and

(g) all other rights under the Company Agreement requiring the express consent
or approval of Sharyland.

3.2 No Delegation of Power Prohibited by Applicable Law or Regulatory
Authorities. Sharyland does not delegate any power, authority or right that
would in any manner be contrary or inconsistent with any order or rule of the
PUCT or PURA. To the extent that any inconsistency exists, it shall be deemed
that Sharyland has not delegated any such power, authority or right to
Delegatee.

 

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3.3 Sharyland’s Responsibilities. Sharyland shall render to Delegatee all
reasonably necessary assistance and cooperate with Delegatee for Delegatee to
exercise the power and authority delegated to it under this Agreement, including
providing reasonable access to premises and information, if any, under the
control of Sharyland or any of its Affiliates and not in the possession of
Delegatee. All such items shall be made available at such times and in such
manner as may be reasonably required by Delegatee.

ARTICLE 4. COMPENSATION

4.1 No Internal Expenses. The Parties acknowledge that other valuable
consideration has been provided to each other to induce the Parties to enter
into this Agreement. Neither Delegatee nor any of its Affiliates shall be
entitled to compensation or reimbursement from Sharyland with respect to any
internal general or administration costs or expenses in connection with this
Agreement.

4.2 Third Party Expenses. Pursuant to Section 5.3 of the Company Agreement,
Delegatee shall be reimbursed promptly by the Company for any third-party,
out-of-pocket administrative costs and expenses reasonably incurred by it in
connection with this Agreement. Delegatee shall directly seek reimbursement for
any such cost from the Company.

ARTICLE 5. INDEMNIFICATION

5.1 Indemnification By Delegatee. SUBJECT TO THE LIMITATIONS OF LIABILITY IN
SECTION 5.3, DELEGATEE SHALL INDEMNIFY AND HOLD HARMLESS SHARYLAND AND ITS
AFFILIATES, AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND
REPRESENTATIVES (THE “SHARYLAND INDEMNITEES”) FROM AND AGAINST, AND NO SHARYLAND
INDEMNITEE WILL BE RESPONSIBLE HEREUNDER FOR, ANY AND ALL CLAIMS, ASSERTIONS,
DEMANDS, SUITS, DAMAGES, JUDGMENTS, LOSSES, OBLIGATIONS, LIABILITIES, ACTIONS
AND CAUSES OF ACTION, FEES (INCLUDING REASONABLE ATTORNEY’S FEES AND
DISBURSEMENTS), COSTS (INCLUDING COURT COSTS), EXPENSES, INVESTIGATIONS,
INQUIRIES, ADMINISTRATIVE PROCEEDINGS, PENALTIES, FINES AND SANCTIONS
(COLLECTIVELY, “LIABILITIES”) SUSTAINED OR SUFFERED BY ANY SHARYLAND INDEMNITEE
IN CONNECTION WITH INJURY OR DEATH TO THIRD PARTIES OR LOSS OF OR DAMAGE TO THE
PROPERTY OF THIRD PARTIES, TO THE EXTENT ARISING OUT OF OR RELATED TO THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF DELEGATEE OR ITS EMPLOYEES, AGENTS, OFFICERS
OR DIRECTORS.

5.2 Indemnification by Sharyland. SUBJECT TO THE LIMITATIONS OF LIABILITY IN
SECTION 5.3, SHARYLAND SHALL INDEMNIFY AND HOLD HARMLESS DELEGATEE AND ITS
AFFILIATES, AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND
REPRESENTATIVES (THE “DELEGATEE INDEMNITEES”), FROM AND AGAINST, AND NO
DELEGATEE INDEMNITEE WILL BE RESPONSIBLE HEREUNDER FOR, ANY AND ALL LIABILITIES
SUSTAINED OR SUFFERED BY ANY DELEGATEE INDEMNITEE IN CONNECTION WITH INJURY OR
DEATH TO THIRD PARTIES OR LOSS OF OR DAMAGE TO PROPERTY OF THIRD PARTIES, TO THE
EXTENT ARISING OUT OF OR RELATED TO THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT
OF SHARYLAND OR ITS EMPLOYEES, AGENTS, OFFICERS OR DIRECTORS.

 

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5.3 Limitation of Liability. NOTWITHSTANDING ANY PROVISION IN THIS AGREEMENT TO
THE CONTRARY, NEITHER PARTY SHALL BE LIABLE HEREUNDER FOR ANY CONSEQUENTIAL,
INCIDENTAL, SPECIAL OR INDIRECT LOSS OR DAMAGE WHATSOEVER NO MATTER HOW CLAIMED,
CALCULATED OR CHARACTERIZED, WHETHER IN CONTRACT, TORT (INCLUDING, WITHOUT
LIMITATION, STRICT LIABILITY AND NEGLIGENCE OF ANY KIND) OR OTHERWISE.

ARTICLE 6. TERM AND TERMINATION

6.1 Term. This Agreement shall become effective on the Effective Date and shall
continue until the earlier of (a) the expiration or termination of the Company
Agreement or (b) such time as Sharyland is no longer the managing member of the
Company, unless earlier terminated in accordance with this Agreement (the
“Term”).

6.2 Termination.

(a) Termination by Sharyland. Sharyland is permitted to terminate this Agreement
if any of the following events occur: (a) the Bankruptcy of Delegatee or (b) a
material default by Delegatee in performance of its obligations under this
Agreement after written notice of such default by Sharyland; provided, however,
that Delegatee shall have up to sixty (60) days after Delegatee has received
written notice of such default to cure the default or make substantial progress
(in the reasonable opinion of Sharyland) towards curing the default.

(b) Termination by Delegatee. Delegatee is permitted to terminate this Agreement
if any of the following events occur: (a) the Bankruptcy of Sharyland, (b) a
material default by Sharyland of any other obligation under this Agreement after
written notice by Delegatee; provided, however, that Sharyland shall have up to
sixty (60) days after Sharyland has received written notice of such default to
cure the default or make substantial progress (in the reasonable opinion of
Delegatee) towards curing the default, or (c) Sharyland is no longer a member of
the Company.

6.3 Rights Upon Termination. Upon any expiration or termination of this
Agreement, Delegatee shall as soon as practicable deliver to Sharyland at
Sharyland’s principal place of business all records, documents, accounts, files
and other materials of the Company or pertaining to the Company’s business as
Sharyland may reasonably request. Expiration or termination of this Agreement
shall not relieve any Party hereto of liability which has accrued or arisen
prior to the date of such expiration or termination.

 

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ARTICLE 7. REPRESENTATIONS AND WARRANTIES

7.1 Representations and Warranties by Both Parties. Each Party represents and
warrants to the other Party that, as of the Effective Date:

(a) Existence. It is duly organized and validly existing under the laws of the
state of its organization and has all requisite power and authority to own its
property and assets and conduct its business as presently conducted or proposed
to be conducted under this Agreement.

(b) Authority. It has the power and authority to execute and deliver this
Agreement, to consummate the transactions contemplated hereby and to perform its
obligations hereunder.

(c) Validity. It has taken all necessary action to authorize its execution,
delivery and performance of this Agreement, and this Agreement constitutes the
valid, legal and binding obligation of such Party enforceable against it in
accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, moratorium or similar laws affecting the rights of
creditors or by general equitable principles (whether considered in a proceeding
in equity or at law).

(d) No Conflict. None of the execution or delivery of this Agreement, the
performance by such Party of its obligations in connection with the transactions
contemplated hereby, or the fulfillment of the terms and conditions hereof,
materially conflicts with or violates any provision of its constituting
documents or the other agreements to which it is a party.

(e) No Consent. No consent or approval (including any Permit that such
warranting Party is required to obtain) is required from any third party
(including any Governmental Authority) for either the valid execution and
delivery of this Agreement, or the performance by such Party of its obligations
under this Agreement, except such as have been duly obtained or will be obtained
in the ordinary course of business.

(f) No Breach. None of the execution or delivery of this Agreement, the
performance by such Party of its obligations in connection with the transactions
contemplated hereby, or the fulfillment of the terms and conditions hereof
either conflicts with, violates or results in a breach of, any Applicable Law
currently in effect, or conflicts with, violates or results in a breach of, or
constitutes a default under or results in the imposition or creation of, any
lien or encumbrance under any agreement or instrument to which it is a party or
by which it or any of its properties or assets are bound.

(g) No Material Claims. No claim, allegation, suit, action, demand, cause of
action, or legal, administrative, arbitral or other proceeding, investigation or
controversy is pending or threatened against it that would adversely affect such
Party’s ability to perform its material obligations under this Agreement.

ARTICLE 8. DISPUTE RESOLUTION

8.1 Arbitration.

(a) Any dispute under this Agreement shall, if not resolved by the Parties
within sixty (60) days after notice of such dispute is served by one Party to
the other (or, if different, the period provided for resolution by the Parties
in the provision of this Agreement under which such dispute is brought), be
submitted to an “Arbitration Panel” comprised of three members. No more than one
panel member may be with the same firm, and no panel member may have an economic
interest in the outcome of the arbitration.

 

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(b) The Arbitration Panel shall be selected as follows: Within five business
days after the expiration of the period referenced above, Sharyland shall select
a panel member meeting the criteria of the above paragraph (the “Sharyland Panel
Member”) and Delegatee shall select its panel member meeting the criteria of the
above paragraph (the “Delegatee Panel Member”). If a Party fails to timely
select its respective panel member, the other Party may notify such Party in
writing of such failure, and if such Party fails to select its respective panel
member within three business days from such notice, then the other Party may
select such panel member on such Party’s behalf. Within five business days after
the selection of the Sharyland Panel Member and the Delegatee Panel Member, the
Sharyland Panel Member and the Delegatee Panel Member shall jointly select a
third panel member meeting the criteria of the above paragraph (the “Third Panel
Member”). If the Sharyland Panel Member and the Delegatee Panel Member fail to
timely select the Third Panel Member and such failure continues for more than
three business days after written notice of such failure is delivered to the
Sharyland Panel Member and Delegatee Panel Member by either Sharyland or
Delegatee, either Sharyland or Delegatee may request the managing officer of the
American Arbitration Association to appoint the Third Panel Member.

(c) Within ten business days after the selection of the Arbitration Panel, each
Party shall submit to the Arbitration Panel a written statement identifying its
summary of the issues and claims. Any Party may also request an evidentiary
hearing on the merits in addition to the submission of written statements. The
Arbitration Panel shall make its decision within twenty (20) days after the
later of (i) the submission of such written statements of particulars, and
(ii) the conclusion of any evidentiary hearing on the merits, and shall take
into consideration the relative risks and rewards undertaken and capital
invested by each Party. The Arbitration Panel shall reach its decision by
majority vote and shall communicate its decision by written notice to the
Parties.

(d) The decision by the Arbitration Panel shall be final, binding and conclusive
and shall be non-appealable and enforceable in any court having jurisdiction.
All hearings and proceedings held by the Arbitration Panel shall take place in
Dallas, Texas.

(e) The resolution procedure described herein shall be governed by the
Commercial Rules of the American Arbitration Association and subject to the
Texas General Arbitration Act to the extent such act is applicable hereto.

(f) The Parties shall bear equally the fees, costs and expenses of the
Arbitration Panel in conducting the arbitration.

8.2 Continued Performance. Pending the resolution of a Dispute in accordance
with this Article 8, the Parties may continue to exercise their rights and must
continue to perform their obligations under this Agreement to the extent that
those rights and obligations are not the subject of the Dispute.

 

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ARTICLE 9. MISCELLANEOUS

9.1 Confidentiality and Non-Disclosure.

(a) The Parties each acknowledge and agree that, in connection with this
Agreement, a Party and its employees or agents may, directly or indirectly,
receive or be provided with certain information relating to the business and
operations of the other Party and the other Party’s Affiliates, including
information relating to the technology, clients, customers, suppliers, vendors,
employees, consultants, projects, financial information and status,
methodologies, know-how, processes, practices, approaches, projections,
forecasts, formats, systems, data gathering methods and/or strategies, assets,
collateral and reports of the other Party and the other Party’s Affiliates
(“Confidential Information”). Each Party acknowledges that the other Party
considers all such information valuable, confidential and proprietary.
Therefore, each Party expressly agrees that, except as otherwise required by
applicable law, court or governmental order:

(i) Such Party, and its employees and agents, will not, without the other
Party’s express, written permission, use or disclose any Confidential
Information of the other Party or its Affiliates other than for the purpose of
performing its duties and obligations under this Agreement, and any use or
disclosure of Confidential Information shall be limited to the specific purposes
for which the permission was given or for which the use or disclosure is
necessary to perform duties and obligations under this Agreement;

(ii) Such Party will take all steps reasonably necessary to protect the
Confidential Information of the other Party and its Affiliates, including, at a
minimum, any such steps that the Party would take to protect its own
Confidential Information; provided, however, that in no event will the Party
exercise less than reasonable care to protect the Confidential Information;

(iii) Such Party agrees to advise the other Party in writing of any
misappropriation or misuse by any person of such Confidential Information of
which such Party may become aware; and

(iv) Such Party agrees to return the Confidential Information of the other Party
and its Affiliates to the other Party at the earlier of the other Party’s
request for return of the Confidential Information or the termination of this
Agreement. At the option of the other Party, such Party may instead destroy the
Confidential Information, with such Party providing written certification of
such destruction. Such Party will not be obligated to return any of its own
internally prepared documents, notes, copies or other associated materials
containing any Confidential Information. However, such Party must, at the other
Party’s request, collect and destroy such internally prepared documents, with
such Party providing written certification of such destruction.

 

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(b) Each Party expressly acknowledges and agrees that the remedy of the other
Party (the “Non-Breaching Party”) at law for a breach or threatened breach of
any of the provisions of this Section 9.1 by such Party would be inadequate. In
recognition of that fact, in the event of a breach or threatened breach by a
Party of the provisions of this Section, it is agreed that, in addition to its
remedy at law and without posting any bond, the Non-Breaching Party shall be
entitled to equitable relief in the form of a temporary restraining order,
temporary or permanent injunction or other equitable available relief. If the
Non-Breaching Party establishes that a breach or a threatened breach of any
provisions of this Section 9.1 has occurred by the other Party, the other Party
agrees not to oppose the Non-Breaching Party’s request for equitable relief in
the form of a temporary restraining order or a temporary injunction. Nothing
herein contained shall be construed as prohibiting the Non-Breaching Party from
pursuing any other remedies available to it for such breach or threatened
breach.

9.2 Assignment. This Agreement is not assignable by any Party without the prior
written consent of the other Party, which consent will not be unreasonably
withheld, and may be freely assignable by either Party to such Party’s
Affiliates. This Agreement will be binding upon and will inure to the benefit of
the successors and permitted assigns of the Parties.

9.3 Not for Benefit of Third Parties. This Agreement and each and every
provision hereof are for the exclusive benefit of the Parties that executed this
Agreement and not for the benefit of any third party.

9.4 Amendments. No amendments or modifications of this Agreement are valid
unless evidenced in writing and signed by duly authorized representatives of the
Parties.

9.5 Survival. Notwithstanding any provisions herein to the contrary, the
obligations set forth in Articles 5 and 8, this Section 9.5, Sections 9.1, 9.4,
9.6, 9.7, 9.9, 9.10, 9.11, 9.12 and 9.13, and the limitations on liabilities set
forth in Article 5, will survive, in full force and effect, the expiration or
termination of this Agreement.

9.6 No Waiver. A waiver of a provision or of a right arising under this
Agreement may only be given in writing by the Party granting the waiver. A
waiver is effective only in the specific instance and for the specific purpose
for which it is given. A single or partial exercise of a right by a Party does
not preclude another or further exercise or attempted exercise of that right or
the exercise of another right. Failure by a Party to exercise or delay in
exercising a right does not prevent its exercise or operate as a waiver.

9.7 Notices. Any written notice required or permitted under this Agreement will
be deemed to have been duly given on the date of receipt, and will be either
delivered personally to the Party to whom notice is given, or mailed to the
Party to whom notice is to be given, by facsimile, courier service or first
class registered or certified mail, return receipt requested, postage prepaid,
and addressed to the addressee at the address set forth below, or at the most
recent address specified by written notice given to the other Parties in the
manner provided in this Section 9.7.

 

If to Sharyland:   

Sharyland Utilities, L.P.

1807 Ross Avenue

Dallas, TX 75201

Attention: President

 

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with copy to:   

 

Sharyland Utilities, L.P.

1807 Ross Avenue

Dallas, TX 75201

Attention: General Counsel

If to Delegatee:   

 

InfraREIT, Inc.

1807 Ross Avenue, 4th Floor

Dallas, TX 75201

Attention: President

with copy to:   

 

InfraREIT, Inc.

1807 Ross Avenue, 4th Floor

Dallas, TX 75201

Attention: General Counsel

9.8 Counterparts. This Agreement may be signed in counterparts and all
counterparts taken together constitute one document. Once all counterparts have
been executed, each counterpart is an effective instrument.

9.9 Governing Law. This Agreement is governed by and to be construed in
accordance with the laws of the State of Texas without regard to its conflicts
of law principles.

9.10 Captions. Titles or captions contained in this Agreement are inserted only
as a matter of convenience and for reference, and in no way define, limit,
extend, describe or otherwise affect the scope or meaning of this Agreement or
the intent of any provision hereof.

9.11 Severability. If any provision of this Agreement, or the application of any
such provision to any Person or circumstance, is held invalid by any court or
other forum of competent jurisdiction, the remainder of this Agreement, or the
application of such provision to Persons or circumstances other than those as to
which it is held invalid, will nevertheless remain in full force and effect so
long as the economic or legal substance of the transactions contemplated hereby
is not affected in any manner materially adverse to any Party. Upon any such
determination of invalidity, the Parties will negotiate in good faith to modify
this Agreement so as to affect the original intent of the Parties as closely as
possible in an acceptable manner in order that this Agreement is consummated as
originally contemplated to the greatest extent possible.

9.12 Entire Agreement. This Agreement and any other documents referred to in
this Agreement or executed in connection with this Agreement comprise the entire
agreement of the parties about the subject matter of this Agreement and
supersede any prior representations, negotiations, arrangements, understandings
or agreements and all other communications.

 

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9.13 Further Assurances. Each Party must, at its own expense, whenever requested
by another Party, promptly do or cause to be done everything reasonably
necessary to give full effect to this Agreement and the delegation and other
transactions contemplated by this Agreement.

[Remainder of Page Intentionally Left Blank.]

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed
by their officers as of the day and year first above written.

 

SHARYLAND: SHARYLAND UTILITIES, L.P. By:

/s/ Hunter L. Hunt

Name: Hunter L. Hunt Title: Chairman

 

DELEGATEE: INFRAREIT, INC. By:

/s/ David A. Campbell

Name: David A. Campbell Title: President

Signature Page to Delegation Agreement