Exhibit 10.98

 

CAP ROCK ENERGY CORPORATION

SUPPLEMENTAL EXECUTIVE DEFERRED COMPENSATION

RETIREMENT PLAN

 

(As Amended and Restated, Effective January 1, 2005)

 

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TABLE OF CONTENTS

 

ARTICLE 1  -

Definitions

 

 

 

 

ARTICLE 2  -

Selection, Enrollment, Eligibility

 

 

 

 

2.1.

Selection by Committee

 

2.2.

Enrollment and Eligibility Requirements; Commencement of Participant

 

2.3.

Termination of a Participant’s Eligibility

 

 

 

 

ARTICLE 3  -

Deferral Commitments/Company Matching Amounts/Vesting/Crediting/Taxes

 

 

 

 

3.1.

Deferral

 

3.2.

Company Matching Amount

 

3.3.

Crediting of Amounts after Benefit Distribution

 

3.4.

Vesting

 

3.5.

Crediting/Debiting of Account Balances

 

3.6.

FICA and Other Taxes

 

 

 

 

ARTICLE 4  -

Scheduled Distribution; Unforeseeable Financial Emergencies

 

 

 

 

4.1.

Scheduled Distribution

 

4.2.

Postponing Scheduled Distributions

 

4.3.

Other Benefits Take Precedence Over Scheduled Distributions

 

4.4.

Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies

 

 

 

 

ARTICLE 5  -

Retirement Benefit

 

 

 

 

5.1.

Retirement Benefit

 

5.2.

Payment of Retirement Benefit

 

 

 

 

ARTICLE 6  -

Termination Benefit

 

 

 

 

6.1.

Termination Benefit

 

6.2.

Payment of Termination Benefit

 

 

 

 

ARTICLE 7  -

Disability Benefit

 

 

 

 

7.1.

Disability Benefit

 

7.2.

Payment of Disability Benefit

 

 

 

 

ARTICLE 8  -

Death Benefit

 

 

 

 

8.1.

Death Benefit

 

8.2.

Payment of Death Benefit

 

 

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ARTICLE 9  -

Beneficiary Designation

 

 

 

 

9.1.

Beneficiary

 

9.2.

Beneficiary Designation; Change; Spousal Consent

 

9.3.

Acknowledgement

 

9.4.

No Beneficiary Designation

 

9.5.

Doubt as to Beneficiary

 

9.6.

Discharge of Obligations

 

 

 

 

ARTICLE 10  -

Leave of Absence

 

 

 

 

10.1.

Paid Leave of Absence

 

10.2.

Unpaid Leave of Absence

 

 

 

 

ARTICLE 11  -

Termination of Plan, Amendment or Modification

 

 

 

 

11.1.

Termination of Plan

 

11.2.

Amendment

 

11.3.

Plan Agreement

 

11.4.

Effect of Payment

 

 

 

 

ARTICLE 12  -

Administration

 

 

 

 

12.1.

Committee Duties

 

12.2.

Agents

 

12.3.

Binding Effect of Decisions

 

12.4.

Indemnity of Committee

 

12.5.

Employer Information

 

 

 

 

ARTICLE 13  -

Other Benefits and Agreements

 

 

 

 

13.1.

Coordination with Other Benefits

 

 

 

 

ARTICLE 14  -

Claims Procedures

 

 

 

 

14.1.

Presentation of Claim

 

14.2.

Notification of Decision

 

14.3.

Review of a Denied Claim

 

14.4.

Decision on Review

 

14.5.

Legal Action

 

 

 

 

ARTICLE 15  -

Trust

 

 

 

 

15.1.

Establishment of the Trust

 

15.2.

Interrelationship of the Plan and the Trust.

 

15.3.

Distributions From the Trust

 

 

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ARTICLE 16  -

Miscellaneous

 

 

 

 

16.1.

Status of Plan

 

16.2.

Unsecured General Creditor

 

16.3.

Employer’s Liability

 

16.4.

Nonassignability

 

16.5.

Not a Contract of Employment

 

16.6.

Furnishing Information

 

16.7.

Terms

 

16.8.

Captions

 

16.9.

Governing Law

 

16.10.

Notice

 

16.11.

Successors

 

16.12.

Spouse’s Interest

 

16.13.

Validity

 

16.14.

Incompetent

 

16.15.

Court Order

 

16.16.

Deduction Limitation on Benefit Payments

 

16.17.

Insurance

 

16.18.

Obligations to the Company

 

16.19.

Effective Date

 

 

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CAP ROCK ENERGY CORPORATION

SUPPLEMENTAL EXECUTIVE DEFERRED COMPENSATION

RETIREMENT PLAN

(As Amended and Restated, Effective January 1, 2005)

 

Purpose

 

Cap Rock Energy Corporation (“Company”) established the Cap Rock Energy
Corporation Supplemental Executive Deferred Compensation Retirement Plan
(“Original Plan”) on November 14, 2002.  The Company hereby amends and restates
the Original Plan as the Cap Rock Energy Corporation Supplemental Executive
Deferred Compensation Retirement Plan (As Amended and Restated, Effective
January 1, 2005) (“Plan”) in order to (i) clarify certain provisions of the
Original Plan and (ii) comply with the provisions of Code Section 409A, IRS
Notice 2005-1, and all other subsequent notices, rulings and regulations
thereunder.

 

The purpose of this Plan is to provide specified benefits to a select group of
management or highly compensated Employees who contribute materially to the
continued growth, development and future business success of the Company, and
its subsidiaries, if any, that sponsor this Plan.  This Plan shall be unfunded
for tax purposes and for purposes of Title I of ERISA.

 

This Plan is designed to supplement the Cap Rock Energy Corporation Employee
Thrift 401(k) Plan and Trust sponsored by the Company by permitting employee
salary reduction contributions and employer matching contributions that exceed
the various limits on such contributions under Code Section 401(k) plans.  These
limits include (i) the salary reduction limit of Code Section 402(g), (ii) the
average deferrals percentage (ADP) nondiscrimination limits on salary deferrals
under Code Section 401(k), (iii) the average contribution percentage (ACP)
nondiscrimination limits on matching contributions under Code Section 401(k),
(iv) the Code Section 415 limits on aggregate employer and employee
contributions and (v) the limit on compensation under Code Section 401(a)(17).

 

It is the intent of the Company to operate and administer this Plan in good
faith compliance with, and a good faith reasonable interpretation of, Code
Section 409A and IRS Notice 2005-1, and any other subsequent notices, rulings or
regulations thereunder.  The Company shall not exercise discretion under the
terms of this Plan, and a Participant shall not exercise discretion with respect
to his or her benefits under this Plan, in a manner that causes the Plan to fail
to meet the requirements of Code Section 409A and all notices, rulings and
regulations thereunder.

 

ARTICLE 1
Definitions

 

For the purposes of this Plan, unless otherwise clearly apparent from the
context, the following phrases (or terms) shall have the following indicated
meanings:

 

1.1           “Account Balance” shall mean, with respect to a Participant, an
entry on the records of the Employer equal to the sum of (i) the Deferral
Account balance and (ii) the Company Matching Account balance.  The Account
Balance (i) shall be a bookkeeping entry only and (ii) shall be utilized solely
as a device for the measurement and determination of the amounts to be paid to a
Participant (or his or her designated Beneficiary) pursuant to this Plan.

 

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1.2           “Affiliate” shall mean any (i) corporation other than the Company
(i.e., either a subsidiary corporation or an affiliate or associated corporation
of the Company), which together with the Company is a member of a “controlled
group of corporations” (within the meaning of Section 414(b) of the Code),
(ii) organization that is under “common control” with the Company (determined
under Section 414(c) of the Code) or (iii) organization which, together with the
Company, is a member of an “affiliated service group” (within the meaning of
Section 414(m) of the Code).

 

1.3           “Annual Deferral Amount” shall mean that portion of a
Participant’s Compensation, Bonus and Commissions that a Participant defers in
accordance with Section 3.1 hereof for any one Plan Year, without regard to
whether such amounts are withheld and credited during such Plan Year.  In the
event of a Participant’s Retirement, Disability, death or Termination of
Employment prior to the end of a Plan Year, such year’s Annual Deferral Amount
shall be the actual amount withheld prior to such event.

 

1.4           “Annual Installment Method” shall be an annual installment payment
over the number of years selected by the Participant in accordance with this
Plan, calculated as follows: (i) for the first annual installment, the
Participant’s vested Account Balance shall be calculated as of the close of
business on or around the Participant’s Benefit Distribution Date, as determined
by the Committee in its sole discretion, and (ii) for remaining annual
installments, the Participant’s vested Account Balance shall be calculated on or
around the first business day of each Plan Year following the Plan Year in which
the Participant’s Benefit Distribution Date occurs.  Each annual installment
shall be calculated by multiplying this balance by a fraction, the numerator of
which is one and the denominator of which is the remaining number of annual
payments due the Participant.  By way of example, if a Participant elects a ten
(10) year Annual Installment Method for his Retirement Benefit, the first
payment shall be 1/10 of the vested Account Balance, calculated as described in
this definition.  The following year, the payment shall be 1/9 of the vested
Account Balance, calculated as described in this definition.

 

1.5           “Beneficiary” shall mean one or more persons, trusts, estates or
other entities, designated in accordance with Article 9 hereof, that are
entitled to receive benefits under this Plan upon the death of a Participant.

 

1.6           “Beneficiary Designation Form” shall mean the form established
from time to time by the Committee that a Participant completes, signs and
returns to the Committee to designate one or more Beneficiaries.

 

1.7           “Benefit Distribution Date” shall mean the date that triggers
distribution of a Participant’s vested Account Balance.  A Participant’s Benefit
Distribution Date shall be determined upon the occurrence of any one of the
following:

 

(a)           If the Participant Retires, his or her Benefit Distribution Date
shall be:

 

(i)            the last day of the six-month period immediately following the
date on which the Participant Retires if the Participant is a Key Employee; and

 

(ii)           the date on which the Participant Retires for all other
Participants;

 

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(iii)          provided, however, in the event the Participant changes his or
her Retirement Benefit election in accordance with Section 5.2(a) hereof, his or
her Benefit Distribution Date shall be postponed in accordance with such
Section 5.2(a); or

 

(b)           If the Participant experiences a Termination of Employment, his or
her Benefit Distribution Date shall be:

 

(i)            the last day of the six-month period immediately following the
date on which the Participant experiences a Termination of Employment if the
Participant is a Key Employee; and

 

(ii)           the date on which the Participant experiences a Termination of
Employment for all other Participants; or

 

(c)           The date on which the Committee is provided with proof that is
satisfactory to the Committee of the Participant’s death, if the Participant
dies prior to the complete distribution of his or her vested Account Balance; or

 

(d)           The date on which the Participant becomes Disabled.

 

1.8           “Board” shall mean the board of directors of the Company.

 

1.9           “Bonus” shall mean any compensation, in addition to Compensation
and Commissions, earned by a Participant for services rendered to his or her
Employer during a Plan Year, whether the payment of such compensation is
discretionary or under any bonus plan, program or arrangement sponsored by an
Employer.

 

1.10         “Claimant” shall have the meaning set forth in Section 14.1 hereof.

 

1.11         “Code” shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time.

 

1.12         “Commissions” shall mean any commissions paid to an Employee under
his or her Employer’s Commission payment schedule, as identified on the Employer
payroll system.

 

1.13         “Committee” shall mean the committee described in Article 12
hereof.

 

1.14         “Company” shall mean Cap Rock Energy Corporation, a Texas
corporation, and any successors thereto.

 

1.15         “Company Matching Account” shall mean (i) the sum of all of a
Participant’s Company Matching Amounts, plus (ii) amounts credited or debited to
the Participant’s Company Matching Account in accordance with this Plan, less
(iii) all distributions made to the Participant (or his or her Beneficiary)
pursuant to this Plan that relate to the Participant’s Company Matching Account.

 

1.16         “Company Matching Amount” shall mean, for any one Plan Year, the
amount determined in accordance with Section 3.2 hereof.

 

1.17         “Compensation” shall mean the annual cash compensation relating to
services performed during any calendar year, including distributions from
nonqualified deferred compensation plans, Bonuses, Commissions, overtime, fringe
benefits, stock options, stock grants, relocation expenses, incentive payments,
non-monetary awards, director fees and other fees,

 

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and automobile and other allowances paid to a Participant for employment
services rendered to his or her Employer (whether or not such allowances are
included in the Employee’s gross income).  Compensation (i) shall be calculated
before reduction for compensation voluntarily deferred (or contributed) by the
Participant pursuant to all qualified or nonqualified plans of any Employer and
(ii) shall be calculated to include amounts not otherwise included in the
Participant’s gross income under Code Sections 125, 402(e)(3), 402(h), or
403(b) pursuant to plans established by any Employer.  However, all such amounts
will be included in compensation only to the extent that had there been no such
plan, the amount would have been payable in cash to the Employee.

 

1.18         “Death Benefit” shall mean the benefit set forth in Article 8
hereof.

 

1.19         “Deduction Limitation” shall mean the limitation on a benefit that
may otherwise be distributable pursuant to the provisions of this Plan, as set
forth in Section 16.16 hereof.

 

1.20         “Deferral Account” shall mean (i) the sum of all of a Participant’s
Annual Deferral Amounts, plus (ii) amounts credited or debited to the
Participant’s Deferral Account in accordance with this Plan, less (iii) all
distributions made to the Participant (or his or her Beneficiary) pursuant to
this Plan that relate to his or her Deferral Account.

 

1.21         “Disability” or “Disabled” shall mean that a Participant (i) is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or can be expected to last for a continuous period of not less than twelve
(12) months, or (ii) is, by reason of any medically determinable physical or
mental impairment which can be expected to result in death or can be expected to
last for a continuous period of not less than twelve (12) months, receiving
income replacement benefits for a period of not less than three (3) months under
an accident or health plan covering employees of the Participant’s Employer.

 

1.22         “Disability Benefit” shall mean the benefit set forth in Article 7
hereof.

 

1.23         “Election Form” shall mean the form established from time to time
by the Committee that a Participant completes, signs and returns to the
Committee to make an election under the Plan.

 

1.24         “Employee” shall mean a person who is an employee of any Employer.

 

1.25         “Employer(s)” shall mean the Company and/or any of its Affiliates
(now in existence or hereafter formed or acquired) that (i) have been selected
by the Board to participate in the Plan and (ii) have adopted the Plan as a
sponsor.

 

1.26         “ERISA” shall mean the Employee Retirement Income Security Act of
1974, as it may be amended from time to time.

 

1.27         “Key Employee” shall mean any Participant who the Committee, in its
sole discretion, determines is a “key employee” of any Employer, as defined in
Code Section 416(i).

 

1.28         “Participant” shall mean any Employee (i) who is selected by the
Board to participate in the Plan, (ii) who submits an executed Plan Agreement,
Election Form and Beneficiary Designation Form, which are accepted by the
Committee and (iii) whose Plan Agreement has not terminated.

 

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1.29         “Plan” shall mean the Cap Rock Energy Corporation Supplemental
Executive Deferred Compensation Retirement Plan (As Amended and Restated,
Effective January 1, 2005), which shall be evidenced by this instrument and by
each Plan Agreement, as they may be amended from time to time.

 

1.30         “Plan Agreement” shall mean a written agreement, as may be amended
from time to time, which is entered into by and between an Employer and a
Participant.  Each Plan Agreement executed by a Participant and the
Participant’s Employer shall provide for the entire benefit to which such
Participant is entitled under the Plan. In the event more than one Plan
Agreement exists, the Plan Agreement bearing the latest date of acceptance by
the Employer shall supersede all previous Plan Agreements in their entirety and
shall govern such entitlement.  The terms of any Plan Agreement may be different
for any Participant.  Any Plan Agreement may provide additional benefits not set
forth in the Plan or limit the benefits otherwise provided under the Plan. 
However, any such additional benefits or benefit limitations (i) must be agreed
to by both the Employer and the Participant and (ii) must comply with Code
Section 409A and all notices, guidance, rulings and regulations thereunder.

 

1.31         “Plan Year” shall mean a period beginning on January 1 of each
calendar year and continuing through December 31 of such calendar year.

 

1.32         “Retirement”, “Retire(s)” or “Retired” shall mean the Participant’s
separation from service with all Employers for any reason other than a leave of
absence, death or Disability, on or after his or her attainment of age
sixty-five (65).

 

1.33         “Retirement Benefit” shall mean the benefit set forth in Article 5
hereof.

 

1.34         “Scheduled Distribution” shall mean the distribution set forth in
Section 4.1 hereof.

 

1.35         “Terminate the Plan”, “Termination of the Plan” shall mean the
earlier of (i) the date the Plan terminates under Section 11.1 hereof, or (ii) a
determination by an Employer’s board of directors that (a) all of its
Participants shall no longer be eligible to participate in the Plan, (b) all
deferral elections for such Participants shall terminate and (c) such
Participants shall no longer be eligible to receive Company contributions under
this Plan.

 

1.36         “Termination Benefit” shall mean the benefit set forth in Article 6
hereof.

 

1.37         “Termination of Employment” shall mean the separation from service
with all Employers, (voluntarily or involuntarily) for any reason other than
Retirement, Disability, death or an authorized leave of absence.

 

1.38         “Trust” shall mean one or more trusts established by the Company in
accordance with Article 15 hereof.

 

1.39         “Unforeseeable Financial Emergency” shall mean an unanticipated
emergency that is caused by an event beyond the control of the Participant that
would result in severe financial hardship to the Participant resulting from
(i) a sudden and unexpected illness or accident of the Participant, the
Participant’s spouse, or a dependent of the Participant, (ii) a loss of the
Participant’s property due to casualty or (iii) such other similar extraordinary
and unforeseeable circumstances arising as a result of events beyond the control
of the Participant, all as determined in the sole discretion of the Committee.

 

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1.40         “YEAR OF SERVICE” SHALL MEAN ANY PLAN YEAR IN WHICH A PARTICIPANT
COMPLETES NOT LESS THAN ONE THOUSAND (1,000) HOURS OF SERVICE WITH THE
EMPLOYER.  FOR PURPOSES OF DETERMINING A YEAR OF SERVICE UNDER THIS PLAN, THE
CREDITING AND COMPUTING OF HOURS OF SERVICE FOR A PARTICIPANT SHALL BE
DETERMINED IN THE SAME MANNER AS UNDER THE CAP ROCK ENERGY CORPORATION EMPLOYEE
THRIFT 401(K) PLAN AND TRUST.

 

ARTICLE 2
Selection, Enrollment, Eligibility

 

2.1           Selection by Committee.  Participation in the Plan shall be
limited to a select group of management or highly compensated Employees, as
determined by the Board in its sole discretion.  From that group, the Board
shall select, in its sole discretion, those individuals who may actually
participate in this Plan.

 

2.2           Enrollment and Eligibility Requirements; Commencement of
Participation.

 

(a)           As a condition to participation, each selected Employee who is
eligible to participate in the Plan effective as of the first day of a Plan Year
shall complete, execute and return to the Committee a Plan Agreement, an
Election Form and a Beneficiary Designation Form, prior to the first day of such
Plan Year in which the Participant participates in the Plan, or such other
earlier deadline as may be established by the Committee in its sole discretion. 
In addition, the Committee shall establish from time to time such other
enrollment requirements as it determines, in its sole discretion, are necessary.

 

(b)           An Employee who first becomes eligible to participate in this Plan
after the first day of a Plan Year must complete these requirements within
thirty (30) days after he or she first becomes eligible to participate in the
Plan, or within such other earlier deadline as may be established by the
Committee, in its sole discretion, in order to participate for that Plan Year. 
In such event, such person’s participation in this Plan shall not commence
earlier than the date determined by the Committee pursuant to
Section 2.2(c) below.  Such person shall not be permitted to defer under this
Plan any portion of his or her Compensation, Bonus and/or Commissions that are
paid with respect to services performed prior to his or her participation
commencement date in this Plan.

 

(c)           Each Employee who is eligible to participate in the Plan shall
commence participation in the Plan on the date that the Committee determines, in
its sole discretion, that the Employee has met all enrollment requirements set
forth in this Plan and required by the Committee, including returning all
required documents to the Committee within the specified time period. 
Notwithstanding the foregoing, the Committee shall process such Participant’s
deferral election as soon as administratively practicable after such deferral
election is submitted to (and accepted) by the Committee.

 

(d)           If an Employee fails to meet all requirements contained in this
Section 2.2 within the period required, such Employee shall not be eligible to
participate in the Plan during such Plan Year.

 

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2.3           Termination of a Participant’s Eligibility.  If the Board
determines that a Participant no longer qualifies as a member of a select group
of management or highly compensated employees, as membership in such group is
determined in accordance with Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA,
the Committee shall have the right, in its sole discretion, to (i) terminate any
deferral election the Participant has made for the remainder of the Plan Year in
which the Committee makes such determination, (ii) prevent the Participant from
making future deferral elections and/or (iii) take further action that the
Committee deems appropriate.  Notwithstanding the foregoing, in the event of a
Termination of the Plan in accordance with Section 1.35 hereof, the termination
of the affected Participants’ eligibility for participation in the Plan shall
not be governed by this Section 2.3, but rather shall be governed by
Section 1.35 and Section 11.1 hereof.  In the event a Participant is no longer
eligible to defer compensation under this Plan, the Participant’s Account
Balance shall continue to be governed by the terms of this Plan until such time
as the Participant’s Account Balance is paid in accordance with the terms of
this Plan.

 

ARTICLE 3
Deferral Commitments/Company Matching Amounts/

Vesting/Crediting/Taxes

 

3.1           Deferrals.

 

(a)           Annual Deferral Amount.  For each Plan Year, a Participant may
elect to defer, as his or her Annual Deferral Amount, Compensation, Bonus and/or
Commissions in such amount(s) as he or she may elect, in accordance with
rules established by the Committee.

 

(b)           Election to Defer; Effect of Election Form.

 

(i)            First Plan Year.  In connection with a Participant’s commencement
of participation in the Plan, the Participant shall make an irrevocable deferral
election for the Plan Year in which the Participant commences participation in
the Plan, along with such other elections as the Committee deems necessary or
desirable under the Plan.  For these elections to be valid, the Election
Form must be completed and signed by the Participant, timely delivered to the
Committee (in accordance with Section 2.2 above) and accepted by the Committee.

 

(ii)           Subsequent Plan Years.  For each succeeding Plan Year, an
irrevocable deferral election for that Plan Year, and such other elections as
the Committee deems necessary or desirable under the Plan, shall be made by
timely delivering a new Election Form to the Committee, in accordance with its
rules and procedures, before the end of the Plan Year preceding the Plan Year
for which the election is made.  If no such Election Form is timely delivered
for a Plan Year, the Annual Deferral Amount shall be zero for that Plan Year.

 

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(c)           Withholding and Crediting of Annual Deferral Amounts.  For each
Plan Year, the Compensation portion of the Annual Deferral Amount shall be
withheld from each regularly scheduled Compensation payroll in equal amounts, as
adjusted from time to time for increases and decreases in Compensation.  The
Bonus and/or Commissions portion of the Annual Deferral Amount shall be withheld
at the time the Bonus or Commissions are (or otherwise would be) paid to the
Participant, whether or not this occurs during the Plan Year itself.  Annual
Deferral Amounts shall be credited to a Participant’s Deferral Account at the
time such amounts would otherwise have been paid to the Participant.

 

3.2           Company Matching Amount.  For each Plan Year, an Employer, in its
sole discretion, may, but is not required to, credit any amount it desires to
any Participant’s Company Matching Account under this Plan.  Such amount shall
be the Company Matching Amount for such Participant for that Plan Year.  If an
Employer determines that it shall provide a Company Matching Amount to a
Participant for a Plan Year, the Employer shall announce to the Participant the
amount it will credit, or the method for determining such amount, prior to the
beginning of the Plan Year to which the Company Matching Amount relates.  The
amount so credited to a Participant may be smaller or larger than the amount
credited to any other Participant.  The amount credited to any Participant for a
Plan Year may be zero, even though one or more other Participants receive a
Company Matching Amount for that Plan Year.  The Company Matching Amount, if
any, shall be credited on a date (or dates) to be determined by the Committee,
in its sole discretion.

 

3.3           Crediting of Amounts after Benefit Distribution.  Notwithstanding
any provision in this Plan to the contrary, should the complete distribution of
a Participant’s vested Account Balance occur prior to the date on which any
portion of (i) the Annual Deferral Amount that a Participant has elected to
defer in accordance with Section 3.1(b) above or (ii) the Company Matching
Amount, would otherwise be credited to the Participant’s Account Balance in
accordance with Section 3.2 above, such amounts shall not be credited to the
Participant’s Account Balance, but shall be paid to the Participant in a manner
determined by the Committee, in its sole discretion.

 

3.4           Vesting.

 

(a)           A Participant shall at all times be one hundred percent (100%)
vested in his or her Deferral Account.

 

(b)           A Participant shall be vested in his or her Company Matching
Account in accordance with the vesting schedule set forth in his or her Plan
Agreement, employment agreement or any other agreement entered into between the
Participant and his or her Employer.  If not addressed in such agreements, a
Participant shall vest in his or her Company Matching Account, plus amounts
credited and debited on such amount(s), in accordance with the following
schedule;

 

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Years of Service With Employer

 

Vested Percentage

 

Less than 1 year

 

0

%

1 year or more, but less than 2

 

10

%

2 years or more, but less than 3

 

20

%

3 years or more, but less than 4

 

30

%

4 years or more, but less than 5

 

40

%

5 years or more, but less than 6

 

60

%

6 years or more, but less than 7

 

80

%

7 years or more

 

100

%

 

(c)           For purposes of vesting under this Plan, “Years of Service”
include all prior service that a Participant may have been credited with under
the Cap Rock Electric Cooperative, Inc. Supplemental Executive Deferred
Compensation Retirement Plan.

 

(d)           Notwithstanding anything to the contrary contained in this
Section 3.4, upon a Participant’s Retirement, death while employed by an
Employer, or Disability, a Participant’s Company Matching Account shall
immediately become one hundred percent (100%) vested (if it is not already
vested in accordance with the above vesting schedule).

 

3.5           Crediting/Debiting of Account Balances.  In accordance with, and
subject to, the rules and procedures that are established from time to time by
the Committee, in its sole discretion, amounts shall be credited or debited to a
Participant’s Account Balance in accordance with the following rules:

 

(a)           Measurement Funds.  The Participant may elect one or more of the
measurement funds selected by the Committee, in its sole discretion, which are
based on certain mutual funds (the “Measurement Funds”), for the purpose of
crediting or debiting additional amounts to his or her Account Balance.  As
necessary, the Committee may, in its sole discretion, discontinue, substitute or
add a Measurement Fund.  Each such action will take effect as of the first day
of the first calendar quarter that begins at least thirty (30) days after the
day on which the Committee gives Participants advance written notice of such
change, or if necessary to comply with applicable tax law, including, but not
limited to, guidance issued after the effective date of this Plan, or such other
date designated by the Committee, in its sole discretion.

 

(b)           Election of Measurement Funds.  A Participant, in connection with
his or her initial deferral election in accordance with Section 3.1 above, shall
elect, on the Election Form, one or more Measurement Fund(s) (as described in
Section 3.5(a) above) to be used to determine the amounts to be credited or
debited to his or her Account Balance.  If a Participant does not elect any of
the Measurement Funds as described in the previous sentence, the Participant’s
Account Balance shall automatically be allocated into the lowest-risk
Measurement Fund, as determined by the Committee, in its sole discretion.  The
Participant may (but is not required to) elect, by submitting an Election
Form to the Committee that is accepted by the Committee, to add or delete one or
more Measurement Fund(s) to be used to determine the amounts to be credited or
debited to his or her Account Balance, or to change the portion of his or her
Account Balance allocated to each previously or newly elected Measurement

 

9

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Fund.  If an election is made in accordance with the previous sentence, it
(i) shall apply as of the first business day deemed reasonably practicable by
the Committee, in its sole discretion, and (ii) shall continue thereafter for
each subsequent day in which the Participant participates in the Plan, unless
changed in accordance with the previous sentence.

 

(c)           Proportionate Allocation.  In making any election described in
Section 3.5(b) above, the Participant shall specify on the Election Form, in
increments of one percent (1%), the percentage of his or her Account Balance or
Measurement Fund, as applicable, to be allocated/reallocated.

 

(d)           Crediting or Debiting Method.  The performance of each Measurement
Fund (either positive or negative) will be determined on a daily basis based on
the manner in which such Participant’s Account Balance has been hypothetically
allocated among the Measurement Funds by the Participant.  Such Measurement Fund
performance shall be credited or debited to a Participant’s Deferral Account or
Company Matching Account, as applicable.

 

(e)           No Actual Investment.  Notwithstanding any other provision of this
Plan that may be interpreted to the contrary, the Measurement Funds are to be
used for measurement purposes only.  A Participant’s election of any such
Measurement Fund, the allocation of his or her Account Balance thereto, the
calculation of additional amounts and the crediting or debiting of such amounts
to a Participant’s Account Balance shall not be considered or construed in any
manner as an actual investment of his or her Account Balance in any such
Measurement Fund.  In the event that the Company or the Trustee (as that term is
defined in the Trust), in its own discretion, decides to invest funds in any or
all of the investments on which the Measurement Funds are based, no Participant
shall have any rights in (or to) such investments themselves.  Without limiting
the foregoing, a Participant’s Account Balance (i) shall at all times be a
bookkeeping entry only and (ii) shall not represent any investment made on his
or her behalf by the Company or the Trustee.  The Participant shall at all times
remain an unsecured creditor of the Company.

 

3.6           FICA and Other Taxes.

 

(a)           Annual Deferral Amounts.  For each Plan Year in which an Annual
Deferral Amount is being withheld from a Participant, the Participant’s
Employer(s) shall withhold from that portion of the Participant’s Compensation,
Bonus and/or Commissions that is not being deferred, in a manner determined by
the Employer(s), the Participant’s share of FICA and other employment taxes on
such Annual Deferral Amount.  If necessary, the Committee may reduce the Annual
Deferral Amount in order to comply with this Section 3.6.

 

(b)           Company Matching Account.  When a Participant becomes vested in a
portion of his or her Company Matching Account, the Participant’s Employer(s)
shall withhold from that portion of the Participant’s Compensation, Bonus and/or
Commissions that is not deferred, in a manner determined by the Employer(s), the
Participant’s share of FICA and other employment taxes on such portion of his or
her Company Matching

 

10

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

 

Account.  If necessary, the Committee may reduce the vested portion of the
Participant’s Company Matching Account in order to comply with this Section 3.6.

 

(c)           Distributions.  The Participant’s Employer(s), or the Trustee,
shall withhold from any payments made to a Participant under this Plan all
federal, state and local income, employment and other taxes required to be
withheld by the Employer(s), or the Trustee, in connection with such payments,
in such amounts and in such manner to be determined in the sole discretion of
the Employer(s) and the Trustee.

 

ARTICLE 4
 Scheduled Distribution; Unforeseeable Financial Emergencies

 

4.1           Scheduled Distribution.  In connection with each election to defer
an Annual Deferral Amount, a Participant may irrevocably elect to receive a
Scheduled Distribution, in the form of a lump sum payment, from the Plan with
respect to all (or a portion) of the Annual Deferral Amount.  The Scheduled
Distribution shall be a lump sum payment in an amount that is equal to the
portion of the Annual Deferral Amount the Participant elected to have
distributed as a Scheduled Distribution, plus amounts credited or debited in the
manner provided in Section 3.5 above on that amount, calculated as of the close
of business on or around the date on which the Scheduled Distribution becomes
payable, as determined by the Committee in its sole discretion.  Subject to the
other terms and conditions of this Plan, each Scheduled Distribution elected
shall be paid out during a sixty (60) day period commencing immediately after
the first day of any Plan Year designated by the Participant.  The Plan Year
designated by the Participant must be at least four (4) Plan Years after the end
of the Plan Year to which the Participant’s deferral election described in
Section 3.1(b) above relates.  By way of example, if a Scheduled Distribution is
elected for Annual Deferral Amounts that are earned in the Plan Year commencing
January 1, 2006, the Scheduled Distribution would become payable during a sixty
(60) day period commencing January 1, 2011.

 

4.2           Postponing Scheduled Distributions.  A Participant may make a one
time election to postpone a Scheduled Distribution described in Section 4.1
above, and have such amount paid out during a sixty (60) day period commencing
immediately after an allowable alternative distribution date designated by the
Participant in accordance with this Section 4.2.  In order to make this
election, the Participant must submit a new Scheduled Distribution Election
Form to the Committee in accordance with the following criteria:

 

(a)           Such Scheduled Distribution Election Form must be submitted to and
accepted by the Committee, in its sole discretion, at least twelve (12) months
prior to the Participant’s previously designated Scheduled Distribution date;

 

(b)           The new Scheduled Distribution date selected by the Participant
must be the first day of a Plan Year, and must be at least five (5) years after
the previously designated Scheduled Distribution date; and

 

(c)           The election of the new Scheduled Distribution date shall have no
effect until at least twelve (12) months after the date on which the election is
made.

 

11

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

 

4.3           Other Benefits Take Precedence Over Scheduled Distributions. 
Should a Benefit Distribution date occur that triggers a benefit under Articles
5, 6, 7 or 8 hereof, any Annual Deferral Amount that is subject to a Scheduled
Distribution election under Section 4.1 above shall not be paid in accordance
with Section 4.1, but shall be paid in accordance with the other applicable
Article. Notwithstanding the foregoing, the Committee shall interpret this
Section 4.3 in a manner that is consistent with applicable tax law, including,
but not limited to, guidance issued after the effective date of this Plan.

 

4.4           Withdrawal Payout/Suspensions for Unforeseeable Financial
Emergencies.

 

(a)           If the Participant experiences an Unforeseeable Financial
Emergency, the Participant may petition the Committee to suspend deferrals of
Compensation, Bonus and Commissions to the extent deemed necessary by the
Committee to satisfy the Unforeseeable Financial Emergency. If suspension of
deferrals is not sufficient to satisfy the Participant’s Unforeseeable Financial
Emergency, or if suspension of deferrals is not required under applicable tax
law, the Participant may further petition the Committee to receive a partial or
full payout from the Plan.  The Participant shall only receive a payout from the
Plan to the extent such payout is deemed necessary by the Committee to satisfy
the Participant’s Unforeseeable Financial Emergency, plus amounts reasonably
necessary to pay taxes reasonably anticipated as a result of the distribution.

 

(b)           The payout shall not exceed the lesser of (i) the Participant’s
vested Account Balance (calculated as of the close of business on or around the
date on which the amount becomes payable, as determined by the Committee in its
sole discretion) or (ii) the amount necessary to satisfy the Unforeseeable
Financial Emergency, plus amounts reasonably necessary to pay taxes reasonably
anticipated as a result of the distribution.  Notwithstanding the foregoing, a
Participant may not receive a payout from the Plan to the extent that the
Unforeseeable Financial Emergency is or may be relieved (i) through
reimbursement or compensation by insurance or otherwise, (ii) by liquidation of
the Participant’s assets, to the extent the liquidation of such assets would not
itself cause severe financial hardship, or (iii) by suspension of deferrals
under this Plan, if the Committee, in its sole discretion, determines that
suspension is required by applicable tax law.

 

(c)           If the Committee, in its sole discretion, approves a Participant’s
petition for suspension, the Participant’s deferrals under this Plan shall be
suspended as of the date of such approval.  If the Committee, in its sole
discretion, approves a Participant’s petition for suspension and payout, (i) the
Participant’s deferrals under this Plan shall be suspended as of the date of
such approval and (ii) the Participant shall receive a payout from the Plan
within sixty (60) days of the date of such approval.

 

(d)           Notwithstanding the foregoing, the Committee shall interpret all
provisions relating to suspension and/or payout under this Section 4.4 in a
manner consistent with applicable tax law, including, but not limited, to
guidance issued after the effective date of this Plan.

 

12

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

 

ARTICLE 5

Retirement Benefit

 

5.1           Retirement Benefit.  A Participant who Retires shall receive, as a
Retirement Benefit, his or her vested Account Balance, calculated as of the
close of business on or around the Participant’s Benefit Distribution Date, as
determined by the Committee in its sole discretion.

 

5.2           Payment of Retirement Benefit.

 

(a)           A Participant, in connection with his or her commencement of
participation in the Plan, shall elect on an Election Form to receive the
Retirement Benefit in a lump sum or pursuant to an Annual Installment Method of
up to ten (10) years.  The Participant may change this election one time by
submitting an Election Form to the Committee in accordance with the following
criteria:

 

(i)            Such Election Form must be submitted to (and accepted by) the
Committee, in its sole discretion, at least twelve (12) months prior to the
Participant’s originally scheduled Benefit Distribution Date (as described in
Section 1.7(a) hereof); and

 

(ii)           The first Retirement Benefit payment is delayed at least five
(5) years from the Participant’s originally scheduled Benefit Distribution Date
(as described in Section 1.7(a) hereof); and

 

(iii)          The election to modify the Retirement Benefit shall have no
effect until at least twelve (12) months after the date on which the election is
made; and

 

(iv)          Notwithstanding the foregoing, the Committee shall interpret all
provisions relating to changing the Retirement Benefit election under this
Section 5.2 in a manner that is consistent with applicable tax law, including,
but not limited to, guidance issued after the effective date of this Plan. 
Accordingly, if a Participant’s subsequent Retirement Benefit distribution
election would result in the shortening of the length of the Retirement Benefit
payment period (e.g., a Participant changes an existing distribution election
from annual installments to a lump sum payment; from ten annual installments to
five annual installments, etc.), and the Committee determines such election to
be inconsistent with applicable tax law, the election shall not be effective.

 

The Election Form most recently accepted by the Committee shall govern the
payout of the Retirement Benefit.  If a Participant does not make any election
with respect to the payment of the Retirement Benefit in connection with his or
her commencement of participation in the Plan, then such Participant shall be
deemed to have elected to receive the Retirement Benefit in a lump sum.

 

(b)           The lump sum payment shall be made, or installment payments shall
commence, no later than sixty (60) days after the Participant’s Benefit
Distribution Date.

 

13

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

 

Remaining installments, if any, shall be paid no later than sixty (60) days
after the first day of each Plan Year following the Plan Year in which the
Participant’s Benefit Distribution Date occurs.

 

ARTICLE 6
Termination Benefit

 

6.1           Termination Benefit.  A Participant who experiences a Termination
of Employment shall receive, as a Termination Benefit, his or her vested Account
Balance, calculated as of the close of business on or around the Participant’s
Benefit Distribution Date, as determined by the Committee in its sole
discretion.

 

6.2           Payment of Termination Benefit.  The Termination Benefit shall be
paid to the Participant in a lump sum payment no later than sixty (60) days
after the Participant’s Benefit Distribution Date.

 

ARTICLE 7

Disability Benefit

 

7.1           Disability Benefit. Upon a Participant’s Disability, the
Participant shall receive a Disability Benefit, which shall be equal to the
Participant’s vested Account Balance, calculated as of the close of business on
or around the Participant’s Benefit Distribution Date, as selected by the
Committee in its sole discretion.

 

7.2           Payment of Disability Benefit.  The Disability Benefit shall be
paid to the Participant in a lump sum payment no later than sixty (60) days
after the Participant’s Benefit Distribution Date.

 

ARTICLE 8

Death Benefit

 

8.1           Death Benefit.  The Participant’s Beneficiary(ies) shall receive a
Death Benefit upon the Participant’s death which will be equal to the
Participant’s vested Account Balance, calculated as of the close of business on
or around the Participant’s Benefit Distribution Date, as selected by the
Committee in its sole discretion.

 

8.2           Payment of Death Benefit.  The Death Benefit shall be paid to the
Participant’s Beneficiary(ies) in a lump sum payment no later than sixty (60)
days after the Participant’s Benefit Distribution Date.

 

ARTICLE 9
Beneficiary Designation

 

9.1           Beneficiary.  Each Participant shall have the right, at any time,
to designate his or her Beneficiary(ies) (both primary as well as contingent) to
receive any benefits payable under

 

14

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

 

the Plan to a Beneficiary upon the death of a Participant.  The Beneficiary
designated under this Plan may be the same as (or different) from the
Beneficiary designation under any other plan of an Employer in which the
Participant participates.

 

9.2           Beneficiary Designation; Change; Spousal Consent.  A Participant
shall designate his or her Beneficiary by completing and signing the Beneficiary
Designation Form, and returning such form to the Committee or its designated
agent.  A Participant shall have the right to change a Beneficiary by
completing, signing and otherwise complying with the terms of the Beneficiary
Designation Form and the Committee’s rules and procedures, as in effect from
time to time.  If the Participant names someone other than his or her spouse as
a Beneficiary, the Committee may, in its sole discretion, determine that spousal
consent is required to be provided in a form designated by the Committee,
executed by such Participant’s spouse and returned to the Committee.  Upon the
acceptance by the Committee of a new Beneficiary Designation Form, all
Beneficiary designations previously filed shall be canceled.  The Committee
shall be entitled to rely on the last Beneficiary Designation Form filed by the
Participant (and accepted by the Committee) prior to his or her death. 
Notwithstanding the foregoing, if a Participant is divorced and the
Participant’s former spouse is the Beneficiary named by the Participant, the
former spouse shall be deemed to have predeceased the Participant.  Such
designation of the former spouse shall be void and the Participant’s benefits
remaining under the Plan, with the exception of any portion of the Participant’s
benefits under the Plan awarded to the Participant’s former spouse pursuant to a
valid court order in connection with a division of property pursuant to divorce,
shall be paid pursuant to Section 9.4 hereof as if the Participant had not
designated a Beneficiary.

 

9.3           Acknowledgment.  No designation (or change in designation) of a
Beneficiary shall be effective until received and acknowledged in writing by the
Committee or its designated agent.

 

9.4           No Beneficiary Designation.  If a Participant fails to designate a
Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all designated
Beneficiaries predecease the Participant or die prior to complete distribution
of the Participant’s benefits, then the Participant’s designated Beneficiary
shall be deemed to be his or her surviving spouse.  If the Participant has no
surviving spouse, the benefits remaining under the Plan to be paid to a
Beneficiary shall be payable to the executor or personal representative of the
Participant’s estate.

 

9.5           Doubt as to Beneficiary.  If the Committee has any doubt as to the
proper Beneficiary to receive payments pursuant to this Plan, the Committee
shall have the right, exercisable in its discretion, to cause the Participant’s
Employer to withhold such payments until such matter is resolved to the
Committee’s satisfaction.

 

9.6           Discharge of Obligations.  The payment of benefits under the Plan
to a Beneficiary shall fully and completely discharge all Employers and the
Committee from all further obligations under this Plan with respect to the
Participant.  Such Participant’s Plan Agreement shall terminate upon such full
payment of benefits.

 

15

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

 

ARTICLE 10
Leave of Absence

 

10.1         Paid Leave of Absence.  If a Participant is authorized by his or
her Employer to take a paid leave of absence from the employment of the
Employer, (i) the Participant shall continue to be considered eligible for the
benefits provided in Articles 4, 5, 6, 7 or 8 in accordance with the provisions
of those Articles, and (ii) the Annual Deferral Amount shall continue to be
withheld during such paid leave of absence in accordance with
Section 3.1(b) above.

 

10.2         Unpaid Leave of Absence.  If a Participant is authorized by his or
her Employer to take an unpaid leave of absence from the employment of the
Employer for any reason, such Participant shall continue to be eligible for the
benefits provided in Articles 4, 5, 6, 7 or 8 hereof in accordance with the
provisions of those Articles. However, the Participant shall be excused from
fulfilling his or her Annual Deferral Amount commitment that would otherwise
have been withheld during the remainder of the Plan Year in which the unpaid
leave of absence is taken.  During the unpaid leave of absence, the Participant
shall not be allowed to make any additional deferral elections.  However, if the
Participant returns to employment, the Participant may elect to defer an Annual
Deferral Amount for the Plan Year following his or her return to employment and
for every Plan Year thereafter while a Participant in the Plan, provided
(i) such deferral elections are otherwise allowed and (ii) an Election Form is
delivered to and accepted by the Committee for each such election in accordance
with Section 3.1(b) above.

 

ARTICLE 11
Termination of Plan, Amendment or Modification

 

11.1         Termination of Plan.  Although each Employer anticipates that the
Plan will continue, there is no guarantee that any Employer will continue the
Plan or will not terminate the Plan at any time.  Accordingly, each Employer
reserves the right to Terminate the Plan (as defined in Section 1.35 hereof). 
In the event of a Termination of the Plan, the Measurement Funds available to
Participants following the Termination of the Plan shall be comparable in number
and type to those Measurement Funds available to Participants in the Plan Year
preceding the Plan Year in which the Termination of the Plan is effective. 
Following a Termination of the Plan, Participant Account Balances shall remain
in the Plan until the Participant becomes eligible for the benefits provided in
Articles 4, 5, 6, 7 or 8 hereof in accordance with the provisions of those
Articles.  The termination of the Plan shall not adversely affect any
Participant or Beneficiary who has become entitled to payment of any benefits
under the Plan as of the date of termination.

 

11.2         Amendment.  Any Employer may, at any time, amend or modify the Plan
in whole or in part with respect to that Employer.  Notwithstanding the
foregoing, no amendment or modification shall be effective to decrease the value
of a Participant’s vested Account Balance in existence at the time the amendment
or modification is made.

 

11.3         Plan Agreement.  Despite the provisions of Section 11.1 and 11.2
above, if a Participant’s Plan Agreement contains benefits or limitations that
are not contained in this Plan document,

 

16

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the Employer may only amend or terminate such provisions with the written
consent of the Participant.

 

11.4         Effect of Payment.  The full payment of the Participant’s vested
Account Balance under Articles 4, 5, 6, 7 or 8 hereof shall completely discharge
all obligations to a Participant and his or her designated Beneficiaries under
this Plan, and the Participant’s Plan Agreement shall terminate.

 

ARTICLE 12
Administration

 

12.1         Committee Duties.  Except as otherwise provided in this Article 12,
this Plan shall be administered by a Committee, which shall consist of the
Board, the Executive Committee, or such other individuals as the Board shall
appoint.  Members of the Committee may be Participants under this Plan.  The
Committee shall also have the discretion and authority to (i) make, amend,
interpret, and enforce all appropriate rules and regulations for the
administration of this Plan and (ii) decide or resolve any and all questions,
including interpretations of this Plan, as may arise in connection with the
Plan.  Any individual serving on the Committee who is a Participant shall not
vote or act on any matter relating solely to himself or herself.  When making a
determination or calculation, the Committee shall be entitled to rely on
information furnished by a Participant or the Employer.

 

12.2         Agents. In the administration of this Plan, the Committee may, from
time to time, (i) employ agents and delegate to them such administrative duties
as it sees fit (including acting through a duly appointed representative) and
(ii) consult with counsel who may be counsel to any Employer.

 

12.3         Binding Effect of Decisions.  The decision or action of the
Committee with respect to any question arising out of (or in connection with)
the administration, interpretation and application of the Plan (and the
rules and regulations promulgated hereunder) shall be final and conclusive and
binding upon all persons having any interest in the Plan.

 

12.4         Indemnity of Committee.  All Employers shall indemnify and hold
harmless the members of the Committee and any Employee to whom the duties of the
Committee may be delegated, against any and all claims, losses, damages,
expenses or liabilities arising from any action or failure to act with respect
to this Plan, except in the case of willful misconduct by the Committee, any of
its members or any such Employee.

 

12.5         Employer Information.  To enable the Committee to perform its
functions, the Company and each Employer shall supply full and timely
information to the Committee on all matters relating to the compensation of its
Participants, the date and circumstances of the Retirement, Disability, death or
Termination of Employment of its Participants, and such other pertinent
information as the Committee may reasonably require.

 

17

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ARTICLE 13
Other Benefits and Agreements

 

13.1         Coordination with Other Benefits.  The benefits provided for a
Participant and Participant’s Beneficiary under the Plan are in addition to any
other benefits available to such Participant under any other plan or program for
employees of the Participant’s Employer.  The Plan shall supplement and shall
not supersede, modify or amend any other such plan or program except as may
otherwise be expressly provided.

 

ARTICLE 14
Claims Procedures

 

14.1         Presentation of Claim.  Any Participant or Beneficiary of a
deceased Participant (such Participant or Beneficiary being referred to below as
a “Claimant”) may deliver to the Committee a written claim for a determination
with respect to the amounts distributable to such Claimant from the Plan.  If
such a claim relates to the contents of a notice received by the Claimant, the
claim must be made within sixty (60) days after such notice was received by the
Claimant.  All other claims must be made within one hundred eighty (180) days of
the date on which the event that caused the claim to arise occurred.  The claim
must state with particularity the determination desired by the Claimant.

 

14.2         Notification of Decision.  The Committee shall consider a
Claimant’s claim within a reasonable time, but no later than ninety (90) days
(forty five (45) days in the case of a claim for disability benefits) after
receiving the claim.  If the Committee determines that special circumstances
require an extension of time for processing the claim (or in the case of a claim
for disability benefits, an extension is necessary for reasons beyond the
control of the Plan), written notice of the extension shall be furnished to the
Claimant prior to the termination of the initial ninety (90) day (or forty five
(45) day) period.  In no event shall such extension exceed a period of ninety
(90) days (thirty (30) days in the case of a claim for disability benefits which
may be further extended for an additional thirty (30) days if the additional
extension is due to reasons beyond the control of the Plan) from the end of the
initial period.  The extension notice shall indicate the special circumstances
requiring an extension of time and the date by which the Committee expects to
render the benefit determination.  The Committee shall notify the Claimant in
writing:

 

(a)           that the Claimant’s requested determination has been made, and
that the claim has been allowed in full; or

 

(b)           that the Committee has reached a conclusion contrary, in whole or
in part, to the Claimant’s requested determination, and such notice must set
forth in a manner calculated to be understood by the Claimant:

 

(i)            the specific reason(s) for the denial of the claim, or any part
thereof;

 

(ii)           specific reference(s) to pertinent provisions of the Plan upon
which such denial was based;

 

18

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(iii)          a description of any additional material or information necessary
for the Claimant to perfect the claim, and an explanation of why such material
or information is necessary;

 

(iv)          if the claim is a claim for disability benefits, an internal rule,
guideline, protocol or other similar criterion which was relied on in connection
with the review of the claim and that such internal rule, guideline, protocol or
similar criterion may be obtained by the Claimant at the Claimant’s request free
of charge;

 

(v)           if the claim is a claim for disability benefits, and the denial is
based on medical necessity or other similar exclusion or limit, Claimant’s right
to receive free of charge an explanation of how that exclusion or limit and any
related clinical judgments apply to the Claimant’s medical circumstances;

 

(vi)          an explanation of the claim review procedure set forth in
Section 14.3 below; and

 

(vii)         a statement of the Claimant’s right to bring a civil action under
ERISA Section 502(a) following an adverse benefit determination on review.

 

14.3         Review of a Denied Claim.  On or before sixty (60) days (180 days
in the case of a claim for disability benefits) after receiving a notice from
the Committee that a claim has been denied, in whole or in part, a Claimant (or
the Claimant’s duly authorized representative) may file with the Committee a
written request for a review of the denial of the claim.  The Claimant (or the
Claimant’s duly authorized representative):

 

(a)           may, upon request and free of charge, have reasonable access to,
and copies of, all documents, records and other information relevant to the
claim for benefits;

 

(b)           may submit written comments or other documents; and/or

 

(c)           may request a hearing, which the Committee, in its sole
discretion, may grant.

 

14.4         Decision on Review.  The Committee shall render its decision on
review promptly, and no later than sixty (60) days (forty five (45) days in the
case of a claim for disability benefits) after the Committee receives the
Claimant’s written request for a review of the denial of the claim.  If the
Committee determines that special circumstances require an extension of time for
processing the claim, written notice of the extension shall be furnished to the
Claimant prior to the termination of the initial sixty (60) day (or forty five
(45) day) period.  In no event shall such extension exceed a period of sixty
(60) days (forty five (45) days in the case of a disability claim) from the end
of the initial period.  The extension notice shall indicate the special
circumstances requiring an extension of time and the date by which the Committee
expects to render the benefit determination.  In rendering its decision, the
Committee shall take into account all comments, documents, records and other
information submitted by the Claimant relating to the claim, without regard to
whether such information was submitted or considered in the initial benefit
determination.  In the case of a claim for disability benefits, the review on
appeal must be made by a different decision-maker from the Committee and the
decision-maker cannot give procedural deference to the original decision.

 

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The decision must be written in a manner calculated to be understood by the
Claimant, and it must contain:

 

(a)           specific reasons for the decision;

 

(b)           specific reference(s) to the pertinent Plan provisions upon which
the decision was based;

 

(c)           a statement that the Claimant is entitled to receive, upon request
and free of charge, reasonable access to and copies of, all documents, records
and other information relevant (as defined in applicable ERISA regulations) to
the Claimant’s claim for benefits;

 

(d)           if the claim is a claim for disability benefits, an internal rule,
guideline, protocol or other similar criterion which was relied on in connection
with the review of the claim and that such internal rule, guideline, protocol or
similar criterion may be obtained by the Claimant at the Claimant’s request free
of charge;

 

(e)           if the claim is a claim for disability benefits, and the denial is
based on medical necessity or other similar exclusion or limit, Claimant’s right
to receive free of charge an explanation of how that exclusion or limit and any
related clinical judgments apply to the Claimant’s medical circumstances; and

 

(f)            a statement of the Claimant’s right to bring a civil action under
ERISA Section 502(a).

 

14.5         Legal Action.  A Claimant’s compliance with the foregoing
provisions of this Article 14 is a mandatory prerequisite to a Claimant’s right
to commence any legal action with respect to any claim for benefits under this
Plan.

 

ARTICLE 15
Trust

 

15.1         Establishment of the Trust.  In order to provide assets from which
to fulfill the obligations of the Participants and their Beneficiaries under the
Plan, the Company may establish a trust by a trust agreement with a third party,
the trustee, to which each Employer may, in its discretion, contribute cash or
other property to provide for the benefit payments under the Plan (the “Trust”).

 

15.2         Interrelationship of the Plan and the Trust.  The provisions of the
Plan and the Plan Agreement shall govern the rights of a Participant to receive
distributions pursuant to the Plan.  The provisions of the Trust shall govern
the rights of the Employers, Participants and the creditors of the Employers to
the assets transferred to the Trust.  Each Employer shall at all times remain
liable to carry out its obligations under the Plan.

 

15.3         Distributions From the Trust.  Each Employer’s obligations under
the Plan may be satisfied with Trust assets distributed pursuant to the terms of
the Trust.  Any such distribution shall reduce the Employer’s obligations under
this Plan.

 

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ARTICLE 16

Miscellaneous

 

16.1         Status of Plan.

 

(a)           Intent.  The Plan is intended to be a plan that is not qualified
within the meaning of Code Section 401(a) and that “is unfunded and is
maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees”
within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1).  The Plan
shall be administered and interpreted to the extent possible in a manner
consistent with that intent.

 

(b)           Compliance with IRC Section 409A.  The Company intends that this
Plan comply with Code Section 409A (and all notices, rulings, guidance and
regulations hereunder) in all respects.  In the event any required provision of
Code Section 409A (or of any notice, ruling, guidance or regulation hereunder)
is needed in order for this Plan to be in compliance thereof, such required
provision is hereby incorporated by reference for all purposes of this Plan.

 

16.2         Unsecured General Creditor.  Participants and their Beneficiaries,
heirs, executors, administrators, successors and assigns shall have no legal or
equitable rights, interests or claims in any property or assets of an Employer. 
For purposes of the payment of benefits under this Plan, any and all of an
Employer’s assets shall be, and remain, the general, unpledged unrestricted
assets of the Employer.  An Employer’s obligation under the Plan shall be merely
that of an unfunded and unsecured promise to pay money in the future.

 

16.3         Employer’s Liability.  An Employer’s liability for the payment of
benefits shall be defined only by the Plan and the Plan Agreement, as entered
into between the Employer and a Participant.  An Employer shall have no
obligation to a Participant under the Plan except as expressly provided in the
Plan and his or her Plan Agreement.

 

16.4         Nonassignability.  Neither a Participant nor any other person shall
have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage
or otherwise encumber, transfer, hypothecate, alienate or convey in advance of
actual receipt, the amounts, if any, payable under this Plan, or any part
thereof, which are, and all rights to which are expressly declared to be,
unassignable and non-transferable.  No part of the amounts payable under this
Plan shall, prior to actual payment, be subject to seizure, attachment,
garnishment or sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by a Participant or any other person, be transferable
by operation of law in the event of a Participant’s (or any other person’s)
bankruptcy or insolvency or, except as provided in Sections 9.2 and 16.12
hereof, be transferable to a spouse as a result of a property settlement or
otherwise.

 

16.5         Not a Contract of Employment.  The terms and conditions of this
Plan shall not be deemed to constitute a contract of employment between any
Employer and the Participant.  Such employment is hereby acknowledged to be an
“at will” employment relationship that can be terminated at any time for any
reason, or no reason, with or without cause, and with or without notice, unless
expressly provided in a written employment agreement.  Nothing in

 

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this Plan shall be deemed to give a Participant the right to be retained in the
service of any Employer, or to interfere with the right of any Employer to
discipline or discharge the Participant at any time.

 

16.6         Furnishing Information.  A Participant (or his or her Beneficiary)
will cooperate with the Committee by furnishing any and all information
requested by the Committee and take such other actions as may be requested in
order to facilitate the administration of the Plan and the payments of benefits
hereunder, including but not limited to taking such physical examinations as the
Committee may deem necessary.

 

16.7         Terms.  Whenever any words are used herein in the masculine, they
shall be construed as though they were in the feminine in all cases where they
would so apply.  Whenever any words are used herein in the singular or in the
plural, they shall be construed as though they were used in the plural or the
singular, as the case may be, in all cases where they would so apply.

 

16.8         Captions.  The captions of the articles, sections and paragraphs of
this Plan are for convenience only and shall not control or affect the meaning
or construction of any of its provisions.

 

16.9         Governing Law.  Subject to ERISA, the provisions of this Plan shall
be construed and interpreted according to the laws of the State of Texas without
regard to its conflicts of laws principles.

 

16.10       Notice.  Any notice or filing required or permitted to be given to
the Committee under this Plan shall be sufficient if in writing and
hand-delivered, or sent by registered or certified mail, to the address below:

 

Cap Rock Energy Corporation

Office of General Counsel

500 West Wall Street

Suite 400

Midland, Texas  79701

 

Such notice shall be deemed given as of the date of delivery or, if delivery is
made by mail, as of the date shown on the postmark on the receipt for
registration or certification.

 

Any notice or filing required or permitted to be given to a Participant (or
Beneficiary) under this Plan shall be sufficient if in writing and
hand-delivered, or sent by mail, to the last known address of the Participant.

 

16.11       Successors.  The provisions of this Plan shall bind and inure to the
benefit of the Participant’s Employer and its successors and assigns and the
Participant and the Participant’s designated Beneficiaries.

 

16.12       Spouse’s Interest.  The interest in the benefits hereunder of a
spouse of a Participant who has predeceased the Participant shall automatically
pass to the Participant and shall not be transferable by such spouse in any
manner, including, but not limited to, such spouse’s will, nor shall such
interest pass under the laws of intestate succession.  Notwithstanding the

 

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foregoing, if a spouse is awarded all or a portion of the Participant’s benefit
under the Plan pursuant to a division of property in connection with a divorce,
such spouse’s share of the Participant’s benefit shall be his or her separate
property and shall be transferable by the Participant’s former spouse by will or
pursuant to the laws of descent and distribution.  In order to be effective,
notice of such division of the Participant’s benefit under the Plan pursuant to
a division of property in connection with divorce must be provided in the form
and manner prescribed by the Committee.  Any such benefit to which a
Participant’s former spouse may be entitled shall be payable to the former
spouse under this Plan only at the time payment of the Participant’s benefit
commences under the Plan.

 

16.13       Validity.  In case any provision of this Plan shall be illegal or
invalid for any reason, said illegality or invalidity shall not affect the
remaining parts hereof.  This Plan shall be construed and enforced as if such
illegal or invalid provision had never been inserted herein.

 

16.14       Incompetent.  If the Committee determines in its discretion that a
benefit under this Plan is to be paid to a minor, a person declared incompetent
or to a person incapable of handling the disposition of that person’s property,
the Committee may direct payment of such benefit to the guardian, legal
representative or person having the care and custody of such minor, incompetent
or incapable person.  The Committee may require proof of minority, incompetence,
incapacity or guardianship, as it may deem appropriate prior to distribution of
the benefit.  Any payment of a benefit shall be a payment for the account of the
Participant and the Participant’s Beneficiary, as the case may be, and shall be
a complete discharge of any liability under the Plan for such payment amount.

 

16.15       Court Order.  The Committee is authorized to comply with any court
order in any action in which the Plan or the Committee has been named as a
party, including any action involving a determination of the rights or interests
in a Participant’s benefits under the Plan.  Notwithstanding the foregoing, the
Committee shall interpret this provision in a manner that is consistent with
applicable tax law, including but not limited to guidance issued after the
effective date of this Plan.

 

16.16       Deduction Limitation on Benefit Payments.  An Employer may determine
that as a result of the application of the limitation under Code Section 162(m),
a distribution payable to a Participant pursuant to this Plan would not be
deductible by the Employer if such distribution were made at the time required
by the Plan.  If an Employer makes such a determination, then the distribution
shall not be paid to the Participant until such time as the distribution first
becomes deductible.  The amount of the distribution shall continue to be
adjusted in accordance with Section 3.5 hereof until it is distributed to the
Participant.  The amount of the distribution, plus amounts credited or debited
thereon, shall be paid to the Participant or his or her Beneficiary (in the
event of the Participant’s death) at the earliest possible date, as determined
by the Employer, on which the deductibility of compensation paid (or payable) to
the Participant for the taxable year of the Employer during which the
distribution is made will not be limited by Code Section 162(m).

 

16.17       Insurance.  The Employers, on their own behalf or on behalf of the
Trustee, and, in their sole discretion, may apply for and procure insurance on
the life of the Participant, in such amounts and in such forms as the Trustee
may choose.  The Employers or the Trustee, as the case may be, shall be the sole
owner and beneficiary of any such insurance.  The Participant

 

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shall have no interest whatsoever in any such policy (or policies).  At the
request of the Employers, a Participant shall submit to medical examinations and
supply such information and execute such documents as may be required by the
insurance company (or companies) to whom the Employers have applied for
insurance.

 

16.18       Obligations to the Company.   If a Participant becomes entitled to a
distribution of benefits under the Plan, and if at such time the Participant has
outstanding any debt, obligation, or other liability representing an amount owed
to any Employer, then such Employer may offset such amounts owing it against the
amount of benefits otherwise distributable.

 

16.19       Effective Date.  The effective date of this Plan shall be January 1,
2005, or such other date as may be required by Code Section 409A, IRS Notice
2005-1, or any other relevant guidance, ruling or regulation thereunder.

 

IN WITNESS WHEREOF, the Company has signed this Plan document on September 1,
2005.

 

 

  CAP ROCK ENERGY CORPORATION

 

 

 

 

 

By:

 

/s/ Ulen North, Jr.

 

 

Print Name:

 

Ulen North, Jr.

 

 

Title:

 

Executive Vice President

 

 

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