Document:

EXHIBIT 10.88

 

CAP ROCK
ENERGY CORPORATION

 

AMENDED SHAREHOLDERS’
TRUST

 

THIS SHAREHOLDERS’ TRUST
(this “Trust”) is established this 1st day of October, 2002, and
amended this 31st day of December, 2004, by and between Cap Rock Energy Corporation (the “Settlor”), a Texas
corporation, Alfred J. Schwartz and Robert G. Holman (the “Trustees”).

 

ARTICLE I

 

Purpose

 

The Settlor has created this Trust for the purpose of receiving and
holding for the benefit of the former members of Cap Rock Electric Cooperative,
Inc. (the “Cooperative”) for whom the Cooperative does not presently have valid
addresses the shares of the $.01 par value common stock of the Settlor that
would have otherwise been distributed to those former members of the
Cooperative in connection with the full implementation of the conversion of the
Cooperative from a member owned electric cooperative to a shareholder owned
business corporation.

 

ARTICLE II

 

Trust Corpus

 

A.                                   Initial Deposit.  Concurrently with the 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 term is 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 this Trust by causing such
additional Shares to be issued in the names of the Trustees of this Trust, and
the Trustees shall hold, administer and distribute the additional Shares in
accordance with the terms and provisions of this Trust as if such additional
Shares had originally been deposited with the Trustees of this Trust.  As used 

 

 

in this Trust,
the term “Shares” shall include the original shares of common stock of the
Settlor delivered to the Trustees, as well as any and all in kind distributions
with respect to the common stock of the Settlor, including shares issued as
stock dividends and stock splits.

 

B.                                     Rights in the
Shares.  The Trustees are hereby
vested, subject to the limitations set forth in Article III of this Trust,
with all right, title and interest in and to the Shares, and the Trustees are
authorized and empowered, subject to such limitations, to exercise and 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 Section C
of Article III of this Trust, to vote the Shares on all matters and the
right to receive any and all dividends and other distributions made with
respect to the Shares.  Until all of the
Shares have been transferred out of the Trust and into the names of the
beneficial owners thereof on the stock ownership records of the Settlor, the
Settlor shall recognize the Trustees as record owners of the Shares held at any
time and from time to time in the Trust and as fully entitled, subject to the
limitations set forth in Article III of this Trust, to all rights,
privileges, benefits and interests therein.

 

C.                                     Management and
Disposition of Trust Corpus.  The
Trustees shall hold, administer and distribute the Shares and other property
that may be held from time to time as a part of the corpus of this Trust in
accordance with the following terms and conditions:

 

(1)                                  The
Trustees shall make, directly or indirectly through the Settlor or others, a
diligent and thorough effort to locate the beneficiaries of 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 the existence of this Trust and the Shares held herein
from time to time in newspapers of general circulation in areas where the
Settlor transacts business.  The Trustees
shall continue this effort so long as there remains any reasonable hope of
finding the beneficiaries of this Trust.

 

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(2)                                  When
a beneficiary is located, the Trustees shall cause the Shares held for such
beneficiary to be transferred on the books and records of the Settlor into the
name of the beneficiary or as otherwise directed by the beneficiary, 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 a part of the corpus
of this Trust, to such beneficiary (or his designee), free and clear of this
Trust.

 

(3)                                  When
and if the Trustees determine that the remaining beneficiaries of this Trust
cannot, without unreasonable effort on their part, be located, the Trustees
shall provide the Settlor with notice under the Share Option Agreement (the “Option
Agreement”), of even date herewith between the Settlor 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 Shares and other property held as a
part of the corpus of this Trust to escheat to the State of Texas.  Upon the expiration of the option period set
forth in the Option Agreement, the Trustees shall cause the Shares, as well as
the other property then held as a part of the corpus of this Trust,  to be considered abandoned and to escheat in
accordance with the escheat laws of 
State of Texas.

 

ARTICLE III

 

Rights and Powers

 

A.                                   Powers.      In extension and not in
limitation of the powers given by law or other provisions of this Trust to the
Trustees, the Trustees, acting jointly, will have the following powers, where
applicable, in each case to be exercised in the Trustees’ discretion, but only
in a fiduciary capacity, to:

 

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

 

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(2)                                  Do
or cause to be done all such acts and things as may be necessary, in the sole
opinion of the Trustees, to preserve and protect the rights of the Trust under
the Option Agreement and the Funding Agreement (the “Funding Agreement”) of
even date herewith between the Settlor and this Trust, which Funding Agreement
is attached hereto as Annex “B” and made a part hereof for all purposes;

 

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

 

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

 

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

 

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

 

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

 

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

 

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(9)                                  Register and carry
the Shares and any other securities held as a part of the corpus of this Trust
in the name of the Trustees, as Trustees, or in the name of a nominee or hold
such securities unregistered, but without increasing or decreasing the
liability of the Trustees as fiduciaries; and

 

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

 

B.                                     Sale
Limitations.         Except as
provided in this Section B of Article III of this Trust, neither the
Trustees nor any subsequent holder of the Shares shall have any authority or
power whatsoever to sell or otherwise dispose of or encumber the Shares.

 

(1)                          In the case of an exercise
pursuant to the Option Agreement by the Settlor, or an Affiliate of the Settlor
(as such term is defined in Section H of Article III of this Trust),
of the option to acquire the Shares held in the corpus of this Trust, the
Trustees shall sell all of the Shares to the Settlor or its Affiliate in
accordance with the terms and conditions of the Option Agreement.  In the case of a tender offer or other
repurchase offer by the Settlor 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 the Settlor is required to make on the first
anniversary of the issuance of the Shares), the Trustees may, in their sole
discretion and acting jointly in the best interest of the beneficiaries of this
Trust, sell all of the eligible Shares held in the corpus of this Trust to the
Settlor or the Affiliate of the Settlor at the highest all cash price offered
under the tender offer or other repurchase offer; provided, however, that notwithstanding
the foregoing, with regard 

 

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to any tender offer made by the Settlor or an Affiliate of the Settlor other
than the tender offer the Settlor is required to 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 repurchase offer over the then market
price per share of the Shares) for the Shares covered by the tender offer ( or
other repurchase offer) is 25% or greater, the Trustees shall sell all of the
eligible Shares held in the corpus of this Trust to the Settlor or the
Affiliate of the Settlor at the highest all cash price offered by the Settlor
under the tender offer or other repurchase offer.  In the case of any tender offer or other
repurchase offer made by a party other than the Settlor or an affiliate of the
Settlor if the premium (i.e., the price per Share offered in the tender offer
or other repurchase offer over the then market price per share of the Shares)
for the Shares covered by the tender offer ( or other repurchase offer) is 15%
or greater, the Trustees may, in their sole discretion and acting jointly in
the best interest of the beneficiaries of this Trust, sell all of the eligible
Shares held in the corpus of this Trust to the Offering Party at the highest
all cash price offered

 

(2)                          Any sale or transfer of
Shares shall be done in a manner such that any purchaser of Shares is not or
will not be the beneficial owner of more than 1% of the issued and outstanding
voting shares of the Settlor. In addition, in order to protect the value of the
Shares for the beneficial owners and to prevent abnormal swings in the market
value of the Shares, any sale or transfer of the Shares to any person or party
other than the Settlor shall be done in a manner such that the number of shares
sold or transferred does not exceed the volume limitations provided in Rule 144
(e)(1) of the Securities Act of 1933.

 

(3)                          In the event the Settlor
fails to fulfill its obligations under the Funding Agreement to fund the Trust
for the payment of compensation and expenses payable to the Trustees under Section 

 

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G of Article III of this Trust, the Trustees may, in their sole
discretion and acting jointly in the best interest of the beneficiaries of this
Trust, sell such of the Shares in accordance with subsection 2 above as
are necessary for the Trust to timely pay such compensation and expenses;
provided, however, that notwithstanding the foregoing, the Trustees shall not
be authorized to sell Shares to pay such compensation and expenses if there are
other unencumbered assets in the corpus of this Trust of sufficient value that
can be liquidated or otherwise used to pay such compensation and expenses.

 

(4)                          The limitations upon the sale
or transfer of the Shares contained in this Section B of Article III
shall continue until such Shares are transferred to the individual beneficial
owners or otherwise transferred in accordance with these restrictions. The
certificates representing the Shares shall contain a legend setting forth these
restrictions or otherwise directing the holder to obtain and review such
restrictions from the Settlor.

 

C.                                     Voting
Limitations.   The Trustees, and any successor, or holder of
the Shares (other than the beneficial owners) shall vote the Shares in
accordance with the recommendation of the Board of Directors of Settlor with
regard to the election of Directors to the Board of directors of Settlor and
any sale, mortgage, or pledge of all or substantially all of the assets of the
Settlor, or for any change in the capital structure or the powers of the
Settlor, or in connection with any merger, consolidation, sale, reorganization,
dissolution or similar type of transaction involving the Settlor, unless the
Trustees are advised by counsel in writing that to do so would violate their
fiduciary duty to the beneficial owners.

 

D.                                    Action
of Trustees.  All action to be taken
on any question arising between the Trustees, except as may otherwise be
expressly provided in this Trust, shall from time to time be determined by
unanimous vote or agreement of the Trustees then in office, if there are two
trustees or less, and by a majority vote of the trustees if there are three or
more, either at a meeting of the Trustees or, with or without a meeting, by a
writing 

 

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signed by all of the Trustees; provided,
however, notwithstanding anything to the contrary herein contained, at any time
that there is only one Trustee serving hereunder, such Trustee shall not take
any actions with respect to the corpus of this Trust, except such actions as
may be absolutely necessary to preserve the corpus of this Trust or such
actions as may be specifically required by the terms of this Trust (as, for
example, a sale pursuant to Section B of Article III of this Trust of
the Shares pursuant to the terms of the Option Agreement).  The Trustees may provide for the
authentication or evidence of any action taken by them.

 

E.                                      Resignation.  A Trustee may resign at any time by
delivering written notice thereof to the Settlor and the other Trustee.

 

F.                                      Bond or Other
Security.  No bond or other security
shall be required of the Trustees.  If,
notwithstanding the foregoing provision, bond or other security is required of
the Trustees for any reason whatsoever, the Trustees, acting jointly, may
provide same and the cost thereof shall be paid by the Settlor pursuant to its
obligations under the Funding Agreement.

 

G.                                     Fees and
Expenses.  Each Trustee who is not an
Affiliate of the Settlor shall be entitled to a fee from this Trust of $50 per
hour for services rendered as a Trustee hereunder, subject to a non-cumulative
maximum amount of $5,000 annually.  Each
Trustee who is an Affiliate of the Settlor (as such term is defined in Section H
of this Article III) shall not be entitled to receive a fee for services
rendered as a Trustee hereunder.  Each
Trustee, irrespective of whether or not he is an Affiliate of the Settlor, shall
be entitled to reimbursement from this Trust for any and all reasonable
expenses incurred in connection with the performance of his duties as Trustee
hereunder.  The funds necessary to make
each compensation payment and each expense reimbursement to the Trustees under
this Section G of Article III of this Trust shall be obtained from the
Settlor in accordance with the terms of the Funding Agreement, and the Trustees
shall not use any of the corpus of this Trust for such purposes unless they, in
their sole discretion, conclude that the Settlor is not going to timely fulfill
its obligations under the Funding Agreement.

 

H.                                    Trustees’
Relationship with the Settlor.  Any
Trustee and any firm, corporation, trust or association of which he may be a
trustee, stockholder, director, 

 

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officer, member, agent or employee may contract with or be or become
pecuniarily interested, directly or indirectly, in any matter or transaction to
which the Settlor or any Affiliate of the Settlor may be a party or in which it
may be concerned, as fully and freely as though the Trustee were not a Trustee
of this Trust.  A Trustee shall not be
disqualified from acting as such by reason of his being a director or officer
of the Settlor or an Affiliate of the Settlor, but in no event shall there be
at any time more than one Trustee of this Trust who is an Affiliate of the
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 that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Settlor, and a person shall be deemed to control another person (including
the Settlor) if the controlling person is the beneficial owner (as defined in
Rule 13d-3 under the Securities Act of 1934, as amended) of ten percent (10%)
or more of any class of voting securities (or other voting interests) of the
controlled person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled person,
whether through ownership of securities, through serving as an officer or
director, by contract or otherwise.

 

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

 

J.                                        Liability of
the Trustees.  The Trustees will not
be responsible for any loss that may occur by reason of the depreciation or
decrease in value of the Shares or any other property held as a part of the
corpus of this Trust.  No Trustee will be
liable for acts or defaults of any other Trustee or for acts or defaults of any
agent of any other Trustee.  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 by the proper
party.  The Trustees will not be liable
for any error of judgment nor for any act done or omitted, nor for any mistake
of fact or law, nor for anything that they may do or refrain from doing in good
faith, nor generally will the Trustees have any accountability pursuant to this
Trust, except that each Trustee shall be liable for his own fraud, gross
negligence or similar conduct.

 

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K.                                    Conclusiveness
of Actions.  Every action taken by
the Trustees, acting jointly, pursuant to this Trust shall be conclusive and
binding upon all persons and no person will have any right or responsibility to
look into the authority of the Trustees to perform any act.

 

ARTICLE IV

 

Successor Trustees

 

A.                                   Appointment
of Successor Trustees.  If a Trustee
dies, resigns or is removed, the vacancy occurring as a result of such death,
resignation or removal shall be promptly filled with a qualified individual by
the Settlor; provided, however, that at no time shall there be more than one
Trustee of this Trust who is an Affiliate of the Settlor, or who is employed by
the Settlor or by an Affiliate of the Settlor.

 

B.                                     Rights and
Powers of Successor Trustee.  A
successor Trustee shall have the rights and powers and shall be subject to the
duties and responsibilities of a predecessor Trustee.  A successor Trustee is authorized and directed,
without requiring an audit or other independent accounting, to accept from a
predecessor Trustee the assets delivered by the predecessor Trustee to the
successor Trustee on the basis of the accounting submitted by the predecessor
Trustee.  A successor Trustee shall not
have any duty or responsibility for the actions, defaults or omissions of a
predecessor Trustee.

 

C.                                     Transfer of
Shares to Successor Trustees. 
Notwithstanding any changes in the identity of the Trustees, the
certificates for the Shares or other securities standing in the name of the
Trustees may be endorsed and transferred by any successor Trustee or Trustees
with the same effect as if endorsed and transferred by the Trustee or Trustees
who have ceased to act.  The Trustees,
acting jointly, are authorized and empowered to cause any further transfer of
the Shares or other securities held a part of the corpus of this Trust that may
be necessary because of any change of persons holding the office of Trustee.

 

ARTICLE V

 

Indemnification of Trustees

 

A.                                   Mandatory
Indemnification.  (1) Subject to the
conditions and limitations of this Article V, the Trust shall indemnify
and hold harmless any Trustee who is or was 

 

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a party, or is threatened to be made a party to, any threatened,
pending or completed action, claim, litigation, suit or proceeding, whether
civil, criminal, administrative or investigative, whether predicated on
foreign, federal, state or local law, and whether formal or informal
(collectively, “actions”) by reason of his status as, or the fact that he is or
was or has agreed to become, a Trustee of this Trust (an “Indemnitee”), and as
to acts performed in the course of an Indemnitee’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”) reasonably incurred 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, that it is not determined
pursuant to Section B of Article V of this Trust, or by the court
before which such action was brought, that:

 

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

 

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

 

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

 

(ii)                                  subject
to the restrictions of Section A(3) of Article V of this Trust,
amounts incurred by an Indemnitee in settlement of any action, no matter by
whom brought; provided, that it is not determined pursuant to Section B of
Article 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
and the beneficiaries of this Trust;

 

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

 

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

 

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

 

(iii)                               subject
to the restrictions of Section A(3) of Article V
of this Trust, judgments, fines, penalties or other amounts incurred by an Indemnitee
pursuant to an adjudication of liability in connection with any action;
provided, that it is not determined pursuant to Section B of Article V
of this Trust, or by the court before which such action was brought, that:

 

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

 

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

 

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

 

(2)                                  To
the extent an Indemnitee has been successful on the merits or otherwise in
connection with any action referred to in Section A(1)
of Article V of this Trust, no matter by whom brought (including, without
limitation, the settlement, dismissal, abandonment or withdrawal of any such
action where the Indemnitee does not pay, incur or assume any material
liability), or in connection with any claim, issue or 

 

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matter therein,
he shall be indemnified by this Trust against expenses reasonably incurred by
or on behalf of him in connection therewith. 
This Trust shall pay such amounts (net of all amounts, if any,
previously advanced to the Indemnitee 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 writing to this Trust) upon the executive’s written
request therefor without regard to the provisions of Section B of Article V
of this Trust.

 

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

 

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

 

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

 

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

 

B.                                     Right to
Indemnification; How Determined.  (1)
Except as otherwise set forth in this Section B of Article V of this
Trust, any indemnification to be provided to an Indemnitee by this Trust under Section A
of Article V of this Trust upon the final disposition or conclusion of an
action (or a claim, issue or matter associated with such an action), unless
otherwise ordered by the court before which such action was brought, shall be
paid by this Trust (net of all amounts, if any, previously advanced to the
Indemnitee 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 writing to this Trust) within sixty (60) days after the receipt of the
Indemnitee’s written request therefor, which request shall include a
comprehensive accounting of amounts for which indemnification is being sought
and shall reference the provision of Article V of this Trust pursuant to
which such claim is being made.

 

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Notwithstanding the foregoing, the payment of
the requested amounts may be denied by this Trust if (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 best interests of this Trust
and the beneficiaries of this Trust and would contravene the terms and conditions
of Article V of this Trust; or (ii) a majority of the Trustees of this
Trust are a party in interest to such action. 
In either of such events, the Trustees shall immediately authorize and
direct, by appropriate resolution, that an independent determination be made as
to whether the Indemnitee has met the applicable standard of conduct set forth
in Section A of Article V of this Trust and, therefore, whether
indemnification is proper pursuant to this Article V.

 

Such independent determination shall be made
by a panel of three arbitrators in the city where the principal office of this
Trust is located in accordance with the rules then prevailing of the American
Arbitration Association, or, at the option of the Indemnitee, by an independent
legal counsel mutually selected by the Trustees and the Indemnitee (such panel
of arbitrators or independent legal counsel being hereinafter referred to as
the “Authority”).

 

In any such determination there shall exist a
rebuttable presumption that the Indemnitee has met such standard of conduct and
is therefore entitled to indemnification pursuant to Article V of this
Trust.  The burden of rebutting such
presumption by clear and convincing evidence shall be on this Trust.

 

If a panel of arbitrators is to be employed,
one of such arbitrators shall be selected by the Trustees, by a majority vote
of the Trustees who were not parties in interest to such action (or, if such
vote is not obtainable, by an independent legal counsel chosen by the
Trustees), the second by the Indemnitee and the third by the previous two
arbitrators.

 

The Authority shall make a determination
within sixty days of being selected and shall simultaneously submit a written
opinion of its conclusions to both the Trustees of this Trust, collectively,
and to the Indemnitee, individually, and, if the Authority determines that the
Indemnitee is entitled to be indemnified for any amounts pursuant to Article V
of this Trust, this Trust shall pay such amounts (net of all amounts, if any,
previously advanced to the Indemnitee pursuant to Section D of Article V
of this

 

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Trust), including interest thereon as provided in Section E(3) of Article V
of this Trust, to the Indemnitee (or to such other person or entity as the Indemnitee
may designate in writing to this Trust) within ten days of receipt of such
opinion.

 

(2)                                  The Indemnitee may,
either before or within two years after a determination, if any, has been made
by the Authority, petition any court of competent jurisdiction to determine
whether the Indemnitee is entitled to indemnification under Article V of
this Trust.  Such court shall thereupon
have the exclusive power to make such determination unless and until such court
dismisses or otherwise terminates such proceeding without having made such
determination.

 

The court shall make an independent
determination of whether the Indemnitee is entitled 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 Indemnitee has met the applicable standard of
conduct and is therefore entitled to indemnification pursuant to Article V
of this Trust. The burden of rebutting such presumption by clear and convincing
evidence shall be on this Trust.

 

If the court determines that the Indemnitee
is entitled to be indemnified for any amounts pursuant to Article V of
this Trust, unless otherwise ordered by such court, this Trust shall pay such
amounts (net of all amounts, if any previously advanced 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 this Trust, to
the Indemnitee (or to such other person or entity as the Indemnitee may
designate in writing to this Trust) within ten (10) days of the rendering of
such determination.

 

The Indemnitee shall pay all expenses
incurred by the Indemnitee in connection with the 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 be indemnified, in
whole or in part, by this Trust as authorized hereby.  All expenses incurred by the Indemnitee in
connection with any subsequent appeal of the judicial determination provided
for in Section B(2) of Article V of this Trust shall be paid by the
Indemnitee regardless of the disposition of such appeal.

 

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(3)                                  Except as otherwise
set forth in Section B of Article V of this Trust, the expenses
associated with the indemnification process set forth in Section B of Article V
of this Trust, including, without limitation, the expenses of the Authority
selected hereunder, shall be paid by this Trust.

 

C.                                     Termination of
an Action is Nonconclusive.  The
termination of any action, no matter by whom brought, by judgment, order,
settlement, conviction, or upon a plea of no contest or its equivalent, shall
not, of itself, create a presumption that the Indemnitee has not met the
applicable standard of conduct set forth in Section A of Article V of
this Trust.

 

D.                                    Advance Payment.  (1) Expenses reasonably incurred by or on
behalf of an Indemnitee in connection with any action (or claim, issue or
matter associated with such action), no matter by whom brought, shall be paid
by this Trust to the Indemnitee (or to such other person or entity as the
Indemnitee may designate in writing to this Trust) in advance of the final
disposition or conclusion of such action (or claim, issue or matter associated
with such action) upon the receipt of the Indemnitee’s written request
therefor; provided, the following conditions are satisfied:

 

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

 

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

 

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

 

16

 

(2)                                  If this Trust makes
an advance of expenses to an Indemnitee pursuant to this Section D of Article V
of this Trust, this Trust shall be subrogated to every right of recovery the
Indemnitee may have against any insurance carrier from whom this Trust has
purchased insurance for such purpose.

 

E.                                      Partial
Indemnification; Interest.  (1) If it
is determined by the Authority pursuant to Section B of Article V of
this Trust, or by the court before which such action was brought, that an
Indemnitee is entitled to indemnification as to some claims, issues or matters,
but not as to other claims, issues or matters, involved in any action, no
matter by whom brought, the Authority (or the court) shall authorize the
reasonable proration of such expenses, judgments, penalties, fines and amounts
incurred in settlement with respect to which indemnification is sought by the
Indemnitee, among such claims, issues or matters as the Authority (or the court)
shall deem appropriate in light of all of the circumstances of such action.

 

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

 

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

 

F.                                      Nonexclusivity
of Agreement.  The right to
indemnification and advancement` expenses provided to an Indemnitee pursuant to
Article V of this Trust shall not be deemed exclusive of any other rights
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 to the
Indemnitee if he ceases to be a Trustee of this Trust, and such terms and
provisions shall inure to the benefit of the heirs, executors and
administrators of the Indemnitee.

 

G.                                     Insurance.  (1) This Trust may purchase and maintain
insurance on half of an Indemnitee against any liability asserted against him
or incurred by or behalf of him in 

 

17

 

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 the power to
indemnify him against such liability under the provisions of Article V of
this Trust.

 

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

 

(2)                                  If the Indemnitee
shall receive payment from any insurance carrier or from the plaintiff in any action
against the Indemnitee in respect of indemnified amounts after payments on
account of all or part of such indemnified amounts have been made by this Trust
pursuant to Article V of this Trust, the Indemnitee shall promptly
reimburse this Trust for the amount, if any, by which the sum of such payment
by such insurance carrier or such plaintiff and payments by this Trust to the
Indemnitee exceeds such indemnified amounts; provided, however, at such
portions, if any, of such insurance proceeds that are required to be reimbursed
to the insurance carrier under the terms of its insurance policy, such as
deductible or coinsurance payments, shall not be deemed to be payments to the
Indemnitee hereunder.

 

In addition, upon payment of indemnified amounts under Article V
of this Trust, this Trust shall be subrogated to the Indemnitee’s rights
against any insurance carrier in respect of such indemnified amounts and the
Indemnitee shall execute and deliver any and all instruments and documents and
perform any and all other acts and deeds which this Trust deems necessary or
advisable to secure such rights.  The
Indemnitee shall do nothing to prejudice such rights of recovery or
subrogation.

 

H.                                    Witness Expenses.  Upon an Indemnitee’s written request, this
Trust shall pay (in advance or otherwise) or reimburse any and all expenses
reasonably incurred by the Indemnitee in connection with his appearance as a
witness in any action at a time when he has not been formally named a defendant
or respondent to such an action.

 

I.                                         Contribution.  (1) If the indemnity provided for in Section A
of Article V of this Trust is unavailable to an Indemnitee for any reason
whatsoever, this Trust, in lieu of indemnifying the Indemnitee, shall
contribute to the amount reasonably incurred by or 

 

18

 

on behalf of the Indemnitee, whether for judgments, fines, penalties,
amounts incurred in settlement 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 to Section B of Article V of this Trust, or by
the court before which such action was brought, taking into account all of the
circumstances of such action, in order to reflect  (i)
the relative benefits received by this Trust and the Indemnitee 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 the Indemnitee in connection
with such event or transaction.

 

(2)                                  An Indemnitee shall
not be entitled to contribution from this Trust under Section I of Article V
of this Trust if it is determined by the Authority pursuant to Section B
of Article V of this Trust, or bar the court before which such action was
brought, that the Indemnitee engaged in criminal, fraudulent or intentional
misconduct in the performance of his duty to this Trust or otherwise violated
the provisions of Section A(3) of Article V
of this Trust.

 

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

 

J.                                        Severability.
If any provision of Article V of this Trust shall be deemed invalid or
inoperative, or if a court of competent jurisdiction determines that any of the
provisions of Article V of this Trust contravene public policy, Article V
of this Trust shall be construed so that the remaining provisions shall not be
affected, but shall remain in full force and effect, and any such provisions
which are invalid and inoperative or which contravene public policy shall be
deemed, without further action 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, and this Trust shall indemnify the Indemnitee as to
expenses, judgments, fines and amounts incurred in settlement with respect to
any action, no matter by whom brought, to the full extent permitted by any
applicable provision of Article V of this Trust that shall not have been
invalidated.

 

19

 

ARTICLE VI

 

Miscellaneous Provisions

 

A.                                   Term of Trust.  This Trust shall continue in full force and
effect until all of the Shares and other property held as a part of the corpus
of this Trust shall have been distributed by the Trustees. 

 

B.                                     Revocation of
Trust.  This Trust is irrevocable and
the Settlor shall have no right, either alone or in combination with others in
whatever capacity, to alter, amend, revoke or terminate this Trust.

 

C.                                     Anticipatory
Assignments.  No beneficiary of this
Trust may in any event anticipate any benefits that he may be entitled to
receive hereunder.  No assignment or
order by a beneficiary by way of anticipation of any part of the Shares or
other property held as a part of the corpus of this Trust will be valid, nor
may the Trustees accept it, and the Trustees shall make all distributions
pursuant to this Trust directly to the beneficiaries.  No interest in the Shares or other property
held as a part of the corpus of this Trust will be subject to the claims of a
creditor, or be subject to attachment, garnishment, execution or other legal or
equitable process or lien brought by or in favor of a creditor of a beneficiary
of this Trust.

 

D.                                    Manner of
Distribution.  The Trustees may
distribute the Shares and other property held as a part of the corpus of this
Trust to the beneficiary directly or to the guardian, custodian, trustee,
receiver, conservator or other similar official for the beneficiary.  The Trustees will not be responsible for any
distribution of the Shares or other property held as a part of the corpus of
this Trust once it has been made to the 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 or unenforceable, the
remainder of this Trust shall be construed in all respects as if such invalid
or unenforceable part, clause, provision or condition were omitted.

 

F.                                      Rules of
Construction.  In
this Trust, words in the singular number include the plural, and in the plural
include the singular.  Words of the
masculine gender include the feminine and the neuter, and when the sense so
indicates, words of the neuter gender may refer to any gender, and the word “or”
is disjunctive but not exclusive.  The
captions 

 

20

 

and section numbers
appearing in this Trust are inserted only as a matter of convenience and do not
define, limit or describe the scope or intent of the provisions of this Trust.

 

G.                                     Choice of Law.  THE SETTLOR AND THE
TRUSTEES AGREE THAT CERTAIN MATERIAL EVENTS, OCCURRENCES AND TRANSACTIONS
RELATING TO THIS TRUST BEAR A REASONABLE RELATIONSHIP TO THE STATE OF
TEXAS.  THE VALIDITY, TERMS, PERFORMANCE
AND ENFORCEMENT OF THIS TRUST SHALL BE GOVERNED BY THOSE LAWS OF THE STATE OF
TEXAS WHICH ARE APPLICABLE TO TRUSTS WHICH ARE EXECUTED, DELIVERED AND
PERFORMED SOLELY IN THE STATE OF TEXAS.

 

H.                                    Counterparts.  This Trust may be executed in any number of
counterparts, all of which shall constitute one and the same instrument, and
the Settlor and the Trustees may execute this Trust by signing and delivering
one or more counterparts.

 

SIGNATURES

 

To evidence the binding effect of the terms
and conditions of this Trust, the Settlor (through its duly authorized officer)
and the Trustee have caused this Trust to be executed and delivered as of, but
not necessarily on, the date first above written.

 

	
   

  	
  Settlor:

  
	
   

  	
   

  
	
   

  	
  CAP ROCK ENERGY CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David W. Pruitt

  	
   

  
	
   

  	
   

  	
  David W. Pruitt, Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Trustees:

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Alfred J. Schwartz

  	
   

  
	
   

  	
   

  	
  Alfred J. Schwartz

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Robert G. Holman

  	
   

  
	
   

  	
   

  	
  Robert G. Holman

  	
   

  
					

 

21EXHIBIT 10.89
 
THIS AGREEMENT IS SUBJECT TO ARBITRATION
UNDER THE TEXAS GENERAL ARBITRATION ACT
 
RIGHT OF FIRST REFUSAL AGREEMENT
 
THIS AGREEMENT (this “Agreement”) is made and entered into effective this 31st day of December , 2004, by and between CAP ROCK ENERGY CORPORATION (the “Company”), a Texas corporation, and ALFRED J. SCHWARTZ and ROBERT G. HOLMAN, Trustees (together with their successors, the “Trustees”) of the CAP ROCK ENERGY CORPORATION SHAREHOLDERS’ TRUST (the “Trust”) dated of even date herewith.
 
BACKGROUND
 
A.  The Trust is presently the owner of record of 346,958 shares of common stock, $.01 par value, of the Company and may, through stock splits or other means, hereafter acquire additional shares of the common stock, $.01 par value of the Company (collectively, the “Shares”);
 
B.  The Trust and the Company recognize that due to the limited number of shares of the Company sold on the open market, the sale of the Shares in more than limited numbers would have a detrimental effect upon the market value of the Shares and the Beneficial Owners;
 
C.  In order to protect the value of the Shares, the Trust desires to grant to the Company, and the Company desires to obtain from the Trust, the exclusive right of first refusal to purchase the Shares upon and subject to the terms and conditions hereinafter set forth.
 
TERMS AND CONDITIONS
 
In consideration of the sum of $10.00 in cash paid by the Company to the Trust, the mutual benefits to be derived and the representations and warranties, conditions and promises herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows:
 
1.  GRANT OF RIGHT OF FIRST REFUSAL.  The Trust hereby grants to the Company the right of first refusal (the “First Refusal Right”), exercisable in connection with any proposed transfer of the Shares. For purposes of this Agreement, the term “transfer” shall include any sale, assignment, pledge, encumbrance or other disposition of the Shares intended to be made by the Trust or any subsequent holder of the Shares (“Holder”), but shall not include any Permitted Transfer to a Beneficial Owner.
 

 
2.  NOTICE OF INTENDED DISPOSITION. In the event any Holder desires to sale or otherwise dispose of all or any part of the Shares on the open market or accept a bona fide third-party offer for the transfer of any or all of such shares (the Shares subject to such intention to sale or offer to be hereinafter referred to as the “Target Shares”), Holder shall promptly deliver to the Company written notice (the “Disposition Notice”) of the terms of the proposed sale, including the purchase price and the identity of any third-party offeror.
 
3.  EXERCISE OF THE FIRST REFUSAL RIGHT. The Company shall, for a period of twenty (20) business days following receipt of the Disposition Notice, have the right to repurchase any or all of the Target Shares subject to the Disposition Notice upon the same terms as those specified therein or upon such other terms (not materially different from those specified in the Disposition Notice) to which Holder consents. Such right shall be exercisable by delivery of written notice (the “Exercise Notice”) to Holder prior to the expiration of the exercise period. If such right is exercised with respect to all the Target Shares, then the Company shall effect the repurchase of such shares, including payment of the purchase price, not more than five (5) business days after delivery of the Exercise Notice; and at such time the certificates representing the Target Shares shall be delivered to the Company.
 
If the intended method of sale or disposition of the shares specified in the Disposition Notice is through open market sales, the purchase price to be paid by the Company for the Shares shall be the average of the Current Per Share Market Price (as such term is hereinafter defined) of the Shares for thirty (30) consecutive Trading Days (as such term is hereinafter defined) ending five Trading Days preceding the delivery of the Exercise Notice (as such term is defined in Section 3 of this Agreement) by the Company. The “Current Per Share Market Price” means the closing price for each day which shall be the last sale price, regular way, or, in case no sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the American Stock Exchange or, if the Shares are not listed or admitted to trading on the American Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Shares are listed or admitted to trading or, if the Shares are not listed or admitted to trading on any national securities exchange, the last sales price, or if not so reported, then the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the NASDAQ or such other system then in use of, if on any such date the Shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Shares, which professional market maker shall be selected by the Holder and agreeable to the Company, less any commission, fees or other charges that would have been paid by Holder in connection with the sale or disposition of the Shares or deducted from any proceeds thereof . The term “Trading Days” means a day on which the American Stock Exchange or other principal national securities exchange on which the Shares are listed or admitted to trading is open for the transaction of business or, if the Shares are not listed or admitted to trading on any national securities exchange,

 

2

 

a Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in the State of Texas are not authorized or obligated by law or executive order to close.
 
Should the purchase price specified in the Disposition Notice be payable in property other than cash or evidences of indebtedness, the Company shall have the right to pay the purchase price in the form of cash equal in amount to the value of such property. If Holder and the Company cannot agree on such cash value within ten (10) business days after the Company’s receipt of the Disposition Notice, the valuation shall be made by an appraiser of recognized standing selected by Holder and the Company or, if they cannot
agree on an appraiser within twenty (20) business days after the Company’s receipt of
the Disposition Notice, each shall select an appraiser of recognized standing and the two (2) appraisers shall designate a third appraiser of recognized standing, whose appraisal shall be determinative of such value. The cost of such appraisal shall be shared equally by Holder and the Company. The closing shall then be held on the LATER of (i) the fifth (5th) business day following delivery of the Exercise Notice or (ii) the fifth (5th) business day after such valuation shall have been made.
 
4. NON-EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the Exercise Notice is not given to Holder prior to the expiration of the twenty (20) business-day exercise period, Holder shall have a period of thirty (30) days thereafter in which to sell or otherwise dispose of the Target Shares to the third-party offeror identified in the Disposition Notice or in open market sales if the Notice of Disposition specified open market sales as the method of disposition, upon terms (including the purchase price) no more favorable to the purchaser than those specified in the Disposition Notice; PROVIDED, however, that any such sale or disposition must not be effected in contravention of the provisions of Section 12 hereof. In the event Holder does not affect such sale or disposition of the Target Shares within the specified thirty (30)-day period, the First Refusal Right shall continue to be applicable to any subsequent disposition of the Target Shares by Holder until such right lapses.
 
5. PARTIAL EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the Company makes a timely exercise of the First Refusal Right with respect to a portion, but not all, of the Target Shares specified in the Disposition Notice, Holder shall have the option, exercisable by written notice to the Company delivered within five (5) business days after Holder’s receipt of the Exercise Notice, to effect the sale of the Target Shares pursuant to either of the following alternatives:
 
(i) sale or other disposition of all the Target Shares on the open market or to the third-party offeror identified in the Disposition Notice, but in full compliance with the requirements of Section 4, as if the Company did not exercise the First Refusal Right; or
 
(ii) sale to the Company of the portion of the Target Shares which the Company has elected to purchase, such sale to be effected in substantial conformity with the provisions of Section 3. The First Refusal Right shall continue to be applicable to any subsequent disposition of the remaining Target Shares until such right lapses.
 
3

 
Holder’s failure to deliver timely notification to the Company shall be deemed to be an election by Owner to sell the Target Shares pursuant to alternative (i) above.
 
6.  ESCROW.
 
A. DEPOSIT. The certificates for the Shares which are subject to the Repurchase Right shall be deposited in escrow with the Company to be held in accordance with the provisions of this Section 6. Each deposited certificate shall be accompanied by a duly-executed Assignment Separate from Certificate in the form of Exhibit I. The deposited certificates, together with any other assets or securities from time to time deposited with the Company pursuant to the requirements of this Agreement, shall remain in escrow until such time or times as the certificates (or other assets and securities) are to be released or otherwise surrendered for cancellation in accordance with Section 3. Upon delivery of the certificates (or other assets and securities) to the Company, Holder shall be issued a receipt acknowledging the number of Shares (or other assets and securities) delivered in escrow.
 
B. RECAPITALIZATION. Any new, substituted or additional securities or other property which is by reason of any Recapitalization distributed with respect to the Shares shall be immediately delivered to the Company to be held in escrow under this Section 6, but only to the extent the Shares are at the time subject to the escrow requirements hereunder. However, all regular cash dividends on the Shares (or other securities at the time held in escrow) shall be paid directly to Holder and shall not be held in escrow.
 
C. RELEASE/SURRENDER. The Shares, together with any other assets or securities held in escrow hereunder, shall be subject to the following terms relating to their release from escrow or their surrender to the Company for repurchase and cancellation:
 
(i) Should the Company elect to exercise the First Refusal Right with respect to any Target Shares held at the time in escrow hereunder, then the escrowed certificates for those Target Shares (together with any other assets or securities attributable thereto) shall be surrendered to the Company concurrently with the payment of the purchase price for such Target Shares to Holder, and Holder shall cease to have any further rights or claims with respect to such       Target Shares (or other assets or securities attributable thereto).
 
(ii) Should the Company elect NOT to exercise the First Refusal Right with      respect to any Target Shares held at the time in escrow hereunder, then the escrowed certificates for those shares (together with any other assets or securities attributable thereto) shall be immediately released to Holder.
 
(iii) Transfers of Shares to a Beneficial Owner (and any other vested assets and securities attributable thereto) shall be released within thirty (30) days.
 
7.  TERM.  The term of this Agreement shall commence on the date of this Agreement and shall continue until December 31, 2009

 

4

 

8.  CLOSING.  The consummation of the purchase of the Shares (the “Closing”) by the Company shall take place at the principal executive offices of the Company in Midland, Texas, or at such other place, time or date as shall be mutually agreed.
 
9. CANCELLATION OF SHARES. If the Company shall make available, at the time and place and in the amount and form provided in this Agreement, the consideration for the Shares to be repurchased in accordance with the provisions of this Agreement, then from and after such time, the person from whom such shares are to be repurchased shall no longer have any rights as a holder of such shares (other than the right to receive payment of such consideration in accordance with this Agreement). Such shares shall be deemed purchased in accordance with the applicable provisions hereof, and the Company shall be deemed the owner and holder of such shares, whether or not the certificates therefore have been delivered as required by this Agreement.
 
10.  DISPOSITION LIMITATIONS. Neither the Trust nor any subsequent Holder shall make any disposition of the Shares (other than a Transfer to a Beneficial Owner) unless and until it shall have complied with all requirements of this Agreement applicable to the disposition of the Shares. The Company shall NOT be required (i) to transfer on its books any Shares which have been sold or transferred in violation of the provisions of this Agreement OR (ii) to treat as the owner of the Shares, or otherwise to accord voting, dividend or liquidation rights to, any transferee to whom the Shares have been transferred in contravention of this Agreement.
 
11. RESTRICTIVE LEGENDS. The stock certificates for the Shares shall be endorsed with the following restrictive legend and any legend required to be placed thereon by the applicable blue sky laws of any state:
 
“The shares represented by this certificate are subject to certain rights of first refusal granted to the Company and accordingly may not be sold, assigned, transferred, encumbered, or in any manner disposed of except in conformity with the terms of a written agreement dated December 31, 2004, between the Company and the registered holder of the shares (or the predecessor in      interest to the shares). A copy of such agreement is maintained at the Company’s principal corporate offices.”
 
12. TRANSFER RESTRICTIONS
 
A. RESTRICTIONS ON TRANSFER. Except for any Permitted Transfer, the Shares shall not be sold, transferred, assigned, encumbered or otherwise disposed of (i) in contravention of the First Refusal Right, (ii) in a manner such that any purchaser of Shares is or will be the beneficial owner of more than 1% of the issued and outstanding voting shares of the Company, or (iii) in a manner such that the number of shares sold or transferred exceeds the volume limitations provided in Rule 144 (e)(1) of the Securities Act of 1933.
 
5

 
B. TRANSFEREE OBLIGATIONS. Each person (other than the Company or the beneficial holders as they are located) to whom the Shares are transferred by means of a Permitted Transfer must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Company that such person is bound by the provisions of this
Agreement and that the transferred shares are subject to the First Refusal Right, to the same extent such shares would be so subject if retained by trust.
 
13.  ADJUSTMENTS.  If, on or after the date of this Agreement, there shall occur any stock dividend, stock split, recapitalization, combination or exchange of shares, merger, consolidation, reorganization or other change or transaction of or by the Company as a result of which shares of any class of stock or other securities shall be issued in respect of any of the Shares, or if any of the Shares shall be changed into the same or a different number of shares of the same or another class of stock or other securities, or upon any other acquisition of any securities of the Company in any other manner, and whether in compliance with the provisions of this Agreement or otherwise, any such shares or other securities shall, from and after their receipt or acquisition by the Trust, constitute additional Shares and shall be subject to this Agreement as if originally included thereunder.
 
14.  NOTICE DELIVERY REQUIREMENTS.  All notices or other communications which are required or permitted hereunder shall be in writing and shall be delivered either personally or by telegram, telex, telecopy or similar facsimile means, by registered or certified mail (postage prepaid and return receipt requested), or by express courier or delivery service, addressed as follows:
 
If to the Company:
 
Cap Rock Energy Corporation
500 W. Wall Street
Suite 400
Midland, Texas 79701
Attention:  Mr. David W. Pruitt, CEO
Telecopy:  915-684-0333
 
 
If to the Trust:
 
Cap Rock Energy Corporation Shareholders’ Trust
115 S. Travis Street
Sherman, Texas 75090
Attention:  Mr. Ronald W. Lyon
Telecopy:  903-868-2492
 
or at such other address and number as either party shall have previously designated by written notice given to the other party in the manner hereinabove set forth. Notices shall be deemed given when received, if sent by telegram, telex, telecopy or similar facsimile 
 
6

 
means (confirmation of such receipt by confirmed facsimile transmission being deemed receipt of communications sent by telex, telecopy or other facsimile means); and when delivered and receipted for (or upon the date of attempted delivery where delivery is refused), if hand-delivered, sent by express courier or delivery service, or sent by certified or registered mail.
 
15.  FURTHER ASSURANCES.  The parties hereto agree (i) to furnish upon request to each other such further information; (ii) to execute and deliver to each other such other documents; and (iii) to do such other acts and things, all as the other party hereto may at any time reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to herein.
 
16.  WAIVER.  The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay on the part of any party in exercising any right, power or privilege under this Agreement or the documents referred to herein shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable law, (i) no claim or right arising out of this Agreement or the documents referred to herein can be discharged by one party hereto, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party hereto; (ii) no waiver which may be given by a party hereto shall be applicable except in the specific instance for which it is given; and (iii) no notice to or demand on one party hereto shall be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to herein.
 
17.  ENTIRE AGREEMENT AND MODIFICATION.  This Agreement is intended by the parties to this Agreement as a final expression of their agreement with respect to the subject matter hereof, and is intended as a complete and exclusive statement of the terms and conditions of that agreement. This Agreement may not be modified, rescinded, or terminated orally, and no modification, rescission, termination or attempted waiver of any of the provisions hereof (including this Section) shall be valid unless in writing and signed by the party against whom the same is sought to be enforced.
 
18.  LIMITATIONS ON ASSIGNMENTS.  The Company shall not, during the term of this Agreement, assign, transfer or otherwise dispose of any of its rights hereunder to a person other than an Affiliate of the Company, without the prior written consent of the Trust. An Affiliate of the Company to whom any rights hereunder may have been transferred in accordance with this Agreement shall not, during the term of this Agreement, assign, transfer or otherwise dispose of any of its rights hereunder to a person other than the Company or another Affiliate of the Company, without the prior written consent of the Trust.
 
19.  PERSONS BOUND.  This Agreement shall apply to and be binding in all respects upon, and shall inure to the benefit of the parties hereto and their permitted successors 

 

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and assigns whether or not any such person shall have become a party to this agreement and have agreed in writing to join herein and be bound by the terms hereof. Nothing expressed or referred to in this Agreement is intended or shall be construed to give any person or entity other than the parties to this Agreement, and their permitted successors and assigns, any legal or equitable right, remedy or claim under or with respect to this Agreement, or any provision hereof, it being the intention of the parties hereto that this Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement, their successors and assigns, and for the benefit of no other person or entity.
 
20.  SEVERANCE.  In the event any court of competent jurisdiction shall hold any provision of this Agreement invalid or unenforceable, such holding shall not invalidate or render unenforceable any other provisions hereof. Any provision of this Agreement held invalid or unenforceable only in part or degree shall remain in full force and effect to the extent not held invalid or unenforceable.
 
21.  SECTION HEADINGS, CONSTRUCTION.  The headings of articles and sections contained in this Agreement are provided for convenience only. They form no part of this Agreement and shall not affect its construction or interpretation. All references to articles and sections in this Agreement refer to the corresponding articles and sections of this Agreement. All words used herein shall be construed to be of such gender or number as the circumstances require. Unless otherwise specifically noted, the words “herein,” “hereof,” “hereby,” “hereinabove,” “hereinbelow,” “hereunder,” and words of similar import, refer to this Agreement as a whole and not to any particular section, subsection, paragraph, clause or other subdivision hereof.
 
22.  CONSENT OR PERMISSION NOT TO BE UNREASONABLY WITHHELD.  Except as otherwise expressly stated herein, whenever the consent or permission of a
party hereto is required hereunder, such consent or permission shall not be unreasonably withheld or delayed.
 
23.  TIME OF ESSENCE.  With regard to all time periods set forth or referred to in this Agreement, time is of the essence.
 
24.  GOVERNING LAW.  THIS AGREEMENT AND ALL RIGHTS ARISING HEREUNDER SHALL BE CONSTRUED AND DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, AND THE PERFORMANCE THEREOF SHALL BE GOVERNED AND ENFORCED IN ACCORDANCE WITH SUCH LAWS. IN THE EVENT ANY CONTROVERSY ARISES OUT OF OR RELATES TO THIS AGREEMENT, THE TRUSTEES AND REPRESENTATIVES OF THE COMPANY SHALL FIRST MEET IN MIDLAND, TEXAS, AND ATTEMPT TO NEGOTIATE A RESOLUTION OF THEIR DISPUTE. IN THE EVENT SUCH NEGOTIATION SHALL FAIL TO RESOLVE ANY SUCH CONFLICT, THE PARTIES HEREBY AGREE TO SUBMIT TO ARBITRATION ADMINISTERED BY THE AMERICAN ARBITRATION ASSOCIATION UNDER ITS THEN CURRENT COMMERCIAL ARBITRATION RULES. ANY SUCH CONTROVERSY SHALL BE 

 

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SUBMITTED IN DALLAS, TEXAS, TO A PANEL OF THREE (3) ARBITRATORS, ONE CHOSEN BY EACH PARTY AND THE THIRD UNDER THE AMERICAN ARBITRATION RULES. AT LEAST TWO (2) OF THE ARBITRATORS SHALL HAVE EXPERIENCE WITH SECURITIES. THE ARBITRATORS WILL HAVE NO AUTHORITY TO AWARD PUNITIVE OR OTHER DAMAGES NOT MEASURED BY THE PREVAILING PARTY’S ACTUAL DAMAGES AND MAY NOT, IN ANY EVENT, MAKE ANY RULING, FINDING, OR AWARD THAT DOES NOT CONFORM TO THE TERMS AND CONDITIONS OF THIS AGREEMENT. THE PARTIES SHALL FAITHFULLY OBSERVE THIS AGREEMENT AND SUCH RULES, AND WILL ABIDE BY AND PERFORM ANY AWARD RENDERED BY THE ARBITRATORS, AND A JUDGMENT OF ANY COURT HAVING JURISDICTION MAY BE ENTERED ON THE AWARD. THE PROVISIONS OF THIS SECTION 20
ARE A MATERIAL INDUCEMENT FOR BOTH THE COMPANY AND THE TRUST ENTERING INTO THE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREIN. THE COMPANY AND THE TRUST EACH HEREBY ACKNOWLEDGE THAT IT HAS REVIEWED THE PROVISIONS OF THIS SECTION 20 WITH ITS INDEPENDENT LEGAL COUNSEL.
 
25.  COUNTERPARTS.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original copy of this Agreement, and all of which, when taken together, shall be deemed to constitute but one and the same agreement.
 
SIGNATURES
 
To evidence the binding effect of the covenants and agreements described above, the Company (by its duly authorized officer) and the Trust (by the Trustees) have caused this Agreement to be executed and delivered as of, but not necessarily on, the date first written above.
 

	 
	CAP ROCK ENERGY CORPORATION

	 
	 

	 
	By:
	/s/ DAVID W. PRUITT
	 

	 
	 
	David W. Pruitt, CEO

	 
	 

	 
	CAP ROCK ENERGY CORPORATION

	 
	SHAREHOLDERS’ TRUST

	 
	 

	 
	By:
	/s/ ALFRED J. SCHWARTZ
	 

	 
	 
	Alfred J. Schwartz, Trustee

	 
	 

	 
	By:
	/s/ ROBERT G. HOLMAN
	 

	 
	 
	Robert G. Holman, Trustee

					

 

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EXHIBIT I
 
ASSIGNMENT SEPARATE FROM CERTIFICATE
 
FOR VALUE RECEIVED              hereby sell(s), assign(s) and transfer(s) unto Cap Rock Energy Corporation (the “Corporation”),                (        ) shares of the Common Stock of the Corporation standing in its name on the books of the Corporation represented by Certificate No.                 herewith and do(es) hereby irrevocably constitute and appoint                   Attorney to transfer the said stock on the books of the Corporation with full power of substitution in the premises.
 

	Dated:
	 
	 
	 

	 
	 

	 
	CAP ROCK ENERGY CORPORATION

	 
	SHAREHOLDERS’ TRUST

	 
	 

	 
	 

	 
	 
	 

	 
	Alfred J. Schwartz, Trustee

	 
	 

	 
	 

	 
	 
	 

	 
	Robert G. Holman, Trustee

 
 
INSTRUCTION: Please do not fill in any blanks other than the signature line. Please sign exactly as you would like your name to appear on the issued stock certificate. The purpose of this assignment is to enable the Corporation to exercise the First refusal Right without requiring additional signatures on the part of the Holder.
 
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APPENDIX
 
The following definitions shall be in effect under the Agreement:
 
A. AGREEMENT shall mean this Right of First Refusal Agreement.
 
B. BENEFICIAL OWNER shall mean the former members of Cap Rock Electric Cooperative, Inc. (the “Cooperative” and predecessor to the Company) for whom the Company does not have valid addresses and are entitled to the Shares that would have otherwise been distributed to those former members of the Cooperative in connection with the full implementation of the conversion of the Cooperative from a member owned electric cooperative to a shareholder owned business corporation.
 
C. COMMON STOCK shall mean the Company’s common stock.
 
D. COMPANY shall mean Cap Rock Energy Corporation, a Texas corporation, and any successor corporation to all or substantially all of the assets or voting stock of Cap Rock Energy Corporation.
 
E. DISPOSITION NOTICE shall have the meaning assigned to such term in Section 2.
 
F. EXERCISE NOTICE shall have the meaning assigned to such term in section 3.
 
G. FIRST REFUSAL RIGHT shall mean the right granted to the Company in accordance with Section 1.
 
H. 1933 ACT shall mean the Securities Act of 1933, as amended.
 
I. HOLDER shall have the meaning assigned in Section 1 and shall also mean the Trust and all subsequent holders of the Shares who derive their chain of ownership through a Permitted Transfer from the Trust.
 
J. PERMITTED TRANSFER shall mean (i) a transfer to a Beneficial Owner and (ii) a transfer to the State of Texas pursuant to the escheat laws of that state; provided that any subsequent transfer or sale by the State of Texas, other than to a Beneficial Owner shall be subject to this Agreement.
 
K. PURCHASE PRICE shall have the meaning assigned to such term in Section 3.
 
L. RECAPITALIZATION shall mean any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the Company’s outstanding Common Stock as a class without the Company’s receipt of consideration.
 
M. SEC shall mean the Securities and Exchange Commission.

 

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N. SUBSIDIARY shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
 
Y. TARGET SHARES shall have the meaning assigned to such term in Section 2.
 
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