**EXHIBIT 10.75**

 

CAP ROCK ENERGY CORPORATION

 

SHAREHOLDERS’ TRUST

 

THISSHAREHOLDERS’ TRUST (this “Trust”) is established this 1st day of October,2002, by and between CAP ROCK ENERGY CORPORATION (the “Settlor”), a Texascorporation, ALFRED J. SCHWARTZ and ROBERT G. HOLMAN (the “Trustees”).

 

ARTICLE IPURPOSE

 

TheSettlor has created this Trust for the purpose of receiving and holding for thebenefit of the former members of Cap Rock Electric Cooperative, Inc. (the“Cooperative”) for whom the Cooperative does not presently have valid addressesthe shares of the $.01 par value common stock of the Settlor that would haveotherwise been distributed to those former members of the Cooperative inconnection with the full implementation of the conversion of the Cooperativefrom a member owned electric cooperative to a shareholder owned businesscorporation.

 

ARTICLE IITRUST CORPUS

 

A.            INITIAL DEPOSIT. Concurrently withthe execution of this Trust, the Settlor has delivered to the Trustees a total of 346,958 shares of the$.01 par value common stock of the Settlor issued in the name of this Trust,and the Trustees shall hold, administer and distribute the Shares (as such termis herein defined) in accordance with the terms and provisions of this Trust.The Settlor may from time to time add additional Shares to the corpus of thisTrust by causing such additional Shares to be issued in the names of theTrustees of this Trust, and the Trustees shall hold, administer and distributethe additional Shares in accordance with the terms and provisions of this Trustas if such additional Shares had originally been deposited with the Trustees ofthis Trust. As used in this Trust, the term “Shares” shall include the originalshares of common stock of the

 

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Settlordelivered to the Trustees, as well as any and all in kind distributions withrespect to the common stock of the Settlor, including shares issued as stockdividends and stock splits.

 

B.            RIGHTS IN THE SHARES. The Trusteesare hereby vested, subject to the limitations set forth in Article III of thisTrust, with all right, title and interest in and to the Shares, and theTrustees are authorized and empowered, subject to such limitations, to exerciseand enjoy, for the purposes of this Trust and as record owner of the Shares,all the rights, privileges and benefits attributable to the Shares, including,but not limited to, the right, subject to the limitations set forth in SectionC of Article III of this Trust, to vote the Shares on all matters and the rightto receive any and all dividends and other distributions made with respect tothe Shares. Until all of the Shares have been transferred out of the Trust andinto the names of the beneficial owners thereof on the stock ownership recordsof the Settlor, the Settlor shall recognize the Trustees as record owners ofthe Shares held at any time and from time to time in the Trust and as fullyentitled, subject to the limitations set forth in Article III of this Trust, toall rights, privileges, benefits and interests therein.

 

C.            MANAGEMENT AND DISPOSITION OF TRUSTCORPUS. The Trustees shall hold, administer and distribute the Shares and otherproperty that may be held from time to time as a part of the corpus of thisTrust in accordance with the following terms and conditions:

 

(1)                                  The Trustees shall make, directly or indirectly through theSettlor or others, a diligent and thorough effort to locate the beneficiariesof the Shares and other property held as a part of the corpus of this Trust.This effort shall include, but shall not be limited to, advertising theexistence of this Trust and the Shares held herein from time to time innewspapers of general circulation in areas where the Settlor transactsbusiness. The Trustees shall continue this effort so long as there remains any reasonablehope of finding the beneficiaries of this Trust.

 

(2)                                  When a beneficiary is located, the Trustees shall cause the Sharesheld for such beneficiary to be transferred on the books and

 

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recordsof the Settlor into the name of the beneficiary or as otherwise directed by thebeneficiary, and the Trustees shall then distribute the Shares so transferred,as well as the beneficiary’s pro rata share of any other property held as apart of the corpus of this Trust, to such beneficiary (or his designee), freeand clear of this Trust.

 

(3)                                  When and if the Trustees determine that the remainingbeneficiaries of this Trust cannot, without unreasonable effort on their part,be located, the Trustees shall provide the Settlor with notice under the ShareOption Agreement (the “Option Agreement”), of even date herewith between theSettlor and this Trust which Option Agreement is attached hereto as Annex “A”and made a part hereof for all purposes, that they intend to allow the Sharesand other property held as a part of the corpus of this Trust to escheat to theState of Texas. Upon the expiration of the option period set forth in theOption Agreement, the Trustees shall cause the Shares, as well as the otherproperty then held as a part of the corpus of this Trust, to be consideredabandoned and to escheat in accordance with the escheat laws of State of Texas.

 

ARTICLE IIIRIGHTS AND POWERS

 

A.            POWERS. In extension and not inlimitation of the powers given by law or other provisions of this Trust to theTrustees, the Trustees, acting jointly, will have the following powers, whereapplicable, in each case to be exercised in the Trustees’ discretion, but onlyin a fiduciary capacity, to:

 

(1)                                  Retain in the Trust the Shares and any other property received bythe Trustees comprising the corpus of this Trust;

 

(2)                                  Do or cause to be done all such acts and things as may benecessary, in the sole opinion of the Trustees, to preserve and protect therights of the Trust under the Option Agreement and the Funding Agreement (the“Funding Agreement”) of even date

 

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herewithbetween the Settlor and this Trust, which Funding Agreement is attached heretoas Annex “B” and made a part hereof for all purposes;

 

(3)                                  Commence, compromise, settle, arbitrate, mediate or defend, at theexpense of the Trust, any litigation with respect to this Trust as the Trusteesdeem necessary or advisable, including, but not limited to, litigation toenforce this Trust’s rights under the Option Agreement and under the FundingAgreement;

 

(4)                                  Invest and reinvest the property, other than the Shares, held as apart of the corpus of this Trust in any kind of real or personal property andin any kind of investment, including, but not limited to, corporateobligations, shares of stock, mutual funds and investment trust, that personsof prudence, discretion and intelligence would acquire for their own account,provided that the return from all investments must be reasonable in light ofexisting circumstances;

 

(5)                                  Subject to the limitations set forth in Section C of this ArticleIII, vote and give proxies to vote any securities, including the Shares, heldas a part of the corpus of this Trust;

 

(6)                                  Pay any assessments or other charges levied on the Shares or anyother securities held as a part of the corpus of this Trust;

 

(7)                                  Exercise any subscription, conversion or other rights or optionsthat at any time attach, belong or are given to the holders of the Shares orany other securities held as a part of the corpus of this Trust;

 

(8)                                  Enter into any contract or agreement that the Trustees deem to bein the best interest of this Trust;

 

(9)                                  Register and carry the Shares and any other securities held as apart of the corpus of this Trust in the name of the Trustees, as Trustees, orin the name of a nominee or hold such securities unregistered,

 

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butwithout increasing or decreasing the liability of the Trustees as fiduciaries;and

 

(10)                            Subject to the limitations set forth in Sections B and C ofArticle III of this Trust, exercise any other power that may be necessary ordesirable in the management of this Trust, regardless of whether the power isof like kind or character to the powers enumerated above, including, but notlimited to, any power necessary or desirable to enable the Trustees to actunder conditions which cannot now be foreseen.

 

B.            SALE LIMITATIONS. Except as providedin this Section B of Article III of this Trust, the Trustees shall not have anyauthority or power whatsoever to sell or otherwise dispose of or encumber theShares. In the case of an exercise pursuant to the Option Agreement by theSettlor, or an Affiliate of the Settlor (as such term is defined in Section Hof Article III of this Trust), of the option to acquire the Shares held in thecorpus of this Trust, the Trustees shall sell all of the Shares to the Settloror its Affiliate in accordance with the terms and conditions of the OptionAgreement. In the case of a tender offer or other repurchase offer by theSettlor or an Affiliate of the Settlor for shares of the capital stock of the Settlor(including, but not limited to, the tender offer for the Shares that theSettlor is required to make on the first anniversary of the issuance of theShares), the Trustees may, in their sole discretion and acting jointly in thebest interest of the beneficiaries of this Trust, sell all of the eligibleShares held in the corpus of this Trust to the Settlor or the Affiliate of theSettlor at the highest all cash price offered under the tender offer or otherrepurchase offer; provided, however, that notwithstanding the foregoing, withregard to any tender offer other than the tender offer the Settlor is requiredto make on the first anniversary of the issuance of the Shares, if the premium(i.e., the price per Share offered in the tender offer or other repurchaseoffer over the then market price per share of the Shares) for the Sharescovered by the tender offer ( or other repurchase offer) is 25% or greater, theTrustees shall sell all of the eligible Shares held in the corpus of this Trustto the Settlor or the Affiliate of the Settlor at the highest all cash priceoffered by the Settlor under the tender offer or other repurchase offer.Finally, in the event the Settlor fails to fulfill its obligations under the

 

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FundingAgreement to fund the Trust for the payment of compensation and expensespayable to the Trustees under Section G of Article III of this Trust, theTrustees may, in their sole discretion and acting jointly in the best interestof the beneficiaries of this Trust, sell such of the Shares as are necessaryfor the Trust to timely pay such compensation and expenses; provided, however,that notwithstanding the foregoing, the Trustees shall not be authorized tosell Shares to pay such compensation and expenses if there are otherunencumbered assets in the corpus of this Trust of sufficient value that can beliquidated or otherwise used to pay such compensation and expenses.

 

C.            VOTING LIMITATIONS. The Trusteesshall not vote the Shares in favor of the sale, mortgage, or pledge of all orsubstantially all of the assets of the Settlor, or for any change in thecapital structure or the powers of the Settlor, or in connection with anymerger, consolidation, reorganization, dissolution or similar type oftransaction involving the Settlor, not approved by the Settlor’s Board ofDirectors.

 

D.            ACTION OF TRUSTEES. All action to betaken on any question arising between the Trustees, except as may otherwise beexpressly provided in this Trust, shall from time to time be determined byunanimous vote or agreement of the Trustees then in office, if there are twotrustees or less, and by a majority vote of the trustees if there are three ormore, either at a meeting of the Trustees or, with or without a meeting, by awriting signed by all of the Trustees; provided, however, notwithstandinganything to the contrary herein contained, at any time that there is only oneTrustee serving hereunder, such Trustee shall not take any actions with respectto the corpus of this Trust, except such actions as may be absolutely necessaryto preserve the corpus of this Trust or such actions as may be specificallyrequired by the terms of this Trust (as, for example, a sale pursuant toSection B of Article III of this Trust of the Shares pursuant to the terms ofthe Option Agreement). The Trustees may provide for the authentication orevidence of any action taken by them.

 

E.             RESIGNATION. A Trustee may resignat any time by delivering written notice thereof to the Settlor and the otherTrustee.

 

F.             BOND OR OTHER SECURITY. No bond orother security shall be required of the Trustees. If, notwithstanding theforegoing provision, bond or other security is required of the Trustees for anyreason whatsoever, the Trustees, acting jointly, may provide same

 

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and thecost thereof shall be paid by the Settlor pursuant to its obligations under theFunding Agreement.

 

G.            FEES AND EXPENSES. Each Trustee whois not an Affiliate of the Settlor shall be entitled to a fee from this Trustof $50 per hour for services rendered as a Trustee hereunder, subject to anon-cumulative maximum amount of $5,000 annually. Each Trustee who is anAffiliate of the Settlor (as such term is defined in Section H of this ArticleIII) shall not be entitled to receive a fee for services rendered as a Trusteehereunder. Each Trustee, irrespective of whether or not he is an Affiliate ofthe Settlor, shall be entitled to reimbursement from this Trust for any and allreasonable expenses incurred in connection with the performance of his dutiesas Trustee hereunder. The funds necessary to make each compensation payment andeach expense reimbursement to the Trustees under this Section G of Article IIIof this Trust shall be obtained from the Settlor in accordance with the termsof the Funding Agreement, and the Trustees shall not use any of the corpus ofthis Trust for such purposes unless they, in their sole discretion, concludethat the Settlor is not going to timely fulfill its obligations under theFunding Agreement.

 

H.            TRUSTEES’ RELATIONSHIP WITH THESETTLOR. Any Trustee and any firm, corporation, trust or association of whichhe may be a trustee, stockholder, director, officer, member, agent or employeemay contract with or be or become pecuniarily interested, directly orindirectly, in any matter or transaction to which the Settlor or any Affiliateof the Settlor may be a party or in which it may be concerned, as fully andfreely as though the Trustee were not a Trustee of this Trust. A Trustee shallnot be disqualified from acting as such by reason of his being a director orofficer of the Settlor or an Affiliate of the Settlor, but in no event shallthere be at any time more than one Trustee of this Trust who is an Affiliate ofthe Settlor or who is employed by the Settlor or an Affilitate of the Settlor.As used in this Trust, the term “Affiliate of the Settlor” means a person thatdirectly, or indirectly through one or more intermediaries, controls, or iscontrolled by, or is under common control with, the Settlor, and a person shallbe deemed to control another person (including the Settlor) if the controllingperson is the beneficial owner (as defined in Rule 13d-3 under the SecuritiesAct of 1934, as amended) of ten percent (10%) or more of any class of votingsecurities (or other voting interests) of the

 

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controlledperson or possesses, directly or indirectly, the power to direct or cause thedirection of the management or policies of the controlled person, whetherthrough ownership of securities, through serving as an officer or director, bycontract or otherwise.

 

I.              ACCOUNTING. The Trustees shallkeep adequate books of account, which shall be available for the inspection ofthe Settlor and the beneficiaries upon reasonable notice.

 

J.             LIABILITY OF THE TRUSTEES. TheTrustees will not be responsible for any loss that may occur by reason of thedepreciation or decrease in value of the Shares or any other property held as apart of the corpus of this Trust. No Trustee will be liable for acts ordefaults of any other Trustee or for acts or defaults of any agent of any otherTrustee. The Trustees will be free from liability in acting upon any paper,document or signature believed by them to be genuine and to have been signed bythe proper party. The Trustees will not be liable for any error of judgment norfor any act done or omitted, nor for any mistake of fact or law, nor foranything that they may do or refrain from doing in good faith, nor generallywill the Trustees have any accountability pursuant to this Trust, except thateach Trustee shall be liable for his own fraud, gross negligence or similarconduct.

 

K.            CONCLUSIVENESS OF ACTIONS. Everyaction taken by the Trustees, acting jointly, pursuant to this Trust shall beconclusive and binding upon all persons and no person will have any right orresponsibility to look into the authority of the Trustees to perform any act.

 

ARTICLE IVSUCCESSOR TRUSTEES

 

A.            APPOINTMENT OF SUCCESSOR TRUSTEES.If a Trustee dies, resigns or is removed, the vacancy occurring as a result ofsuch death, resignation or removal shall be promptly filled with a qualifiedindividual by the Settlor; provided, however, that at no time shall there bemore than one Trustee of this Trust who is an Affiliate of the Settlor, or whois employed by the Settlor or by an Affiliate of the Settlor.

 

B.            RIGHTS AND POWERS OF SUCCESSORTRUSTEE. A successor Trustee shall have the rights and powers and shall besubject to the duties and responsibilities of a

 

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predecessorTrustee. A successor Trustee is authorized and directed, without requiring anaudit or other independent accounting, to accept from a predecessor Trustee theassets delivered by the predecessor Trustee to the successor Trustee on thebasis of the accounting submitted by the predecessor Trustee. A successorTrustee shall not have any duty or responsibility for the actions, defaults oromissions of a predecessor Trustee.

 

C.            TRANSFER OF SHARES TO SUCCESSORTRUSTEES. Notwithstanding any changes in the identity of the Trustees, thecertificates for the Shares or other securities standing in the name of theTrustees may be endorsed and transferred by any successor Trustee or Trusteeswith the same effect as if endorsed and transferred by the Trustee or Trusteeswho have ceased to act. The Trustees, acting jointly, are authorized andempowered to cause any further transfer of the Shares or other securities helda part of the corpus of this Trust that may be necessary because of any changeof persons holding the office of Trustee.

 

ARTICLE VINDEMNIFICATION OF TRUSTEES

 

A.            MANDATORY INDEMNIFICATION. (1) Subjectto the conditions and limitations of this Article V, the Trust shall indemnifyand hold harmless any Trustee who is or was a party, or is threatened to bemade a party to, any threatened, pending or completed action, claim,litigation, suit or proceeding, whether civil, criminal, administrative orinvestigative, whether predicated on foreign, federal, state or local law, andwhether formal or informal (collectively, “actions”) by reason of his statusas, or the fact that he is or was or has agreed to become, a Trustee of thisTrust (an “Indemnitee”), and as to acts performed in the course of anIndemnitee’s duty to this Trust and to the beneficiaries of this Trust,against:

 

(i)                                     expenses, fees, costs and charges, including, without limitation,attorneys’ fees and disbursements (collectively, “expenses”) reasonablyincurred by or on behalf of an Indemnitee in connection with any action(including, without limitation, in connection with the investigation, defense,settlement or appeal of such action), no matter by whom brought; provided, thatit is not determined

 

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pursuantto Section B of Article V of this Trust, or by the court before which suchaction was brought, that:

 

(a)                                  the Indemnitee did not act in good faith and in a manner hereasonably believed to be in or not opposed to the best interests of this Trustand the beneficiaries of this Trust;

 

(b)                                 the Indemnitee engaged in criminal, fraudulent or intentionalmisconduct in the performance of his duty to this Trust and to thebeneficiaries of this Trust; and

 

(c)                                  with respect to criminal actions, the Indemnitee had reasonablecause to believe his conduct was unlawful;

 

(ii)                                  subject to the restrictions of Section A(3) of Article V of thisTrust, amounts incurred by an Indemnitee in settlement of any action, no matterby whom brought; provided, that it is not determined pursuant to Section B ofArticle V of this Trust, or by the court before which such action was brought,that:

 

(a)                                  such settlement was not in the best interests of this Trust andthe beneficiaries of this Trust;

 

(b)                                 such settlement was unreasonable (to a material extent) in lightof all of the circumstances of such action;

 

(c)                                  the Indemnitee did not act in good faith and in a manner hereasonably believed to be in or not opposed to the best interests of this Trustand the beneficiaries of this Trust; and

 

(d)                                 the Indemnitee engaged in criminal, fraudulent or intentionalmisconduct in the performance of his duty to this Trust and to thebeneficiaries of this Trust; and

 

(iii)                               subject to the restrictions of Section A(3) of Article V of thisTrust, judgments, fines, penalties or other amounts incurred by an Indemniteepursuant to an adjudication of liability in connection with any action;provided, that it is not determined pursuant to

 

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SectionB of Article V of this Trust, or by the court before which such action wasbrought, that:

 

(a)                                  the Indemnitee did not act in good faith and in a manner hereasonably believed to be in or not opposed to the best interests of this Trustand the beneficiaries of this Trust;

 

(b)                                 the Indemnitee engaged in criminal, fraudulent or intentionalmisconduct in the performance of his duty to this Trust and to thebeneficiaries of this Trust; and

 

(c)                                  with respect to criminal actions, the Indemnitee had reasonablecause to believe his conduct was unlawful and that he otherwise did not act ingood faith and in a manner he reasonably believed to be in or not opposed tothe best interests of this Trust and to the beneficiaries of this Trust.

 

(2)           To the extent an Indemnitee has beensuccessful on the merits or otherwise in connection with any action referred toin Section A(1) of Article V of this Trust, no matter by whom brought(including, without limitation, the settlement, dismissal, abandonment orwithdrawal of any such action where the Indemnitee does not pay, incur orassume any material liability), or in connection with any claim, issue ormatter therein, he shall be indemnified by this Trust against expensesreasonably incurred by or on behalf of him in connection therewith. This Trustshall pay such amounts (net of all amounts, if any, previously advanced to theIndemnitee pursuant to Section D of Article V of this Trust) to the Indemnitee(or to such other person or entity as the Indemnitee may designate in writingto this Trust) upon the executive’s written request therefor without regard tothe provisions of Section B of Article V of this Trust.

 

(3)           Notwithstanding the provisions ofSection A(1)(ii), and A(1)(iii) of Article V of this Trust, no indemnificationshall be made to an Indemnitee by this Trust for monetary damages incurred bythe Indemnitee pursuant to an action brought by a beneficiary of this Trust ifit is determined pursuant to Section B of Article V of this Trust, or by thecourt before which such action was brought:

 

(i)                                     the Indemnitee breached his duty of loyalty to this Trust or tothe beneficiaries of this Trust;

 

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(ii)                                  the Indemnitee committed acts or omissions in bad faith or whichinvolve intentional misconduct or a knowing violation of the law; or

 

(iii)                               the Indemnitee derived an improper personal benefit from anytransaction, unless such improper personal benefit is determined to beimmaterial in light of all of the circumstances of such action.

 

B.            RIGHT TO INDEMNIFICATION; HOWDETERMINED. (1) Except as otherwise set forth in this Section B of Article V ofthis Trust, any indemnification to be provided to an Indemnitee by this Trustunder Section A of Article V of this Trust upon the final disposition orconclusion of an action (or a claim, issue or matter associated with such anaction), unless otherwise ordered by the court before which such action wasbrought, shall be paid by this Trust (net of all amounts, if any, previouslyadvanced to the Indemnitee pursuant to Section D of Article V of this Trust) tothe Indemnitee (or to such other person or entity as the Indemnitee maydesignate in writing to this Trust) within sixty (60) days after the receipt ofthe Indemnitee’s written request therefor, which request shall include a comprehensiveaccounting of amounts for which indemnification is being sought and shallreference the provision of Article V of this Trust pursuant to which such claimis being made.

 

Notwithstandingthe foregoing, the payment of the requested amounts may be denied by this Trustif (i) the disinterested Trustees of this Trust, by a majority vote thereof,determine that such payment, in whole or in part, would not be in the bestinterests of this Trust and the beneficiaries of this Trust and would contravenethe terms and conditions of Article V of this Trust; or (ii) a majority of theTrustees of this Trust are a party in interest to such action. In either ofsuch events, the Trustees shall immediately authorize and direct, byappropriate resolution, that an independent determination be made as to whetherthe Indemnitee has met the applicable standard of conduct set forth in SectionA of Article V of this Trust and, therefore, whether indemnification is properpursuant to this Article V.

 

Suchindependent determination shall be made by a panel of three arbitrators in thecity where the principal office of this Trust is located in accordance with therules then prevailing of the American Arbitration Association, or, at theoption of the

 

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Indemnitee,by an independent legal counsel mutually selected by the Trustees and theIndemnitee (such panel of arbitrators or independent legal counsel beinghereinafter referred to as the “Authority”).

 

Inany such determination there shall exist a rebuttable presumption that theIndemnitee has met such standard of conduct and is therefore entitled toindemnification pursuant to Article V of this Trust. The burden of rebuttingsuch presumption by clear and convincing evidence shall be on this Trust.

 

Ifa panel of arbitrators is to be employed, one of such arbitrators shall beselected by the Trustees, by a majority vote of the Trustees who were notparties in interest to such action (or, if such vote is not obtainable, by anindependent legal counsel chosen by the Trustees), the second by the Indemniteeand the third by the previous two arbitrators.

 

TheAuthority shall make a determination within sixty days of being selected andshall simultaneously submit a written opinion of its conclusions to both theTrustees of this Trust, collectively, and to the Indemnitee, individually, and,if the Authority determines that the Indemnitee is entitled to be indemnifiedfor any amounts pursuant to Article V of this Trust, this Trust shall pay suchamounts (net of all amounts, if any, previously advanced to the Indemniteepursuant to Section D of Article V of this Trust), including interest thereonas provided in Section E(3) of Article V of this Trust, to the Indemnitee (orto such other person or entity as the Indemnitee may designate in writing tothis Trust) within ten days of receipt of such opinion.

 

(2)           The Indemnitee may, either before orwithin two years after a determination, if any, has been made by the Authority,petition any court of competent jurisdiction to determine whether theIndemnitee is entitled to indemnification under Article V of this Trust. Suchcourt shall thereupon have the exclusive power to make such determinationunless and until such court dismisses or otherwise terminates such proceedingwithout having made such determination.

 

Thecourt shall make an independent determination of whether the Indemnitee isentitled to indemnification as provided under Article V of this Trust,irrespective of any prior determination made by the Authority; provided,however, that there shall exist a rebuttable presumption that the Indemniteehas met the applicable

 

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standardof conduct and is therefore entitled to indemnification pursuant to Article Vof this Trust. The burden of rebutting such presumption by clear and convincingevidence shall be on this Trust.

 

Ifthe court determines that the Indemnitee is entitled to be indemnified for anyamounts pursuant to Article V of this Trust, unless otherwise ordered by suchcourt, this Trust shall pay such amounts (net of all amounts, if any previouslyadvanced to the executive pursuant to Section D of Article V of this Trust),including interest thereon as provided in Section E(3) of Article V of thisTrust, to the Indemnitee (or to such other person or entity as the Indemnitee maydesignate in writing to this Trust) within ten (10) days of the rendering ofsuch determination.

 

TheIndemnitee shall pay all expenses incurred by the Indemnitee in connection withthe judicial determination provided in Section B(2) of Article V of this Trust,unless it shall ultimately be determined by the court that he is entitled to beindemnified, in whole or in part, by this Trust as authorized hereby. Allexpenses incurred by the Indemnitee in connection with any subsequent appeal ofthe judicial determination provided for in Section B(2) of Article V of thisTrust shall be paid by the Indemnitee regardless of the disposition of suchappeal.

 

(3)           Except as otherwise set forth inSection B of Article V of this Trust, the expenses associated with the indemnificationprocess set forth in Section B of Article V of this Trust, including, withoutlimitation, the expenses of the Authority selected hereunder, shall be paid bythis Trust.

 

C.            TERMINATION OF AN ACTION ISNONCONCLUSIVE. The termination of any action, no matter by whom brought, byjudgment, order, settlement, conviction, or upon a plea of no contest or itsequivalent, shall not, of itself, create a presumption that the Indemnitee hasnot met the applicable standard of conduct set forth in Section A of Article Vof this Trust.

 

D.            ADVANCE  PAYMENT.  (1)Expenses  reasonably  incurred by or on behalf of an Indemnitee inconnection with any action (or claim, issue or matter associated with suchaction), no matter by whom brought, shall be paid by this Trust to theIndemnitee (or to such other person or entity as the Indemnitee may designatein writing to this Trust) in advance of the final disposition or conclusion ofsuch action (or claim, issue or matter

 

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associatedwith such action) upon the receipt of the Indemnitee’s written requesttherefor; provided, the following conditions are satisfied:

 

(i)                                     the Indemnitee has first requested an advance of such expenses inwriting (and delivered a copy of such request to this Trust) from eachinsurance carrier, to whom a claim has been reported under an insurance policypurchased by this Trust, if any, as provided under Section G of Article V ofthis Trust, and each such insurance carrier has declined to make such anadvance;

 

(ii)                                  the Indemnitee furnishes to this Trust an executed writtencertificate affirming his good faith belief that he has met the applicablestandard of conduct set forth in Section A of Article V of this Trust; and

 

(iii)                               the Indemnitee furnishes to this Trust an executed written agreementto repay any advances made under Section D of Article V of this Trust if it isultimately determined that he is not entitled to be indemnified by this Trustfor such amounts pursuant to Article V of this Trust.

 

(2)           If this Trust makes an advance of expensesto an Indemnitee pursuant to this Section D of Article V of this Trust, thisTrust shall be subrogated to every right of recovery the Indemnitee may haveagainst any insurance carrier from whom this Trust has purchased insurance forsuch purpose.

 

E.             PARTIAL INDEMNIFICATION; INTEREST.(1) If it is determined by the Authority pursuant to Section B of Article V ofthis Trust, or by the court before which such action was brought, that anIndemnitee is entitled to indemnification as to some claims, issues or matters,but not as to other claims, issues or matters, involved in any action, nomatter by whom brought, the Authority (or the court) shall authorize thereasonable proration of such expenses, judgments, penalties, fines and amountsincurred in settlement with respect to which indemnification is sought by theIndemnitee, among such claims, issues or matters as the Authority (or thecourt) shall deem appropriate in light of all of the circumstances of suchaction.

 

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(2)           If it is determined by the Authoritypursuant to Section B of Article V of this Trust or by the court before whichsuch action was brought, that certain amounts incurred by the Indemnitee arefor whatever reason unreasonable in amount, the Authority (or the court) shallauthorize indemnification to be paid by this Trust to the Indemnitee for onlysuch amounts as the authority (or the court) shall deem reasonable in light ofall of the circumstances of such action.

 

(3)           To the extent deemed appropriate bythe Authority, or by the court before which such action was brought, this Trustshall pay interest to the Indemnitee, at a reasonable interest rate, foramounts for which this Trust indemnifies the Indemnitee.

 

F.             NONEXCLUSIVITY OF AGREEMENT. Theright to indemnification and advancement` expenses provided to an Indemniteepursuant to Article V of this Trust shall not be deemed exclusive of any otherrights to which the Indemnitee may be entitled by law, contract or otherwise,and the terms and provisions of Article V of this Trust shall continue as tothe Indemnitee if he ceases to be a Trustee of this Trust, and such terms andprovisions shall inure to the benefit of the heirs, executors andadministrators of the Indemnitee.

 

G.            INSURANCE. (1) This Trust maypurchase and maintain insurance  on halfof an Indemnitee against any liability asserted against him or incurred by orbehalf of him in such capacity as a Trustee of this Trust or of an affiliate,or arising out of his status as such, whether or not this Trust would have thepower to indemnify him against such liability under the provisions of Article Vof this Trust.

 

Thepurchase and maintenance of such insurance shall not in any way limit or affectthe rights and obligations of this Trust or an Indemnitee under of Article V ofthis Trust and the adoption of Article V of this Trust by this Trust shall notin any way limit or affect the rights and obligations of this Trust or of theof the other party or parties thereto under any such policy or agreement ofinsurance.

 

(2)           If the Indemnitee shall receivepayment from any insurance carrier or from the plaintiff in any action againstthe Indemnitee in respect of indemnified amounts after payments on account ofall or part of such indemnified amounts have been made by this Trust pursuant toArticle V of this Trust, the Indemnitee shall promptly reimburse this Trust forthe amount, if any, by which the sum of such payment by such

 

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insurancecarrier or such plaintiff and payments by this Trust to the Indemnitee exceedssuch indemnified amounts; provided, however, at such portions, if any, of suchinsurance proceeds that are required to be reimbursed to the insurance carrierunder the terms of its insurance policy, such as deductible or coinsurancepayments, shall not be deemed to be payments to the Indemnitee hereunder.

 

Inaddition, upon payment of indemnified amounts under Article V of this Trust,this Trust shall be subrogated to the Indemnitee’s rights against any insurancecarrier in respect of such indemnified amounts and the Indemnitee shall executeand deliver any and all instruments and documents and perform any and all otheracts and deeds which this Trust deems necessary or advisable to secure suchrights. The Indemnitee shall do nothing to prejudice such rights of recovery orsubrogation.

 

H.            WITNESS EXPENSES. Upon anIndemnitee’s written request, this Trust shall pay (in advance or otherwise) orreimburse any and all expenses reasonably incurred by the Indemnitee inconnection with his appearance as a witness in any action at a time when he hasnot been formally named a defendant or respondent to such an action.

 

I.              CONTRIBUTION. (1) If the indemnityprovided for in Section A of Article V of this Trust is unavailable to anIndemnitee for any reason whatsoever, this Trust, in lieu of indemnifying theIndemnitee, shall contribute to the amount reasonably incurred by or on behalfof the Indemnitee, whether for judgments, fines, penalties, amounts incurred insettlement or for expenses in connection with any action, no matter by whom brought,in such proportion as deemed fair and reasonable by the Authority pursuant toSection B of Article V of this Trust, or by the court before which such actionwas brought, taking into account all of the circumstances of such action, inorder to reflect (i) the relative benefits received by this Trust and theIndemnitee as a result of the event or transaction giving cause to such action;and (ii) the relative fault of this Trust (and its other Trustees) and theIndemnitee in connection with such event or transaction.

 

(2)           An Indemnitee shall not be entitledto contribution from this Trust under Section I of Article V of this Trust ifit is determined by the Authority pursuant to Section B of Article V of thisTrust, or bar the court before which such action was brought, that theIndemnitee engaged in criminal, fraudulent or intentional misconduct in

 

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theperformance of his duty to this Trust or otherwise violated the provisions ofSection A(3) of Article V of this Trust.

 

(3)           This Trust’s payment of, and theIndemnitee’s right to, contribution under this Section I of Article V of thisTrust shall be made and determined in accordance with Section B of Article V ofthis Trust relating to this Trust’s payment of, and the Indemnitee’s right to,indemnification.

 

J.             SEVERABILITY. If any provision ofArticle V of this Trust shall be deemed invalid or inoperative, or if a courtof competent jurisdiction determines that any of the provisions of Article V ofthis Trust contravene public policy, Article V of this Trust shall be construedso that the remaining provisions shall not be affected, but shall remain infull force and effect, and any such provisions which are invalid andinoperative or which contravene public policy shall be deemed, without furtheraction or deed on the part of any person, to be modified, amended or limited,but only to the extent necessary to render the same valid and enforceable, andthis Trust shall indemnify the Indemnitee as to expenses, judgments, fines andamounts incurred in settlement with respect to any action, no matter by whombrought, to the full extent permitted by any applicable provision of Article Vof this Trust that shall not have been invalidated.

 

ARTICLE VI

 

MISCELLANEOUS PROVISIONS

 

A.            TERM OF TRUST. This Trust shallcontinue in full force and effect until all of the Shares and other propertyheld as a part of the corpus of this Trust shall have been distributed by theTrustees.

 

B.            REVOCATION OF TRUST. This Trust isirrevocable and the Settlor shall have no right, either alone or in combinationwith others in whatever capacity, to alter, amend, revoke or terminate thisTrust.

 

C.            ANTICIPATORY ASSIGNMENTS. Nobeneficiary of this Trust may in any event anticipate any benefits that he maybe entitled to receive hereunder. No assignment or order by a beneficiary byway of anticipation of any part of the Shares or other property held as a partof the corpus of this Trust will be valid, nor may the Trustees accept it, andthe Trustees shall make all distributions pursuant to this Trust directly tothe

 

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beneficiaries.No interest in the Shares or other property held as a part of the corpus ofthis Trust will be subject to the claims of a creditor, or be subject toattachment, garnishment, execution or other legal or equitable process or lienbrought by or in favor of a creditor of a beneficiary of this Trust.

 

D.            MANNER OF DISTRIBUTION. The Trusteesmay distribute the Shares and other property held as a part of the corpus ofthis Trust to the beneficiary directly or to the guardian, custodian, trustee,receiver, conservator or other similar official for the beneficiary. TheTrustees will not be responsible for any distribution of the Shares or otherproperty held as a part of the corpus of this Trust once it has been made tothe beneficiary or for his benefit as herein provided.

 

E.             SEVERABILITY. If any part, clause,provision or condition set forth in this Trust shall be held to be invalid orunenforceable, the remainder of this Trust shall be construed in all respectsas if such invalid or unenforceable part, clause, provision or condition wereomitted.

 

F.             RULES OF CONSTRUCTION. In thisTrust, words in the singular number include the plural, and in the pluralinclude the singular. Words of the masculine gender include the feminine andthe neuter, and when the sense so indicates, words of the neuter gender mayrefer to any gender, and the word “or” is disjunctive but not exclusive. Thecaptions and section numbers appearing in this Trust are inserted only as amatter of convenience and do not define, limit or describe the scope or intentof the provisions of this Trust.

 

G.            CHOICE OF LAW. THE SETTLOR AND THETRUSTEES AGREE THAT CERTAIN MATERIAL EVENTS, OCCURRENCES AND TRANSACTIONSRELATING TO THIS TRUST BEAR A REASONABLE RELATIONSHIP TO THE STATE OF TEXAS.THE VALIDITY, TERMS, PERFORMANCE AND ENFORCEMENT OF THIS TRUST SHALL BEGOVERNED BY THOSE LAWS OF THE STATE OF TEXAS WHICH ARE APPLICABLE TO TRUSTSWHICH ARE EXECUTED, DELIVERED AND PERFORMED SOLELY IN THE STATE OF TEXAS.

 

H.            COUNTERPARTS. This Trust may beexecuted in any number of counterparts, all of which shall constitute one andthe same instrument, and the Settlor and the Trustees may execute this Trust bysigning and delivering one or more counterparts.

 

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SIGNATURES

 

Toevidence the binding effect of the terms and conditions of this Trust, theSettlor (through its duly authorized officer) and the Trustee have caused thisTrust to be executed and delivered as of, but not necessarily on, the datefirst above written.

 
|   | SETTLOR:                    |
|--------|-----------------------------|
|   |                        |
|   | CAP ROCK ENERGY CORPORATION |
|   |                        |
|   |                        |
|   | By:                         | /s/ David W. Pruitt |   |
|   |                        | David W. Pruitt, President |   |
|   |                        |
|   |                        |
|   | TRUSTEES:                   |
|   |                        |
|   |                        |
|   | /s/ Alfred J. Schwartz      |   |
|   | Alfred J. Schwartz          |
|   |                        |
|   |                        |
|   | /s/ Robert G. Holman        |   |
|   | Robert G. Holman            |
|        |                             |  |  |  |

 

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