Exhibit 10.96

 

CAP ROCK ENERGY CORPORATION

 

INDEMNIFICATION AGREEMENT

 

THIS AGREEMENT is entered into as of August 31, 2005 (this “Agreement”), between
Cap Rock Energy Corporation, a Texas corporation (the “Corporation”), and
                                         (the “Indemnitee”).

 

Background Statement and Recitals

 

Highly competent and experienced persons are becoming more reluctant to serve
corporations as directors or in other capacities unless they are provided with
adequate protection through insurance and adequate indemnification against
inordinate risks of claims and actions against them arising out of their service
to and activities on behalf of the corporation.

 

The Board of Directors of the Corporation (the “Board”) has determined that the
inability to attract and retain such persons would be detrimental to the best
interests of the Corporation and its shareholders and that the Corporation
should act to assure such persons that there will be increased certainty of such
protection in the future.

 

The Board has also determined that it is reasonable, prudent and necessary for
the Corporation, in addition to purchasing and maintaining directors’ and
officers’ liability insurance (or otherwise providing for adequate arrangements
of self-insurance), contractually to obligate itself to indemnify such persons
to the fullest extent permitted by current and future applicable law so that
they will serve or continue to serve the Corporation free from undue concern
that they will not be so indemnified.

 

Indemnitee is willing to serve, to continue to serve and to take on additional
service for or on behalf of the Corporation on the condition that he be so
indemnified.

 

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained, and other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, the parties hereby agree as follows:

 

ARTICLE I

 

CERTAIN DEFINITIONS

 

As used herein, the following words and terms shall have the following
respective meanings (whether singular or plural):

 

“Change in Control” means a change in control of the Corporation occurring any
time after the date hereof of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any
similar item on any similar schedule or form) promulgated under the Securities
Exchange Act of 1934, as amended (the

 

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“Exchange Act”), whether or not the Corporation is then subject to such
reporting requirement; provided, however, that, without limiting the generality
of the foregoing, a Change in Control shall be deemed to have occurred
(irrespective of the applicability of the initial clause of this definition) if
at any time after the date hereof (a) any “person” (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act, but excluding (i) any employee
benefit plan of the Corporation or of any subsidiary of the Corporation, and
(ii) any entity organized, appointed or established by the Corporation pursuant
to the terms of any such plan) is or becomes the “beneficial owner” (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Corporation representing 40% or more of the combined voting power of the
Corporation’s then outstanding securities without the prior approval of at least
two-thirds of the members of the whole Board in office immediately prior to such
person attaining such percentage interest; (b) the Corporation is a party to a
merger, consolidation, share exchange, sale of assets or other reorganization,
or a proxy contest (a “Business Combination”), as a consequence of which (x)
members of the Board in office immediately prior to such transaction or event
constitute less than a majority of the whole Board thereafter or (y) all or
substantially all of the individuals and entities who were the beneficial owners
of the Corporation’s then outstanding voting securities immediately prior to
such Business Combination fail to beneficially own, directly or indirectly, more
than 50% of the then outstanding voting securities entitled to vote generally in
the election of directors (or similar body) of the entity resulting from such
Business Combination (including without limitation, an entity which as a result
of such transaction owns the Corporation or all or substantially all of the
Corporation’s assets either directly or through one or more subsidiaries) in
proportions not materially different from their ownership, immediately prior to
such Business Combination, of the Corporation’s then outstanding voting
securities; or (c) during any period of two consecutive years, individuals who
at the beginning of such period constituted members of the Board (including for
this purpose any new member whose election or nomination for election by the
Corporation’s shareholders was approved by a vote of at least two-thirds of the
members of the whole Board then still in office who were members of the Board at
the beginning of such period) cease for any reason to constitute a majority of
the whole Board.

 

“Claim” means an actual or threatened claim or request for relief.

 

“Corporate Status” means the status of a person who is or was a director,
nominee for director, officer, employee, agent or fiduciary of the Corporation
(including any predecessors to the Corporation) or of any other corporation,
employee benefit plan, other enterprise or other entity for or in which such
person is or was serving as a director, nominee for director, officer, employee,
agent or fiduciary at the request of or after election or nomination by the
Corporation.

 

“Disinterested Director,” with respect to any request by Indemnitee for
indemnification hereunder, means a director of the Corporation who neither is
nor was a party to the Proceeding or subject to a Claim, issue or matter in
respect of which indemnification is sought by Indemnitee.

 

“Expenses” means all attorneys’ fees, retainers, court costs, transcript costs,
fees of experts, witness fees, travel expenses, duplicating costs, printing and
binding costs, telephone charges, postage, delivery service fees and all other
disbursements or expenses of the types

 

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customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, being or preparing to be a witness in, or
participating in (including on appeal), a Proceeding.

 

“Independent Counsel” means a law firm, or a member of a law firm, that is
experienced in matters of corporation law and neither contemporaneously is, nor
in the five years theretofore has been, retained to represent (a) the
Corporation or Indemnitee in any matter material to either such party, (b) any
other party to the Proceeding giving rise to a claim for indemnification
hereunder or (c) the beneficial owner, directly or indirectly, of securities of
the Corporation representing 40% or more of the combined voting power of the
Corporation’s then outstanding voting securities (other than, in each such case,
with respect to matters concerning the rights of Indemnitee under this
Agreement, or of other indemnitees under similar indemnification agreements). 
Notwithstanding the foregoing, the term “Independent Counsel” shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the
Corporation or Indemnitee in an action to determine Indemnitee’s rights under
this Agreement.

 

“Person” shall have the meaning ascribed to such term in Sections 13(d) and
14(d) of the Exchange Act.

 

“Proceeding” means any threatened, pending or completed action, suit,
arbitration, investigation, alternate dispute resolution mechanism,
administrative hearing or any other proceeding, whether civil, criminal,
administrative, arbitrative or investigative and whether or not based upon
events occurring, or actions taken, before the date hereof (except any of the
foregoing initiated by Indemnitee pursuant to Article VI or Section 7.9 to
enforce his rights under this Agreement), and any appeal in or related to any
such action, suit, arbitration, investigation, hearing or proceeding and any
appeal in or related to any such action, suit, arbitration, investigation,
hearing or proceeding and any inquiry or investigation that could lead to, and
any appeal in or related to, any such action, suit, arbitration, alternative
dispute resolution mechanism, hearing or proceeding.

 

“TBCA” means the Texas Business Corporation Act and any successor statute
thereto as either of them may from time to time be amended.

 

ARTICLE II

 

SERVICES BY INDEMNITEE

 

Section 2.1             Services.  Indemnitee agrees to serve, or continue to
serve, as a director of the Corporation.  Indemnitee may from time to time also
agree to serve, as the Corporation may request from time to time, as a director,
officer, partner, venturer, proprietor, trustee, employee, agent, fiduciary or
similar functionary of another foreign or domestic corporation, employee benefit
plan, other enterprise or other entity.  Indemnitee and the Corporation each
acknowledge that they have entered into this Agreement as a means of inducing
Indemnitee to serve, or continue to serve, the Corporation in such capacities. 
Indemnitee may at any time and for any reason resign from such position or
positions (subject to

 

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any other contractual obligation or any obligation imposed by operation of
law).  The Corporation shall have no obligation under this Agreement to continue
Indemnitee in any such position or positions.  This Agreement will not be deemed
an employment contract between the Corporation (or any of its subsidiaries) and
the Indemnitee.

 

ARTICLE III

 

INDEMNIFICATION

 

Section 3.1             General.  The Corporation shall indemnify, and advance
Expenses to, Indemnitee to the fullest extent permitted by applicable law in
effect on the date hereof and to such greater extent as applicable law may
thereafter from time to time permit.  The rights of Indemnitee provided under
the preceding sentence shall include, but shall not be limited to, the right to
be indemnified and to have Expenses advanced in all Proceedings to the fullest
extent permitted by Article 2.02-1 of the TBCA.  The provisions set forth in
this Agreement are provided in addition to and as a means of furtherance and
implementation of, and not in limitation of, the obligations expressed in this
Article III.  No requirement, condition or limitation of any right to
indemnification under this Article III, or to advancement of Expenses under
Articles III and IV shall in any way limit the rights of Indemnitee under
Section 7.3.

 

Section 3.2             Additional Indemnity of the Corporation.  Indemnitee
shall be entitled to indemnification pursuant to this Section 3.2 if, by reason
of his Corporate Status, he was, is or is threatened to be made, a party to any
Proceeding (except to the extent limited by Section 3.3).  Pursuant to this
Section 3.2, Indemnitee shall be indemnified against reasonable Expenses,
judgments, penalties (including excise or similar taxes), fines and amounts paid
in settlement (including all interest, assessments and other charges paid or
payable in connection with any such Expenses, judgments, penalties, fines and
amounts paid in settlement) actually incurred by him or on his behalf in
connection with such Proceeding or any Claim, issue or matter, therein, if
(a) he conducted himself in good faith; (b) he reasonably believed (i) in the
case of conduct in his official capacity, that his conduct was in the
Corporation’s best interest; and (ii) in all other cases, that his conduct was
at least not opposed to the best interests of the Corporation, and (c) in the
case of any criminal Proceeding, had no reasonable cause to believe his conduct
was unlawful.  Nothing in this Section 3.2 shall limit the benefits of
Section 3.1 or any other Section hereunder.

 

Section 3.3             Limitation on Indemnity.  The Indemnification otherwise
available to an Indemnitee under Section 3.2 shall be limited to the extent set
forth in this Section 3.3.  In the event that an Indemnitee is found liable to
the Corporation or is found liable on the basis that personal benefit was
improperly received by the Indemnitee whether or not the benefit resulted from
an action taken in Indemnitee’s official capacity the Indemnitee shall, with
respect to the Claim, issue or matter, in the Proceeding in which such finding
is made, be indemnified only against reasonable Expenses actually incurred by
him in connection with that Claim, issue or matter therein.  Notwithstanding the
foregoing, no indemnification against such Expenses shall be made in respect of
any Claim, issue or matter, in such Proceeding as to which Indemnitee shall have
been adjudged to be liable for willful or intentional misconduct in the
performance of

 

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his duty to the Corporation; provided, however, that, if applicable law so
permits, indemnification against such Expenses shall nevertheless be made by the
Corporation in such event if and only to the extent that the court in which such
Proceeding shall have been brought or is pending, shall determine.

 

ARTICLE IV

 

EXPENSES

 

Section 4.1             Expenses of a Party Who Is Wholly or Partly Successful. 
Notwithstanding any other provision of this Agreement to the contrary (except as
set forth in Section 7.2(c) or 7.7), and without a requirement for any
determination described in Section 5.2, the Corporation shall indemnify
Indemnitee against all Expenses actually and reasonably incurred by him or on
his behalf in connection with any Proceeding to which Indemnitee was or is a
party by reason of his Corporate Status and in which Indemnitee is wholly
successful, on the merits or otherwise, in the defense of the Proceeding.  If
Indemnitee is not wholly successful, on the merits or otherwise, in a Proceeding
but is successful, on the merits or otherwise, as to any Claim, issue or matter
in such Proceeding, the Corporation shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf relating to
each successfully resolved Claim, issue or matter.  For purposes of this
Section 4.1 and without limitation, the termination of a Claim, issue or matter
in a Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such Claim, issue or matter.

 

Section 4.2             Expenses of a Witness or Non-Party.  Notwithstanding any
other provision of this Agreement to the contrary, to the extent that Indemnitee
is, by reason of his Corporate Status, a witness or otherwise participates in
any Proceeding at a time when he is not a party in the Proceeding, the
Corporation shall indemnify him against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.

 

Section 4.3             Advancement of Expenses.  The Corporation shall pay all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding, whether brought by or in the right of the Corporation or
otherwise, in advance of any determination with respect to entitlement to
indemnification pursuant to Article V within 15 days after the receipt by the
Corporation of (a) a written affirmation by the director of his good faith
belief that he has met the standard of conduct necessary for indemnification
under Article III and (b) a written undertaking by or on behalf of Indemnitee to
repay the amount paid or reimbursed if it is ultimately determined that he has
not met that standard or if it is ultimately determined that indemnification of
the Indemnitee against expenses incurred by him in connection with that
proceeding is prohibited by the TBCA.  Such statement or statements shall
reasonably evidence the Expenses incurred by Indemnitee.  Indemnitee hereby
undertakes and agrees that he will reimburse and repay the Corporation for any
Expenses so advanced to the extent that it shall ultimately be determined, in a
final adjudication by a court from which there is no further right of appeal,
that Indemnitee is not entitled to be indemnified against such Expenses.

 

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ARTICLE V

 

PROCEDURE FOR DETERMINATION OF ENTITLEMENT

TO INDEMNIFICATION

 

Section 5.1             Request by Indemnitee.  To obtain indemnification under
this Agreement, Indemnitee shall submit to the Corporation a written request,
including therein or therewith such documentation and information as is
reasonably available to Indemnitee and is reasonably necessary to determine
whether and to what extent Indemnitee is entitled to indemnification.  The
Secretary or an Assistant Secretary of the Corporation shall, promptly upon
receipt of such a request for indemnification, advise the members of the Board
in writing that Indemnitee has requested indemnification.

 

Section 5.2             Determination of Request.  Upon written request by
Indemnitee for indemnification pursuant to Section 5.1, a determination, if
required by applicable law, with respect to Indemnitee’s entitlement thereto
shall be made in the specific case as follows:

 

(a) If a Change in Control shall have occurred, by Independent Counsel (selected
in accordance with Section 5.3) in a written opinion to the Board, a copy of
which shall be delivered to Indemnitee, unless Indemnitee shall request that
such determination be made by the Board, or a committee of the Board, in which
case by the person or persons or in the manner provided for in clause (i) or
(ii) of paragraph (b) below;

 

(b) If a Change in Control shall not have occurred, (i) by the Board by a
majority vote of a quorum of the Board consisting of Disinterested Directors, or
(ii) if a quorum of the Board consisting of Disinterested Directors is not
obtainable, by a majority vote of a committee of the Board designated to act in
the matter by a majority vote of the entire Board, consisting solely of two or
more Disinterested Directors, (iii) by Independent Counsel selected by the Board
or a committee of the Board by a vote as set forth in clauses (i) or (ii) of
this paragraph (b), or if such quorum is not obtainable or such committee cannot
be established, by a majority vote of all directors, or (iv) if Indemnitee and
the Company agree, by the shareholders of the Company in a vote that excludes
the shares held by the Indemnitee and directors who are not Disinterested
Directors; or

 

(c) As provided in Section 5.4(b).

 

If it is so determined that Indemnitee is entitled to indemnification hereunder,
payment to Indemnitee shall be made within 15 days after such determination. 
Indemnitee shall cooperate with the person, persons or entity making such
determination with respect to Indemnitee’s entitlement to indemnification,
including providing to such person, persons or entity upon reasonable advance
request any documentation or information that is not privileged or otherwise
protected from disclosure and that is reasonably available to Indemnitee and
reasonably necessary for such determination.  Any costs or expenses (including
attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with
the person, persons or entity making such determination shall be borne by the
Corporation (irrespective of the determination

 

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as to Indemnitee’s entitlement to indemnification), and the Corporation shall
indemnify and hold harmless Indemnitee therefrom.

 

Section 5.3             Independent Counsel.  If the determination of
entitlement to indemnification is to be made by Independent Counsel, the
Independent Counsel shall be selected (a) by the Board by a majority vote of a
quorum of the Board consisting of Disinterested Directors, or (b) if a quorum of
the Board consisting of Disinterested Directors is not obtainable, by a majority
vote of a committee of the Board designated to select such Independent Counsel
by a majority vote of all directors of the Corporation, consisting solely of two
or more Disinterested Directors, or (c) if such quorum is not obtainable or such
committee cannot be established, by a majority vote of all directors.  The
Corporation shall give written notice to Indemnitee, within 10 days after
receipt by the Corporation of Indemnitee’s request for indemnification,
specifying the identity and address of the Independent Counsel so selected and
(i) such notice to Indemnitee shall be accompanied by a written affirmation of
the Independent Counsel so selected that it satisfies the requirements of the
definition of “Independent Counsel” in Article I and that it agrees to serve in
such capacity and (ii) Indemnitee may, within seven days after such written
notice of selection shall have been given, deliver to the Corporation a written
objection to such selection.  Any objection to selection of Independent Counsel
pursuant to this Section 5.3 may be asserted only on the ground that the
Independent Counsel so selected does not meet the requirements of the definition
of “Independent Counsel” in Article I hereof, and the objection shall set forth
with particularity the factual basis of such assertion.  If such written
objection is timely made, the Independent Counsel so selected may not serve as
Independent Counsel unless and until a court of competent jurisdiction (the
“Court”) has determined that such objection is without merit.  In the event of a
timely written objection to a choice of Independent Counsel, the Corporation
shall have seven days to make an alternate selection of Independent Counsel and
to give written notice of such selection to the Indemnitee, after which time the
Indemnitee shall have five days to make a written objection to such alternate
selection.  If, within 30 days after submission of Indemnitee’s request for
indemnification pursuant to Section 5.1 hereof, no Independent Counsel shall
have been selected and not objected to, the Corporation may petition the Court
for resolution of any objection that shall have been made by the Indemnitee to
the Corporation’s selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the Court or by such other person as
the Court shall designate, and the person with respect to whom an objection is
so resolved or the person so appointed shall act as Independent Counsel under
Section 5.2 hereof.  The Corporation shall pay any and all reasonable fees and
expenses incurred by such Independent Counsel in connection with acting pursuant
to Section 5.2, and the Corporation shall pay all reasonable fees and expenses
incident to the procedures of this Section 5.3, regardless of the manner in
which such Independent Counsel was selected or appointed.  Upon the due
commencement of any judicial proceeding or arbitration pursuant to Section 6.1,
Independent Counsel shall be discharged and relieved of any further
responsibility in such capacity (subject to the applicable standards of
professional conduct then prevailing).

 

Section 5.4             Presumptions and Effect of Certain Proceedings.

 

(a)           The Indemnitee shall be presumed to be entitled to indemnification
under this Agreement upon submission of a request for indemnification pursuant
to Section 5.1,

 

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and thereafter the Corporation shall have the burden of proof in overcoming that
presumption in reaching a determination contrary to that presumption.  Such
presumption shall be used by Independent Counsel (or other person or persons
determining entitlement to indemnification) as a basis for a determination of
entitlement to indemnification unless the Corporation provides information
sufficient to overcome such presumption by clear and convincing evidence.

 

(b)           If the person or persons empowered or selected under this
Article V to determine whether Indemnitee is entitled to indemnification shall
not have made a determination within 60 days after receipt by the Corporation of
Indemnitee’s request for indemnification, the requisite determination of
entitlement to indemnification shall be deemed to have been made and Indemnitee
shall be entitled to such indemnification, absent (i) a knowing misstatement by
Indemnitee of a material fact, or knowing omission of a material fact necessary
to make Indemnitee’s statement not materially misleading, in connection with
Indemnitee’s request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; provided, however, that such 60-day period
may be extended for a reasonable time, not to exceed an additional 30 days, if
the person making the determination with respect to entitlement to
indemnification in good faith requires such additional time for the obtaining or
evaluating of documentation and/or information relating to such determination;
provided further, that the 60-day limitation set forth in this
Section 5.4(b) shall not apply and such period shall be extended as necessary
(i) if within 30 days after receipt by the Corporation of Indemnitee’s request
for indemnification under Section 5.1 Indemnitee and the Company have agreed,
and the Board has resolved to submit, such determination to the shareholders of
the Corporation pursuant to Section 5.2(b) for their consideration at an annual
meeting of shareholders to be held within 90 days after such agreement and such
determination is made thereat, or a special meeting of shareholders for the
purpose of making such determination to be held within 60 days after such
agreement and such determination is made thereat (any vote at such meetings will
exclude any shares held by the Indemnitee and directors who are not
Disinterested Directors), or (ii) if the determination of entitlement to
indemnification is to be made by Independent Counsel, in which case the
applicable period shall be as set forth in clause (c) of Section 6.1.

 

(c)           The termination of any Proceeding or of any Claim, issue or matter
by judgment, order, settlement (whether with or without court approval) or
conviction, or upon a plea of nolo contendere or its equivalent, shall not
(except as otherwise expressly provided in this Agreement) by itself adversely
affect the rights of Indemnitee to indemnification or create a presumption that
Indemnitee did conduct himself in good faith or in a manner that he reasonably
believed in the case of conduct in his official capacity, that was in the best
interests of the Corporation, or, in all other cases, that was not opposed to
the best interests of the Corporation or, with respect to any criminal
Proceeding, that Indemnitee had reasonable cause to believe that his conduct was
unlawful.  Indemnitee shall be deemed to have been found liable in respect of
any Claim, issue or matter only after he shall have been so adjudged by the
Court after exhaustion of all appeals therefrom.

 

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ARTICLE VI

 

CERTAIN REMEDIES OF INDEMNITEE

 

Section 6.1             Indemnitee Entitled to Adjudication in an Appropriate
Court.  If (a) a determination is made pursuant to Article V that Indemnitee is
not entitled to indemnification under this Agreement, (b) there has been any
failure by the Company to make timely payment or advancement of any amounts due
hereunder, or (c) the determination of entitlement to indemnification is to be
made by Independent Counsel and such determination shall not have been made and
delivered in a written opinion within 90 days after the latest of (i) such
Independent Counsel’s being appointed, (ii) the overruling by the Court of
objections to such counsel’s selection or (iii) expiration of all periods for
the Corporation or Indemnitee to object to such counsel’s selection, Indemnitee
shall be entitled to commence an action seeking an adjudication in the Court, of
his entitlement to such indemnification or advancement of Expenses. 
Alternatively, Indemnitee, at his option, may seek an award in arbitration to be
conducted by a single arbitrator pursuant to the commercial arbitration rules of
the American Arbitration Association.  Indemnitee shall commence such action
seeking an adjudication or an award in arbitration within 180 days following the
date on which Indemnitee first has the right to commence such action pursuant to
this Section 6.1, or such right shall expire.  The Corporation shall not oppose
Indemnitee’s right to seek any such adjudication or award in arbitration.

 

Section 6.2             Adverse Determination Not to Affect any Judicial
Proceeding.  If a determination shall have been made pursuant to Article V that
Indemnitee is not entitled to indemnification under this Agreement, any judicial
proceeding or arbitration commenced pursuant to this Article VI shall be
conducted in all respects as a de novo trial or arbitration on the merits, and
Indemnitee shall not be prejudiced by reason of such initial adverse
determination.  In any judicial proceeding or arbitration commenced pursuant to
this Article VI, Indemnitee shall be presumed to be entitled to indemnification
or advancement of Expenses, as the case may be, under this Agreement and the
Corporation shall have the burden of proof in overcoming such presumption and to
show by clear and convincing evidence that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.

 

Section 6.3             Corporation Bound by Determination Favorable to
Indemnitee in any Judicial Proceeding or Arbitration.  If a determination shall
have been made or deemed to have been made pursuant to Article V that Indemnitee
is entitled to indemnification, the Corporation shall be irrevocably bound by
such determination in any judicial proceeding or arbitration commenced pursuant
to this Article VI and shall be precluded from asserting that such determination
has not been made or that the procedure by which such determination was made is
not valid, binding and enforceable, in each such case absent (a) a knowing
misstatement by Indemnitee of a material fact, or a knowing omission of a
material fact necessary to make a statement by Indemnitee not materially
misleading, in connection with Indemnitee’s request for indemnification or (b) a
prohibition of such indemnification under applicable law.

 

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Section 6.4             Corporation Bound by the Agreement.  The Corporation
shall be precluded from asserting in any judicial proceeding or arbitration
commenced pursuant to this Article VI that the procedures and presumptions of
this Agreement are not valid, binding and enforceable and shall stipulate in any
such court or before any such arbitrator that the Corporation is bound by all
the provisions of this Agreement.

 

Section 6.5             Indemnitee Entitled to Expenses of Judicial Proceeding. 
If Indemnitee seeks a judicial adjudication of or an award in arbitration to
enforce his rights under, or to recover damages for breach of, this Agreement,
Indemnitee shall be entitled to recover from the Corporation, and the
Corporation shall indemnify Indemnitee against, any and all expenses (of the
types described in the definition of Expenses in Article I) actually and
reasonably incurred by him in such judicial adjudication or arbitration but only
if Indemnitee prevails therein.  If it shall be determined in such judicial
adjudication or arbitration that Indemnitee is entitled to receive part but not
all of the indemnification or advancement of expenses or other benefit sought,
the expenses incurred by Indemnitee in connection with such judicial
adjudication or arbitration shall be equitably allocated between the Corporation
and Indemnitee.  Notwithstanding the foregoing, if a Change in Control shall
have occurred, Indemnitee shall be entitled to indemnification under this
Section 6.5 regardless of whether Indemnitee ultimately prevails in such
judicial adjudication or arbitration.

 

ARTICLE VII

 

MISCELLANEOUS

 

Section 7.1             Non-Exclusivity.  The rights of Indemnitee to receive
indemnification and advancement of Expenses under this Agreement shall not be
deemed exclusive of any other rights to which Indemnitee may at any time be
entitled under applicable law, the Articles of Incorporation or Bylaws of the
Corporation, any other agreement, vote of shareholders or a resolution of
directors, or otherwise.  No amendment or alteration of the Articles of
Incorporation or Bylaws of the Corporation or any provision thereof shall
adversely affect Indemnitee’s rights hereunder and such rights shall be in
addition to any rights Indemnitee may have under the Corporation’s Articles of
Incorporation, Bylaws and the TBCA or otherwise.  To the extent that there is a
change in the TBCA or other applicable law (whether by statute or judicial
decision) that allows greater indemnification by agreement than would be
afforded currently under the Corporation’s Articles of Incorporation or Bylaws
and this Agreement, it is the intent of the parties hereto that the Indemnitee
shall enjoy by virtue of this Agreement the greater benefit so afforded by such
change.

 

Section 7.2             Insurance and Subrogation.

 

(a)           To the extent the Corporation maintains an insurance policy or
policies providing liability insurance for directors, officers, employees,
agents or fiduciaries of the Corporation or for directors of the Corporation
serving at the request of the Corporation as directors, officers, partners,
venturers, proprietors, trustees, employees, agents, fiduciaries or similar
functionaries of another foreign or domestic corporation, employee benefit plan,
other enterprise or other entity that such person serves at the request of the
Corporation, Indemnitee

 

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shall be covered by such policy or policies in accordance with its or their
terms to the maximum extent of the coverage available for any such director,
officer, employee, agent or fiduciary under such policy or policies.

 

(b)           In the event of any payment by the Corporation under this
Agreement, the Corporation shall be subrogated to the extent of such payment to
all of the rights of recovery of Indemnitee, who shall execute all papers
required and take all action necessary to secure such rights, including
execution of such documents as are necessary to enable the Corporation to bring
suit to enforce such rights.

 

(c)           The Corporation shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under the
Corporation’s Articles of Incorporation or Bylaws or any insurance policy,
contract, agreement or otherwise.

 

Section 7.3             Self Insurance; Other Arrangements.  The parties hereto
recognize that the Corporation may, but is not required to, procure or maintain
insurance or other arrangements, at its expense, to protect itself and any
person, including Indemnitee, who is or was a director, officer, employee or
agent of the Corporation or who is or was serving at the request of the
Corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another foreign or domestic
corporation, employee benefit plan, other enterprise or other entity against any
expense, liability or loss asserted against or incurred by such person, in such
a capacity or arising out of his status as such a person, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss.

 

In considering the cost and availability of such insurance, the Corporation,
(through the exercise of the business judgment of its directors and officers),
may from time to time, purchase insurance which provides for any and all of
(a) deductibles, (b) limits on payments required to be made by the insurer, or
(c) coverage exclusions and/or coverage which may not be as comprehensive as
that which might otherwise be available to the Corporation but which otherwise
available insurance the officers or directors of the Corporation determine is
inadvisable for the Corporation to purchase given the cost involved.  The
purchase of insurance with deductibles, limits on payments and coverage
exclusions will be deemed to be in the best interest of the Corporation but may
not be in the best interest of the Indemnitee.  As to the Corporation,
purchasing insurance with deductibles, limits on payments and coverage
exclusions is similar to the Corporation’s practice of self-insurance in other
areas.  In order to protect Indemnitee who would otherwise be more fully or
entirely covered under such policies, the Corporation shall indemnify and hold
Indemnitee harmless to the extent (a) of such deductibles, (b) of amounts
exceeding payments required to be made by an insurer or (c) of coverage under
policies of officer’s and director’s liability insurance that are available,
were available or which became available to the Corporation or which are
generally available to companies comparable to the Corporation but which the
officers or directors of the Corporation determine is inadvisable for the
Corporation to purchase, given the cost involved.  The obligation of the
Corporation in the preceding sentence shall be without regard to whether the
Corporation would otherwise be entitled to indemnify such officer or director
under the other provisions of this Agreement, or

 

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under any law, agreement, vote of shareholders or directors or other
arrangement.  Notwithstanding the foregoing provisions of this Section 7.3, the
Indemnitee shall not be entitled to indemnification for the results of his
conduct that is intentionally adverse to the interests of the Corporation. 
Without limiting the generality of any provision of this Agreement, the
procedures in Article V hereof shall, to the extent applicable, be used for
determining entitlement to indemnification under this Section 7.3.  This
Agreement is authorized by Section 2.02-1(R) of the TBCA as in effect on the
date hereof, and further is intended to establish an arrangement of
self-insurance pursuant to that section.

 

Section 7.4             Certain Settlement Provisions.  The Corporation shall
have no obligation to indemnify Indemnitee under this Agreement for amounts paid
in settlement of a Proceeding or Claim without the Corporation’s prior written
consent.  The Corporation shall not settle any Proceeding or Claim in any manner
that would impose any fine or other obligation on Indemnitee without
Indemnitee’s prior written consent.  Neither the Corporation nor Indemnitee
shall unreasonably withhold their consent to any proposed settlement.

 

Section 7.5             Duration of Agreement.  This Agreement shall continue
for so long as Indemnitee serves as a director, nominee for director, officer,
employee, agent or fiduciary of the Corporation or, at the request of the
Corporation, as a director, nominee for director, officer, employee, agent or
fiduciary of another foreign or domestic corporation, employee benefit plan,
other enterprise or other entity, and thereafter shall survive until and
terminate upon the latest to occur of (a) the expiration of 10 years after the
latest date that Indemnitee shall have ceased to serve in any such capacity;
(b) the final termination of all pending Proceedings in respect of which
Indemnitee is granted rights of indemnification or advancement of Expenses
hereunder and of any proceeding commenced by Indemnitee pursuant to Article VI
relating thereto; or (c) the expiration of all statutes of limitation applicable
to possible Claims arising out of Indemnitee’s Corporate Status.

 

Section 7.6             More Favorable Terms.  In the event the Corporation
enters into an indemnification agreement with another person containing terms
more favorable to the indemnitee thereof than the terms contained herein (and
absent special circumstances justifying such more favorable terms), Indemnitee
will be afforded the benefit of such more favorable terms and such terms will be
deemed incorporated by reference herein.  As promptly as practicable following
the execution thereof, the Corporation will (a) send a copy of the agreement
containing the more favorable terms to the Indemnitee, and (b) prepare, execute
and deliver to Indemnitee an amendment to this Agreement containing such terms.

 

Section 7.7             Notice by Each Party.  Indemnitee shall promptly notify
the Corporation in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document or communication
relating to any Proceeding or Claim for which Indemnitee may be entitled to
indemnification or advancement of Expenses hereunder; provided, however, that
any failure of Indemnitee to so notify the Corporation shall not adversely
affect Indemnitee’s rights under this Agreement except to the extent the
Corporation shall have been materially prejudiced as a direct result of such
failure.  The Corporation shall notify promptly Indemnitee in writing, as to the
pendency of any Proceeding or

 

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Claim that may involve a claim against the Indemnitee for which Indemnitee may
be entitled to indemnification or advancement of Expenses hereunder.

 

Section 7.8             Certain Persons Not Entitled to Indemnification. 
Notwithstanding any other provision of this Agreement to the contrary,
Indemnitee shall not be entitled to indemnification or advancement of Expenses
hereunder with respect to any Proceeding or any Claim, issue or matter therein,
brought or made by Indemnitee against the Corporation or any affiliate of the
Corporation, except as specifically provided in Article V or Article VI hereof.

 

Section 7.9             Indemnification for Negligence, Gross Negligence, etc. 
Without limiting the generality of any other provision hereunder, it is the
express intent of this Agreement that Indemnitee be indemnified and Expenses be
advanced regardless of Indemnitee’s acts of negligence, gross negligence or
intentional or willful misconduct to the extent that indemnification and
advancement of Expenses is allowed pursuant to the terms of this Agreement and
under applicable law.

 

Section 7.10           Enforcement.  The Corporation agrees that its execution
of this Agreement shall constitute a stipulation by which it shall be
irrevocably bound in any court or arbitration in which a proceeding by
Indemnitee for enforcement of his rights hereunder shall have been commenced,
continued or appealed, that its obligations set forth in this Agreement are
unique and special, and that failure of the Corporation to comply with the
provisions of this Agreement will cause irreparable and irremediable injury to
Indemnitee, for which a remedy at law will be inadequate.  As a result, in
addition to any other right or remedy he may have at law or in equity with
respect to breach of this Agreement, Indemnitee shall be entitled to injunctive
or mandatory relief directing specific performance by the Corporation of its
obligations under this Agreement.

 

Section 7.11           Successors and Assigns.  All of the terms and provisions
of this Agreement shall be binding upon, shall inure to the benefit of and shall
be enforceable by the parties hereto and their respective successors, assigns,
heirs, executors, administrators, legal representatives.  The Corporation shall
require and cause any direct or indirect successor (whether by purchase, merger,
consolidation or otherwise) to all or substantially all of the business or
assets of the Corporation, by written agreement in form and substance reasonably
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Corporation would
be required to perform if no such succession had taken place.

 

Section 7.12           Amendment.  This Agreement may not be modified or amended
except by a written instrument executed by or on behalf of each of the parties
hereto.

 

Section 7.13           Waivers.  The observance of any term of this Agreement
may be waived (either generally or in a particular instance and either
retroactively or prospectively) by the party entitled to enforce such term only
by a writing signed by the party against which such waiver is to be asserted. 
Unless otherwise expressly provided herein, no delay on the part of any party
hereto in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party hereto of any
right, power or privilege

 

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hereunder operate as a waiver of any other right, power or privilege hereunder
nor shall any single or partial exercise of any right, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder.

 

Section 7.14           Entire Agreement.  This Agreement and the documents
expressly referred to herein constitute the entire agreement between the parties
hereto with respect to the matters covered hereby, and any other prior or
contemporaneous oral or written understandings or agreements with respect to the
matters covered hereby are expressly superseded by this Agreement.

 

Section 7.15           Severability.  If any provision of this Agreement
(including any provision within a single section, paragraph or sentence) or the
application of such provision to any person or circumstance, shall be judicially
declared to be invalid, unenforceable or void, such decision will not have the
effect of invalidating or voiding the remainder of this Agreement or affect the
application of such provision to other persons or circumstances, it being the
intent and agreement of the parties that this Agreement shall be deemed amended
by modifying such provision to the extent necessary to render it valid, legal
and enforceable while preserving its intent, or if such modification is not
possible, by substituting therefor another provision that is valid, legal and
unenforceable and that achieves the same objective.  Any such finding of
invalidity or unenforceability shall not prevent the enforcement of such
provision in any other jurisdiction to the maximum extent permitted by
applicable law.

 

Section 7.16           Notices.  All notices and other communications hereunder
shall be in writing and shall be deemed given upon (a) transmitter’s
confirmation of a receipt of a facsimile transmission, (b) confirmed delivery of
a standard overnight courier or when delivered by hand or (c) the expiration of
five business days after the date mailed by certified or registered mail (return
receipt requested), postage prepaid, to the parties at the following addresses
(or at such other addresses for a party as shall be specified by like notice):

 

If to the Corporation, to:

 

Cap Rock Energy Corporation

500 West Wall Street, Suite 400

Midland, Texas  79701

Attention:  Ronnie Lyon

Facsimile:  (432) 684-0333

 

If to Indemnitee, to:

 

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Section 7.17           Certain Construction Rules.

 

(a)           The article and section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.  As used in this Agreement, unless otherwise
provided to the contrary, (i) all references to days shall be deemed references
to calendar days and (ii) any reference to a “Section” or “Article” shall be
deemed to refer to a section or article of this Agreement.  The words “hereof,”
“herein” and “hereunder” and words of similar import referring to this Agreement
refer to this Agreement as a whole and not to any particular provision of this
Agreement.  Whenever the words “include,” “includes” or “including” are used in
this Agreement, they shall be deemed to be followed by the words “without
limitation.”  Unless otherwise specifically provided for herein, the term “or”
shall not be deemed to be exclusive.  Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.

 

(b)           For purposes of this Agreement, references to “other enterprises”
shall include employee benefit plans; references to “fines” shall include any
excise taxes assessed on a person with respect to any employee benefit plan;
references to “serving at the request of the Corporation” shall include any
service as a director, nominee for director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
nominee, officer, employee or agent with respect to an employee benefit plan,
its participants or beneficiaries; and action taken or omitted by a director
with respect to an employee benefit plan in the performance of his duties for a
purpose reasonably believed by him to be in the interest of the participants and
beneficiaries of the employee benefit plan shall be deemed to be for a purpose
that is “not opposed to the best interests of the Corporation” as referred to in
this Agreement.

 

Section 7.18           Governing Law.  This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas, without giving
effect to the conflicts of laws principles thereof.

 

Section 7.19           Counterparts.  This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be one and the same instrument,
notwithstanding that both parties are not signatories to the original or same
counterpart.

 

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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered to be
effective as of the date first above written.

 

 

CAP ROCK ENERGY CORPORATION

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

 

 

INDEMNITEE

 

 

 

 

 

 

 

 

By:

 

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