Exhibit 10.96


 


CAP ROCK ENERGY CORPORATION


 


INDEMNIFICATION AGREEMENT


 


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


 


Background Statement and Recitals


 


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


 


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


 


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


 


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


 


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


 


ARTICLE I


 


CERTAIN DEFINITIONS


 


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


 


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


 





















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


ARTICLE II


 


SERVICES BY INDEMNITEE


 


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


 


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


 


ARTICLE III


 


INDEMNIFICATION


 


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


 


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


 


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


 


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


 


ARTICLE IV


 


EXPENSES


 


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


 


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


 


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


 


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ARTICLE V


 


PROCEDURE FOR DETERMINATION OF ENTITLEMENT


TO INDEMNIFICATION


 


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


 


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


 


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


 


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


 


(c) As provided in Section 5.4(b).


 


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


 


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


 


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


 


Section 5.4             Presumptions and Effect of Certain Proceedings.


 


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


 


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


 


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


 


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


 


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ARTICLE VI


 


CERTAIN REMEDIES OF INDEMNITEE


 


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


 


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


 


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


 


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


 


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


 


ARTICLE VII


 


MISCELLANEOUS


 


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


 


Section 7.2             Insurance and Subrogation.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


If to the Corporation, to:


 


Cap Rock Energy Corporation


500 West Wall Street, Suite 400


Midland, Texas 
79701


Attention:  Ronnie
Lyon


Facsimile:  (432)
684-0333


 


If to Indemnitee, to:


 


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Section 7.17           Certain Construction Rules.


 


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


 


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


 


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


 


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


 


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


 


	
   

  	
  CAP ROCK ENERGY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  INDEMNITEE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  
							



 


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