**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D. C. 20549**

 

**FORM 10-K/A**

**(AmendmentNo. 1)**

 

**ý****   Annual Report Pursuant to Section 13or 15(d) of the Securities Exchange Act of 1934**

 

**o****  Transition Report Pursuant to Section 13or 15(d) of the Securities Exchange Act of 1934**

 

**FOR THEFISCAL YEAR ENDED DECEMBER 31, 2005**

 

**COMMISSIONFILE NUMBER**

**0-32667**

 

**CAP ROCK ENERGY CORPORATION**

 

| **Texas**                                 | ** ** | **75-2794300**                        |
|-------------------------------------------|------------|---------------------------------------|
| (State of Incorporation)                  |       | (I.R.S. Employer  Identification No.) |
|                                      |       |                                  |
| **500 West  Wall Street, Suite 400** | ** ** | ** **                            |
| **Midland,  Texas**                       | ** ** | **79701**                             |
| (Address of principal  executive office)  |       | (Zip Code)                            |

 

Registrant’stelephone number, including area code**  ****432-683-5422**

 

Securities registeredpursuant to Section 12(b) of the Act:

 

| **Title of Each Class** | ** ** | **Name of each exchange on which registered** |
|----------------------------------------|------------|-----------------------------------------------------------------------------|
| ** **                             | ** ** | ** **                                                                  |
| **COMMON  STOCK, PAR VALUE**           | ** ** | **AMERICAN  STOCK EXCHANGE**                                                |
| **$.01 PER  SHARE**                    | ** ** | ** **                                                                  |

 

Securities registeredpursuant to Section 12(g) of the Act:         **NONE**

 

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.
| Yes |   | o | No | ** ** | ý |
|-----|--------|---|----|------------|--------|

 

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) ofthe Act.
| Yes |   | o | No | ** ** | ý |
|-----|--------|---|----|------------|--------|

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.
| Yes |   | ý | No | ** ** | o |
|-----|--------|--------|----|------------|---|

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or an non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act. (Check one):

 
| Large accelerated filer | o | Accelerated filer | o | Non-accelerated filer | ý |
|-------------------------|---|-------------------|---|-----------------------|--------|

 

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Act).
| Yes |   | o | No | ** ** | ý |
|-----|--------|---|----|------------|--------|

 

**THE AGGREGATE MARKET VALUE OF THECOMMON STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT AS OF JUNE 30, 2005,WAS APPROXIMATELY $17,551,000 BASED ON THE CLOSING PRICE OF $18.35 FOR THECOMMON STOCK ON THE AMERICAN STOCK EXCHANGE AS REPORTED BY THE WALL STREETJOURNAL.**

 

**THE NUMBEROF SHARES OF COMMON STOCK OUTSTANDING ON MARCH 28, 2006, WAS 1,647,844.**

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

**NONE**

 

 

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**PART I**

 

**ExplanatoryNote**

**Form 10-K/AAmendment No. 1**

 

This Amendment No. 1 to annual report on Form 10-K/A(“Amendment No.1”), is being filed to amend the Company’s annual report on Form 10-Kfor the year ended December 31, 2005, which was originally filed on March 31,2006 (“Original Form 10-K”). Pursuant to Rule 12b-15 of the SecuritiesExchange Act of 1934, as amended, this Form 10-K/A contains the completetext of Items 10, 11, 12, 13, and 14 of Part III, as amended, as well ascertain currently dated certifications. Except as described above, theinformation contained in the Original Form 10-K has not been updated oramended. Unaffected items have not been repeated in this Amendment

 

**PART III**

 

**ITEM 10. DIRECTORS AND EXECUTIVEOFFICERS OF THE REGISTRANT**

 

**Directors and Executive Officers**

 

**The informationrequired by this item concerning the Company’s executive officers is includedin Part I, Item 4, of Original Form 10-K.**

** **

**The directors of theCompany are as follows:**

** **
| **NAME**                  | ** ** | **AGE**    | ** ** | **POSITION**                                         |
|---------------------------|------------|------------|------------|------------------------------------------------------|
| **William L. West**       | ** ** | **49**     | ** ** | **President and Chief  Executive Officer; Director** |
| ** **                | ** ** | ** ** | ** ** | ** **                                           |
| **David W. Pruitt**       | ** ** | **60**     | ** ** | **Co-Chairman of the  Board**                        |
| ** **                | ** ** | ** ** | ** ** | ** **                                           |
| **Russell E. Jones**      | ** ** | **61**     | ** ** | **Co-Chairman of the  Board**                        |
| ** **                | ** ** | ** ** | ** ** | ** **                                           |
| **Sammie D. Buchanan**    | ** ** | **61**     | ** ** | **Director**                                         |
| ** **                | ** ** | ** ** | ** ** | ** **                                           |
| **Floyd L. Ritchey**      | ** ** | **66**     | ** ** | **Director**                                         |
| ** **                | ** ** | ** ** | ** ** | ** **                                           |
| **Michael D.  Schaffner** | ** ** | **58**     | ** ** | **Director**                                         |

** **

***William L. West*** served as aconsultant to the Company from July through December 2003 and joinedthe Company full time in January 2004 as Chief Strategic Officer, wasappointed Vice-President in July 2004, President in December 2004 andwas appointed to serve on the Board of Directors at the same time.  He became Chief Executive Officer in March 2006.Prior to this he was a Senior Manager with KPMG LLP serving in client serviceand strategic corporate tax consulting capacities from 1997 through July 2003.  Mr. West is a certified publicaccountant.

** **

***David W. Pruitt*** has served as adirector of the Company since its inception and was appointed as a Co-Chairmanof the Board in February 2001. He served as the Chief Executive Officer,to March 2006, and President, to December 2004, of the Company.Mr. Pruitt also served as the President and Chief Executive Officer of theCooperative from August 1987 until the inception of the Company.

** **

***Russell E. “Rusty” Jones*** has served as adirector of the Company since its inception, and currently serves asCo-Chairman of the Board of the Company. Mr. Jones served as a member ofthe Cooperative from September 1979 until the inception of the Company.Mr. Jones is a farmer and rancher and owns and operates his ownagricultural businesses. 

** **

**1**

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** **

***Sammie D. Buchanan*** has been a directorof the Company since its inception and served as a director of the Cooperativefrom September 1975 until inception of the Company. Mr. Buchanan is afarmer and rancher and owns and operates his own agricultural businesses. 

** **

***Floyd L. Ritchey*** has been a directorof the Company since February 1999 and served as a director of theCooperative from February 1999 until inception of the Company. Prior tothat, he served as a director of Lone Wolf Electric Cooperative, Inc., acooperative that combined with the Cooperative. Mr. Ritchey is a farmerand rancher and owns and operates his own agricultural businesses.

** **

***Michael D. Schaffner*** has served as adirector of the Company since October 1999, and served as a non-employee Secretaryand Treasurer from August 2001 to August 2002. He also served as adirector of Cap Rock Cooperative, Inc. (the “Cooperative”), thepredecessor to the Company, from October 1999 until the inception of theCompany in December 1998, and prior to that he served as a director ofMcCulloch Electric Cooperative, Inc., a cooperative that combined with theCooperative. Mr. Schaffner is engaged in public accounting in Brady,Texas, and is the owner of his own public accounting firm. 

** **

**Audit Committee and Audit Committee Financial Expert**

 

The Company has a separately-designated standingaudit committee composed of all members of the Board, except David W. Pruittand William L. West. The Board of Directors has determined that each member ofthe Audit Committee meets the independence requirements under Rule 10A-3(b)(1)(ii) ofthe Securities Exchange Act of 1934. The Board of Directors has determined thatMichael D. Schaffner is the Audit Committee financial expert, who also servesas the Audit Committee Chairman.

 

**Corporate Governance Matters**

 

The Board of Directors has adopted CorporateGovernance Guidelines, and a Code of Ethics that applies to all directors,officers and employees of the Company. A current copy of the Code of Ethics,the Corporate Governance Guidelines, the Audit Committee Charter and theCorporate Governance Committee Charter may be found on the Company’sinternet website at www.caprockenergy.com.  Copies of these documents are available,without charge, to any person upon written request to the Corporate Secretaryat the Company’s principal address. 

 

**Section 16(a) Beneficial Ownership Reporting Compliance**

 

Section 16 (a) of the Securities ExchangeAct of 1934, as amended, requires the Company’s directors and executiveofficers as well as persons who own more than 10% of a registered class ofthe Company’s equity securities (collectively, the “Reporting Persons”) to filereports of ownership on Form 3 and changes in ownership on Form 4 or Form 5with the Securities and Exchange Commission. The Reporting Persons are alsorequired to furnish the Company with copies of all Section 16 (a) reportsthey file**.**Sammie Buchanan,****RussellJones, Floyd Ritchie and Michael Schaffner****filedForm 4, “Statement of Changes in Beneficial Ownership” on April 24,2006 relating to a grant of shares to the directors on December 7, 2005. Thisone transaction represented 11,474 shares for each individual.

 

We believe that, during the year ended December 31,2005, with the aforementioned exception, all required filings applicable to ourexecutive officers, directors and owners of more than ten percent of our commonstock were made and that such persons were in compliance with the Exchange Actrequirements.

 

**ITEM 11. EXECUTIVE COMPENSATION**

 

 **DirectorCompensation**

 

2

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For 2005, the arrangementfor compensation of non-employee Board members was:  

 

•                  annual retainer of$15,000, of which up to 100% may be taken in the form of stock;

•                  fees of $5,000 forattendance of board meetings;

•                  reimbursement oftransportation, food, hotel and other expenses and incidentals for attendanceat board meetings, annual meetings and Board related matters for the director,and in some cases, the director’s spouse;

•                  fees of $2,000 forattendance of each committee meeting;

•                  fees of $2,500 foreach committee or board meeting attended by telephone;

•                  if the director wasthe chair of a committee or the Board, an additional fee of $500 for eachmeeting attended;

•                  annual performancebonus of $3,078 for 2005 as determined through a self-appraisal formula; and

•                  if the director waselected to the Board before January 1, 2003, eligibility to be coveredunder the Company’s healthcare plan while serving as a director, and beyond histerm as director if he has attained twenty years of service.

 

**Executive Compensation**

 

The following tabledescribes the compensation paid to the Chief Executive Officer and certainother executive officers with total compensation in excess of $100,000 forservices rendered during the years ended December 31, 2005, 2004 and 2003.

 
| ** **                            | ** ** | ** **              | ** ** | **Long Term**    | ** ** | ** **     | ** ** |
|---------------------------------------|------------|-------------------------|------------|------------------|------------|----------------|------------|
| ** **                            | ** ** | ** **              | ** ** | **Compensation** | ** ** | ** **     | ** ** |
| ** **                            | ** ** | **Annual Compensation** | ** ** | **Awards**       | ** ** | **All Other**  | ** ** |
| **Name and principal position**       | ** ** | **Year**                | ** ** | **Salary**       | ** ** | **Bonus**      | ** ** | **Other Annual  Compensation (a)** | ** ** | **Restricted  stock awards (b)** | ** ** | **Compensation  (c)** | ** ** |
| David W. Pruitt                       |       | 2005                    |       | $                | 224,311    |           | $          | 180,011 |   | $ | 46,252 |   | $ | 1,471,981 |   | $ | 250,519 |   |
| Co-Chairman  of the Board             |       | 2004                    |       | 221,941          |       | 50,000         |       | 43,269 |   | 228,283 |   | 54,765 |   |
| and Chief  Executive Officer (d) |       | 2003                    |       | 214,995          |       | 125,205        |       | 10,202 |   | 1,751,000 |   | 30,620 |   |
| William L. West                       |       | 2005                    |       | 220,782          |       | 158,927        |       | 36,993 |   | — |   | 905 |   |
| President  (e)                        |       | 2004  2003              |       | 190,977  —  |       | 52,000  — |       | 31,915  — |   | 456,541  — |   | 8,149  — |   |
| Ulen A. North, Jr.               |       | 2005                    |       | 122,388          |       | 35,000         |       | 34,945 |   | 355,809 |   | 27,890 |   |
| Executive  Vice President             |       | 2004                    |       | 114,461          |       | 9,872          |       | 36,616 |   | 228,283 |   | 19,541 |   |
|                                  |       | 2003                    |       | 110,879          |       | 73,187         |       | 6,502 |   | 350,200 |   | 16,978 |   |
| Sammy C. Prough                       |       | 2005                    |       | 115,546          |       | 50,000         |       | 28,235 |   | 266,857 |   | 21,034 |   |
| Vice  President and Chief             |       | 2004                    |       | 99,220           |       | 24,000         |       | 35,868 |   | 228,223 |   | 12,424 |   |
| Operating  Officer                    |       | 2003                    |       | 88,259           |       | 20,000         |       | 4,369 |   | 262,650 |   | 13,132 |   |
| Ronald W. Lyon                        |       | 2005                    |       | —           |       | 35,000         |       | 21,461 |   | 266,857 |   | 231,000 |   |
| Vice  President, General Counsel      |       | 2004                    |       | —           |       | 12,000         |       | — |   | 228,283 |   | 180,000 |   |
| and  Secretary (f)                    |       | 2003                    |       | —           |       | 10,000         |       | — |   | 262,650 |   | 174,000 |   |
| Celia B. Page                         |       | 2005                    |       | 124,079          |       | 35,000         |       | 24,914 |   | 266,857 |   | 20,363 |   |
| Vice  President, Special Projects,    |       | 2004                    |       | 111,514          |       | 12,000         |       | 3,470 |   | 228,283 |   | 13,562 |   |
| and  Assistant Secretary/Treasurer    |       | 2003                    |       | 104,000          |       | 10,000         |       | 1,975 |   | 262,650 |   | 14,766 |   |
|                                       |            |                         |            |                  |            |                |            |  |  |  |  |  |  |  |  |  |  |  |

 

3

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  (a)                            While each of thenamed individuals may have received perquisites or other personal benefitsin the years shown, in accordance with applicable regulations, the value ofthese benefits is not included because they do not exceed in the aggregate thelesser of $50,000 or 10% of the individual’s salary and bonus in 2005. Suchperquisites and benefits are valued by the Company based upon the Company’sincremental cost of providing such benefit. The amounts shown for 2005 representpayments made for the buyback of unused vacation and sick leave andreimbursements for the payment of taxes.

 

(b)                                 As of December 31,2005, the total number of restricted shares held by the named executive officerswas 101,766, with an aggregate market value on that date of $2,076,026. All suchrestricted stock awards have vested. 

 

(c)                                  Amounts for theyear ended December 31, 2005, include: $21,794, $15,889, $16,393 and $15,881for Messrs. Pruitt, North, Prough and Ms. Page, respectively, forCompany contributions to the 401(K) plan; $7,072, $905, $5,023, $3,394 and $3,710for Messrs. Pruitt, West, North, Prough and Ms. Page, respectively,for premiums paid on term life insurance; $89,605, $6,978, $1,247, $24,000 and$773 contributed to deferred compensation accounts for Messrs. Pruitt,North, Prough and Lyon, and Ms. Page, respectively; and $132,048 to Mr. Pruittfor unused vacation and sick leave in connection with his retirement from theCompany.

 

(d)                                 Mr. Pruittretired as Chief Executive Officer in March, 2006.

 

(e)                                  Mr. Westbecame an executive officer in January 2004 and Chief Executive Officer inMarch 2006.

 

 (f)                                 Mr. Lyon’semployment contract with the Company as retained general counsel has termspursuant to which he provides for his own salary, administrative support andmaintenance of his separate office facilities. See “Certain Relationships andRelated Transactions” for a description of the arrangement.

 

**Executive Officer EmploymentContracts and Change in Control Agreements**

 

The Company has enteredinto employment contracts with the named executive officers which are intendedto ensure the officers’ continued service and dedication to the Company as wellas ensure their objectivity in considering, on the Company’s behalf, anytransaction that would result in a change in control of the Company. Thematerial terms of those contracts are as follow: 

 

The named executives, otherthan Mr. West and Mr. Pruitt, have employment contracts which containchange in control provisions with initial terms of one or two years. Unless awritten notice to terminate is given prior to an anniversary date of thecontract, the contracts automatically renew for one or two year terms. Mr. Westhas an employment contract that has an initial term of five years and annually,commencing on the third anniversary of the contract, the term will be extendedso that the remaining term is not less than three years unless either party hasdelivered a notice to terminate within the time period specified in thecontract. The contracts can be terminated earlier if the Chief ExecutiveOfficer (the Board in the case of Mr. West) determines that the officer isnot properly performing the duties of his or her job or for cause (in the caseof the officers other than Mr. Pruitt), as defined in the contract, whichincludes dishonesty and neglect by the officer of his or her job duties. If thecontract is terminated by the Company without cause, or, for certain reasons,other than in connection with a change of control, the officer will receive anamount equal to his or her current salary and benefits for a period of one ortwo years, or in the case of Mr. West, for the remainder of the term ofthe contract. Mr. Pruitt has a retainer agreement that provides for a fiveyear term. If the Company terminates the contract, Mr. Pruitt will beentitled to all compensation and benefits set forth in the contract. If thereis a change of control and any of the officers (including Mr. Pruitt)remains employed until the date that is three months after the change ofcontrol, or if the officer’s employment is terminated after or in anticipationof the change in control and before the date that is three months after thechange of control, by the Company without cause or by the officer with goodreason, the officer will receive an amount equal to six times the sum of his orher annual base salary and

 

4

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the greater of the highestbonus awarded to him or her in a prior year or 50% of his or her annual basesalary. The contracts, other than Mr. Lyon’s contract, also haveprovisions for healthcare coverage similar to that of a retiree, reimbursementof any tax or tax payments the officer may be required to make for anyexcise tax imposed under Section 4999 of the Internal Revenue Code, andreimbursement of any taxes resulting from the excise tax reimbursement.

 

**LGB Agreement**

 

See Item 13, Certain Relationships and RelatedTransactions, for a discussion of the change in control obligations of theCompany in connection with the LGB Agreement and transaction.

 

**ITEM 12. SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

 

**Certain Beneficial Owners of CommonStock**

 

Other than as set forth in the following table andshares held by Mr. David Pruitt reflected in the Security Ownership ofManagement table below, we know of no other beneficial owner of more than fivepercent of the Company’s outstanding common stock. The information provided isas of April 27, 2006. 

 
| **Name and Address of  Beneficial Owner** | ** ** | **Amount and Nature  of Beneficial Ownership** | ** ** | **Percent of Class** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|--------------------------------|------------|
|                                                          |       |                                                               |       |                           |       |
| Cap Rock Holding Corporation (1)                              |       | 253,636 shares                                                     |       | 12.7%                          |       |
| 630 Fifth Avenue                                              |       |                                                               |       |                           |       |
| New York, NY 10111                                            |       |                                                               |       |                           |       |
|                                                          |       |                                                               |       |                           |       |
| The State of Texas (2)                                        |       | 312,458 shares                                                     |       | 19%                            |       |
| Austin, Texas                                                 |       |                                                               |       |                           |       |

 

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(1)                                  As reported in Schedule 13D filed withthe Securities and Exchange Commission on November 4, 2005.

 

(2)                                  Represents shares held by the State of Texas forcertain beneficial owners, pursuant to Texas escheat laws.

 

**Security Ownership of Management**

 

The following table sets forth certain informationregarding the beneficial ownership of the Company’s common stock as of April 27,2006, by each of our directors and named executive officers, and by all of ourdirectors and executive officers as a group. Except as otherwise indicatedbelow, each of the persons named in the table has sole voting and investmentpower with respect to the shares beneficially owned by such person as set forthopposite such person’s name: 

 
| ** **            | ** ** | **Number of Shares  (1)** | ** ** | **Percent of Class** | ** ** |
|-----------------------|------------|---------------------------|------------|----------------------|------------|
| **Directors**         |       |                      |       |                 |       |
| Sammie D.  Buchanan   |       | 30,847                    | (2)(3)     | 1.8                  | %          |
| Russell E.  Jones     |       | 30,224                    | (2)        | 1.8                  | %          |
| Floyd L.  Ritchey     |       | 31,571                    | (2)        | 1.9                  | %          |
| Michael D.  Schaffner |       | 31,771                    | (2)(3)     | 1.9                  | %          |

 

5

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| **Executive Officers**                                              |   |    |   |   |   |
|---------------------------------------------------------------------|--------|---------|--------|--------|--------|
| David W.  Pruitt                                                    |   | 106,000 | (4)    | 6.2    | %(5)   |
| William L.  West                                                    |   | 12,200  |   | 0.7    | %      |
| Ulen A.  North, Jr.                                            |   | 26,479  | (4)    | 1.6    | %      |
| Ronald W.  Lyon                                                     |   | 22,010  | (4)    | 1.3    | %      |
| Sammy C.  Prough                                                    |   | 28,000  | (4)    | 1.6    | %      |
| Celia B.  Page                                                      |   | 22,000  | (4)    | 1.3    | %      |
| *All  Directors and Executive Officers as a group (10 individuals)* |   | 341,102 |   | 20.0   | %      |

 

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(1)           No director or executive officer owns any of our equity securitiesother than our common stock.

 

(2)           Includes restricted shares awarded under the Stock Incentive Plan whichhave not yet vested. These shares are outstanding and able to be voted, but areunable to be transferred or sold before they are vested. These restricted sharesare 28,974 for each of Messrs. Buchanan, Jones, Ritchey and Schaffner.

 

(3)           Excludes deferred share units that have been deferred under both theStock for Compensation Plan and the Stock Incentive Plan. As such, these sharesare not issued and therefore not able to be voted, transferred or sold. Theywill be issued immediately prior to the time the share exchange becomeseffective in accordance with the terms of such Plans. The deferred shares are224 and 123 for Messrs. Buchanan and Schaffner, respectively.

 

(4)           Excludes deferred share units that have been deferred under the Stockfor Compensation Plan. As such, these shares are not issued and therefore notable to be voted, transferred or sold. They will be issued immediately prior tothe time the share exchange becomes effective in accordance with the terms ofsuch Plan. The deferred share units are 68,714, 21,866,  10,174,  9,174 and 9,174 for Messrs. Pruitt,North, Prough, Lyon and Ms Page, respectively.

 

(5)           Our articles of incorporation provide for a reduction in the votingrights of holders who own more than 5% of the outstanding common stock to 1/100thof a vote per share for those shares held in excess of 5%.

 

**Equity Compensation Plans**

 

See Part II, Item 5 for information regardingthe Company’s equity compensation plans as of December 31, 2005.

 

**Change in Control**

** **

See Part I, Item I concerning the LGB Agreementand the anticipated change in control of the Company.

 

**ITEM 13. CERTAIN RELATIONSHIPS ANDRELATED TRANSACTIONS**

 

**During 2005, one of theCompany’s executive officers, Ronald W. Lyon, had an employment contract asretained general counsel with the Company, but was not considered an employeeunder Federal labor laws. In 2005, Mr. Lyon was paid a retainer fee of $207,000which was meant to cover the cost of maintaining his office, includingadministrative support, rent and other overhead expenses, as well as any salaryhe may draw. In addition, the Company contributed $2,000 per month to adeferred compensation plan for Mr. Lyon. The Company also reimburses Mr. Lyonfor direct out-of-pocket expenses he may incur on the Company’s behalf,such as for travel, meals and meeting fees.  Cash bonuses of $35,000 and reimbursement oftaxes in the amount of $21,461, as well as restricted stock of $266,857 werealso paid or awarded in 2005. Mr. Lyon became an employee of the Companyin April, 2006.**

** **

**The Cap Rock EnergyCorporation Shareholders’ Trust was established by the Company on behalf offormer members of the Cooperative whose current addresses are unknown and wouldhave received stock**

 

6

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**in connection with theconversion of the Cooperative into the Company. The shared authority of the twoTrustees of the Trust is to make distribution of stock to beneficial ownerswhen they have been located. Other powers are limited to those granted in theTrust document, the Funding Agreement, the Voting Agreement, the Right of FirstRefusal Agreement and the Share Option Agreement.**

** **

**The Funding Agreementbetween the Trust and the Company provides that the Trustees may requestfunds from the Company to pay for compensation and expenses of the Trustees inconnection with their duties and responsibilities as Trustees of the Trust. Inthe event the Company fails to fulfill its obligations under the FundingAgreement, the Trustees may sell such shares as are necessary for theTrust to pay such compensation and expenses. The Company transferred $50,875 in2005 and less than $1,000 in 2004 and 2003 to the Trust to pay for the Trustees’costs and expenses.**

** **

**The Share OptionAgreement grants the Company the right to acquire all of the shares that areheld in the Trust that would otherwise escheat to the State of Texas at theaverage market price of the shares for 30 trading days before the Companyexercises its option. Pursuant to state law, the shares are subject to beginescheating to the State of Texas and other states in 2006. On April 20,2006, the Trust transferred all but 9,196 of such shares to various states as part ofthe abandoned property process.**

** **

**On December 31,2004, the Trust and the Company entered into a Right of First Refusal Agreementwhich grants the Company the right, for a period of twenty (20) business daysfollowing receipt of a notice of disposition, to purchase any or all of theShares subject to the notice upon the same terms as those specified therein orupon such other terms to which the Trust or subsequent holder other than thebeneficial owner consents. The Right of First Refusal continues until December 31,2009.**

** **

**On December 31,2004, the Company and the Trust entered into a Voting Agreement which requiresthe Trust or any subsequent holder of the Shares, other than a beneficial owneror subsequent owner acquiring the Shares in accordance with the transferrestrictions contained in the Trust Agreement, to vote the shares for thepersons nominated by the Company’s nominating committee for Director of theCompany or any replacement nominated or appointed by the Board or thenominating committee at any election of directors; and in accordance with therecommendations of the Board of Directors of the Company on other matters,including, but not limited to, (i) any amendment to the Company’sCertificate of Incorporation; (ii) any amendment to the Company’s By-laws;(iii) merger, consolidation or binding share exchange; (iv) sale orother disposition of all or substantially all of the assets of the Company; (v) bankruptcy;(vi) dissolution; or (vii) any other matter submitted to a vote ofthe shareholders, provided however, that with regard to any tender offer, ifthe premium (i.e., the price per Share offered in the tender offer or otherrepurchase offer over the then market price per share of the Shares) for theShares covered by the tender offer (or other repurchase offer) is 25% orgreater, the Trustees or subsequent holder shall sell all of the Shares held inthe corpus of the Trust to the Offeror at the highest cash price offered underthe tender offer or other repurchase offer. The agreement expires December 31,2009, unless otherwise extended or terminated.**

** **

As considerationfor the rights granted to the Company under the Voting Agreement, the Companyhas agreed to pay to the beneficial owners of the Shares, or their heirs, forwhom the shares are currently held in Trust, ten percent of the value of theshares as of the close of the stock market on December 30, 2004, at thetime any such shares are issued to the beneficial owner as set forth in theVoting Agreement. If the Shares are transferred to any party other than thebeneficial owner, this payment is forfeited and not payable by the Company. Asof December 31, 2005, a liability of $10,000 based on estimated fair valuewas reflected on the consolidated balance sheet.

 

In November 2005, the Company amended theretainer agreement with David W. Pruitt, who was then the Company’s ChiefExecutive Officer. The agreement, as amended, provided that Mr. Pruittwould continue to serve as Chief Executive Officer until the special meeting ofshareholders on March 10, 2006, after which he retired as CEO. Theretainer agreement provided that he would also continue to serve on the Boardof Directors and be entitled to all benefits generally available to boardmembers and retirees. Mr. Pruitt and the Holding Company entered into arestricted stock agreement at the same time as the LGB Agreement, whichmodified certain provisions of Mr. Pruitt’s retainer agreement subject toclosing of the transactions contemplated by the LGB Agreement. The restrictedstock agreement provides that he will

 

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serve as a non-employee advisor and consultant tothe Company with a monthly retainer of $19,000, without additional compensationwill be treated comparable to the CEO of the Holding Company with regard tofuture stock options and stock grants and will be granted 54,438 shares ofrestricted stock of the Holding Company. The restricted shares will vest uponLGB achieving certain performance results on its investment. Any unvestedshares will be forfeited. The agreement also provides for certain retireebenefits after termination of Mr. Pruitt’s services. If his services areterminated or if he dies or becomes totally disabled, the Holding Company willcause Mr. Pruitt to be paid a lump sum amount equal to $35,000 times thenumber of months remaining in the term of the retainer agreement at the time ofsuch termination, death or disability. In addition, pursuant to the restrictedstock agreement, Mr. Pruitt waived the change of control benefits he wouldhave otherwise become entitled to as a result of the transactions contemplatedby the LGB Agreement.

 

Pursuant to his amended employment contract, WilliamL. West continued to serve as President of the Company until the specialmeeting of shareholders held on March 10, 2006, after which he remainedPresident but also succeeded Mr. Pruitt as Chief Executive Officer. TheHolding Company and Mr. West entered into an employment agreement whichwill replace the existing employment agreement upon closing of the transactionscontemplated by the LGB Agreement. The employment agreement with the HoldingCompany provides for an initial five year term. Annually, commencing on thethird anniversary of the contract, the term will be extended so that theremaining term is not less than three years unless either party has delivered anotice to terminate within the time periods specified in the contract. Theagreement also provides for employment as president and chief executive officerof the Holding Company, an initial annual salary of $236,946, a restrictedstock grant of 18,497 shares of the Holding Company, and a retention bonus of$938,068 as an incentive to remain through the closing and facilitating theconsummation of the transactions contemplated by the LGB Agreement. Vesting ofthe restricted shares occurs only if Mr. West remains employed by theHolding Company for a certain period of time and LGB meets certain performanceresults on its investment in the Holding Company. Any unvested shares will beforfeited. In addition, Mr. West will be entitled to such bonuses andother compensation as may be approved by the board and to participate inall employee benefit plans. If Mr. West’s employment is terminated afterthe close of the transactions contemplated by the LGB Agreement by the HoldingCompany without good cause (as defined in the agreement) or by him with good reasonduring the initial or an extended term of the agreement, the Holding Companywill be obligated to pay Mr. West a lump sum amount equal to 2.5 times hiscurrent salary plus other amounts the Holding Company would have paid duringthe remainder of the calendar year during which the termination occurs for hispension, bonus and other compensation plans and health insurance. In addition,pursuant to his employment agreement, Mr. West waived the change ofcontrol benefits he would have otherwise become entitled to as a result of thetransactions contemplated by the LGB Agreement.

 

The Holding Company and certain of the otherexecutive officers entered into restricted stock agreements with provisionssimilar to the restricted stock grants given to Mr. West. In addition, theHolding Company agreed to pay Ronnie W. Lyon, Vice President and GeneralCounsel, a retention bonus of $690,070 as an incentive to remain through theclosing and facilitating the consummation of the transactions contemplated bythe LGB Agreement. In addition, pursuant to the respective restricted stockagreements, certain of the other executive officers waived the change ofcontrol benefits he or she would have otherwise become entitled to as a resultof the transactions contemplated by the LGB Agreement.

 

In connection with the LGB Agreement, the HoldingCompany and certain executive officers entered into rollover agreements, inwhich a certain number of Company shares owned by each of them will be “rolledover” into shares of the Holding Company.

 

Upon entering into the restricted stock agreementsdescribed above, each of these individuals surrendered any right under his orher current employment contract to receive any change of control payment towhich they may have been entitled as a result of the share exchangedescribed by the LGB Agreement.

 

A full description of the terms of the LGB Agreementand the related matters discussed in the preceding five paragraphs can be foundin the definitive proxy statement of the Company filed with the SEC on January 30,2006.

 

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**ITEM 14. PRINCIPAL ACCOUNTANT FEESAND SERVICES**

 

The following tablepresents fees for professional audit services rendered by KPMG LLP for theaudit of the Company’s consolidated financial statements as of and for theyears ended December 31, 2005 and 2004, and for its limited reviews of theCompany’s unaudited consolidated interim financial statements. This table alsoreflects fees for other services.

 
| ** **                    | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|
|                          |       |     |       |     |       |
| Audit Fees                    |       | $        | 327,976    |     | $          | 184,125 |   |
| Audit related Fees (1)        |       | —   |       | 64,700   |       |
|                          |       |     |       |     |       |
| Audit and  Audit related Fees |       | 327,976  |       | 248,825  |       |
|                          |       |     |       |     |       |
| Tax Fees (2)                  |       | 15,123   |       | 169,293  |       |
| All Other Fees (3)            |       | 9,875    |       | 51,303   |       |
|                          |       | $        | 352,974    |     | $          | 469,421 |   |

 

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(1)                                  Includes fees forspecial procedures performed in connection with the submission of the rate casefiling with the Public Utility Commission of Texas.

(2)                                  Includes taxcompliance, technical tax advice and tax planning. 

(3)                                  All other feesconsist of advice on accounting for various stock awards in 2004 and the LGBtransaction in 2005.

 

The policies andprocedures contained in the Audit Committee Charter provide that the AuditCommittee will pre-approve both the retention of the independent auditors, aswell as any nonaudit services, and the fees for such services. The AuditCommittee has adopted policies and procedures to pre-approve all services to beperformed by KPMG LLP. Specifically the committee’s policy is to pre-approvethe use of KPMG LLP for audit services as well as detailed, specific types ofservices within the following categories of audit-related and non-auditservices: merger and acquisition due diligence and audit services; employeebenefit plan audits, tax services; and procedures required to meet certainregulatory requirements. The committee will not approve any service prohibitedby regulation and does not anticipate approving any service in addition to thecategories described above. In each case, the committee’s policy is topre-approve a specific annual budget by category for such audit, audit-relatedand non-audit services which the company anticipates obtaining from KPMG LLPand has required management to report the actual fees (versus budgeted fees) tothe committee on a periodic basis throughout the year. In addition, any new,unbudgeted engagement for audit services or within one of the otherpre-approved categories described above must be pre-approved by the committeeor its chair.

 

**PART IV**

 

**ITEM 15. EXHIBITS, FINANCIALSTATEMENT SCHEDULES AND REPORTS ON FORM 8K**

 

**Exhibits**

 
| **Exhibit No.** | ** ** | **Item**                                                                                           |
|----------------------|------------|----------------------------------------------------------------------------------------------------|
| ** **           |       | ** **                                                                                         |
| Exhibit 31.1    |       | Certification Pursuant to 18 U.S.C. Section 1350,  as Adopted Pursuant to Section 302 of |

 

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|              |   | the Sarbanes-Oxley Act of 2002 of William L. West  (1)                                                                                                     |
|-------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
|              |   |                                                                                                                                                       |
| Exhibit 31.2 |   | Certification Pursuant to 18 U.S.C. Section 1350,  as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of  Melissa D. Davis (1) |
|              |   |                                                                                                                                                       |
| Exhibit 32.1 |   | Certification Pursuant to 18 U.S.C. Section 1350,  as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of  William L. West (1)  |
|              |   |                                                                                                                                                       |
| Exhibit 32.2 |   | Certification Pursuant to 18 U.S.C. Section 1350,  as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of  Melissa D. Davis (1) |

 

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(1)                                  Filedherewith

 

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**SIGNATURES**

 

In accordance with the requirements of theSecurities Act of 1934, as amended, the Registrant certifies that it hasreasonable grounds to believe that it meets all of the requirements for filing Form 10K/Aand authorizes this Form 10K/A to be signed on its behalf by theundersigned, thereunto duly authorized, in the City of Midland, Texas, on April 28,2006.

 
|   | **CAP ROCK ENERGY CORPORATION** |
|--------|---------------------------------|
|   |                            |
|   | By:                             | /s/ WILLIAM L. WEST |   |
|   |                            | William L. West |   |
|   |                            | President and |   |
|   |                            | Chief Executive Officer |   |

 

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934 this report has been signed below by the following personson behalf of the registrant and in the capacities and on the dates indicated.

 
| **Signature**            | ** ** | **Title**                                                                                         | ** ** | **Date**            |
|--------------------------|------------|---------------------------------------------------------------------------------------------------|------------|---------------------|
|                     |       |                                                                                              |       |                |
| /s/ WILLIAM L. WEST      |       | Director, President and                                                                           |       | April 28, 2006 |
| William L. West          |       | Chief Executive Officer                                                                           | ** ** | ** **          |
|                     |       | (Principal Executive  Officer)                                                                    | ** ** | ** **          |
|                     |       |                                                                                              |       |                |
| /s/ MELISSA D. DAVIS     |       | Vice President, Controller  and                                                                   |       | April 28, 2006 |
| Melissa D. Davis         |       | Chief Accounting Officer** **(Principal Financial and** **Principal Accounting Officer) | ** ** | ** **          |
|                     |       |                                                                                              |       |                |
| /s/ DAVID W. PRUITT      |       | Director, Co-Chairman of  the Board                                                               |       | April 28, 2006 |
| David W. Pruitt          | ** ** | ** **                                                                                        | ** ** | ** **          |
|                     |       |                                                                                              |       |                |
| /s/ RUSSELL E. JONES     |       | Director, Co-Chairman of  the Board                                                               |       | April 28, 2006 |
| Russell E. Jones         |       |                                                                                              |       |                |
|                     |       |                                                                                              |       |                |
| /s/ S. D. BUCHANAN       |       | Director                                                                                          |       | April 28, 2006 |
| S. D. Buchanan           |       |                                                                                              |       |                |
|                     |       |                                                                                              |       |                |
| /s/ FLOYD L. RITCHEY     |       | Director                                                                                          |       | April 28, 2006 |
| Floyd L. Ritchey         |       |                                                                                              |       |                |
|                     |       |                                                                                              |       |                |
| /s/ MICHAEL D. SCHAFFNER |       | Director                                                                                          |       | April 28, 2006 |
| Michael D. Schaffner     |       |                                                                                              |       |                |

 

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