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                           CAP ROCK ENERGY CORPORATION

                            2001 STOCK INCENTIVE PLAN

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           SECTION 1 - ESTABLISHMENT OF PLAN; PURPOSE OF PLAN

           1.1    ESTABLISHMENT OF PLAN. The Corporation hereby establishes
the 2001 Stock Incentive Plan (the "Plan") for its directors, officers
(including corporate, divisional and Subsidiary officers), employees, and
advisers and consultants rendering services to or for the Corporation, its
divisions and Subsidiaries. The Plan permits the grant and award of Stock
Options, Stock Appreciation Rights, Restricted Stock, Stock Awards and Tax
Benefit Rights.

           1.2    PURPOSE OF PLAN. The purpose of the Plan is to provide
non-employee directors, officers, employees and advisers and consultants of
the Corporation, its divisions and its Subsidiaries with an increased
incentive to make significant and extraordinary contributions to the
long-term performance and growth of the Corporation and its Subsidiaries, to
join the interests of directors, officers, employees and advisers and
consultants with the interests of the Corporation's Shareholders through the
opportunity for increased stock ownership and to attract and retain
directors, officers, employees and advisers and consultants of exceptional
abilities. The Plan is further intended to provide flexibility to the
Corporation in structuring long-term incentive compensation to best promote
the foregoing objectives.

            SECTION 2 - DEFINITIONS

           The following words have the following meanings unless a different
meaning is plainly required by the context:

         2.1      "Acquisition Plan" means the proposed restructuring and
                  conversion of Cap Rock Electric Cooperative, Inc. (CREC) from
                  a member-owned electric cooperative to a regular corporation
                  through the acquisition of all of the assets of CREC by the
                  Corporation.

         2.2      "Act" means the Securities Exchange Act of 1934, as amended.

         2.3      "Board" means the Board of Directors of the Corporation.

         2.4      "Cause" means (a) the unauthorized disclosure of any trade
                  secret or confidential information of the Corporation or any
                  Subsidiary, (b) the commission of an act of embezzlement or
                  fraud, or (c) conviction of a felony which, in the discretion
                  of the Board, causes or could cause substantial injury and
                  discredit to the Corporation or any Subsidiary.

         2.5      "Change in Control" means (a) the failure of the Continuing
                  Directors at any time to constitute at least a majority of the
                  members of the Board; (b) the acquisition by any Person other
                  than an Excluded Holder of beneficial ownership (within the
                  meaning of

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                  Rule 13d-3 issued under the Act) of 20% or more of the
                  outstanding Common Stock or the combined voting power of
                  the Corporation's outstanding securities entitled to vote
                  generally in the election of directors; (c) the approval by
                  the Shareholders of the Corporation of a reorganization,
                  merger or consolidation, unless with or into a Permitted
                  Successor; or (d) the approval by the Shareholders of the
                  Corporation of a complete liquidation or dissolution of the
                  Corporation or the sale or disposition of all or substantially
                  all of the assets of the Corporation other than to a Permitted
                  Successor.

         2.6      "Code" means the Internal Revenue Code of 1986, as amended.

         2.7      "Committee" means the Compensation Committee of the Board or
                  such other committee as the Board shall designate to
                  administer the Plan. The Committee shall consist of at least
                  two members of the Board and all of its members shall be
                  "Non-Employee Directors" as defined in Rule 16b-3 issued under
                  the Act.

         2.8      "Common Stock" means the Common Stock of the Corporation, no
                  par value.

         2.9      "Corporation" means Cap Rock Energy Corporation and its
                  successors and assigns.

         2.10     "Continuing Directors" mean the individuals constituting the
                  Board as of the date this Plan was approved and any subsequent
                  directors whose election or nomination for election by the
                  Corporation's Shareholders was approved by a vote of
                  two-thirds of the individuals who are then Continuing
                  Directors, but specifically excluding any individual whose
                  initial assumption of office occurs as a result of either an
                  actual or threatened election contest (as the term is used in
                  Rule 14a-11 of Regulation 14A issued under the Act) or other
                  actual or threatened solicitation of proxies or consents by or
                  on behalf of a Person other than the Board.

         2.11     "Employee Benefit Plan" means any plan or program established
                  by the Corporation or a Subsidiary for the compensation or
                  benefit of employees of the Corporation or any of its
                  Subsidiaries.

         2.12     "Excluded Holder" means (a) any Person who at the time this
                  Plan was approved was the beneficial owner of 20% or more of
                  the outstanding Common Stock; or (i) the Corporation, a
                  Subsidiary or any Employee Benefit Plan of the Corporation or
                  a Subsidiary or any trust holding Common Stock or other
                  securities pursuant to the terms of an Employee Benefit Plan.

         2.13     "Incentive Award" means the award or grant of a Stock Option,
                  Stock Appreciation Right, Restricted Stock, Stock Award or Tax
                  Benefit Right to a Participant pursuant to the Plan.

         2.14     "Market Value" of Common Stock means (a) if the Stock is
                  listed on a national securities exchange, the closing price on
                  the Stock on a given date; (b) if the Stock is traded on an
                  exchange or market in which prices are reported on a bid and
                  asked price, the average of the mean between the bid and asked
                  price for the Stock on a given date; and (c) if the Stock is
                  not listed on a national securities exchange nor

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                  traded on the over-the-counter market, such value as the
                  Committee, in good faith, shall determine.

         2.15     "Participant" means any officer of the Corporation, its
                  divisions or its Subsidiaries, any employee of the
                  Corporation, its divisions or its Subsidiaries, any
                  nonemployee director of the Corporation, or any adviser or
                  consultant rendering services to or for the Corporation, its
                  divisions or its Subsidiaries who the Committee determines is
                  eligible to participate in the Plan and who is designated to
                  be granted an Incentive Award under the Plan.

         2.16     "Permitted Successor" means a corporation which, immediately
                  following the consummation of a transaction specified in
                  clauses (c) and (d) of the definition of "Change in Control"
                  above, satisfies each of the following criteria: (a) 60% or
                  more of the outstanding common stock of the corporation and
                  the combined voting power of the outstanding securities of the
                  corporation entitled to vote generally in the election of
                  directors (in each case determined immediately following the
                  consummation of the applicable transaction) is beneficially
                  owned, directly or indirectly, by all or substantially all of
                  the Persons who were the beneficial owners of the
                  Corporation's outstanding Common Stock and outstanding
                  securities entitled to vote generally in the election of
                  directors respectively) immediately prior to the applicable
                  transaction; (b) no Person other than an Excluded Holder
                  beneficially owns, directly or indirectly, 20% or more of the
                  outstanding common stock of the corporation or the combined
                  voting power of the outstanding securities of the corporation
                  entitled to vote generally in the election of directors (for
                  these purposes the term Excluded Holder shall include the
                  corporation, any Subsidiary of the corporation and any
                  Employee Benefit Plan of the corporation or any such
                  Subsidiary or any trust holding common stock or other
                  securities of the corporation pursuant to the terms of any
                  such Employee Benefit Plan); and (c) at least a majority of
                  the board of directors is comprised of Continuing Directors.

         2.17     "Person" has the same meaning asset forth in Sections 13(d)
                  and 14(d) (2) of the Act.

         2.18     "Restricted Period" means the period of time during which
                  Restricted Stock awarded under the Plan is subject to
                  restrictions. The Restricted Period may differ among
                  Participants and may have different expiration dates with
                  respect to shares of Common Stock covered by the same
                  Incentive Award.

         2.19     "Restricted Stock" means Common Stock awarded to a Participant
                  pursuant to Section 7 of the Plan.

         2.20     "Retirement" means the voluntary termination of all employment
                  by a Participant, or the voluntary termination of a
                  Participant as a director of the Corporation (as applicable),
                  after the Participant has attained 62 years of age, or such
                  other age as shall be determined by the Committee in its sole
                  discretion or as otherwise may be set forth in the Incentive
                  Award agreement or other grant document with respect to a
                  Participant and a particular Incentive Award.

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         2.21     "Stock Appreciation Right" means any right granted to a
                  Participant pursuant to Section 6 of the Plan.

         2.22     "Stock Award" means an award of Common Stock awarded to a
                  Participant pursuant to Section 8 of the Plan.

         2.23     "Stock Option" means the right to purchase Common Stock at a
                  stated price for a specified period of time. For purposes of
                  the Plan, a Stock Option may be either an incentive stock
                  option within the meaning of Section 422(b) of the Code or a
                  nonqualified stock option.

         2.24     "Subsidiary" means any corporation or other entity of which
                  50% or more of the outstanding voting stock or voting
                  ownership interest is directly or indirectly owned or
                  controlled by the Corporation or by one or more Subsidiaries
                  of the Corporation.

         2.25     "Tax Benefit Right" means any right granted to a Participant
                  pursuant to Section 9 of the Plan.

           SECTION 3 - ADMINISTRATION

           3.1    POWER AND AUTHORITY. The Committee shall administer the
Plan, shall have full power and authority to interpret the provisions of the
Plan and Incentive Awards granted under the Plan and shall have full power
and authority to supervise the administration of the Plan and Incentive
Awards granted under the Plan. All determinations, interpretations and
selections made by the Committee regarding the Plan shall be final and
conclusive.

           The Committee shall hold its meetings at such times and places as it
deems advisable. Action may be taken by a written instrument signed by a
majority of the members of the Committee and any action so taken shall be fully
as effective as if it had been taken at a meeting duly called and held. The
Committee shall make such rules and regulations for the conduct of its business
as it deems advisable. The members of the Committee shall not be paid any
additional fees for their services.

           3.2    GRANTS OR AWARDS TO PARTICIPANTS. In accordance with and
subject to the provisions of the Plan, the Committee shall have the authority
to determine all provisions of Incentive Awards as the Committee may deem
necessary or desirable and as are consistent with the terms of the Plan,
including, without limitation, the following: (a) the persons who shall be
selected as Participants; (b) the nature and the extent of the Incentive
Awards to be made to each Participant (including the number of shares of
Common Stock to be subject to each Incentive Award, any exercise price, the
manner in which an Incentive Award will vest or become exercisable and the
form of payment for the Incentive Award); (c) the time or times when
Incentive Awards will be granted; (d) the duration of each Incentive Award;
and (e) the restrictions and other conditions to which payment or vesting of
Incentive Awards may be subject.

           3.3    AMENDMENTS OR MODIFICATIONS OF AWARDS. The Committee shall
have the authority to amend or modify the terms of any outstanding Incentive
Award in any manner, provided that the amended or modified terms are not
prohibited by the Plan as then in effect, including, without

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limitation, the authority to: (a) modify the number of shares or other terms
and conditions of an Incentive Award; (b) extend the term of an Incentive
Award; (c) accelerate the exercisability or vesting or otherwise terminate
any restrictions relating to an Incentive Award; (d) accept the surrender of
any outstanding Incentive Award; and (e) to the extent not previously
exercised or vested, authorize the grant of new Incentive Awards in
substitution for surrendered Incentive Awards. Notwithstanding the foregoing
or any other provision of the Plan, the terms of Stock Options automatically
granted to nonemployee directors under the Plan shall not be amended or
modified without the approval of the Board, except as necessary or desirable
to comply with applicable laws, rules and regulations.

           3.4    INDEMNIFICATION OF COMMITTEE MEMBERS. Each person who is or
shall have been a member of the Committee shall be indemnified and held
harmless by the Corporation from and against any cost, liability or expense
imposed or incurred in connection with such person's or the Committee's
taking or failing to take any action under the Plan. Each such person shall
be justified in relying on information furnished in connection with the
Plan's administration by any appropriate person or persons.

           SECTION 4 - SHARES SUBJECT TO THE PLAN

           4.1    NUMBER OF SHARES. Subject to adjustment as provided in
Section 4.3 of the Plan, a maximum of Five Hundred Thousand (500,000) shares
of Common Stock shall be available for Incentive Awards under the Plan. Such
shares shall be authorized and may be either unissued or treasury shares. If
an Incentive Award is canceled, surrendered, modified, exchanged for a
substitute Incentive Award or expires or terminates during the term of the
Plan but prior to the exercise or vesting of the Incentive Award in full, the
shares subject to but not delivered under such Incentive Award shall be
available for other Incentive Awards. If shares subject to and otherwise
deliverable upon the exercise of an Incentive Award are surrendered to the
Corporation in connection with the exercise or vesting of an Incentive Award,
the surrendered shares subject to the Incentive Award shall be available for
other Incentive Awards.

           4.2    ADJUSTMENTS. If the number of shares of Common Stock
outstanding changes by reason of a stock dividend, stock split,
recapitalization, consolidation, combination, exchange of shares or any other
change in the corporate structure or shares of the Corporation, the number
and kind of securities subject to and reserved under the Plan, together with
applicable exercise prices, shall be appropriately adjusted. No fractional
shares shall be issued pursuant to the Plan and any fractional shares
resulting from adjustments shall be eliminated from the respective Incentive
Awards, with an appropriate cash adjustment for the value of any Incentive
Awards eliminated.

           SECTION 5 - STOCK OPTIONS

           5.1    GRANT. A Participant may be granted one or more Stock
Options under the Plan. The Committee, in its discretion, may provide in the
initial grant of a Stock Option for the subsequent automatic grant of
additional Stock Options for the number of shares, if any, that are subject
to the initial Stock Option and surrendered to the Corporation in connection
with the exercise of the initial or any subsequently granted Stock Option.
Stock Options shall be subject to such terms and conditions, consistent with
the other provisions of the Plan, as may be determined by the Committee

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in its sole discretion. In addition, the Committee may vary, among
Participants and among Stock Options granted to the same Participant, any and
all of the terms and conditions of the Stock Options granted under the Plan.
The Committee shall have complete discretion in determining the number of
Stock Options granted to each participant. The Committee may designate
whether a Stock Option awarded to an employee is to be considered an
incentive stock option as defined in Section 422(b) of the Code. In no event
shall the aggregate Market Value (determined at the time the option is
awarded) of Common Stock with respect to which incentive stock options are
exercisable for the first time by an individual during any calendar year
(under all plans of the Corporation and all Subsidiaries) exceed $100,000.
Any options granted in excess of this limit shall be treated as nonqualified
stock options.

           5.2    GRANTS TO NON-EMPLOYEE DIRECTORS.

                  (a)      SEMI-ANNUAL GRANTS OF FORMULA AWARDS. All
                           non-employee directors who are serving on the
                           applicable date shall automatically receive
                           semi-annually, on _______________ and
                           _____________ of each year a Stock Option to purchase
                           _________________ shares of Common Stock at 100% of
                           the Market Value on the date of grant. Such stock
                           options shall be issued for a term of ________ (___)
                           years using a form of agreement substantially similar
                           to the standard form of Stock Option Agreement
                           established by the Committee for executive officer
                           Participants, adjusted as necessary due to the
                           recipient's status as a nonemployee director.
                           Nonemployee directors may pay the exercise price in
                           any manner permitted for exercises by other
                           Participants. Stock Options granted to nonemployee
                           directors of the Corporation shall not qualify as
                           incentive stock options.

                  b)       DISCRETIONARY AWARDS. A nonemployee director
                           Participant may be granted non-qualified Stock
                           Options pursuant to Section 5.1 of the Plan. The
                           Committee shall have complete discretion in
                           determining the number of Stock Options granted to
                           each nonemployee director Participant under this
                           Section 5.1.

           5.3    STOCK OPTION AGREEMENTS. Stock Options shall be evidenced
by stock option agreements containing such terms and conditions, consistent
with the provisions of the Plan, as the Committee shall from time to time
determine. To the extent not covered by the stock option agreement, the terms
and conditions of this Section 5 shall govern.

           5.4    STOCK OPTION PRICE. The per share Stock option price shall
be determined by the Committee, but shall be a price that is equal to or
higher than the par value of the Corporation's Common Stock; provided, that
the per share Stock Option price for any shares designated as incentive stock
options shall be equal to or greater than 100% of the Market Value on the
date of grant.

           5.5    MEDIUM AND TIME OF PAYMENT. The exercise price for each
share purchased pursuant to a Stock Option granted under the Plan shall be
payable in cash or, if the Committee consents, in shares of Common Stock
(including Common Stock to be received upon a simultaneous exercise) or other
consideration substantially equivalent to cash. The time and terms of payment
may be amended with the consent of a Participant before or after exercise of
a Stock Option. The

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Committee may from time to time authorize payment of all or a portion of the
Stock Option price in the form of a promissory note or other deferred payment
installments according to such terms as the Committee may approve. The Board
may restrict or suspend the power of the Committee to permit such loans and
may require that adequate security be provided.

           5.6    STOCK OPTIONS GRANTED TO TEN PERCENT SHAREHOLDERS. No Stock
Option granted to any Participant who at the time of such grant owns,
together with stock attributed to such Participant under Section 424(d) of
the Code, more than 10% of the total combined voting power of all classes of
stock of the Corporation or any of its Subsidiaries may be designated as an
incentive stock option, unless such Stock Option provides an exercise price
equal to at least 110% of the Market Value of the Common Stock and the
exercise of the Stock Option after the expiration of five (5) years from the
date of grant of the Stock option is prohibited by its terms.

           5.7    LIMITS ON EXERCISABILITY. Stock options shall be
exercisable for such periods, not to exceed ten years from the date of grant,
as may be fixed by the Committee. At the time of the exercise of a Stock
Option, the holder of the Stock Option, if requested by the Committee, must
represent to the Corporation that the shares are being acquired for
investment and not with a view to the distribution thereof. The Committee may
in its discretion require a Participant to continue the Participant's service
with the Corporation and its Subsidiaries for a certain length of time prior
to a Stock Option becoming exercisable and may eliminate such delayed vesting
provisions.

           5.8    RESTRICTIONS ON TRANSFERABILITY.

                  (a)      GENERAL. Unless the Committee otherwise consents
                           (before or after the option grant) or unless the
                           stock option agreement or grant provides otherwise;
                           (i) no incentive stock option granted under the Plan
                           may be sold, exchanged, transferred, pledged,
                           assigned or otherwise alienated or hypothecated
                           except by will or the laws of descent and
                           distribution; and (ii) non-qualified stock options
                           with or without tandem Stock Appreciation Rights may
                           be transferred by a Participant to Permitted
                           Transferees, and may be exercised either by the
                           Participant, his guardian or legal representative, or
                           by a Permitted Transferee, provided, that as a
                           condition to any such transfer the transferee must
                           execute a written agreement permitting the
                           Corporation to withhold from the shares subject to
                           the Incentive Award a number of shares having a
                           Market Value at least equal to the amount of any
                           federal, state or local withholding or other taxes
                           associated with or resulting from the exercise of a
                           Stock Option. "Permitted Transferees" means a member
                           of an optionee's immediate family, trusts for the
                           benefit of such immediate family members, and
                           partnerships in which the optionee and/or such
                           immediate family members are the only partners,
                           provided that no consideration is provided for the
                           transfer. Immediate family members shall include an
                           optionee's spouse, descendants (children,
                           grandchildren and more remote descendants), and shall
                           include step-children and relationships arising from
                           legal adoption.

                  (b)      OTHER RESTRICTIONS. The Committee may impose other
                           restrictions on any shares of Common Stock acquired
                           pursuant to the exercise of a Stock Option under the
                           Plan as the Committee deems advisable, including,
                           without limitation, restrictions under applicable
                           federal or state securities laws.

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           5.9    TERMINATION OF STATUS.

                  (a)      GENERAL. If an employee ceases to be employed by the
                           Corporation or one of its Subsidiaries for any
                           reason, if a director ceases to serve as a director
                           of the Corporation for any reason, or if a consultant
                           ceases rendering services for the Corporation or one
                           of its Subsidiaries for any reason other than the
                           Participant's death, disability, or termination for
                           Cause, the Participant may exercise his Stock Options
                           only for a period of three months after such
                           termination of employment, director or consultant
                           status, but only to the extent the Participant was
                           entitled to exercise the Stock Options on the date of
                           termination, unless the Committee otherwise consents,
                           or the terms of the stock option agreement or grant
                           provide otherwise, or as provided in Subsection
                           5.9(d) with respect to nonqualified stock options.
                           For purposes of the Plan, the following shall not be
                           deemed a termination of employment status: (i) a
                           transfer of an employee from the Corporation to any
                           Subsidiary; (ii) an employee's leave of absence, duly
                           authorized in writing by the Corporation, for
                           military service or for any other purpose approved by
                           the Corporation if the period of such leave does not
                           exceed 90 days; (iii) an employee's leave of absence
                           in excess of 90 days, duly authorized in writing by
                           the Corporation, provided that the employee's right
                           to reemployment is guaranteed either by statute or
                           contract.

                  (b)      DEATH. If a Participant dies either while an employee
                           of the Corporation or one of its Subsidiaries or
                           after the termination of employment other than for
                           Cause but during the time when the Participant could
                           have exercised a Stock Option under the Plan, or if a
                           director or consultant dies while serving as a
                           director or consultant of the Corporation or after
                           ceasing to be a director or consultant but during
                           such time as the director, former director,
                           consultant or former consultant could have exercised
                           a Stock Option under the Plan, the Stock Option
                           issued to such Participant shall be exercisable by
                           the personal representative of such Participant or
                           such other successor to the interest of the
                           Participant for one year after the Participant's
                           death, but only to the extent that the Participant
                           was entitled to exercise the Stock Option on the date
                           of death or termination of employment or status as a
                           director or consultant, whichever first occurred,
                           unless the Committee otherwise consents or the terms
                           of the stock option agreement or grant provide
                           otherwise.

                  (c)      DISABILITY. If a Participant ceases to be an
                           employee, director or consultant of the Corporation
                           or one of its Subsidiaries, due to the Participant's
                           disability, the Participant may exercise a Stock
                           Option for a period of one year following such
                           termination of employment, director or consultant
                           status, but only to the extent that the Participant
                           or director was entitled to exercise the Stock Option
                           on the date of such event, unless the Committee
                           otherwise consents or the terms of the Stock Option
                           agreement or grant provide otherwise.

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                  (d)      PARTICIPANT RETIREMENT. If a Participant Retires as
                           an employee of the Corporation or one of its
                           Subsidiaries or if a director retires, any
                           nonqualified Stock Option granted under the Plan may
                           be exercised during the remaining term of the Stock
                           Option, unless the terms of the stock option
                           agreement or grant provide otherwise.

                  (e)      TERMINATION FOR CAUSE. If a Participant is terminated
                           for Cause, the Participant shall have no further
                           right to exercise any Stock Option previously
                           granted, unless the Committee and the Board determine
                           otherwise.

           SECTION 6 - STOCK APPRECIATION RIGHTS

           6.1    GRANT. A Participant may be granted one or more Stock
Appreciation Rights under the Plan and such Stock Appreciation Rights shall
be subject to such terms and conditions, consistent with the other provisions
of the Plan, as shall be determined by the Committee in its sole discretion.
A Stock Appreciation Right may relate to a particular Stock Option and may be
granted simultaneously with or subsequent to the Stock Option to which it
relates. Stock Appreciation Rights shall be subject to the same restrictions
and conditions as Stock Options under subsections 5.6, 5.7 and 5.8 of the
Plan. To the extent granted in tandem with a Stock Option, the exercise of a
Stock Appreciation Right shall, in exchange for the right to exercise a
related Stock Option, entitle a Participant to an amount equal to the
appreciation in value of the shares covered by the related Stock Option
surrendered. Such appreciation in value shall be equal to the excess of the
Market Value of such shares at the time of the exercise of the Stock
Appreciation Right over the option price of such shares.

           6.2    EXERCISE; PAYMENT. To the extent granted in tandem with a
Stock Option, Stock Appreciation Rights may be exercised only when a related
Stock Option could be exercised and only when the Market Value of the stock
subject to the Stock Option exceeds the exercise price of the Stock Option.
The Committee shall have discretion to determine the form of payment made
upon exercise of a Stock Appreciation Right, which could take the form of
shares of Common Stock.

           SECTION 7 - RESTRICTED STOCK

           7.1    GRANT. A Participant may be granted Restricted Stock under
the Plan. Restricted Stock shall be subject to such terms and conditions,
consistent with the other provisions of the Plan, as shall be determined by
the Committee in its sole discretion. The Committee may impose such
restrictions or conditions, consistent with the provisions of the Plan, to
the vesting of Restricted Stock as it deems appropriate.

           7.2    TERMINATION OF EMPLOYMENT STATUS.

                  (a)      GENERAL. In the event of termination of employment
                           status during the Restricted Period for any reason
                           other than death, disability, Retirement or
                           termination for Cause, then any shares of Restricted
                           Stock still subject to restrictions at the date of
                           such termination shall automatically be forfeited and
                           returned to the Corporation; provided, that in the
                           event of a voluntary or

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                           involuntary termination of the employment status
                           of a Participant by the Corporation, the
                           Committee may, in its sole discretion, waive the
                           automatic forfeiture of any or all such shares of
                           Restricted Stock and/or may add such new
                           restrictions to such shares of Restricted Stock
                           as it deems appropriate. For purposes of the
                           Plan, the following shall not be considered a
                           termination of employment status: (i) a transfer
                           of an employee from the Corporation to any
                           Subsidiary; (ii) a leave of absence, duly
                           authorized in writing by the Corporation, for
                           military service or for any other purpose
                           approved by the Corporation if the period of such
                           leave does not exceed of 90 days; (iii) a leave
                           of absence in excess of 90 days duly authorized
                           in writing by the Corporation, provided that the
                           employee's right to reemployment is guaranteed
                           either by statute or contract.

                  (b)      DEATH, RETIREMENT OF DISABILITY. Unless the Committee
                           otherwise consents or unless the terms of the
                           restricted stock agreement or grant provide
                           otherwise, in the event a Participant terminates his
                           employment with the Corporation because of death,
                           disability or Retirement during the Restricted
                           Period, the restrictions applicable to the shares of
                           Restricted Stock shall terminate automatically with
                           respect to that number of shares (rounded to the
                           nearest whole number) equal to the total number of
                           shares of Restricted Stock granted to such
                           Participant multiplied by the number of full months
                           that have elapsed since the date of grant divided by
                           the maximum number of full months of the Restricted
                           Period. All remaining shares shall be forfeited and
                           returned to the Corporation; provided, that the
                           Committee may, in its sole discretion, waive the
                           restrictions remaining on any or all such remaining
                           shares of Restricted Stock either before or after the
                           death, disability or Retirement of the Participant.

                  (c)      TERMINATION FOR CAUSE. If a Participant's employment
                           is terminated for Cause, the Participant shall have
                           no further right to exercise or receive any
                           Restricted Stock and all Restricted Stock still
                           subject to restrictions at the date of such
                           termination shall automatically be forfeited and
                           returned to the Corporation, unless the Committee and
                           the Board determine otherwise.

           7.3    RESTRICTIONS ON TRANSFERABILITY.

                  (a)      GENERAL. Unless the Committee otherwise consents or
                           unless the terms of the restricted stock agreement or
                           grant provide otherwise: (i) shares of Restricted
                           Stock shall not be sold, exchanged, transferred,
                           pledged, assigned or otherwise alienated or
                           hypothecated during the Restricted Period except by
                           will or the laws of descent and distribution; and
                           (ii) all rights with respect to Restricted Stock
                           granted to a Participant under the Plan shall be
                           exercisable during the Participant's lifetime only by
                           such Participant, his guardian or legal
                           representative.

                  (b)      OTHER RESTRICTIONS. The Committee may impose other
                           restrictions on any shares of Common Stock acquired
                           pursuant to an award of Restricted Stock

                                       10

<PAGE>

                           under the Plan as the Committee deems advisable,
                           including, without limitation, restrictions under
                           applicable federal or state securities laws.

           7.4    LEGENDING OF RESTRICTED STOCK. Any certificates evidencing
shares of Restricted Stock awarded pursuant to the Plan shall bear the
following legend:

                  The shares represented by this certificate were issued
                  subject to certain restrictions under the Cap Rock Energy
                  Corporation's 1998 Stock Incentive Plan (the "Plan"). A
                  copy of the Plan is on file in the office of the Secretary
                  of the Corporation. This certificate is held subject to
                  the terms and conditions contained in a restricted stock
                  agreement that includes a prohibition against the sale or
                  transfer of the stock represented by this certificate
                  except in compliance with that agreement and that provides
                  for forfeiture upon certain events.

           7.5    REPRESENTATIONS AND WARRANTIES. A Participant who is
awarded Restricted Stock shall represent and warrant that the Participant is
acquiring the Restricted Stock for the Participant's own account and
investment and without any intention to resell or redistribute the Restricted
Stock. The Participant shall agree not to resell or distribute such
Restricted Stock after the Restricted Period except upon such conditions as
the Corporation may reasonably specify to ensure compliance with federal and
state securities laws.

           7.6    RIGHTS AS A SHAREHOLDER. A Participant shall have all
voting, dividend, liquidation and other rights with respect to Restricted
Stock held of record by such Participant as if the Participant held
unrestricted Common Stock; provided, that the unvested portion of any award
of Restricted Stock shall be subject to any restrictions on transferability
or risks of forfeiture imposed pursuant to Sections 7.2 and 7.3 of the Plan.
Unless the Committee otherwise determines or unless the terms of the
restricted stock agreement or grant provide otherwise, any noncash dividends
or distributions paid with respect to shares of unvested Restricted Stock
shall be subject to the same restrictions as the shares to which such
dividends or distributions relate.

           SECTION 8 - STOCK AWARDS

           8.1    GRANT. A Participant may be granted one or more Stock
Awards under the Plan in lieu of, or as payment for, the rights of a
Participant under any other compensation plan, policy or program of the
Corporation or its Subsidiaries. Stock Awards shall be subject to such terms
and conditions, consistent with the other provisions of the Plan, as may be
determined by the Committee in its sole discretion.

           8.2    RIGHTS AS A SHAREHOLDER. A Participant shall have all
voting, dividend, liquidation and other rights with respect to shares of
Common Stock issued to the Participant as a Stock Award under this Section 8
upon the Participant becoming the holder of record of the Common Stock
granted pursuant to such Stock Awards; provided, that the Committee may
impose such restrictions on the assignment or transfer of Common Stock
awarded pursuant to a Stock Award as it deems appropriate.

                                       11

<PAGE>

           SECTION 9 - TAX BENEFIT RIGHTS

           9.1    GRANT. A Participant may be granted Tax Benefit Rights
under the Plan to encourage a Participant to exercise Stock Options and
provide certain tax benefits to the Corporation. A Tax Benefit Right entitles
a Participant to receive from the Corporation or a Subsidiary a cash payment
not to exceed the amount calculated by multiplying the ordinary income, if
any, realized by the Participant for federal tax purposes as a result of the
exercise of a nonqualified stock option, or the disqualifying disposition of
shares acquired under an incentive stock option, by the maximum federal
income tax rate (including any surtax or similar charge or assessment) for
corporations, plus the applicable state and local tax imposed on the exercise
of the Stock Option or the disqualifying disposition.

           9.2    RESTRICTIONS. A Tax Benefit Right may be granted only with
respect to a Stock Option issued and outstanding or to be issued under the
Plan or any other plan of the Corporation or its Subsidiaries that has been
approved by the Stockholders as of the date of the Plan and may be granted
concurrently with or after the grant of the Stock Option. Such rights with
respect to outstanding Stock Options shall be issued only with the consent of
the Participant if the effect would be to disqualify an incentive stock
option, change the date of grant or the exercise price or otherwise impair
the Participant's existing Stock Options.

           9.3    TERMS AND CONDITIONS. The Committee shall determine the
terms and conditions of any Tax Benefit Rights granted and the Participants
to whom such rights will be granted with respect to Stock Options under the
Plan or any other plan of the Corporation. The Committee may amend, cancel,
limit the term of or limit the amount payable under a Tax Benefit Right at
any time prior to the exercise of the related Stock Option, unless otherwise
provided under the terms of the Tax Benefit Right. The net amount of a Tax
Benefit Right, subject to withholding, may be used to pay a portion of the
Stock Option price, unless otherwise provided by the Committee.

           SECTION 10 - CHANGE IN CONTROL

           10.1   ACCELERATION OF VESING. If a Change in Control of the
Corporation shall occur, then, unless the Committee or the Board otherwise
determines with respect to one or more Incentive Awards, without action by
the Committee or the Board: (a) all outstanding Stock Options shall become
immediately exercisable in full and shall remain exercisable during the
remaining term thereof, regardless of whether the Participants to whom such
Stock Options have been granted remain in the employ or service of the
Corporation or any Subsidiary; and (b) all other outstanding Incentive Awards
shall become immediately fully vested and nonforfeitable.

           10.2   CASH PAYMENT FOR STOCK OPTIONS. If a Change in Control of
the Corporation shall occur, then the Committee, in its sole discretion, and
without the consent of any Participant affected thereby, may determine that
some or all Participants holding outstanding Stock Options shall receive,
with respect to some or all of the shares of Common Stock subject to such
Stock Options, as of the effective date of any such Change in Control of the
Corporation, cash in an amount equal to the greater of the excess of (a) the
highest sales price of the shares on the securities exchange or market on the
date immediately prior to the effective date of such Change in Control of the
Corporation or (b) the highest price per share actually paid in connection
with such Change in Control of the Corporation, over the exercise price per
share of such Stock Options.

                                       12

<PAGE>

           SECTION 11 - GENERAL PROVISIONS

           11.1   NO RIGHTS TO AWARD. No Participant or other person shall
have any claim to be granted any Incentive Award under the Plan and there is
no obligation of uniformity of treatment of Participants or holders or
beneficiaries of Incentive Awards under the Plan. The terms and conditions of
Incentive Awards of the same type and the determination of the Committee to
grant a waiver or modification of any Incentive Award and the terms and
conditions thereof need not be the same with respect to each Participant.

           11.2   WITHHOLDING. The Corporation or a Subsidiary shall be
entitled to: (a) withhold and deduct from future wages of a Participant (or
from other amounts that may be due and owing to a Participant from the
Corporation or a Subsidiary), or make other arrangements for the collection
of, all legally required amounts necessary to satisfy any and all federal,
state and local withholding and employment-related tax requirements
attributable to an Incentive Award, including, without limitation, the grant,
exercise or vesting of, or payment of dividends with respect to, an Incentive
Award or a disqualifying disposition of Common Stock received upon exercise
of an incentive stock option; or (b) require a Participant promptly to remit
the amount of such withholding to the Corporation before taking any action
with respect to an Incentive Award. Unless the Committee determines
otherwise, withholding may be satisfied by withholding Common Stock to be
received upon exercise or by delivery to the Corporation of previously owned
Common Stock. The Corporation may establish such rules and procedures
concerning timing of any withholding election as it deems appropriate to
comply with Rule 16b-3 under the Act.

           11.3   COMPLIANCE WITH LAWS; LISTING AND REGISTRATION OF SHARES.
All Incentive Awards granted under the Plan (and all issuances of Common
Stock or other securities under the Plan) shall be subject to all applicable
taws, rules and regulations, and to the requirement that if at any time the
Committee shall determine, in its discretion, that the listing, registration
or qualification of the shares covered thereby upon any securities exchange
or under any state or federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition of, or
in connection with, the grant of such Incentive Award or the issue or
purchase of shares thereunder, such Incentive Award may not be exercised in
whole or in part, or the restrictions on such Incentive Award shall not
lapse, unless and until such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.

           11.4   NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing
contained in the Plan shall prevent the Corporation or any Subsidiary from
approving or continuing in effect other or additional compensation
arrangements, including the grant of stock options and other stock-based
awards, and such arrangements may be either generally applicable or
applicable only in specific cases.

           11.5   NO RIGHT TO EMPLOYMENT. The grant of an Incentive Award
shall not be construed as giving a Participant the right to be retained in
the employ of the Corporation or any Subsidiary. The Corporation or any
Subsidiary may at any time dismiss a Participant from employment, free from
any liability or any claim under the Plan, unless otherwise expressly
provided in the Plan or in any written agreement with a Participant.

                                       13

<PAGE>

           11.6   GOVERNING LAW. The validity, construction and effect of the
Plan and any rules and regulations relating to the Plan shall be determined
in accordance with the laws of the State of Texas and applicable federal law.

           11.7   SEVERABILITY. In the event any provision of the Plan shall
be held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining provisions of the Plan and the Plan shall be
construed and enforced as if the illegal or invalid provision had not been
included.

           SECTION 12 - TERMINATION AND AMENDMENT

           The Board may terminate the Plan at any time, or may from time to
time amend the Plan as it deems proper and in the best interests of the
Corporation, provided that no such amendment may impair any outstanding
Incentive Award without the consent of the Participant, except according to the
terms of the Plan or the Incentive Award. No termination, amendment or
modification of the Plan shall become effective with respect to any Incentive
Award previously granted under the Plan without the prior written consent of the
Participant holding such Incentive Award unless such amendment or modification
operates solely to the benefit of the Participant. No amendment of the Plan
shall, without further approval of the stockholders of the Corporation, increase
the total number of shares of Common Stock with respect to which awards may be
made under the Plan, materially increase the benefits accruing to Participants
under the Plan or materially modify the requirements as to eligibility for
participation in the Plan, if stockholder approval of such amendment is a
condition of Securities and Exchange Commission Rule 16b-3 or the Code at the
time such amendment is adopted.

           SECTION 13 - EFFECTIVE DATE AND DURATION OF THE PLAN

           Subject to the approval of the holders of a majority of the Stock of
the Corporation present, or represented, and entitled to vote at a meeting of
its stockholders, the Plan shall be effective as of the Closing Date of the
Acquisition Plan; provided, however, that awards made under the Plan prior to
such approval of the Plan by the stockholders of the Corporation are contingent
on such approval of the Plan by the stockholders of the Corporation and shall be
null and void if such approval of the stockholders of the Corporation is
withheld. Unless earlier terminated by the Board of Directors, the Plan shall
terminate on the date ten years after the date the Plan is adopted, or the date
the Plan is approved by the stockholders, whichever is earlier. No Incentive
Award shall be granted under the Plan after such date.

                                       14<PAGE>

                           CAP ROCK ENERGY CORPORATION

                        2001 EMPLOYEE STOCK PURCHASE PLAN

           The following constitute the provisions of the Cap Rock Energy
Corporation 2001 Employee Stock Purchase Plan, effective as of January 1, 2001.

           1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.

           2. DEFINITIONS.

              (a) "Board" shall mean the Board of Directors of the Company.

              (b) "Code" shall mean the Internal Revenue Code of 1986, as
                   amended.

              (c) "Common Stock" shall mean the Common Stock of the Company.

              (d) "Company" shall mean Cap Rock Energy Corporation and any
                  Designated Subsidiary of the Company.

              (e) "Compensation" shall mean annualized base pay increased by any
                  pre-tax deductions under Code Sections 125 or 402(g).

              (f) "Designated Subsidiary" shall mean any Subsidiary that has
                  been designated by the Board from time to time in its sole
                  discretion as eligible to participate in the Plan.

              (g) "EMPLOYEE" shall mean any common law employee of the Company
                  (i) whose customary employment with the Company is at least
                  twenty (20) hours per week and more than five (5) months in
                  any calendar year and (ii) who has actually worked at least
                  three (3) months in a calendar year for the Company or one of
                  its Designated Subsidiaries. For purposes of the Plan, the
                  employment relationship shall be treated as continuing intact
                  while the individual is on sick leave or other leave of
                  absence approved by the Company. Where the period of leave
                  exceeds 90 days and the individual's right to reemployment is
                  not guaranteed either by statute or by contract, the
                  employment relationship shall be deemed to have terminated on
                  the 91st day of such leave.

              (h) "ENROLLMENT DATE" shall mean the first day of each Offering
                  Period.

                                       1

<PAGE>

              (i) "EXERCISE DATE" shall mean the last day of each Purchase
                  Period.

              (j) "FAIR MARKET VALUE" shall mean, as of any date, the value of
                  Common Stock determined as follows:

                  (i)        If the Common Stock is listed on any
                             established stock exchange or a national market
                             system, including without limitation the NASDAQ
                             National Market or The NASDAQ SmallCap Market
                             of The NASDAQ Stock Market, its Fair Market
                             Value shall be the closing sales price for such
                             stock (or the closing bid, if no sales were
                             reported) as quoted on such exchange or system
                             for the last market trading day on the date of
                             such determination, as reported in THE WALL
                             STREET JOURNAL or such other source as the
                             Administrator deems reliable, or;

                  (ii)       If the Common Stock is regularly quoted by a
                             recognized securities dealer but selling prices
                             are not reported, its Fair Market Value shall
                             be the mean of the closing bid and asked prices
                             for the Common Stock on the date of such
                             determination, as reported in THE WALL STREET
                             JOURNAL or such other source as the Board deems
                             reliable, or;

                  (iii)      In the absence of an established market for the
                             Common Stock, the Fair Market Value thereof
                             shall be determined in good faith by the Board,
                             or;

                  (iv)       For purposes of the Enrollment Date of the
                             first Offering Period under the Plan, the Fair
                             Market Value shall be the initial price to the
                             public as set forth in the final prospectus
                             included within the registration statement in
                             Form S-1 filed with the Securities and Exchange
                             Commission for the initial public offering of
                             the Company's Common Stock (the "Registration
                             Statement").

              (k) "OFFERING PERIODS" shall mean the periods of approximately
                  twenty-four (24) months during which an option granted
                  pursuant to the Plan may be exercised, commencing on the first
                  Trading Day on or after January 1 and July 1 of each year and
                  terminating on the last Trading Day in the periods ending
                  twenty four months later; [EXCEPT THAT WITH RESPECT TO THE
                  2001 CALENDAR YEAR, THE OFFERING PERIOD WILL COMMENCE ON
                  EFFECTIVE DATE OF FORM S-8 REGISTRATION] AND END ON [NOT MORE
                  THAN 24 MONTHS LATER]. The duration and timing of Offering
                  Periods may be changed pursuant to Section 4 of this Plan.

              (l) "PLAN" shall mean this Cap Rock Energy Corporation 2001
                  Employee Stock Purchase Plan.

                                       2

<PAGE>

              (m) "PURCHASE PRICE" shall mean an amount equal to 85% of the Fair
                  Market Value of a share of Common Stock on the Enrollment Date
                  or on the Exercise Date, whichever is lower.

              (n) "PURCHASE PERIOD" shall mean the eight (8) consecutive three
                  (3) month periods, the first of which will commence on the
                  Enrollment Date of an Offering Period, and the last of which
                  will end on the last day of that applicable Offering Period.

              (o) "RESERVES" shall mean the number of shares of Common Stock
                  covered by each option under the Plan which have not yet been
                  exercised and the number of shares of Common Stock which have
                  been authorized for issuance under the Plan but not yet placed
                  under option.

              (p) "Subsidiary" " shall mean a corporation, domestic or foreign,
                  of which not less than 50% of the voting shares are held by
                  the Company or a Subsidiary, whether or not such corporation
                  now exists or is hereafter organized or acquired by the
                  Company or a Subsidiary.

              (q) "TRADING DAY" shall mean a day on which national stock
                  exchanges and the NASDAQ System are open for trading.

           3. ELIGIBILITY.

              (a) Subject to Section 2(g) of this plan, any Employee who shall
                  be employed by the Company on a given Enrollment Date shall be
                  eligible to participate in the Plan.

              (b) Any provisions of the Plan to the contrary notwithstanding, no
                  Employee shall be granted an option under the Plan.

                  (i)        to the extent that, immediately after the grant,
                             such Employee (or any other person whose stock
                             would be attributed to such Employee pursuant
                             to Section 424(d) of the Code) would own
                             capital stock of the Company and/or hold
                             outstanding options to purchase such stock
                             possessing five percent (5%) or more of the
                             total combined voting power or value of all
                             classes of the capital stock of the Company or
                             of any Subsidiary, or

                  (ii)       to the extent that his or her rights to purchase
                             stock under all employee stock purchase plans
                             of the Company and its subsidiaries accrues at
                             a rate which exceeds Twenty-five Thousand
                             Dollars ($25,000) worth of stock (determined at
                             the fair market value of the shares at the time
                             such option is granted) for each calendar year
                             in which such option is outstanding at any time.

                                       3

<PAGE>

           4. OFFERING PERIODS. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after January 1 and July 1 of each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof. The Board shall have the power to change the
duration of Offering Periods (including the commencement dates thereof) with
respect to future offerings without shareholder approval if such change is
announced at least five (5) days prior to the scheduled beginning of the first
Offering Period to be affected. To the extent that an Employee is participating
by filing his enrollment for an Offering Period, the Employee is not eligible to
receive additional options pursuant to subsequent Offering Periods until that
Offering Period has expired or that Employee has otherwise withdrawn from that
Offering Period.

           5. PARTICIPATION.

              (a)       An eligible Employee may become a participant in
                        the Plan by completing a subscription agreement
                        authorizing payroll deductions in the form of
                        Exhibit A to this Plan and filing it with the
                        Company's payroll office prior to the applicable
                        Enrollment Date.

              (b)       Payroll deductions for a participant shall be
                        applicable to the period beginning on the first
                        day of the payroll period following the
                        Enrollment Date and shall end on the last day of
                        the last payroll period in the applicable
                        Offering Period, unless sooner terminated by the
                        participant as provided in Section 11 hereof.

           6. PAYROLL DEDUCTIONS.

              (a)       At the time a participant files his or her
                        subscription agreement, he or she shall elect to
                        have payroll deductions made for each payroll
                        period during the Offering Period in an amount
                        not exceeding fifteen percent (15%) of the
                        Compensation which he or she receives during each
                        payroll period during the Offering Period.

              (b)       All payroll deductions made for a participant
                        shall be credited to his or her account under the
                        Plan and shall be withheld in whole percentages
                        only. A participant may not make any additional
                        payments into such account.

              (c)       A participant may discontinue his or her
                        participation in the Plan as provided in Section
                        11 hereof, or may increase or decrease the rate
                        of his or her payroll deductions during the
                        Offering Period by completing or filing with the
                        Company a new subscription agreement authorizing
                        a change in payroll deduction rate. The Board
                        may, in its discretion, limit the number of
                        participation rate changes during any Offering
                        Period. The change in rate shall be effective
                        with the first full payroll period

                                       4

<PAGE>

                        following five (5) business days after the Company's
                        receipt of the new subscription agreement unless the
                        Company elects to process a given change in
                        participation before the end of such 5 day period. A
                        participant's subscription agreement' shall remain in
                        effect for successive Offering Periods unless
                        terminated as provided in Section 11 hereof.

              (d)       Notwithstanding the foregoing, to the extent necessary
                        to comply with Section 423(b)(8) of the Code and Section
                        3(b) hereof, a participant's payroll deductions may be
                        decreased to zero percent (0%) at any time during a
                        Purchase Period. Payroll deductions shall recommence at
                        the rate provided in such participant's subscription
                        agreement at the beginning of the first Purchase Period
                        which is scheduled to end in the following calendar
                        year, unless terminated by the participant as provided
                        in Section 11 hereof.

              (e)       At the time the option is exercised, in whole or in
                        part, or at the time some or all of the Company's Common
                        Stock issued under the Plan is disposed of, the
                        participant must make adequate provision for the
                        Company's federal, state, or other tax withholding
                        obligations, if any, which arise upon the exercise of
                        the option or the disposition of the Common Stock. At
                        any time, the Company may, but shall not be obligated
                        to, withhold from the participant's Compensation the
                        amount necessary for the Company to meet applicable
                        withholding obligations, including any withholding
                        required to make available to the Company any tax
                        deductions or benefits attributable to sale or early
                        disposition of Common Stock by the Employee.

           7. GRANT OF OPTION. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than
10,000 shares of the Company's Common Stock (subject to any adjustment pursuant
to Section 19) available for issuance under the Plan on the Enrollment Date, and
provided further that such purchase shall be subject to the limitations set
forth in Sections 3(b) and 14 hereof. Exercise of the option shall occur as
provided in Section 8 hereof, unless the participant has withdrawn pursuant to
Section 11 hereof. The option shall expire on the last day of the Offering
Period.

           8. EXERCISE OF OPTION. Unless a participant withdraws from the Plan
as provided in Section 11 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full

                                       5

<PAGE>

share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 11 hereof. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.

           9. AUTOMATIC RESET OF OFFERING PERIOD. To the extent permitted by any
applicable laws, regulations, or stock exchange rules, if the Fair Market Value
of the Common Stock on any Exercise Date in an Offering Period is lower than the
Fair Market Value of the Common Stock on the Enrollment Date of such Offering
Period, then all participants in such Offering Period shall be automatically
withdrawn from such Offering Period immediately after the exercise of their
option on such Exercise Date and automatically re-enrolled in the immediately
following Offering Period as of the first day thereof.

          10. DELIVERY. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option. Shares to be delivered to a
participant under the Plan shall be registered in the name of the participant
or in the name of the participant and his or her spouse.

          11. WITHDRAWAL.

              (a)       A participant may withdraw an amount that is not
                        less than all the payroll deductions credited to
                        his or her account and not yet used to exercise
                        his or her option under the Plan at any time by
                        giving written notice to the Company in the form
                        of Exhibit B to this Plan. All of the
                        participant's payroll deductions credited to his
                        or her account shall be paid to such participant
                        promptly after receipt of notice of withdrawal
                        and such participant's option for the Offering
                        Period shall be automatically terminated, and no
                        further payroll deductions for the purchase of
                        shares shall be made for such Offering Period. If
                        a participant withdraws from an Offering Period,
                        payroll deductions shall not resume at the
                        beginning of the succeeding Offering Period
                        unless the participant delivers to the Company a
                        new subscription agreement.

              (b)       A participant's withdrawal from an Offering
                        Period shall not have any effect upon his or her
                        eligibility to participate in any similar plan
                        that may hereafter be adopted by the Company or
                        in succeeding Offering Periods which commence
                        after the termination of the Offering Period from
                        which the participant withdraws.

          12. TERMINATION OF EMPLOYMENT. Upon a participant's ceasing to be an
Employee, for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the person
or persons to whom his rights pass by will or the laws of descent and
distribution, or his estate during

                                       6

<PAGE>

the period of administration, and such participant's option shall be
automatically terminated.

          13. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan

          14. AUTHORIZED SHARES.

              (a)       Subject to Section 19, the maximum number of
                        shares of the Company's Common Stock that shall
                        be made available for sale under the Plan shall
                        be __________________________ (___________)
                        shares, together with an annual increase to the
                        number of shares reserved thereunder to take
                        effect each year on the last day of the
                        immediately preceding fiscal year equal to the
                        lesser of (i)_________________ (__________)
                        shares or (ii)_____ % of the outstanding shares
                        of the Company on such date. If, on a given
                        Exercise Date, the number of shares with respect
                        to which options are to be exercised exceeds the
                        number of shares then available under the Plan,
                        the Company shall make a pro rata allocation of
                        the shares remaining available for purchase in as
                        uniform a manner as shall be practicable and as
                        it shall determine to be equitable.

              (b)       The participant shall have no interest or voting
                        right in shares covered by his option until such
                        option has been exercised.

          15. ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.

          16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will or the laws of descent and
distribution) by the participant. Any such attempt at assignment, transfer,
pledge or other disposition shall be without effect, except that the Company may
treat such act as an election to withdraw funds from an Offering Period in
accordance with Section 11 hereof.

          17. USE OF FUNDS. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.

          18. REPORTS. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of Shares purchased and the
remaining cash balance, if any.

                                       7

<PAGE>

          19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION DISSOLUTION,
              LIQUIDATION, MERGER OR ASSET SALE.

              (a)       CHANGES IN CAPITALIZATION. Subject to any required
                        action by the shareholders of the Company, the
                        Reserves, the maximum number of shares each
                        participant may purchase each Purchase Period
                        (pursuant to Section 7), as well as the price per
                        share, the number of shares of Common Stock covered
                        by each option under the Plan which has not yet been
                        exercised, and the annual share replenishment set
                        forth in Section 14, shall be proportionately
                        adjusted for any increase or decrease in the number
                        of issued shares of Common Stock resulting from a
                        stock split, reverse stock split, stock dividend,
                        combination or reclassification of the Common Stock,
                        or any other increase or decrease in the number of
                        shares of Common Stock effected without receipt of
                        consideration by the Company; provided, however,
                        that conversion of any convertible securities of the
                        Company shall not be deemed to have been "effected
                        without receipt of consideration". Such adjustment
                        shall be made by the Board, whose determination in
                        that respect shall be final, binding and conclusive.
                        Except as expressly provided herein, no issuance by
                        the Company of shares of stock of any class, or
                        securities convertible into shares of stock of any
                        class, shall affect, and no adjustment by reason
                        thereof shall be made with respect to, the number or
                        price of shares of Common Stock subject to an option.

              (b)       DISSOLUTION OR LIQUIDATION. In the event of the
                        proposed dissolution or liquidation of the
                        Company, the Offering Period then in progress
                        shall be shortened by setting a new Exercise Date
                        (the "New Exercise Date"), and shall terminate
                        immediately prior to the consummation of such
                        proposed dissolution or liquidation, unless
                        provided otherwise by the Board. The New Exercise
                        Date shall be before the date of the Company's
                        proposed dissolution or liquidation. The Board
                        shall notify each participant in writing, at
                        least ten (10) business days prior to the New
                        Exercise Date, that the Exercise Date for the
                        participant's option has been changed to the New
                        Exercise Date and that the participant's option
                        shall be exercised automatically on the New
                        Exercise Date, unless prior to such date the
                        participant has withdrawn from the Offering
                        Period as provided in Section 11 hereof.

              (c)       MERGER OR ASSET SALE. In the event of a proposed
                        sale of all or substantially all of the assets of
                        the Company, or the merger of the Company with or
                        into another corporation, each outstanding option
                        shall be assumed or an equivalent option
                        substituted by the successor corporation or a
                        Parent or Subsidiary of the successor
                        corporation. In the event that the successor
                        corporation - refuses to assume or substitute for
                        the option, any Purchase Periods then in progress
                        shall be shortened by

                                       8

<PAGE>

                        setting a new Exercise Date (the "New Exercise
                        Date") and any Offering Periods then in progress
                        shall end on the New Exercise Date. The New Exercise
                        Date shall be before the date of the Company's
                        proposed sale or merger. The Board shall notify each
                        participant in writing, at least ten (10) business
                        days prior to the New Exercise Date, that the
                        Exercise Date for the participant's option has been
                        changed to the New Exercise Date and that the
                        participant's option shall be exercised
                        automatically on the New Exercise Date, unless prior
                        to such date the participant has with drawn from the
                        Offering Period as provided in Section 11 hereof.

          20. AMENDMENT OR TERMINATION.

              (a)       The Board of Directors of the Company may at any
                        time and for any reason terminate or amend the
                        Plan. Except as provided in Section 19 hereof, no
                        such termination can affect options previously
                        granted, provided that an Offering Period may be
                        terminated by the Board of Directors on any
                        Exercise Date if the Board determines that the
                        termination of the Plan is in the best interests
                        of the Company and its shareholders. Except as
                        provided in Section 19 hereof, no amendment may
                        make any change in any option previously granted
                        which adversely affects the rights of any
                        participant. To the extent necessary to comply
                        with Section 423 of the Code (or any successor
                        rule or provision or any other applicable law,
                        regulation or stock exchange rule), the Company
                        shall obtain shareholder approval in such a
                        manner and to such a degree as required.

              (b)       Without shareholder consent and without regard to
                        whether any participant rights may be considered
                        to have been "adversely affected," the Board (or
                        its committee) shall be entitled to change the
                        Offering Periods, limit the frequency and/or
                        number of changes in the amount withheld during
                        an Offering Period, establish the exchange ratio
                        applicable to amounts withheld in a currency
                        other than U.S. dollars, permit payroll
                        withholding in excess of the amount designated by
                        a participant in order to adjust for delays or
                        mistakes in the Company's processing of properly
                        completed withholding elections, establish
                        reasonable waiting and adjustment periods and/or
                        accounting and crediting procedures to ensure
                        that amounts applied toward the purchase of
                        Common Stock for each participant properly
                        correspond with amounts withheld from the
                        participant's Compensation, and establish such
                        other limitations or procedures as the Board (or
                        its committee) determines in its sole discretion
                        advisable which are consistent with the Plan.

          21. NOTICES. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.

                                       9

<PAGE>

          22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.

          23. CONDITION TO EXERCISE OF OPTIONS. As a condition to the exercise
of an option, the Company may require the person exercising such option to
represent and warrant at the time of any such exercise that the shares are being
purchased only for investment and without any present intention to sell or
distribute such shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned applicable provisions of
law.

          24. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.

                                       10

<PAGE>

                                                                       EXHIBIT A

                           CAP ROCK ENERGY CORPORATION

                        2001 EMPLOYEE STOCK PURCHASE PLAN

                             SUBSCRIPTION AGREEMENT

        Original Application                         Expiration Date
-------                                                              -----------
        Changes in Payroll Deduction Rate
-------

1.         I hereby elect to participate in the Cap Rock Energy Corporation
           Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and
           subscribe to purchase shares of the Company's Common Stock in
           accordance with this Subscription Agreement and the Employee Stock
           Purchase Plan.

2.         I hereby authorize payroll deductions from each paycheck in the
           amount-of ____% of my Compensation on each payday (from 1% to 15%)
           during the Offering Period in accordance with the Employee Stock
           Purchase Plan. (Please note that no fractional percentages are
           permitted.)

3.         I understand that said payroll deductions shall be accumulated for
           the purchase of shares of Common Stock at the applicable Purchase
           Price determined in accordance with the Employee Stock Purchase Plan.
           I understand that if I do not withdraw from an Offering Period, any
           accumulated payroll deductions will be used to automatically exercise
           my option on the occurrence of each Exercise Period.

4.         I have received a copy of the complete Employee Stock Purchase Plan.
           I understand that my participation in the Employee Stock Purchase
           Plan is in all respects subject to the terms of the Plan.

5.         Shares purchased for me under the Employee Stock Purchase Plan should
           be issued in the name(s) of (Employee or Employee and Spouse only):
           _______________________.

6.         I understand that if I dispose of any shares received by me pursuant
           to the Plan within 2 years after the Enrollment Date (the first day
           of the Offering Period during which I purchased such shares) or one
           year after the Exercise Date, I will be treated for federal income
           tax purposes as having received ordinary income at the time of such
           disposition in an amount equal to the excess of the fair market value
           of the shares at the time such shares were purchased by me over the
           price which I paid for the shares. I HEREBY AGREE TO NOTIFY THE
           COMPANY IN WRITING WITHIN THIRTY (30) DAYS AFTER THE DATE OF ANY
           DISPOSITION

                                       11

<PAGE>

           OF MY SHARES AND I WILL MAKE ADEQUATE PROVISION FOR FEDERAL, STATE
           OR OTHER TAX WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON THE
           DISPOSITION OF THE COMMON STOCK. the Company may, but will not be
           obligated to, withhold from my compensation the amount necessary to
           meet any applicable withholding obligation including any withholding
           necessary to make available to the Company any tax deductions or
           benefits attributable to sale or early disposition of Common Stock
           by me.

7.         I understand that if I dispose of such shares at any time after the
           expiration of the two-year and one-year holding periods, I will be
           treated for federal income tax purposes as having received income
           only at the time of such disposition, and that such income will be
           taxed as ordinary income only to the extent of an amount equal to the
           lesser of (i) the excess of the fair market value of the shares at
           the time of such disposition over the purchase price which I paid for
           the shares, or (ii) 15% of the fair market value of the shares on the
           first day of the Offering Period. The remainder of the gain, if any,
           recognized on such disposition will be taxed as capital gain.

8.         I hereby agree to be bound by the terms of the Employee Stock
           Purchase Plan. The effectiveness of this Subscription Agreement is
           dependent upon my eligibility to participate in the Employee Stock
           Purchase Plan.

9.         My Social Security Number is:       -      -        .
                                         -----   ----   -------

10.        My address is:
                                          ------------------------------------

                                          ------------------------------------

                                          ------------------------------------

I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.

Dated:
       --------------------------        -------------------------------------
                                         Signature of Employee

                                       12

<PAGE>

                                                                       EXHIBIT B

                           CAP ROCK ENERGY CORPORATION

                        2001 EMPLOYEE STOCK PURCHASE PLAN

                              NOTICE OF WITHDRAWAL

           The undersigned participant in the Cap Rock Energy Corporation
Employee Stock Purchase Plan was granted options pursuant to the Offering Period
which began on ____________, 20__, (the "Enrollment Period"), and does hereby
notify the Company that the undersigned hereby withdraws for the Offering
Period. The undersigned directs the Company to pay to the undersigned as
promptly as practicable all the payroll deductions credited to the undersigned's
account with respect to such offering Period. The undersigned understands and
agrees that the undersigned's option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.

                               Name and Address of Participant:

                               -----------------------------------------

                               -----------------------------------------

                               -----------------------------------------

                               -----------------------------------------

                               Signature:

                               -----------------------------------------

                               Date:
                                     ------------------------------------

                                       13

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