Document:

Exhibit 10.79

 

	
  Beal
  Bank, S.S.B.

  	
   

  	
  Date:
  September 8, 2003

  
	
  6000
  Legacy Drive

  	
   

  	
   

  
	
  4th Floor

  	
   

  	
   

  
	
  Plano,
  Texas 75024

  	
   

  	
   

  
	
  (469)
  467-5000

  	
   

  	
   

  

 

 

NewCorp Resources Electric
Cooperative, Inc.

500 West Wall, Suite 400

Midland, Texas 79701

Fax: (915) 684-0333

 

Re:       NewCorp Resources Electric Cooperative, Inc.

 

Ladies and Gentlemen:

 

Beal Bank, S.S.B. (the “Beal”)
is pleased to advise NewCorp Resources Electric Cooperative, Inc. (“Borrower”)
that in accordance with your request, Beal hereby commits to lend Borrower up
to Thirty One Million Five Hundred Thousand Dollars ($31,500,000.00) in the
form of a multiple advance term loan (the “Loan”) subject to the terms
and provisions of this letter and the Term Sheet attached hereto as Exhibit “A”
(the “Term Sheet” and together with this letter, the “Commitment
Letter”).

 

As consideration for Beal’s
commitment hereunder, you agree to pay to Beal the fees set forth in the Term
Sheet which are nonrefundable except as set forth therein.  You agree to indemnify and hold harmless
Beal and its affiliates and their respective officers, directors, employees,
advisors, and agents (each, an “indemnified person”) from and against any and
all losses, claims, damages and liabilities to which any such indemnified
person may become subject arising out of or in connection with this Commitment
Letter, the Loan, the use of the proceeds thereof, any loan broker or finder
engaged or allegedly engaged by the Borrower making claims in respect of the
Loan or any related transaction or any claim, litigation, investigation or
proceeding relating to any of the foregoing, regardless of whether any
indemnified person is a party thereto, and to reimburse each indemnified person
upon demand for any reasonable legal or other expenses incurred in connection
with investigating or defending any of the foregoing; provided that the
foregoing indemnity will not, as to any indemnified person, apply to losses,
claims, damages, liabilities or related expenses to the extent they are found
by a final, non-appealable judgment of a court to arise from the willful
misconduct, unlawful conduct or gross negligence of such indemnified
person.  YOU AGREE THAT THE INDEMNITY
CONTAINED IN THE PRECEDING SENTENCE EXTENDS TO AND IS INTENDED TO COVER
LOSSES AND RELATED EXPENSES ARISING OUT OF THE ORDINARY, SOLE OR CONTRIBUTORY
NEGLIGENCE OF ANY INDEMNIFIED PERSON. 
You also agree to reimburse Beal and its affiliates on demand for all
reasonable out-of-pocket expenses (including reasonable due diligence expenses,
environmental engineer and appraisal fees and expenses of Appraisal Economics,
Inc. and Stone & Webster Management Consultants, Inc., travel expenses, and
reasonable fees, charges and disbursements of counsel) incurred in connection
with this Commitment Letter, the Loan and any related documentation (including
the definitive financing documentation) or the administration, amendment,
modification or waiver thereof.  No
indemnified person shall be liable for any damages arising from the use by others
of information or other materials obtained through the unauthorized use of
electronic, telecommunications or other information transmission systems or for
any special, indirect, consequential or punitive damages in connection with the
Loan.  Beal has no liability or
obligation of any kind to pay any broker’s fee, finder’s fee or other fee
relating to the Loan which is charged by a broker, finder or third party
engaged or allegedly engaged by the Borrower.

 

 

This Commitment Letter shall
be governed by and construed in accordance with the laws of the State of Texas
and the applicable laws of the United States of America.

 

This Commitment Letter, when executed, shall be binding upon and inure
to the benefit of only the parties hereto and their respective successors and
assigns, provided that you may not assign or transfer any of your rights or
obligations hereunder except as provided for in the Terms Sheet or, in any
other case, without the prior written consent of Beal, which consent may be
granted or withheld as Beal may determine in its sole discretion.  Any assignment in violation of the foregoing
shall be null and void.  All conditions
in this Commitment Letter are express conditions and the failure to satisfy any
one of the conditions set forth herein shall release Beal from its commitment to
extend the Loan hereunder.

 

In the event each of the
conditions to Beal’s obligation to fund an advance under the Loan is satisfied
and the Borrower performs each of the Borrower’s obligations described in this
Commitment Letter and Beal thereafter fails or refuses to make the required
advance, (a) Beal will return to the Borrower the Commitment Fee and Aggregate
Expense Deposit described in the Term Sheet and paid by the Borrower to Beal;
(b) the Borrower shall be entitled to recover up to, but not in excess of, an
amount equal to the Borrower’s actual out-of-pocket expenses incurred in
connection with the negotiation and documentation of the Application for Loan
referenced below, this Commitment Letter, the proposed Loan and the
transactions contemplated hereunder (including, without limitation, costs
incurred for consultants and reasonable attorney fees and expenses of Griggs
& Adler, P.C. and Milbank, Tweed, Hadley & McCloy LLP), as the
Borrower’s sole and exclusive remedy for such a failure or refusal, the
Borrower hereby waiving all other remedies and relief; and (c) any and all
indemnity obligations of the Borrower in favor of Beal under this Commitment
Letter shall terminate and the Borrower shall have no further obligations to
Beal.

 

Any provision
of this Commitment Letter held by a court of competent jurisdiction to be
invalid or unenforceable shall not impair or invalidate the remainder of this
Commitment Letter and the effect thereof shall be confined to the provisions
held to be invalid or unenforceable.

 

THIS
COMMITMENT LETTER, WHEN EXECUTED, SHALL CONSTITUTE THE FINAL ENTIRE AGREEMENT
OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SHALL SUPERSEDE
AND REPLACE ANY OTHER PREVIOUS COMMITMENTS OR AGREEMENTS RELATING TO THE
SUBJECT MATTER HEREOF, WHETHER WRITTEN OR ORAL (INCLUDING, WITHOUT LIMITATION,
THAT CERTAIN APPLICATION FOR LOAN DATED JUNE 23, 2003 BUT EXCLUDING HOWEVER,
THAT CERTAIN LETTER FROM JACOB CHERNER OF CSG INVESTMENTS, INC. DATE DECEMBER
11, 2002 RELATING TO THE NONDISCLOSURE OF NONPUBLIC CONFIDENTIAL INFORMATION)
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES.  OTHER
THAN THE CONFIDENTIALITY LETTER REFERRED TO IN THE FOREGOING SENTENCE, THERE
ARE NO WRITTEN OR ORAL COMMITMENTS OR OTHER AGREEMENTS BETWEEN BEAL AND THE
BORROWER.

 

This Commitment Letter may
be executed in counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same agreement.  Delivery of an executed signature page of
this Commitment Letter by facsimile transmission shall be effective as delivery
of manually executed counterpart hereof.

 

2

 

The compensation,
reimbursement and indemnification provisions contained herein shall remain in
full force and effect regardless of whether definitive financing documentation
shall be executed and delivered and notwithstanding the termination of this
Commitment Letter or Beal’s commitment hereunder. 

 

The offer by Beal of the
commitment hereunder shall expire on 5:00 p.m. (Dallas, Texas Time), on
September 9, 2003, unless this Commitment Letter is signed by the
Borrower and returned to Beal prior to such date and time along with any
requested Additional Expense Deposit and the Initial Commitment Fee Installment
(each as defined in the Term Sheet). 
Once accepted by the Borrower, the commitment of Beal to make the Loan
will expire and be of no further force and effect at 5:00 p.m. (Dallas, Texas
time) on December 31, 2003, (the “Initial Termination Date”) if the
Initial Closing Date (as defined in the Term Sheet) does not occur by such date
and time.  If the Initial Advance is
made on or before the Initial Termination Date, the commitment of Beal to make
the Additional Advance described in the Term Sheet will expire and be of no
further force and effect at 5:00 p.m. (Dallas, Texas time) on the 364 Maturity
Date (as defined in the Term Sheet) if the Second Closing Date (as defined in
the Term Sheet) does not occur by such date (the 364 Maturity Date herein also
sometimes referred to as the “Second Termination Date”).  The provisions of this Commitment Letter may
be waived prior to the closing of the transactions contemplated hereby only by
written agreement signed by the parties hereto.

 

If you accept the terms and
conditions set forth in this Commitment Letter, please execute a copy of this
Commitment Letter in the space below and return a copy to us along with the
payments required by the Term Sheet at your earliest convenience and in any
event prior to the expiration of our offer set forth above.

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  BEAL BANK, S.S.B.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William T. Saurenmann

  
	
   

  	
  William
  T. Saurenmann, Senior Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
  ACCEPTED AND AGREED TO

  	
   

  
	
  as of the date first above
  written.

  	
   

  
	
   

  	
   

  
	
  NEWCORP RESOURCES ELECTRIC

  	
   

  
	
  COOPERATIVE, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Lee D. Atkins

  	
   

  	
   

  
	
  Name:

  	
  Lee D. Atkins

  	
   

  	
   

  
	
  Title:

  	
  SVP/CFO

  	
   

  	
   

  
							

 

3

 

Exhibit
“A”

to

Commitment Letter

Dated

8 September 2003

between

NewCorp Resources Electric Cooperative, Inc.

and

Beal Bank, S.S.B.

 

 

TERM
SHEET

 

	
  BANK:

  	
  Beal Bank, S.S.B.

  
	
   

  	
   

  
	
  BORROWER:

  	
  NewCorp Resources Electric
  Cooperative, Inc. (“Borrower”)

  
	
   

  	
  500 West Wall, Suite 400

  
	
   

  	
  Midland, Texas 79701

  
	
   

  	
  Telephone: (915) 684-0305

  
	
   

  	
  Fax:  (915) 684-0333

  
	
   

  	
  TAX ID/SS#: 91-1860218

  
	
   

  	
   

  
	
  LOAN AMOUNT:

  	
  The Loan Amount shall be
  $31,500,000.

  
	
   

  	
   

  
	
  ADVANCES:

  	
  The Loan shall be advanced
  as follows:

  
	
   

  	
   

  
	
   

  	
  (a)           If the Conditions to the Initial Advance
  (as set forth below) have been satisfied, an amount to be determined by the
  Borrower (but not to exceed $15,000,000) shall be advanced on the initial
  closing date (the “Initial Closing Date” and the actual amount
  advanced on the Initial Closing Date, herein the “Initial Advance”)
  and

  
	
   

  	
   

  
	
   

  	
  (b)           If the Conditions to the Additional Advance
  (as set forth below) have been satisfied, the remaining portion of the Loan (i.e., the difference between the Loan
  Amount and the Initial Advance, which difference is herein referred to as the
  “Additional Advance”) will be advanced to the Borrower at the
  Borrower’s request (the date when the Additional Advance is made is herein
  the “Second Closing Date”).

  
	
   

  	
   

  
	
   

  	
  Once amounts are repaid
  under the Loan, they may not be re-borrowed.

  
	
   

  	
   

  
	
  COMMITMENT FEE:

  	
  A Commitment Fee of 2.0%
  of the Loan Amount ($630,000) will be earned upon written acceptance of this
  Commitment Letter by the Borrower. 
  The Commitment Fee shall be payable as follows: (a) $315,000 at the
  time of written acceptance of this Commitment Letter by the Borrower (the “Initial
  Installment”); (b) an amount equal to 1.0% of Initial Advance on the
  Initial Closing Date (the “Second Installment”); and (c) the remaining
  amount of the Commitment Fee on the Second Closing Date (the “Third
  Installment”).

  
	
   

  	
   

  
	
   

  	
  The Borrower acknowledges
  that, so long as Beal performs in substantial compliance

  

 

1

 

	
   

  	
  with the terms of this
  Commitment Letter and is prepared to close and fund the Initial Advance under
  the Loan on the terms of this Commitment Letter on or before the Initial
  Termination Date or if there is a material misrepresentation by the Borrower,
  then the entire Initial Installment and Second Installment will have been
  earned and the Second Installment (in a deemed amount equal to $150,000) will
  be due and payable, whether or not the Borrower consummates the transaction
  as contemplated.  The Borrower also
  acknowledges that, so long as Beal performs in substantial compliance with
  the terms of this Commitment Letter and is prepared to close and fund the
  Additional Advance on the terms of this Commitment Letter on or before the
  Second Termination Date or if there is a material misrepresentation by the
  Borrower, then the entire Commitment Fee will have been earned and the Third
  Installment will be due and payable, whether or not the Borrower consummates
  the transaction as contemplated. 
  Notwithstanding the foregoing, however, if Beal decides not to make
  the Additional Advance: (i) because any regulatory agency governing the
  Borrower (including but not limited to the Federal Energy Regulatory
  Commission, herein “FERC”) is required to but does not approve the
  Loan or the other transactions contemplated hereby; (ii) because any
  regulatory agency governing the Borrower (including but not limited to the
  Public Utility Commission of Texas (“PUCT”)) prohibits the
  consummation of the transactions contemplated hereby or rules or takes action
  that could have an adverse impact on the transactions contemplated hereby or
  the Collateral (as defined below); (iii) because the Borrower is unable to
  obtain the agreement of National Rural Utilities Cooperative Finance
  Corporation (“CFC”) to the terms of the Consent and Agreement
  described below or (iv) because the Borrower is unable to obtain a transmission
  Interconnection Agreement (referred to below) with Southwest Power Pool (“SPP”)
  or Southwestern Public Service Company doing business as Xcel Energy Corp.
  and herein “SWPSC”), as appropriate, on terms acceptable to Beal; then
  in each of these cases, Beal will return the Unearned Commitment Fee
  previously paid (with all other amounts of the Initial Installment and the
  Second Installment previously paid being retained by Beal as consideration
  for issuing the Commitment Letter and making the Initial Advance) and the
  Borrower will not be obligated to pay the Third Installment otherwise
  due.  The term “Unearned Commitment
  Fee” means an amount equal to the sum of: (i) $505,000 (the full
  Commitment Fee minus $125,000); minus (ii) an amount equal to 2% of the Initial
  Advance; minus (iii) the Third Installment. 
  Neither Cap Rock Energy Corporation (“CRE”) nor the Borrower is
  making any assurances that CFC’s consent to CRE’s grant of liens to Beal and
  the Consent and Agreement described below will be obtainable or ultimately
  obtained.  CRE and the Borrower shall,
  however, use reasonable efforts to seek and obtain such Consent and
  Agreement.

  
	
   

  	
   

  
	
  EXPENSE DEPOSIT:

  	
  Borrower has delivered to
  Beal an expense deposit of $50,000 (the “Initial Expense Deposit”).  Borrower agrees to deliver from time to
  time such additional deposits as may be necessary to cover Beal’s reasonable
  expenses incurred in connection with this Commitment Letter or the
  transactions contemplated hereby in excess of the Initial Expense Deposit
  (the “Additional Expense Deposit”, together with the Initial Expense
  Deposit, the “Aggregate Expense Deposit”).  The Aggregate Expense Deposit will be used only to reimburse
  Beal for third-party out of pocket expenses incurred by Beal in conjunction
  with the evaluation, due diligence, documentation and closing regarding this
  Loan.  Any amounts not used will be
  returned to the Borrower or applied to the unpaid Commitment Fee, as
  applicable.

  

 

2

 

	
  LOAN TERM:

  	
  The Initial Advance shall
  be due and payable in full on the date 364 days from the date of the Initial
  Closing Date (such date, the “ 364 Maturity Date” and the period from
  the Initial Closing Date to the 364 Maturity Date, herein the “364 Day
  Period”); provided, however, that if the Additional Advance is made, the
  final maturity of the Loan (including the Initial Advance) shall be fifteen
  (15) years from the Second Closing Date (the final maturity of the Loan after
  the Additional Advance is made, herein the “Extended Maturity Date”)

  
	
   

  	
   

  
	
  AMORTIZATION:

  	
  No amortization during the
  364 Day Period.  If the Additional
  Advance is made, the Loan (including the portion thereof attributable to the
  Initial Advance) shall amortize monthly beginning the first month after the Second
  Closing Date, based on a fifteen (15) year amortization.

  
	
   

  	
   

  
	
  INTEREST RATE PRIOR

  TO VARIABLE RATE

  TARIFF:

  	
  Prior to the Variable Rate
  Tariff Date (as defined below in the Transmission Service Agreement section
  of this Term Sheet) and at any time when FERC has modified any tariff
  applicable to Borrower in a manner that could reasonably be expected to have,
  as reasonably determined by Beal, a Material Adverse Effect (as defined
  below), the Loan shall accrue interest at a per annum rate equal at all times
  to the greater of (i) 10.75% or (ii) 7% plus a floating rate equal to the one
  month London interbank offered rate for dollar deposits (LIBOR) as determined
  on the first business day of each month and as published in the Money Rate
  section of the Wall Street Journal (Southwestern Edition) or as published
  pursuant to any other nationally recognized rate quoting service (the “LIBOR
  Rate”); provided that the aggregate amount of all interest, fees,
  payments, and other charges contracted for, charged, or received in connection
  with the Loan that constitute interest under applicable law shall not exceed
  the maximum rate permitted by applicable law.  For purposes of this Commitment Letter, the term “Material
  Adverse Effect” shall mean a material adverse effect on: (a) the
  business, assets, operations, performance or condition (financial or
  otherwise) of the Borrower or CRE, (b) the ability of the Borrower or CRE to
  perform any of its obligations under any Transaction Document (as defined
  below) or (c) the rights of or benefits available to Beal under any of the
  Transaction Documents.

  
	
   

  	
   

  
	
  INTEREST RATE AFTER

  VARIABLE RATE TARIFF:

  	
  On the Variable Rate
  Tariff Date and at all times thereafter as long as FERC has not modified the
  tariff then applicable to Borrower in a manner that could reasonably be
  expected to have, as reasonably determined by Beal, a Material Adverse
  Effect, the Loan shall accrue interest at a per annum rate equal at all times
  to the greater of (i) 9.75% or (ii) 6% plus the LIBOR Rate; provided that the
  aggregate amount of all interest, fees, payments, and other charges
  contracted for, charged, or received in connection with the Loan that
  constitute interest under applicable law shall not exceed the maximum rate
  permitted by applicable law.

  
	
   

  
	
   

  	
   

  
	
  RATE CALCULATION:

  	
  Interest shall be
  calculated on the basis of a year of 360 days and the actual number of days
  elapsed (including the first day and excluding the last) occurring in the
  period for which such interest is payable unless such calculation would
  result in a usurious rate, in which case interest shall be calculated on the
  basis of a year of 365 or 366 days, as the case may be.

  

 

3

 

	
  DEFAULT INTEREST

  RATE:

  	
  Five percent (5%) plus the
  rate otherwise in effect.  The default
  rate shall apply only to the amount of any past due payments.

  
	
   

  	
   

  
	
  REPAYMENT TERMS:

  	
  Interest payable monthly
  beginning the first day of the first month after the Initial Closing Date
  through and including: (i) if the Additional Advance is not made, the 364
  Maturity Date and (ii) if the Additional Advance is made, the Extended
  Maturity Date.  No principal will be
  payable during the 364 Day Period.  If
  the Additional Advance is not made, the principal amount of the Loan will be
  due and payable on the 364 Maturity Date. 
  If the Additional Advance is made, the principal amount of the Loan
  will be payable monthly beginning the first day of the first month after the
  Second Closing Date and all outstanding principal shall be due and payable on
  the Extended Maturity Date.

  
	
   

  	
   

  
	
  PREPAYMENT:

  	
  Prepayment will not be
  allowed during the 364-Day Period.  If
  the Additional Advance is made, prepayment will not be allowed during the
  initial twenty-four (24) months immediately following the Initial Closing
  Date and prepayments thereafter will be allowed with a 1% fee during months
  twenty-five (25) through forty-eight (48) following the Initial Closing
  Date.  Prepayment (whether in whole or
  in part) after month forty-eight (48) following the Initial Closing Date will
  be allowed at par.

  
	
   

  	
   

  
	
  ASSIGNMENT BY

  BORROWER:

  	
  The Borrower shall have
  the right to assign its rights and obligations under the Loan to a third
  party that is reasonably acceptable to Beal and acceptable and approved by
  FERC as long as: (i) no default then exists, and (ii) such third party shall
  acquire the assets of the Borrower and shall assume the obligations of the
  Borrower pursuant to such documentation as Beal may reasonably require and
  pursuant to a transaction approved by Beal and, to the extent such approvals
  are legally required, any applicable regulatory authorities.  Beal’s decision whether to approve of a
  transaction under this paragraph will be made in its judgment, in good faith
  and based on such factors which, in its judgment, supports such decision.  Beal’s approval regarding any such
  transaction will not be unreasonably withheld or delayed.

  
	
   

  	
   

  
	
  COLLATERAL:

  	
  As of the Second Closing
  Date, the Loan is to be secured by the following (the property described
  below, herein the “Collateral”):

  
	
   

  	
   

  
	
   

  	
  (a)           a perfected first priority lien in all
  assets of the Borrower (other than the Excluded Assets described below),
  including without limitation, all of the Borrower’s right, title and interest
  in and to the following:

  
	
   

  	
   

  
	
   

  	
  (i)            the 305 mile Electric Transmission System
  (“System”), including sixteen electric substations with all related
  real and personal property including, without limitation, easements, electric
  lines and facilities;

  
	
   

  	
   

  
	
   

  	
  (ii)           the revenues, cash, accounts and accounts
  receivable of the Borrower;

  
	
   

  	
   

  
	
   

  	
  (iii)          all deposit, commodity and investment
  accounts of the Borrower, including without limitation, the Collection
  Account described below in this section and the accounts holding the reserve
  funds described below in clause (i) of the Conditions to Additional Advance
  section of this Term Sheet;

  
	
   

  	
   

  
	
   

  	
  (iv)          all general intangibles, including, without
  limitation or in addition, the

  

 

4

 

	
   

  	
  Transmission Service
  Agreement (as defined below), the O&M Agreement (as defined below) and
  the other material contracts to which the Borrower is a party in connection
  with the System, including without limitation contracts to purchase
  electricity, hedging agreements, insurance and permits, easements, rights of
  way, licenses and governmental approvals related to the System or the
  Borrower; and

  
	
   

  	
   

  
	
   

  	
  (v)           the purchase agreement between the Borrower
  and CRE and all assets of the Borrower acquired under the terms thereof (the
  “Purchase Agreement”); and

  
	
   

  	
   

  
	
   

  	
  (b)           a perfected first priority lien in all of
  CRE’s right, title and interest in the Borrower, including without
  limitation, all right, title and interest in CRE’s membership interest in the
  Borrower, the right of CRE to select the board of directors of the Borrower
  and all other rights arising in its capacity as a member of Borrower (the
  Collateral described in this clause (b), herein the “Membership Rights”).  Without limitation of Beal’s rights as set
  forth in the Loan Documents to require Borrower and CRE to obtain Beal’s
  consent to matters as to which the owner of the Membership Rights has the
  right of approval, Beal shall have no right to exercise any Membership Rights
  prior to the occurrence of an Event of Default (as such term is defined on
  Schedule 1 hereto).  The Borrower will
  agree that upon the occurrence of an Event of Default and Beal’s request, the
  Borrower will cancel the membership interest of CRE and issue a membership
  interest to Beal or to another third party approved by Beal who is authorized
  to be a member of Borrower.

  
	
   

  	
   

  
	
   

  	
  Control of Cash. 
  On or prior to the Second Closing Date, the Borrower shall be required
  to establish with a third party escrow agent or trustee selected by the
  Borrower and acceptable to Beal (the “Disbursement Agent”) an escrow
  or trust account into which payments under the Transmission Service Agreement
  and all other payments on accounts receivable (except as noted below) will be
  deposited (the “Collection Account”). 
  The Collection Account will be Collateral, Beal will have control over
  the Collection Account and the Borrower shall not have any right to make
  withdrawals therefrom.  However, the
  Disbursement Agent shall be pre-authorized to make disbursements therefrom on
  a monthly basis: (i) to pay the amounts owed under the terms of the O&M Agreement
  (as defined below) in accordance with a budget therefor pre-approved by Beal
  (the “O&M Budget”); (ii) to pay the obligations under the Loan;
  and (iii) to make the distributions and deposits to the reserve accounts
  and/or other accounts described below in clause (i) of the Conditions to
  Additional Advance section of this Term Sheet.  Any amounts on deposit in bank accounts immediately prior to
  the Second Closing Date shall not be required to be deposited into the
  Collection Account but may be used by the Borrower in the ordinary course of
  business for general corporate purposes (including distributions to its
  members).  The O&M Budget for the
  calendar year ending prior to the Second Closing Date will be prepared by the
  Borrower and delivered to Beal prior to the Second Closing Date.  Prior to each December 31 of each year
  after the Second Closing Date, the Borrower will deliver an O&M Budget
  for the next calendar year to Beal for approval.

  
	
   

  	
   

  
	
   

  	
  Substitute Collateral. 
  In lieu of the foregoing Collateral, Beal agrees that the Borrower (or
  any assignee of the Borrower permitted by the assignment provisions set forth
  above) shall have the right to provide substitute collateral in the form of
  cash or cash

  

 

5

 

	
   

  	
  equivalents which must be
  in an amount and of a type satisfactory to Beal in its sole discretion and
  must be held at Beal or other institution satisfactory to Beal in its sole
  discretion.

  
	
   

  	
   

  
	
   

  	
  Sale of Membership Rights. 
  CRE is considering the sale of its Membership Rights.  Beal will agree to consider consenting to
  the sale at CRE’s request.  Beal’s
  decision whether to consent to the sale will be made in its judgment, in good
  faith and based on such factors which, in its judgment, supports such decision.  Beal’s consent to any such sale will not
  be unreasonably withheld or delayed but in any case, Beal will retain a first
  priority security interest in the ownership interest (in whatever form) of
  the Borrower.

  
	
   

  	
   

  
	
   

  	
  Inspection and Appraisal. 
  The System and other Collateral will be inspected and approved by Beal
  in its sole discretion.  Beal has
  obtained an appraisal of the System from Appraisal Economics, Inc. dated as
  of January 31, 2003 reflecting a fair market value of $38,000,000 for the
  System.

  
	
   

  	
   

  
	
   

  	
  Excluded Property. 
  The Collateral for the Loan shall not include the following assets or
  subsidiaries of the Borrower which are to be sold prior to the Second Closing
  Date and do not relate to the System:

  
	
   

  	
   

  
	
   

  	
  (1)           ERCOT Power Supply (transmission services
  for McCulloch and Hunt-Collin);

  
	
   

  	
   

  
	
   

  	
  (2)           New West Resources (Hdq Bldg, Map
  Resources, United Fuels Loan Agreements and stock);

  
	
   

  	
   

  
	
   

  	
  (3)           Cap Star Resources (customer hook ups);

  
	
   

  	
   

  
	
   

  	
  (4)           Cap Rock Utility Services (Farmersville
  Contract);

  
	
   

  	
   

  
	
   

  	
  (5)           Certain interests in limited partnerships,
  corporations or other entities to be identified by the Borrower that are not
  necessary for the operation of the System and do not relate to the System,
  subject to Beal’s approval thereof not to be unreasonably withheld; and

  
	
   

  	
   

  
	
   

  	
  (6)           Amounts on deposit in Account Number
  80966837 held at Western National Bank in Midland, Texas and any cash or
  other funds released to the Borrower from Metropolitan Life Insurance Company
  on the Initial Closing Date.

  
	
   

  	
   

  
	
  CONSENT AND

  AGREEMENT:

  	
  CRE, the Borrower, Beal
  and CFC will have executed a Consent and Agreement on or prior to the Second
  Closing Date on terms which shall be mutually agreed to by all parties
  thereto.  The Consent and Agreement
  shall provide for, among other things, the following:

  
	
   

  	
   

  
	
   

  	
  (a)           the waiver of any existing defaults under
  the documentation between CFC and CRE and a release of CFC’s liens in the
  assets sold to the Borrower under the Purchase Agreement;

  
	
   

  	
  (b)           a consent to the grant by CRE to Beal of a
  lien on the Membership Rights to

  

 

6

 

	
   

  	
  secure the Loan and a
  release of CFC’s liens therein; and

  
	
   

  	
  (c)           an agreement that the amounts paid by CRE
  under the Transmission Service Agreement shall constitute operating costs and
  an administrative expense in any bankruptcy or insolvency proceeding of CRE.

  
	
   

  	
   

  
	
  USE OF PROCEEDS:

  	
  The proceeds of the
  Initial Advance will be used to repay outstanding debt obligations of the
  Borrower owing to Metropolitan Life Insurance Company in connection with
  construction of the System.  Proceeds
  of the Additional Advance will be used: (i) for the payment of transaction
  costs and related loan closing costs; (ii) to finance the purchase price
  payable by the Borrower under the Purchase Agreement (which purchase price
  will not exceed the depreciated original cost of the assets so acquired);
  (iii) to fully fund the Maintenance Reserve Fund and the Working Capital
  Reserve Fund (as such terms are defined below in clause (i) of the Conditions
  to Additional Advance section of this Term Sheet); (iv) repay outstanding
  debt obligations of the Borrower owing to Cap Rock Cooperative Finance Corp.
  (the “CRCFC”), and (v) other general corporate purposes consistent
  with applicable law and regulations. 
  CRCFC will use the proceeds from the debt repayment described above to
  repay amounts owed to CFC.  CRE will
  use the proceeds received under the Purchase Agreement to repay amounts owed
  to CFC.

  
	
   

  	
   

  
	
  TRANSMISSION

  SERVICE AGREEMENT:

  	
  On or prior to the Second
  Closing Date, CRE shall have agreed to purchase electric transmission service
  from the Borrower pursuant to a Network Integration Transmission Service
  Agreement (“NITSA”) that is consistent with Borrower’s Open Access
  Transmission Tariff (“OATT”). 
  On or prior to the Second Closing Date, FERC shall have approved (or
  accepted for filing) the termination of service (but not of the WP Tariff) to
  CRE under Borrower’s WP Tariff. 
  Subject to the agreement of the Borrower and Beal (which agreement by
  Beal will not be unreasonably withheld or delayed) that the necessary FERC
  application is unlikely to be protested, the Borrower shall have the right to
  seek to convert the OATT Tariff to a variable rate tariff on terms that have
  been proposed by the Borrower and consented to by Beal (such consent not to
  be unreasonably withheld or delayed) and that is otherwise based upon a debt
  coverage ratio sufficient to produce at least 1.2 times the debt service
  obligations of the Borrower and that takes into account the Borrower’s
  obligations under the O&M Agreement (as defined below) and its other
  operation and maintenance obligations. 
  The first date when each of the following shall have occurred shall be
  the “Variable Rate Tariff Date”: (i) FERC has approved or accepted for
  filing (without suspension and without the rates being made subject to
  refund) a variable rate tariff of the type described in the foregoing
  sentence for the OATT Tariff and (ii) a Transmission Service Agreement
  between CRE and the Borrower (and comparable service agreements between
  Borrower and each of its other transmission customers, if any) shall exist
  that by its terms provides the right for Borrower to implement the variable
  rate tariff upon FERC approval.  The
  term “Transmission Service Agreement” as used herein at any time shall
  mean the NITSA or any other transmission service agreement described in this
  section then in effect between the Borrower and CRE.

  
	
   

  	
   

  
	
  O&M AGREEMENT:

  	
  On or prior to the Second
  Closing Date, the Borrower and CRE will have executed an Operation, Maintenance
  and Administrative Services Agreement (the “O&M Agreement”)
  pursuant to which the Borrower has agreed to pay CRE for performing

  

 

7

 

	
   

  	
  certain facility studies,
  operation, maintenance and facility upgrade and replacement services on terms
  which shall be mutually agreed to by Beal and the Borrower; it being
  understood that the Borrower shall also have the right to retain other
  qualified contractors from time to time to perform certain of the foregoing services
  (subject to the approval of Beal not to be unreasonably withheld or delayed
  where the costs of services exceed $250,000).  The O&M Agreement, along with any other required
  agreements, shall obligate qualified entities, which may include where
  appropriate SWPSC or CRE, to provide all facilities studies, operation,
  maintenance and upgrades and replacements to the System and any other
  necessary transmission-related services not otherwise provided by SWPSC or
  other qualified entity, in accordance with prudent utility practice and as
  needed for Borrower to: (i) comply with the terms of the Transmission Service
  Agreement, the OATT Tariff, and the operating agreement between CRE and
  Borrower under the OATT Tariff and (ii) provide all transmission services not
  provided by SWPSC or other qualified entity that Borrower is obligated to
  provide to any other of its transmission customers.  In the O&M Agreement, CRE shall agree to waive collection
  of any charges thereunder, or portions thereof, that the FERC determines the
  Borrower cannot allocate to its transmission customers.

  
	
   

  	
   

  
	
   

  	
  The O&M Agreement will
  include provisions that allocate to CRE the liability for the cost of repair
  or replacement of wires, poles and related System assets to the extent that
  funds from amounts available in the Maintenance Reserve and insurance
  proceeds are insufficient to cover such costs.

  
	
   

  	
   

  
	
  INTERCONNECTION

  AGREEMENT:

  	
  On or prior to the Second
  Closing Date, the Borrower will have entered into a transmission
  Interconnection Agreement with SPP or SWPSC, as appropriate, on terms
  acceptable to Beal in its reasonable business judgment.

  
	
   

  	
   

  
	
  ASSUMPTION

  AGREEMENT:

  	
  On or prior to the Second
  Closing Date, CRE, Cap Rock Electric Cooperative (the “Coop”), the
  Borrower and Beal shall enter into an assumption agreement pursuant to which
  the Coop will agree to assume all the obligation of CRE under the
  Transmission Services Agreement, the O&M Agreement, the Purchase
  Agreement, the Consent and Agreement and all other documentation executed and
  delivered in connection with the Loan or the transactions contemplated hereby
  (the “Transaction Documents”) in the event that (a) the transfer of
  the assets from the Coop to CRE was invalidated, (b) CRE’s conversion to an
  investor owned utility is found unlawful, (c) CRE is found to be a void
  entity or (d) if CRE is not allowed to be a retail service provider in the
  place of the Coop; provided that no Assumption Agreement will be required if:
  (i) the Coop’s Certificate of Convenience and Necessity from the PUCT has been
  transferred to CRE without condition and (ii) the items described in clause
  (a) through (d) are: (A) no longer otherwise contested in any proceedings
  before the PUCT or in any other pending litigation and (B) no longer subject
  to a pending opinion request before the Texas Attorney General.  The Assumption Agreement will provide for
  the creation and the continuation of liens in the Membership Rights to secure
  the obligations of the Borrower in respect of the Loan to the same extent and
  in the same manner as the liens to be granted by CRE in such Membership
  Rights.  Under the Assumption
  Agreement, CRE, the Borrower and the Coop will agree to comply with all
  conditions that the PUCT imposes to the approval of the transfer from the
  Coop to CRE of the Certificate of Convenience and Necessity unless and until
  those conditions are eliminated or modified on appeal or

  

 

8

 

	
   

  	
  otherwise.  In the event that the conditions are
  modified, the Coop, CRE and the Borrower will comply with the modified
  conditions.  The Coop and CRE also
  shall agree to concur in, support and cooperate with Borrower in obtaining
  acceptance by FERC of the assignment of the Transmission Service Agreement to
  the Coop under the circumstances described herein.

  
	
   

  	
   

  
	
  INSURANCE:

  	
  At its expense, the
  Borrower shall, to the extent it is commercially available for a reasonable
  premium, carry insurance with respect to the substations and transformers
  comprising the System for all reasonably insurable risks in an amount
  mutually agreed to by Beal and the Borrower and provide liability insurance
  in an amount reasonably acceptable to Beal. 
  As of the Second Closing Date, certificates of insurance shall name
  Beal as an additional insured and loss payee and shall contain endorsements
  reasonably satisfactory to Beal.

  
	
   

  	
   

  
	
  CONDITIONS TO

  INITIAL ADVANCE:

  	
  The obligation of Beal to
  make the Initial Advance as contemplated hereby is subject to the
  satisfaction of following conditions precedent or concurrent conditions, as
  applicable:

  
	
   

  	
   

  
	
   

  	
  (a)           The Initial Advance must be made by the
  Initial Termination Date unless mutually extended by Beal and the Borrower.

  
	
   

  	
   

  
	
   

  	
  (b)           The Borrower shall grant to Beal a first
  priority perfected interest in and to accounts (the “Collateral Accounts”)
  in which cash, certificates of deposit or other deposits in an aggregate
  amount equal to the Initial Advance (herein the “Initial Cash Collateral”)
  will be deposited.  Beal shall have
  been provided evidence satisfactory to it that on the date of and immediately
  after or prior to the funding of the Initial Advance, the Initial Cash
  Collateral shall be deposited into the Collateral Accounts pursuant to an
  escrow agreement in form and substance satisfactory to Beal and shall be
  funded through the escrow agreement from sources other than the proceeds of
  the Initial Advance.  The Initial Cash
  Collateral must be of a type satisfactory to Beal in its sole discretion and
  must be held at an institution satisfactory to Beal in its sole discretion.

  
	
   

  	
   

  
	
   

  	
  (c)           There is no default by Borrower under any
  of the terms and conditions of any of the documents evidencing and governing
  the Initial Advance and the Initial Cash Collateral.

  
	
   

  	
   

  
	
   

  	
  (d)           The execution and delivery to Beal of a
  promissory note and the documentation necessary to grant the liens
  contemplated in clause (b) above, such promissory note and documentation to
  contain such covenants, representations, warranties, conditions, yield
  protection provisions, indemnity and events of default of a nature customary
  for fully cash collateralized loans.

  
	
   

  	
   

  
	
   

  	
  (e)           The execution and delivery of legal
  opinions with respect to: (i) the Borrower’s existence, good standing, and
  authorization to enter into the transactions contemplated hereby; (ii) such
  other corporate authorization or organizational matters as Beal may request;
  (iii) the perfection of security interest; (iv) all governmental approvals
  and consents having been obtained;

  

 

9

 

	
   

  	
  (v) as to the
  enforceability of the Texas law governed documents; and (vi) such other
  matters as Beal may reasonably request. 
  Without limiting the foregoing, the legal opinions must address, among
  other customary matters, that: (a) CRE qualifies as an exempt intrastate
  holding company and has complied with all requirements for such exemption
  under the PUHCA; and (b) all FERC and the Public Utility Holding Company Act
  (“PUHCA”) requirements, if any, necessary for the Borrower to enter
  into and to perform its obligations under the loan documents evidencing and
  governing the Initial Advance have been met. 
  The PUHCA opinion will be rendered by Milbank, Tweed, Hadley &
  McCloy, LLP, the FERC opinion will be rendered by Griggs and Adler, P.C., and
  other opinions will be rendered by Ronnie Lyons.

  
	
   

  	
   

  
	
   

  	
  (f)            Beal must be provided articles of
  incorporation, bylaws, resolutions, certificates of secretary and such other
  evidence of the existence, good standing and authority of Borrower.

  
	
   

  	
   

  
	
   

  	
  (g)           All representations and warranties
  contained in the documents evidencing and governing the Initial Advance and
  the Initial Cash Collateral must be true and correct in all material respects
  and Beal shall not have become aware after the date hereof of any information
  or other matter affecting the Borrower or the transactions contemplated
  hereby which is inconsistent in a material and adverse manner with any such
  information or other matter disclosed to Beal prior to the date hereof.

  
	
   

  	
   

  
	
   

  	
  (h)           No material adverse legislative or
  regulatory developments affecting the Borrower or its business shall have
  occurred and no other material adverse change shall have occurred in the
  business, assets, or condition (financial or otherwise) of the Borrower.  No material litigation affecting the
  Borrower or its business other than the litigation disclosed to Beal in
  writing prior to the Initial Closing Date shall have occurred.

  
	
   

  	
   

  
	
   

  	
  (i)            A closing certificate signed by the chief
  executive officer of the Borrower certifying, among other things, to: (i) the
  sources and uses of funds; (ii) no default then existing; and (ii) the
  satisfaction of the conditions set forth in clause (g) (i.e., truth of
  representations and warranties) and clause (h) (i.e., no material adverse
  change) above.

  
	
   

  	
   

  
	
   

  	
  (j)            Beal shall have received all fees required
  to be paid, and all expenses for which invoices have been presented, on or
  before the Initial Closing Date.

  
	
   

  	
   

  
	
   

  	
  (k)           All governmental and third party approvals
  necessary or, in the discretion of Beal, advisable in connection with the
  financing contemplated by the Initial Advance must have been obtained based
  on applications and disclosures reasonably acceptable to Beal, must be in
  full force and effect and must be in form and substance acceptable to
  Beal.  Beal must be provided evidence
  that CRE qualifies as an exempt intrastate holding company and has complied
  with all requirements for such exemption under PUHCA.

  
	
   

  	
   

  
	
   

  	
  (l)            The execution and/or delivery to Beal of
  the documentation relating to the

  

 

10

 

	
   

  	
  payoff of the obligations
  owed to Metropolitan Life Insurance Company and such other documentation
  relating to the foregoing as Beal may reasonably request, all of which must
  be in form and substance satisfactory to Beal.  Beal agrees that it will not unreasonably withhold or delay its
  approval of the form or substance of any of the foregoing documents.

  
	
   

  	
   

  
	
   

  	
  (m)          All proceedings taken in connection with
  the transactions contemplated hereby, all documentation incident thereto and
  legal matters relating thereto shall be satisfactory to Beal in its
  reasonable discretion.

  
	
   

  	
   

  
	
   

  	
  (n)           Such other conditions precedent as are
  customary in transactions similar to the transactions contemplated hereby

  
	
   

  	
   

  
	
  CONDITIONS TO

  ADDITIONAL

  ADVANCE:

  	
  The obligation of Beal to
  make the Additional Advance as contemplated hereby is subject to the
  following conditions precedent:

  
	
   

  	
   

  
	
   

  	
  (a)           The Additional Advance must be made by the
  Second Termination Date unless mutually extended by Beal and the Borrower.

  
	
   

  	
   

  
	
   

  	
  (b)           There is no default by Borrower under any
  of the terms and conditions of any of the Loan Documents (as defined below).

  
	
   

  	
   

  
	
   

  	
  (c)           Beal must be provided with a report in form
  and substance acceptable to Beal from an independent engineer approved by
  Beal verifying that: (i) the System is in good working order and condition
  and (ii) the estimated annual costs associated with the regular maintenance
  required to keep the System in good working order and condition does not
  exceed $3,800,000.

  
	
   

  	
   

  
	
   

  	
  (d)           Environmental report(s) obtained by Beal at
  Borrower’s expense must be received and accepted by Beal, in its sole
  discretion utilizing an environmental engineer approved by Beal which shall
  be mutually agreed to by Beal and the Borrower.  The environmental reports must be in form and substance
  acceptable to Beal in its sole discretion and must not disclose any material
  adverse environmental claim, liability or condition applicable to the
  Borrower or the System and no such claim, liability or condition shall
  otherwise exist.

  
	
   

  	
   

  
	
   

  	
  (e)           The Appraisal reports described in the
  Collateral section of this Term Sheet must be obtained by Beal.

  
	
   

  	
   

  
	
   

  	
  (f)            All governmental and third party approvals
  necessary or, in the discretion of Beal, advisable in connection with the
  financing contemplated hereby and the continuing operations of the Borrower
  and CRE must have been obtained based on applications and disclosures
  reasonably acceptable to Beal, must be in full force and effect and must be
  in form and substance acceptable to Beal, including without limitation, the
  following:

  
	
   

  	
   

  
	
   

  	
  (i)            the approval by FERC of the O&M
  Agreement under Section 203 of Federal Power Act (“FPA”) if such approval of
  the O&M

  

 

11

 

	
   

  	
  Agreement is required, the
  approval by FERC of the transaction contemplated by the Purchase Agreement
  under Section 203 of the FPA, and the acceptance for filing of the O&M
  Agreement under Section 205 of FPA;

  
	
   

  	
  (ii)           FERC
  approval of the termination of the old full requirements service agreement
  between Borrower and CRE (but
  not the WP Tariff);

  
	
   

  	
  (iii)          the
  approval by FERC of the Loan under Section 204 of the FPA;

  
	
   

  	
  (iv)          FERC
  approval of any other Transaction Document as applicable to ensure the
  validity and security of the Loan, to the extent FERC has jurisdiction and
  said documents are filed with FERC;

  
	
   

  	
  (v)           the
  approval by FERC of the transfer to Borrower of the portion of the System
  held in the name of SWPSC under Section 203 of the FPA;

  
	
   

  	
  (vi)          the
  acceptance for filing of the assignment to CRE of the power purchase contract
  currently between Borrower and SWPSC under Section 205 of FPA; and

  
	
   

  	
  (vii)         the
  issuance or transfer to Borrower of a Certificate of Convenience and
  Necessity from the PUCT, if necessary.

  
	
   

  	
   

  
	
   

  	
  The term “approval” when
  used to describe action by the FERC shall include acceptance for filing by
  FERC, without suspension and without any applicable rates being made subject
  to refund.

  
	
   

  	
   

  
	
   

  	
  (g)           The execution and/or delivery to Beal of
  the following (all of which must be in form and substance satisfactory to
  Beal): (i) the NITSA, (ii) the O&M Agreement, (iii) the Purchase
  Agreement; (iv) the documentation relating to the transfer of legal title of
  the System from SWPSC to Borrower, the transfer of all easements and rights
  of way included in the System from CRE to Borrower (and the delivery to Beal
  of all required consents to such transfer), the assignment to CRE of the
  power purchase contract between the Borrower and SWPSC and the release of the
  Borrower by SWPSC from all obligations and liabilities arising under the
  power purchase contract; and (v) such other documentation relating to any of
  the foregoing as Beal may reasonably request.  Beal agrees that it will not unreasonably withhold or delay its
  approval of the form or substance of any of the foregoing documents.

  
	
   

  	
   

  
	
   

  	
  (h)           The execution and/or delivery to Beal of
  the following documentation (all of which must be in form and substance
  acceptable to Beal and all of which, together with the documentation executed
  in connection with the Initial Advance, is herein referred to as the “Loan
  Documents”):

  
	
   

  	
   

  
	
   

  	
  (i)            Primary Loan Documents.  A
  loan agreement, a promissory note and, if necessary, the Coop Assumption
  Agreement described above in the Assumption Agreement section of this Term
  Sheet;

  
	
   

  	
   

  
	
   

  	
  (ii)           Primary Collateral Documents.  The
  following documents covering and relating to the Collateral: a security
  agreement; a pledge agreement; Deeds of Trust; financing statements; and tax,
  UCC and

  

 

12

 

	
   

  	
  judgment lien searches;

  
	
   

  	
   

  
	
   

  	
  (iii)          Third Party Collateral Documents. 
  (A) The Consent and Agreement; (B) a consent and estoppel agreement
  executed by CRE relating to Beal’s liens on the Transaction Documents; (C)
  control agreements from all parties holding deposit, commodity or security
  accounts included in the Collateral; consent, subordination and estoppel
  agreements from all lessors who own real property that is leased by the
  Borrower on which the System substations (the “Leased Substations”)
  are located (Borrower will confirm that the only leased real property
  involved in the System are the Leased Substations); and (D) consents to
  assignment from the applicable fee owners of the property relating to any
  easement or right of way that is included in the System but that is not
  assignable; provided, that if the Borrower is unable to obtain such
  documents by the Second Closing Date, and so long as no disruption of service
  by Borrower is pending or threatened as a result of Borrower not being able
  to obtain any such assignment or consent, Beal agrees to waive the
  requirement to deliver such documents as a condition to Second Closing Date
  and the Borrower shall be obligated under the Loan Documents to use
  commercially reasonable efforts to obtain such documents as promptly as
  reasonably practicable and to institute appropriate legal proceedings, if
  requested by Beal, to obtain declaratory relief and/or to exercise its right
  of eminent domain to cause such unassignable easements to be assigned to the
  Borrower or to obtain new easements acceptable to Beal to allow operation of
  the System as currently operated if such documents are not obtained within
  120 days after the Second Closing Date;

  
	
   

  	
   

  
	
   

  	
  (iv)          Real Property Documents. 
  In addition to the appraisals and environmental reports described
  above, all of the following relating to all real property included in the
  System (including all fee owned and leasehold property included in the
  System): Access to copies of the easements and rights of way included in the
  System; copies of all the title exception documents encumbering any of the
  System substations (the “Substations”); evidence that the applicable
  premiums have been paid and that the applicable title insurance company is
  committed to issue title insurance policies relating to each Substation in a
  form, amount and issued by a title insurance company, in each case acceptable
  to Beal; and current surveys of each Substation certified to Beal by a
  registered public surveyor acceptable to Beal, showing (i) a metes and bounds
  description of such property, (ii) all recorded or visible boundary lines,
  building locations, locations of utilities, easements, rights-of-way, rights
  of access, building or set-back lines, dedications, and natural and
  manufactured objects affecting such property, (iii) any encroachments upon or
  protrusions from such property, (iv) any area federally designated as a flood
  hazard, and (v) such other matters as Beal may reasonably require; and

  
	
   

  	
   

  
	
   

  	
  (v)           Corporate Documents. 
  Articles of incorporation, bylaws, resolutions, certificates of
  secretary and such other evidence of the existence, good standing and
  authority of Borrower, CRE, the Coop and SWPSC.

  

 

13

 

	
   

  	
  The Loan Documents to
  which the Borrower is a party shall contain the covenants, representations,
  warranties, conditions, yield protection provisions, indemnity and events of
  default described on Schedule 1 hereto and such other provisions not listed
  thereon that are otherwise satisfactory to Beal and the Borrower.

  
	
   

  	
   

  
	
   

  	
  (i)            On or prior to the Second Closing Date, the
  Loan Documents must contain provisions pursuant to which the Borrower agrees
  that:

  
	
   

  	
   

  
	
   

  	
  (i)            Limitation on Scope of Business. 
  The Borrower will not engage in any business other than the
  transactions contemplated by the Transaction Documents and will not
  voluntarily join any Regional Transmission Organization unless the tariff
  payments to the  Borrower are
  comparable to those charged pursuant to the Transmission Service Agreement
  and any other comparable service agreements between Borrower and other
  transmission customers.

  
	
   

  	
   

  
	
   

  	
  (ii)           Reserve Funds. 
  The Borrower will be required to establish and maintain the following:

  
	
   

  	
   

  
	
   

  	
  (A) Debt Reserve Fund.  A debt service reserve fund (herein so
  called) in a minimum amount equal at any time to the lesser of: (1) an amount
  equal to the debt service (both principal and interest) payable on the Loan
  for a period of 2 years or (2) the aggregate amount of remaining principal
  and interest installments due under the Loan; provided that (x) the Debt Reserve
  Fund will not be funded at either funding of the Loan but will be funded over
  time as described below until the Variable Rate Tariff Date; and (y) after
  the Variable Rate Tariff Date and as long as FERC shall not have modified the
  tariff then applicable to the Borrower in a manner that would reasonably be
  expected, as reasonably determined by Beal, to have a Material Adverse
  Effect, the Debt Reserve Fund will no longer be required to be funded but the
  amount then held therein will continue to be held as Collateral for the Loan
  and be available to make the regularly scheduled payments when due thereunder
  if Borrower does not otherwise have sufficient funds to make the payment (it
  being understood for the avoidance of doubt that there shall be no obligation
  to replenish any amounts withdrawn from the Debt Service Reserve Fund at any
  time after the Variable Rate Tariff Date unless FERC shall have modified the
  tariff then applicable to the Borrower in a manner that would reasonably be
  expected, as reasonably determined by Beal, to have a Material Adverse
  Effect);

  
	
   

  	
   

  
	
   

  	
  (B) Maintenance Reserve
  Fund.  A maintenance reserve fund
  (herein so called) shall be established on the Second Closing Date in an
  amount equal to $5,500,000; and

  
	
   

  	
   

  
	
   

  	
  (c) Working Capital
  Reserve Fund.  A working capital
  reserve fund

  

 

14

 

	
   

  	
  (herein so called) in a
  minimum amount equal to $500,000.

  
	
   

  	
   

  
	
   

  	
  Reserve Accounts. 
  Each of the foregoing reserve funds shall be held at an institution
  mutually agreeable to the Borrower and Beal, shall be held in such segregated
  accounts and shall be invested in such permitted investments as Beal may
  approve in its reasonable discretion. 
  The reserve funds and the related accounts shall be Collateral and
  Beal shall be granted control over all the accounts in which reserve funds
  are held.  The Borrower shall have no
  right to make any withdrawals from any such accounts except that prior to a
  default, amounts in such accounts may be withdrawn by the Borrower as
  described below in the Release of Reserve section of this Term Sheet.

  
	
   

  	
   

  
	
   

  	
  Funding Reserves. 
  The foregoing reserve funds shall be funded as follows:

  
	
   

  	
   

  
	
   

  	
  (i)            The Maintenance Reserve Fund and the
  Working Capital Reserve Fund shall be fully funded from the proceeds from the
  Additional Advance as described in the Use of Proceeds Section of this Term
  Sheet;

  
	
   

  	
   

  
	
   

  	
  (ii)           On the 15th day of each month after the Second Closing Date when no Event of
  Default exists, the Borrower shall use its Excess Cash Flow in the following
  order of priority and for the follows purposes:

  
	
   

  	
   

  
	
   

  	
  (A)   First to fund any
  deficiency in the Working Capital Reserve Fund;

  
	
   

  	
   

  
	
   

  	
  (B)    Second to fund any
  deficiency in the Maintenance Reserve Fund to the extent that the balance
  therein is less than $3,000,000;

  
	
   

  	
   

  
	
   

  	
  (C)    Third up to the
  next $20,833 shall be used to fund any deficiency in the Debt Service Reserve
  Fund;

  
	
   

  	
   

  
	
   

  	
  (D)   Fourth to make
  payments under any Subordinated Reserve Loans (as hereafter defined);

  
	
   

  	
   

  
	
   

  	
  (E)    Fifth up to the
  next $20,833 may be retained by the Borrower and used for general corporate
  purposes;

  
	
   

  	
   

  
	
   

  	
  (F)    Sixth to fund any
  further deficiency in the Debt Reserve Fund; and

  
	
   

  	
   

  
	
   

  	
  (G)    Seventh any
  remaining amounts may be retained by the Borrower and used for general
  corporate purposes (including for distributions to its members).

  
	
   

  	
   

  
	
   

  	
  The term “Excess Cash
  Flow” will be calculated as of the end of each month for the month then
  ended and shall be defined to mean the total of the following for such
  period, calculated without duplication: (a) the total

  

 

15

 

	
   

  	
  amount received under the
  terms of the Transmission Service Agreement plus any other accounts
  receivable of the Borrower; minus (b) the total amount paid to CRE under the
  O&M Agreement or directly paid by the Borrower in respect of the
  operation and maintenance costs for the System; minus (c) scheduled
  amortization of indebtedness actually paid; minus (d) property taxes paid.

  
	
   

  	
   

  
	
   

  	
  Release of Reserves. 
  Funds in the foregoing reserve funds may be used as follows:

  
	
   

  	
   

  
	
   

  	
  (i)            Funds from the Debt Service Reserve Fund
  shall be held as Collateral for the Loan and shall be available to make the
  regularly scheduled payments when due thereunder if Borrower does not
  otherwise have sufficient funds to make the payment except that amounts held
  in the Debt Service Reserve Fund in excess of the amounts required to be
  deposited therein may be released and used to make the payments then coming
  due;

  
	
   

  	
   

  
	
   

  	
  (ii)           Funds on deposit in the Maintenance Reserve
  Fund may be used from time to time to pay: (A) the costs associated with the
  extraordinary maintenance or repair required to keep the System in good
  working order and condition, and (B) the costs of construction for
  improvements to the System in an aggregate amount not to exceed
  $2,500,000.  Notwithstanding the
  foregoing, if the Borrower shall have received a tariff approved by FERC that
  will allow the Borrower to recoup the costs of construction for improvements
  to the System, such costs of construction shall not be included in the
  computation of the foregoing $2,500,000 basket.  The Loan Documents shall provide that the Maintenance Reserve
  Funds shall be released to the Borrower as needed to pay the cost of repair
  or construction as and when incurred in the same manner as construction
  advances are typically disbursed; provided that if the cost of repair or
  construction relating to a single project is less than $250,000, the total
  amount may be released to the Borrower in a single sum so long as the
  Borrower has satisfied all conditions required for advances under the Loan
  Documents; and

  
	
   

  	
   

  
	
   

  	
  (iii)          Funds from the Working Capital Reserve Fund
  may be used by the Borrower to fund the Borrower’s working capital in the
  ordinary course of business when the Borrower otherwise does not have
  sufficient funds for that purpose.

  
	
   

  	
   

  
	
   

  	
  FERC Reduction of Minimum
  Amount.  In the event that FERC shall have made a
  determination that the amounts held in the reserve funds described above are
  excessive, then the minimum amounts required by the Loan Documents to be held
  therein shall be reduced to the amounts allowed by FERC and the amounts then
  on deposit in the related accounts in excess of the FERC allowed amounts
  shall be used to make a principal repayment on the Loan (without regard to
  the prepayment provisions described above).

  

 

16

 

	
   

  	
  Subordinated Reserve Loans. 
  The Loan Documents shall include a provision pursuant to which CRE
  shall commit to make subordinated loans to the Borrower (the “Subordinated
  Reserve Loans”) if the funds otherwise available to the Borrower (in the
  Maintenance Reserve Fund, the Working Capital Reserve Fund or otherwise) are
  not sufficient to fully pay the cost of any repair required to keep the
  System in good operating condition. 
  The Subordinated Reserve Loans shall be unsecured and subordinated in
  right of payment to the prior payment in full of the Loans (except as
  provided above with respect to the monthly distributions of Excess Cash
  Flow).  The Subordinated Reserve Loans
  shall mature after the Loan, shall be payable only from the monthly
  distributions of Excess Cash Flow described above and shall accrue interest
  at a rate no greater than 12%.

  
	
   

  	
   

  
	
   

  	
  (j)            The Loan Documents shall include the
  obligation for the Borrower to deliver legal opinions on the Second Closing
  Date, addressing, among other customary matters, that: (a) CRE qualifies as
  an exempt intrastate holding company and has complied with all requirements
  for such exemption under the PUHCA; (b) CRE’s holding of its membership
  interest in the Borrower is permitted under PUHCA; and (c) all FERC and PUHCA
  requirements, if any, necessary for the Borrower and CRE to enter into and to
  perform their respective obligations under the Transaction Documents have
  been met.  The PUHCA opinion will be
  rendered by Milbank, Tweed, Hadley & McCloy, LLP, the FERC opinion will
  be rendered by Griggs and Adler, P.C., and other opinions with respect to the
  Borrower’s, CRE’s and the Coop’s existence, good standing, and authorization
  to enter into the transactions contemplated hereby, such other corporate
  authorization or organizational matters as Beal may request, the
  capitalization of the Borrower, Texas law governed documents, the creation
  and perfection of liens, and the Borrower possessing the right of eminent
  domain will be rendered by Ronnie Lyons.

  
	
   

  	
   

  
	
   

  	
  (k)           Beal must be provided evidence that the
  organizational documents applicable to the Borrower will prohibit its member
  from commencing a voluntary bankruptcy proceeding involving the Borrower and
  must be on other terms that are satisfactory to Beal.

  
	
   

  	
   

  
	
   

  	
  (l)            All representations and warranties
  contained in the Loan Documents must be true and correct in all material
  respects and Beal shall not have become aware after the date hereof of any
  information or other matter affecting the Borrower or the transactions
  contemplated hereby which is inconsistent in a material and adverse manner
  with any such information or other matter disclosed to Beal prior to the date
  hereof.

  
	
   

  	
   

  
	
   

  	
  (m)          Beal must be provided with any other data
  or information that Beal reasonably determines it needs to underwrite the
  Loan.

  
	
   

  	
   

  
	
   

  	
  (n)           No material adverse legislative or
  regulatory developments affecting CRE, the Borrower or their respective
  businesses shall have occurred, no material casualty or other physical loss
  effecting the System shall have occurred and no other material adverse change
  shall have occurred in the business, assets, or condition (financial or
  otherwise) of CRE or the Borrower.  No
  material

  

 

17

 

	
   

  	
  litigation affecting CRE,
  the Borrower or their respective businesses other than the litigation
  disclosed to Beal in writing prior to the Initial Closing Date shall have
  occurred.

  
	
   

  	
   

  
	
   

  	
  (o)           The recordation of all deeds of trust,
  financing statements and releases of prior lenders or existing lienholder
  (except with respect to permitted liens) so as to create first priority
  perfected liens and security interests (subject to permitted liens) in the
  Collateral to be provided to Beal.

  
	
   

  	
   

  
	
   

  	
  (p)           Beal shall have received all fees required
  to be paid, and all expenses for which invoices have been presented, on or
  before the Second Closing Date.

  
	
   

  	
   

  
	
   

  	
  (q)           Copies of all casualty insurance policies
  covering the Substations, together with certificates of insurance relating
  thereto showing Beal as loss payee and additional insured shall have been
  delivered to Beal.

  
	
   

  	
   

  
	
   

  	
  (r)            A closing certificate signed by the chief
  executive officer of the Borrower certifying, among other things, to: (i) the
  sources and uses of funds; (ii) no default then existing; and (ii) the
  satisfaction of the conditions set forth in clause (l) (i.e., truth of
  representations and warranties) and clause (n) (i.e., no material adverse
  change) above.

  
	
   

  	
   

  
	
   

  	
  (s)           The Loan Documents shall include the
  obligation for the Borrower, promptly upon the earlier of (i) the submission
  of an application by any third party to the Borrower for service on the
  System or (ii) sixty days prior to the termination of the power purchase
  contract between CRE and SWPSC, to file with FERC the modifications to
  Borrower’s OATT to (i) correct the identification of the control area
  operator and (ii) remove the “not to exceed charges” charge specifications
  for ancillary services.

  
	
   

  	
   

  
	
   

  	
  (t)            The Borrower shall have demonstrated to
  Beal’s reasonable satisfaction that each maximum ancillary service rate as
  specified in Borrower’s OATT Tariff is equal to or higher than the comparable
  ancillary service rate under the OATT of both SPP and SWPSC.

  
	
   

  	
   

  
	
   

  	
  (u)           The Borrower shall have delivered and Beal
  shall have approved the initial O&M Budget.

  
	
   

  	
   

  
	
   

  	
  (v)           All proceedings taken in connection with
  the Additional Advance, all documentation incident thereto and legal matters
  relating thereto shall be satisfactory to Beal in its reasonable discretion.

  
	
   

  	
   

  
	
   

  	
  (w)          Such other conditions precedent as are
  customary in transactions similar to the transactions contemplated hereby

  
	
   

  	
   

  
	
  RELEASE OF INITIAL

  COLLATERAL:

  	
  In the Loan Documents,
  Beal shall agree that if no Default then exists, it will release the Initial
  Cash Collateral to the Borrower promptly upon the earlier of: (a) closing and
  funding of the Additional Advance or (b) payment in full of the Initial
  Advance, all accrued but unpaid interest thereon and all other amounts owing
  to Beal in connection therewith.

  

 

18

 

	
  GOVERNING LAW:

  	
  The Loan and the documents
  evidencing and securing same are to be governed by Texas law.

  

 

19

 

Schedule 1
to

New Corp Resources Electric Cooperative, Inc.

Term Sheet

 

 

Detail
of Terms of Loan Documents

 

The Loan Documents shall
contain representations, warranties, covenants and events of default customary
for financings of this type and other terms deemed appropriate by Beal,
including, without limitation, those specifically set forth in the Term Sheet
and the following which shall be included in the Loan Documents on a basis not
inconsistent with the Term Sheet:

 

Representations
and Warranties:

 

Representations and
warranties as to the following applicable to the Borrower, the Coop and CRE
subject, in certain instances, to materiality qualifiers approved by Beal:
Financial statements; absence of undisclosed liabilities; no material adverse
change; corporate existence; compliance with law and agreements except for such
noncompliance that could not reasonably be expected to have, as reasonably
determined by Beal, a Material Adverse Effect; corporate power and authority;
enforceability of Transaction Documents; approvals and consents; execution,
delivery and performance having no conflict with law or contractual
obligations; no material litigation (other than as disclosed to Beal); no
default under material obligations; ownership and condition of property; taxes;
use of proceeds; insurance; liens; indebtedness; intellectual property; no
burdensome restrictions; Federal Reserve regulations; ERISA; Investment Company
Act; subsidiaries; capitalization of the Borrower; environmental matters;
accuracy of disclosure; the Transaction Documents and the transactions
contemplated thereby; location of Collateral; third parties in possession of
Collateral; disclosure of deposit, commodity and security accounts; other
typical collateral related disclosures; as to the easements and rights of way
necessary for the operation of the System; that Borrower has the easements,
rights of way and other property rights as are necessary for the operation and
maintenance of the System; the status of the assignability of the easements and
rights of way included in the System; and that the Borrower has the power to
condemn private property.

 

Affirmative
Covenants:

 

Affirmative Covenants
relating to the following applicable to the Borrower, subject, in certain
instances to materiality qualifiers approved by Beal: Delivery of the unaudited
quarterly and annual financial statements of Borrower that Borrower files with
FERC, audited consolidated annual and consolidated quarterly financial
statements for CRE, accountants’ letters, officers’ certificates and other
information requested; payment of taxes, claims and other obligations subject
to customary contest rights; continuation of business and maintenance of
existence and material rights and privileges; compliance with laws and
contractual obligations except for such noncompliance that could not reasonably
be expected to have, as reasonably determined by Beal, a Material Adverse
Effect; maintenance of property; use of proceeds; delivery to Beal of
condemnation and insurance proceeds with provisions to allow the disbursement
of the same to the Borrower if no Event of Default exists with amounts in
excess of $250,000 being released as the costs of repair and rebuilding are
incurred; maintenance of books and records; right of Beal to inspect property
and books and records; notices of defaults, litigation and other material
events; further assurances; maintenance of the corporate separateness of
Borrower; and material compliance with environmental laws except for such
noncompliance that could not reasonably be expected to have, as reasonably
determined by Beal, a Material Adverse Effect.

 

1

 

Financial
Covenants:

 

Financial covenants to
include the following (calculated in accordance with generally accepted
accounting principals):

 

(a)      CRE shall at all time maintain a net worth
(determined on a consolidated basis) of not less than $5,000,000; and

 

(b)      As of the end of any fiscal quarter, the
Borrower shall not permit the ratio of (i) the sum of its net income plus
interest, taxes, depreciation and amortization to (ii) its debt service, both
calculated for the four fiscal quarters then ended to be less than 1.20 to
1.00.

 

Negative
Covenants:

 

Negative Covenants relating
to limitations on the following subject, in certain instances to materiality
qualifiers approved by Beal: indebtedness senior to the Loan and off balance
sheet obligations; liens; guarantee obligations and other contingent
liabilities; mergers, consolidations, liquidations and dissolutions; sales of
assets; leases; dividends and other payments in respect of membership interests
when an Event of Default exists; capital expenditures; investments, loans and
advances; optional payments and modifications of subordinated and other debt
instruments; modification of the Transaction Documents; transactions with
affiliates; sale and leasebacks; changes in fiscal year; non abandonment of the
System or any other material property; changes in the location of Collateral;
use of Collateral; third parties in possession of Collateral; changes in name,
jurisdiction of organization or other corporate structure; negative pledge
clauses; and changes in lines of business.

 

Events of
Default:

 

Nonpayment of principal when
due; nonpayment of interest, fees or other amounts 3 business days after due;
material inaccuracy of representations and warranties; violation of covenants
(subject in the case of certain affirmative covenants described in the table
below to the grace period described below); cross-default to other obligations
in excess of $100,000 either individually or in the aggregate; bankruptcy
events applicable to Borrower or CRE; certain ERISA events; final,
non-appealable judgments in excess of $100,000 which are not stayed or
discharged within 30 days; catastrophic damage to the System or uninsured
damage to over 50% of the System (determined based on the number of electric
customers of CRE affected thereby) that can not be repaired from available
amounts in the Maintenance Reserve Fund and/or from the proceeds of the
Subordinated Reserve Loans or insurance; failure of Beal to have a first
priority perfected lien on the Collateral which can not be cured or is not
cured within 15 days; the invalidity or contest of any Transaction Document;
any material default under any of the Transaction Documents; a new tariff is
imposed on the Borrower that does not provide sufficient revenues to permit the
Borrower to repay the Loan and pay its other obligations in the ordinary course
of business; or the occurrence of any event or the existence of any condition
that has or could reasonably be expected to have, as reasonably determined by
Beal, a Material Adverse Effect.

 

The foregoing are herein the
“Events of Default”.  As used
herein, “Default” means any event or condition, which upon notice, lapse
of time or both would, unless cured or waived, become an Event of Default.

 

2

 

Grace Table

 

	
  Covenant

  	
   

  	
  Grace Period

  	
   

  
	
  Delivery
  of financial statements and other information

  	
   

  	
  30

  	
   

  
	
  Maintenance
  of property and casualty insurance

  	
   

  	
  30

  	
   

  
	
  Maintenance
  of liability insurance

  	
   

  	
  15

  	
   

  
	
  Maintenance
  of property

  	
   

  	
  45

  	
   

  
	
  Payment
  of claims

  	
   

  	
  45

  	
   

  
	
  Maintenance
  of existence

  	
   

  	
  45

  	
   

  
	
  Inspection
  rights

  	
   

  	
  None

  	
   

  
	
  Notice
  of default

  	
   

  	
  None

  	
   

  
	
  Other
  Affirmative Covenants

  	
   

  	
  60

  (if Borrower is exercising diligent efforts to cure)

  	
   

  

 

Yield
Protection:

 

The Loan Documents shall
contain customary provisions protecting Beal against increased costs or loss of
yield resulting from changes in reserve, tax, capital adequacy and other
requirements of law and from the imposition of or changes in withholding or
other taxes.

 

Indemnification:

 

Beal,
CSG Investments, Inc. (and their respective affiliates and their respective
officers, directors, employees, advisors and agents) will have no liability
for, and will be indemnified and held harmless against, any loss, liability,
cost or expense incurred in respect of: (a) the transactions contemplated by
the Transaction Documents; (b) the negotiation, execution, delivery, performance,
administration, or enforcement of any of the Transaction Documents, (c) any
breach by Borrower or any obligated party of any representation, warranty,
covenant, or other agreement contained in any of the Transaction Documents, (d)
the presence, release, threatened release, disposal, removal, or cleanup of any
hazardous material located on, about, within, or affecting any of the
properties or assets of the Borrower, or (e) any investigation, litigation, or
other proceeding, including, without limitation, any threatened investigation,
litigation, or other proceeding relating to any of the foregoing; (except to
the extent resulting from the gross negligence or willful misconduct of the
indemnified party).

 

3

 

PROMISSORY
NOTE

 

	
  $14,168,715.04

  	
   

  	
   

  	
  September 10, 2003

  

 

FOR VALUE RECEIVED, NEWCORP RESOURCES ELECTRIC COOPERATIVE, INC., a
corporation organized under the Electric Cooperative Corporation Act of the
State of Texas (“Maker”), does hereby promise to pay to the order of BEAL BANK, S.S.B., a savings bank organized
under the laws of the State of Texas (“Payee”), at its office at 6000 Legacy
Drive 4E, Plano, Texas 75024, or at such other place as the holder hereof may
from time to time designate in writing, in lawful money of the United States,
the principal sum of FOURTEEN MILLION ONE HUNDRED SIXTY EIGHT THOUSAND SEVEN
HUNDRED FIFTEEN DOLLARS AND FOUR CENTS ($14,168,715.04), with interest thereon
as provided in this Note.

 

1.             Certain Definitions.  For
the purposes hereof, the terms set forth below shall have the following
meanings:

 

(a)           “Applicable Law” shall mean (i) the laws of the United States of
America applicable to contracts made or performed in the State of Texas, now or
at any time hereafter prescribing maximum rates of interest or eliminating
maximum rates of interest on loans and extensions of credit, (ii) the laws of
the State of Texas including, without limitation, Chapter 303 of the Texas
Credit Title, as the same may be amended from time to time (“Chapter 303”), now
or at any time hereafter prescribing or eliminating maximum rates of interest
on loans and extensions of credit, and (iii) any other laws at any time
applicable to contracts made or performed in the State of Texas which permit a
higher interest rate ceiling hereunder.

 

(b)           “Base Rate” shall mean as of any day:

 

(i)            prior to the Variable Rate Tariff Date and at
any time when FERC has modified any tariff applicable to Maker in a manner that
could reasonably be expected to have, as reasonably determined by Payee, a
Material Adverse Effect (as defined in the Commitment Letter), a per annum rate
equal to the greater of: (A) 10.75% or (B) 7.00% plus the LIBOR Rate in
effect on such day; and

 

(ii)           after the Variable Rate Tariff Date and at all times thereafter as long
as FERC has not modified the tariff then applicable to Maker in a manner that
could reasonably be expected to have, as reasonably determined by Payee, a
Material Adverse Effect (as defined in the Commitment Letter), a per annum rate
equal to the greater of: (A) 9.75% or (B) 6.00% plus the LIBOR in effect
on such day.

 

(c)           “Cash Collateral” shall mean the $14,168,715.04 on deposit in
securities account number WQ14862-01 located at UBS Financial Services Inc. and
all products and proceeds thereof.

 

(d)           “Commitment Letter” shall mean that certain letter agreement
dated September 8, 2003, between Maker and Borrower, as amended or otherwise
modified from time to time.

 

1

 

(e)           “Control Agreement” shall mean that certain Control Agreement,
dated of even date herewith, executed by Maker, Payee, and UBS Financial
Services, Inc. covering the Cash Collateral, as amended or otherwise modified
from time to time.

 

(f)            “Escrow Agreement” shall mean that
certain Escrow Agreement dated September 9, 2003, among Maker, Payee,
Southwestern Public Service Company, Cap Rock Electric Cooperative, Inc.,
Metropolitan Life Insurance Company, Metropolitan Insurance and Annuity
Company, Metropolitan Property and Casualty Insurance Company, JPMorgan Chase
Bank, and American Escrow Company, as amended or otherwise modified from time
to time.

 

(g)           “FERC” shall mean the Federal Energy Regulatory Commission.

 

(h)           “Final Maturity Date” shall mean September 9, 2004.

 

(i)            “Governmental Authority” shall mean
the government of the United States of America, any other nation or any
political subdivision thereof, whether state, provincial or local, or any
jurisdiction in which Maker conducts all or any part of its business, or which
asserts jurisdiction over any properties of Maker and any agency, authority,
instrumentality, regulatory body, court, central bank or other entity
exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of, or pertaining to, any such government.

 

(j)            “Highest Lawful Rate” shall mean at
the particular time in question the maximum rate of interest which, under
Applicable Law, Payee is then permitted to charge Maker in regard to the loan
evidenced by this Note.  If the maximum
rate of interest which, under Applicable Law, Payee is permitted to charge
Maker in regard to the loan evidenced by this Note shall change after the date
hereof, the Highest Lawful Rate shall be automatically increased or decreased,
as the case may be, from time to time as of the effective date of each change
in the Highest Lawful Rate without notice to Maker.  For purposes of determining the Highest Lawful Rate under the
Applicable Law of the State of Texas, the applicable rate ceiling shall be the
weekly ceiling described in and computed in accordance with the provisions of
Section 303; provided, however, that in determining the Highest Lawful Rate,
all fees and other charges contracted for, charged or received by Payee in
connection with the loan evidenced by this Note which are either deemed
interest under Applicable Law or required under Applicable Law to be deducted
from the principal balance hereof to determine the rate of interest charged on
this Note shall be taken into account. 
To the extent permitted by Applicable Law, Payee may from time to time
substitute for the “weekly ceiling” referred to above any ceiling under Section
303 or any other statute and revise the rate, index, formula or provision of
law used to compute the rate hereunder as provided therein.

 

(k)           “Impairing Effect” shall mean a material adverse effect on:  (a) the ability of Maker to perform any of
its obligations under any Loan Document or (b) the rights of or benefits
available to Payee under any Loan Document.

 

(l)            “LIBOR Rate” shall mean the one month
London interbank offered rate for dollar deposits (LIBOR) as determined on the
first business day of each month and as published in the Money Rate section of
the Wall Street Journal (Southwestern Edition) or as published pursuant to any
other nationally recognized rate quoting service.

 

2

 

(m)          “Loan Documents” shall mean the Commitment Letter, this Note,
the Security Agreement, the Control Agreement, the Escrow Agreement, the
financing statement filed in connection the Security Agreement, that certain
Acknowledgment Letter dated September 8, 2003 between Maker and Payee, and that
certain Application for Loan dated June 23, 2003.

 

(n)           “Security Agreement” shall mean that certain Security Agreement
dated of even date herewith executed by Maker for the benefit of Payee, as
amended or otherwise modified from time to time.

 

(o)           “Variable Rate Tariff” shall mean a variable rate tariff on
terms that have been proposed by Maker and consented to by Payee (such consent
not to be unreasonably withheld or delayed) and that is otherwise based upon a
debt coverage ratio sufficient to produce at least 1.2 times the debt service
obligations of Maker and that takes into account Maker’s obligations under an
Operation, Maintenance and Administrative Services Agreement with Cap Rock
Energy Corporation and its other operation and maintenance obligations.

 

(p)           “Variable Rate Tariff Date” shall mean the first date when each of the following have
occurred:   (i) FERC has approved or
accepted for filing (without suspension and without the rates being made
subject to refund) the Variable Rate Tariff and (ii) a transmission service
agreement between Cap Rock Energy Corporation and Maker (and comparable service
agreements between Maker and each of its other transmission customers, if any)
shall exist that by its terms provides the right for Maker to implement the
Variable Rate Tariff upon FERC approval.

 

2.             Calculation and Payment of Principal and Interest.

 

(a)           Subject to the provisions of paragraph 8 hereof, interest on the unpaid
principal balance hereof from time to time outstanding shall be computed at a
per annum rate equal to the lesser of (i) the Base Rate and (ii) the Highest
Lawful Rate.

 

(b)           Accrued and unpaid interest on the principal amount hereof shall be due
and payable monthly on the first business day of each month after the date
hereof commencing October 1, 2003 and continuing throughout the term of this
Note.

 

(c)           The unpaid principal balance hereof and all accrued and unpaid interest
hereon are due and payable on the maturity date hereof, whether such maturity
date is the Final Maturity Date or any accelerated maturity date.

 

(d)           Interest on this Note shall be calculated on the basis of a year of 360
days and the actual number of days elapsed (including the first day and
excluding the last) occurring in the period for which such interest is payable
unless such calculation would result in a usurious rate, in which case interest
shall be calculated on the basis of a year of 365 or 366 days, as the case may
be.

 

(e)           If the date for any payment or prepayment hereunder falls on a day
which is a Saturday, Sunday or other legal holiday in the State of Texas, then
for all purposes of this Note, the same shall be deemed to have fallen on the
next following day, and such extension of time shall in such case be included
in the calculation of interest.

 

3

 

(f)            All payments on this Note pursuant to this
paragraph 2 shall be applied first to the payment of any accrued and unpaid
interest and then to the payment of principal; provided, however, if an Event
of Default, as hereinafter defined, has occurred and is continuing, payments on
this Note shall be applied to any obligation of Maker arising under or related
to the Loan Documents as Payee shall elect, in Payee’s sole discretion.

 

3.             Prepayment.  This Note may not be prepaid
in whole or in part without the prior written consent of Payee, which consent may
be granted or withheld at the sole discretion of Payee, and/or conditioned on,
without limitation, a prepayment fee as required by Payee in its sole
discretion.

 

4.             Waiver.  Maker and all sureties,
endorsers, accommodation parties, guarantors and other parties now or hereafter
liable for the payment of this Note, in whole or in part, hereby severally (i)
except as otherwise specifically set forth in this Note, waive demand, notice
of demand, presentment for payment, notice of nonpayment, notice of default,
protest, notice of protest, notice of intent to accelerate, notice of
acceleration, notice of dishonor and all other notices, and further waive
diligence in collecting this Note, in taking action to collect this Note, in
bringing suit to collect this Note, or in enforcing this Note or any of the
security for this Note; (ii) agree to any substitution, subordination, exchange
or release of any security for this Note or the release of any party primarily
or secondarily liable for the payment of this Note; (iii) agree that Payee
shall not be required to first institute suit or exhaust its remedies hereon
against Maker or others liable or to become liable for the payment of this Note
or to enforce its rights against any security for the payment of this Note; and
(iv) consent to any extension of time for the payment of this Note, or any
installment hereof, made by agreement by Payee with any person now or hereafter
liable for the payment of this Note, even if Maker is not a party to such
agreement.

 

5.             Representations and Warranties.  In
order to induce Payee to extend credit to Maker as evidenced by this Note,
Maker hereby represents and warrants to Payee:

 

(a)           Maker (i) is a corporation duly organized under the Electric
Cooperative Corporation Act of Texas and is validly existing and in good
standing under the laws of Texas, (ii) has all requisite power and authority to
own its property and assets and to carry on its business as now conducted and
as proposed to be conducted, (iii) is qualified to do business in every
jurisdiction where such qualification is required, except where the failure so
to qualify would not result in an Impairing Effect, and (iv) has the corporate
power and authority to execute, deliver and perform its obligations under the
Loan Documents. 

 

(b)           The execution, delivery and performance by Maker of this Note and the
other Loan Documents, the borrowing hereunder, the pledge of the Cash
Collateral and the other transactions contemplated by the Loan Documents
(collectively, the “Transactions”):  (a)
have been duly authorized by all requisite corporate action and (b) will not
(i) violate (A) any provision of any law, statute, rule or regulation to which
Maker is subject or of the certificate of incorporation or other constituent
documents or by-laws of Maker, (B) any order of any Governmental Authority or
(C) any provision of any material indenture, agreement or other instrument to
which Maker is a party or by which it or any of its property is or may be
bound, (ii) be in conflict with, result in a breach of or constitute (alone or
with notice or lapse of time or both) a default under any such indenture,
agreement or other instrument or (iii) result in the creation or imposition of
any lien or other encumbrance upon any property or assets of Maker, except as
contemplated by the Security Agreement.

 

4

 

(c)           This Note and the other Loan Documents constitute legal, valid and
binding obligations of Maker enforceable in accordance with their respective
terms, as such enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors’ rights generally and (ii) general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).

 

(d)           No action, consent or approval of, registration or filing with or other
action by any Governmental Authority is or will be required in connection with
the Transactions except for such as have been obtained and are now in full
force and effect. 

 

(e)           There are no actions, suits or proceedings pending or, to the knowledge
of Maker, threatened against or affecting Maker or any property of Maker in any
court or before any arbitrator of any kind or before or by any Governmental
Authority that, individually or in the aggregate, would reasonably be expected
to have an Impairing Effect.  Without
limiting the generality of the forgoing, all requirements under the Public
Utility Holding Company Act of 1935, as amended, if any, necessary for Maker
lawfully to enter into and to perform it obligations under the Loan Documents
have been satisfied. 

 

(f)            Maker is not in default under any agreement
or instrument to which it is a party or by which it is bound, or any order,
judgment, decree or ruling of any court, arbitrator or Governmental Authority
or is in violation of any applicable law, ordinance, rule or regulation
(including environmental laws) of any Governmental Authority, which default or
violation, individually or in the aggregate, would reasonably be expected to
have an Impairing Effect.

 

(g)           Maker has filed all income tax returns that are required to have been
filed in any jurisdiction, and have paid all taxes shown to be due and payable
on such returns and all other taxes and assessments payable by them, to the
extent such taxes and assessments have become due and payable and before they
have become delinquent, except for any taxes and assessments (i) the amount of
which is not individually or in the aggregate material or (ii) the amount,
applicability or validity of which is currently being contested in good faith
by appropriate proceedings and with respect to which Maker has established
adequate reserves in accordance with generally accepted accounting principles.

 

(h)           Maker will apply the proceeds of the loan to refinance existing
indebtedness of Maker owing to Southwestern Public Service Company and/or
Metropolitan Life Insurance Company, Metropolitan Insurance and Annuity
Company, and Metropolitan Property and Casualty Insurance Company.  No proceeds from the loan made hereunder
will be used, directly or indirectly, for the purpose of buying or carrying any
margin stock within the meaning of Regulation U of the Board (12 CFR 221), or
for the purpose of buying or carrying or trading in any securities under such
circumstances as to involve Maker in a violation of Regulation X of the Board
(12 CFR 224) or to involve any broker or dealer in a violation of Regulation T
of the Board (12 CFR 220). Margin stock does not constitute more than 5% of the
value of the consolidated assets of Maker and Maker does not have any present
intention that margin stock will constitute more than 5% of the value of such
assets.  As used in this Section, the
terms “margin stock” and “purpose of buying or carrying” shall have the
meanings assigned to them in said Regulation U.

 

5

 

(i)            Maker is not subject to regulation under the
Investment Company Act of 1940, as amended, or the Interstate Commerce Act, as
amended.

 

(j)            No report, financial statement or other
information furnished by or on behalf of Maker to Payee pursuant to or in
connection with the Transactions contains any material misstatement of fact or
omits to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were or will be made, not
misleading.

 

6.             Events of Default.

 

(a)           Upon the happening of any of the following events (each an “Event of
Default”), Payee may, at its option, by written notice thereof to Maker,
declare immediately due and payable the entire principal balance of this Note
together with all interest accrued and owing hereon, plus any other sums
payable at the time of such declaration pursuant to this Note, or any
instrument securing this Note (including, without limitation, the Security
Agreement) and upon such declaration, the same shall become and shall be
immediately due and payable, and the holder hereof shall have the right to foreclose
or otherwise enforce all liens or security interests securing payment hereof,
or any part hereof, and offset against this Note any sum or sums owed by the
holder hereof to Maker.  Events of
Default include the following:

 

(i)            If Maker shall fail to pay any principal
under this Note as and when same becomes due and payable in accordance with the
terms hereof.  If Maker shall fail to
pay any interest under this Note or any other obligation of Maker to Payee
involving the payment of money within 3 business days of the date it becomes
due and payable in accordance with its terms;

 

(ii)           Any representation, warranty or certification made in writing by or on
behalf of Maker or by any officer of Maker in any Loan Document or any writing
furnished in connection with the Transactions proves to have been false or
incorrect in any material respect on the date as of which made;

 

(iii)          Maker shall: (A) fail to observe or perform the covenants contained in
Sections 4.1, 4.3, 4.4 or 4.5 of the Security Agreement or (B) default in the
timely performance of any obligation, covenant or agreement made or owed by
Maker to Payee under the Loan Documents (other than the obligations to make
payments and the covenants set forth in subclause (A) hereof) and the default
under this subclause (B) shall continue unremedied for a period of 60 days
after the date of written notice from the Payee to Maker;

 

(iv)          Maker (A) is generally not paying, or admits in writing its inability
to pay, its debts as they become due, (B) files, or consents by answer or
otherwise to the filing against it of, a petition for relief or reorganization
or arrangement or any other petition in bankruptcy, for liquidation or to take
advantage of any bankruptcy, insolvency, reorganization, moratorium or other
similar law of any jurisdiction, (C) makes an assignment for the benefit of its
creditors, (D) consents to the appointment of a custodian, receiver, trustee or
other officer with

 

6

 

similar powers with respect
to it or with respect to any substantial part of its property, (E) is
adjudicated as insolvent or to be liquidated, or (F) takes corporate action for
the purpose of any of the foregoing; or

 

(v)           A court or Governmental Authority of competent jurisdiction enters an
order appointing, without consent by Maker, a custodian, receiver, trustee or
other officer with similar powers with respect to it or with respect to any
substantial part of its property, or constituting an order for relief or
approving a petition for relief or reorganization or any other petition in
bankruptcy or for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or ordering the dissolution, winding-up or
liquidation of Maker, or any such petition shall be filed against Maker and
such petition shall not be dismissed within 60 days.

 

(vi)          Any attachment, sequestration, garnishment or similar proceeding or
proceedings involving the Cash Collateral shall have been filed.

 

(vii)         This Note or any other Loan Document shall cease to be in full force
and effect or shall be declared null and void or the validity or enforceability
hereof shall be contested or challenged by Maker or any of its shareholders, or
Maker shall deny that it has any further liability or obligation under any Loan
Document

 

(viii)        Any lien or security interest created by the Loan Documents shall for
any reason cease to be a valid, first priority perfected security interest in
and lien upon any of the collateral purported to be covered thereby.

 

(ix)           Maker shall fail to maintain the Cash Collateral in an amount equal at
all times to the principal amount outstanding hereunder.

 

(b)           The failure to exercise the foregoing option upon the happening of one
or more Events of Default shall not constitute a waiver of the right to
exercise the same or any other option at any subsequent time, and no such
failure shall nullify any prior exercise of any such option without the express
written consent of Payee.

 

7.             Collateral.  This Note is secured by the
Cash Collateral pursuant to the Security Agreement.

 

8.             Default Interest.  If
any installment of principal and/or interest is not paid on or before the due
date thereof or if the entire unpaid principal balance hereof and accrued but
unpaid interest hereon are not paid on or before the earlier to occur of the
Final Maturity Date or any accelerated maturity date as permitted hereby, all
unpaid amounts of this Note shall thereafter bear interest at a rate of
interest (the “Default Rate”) equal to the lesser of the Base Rate plus 5.00%
or the Highest Lawful Rate; provided, however, that the obligation to pay such
interest is subject to the limitation contained in the following paragraph.

 

9.             Compliance with Law.  All
agreements between Maker and Payee, whether now existing or hereafter arising
and whether written or oral, are hereby limited so that in no contingency,
whether by reason of demand or acceleration of the Final Maturity Date or
otherwise, shall the interest contracted for,

 

7

 

charged, received, paid or
agreed to be paid to Payee in regard to the loan evidenced by this Note exceed
the maximum amount permissible under Applicable Law.  If, from any circumstance whatsoever, interest would otherwise be
payable to Payee in excess of the maximum amount permissible under Applicable
Law, the interest payable to Payee shall be reduced to the maximum amount
permissible under Applicable Law; and if from any circumstance Payee shall ever
receive anything of value deemed interest by Applicable Law in excess of the
maximum amount permissible under Applicable Law, an amount equal to the
excessive interest shall be applied to the reduction of the principal hereof
and not to the payment of interest, or if such excessive amount of interest
exceeds the unpaid balance of principal hereof, such excess shall be refunded
to Maker.  All interest paid or agreed
to be paid to Payee shall, to the extent permitted by Applicable Law, be
amortized, prorated, allocated, and spread throughout the full period
(including any renewal or extension) until payment in full of the principal so
that the interest hereon for such full period shall not exceed the maximum
amount permissible under Applicable Law. 
Payee expressly disavows any intent to contract for, charge or receive
interest in an amount which exceeds the maximum amount permissible under
Applicable Law.  This paragraph shall
control all agreements between Maker and Payee.

 

10.           Attorneys’ Fees and Costs.  If
an Event of Default shall occur, and in the event that thereafter this Note is
placed in the hands of an attorney for collection, or in the event this Note is
collected in whole or in part through legal proceedings of any nature, then and
in any such case Maker promises to pay, and there shall be added to the unpaid
principal balance hereof, all reasonable costs of collection, including, but
not limited to, reasonable attorneys’ fees incurred by the holder hereof, on
account of such collection, whether or not suit is filed.

 

11.           Cumulative Rights.  No
delay on the part of the holder of this Note in the exercise of any power or
right under this Note or under any other instrument executed pursuant hereto
shall operate as a waiver thereof, nor shall a single or partial exercise of
any power or right preclude other or further exercise thereof or the exercise
of any other power or right. 
Enforcement by the holder of this Note of any security for the payment
hereof shall not constitute any election by it of remedies so as to preclude
the exercise of any other remedy available to it.

 

12.           Headings.  The paragraph headings used
in this Note are for convenience of reference only, and shall not affect the
meaning or interpretation of this Note.

 

13.           Notices and Demands.  Any
notice or demand to be given or to be served upon Maker in connection with this
Note must be in writing and may be given by overnight delivery service, hand
delivery, or certified or registered mail, return receipt requested, properly
addressed, with postage prepaid, addressed to Maker as follows:

 

NewCorp Resources Electric
Cooperative, Inc.

500 West Wall, Suite 400

Midland, Texas 79701

Telephone: (915) 684-0305

Telecopy: (915) 684-0333

Attention: Lee D. Atkins

 

or at such other address
within the continental United States as Maker may designate from time to time
by written notice (specifically notifying of a change of address) given to and
received by the holder hereof.  Any
notice or demand will be deemed given on the earlier of the day the notice or
demand is actually received by the addressee (which receipt may be evidenced by
a delivery service receipt) or two (2) days following the day such notice is
deposited in an authorized depository under the care and custody of the United
States Postal Service.

 

8

 

14.           Governing Law. 
This Note shall be governed by and construed in accordance with the laws
of the State of Texas and the laws of the United States applicable to
transactions in the State of Texas. 
This Note is performable in Collin County, Texas.  Any action or proceeding under or in
connection with this Note against Maker or any other party ever liable for
payment of any sums of money payable on this Note may be brought in any state
or federal court in Collin County, Texas. 
Maker and each such other party hereby irrevocably (i) submits to the
nonexclusive jurisdiction of such courts and (ii) waives any objection it may
now or hereafter have as to the venue of any such action or proceeding brought
in such court or that such court is an inconvenient forum.  Nothing herein shall affect the right of
Payee to bring any action or proceeding against Maker or any other party liable
hereunder or with respect to any collateral in any state or federal court in
any other jurisdiction.  Any action or
proceeding by Maker or any other party liable hereunder against Payee shall be
brought only in a court located in Collin County, Texas.

 

15.           Successors and Assigns.  The
term “Payee” shall include all of Payee’s successors and assigns to whom the benefits
of this Note shall inure.  Maker shall
not have the right to assign its rights and obligations under this Note and the
other Loan Documents except as provided in the Commitment Letter.

 

16.           Entire Agreement. 
THIS NOTE AND ALL OTHER INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED
AND DELIVERED BY MAKER IN CONNECTION WITH THE INDEBTEDNESS EVIDENCED BY THIS
NOTE EMBODY THE FINAL, ENTIRE AGREEMENT OF MAKER AND PAYEE WITH RESPECT TO THE
INDEBTEDNESS EVIDENCED BY THIS NOTE AND SUPERSEDE ANY AND ALL PRIOR
COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR
ORAL, RELATING TO THE INDEBTEDNESS EVIDENCED BY THIS NOTE AND MAY NOT BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OF MAKER AND PAYEE. 
THERE ARE NO ORAL AGREEMENTS BETWEEN MAKER AND PAYEE.

 

	
   

  	
  MAKER:

  
	
   

  	
   

  
	
   

  	
  NEWCORP
  RESOURCES ELECTRIC

  COOPERATIVE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lee D.
  Atkins

  
	
   

  	
   

  	
  Name:

  	
  Lee D.
  Atkins

  
	
   

  	
   

  	
  Title:

  	
  SVP/CFO

  

 

9

 

SECURITY
AGREEMENT

 

THIS SECURITY AGREEMENT (the
“Agreement”) dated as of September 10, 2003, is by and between NEWCORP
RESOURCES ELECTRIC COOPERATIVE, INC. (“Debtor”) and BEAL BANK, S.S.B.
(“Lender”).

 

RECITALS:

 

Debtor is executing that
certain Promissory Note dated of even date herewith payable to the order of
Lender (as the same may be amended or otherwise modified from time to time, the
“Promissory Note”).  The execution and
delivery of this Agreement is a condition to Lender’s making the extension of
credit to be evidenced by the Promissory Note.

 

NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, the adequacy, receipt and sufficiency of
which are hereby acknowledged, and in order to induce Lender to extend the
credit that will be evidenced by the Promissory Note, the parties hereto hereby
agree as follows:

 

ARTICLE
1

 

Definitions

 

Section 1.1             Definitions.  As used in this Agreement,
the following terms have the following meanings:

 

“Collateral” has the
meaning specified in Section 2.1.

 

“Escrow
Agreement” shall mean that certain Escrow Agreement dated September 9,
2003, among Debtor, Lender, Southwestern Public Service Company, Cap Rock
Electric Cooperative, Inc., Metropolitan Life Insurance Company, Metropolitan
Insurance and Annuity Company, Metropolitan Property and Casualty Insurance
Company, JPMorgan Chase Bank, and American Escrow Company, as amended or
otherwise modified from time to time.

 

“Obligations”
means all obligations, indebtedness, and liabilities of Debtor to Lender
arising pursuant to any of the Loan Documents, whether now existing or
hereafter arising, whether direct, indirect, related, fixed, contingent,
liquidated, unliquidated, joint, several, or joint and several, including the obligation
of Debtor to repay the loan evidenced by the Promissory Note, interest on such
loan and all fees, costs, and expenses (including attorneys’ fees and expenses)
provided for in the Loan Documents or otherwise arising from the enforcement of
any other right or remedy provided hereunder.

 

“Person”
means any natural person, corporation, limited liability company, trust, joint
venture, association, company, partnership, governmental authority or other
entity.

 

“UCC”
means the Uniform Commercial Code as in effect in the State of Texas.

 

Section 1.2             Other Definitional Provisions. 
Terms used herein that are defined in the Promissory Note and are not
otherwise defined herein shall have the meanings therefor specified in the
Promissory Note.  The words “include”,
“includes” and “including” shall be deemed to be followed by the phrase
“without limitation”.  Any definition of
or reference to any agreement or other documentation herein shall be construed
as referring to such agreement or documentation as from time to time the same

 

1

 

may be amended or otherwise
modified.  References to “Sections,”
“subsections,” “Exhibits” and “Schedules” shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided.  All definitions
contained in this Agreement are equally applicable to the singular and plural
forms of the terms defined.  All
references to statutes and regulations shall include any amendments of the same
and any successor statutes and regulations. 
Terms used herein, which are defined in the UCC, unless otherwise
defined herein or in the Promissory Note, shall have the meanings determined in
accordance with the UCC.

 

ARTICLE
2

 

Security
Interest

 

Section 2.1             Security Interest.  As
security for the prompt payment and performance in full when due of its
Obligations (whether at stated maturity, by acceleration or otherwise), Debtor
hereby pledges and assigns to Lender, and grants to Lender a continuing
security interest in, all of Debtor’s right, title and interest in and to the
following, whether now owned or hereafter arising or acquired and wherever
located (collectively, the “Collateral”): (a) securities account number
WQ14862-01 established in Debtor’s name and held at UBS Financial Services Inc.
(and any successor or assignee thereof) and any securities account established
in replacement or substitution of such account (collectively the “Securities
Account”), (b) all credit balances therein; (c) all the security entitlements
held therein; (d) all other financial assets held therein; (e) the Escrow
Agreement, (f) all monies deposited with American Escrow Company (the “Escrow
Agent”) in connection with the Escrow Agreement (including the Cash Collateral
and the Usage Fee Proceeds, as such terms are defined therein) and (g) all
products and proceeds of, and general intangibles relating to, any or all the
property described in clauses (a) through (f).

 

ARTICLE
3

 

Representations
and Warranties

 

To induce Lender to enter
into this Agreement and extend credit to Debtor under the terms of the
Promissory Note, Debtor represents and warrants to Lender that:

 

Section 3.1             Securities Account; Third Parties in
Possession of Collateral.  No Person other than Lender, the Escrow
Agent and UBS Financial Services Inc. (“UBS”) has possession or control of any
of the Collateral.  The Securities
Account has been established in Debtor’s name and with the account number
recited above.  Except for the claims in
favor of UBS permitted under Section 2 of the Control Agreement and except for
the security interest granted herein, Debtor owns, and with respect to
Collateral acquired after the date hereof Debtor will own, the Collateral free
and clear of any lien, security interest, or other encumbrance.  Debtor is not indebted to UBS and UBS has
not advanced any margin or other credit to Debtor with respect to any of the
Collateral.  The Securities Account is a
“securities account,” within the meaning of Section 8-501 of the UCC and all
property now or hereafter credited by UBS to the Securities Account will be
treated as financial assets under Article 8 of the UCC.  The Securities Account is not evidenced by
any instrument.  The only financial
assets credited to the account are interest bearing cash accounts, certificates
of deposit issued by institutions acceptable to Lender, and other investments
as may be approved in writing by Lender (the “Acceptable Assets”).

 

Section 3.2             Office Locations; Fictitious Names;
Predecessor Companies; Organizational Identification Numbers.  As
of the date hereof, its chief executive office and jurisdiction of organization
are located at the place or places identified for it on Schedule 3.1.  Within the last four completed calendar
months prior to the date hereof it has not had any other chief executive office
or jurisdiction of organization except as disclosed on Schedule 3.1.  It does not do business and has not done
business during the past five completed calendar years prior to the date hereof
under any name, trade-name or

 

2

 

fictitious business name
except as disclosed on Schedule 3.1.  It
is a registered organization and its organizational identification number is
identified on Schedule 3.1.

 

ARTICLE
4

 

Covenants

 

Debtor covenants and agrees
with Lender that until the Obligations are paid and performed in full:

 

Section 4.1             Further Assurances. 
Within ten (10) business days of Debtor’s receiving a written request by
Lender, and at Debtor’s sole expense, it shall, promptly execute and deliver
all such further documentation and take such further action as Lender may
reasonably deem necessary to preserve, perfect and protect its security
interest in the Collateral and carry out the provisions and purposes of this
Agreement and to enable Lender to exercise and enforce its rights and remedies
hereunder with respect to any of the Collateral.  In furtherance of the foregoing, Debtor hereby authorizes Lender
to file, in the offices of the appropriate governmental unit or units,
financing statements naming it as debtor and Lender as Lender, in substantially
the form attached as Exhibit “A” (and where appropriate, with such changes
thereto necessary to file such financing statement as a transmitting utility
financing statement), in each case as Lender may deem appropriate.

 

Section 4.2             Corporate Changes.  It
shall not change: (i) its name, jurisdiction of organization, or corporate
structure in any manner that might make any financing statement filed in
connection with this Agreement seriously misleading nor (ii) its organizational
identification number unless, in each case, it shall have given Lender thirty
(30) days prior written notice thereof and shall have taken all action
requested of it by Lender that Lender reasonably deemed necessary to protect
its first priority security interest in the Collateral.

 

Section 4.3             Control Over Collateral.  It
shall not make any withdrawals or transfers from the Securities Account nor
give any other entitlement order to UBS with respect to the Collateral;
provided that: (i) prior to the occurrence and continuance of an Event of
Default, Debtor shall be entitled to withdraw and retain, free and clear of the
liens of created hereunder, any interest paid on the financial assets held in
the Securities Account and (ii) Debtor may make cash deposits to the Securities
Accounts and purchase Acceptable Assets with the proceeds thereof.  After the occurrence and continuance of an
Event of Default and upon delivery to UBS by Lender of a Notice of Exclusive
Control (as defined in the Control Agreement), all interest paid on the
financial assets held in the Securities Account shall be deposited to the
Securities Account or applied to the Obligations as Lender may direct.  Debtor shall not permit any third Person
other than UBS or Lender to hold or have any control over any Collateral.  Debtor shall not close the Securities
Account and shall not amend or otherwise modify any term or provision of any
agreement relating thereto except with the prior written consent of Lender
(which consent will not be unreasonably withheld or delayed with respect to
amendments and modifications which do not adversely affect the Lender’s
rights).  Debtor shall not permit any
assets to be held in the Securities Account other than Acceptable Assets.  Debtor will not hold any assets of the
nature described in Section 1(b) of the Control Agreement that would be
reflected on the account statement relating to the Securities Account but are
not credited to or carried in the Securities Account.

 

Section 4.4             Encumbrances. 
Debtor shall not create, permit, or suffer to exist, and shall defend
the Collateral against, any lien, security interest, or other encumbrance on
the Collateral except the security interest of Lender hereunder and except for
liens, encumbrances, claims and rights of setoff for the payment of UBS
customary fees and commissions, and shall defend Debtor’s rights in the
Collateral and Lender’s security interest in the Collateral against the claims
of all Persons.  Debtor agrees that it
will not become indebted to UBS on any basis that would have recourse to the
Collateral or otherwise request

 

3

 

that UBS extend it credit
that would have any recourse to the Collateral except for customary fees and
commissions pursuant to its agreement with UBS.  Debtor shall do nothing to impair the rights of Lender in the
Collateral.

 

Section 4.5             Disposition of Collateral. 
Debtor shall not sell, lease or otherwise dispose of the Collateral or
any part thereof without the prior written consent of Lender.

 

ARTICLE
5

 

Rights
of Lender

 

Section 5.1             POWER OF ATTORNEY. 
DEBTOR HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS LENDER AND ANY
OFFICER OR AGENT THEREOF, WITH FULL POWER OF SUBSTITUTION, AS ITS TRUE AND
LAWFUL ATTORNEY-IN-FACT WITH FULL IRREVOCABLE POWER AND AUTHORITY IN THE NAME
OF DEBTOR OR IN ITS OWN NAME, TO TAKE, ANY AND ALL ACTIONS AND TO EXECUTE ANY
AND ALL DOCUMENTATION WHICH LENDER AT ANY TIME WHEN AN EVENT OF DEFAULT HAS OCCURRED
AND IS CONTINUING AND FROM TIME TO TIME DURING THE EXISTENCE OF AN EVENT OF
DEFAULT DEEMS NECESSARY TO ACCOMPLISH THE PURPOSES OF THIS AGREEMENT.  WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, DEBTOR HEREBY GIVES LENDER THE POWER AND RIGHT ON DEBTOR’S BEHALF
AND IN LENDER’S OWN NAME TO DO ANY OF THE FOLLOWING WHEN AN EVENT OF DEFAULT
EXISTS, WITH NOTICE TO DEBTOR BUT WITHOUT THE CONSENT OF DEBTOR:

 

(a)           to demand, sue for, collect or receive, in the applicable Debtor’s name
or in Lender’s own name, any money or property at any time payable or
receivable on account of or in exchange for any of the Collateral and, in
connection therewith, endorse checks, notes, drafts, acceptances, money orders,
documents or any other instruments for the payment of money under the
Collateral;

 

(b)           to pay or discharge taxes, liens or other encumbrances levied or placed
on or threatened against the Collateral;

 

(c)           (i) to direct account debtors and any other parties obligated on the
Collateral to make payment of any and all monies due and to become due
thereunder directly to, or otherwise render performance to or for the benefit
of, Lender or as Lender shall direct; or (ii) to receive payment of and receipt
for any and all monies, claims and other amounts due and to become due at any
time in respect of or arising out of any Collateral; (iii) to commence and
prosecute any suit, action or proceeding at law or in equity in any court of
competent jurisdiction to collect the Collateral or any part thereof and to
enforce any other right in respect of any Collateral (including any liens,
other encumbrances or any supporting obligation securing or supporting the
payment thereof); (iv) to defend any suit, action or proceeding brought against
it with respect to any Collateral; (v) to settle, compromise or adjust any
suit, action or proceeding described above and, in connection therewith, to
give such discharges or releases as Lender may deem appropriate; (vi) to add or
release any guarantor, endorser, surety or other party to any of the
Collateral; (vii) to renew, extend or otherwise change the terms and conditions
of any of the Collateral; (viii) to make, settle, compromise or adjust any
claims under or pertaining to any of the Collateral; and (ix) to sell,
transfer, pledge, convey, make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though Lender were the
absolute owner thereof for all purposes, and to do, at Lender’s option and
Debtor’s expense, at any time, or from time to time, all acts and things which
Lender deems necessary to protect, preserve, maintain, or realize upon the
Collateral and Lender’s security interest therein.

 

4

 

THIS POWER OF ATTORNEY IS A
POWER COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE UNTIL TERMINATION OF
THIS AGREEMENT IN ACCORDANCE WITH SECTION 7.11. Lender shall be under no duty
to exercise or withhold the exercise of any of the rights, powers, privileges
and options expressly or implicitly granted to Lender in this Agreement, and
shall not be liable for any failure to do so or any delay in doing so.  Neither Lender nor any Person designated by
Lender shall be liable for any act or omission or for any error of judgment or
any mistake of fact or law, except any of the same resulting from its or their
gross negligence or willful misconduct. 
This power of attorney is conferred on Lender solely to protect,
preserve, maintain and realize upon its security interest in the
Collateral.  Lender shall not be responsible
for any decline in the value of the Collateral and shall not be required to
take any steps to preserve rights against prior parties or to protect, preserve
or maintain any lien, other encumbrance or supporting obligation given to
secure the Collateral.

 

Section 5.2             Possession; Reasonable Care. 
Lender may, from time to time, in its sole discretion, appoint one or
more agents to hold physical custody, for the account of Lender, of any or all
of the Collateral that Lender has a right to possess.  Lender shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral in its possession if the Collateral
is accorded treatment substantially equal to that which Lender accords its own
property.

 

Section 5.3             Setoff.  When an Event of Default
exists, Lender shall have the right to set off and apply against the
Obligations, at any time and without notice to Debtor, any and all deposits
(general or special, time or demand, provisional or final) or other sums at any
time credited by or owing from Lender to Debtor whether or not the Obligations
are then due.  The rights and remedies
of Lender hereunder are in addition to other rights and remedies (including,
without limitation, other rights of setoff) which Lender may have.

 

ARTICLE
6

 

Default

 

Section 6.1             Rights and Remedies.  If
an Event of Default exists, Lender shall have the following rights and
remedies:

 

(a)           In addition to all other rights and remedies granted to Lender in this
Agreement (including those set forth in Article 5 hereof) or in any other Loan
Document or by applicable law, Lender shall have all of the rights and remedies
of a Lender under the UCC (whether or not the UCC applies to the affected
Collateral).  Without limiting the
generality of the foregoing, Lender may: (i) without demand or notice to any
Debtor, instruct UBS or any Person holding the Securities Account to liquidate
the assets held therein and pay the proceeds thereof to or for the benefit of
Lender, apply the amounts received in connection therewith to the payment of
the Obligations as herein provided and exercise all other rights and remedies
available to it under the Control Agreement; and (ii) otherwise collect,
receive or take possession of the Collateral or any part thereof and in the event
Lender seeks to take possession of any or all of the Collateral by judicial
process, Debtor hereby irrevocably waives any bonds and any surety or security
relating thereto that may be required by applicable law as an incident to such
possession, and waives any demand for possession prior to the commencement of
any such suit or action.  If the Lender
is required to give notice of disposition of the Collateral to Debtor, Debtor
and Lender agree that ten (10) days prior written notice is sufficient and
reasonable.  Debtor shall be liable for
all reasonable attorneys’ fees, legal expenses and other costs and expenses
incurred by Lender in connection with the collection of its Obligations and the
enforcement of Lender’s rights under this Agreement and arising as a result
hereof.  Debtor shall remain liable for
any deficiency if the proceeds of the Collateral applied to its Obligations are
insufficient to pay its Obligations in full. 
Lender may apply the Collateral against the Obligations in such order
and manner as Lender may elect in its sole discretion.  Any surplus of the

 

5

proceeds of the Collateral
held by Lender and remaining after payment in full of all the Obligations and
the termination of all commitments of Lender to Debtor, shall be promptly paid
over to Debtor or to whomsoever may be lawfully entitled to receive such
surplus.  Lender shall have no
obligation to invest or otherwise pay interest on any amounts held by it in
connection with or pursuant to this Agreement.

 

(b)           Lender may cause any or all of the Collateral held by it to be
transferred into the name of Lender or the name or names of Lender’s nominee or
nominees.

 

(c)           Lender may collect or receive all money or property at any time payable
or receivable on account of or in exchange for any of the Collateral
(including, any interest paid on any financial assets held in the Securities
Account), but shall be under no obligation to do so.

 

Section 6.2             Standards for Exercising Remedies.  To
the extent that applicable law imposes duties on Lender to exercise remedies in
a commercially reasonable manner, Debtor acknowledges and agrees that it is not
commercially unreasonable for Lender (a) to the extent deemed appropriate by
Lender, to obtain the services of brokers, investment bankers, consultants and
other professionals (including Lender and its affiliates) to assist Lender in
the collection or disposition of any of the Collateral; or (b) to comply with
any applicable state or federal law requirement in connection with the
collection or disposition of the Collateral. 
Debtor acknowledges that this Section is intended to provide
non-exhaustive indications of what actions or omissions by Lender would not be
commercially unreasonable in Lender’s exercise of remedies against the
Collateral and that other actions or omissions by Lender shall not be deemed
commercially unreasonable solely by not being included in this Section.  Without limitation upon the foregoing, nothing
contained in this Section shall be construed to grant any rights to Debtor or
to impose any duties upon Lender that would not have been granted or imposed by
this Agreement or by applicable law in the absence of this Section.

 

ARTICLE
7

 

Miscellaneous

 

Section 7.1             Expenses.  Debtor agrees to pay promptly
upon receipt of an invoice from Lender: (a) all reasonable out-of-pocket costs
and expenses of Lender arising in connection with the preparation, negotiation,
execution, and delivery of the Loan Documents and any and all amendments or
other modifications to the Loan Documents, including the reasonable fees and
expenses of legal counsel for Lender; (b) all reasonable out-of-pocket costs
and expenses of Lender in connection with any Event of Default and the
enforcement of any Loan Document, including the reasonable fees and expenses of
legal counsel for Lender; (c) all transfer, stamp, documentary, or other
similar taxes, assessments, or charges levied by any governmental authority in
respect of any Loan Document; (d) all costs, expenses, assessments, and other
charges incurred in connection with any filing, registration, recording, or
perfection of any security interest or lien contemplated by any Loan Document;
(e) all reasonable out-of-pocket costs, expenses, and other charges incurred in
obtaining any collateral inspection; and (f) all other reasonable out-of-pocket
costs and expenses incurred by Lender in connection with any Loan Document.

 

Section 7.2             No Waiver; Cumulative Remedies.  No
failure on the part of Lender to exercise and no delay in exercising, and no
course of dealing with respect to, any right, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege under this Agreement preclude any
other or further exercise thereof or the exercise of any other right, power, or
privilege.  The rights and remedies
provided for in this Agreement are cumulative and not exclusive of any rights
and remedies provided by law.

 

6

 

Section 7.3             Successors and Assigns. 
This Agreement shall be binding upon and inure to the benefit of Debtor
and Lender and their respective successors and assigns.  Debtor may not assign any of its rights or obligations
under this Agreement except as provided in the Commitment Letter.

 

Section 7.4             AMENDMENT; ENTIRE AGREEMENT. 
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS EMBODY THE FINAL, ENTIRE
AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL PRIOR
COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR
ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR
VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR
DISCUSSIONS OF THE PARTIES HERETO. 
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO.  The provisions of this Agreement may be
amended or waived only by an instrument in writing signed by the parties
hereto.

 

Section 7.5             Notices.  All notices and other
communications provided for in this Agreement shall be given or made in
accordance with the Promissory Note.

 

Section 7.6             Governing Law. 
This Agreement shall be governed by; and construed in accordance with,
the laws of the State of Texas (without regard to the conflicts of law
provisions thereof).

 

Section 7.7             Headings.  The headings, captions, and
arrangements used in this Agreement are for convenience only and shall not
affect the interpretation of this Agreement.

 

Section 7.8             Survival of Representations and Warranties.  All
representations, warranties and certifications made in this Agreement or in any
documentation delivered pursuant hereto shall survive the execution and
delivery of this Agreement, and no investigation by Lender shall affect the
representations, warranties and certifications or the right of Lender to rely
upon them.

 

Section 7.9             Counterparts. 
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same agreement.

 

Section 7.10           Severability.  Any
provision of this Agreement which is determined by a court of competent
jurisdiction to be prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this
Agreement, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.

 

Section 7.11           Termination.  Upon the earlier to occur of
the (a) closing and funding of the Additional Advance (as such term is defined
in the Commitment Letter) or (b) payment in full of all of the Obligations, the
security interests created by this Agreement shall terminate automatically
without any further action by the parties hereto.  Upon such termination, Lender shall promptly, upon the written
request of Debtor, (i) execute and deliver to Debtor proper documentation
acknowledging the release and termination of the security interests created by
this Agreement, and shall duly assign and deliver to Debtor (without recourse
and without any representation or warranty) such of the Collateral as may be in
the possession of Lender and has not previously been sold or otherwise applied
pursuant to this Agreement and (ii) notify UBS of the release of the security
interest created hereunder and the termination of the Control Agreement.

 

Section 7.12           Construction. 
Debtor and Lender acknowledge that each of them has had the benefit of
legal counsel of its own choice and has been afforded an opportunity to review
the Loan

 

7

 

Documents with its legal
counsel and that the Loan Documents shall be construed as if jointly drafted by
Debtor and Lender.

 

Section 7.13           WAIVER OF JURY TRIAL.  TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, DEBTOR HEREBY IRREVOCABLY AND
EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE
ACTIONS OF LENDER IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF.

 

IN WITNESS WHEREOF, the
parties hereto have duly executed this Agreement as of the day and year first
written above.

 

	
   

  	
  DEBTOR:

  
	
   

  	
   

  
	
   

  	
  NEWCORP RESOURCES ELECTRIC

  COOPERATIVE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lee D.
  Atkins

  
	
   

  	
   

  	
  Name:

  	
  Lee D.
  Atkins

  
	
   

  	
   

  	
  Title:

  	
  Secretary

  
	
   

  	
   

  
	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  BEAL BANK, S.S.B.,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William
  T. Saurenmann

  
	
   

  	
   

  	
  William T.
  Saurenmann, Senior Vice President

  

 

8

 

SCHEDULE
3.1

TO

SECURITY AGREEMENT

 

Information

 

I.              Chief Executive Office of
Debtor:  500 West Wall, Suite 400, Midland, Texas
79701

 

II.            Jurisdiction of Organization:  Texas

 

III.           Third Parties in Possession
of Collateral:     UBS Financial Services Inc.

 

IV.           Trade and Other Names:  None

 

V.            Organizational
Identification Number:  142568001

 

 

EXHIBIT
A

TO

SECURITY
AGREEMENT

 

Financing
Statement Form (National Form)

 

 

UCC FINANCING STATEMENT

FOLLOW
INSTRUCTIONS (front and back)CAREFULLY

 

A.
NAME & PHONE OF CONTACT AT FILER [optional]

 

B.
SEND ACKNOWLEDGMENT TO: (Name and Address)

 

Jenkens & Gilchrist

1445 Ross Ave. Suite 3200

Dallas, TX 75202

Attn: Noel M. Bilitz

 

THIS ABOVE SPACE IS FOR FILING
OFFICE USE ONLY

 

1.
DEBTOR’S
EXACT
FULL LEGAL NAME - insert only one debtor name (1a or 1b) – do not
abbreviate or combine names

 

	
   

  	
  1a.
  ORGANIZATION’S NAME

  
	
   

  	
  NEWCORP
  RESOURCES ELECTRIC
  COOPERATIVE, INC.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  OR

  	
  1b. INDIVIDUAL’S LAST NAME

  	
   

  	
  FIRST
  NAME

  	
   

  	
  MIDDLE
  NAME

  	
   

  	
  SUFFIX

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1c.
  MAILING ADDRESS

  	
   

  	
  CITY

  	
   

  	
  STATE

  	
   

  	
  POSTAL
  CODE

  	
   

  	
  COUNTRY

  
	
  500
  West Wall

  	
   

  	
  Midland

  	
   

  	
  TX

  	
   

  	
  79701 -

  	
   

  	
  USA

  

 

1d.
TAX ID #: SSN OR EIN

91-1860218

 

ADD’NL
INFO RE ORGANIZATION DEBTOR

 

1e.
TYPE OF ORGANIZATION 

Electric Cooperative
Corporation

 

1f.
JURISDICTION OF ORGANIZATION 

Texas

 

1g.
ORGANIZATIONAL ID #, if any

142568001

 

o NONE

 

2.
ADDITIONAL DEBTOR’S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b) -
do not abbreviate or combine names

 

	
   

  	
  2a.  ORGANIZATION’S NAME

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  OR

  	
  2b.  INDIVIDUAL’S LAST NAME

  	
   

  	
  FIRST
  NAME

  	
   

  	
  MIDDLE
  NAME

  	
   

  	
  SUFFIX

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2c.
  MAILING ADDRESS

  	
   

  	
  CITY

  	
   

  	
  STATE

  	
   

  	
  POSTAL
  CODE

  	
   

  	
  COUNTRY

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

2d.
TAX ID #: SSN OR EIN

 

ADD’NL
INFO RE ORGANIZATION DEBTOR

 

2e.
TYPE OF ORGANIZATION

 

2f.
JURISDICTION OR ORGANIZATION

 

2g.
ORGANIZATIONAL ID #, if any

 

o NONE

 

3.
LENDER’S
NAME
(or NAME of TOTAL ASSIGNEE of ASSIGNOR S/P) - insert only one Lender
name (3a or 3b)

 

	
   

  	
  3a.
  ORGANIZATION’S NAME

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Beal
  Bank, S.S.B.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  OR

  	
  3b.
  INDIVIDUAL’S LAST NAME

  	
   

  	
  FIRST
  NAME

  	
   

  	
  MIDDLE
  NAME

  	
   

  	
  SUFFIX

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3c.
  MAILING ADDRESS

  	
   

  	
  CITY

  	
   

  	
  STATE

  	
   

  	
  POSTAL
  CODE

  	
   

  	
  COUNTRY

  
	
   

  	
  6000
  Legacy Drive, 4th Floor

  	
   

  	
  Plano

  	
   

  	
  TX

  	
   

  	
  75024

  	
   

  	
  USA

  

 

This FINANCING STATEMENT
covers the following collateral: All of Debtor’s right, title and interest in
and to the following, whether now owned or hereafter arising or acquired and
wherever located (collectively, the “Collateral”): (a) securities account
number WQ14862-01 established in Debtor’s name and held at UBS Financial
Services Inc. (and any successor or assignee thereof) and any securities
account established in replacement or substitution of such account
(collectively the “Securities Account”), (b) all credit balances therein; (c) all
the security entitlements held therein; (d) all other financial assets held
therein; (e) the Escrow Agreement, (f) all monies deposited with American
Escrow Company (the “Escrow Agent”) in connection with the Escrow Agreement
(including the Cash Collateral and the Usage Fee Proceeds as defined in the
Escrow Agreement) and (g) all products and proceeds of, and general intangibles
relating to, any or all the property described in clauses (a) through (f).
“Escrow Agreement” shall mean that certain Escrow Agreement dated September 9,
2003, among Debtor, Lender, Southwestern Public Service Company, Cap Rock
Electric Cooperative, Inc., Metropolitan Life Insurance Company, Metropolitan
Insurance and Annuity Company, Metropolitan Property and Casualty Insurance Company,
JPMorgan Chase Bank, and American Escrow Company, as amended or otherwise
modified from time to time.

 

5.
ALTERNATIVE DESIGNATION [if applicable]:

 

o  LESSEE/LESSOR

 

o  CONSIGNEE/CONSIGNOR

 

o  BAILEE/BAILOR

 

o  SELLER/BUYER

 

o  AG. LIEN

 

o  NON-UCC FILING

 

6.
o  This FINANCING STATEMENT is to be filed [for
record] [or recorded] in the REAL ESTATE RECORDS.

 

Attach
Addendum                       [if
applicable]

 

7.
Check to REQUEST SEARCH REPORT(S) on

Debtor(s)

[ADDITIONAL
FEE]                      [optional]               o  All Debtors                     o  Debtor 1           o  Debtor 2

 

8.
OPTIONAL FILER REFERENCE DATA

Texas Secretary of State

 

FILING OFFICE COPY - NATIONAL UCC FINANCING STATEMENT (FORM
UCC1) (REV. 07/29/98)

 

 

Instructions for National UCC Financing Statement (Form UCCI)

 

Please
type or laser-print this form. Be sure It is completely legible. Read all
Instructions, especially Instruction 1; correct Debtor name is crucial. Follow
Instructions completely.

Fill
in form very carefully; mistakes may have important legal consequences. If you
have questions, consult your attorney. Filing office cannot give legal advice.

Do not insert anything in the
open space in the upper portion of this form; it is reserved for filing office
use.

When
properly completed, send Filing Office Copy, with required fee, to filing
office. If you want an acknowledgment, complete item B and, if filing in a
filing office that returns an acknowledgment copy furnished by filer, you may
also send Acknowledgment Copy; otherwise detach. If you want to make a search
request, complete item 7 (after reading Instruction 7 below) and send Search
Report Copy, otherwise detach. Always detach Debtor and Lender Copies.

If
you need to use attachments, use 8-1/2 X 11 inch sheets and put at the top of
each sheet the name of the first Debtor, formatted exactly as it appears in
item 1 of this form; you are encouraged to use Addendum (Form UCC1 Ad).

A. To assist filing offices
that might wish to communicate with filer, filer may provide information in
item A. This Item is optional.

B. Complete item B if you want an acknowledgment sent to you. If filing in
a filing office that returns an acknowledgment copy furnished by filer, present
simultaneously with this form a carbon or other copy of this form for use as an
acknowledgment copy.

 

1.             Debtor name: Enter only one Debtor name in
Item 1, an organization’s name (1a) or an Individual’s name (1b).
Enter Debtor’s exact full legal name. Don’t abbreviate.

 

la.            Organization Debtor. “Organization” means an entity having a
legal identity separate from its owner. A partnership is an organization; a
sole proprietorship is not an organization, even if it does business under a
trade name. If Debtor is a partnership, enter exact full legal name of
partnership; you need not enter names of partners as additional Debtors.  If Debtor is a registered organization
(e.g., corporation, limited partnership, limited liability company), it is
advisable to examine Debtor’s current filed charter documents to determine
Debtor’s correct name, organization type, and jurisdiction of organization.

 

1b.           Individual Debtor. “Individual” means a
natural person; this includes a sole proprietorship, whether or not operating
under a trade name. Don’t use prefixes (Mr., Mrs., Ms.). Use suffix box only
for titles of lineage (Jr., Sr., III) and not for other suffixes or titles
(e.g., M.D.). Use married woman’s personal name (Mary Smith, not Mrs. John
Smith). Enter individual Debtor’s family name (surname) In Last Name box, first
given name in First Name box, and all additional given names in Middle Name
box. 

For both organization
and Individual Debtors:  Don’t use
Debtor’s trade name, DBA, AKA, FKA, Division name, etc.  In place of or combined with Debtor’s legal
name;  you may add such other names as
additional Debtors if you wish (but this is neither required nor recommended).

 

1c.           An address is always required for Debtor named
in 1a or 1b.

 

1d.           Debtor’s taxpayer Identification number (tax
ID #) – social security number or employer identification number – may be
required in some states.

 

1e,f,g      “Additional information re organization
Debtor” is always required. Type of organization and jurisdiction of
organization as well as Debtor’s exact legal name can be determined from
Debtor’s current filed charter document. 
Organizational ID #, if any, is assigned by the agency where the charter
document was filed; this is different from tax ID #; this should be entered
preceded by the 2-character U.S. Postal Identification of state of organization
if one of the United States (e.g., CA12345, for a California corporation whose organizational
ID # is 12345); if agency does not assign organizational ID #, check box In
item 1g indicating “none.”

 

2.             If an additional Debtor is included, complete
Item 2, determined and formatted per Instruction 1. To include further
additional Debtors, or one or more additional Secured Parties, attach either
Addendum (Form UCC1Ad) or other additional page(s), using correct name format.
Follow Instruction 1 for determining and formatting additional names.

 

3.             Enter information for Lender or Total Assignee,
determined and formatted per Instruction 1. If there is more than one Lender,
see Instruction 2. If there has been a total assignment of Lender’s interest
prior to filing this form, you may either (1) enter Assignor S/P’s name and
address in item 3 and file an Amendment (Form UCC3) [see Item 5 of that form];
or (2) enter Total Assignee’s name and address in item 3 and, if you wish, also
attaching Addendum (Form UCC1Ad) giving Assignor S/P’s name and address in item
12.

 

4.             Use item 4 to indicate the collateral covered
by this Financing Statement.  If space
in item 4 Is Insufficient, put the entire collateral description or
continuation of the collateral description on either Addendum (Form UCC1Ad) or
other attached additional page(s).

 

5.             If filer desires (at filer’s option) to use
titles of lessee and lessor, or consignee and consignor, or seller and buyer
(in the case of accounts or chattel paper), or bailee and bailor instead of
Debtor and Lender, check the appropriate box in item 5. If this is an agricultural
lien (as defined in applicable Commercial Code) filing or is otherwise not a
UCC security interest filing (e.g., a tax lien, judgment lien, etc.), check the
appropriate box in item 5, complete items 1-7 as applicable and attach any
other items required under other law.

 

6.             If this Financing Statement is filed as a
fixture filing or if the collateral consists of timber to be cut or
as–extracted collateral, complete items 1-5, check the box in item 6, and
complete the required information (items 13,14 and/or 15) on Addendum (Form
UCCIAd).

 

7.             This item is optional. Check appropriate box
in item 7 to request Search Report(s) on all or some of Debtors named in this
Financing Statement The Report will list all Financing Statements on file
against the designated Debtor on the date of the Report, including this
Financing Statement.  There is an
additional fee for each Report. If you have checked a box in Item 7, file
Search Report Copy together with Filing Officer Copy (and Acknowledgment Copy).
Note: Not all states do searches and not all states will honor a search request
made via this form; some states require a separate request form.

 

8.             This Item is optional and is for filees use
only. For filer’s convenience of reference, filer may enter in Item 8 any
identifying information (e.g., Lender’s loan number, law firm file number.
Debtor’s name or other identification, state in which form is being filed,
etc.) that filer may find useful.

 

Note: If Debtor is a trust or
a trustee acting with respect to property hold in trust, enter Debtor’s name in
Item 1 and attach Addendum (Form UCCIAd) and check appropriate box in item 17.
If Debtor is a decedents estate, enter name of deceased individual in item 1b
and attach Addendum (Form UCC1Ad) and check appropriate box in item 17. If
Debtor is a transmitting utility or this Financing Statement is filed in
connection with a Manufactured-Home Transaction or a Public-Finance Transaction
as defined in applicable Commercial Code, attach Addendum (Form UCC1Ad) and
check appropriate box in item 18.

 

 

UCC FINANCING STATEMENT ADDENDUM

FOLLOW
INSTRUCTIONS (front and back) CAREFULLY

 

9.
NAME OF FIRST DEBTOR (1a or 1b) ON RELATED FINANCING STATEMENT

 

	
   

  	
  9a. ORGANIZATION’S NAME

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  OR

  	
  9b. INDIVIDUAL’S LAST NAME

  	
   

  	
  FIRST
  NAME

  	
   

  	
  MIDDLE
  NAME, SUFFIX

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

10.
MISCELLANEOUS:

 

 

 

 

THIS ABOVE SPACE IS FOR FILING
OFFICE USE ONLY

 

11. ADDITIONAL DEBTOR’S EXACT FULL LEGAL
NAME - Insert only one debtor name (11a or 11b) – do not abbreviate or
combine names

 

	
   

  	
  11a. 
  ORGANIZATION’S NAME

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  OR

  	
  11b. INDIVIDUAL’S LAST NAME

  	
   

  	
  FIRST
  NAME

  	
   

  	
  MIDDLE
  NAME

  	
   

  	
  SUFFIX

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11c. MAILING ADDRESS

  	
   

  	
  CITY

  	
   

  	
  STATE

  	
   

  	
  POSTAL
  CODE

  	
   

  	
  COUNTRY

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
										

 

11d.
TAX ID #: SSN OR EIN

 

ADD’NL
INFO REORGANIZATION DEBTOR

 

11e.
TYPE OF ORGANIZATION

 

11f.
JURISDICTION OF ORGANIZATION

 

11g.
ORGANIZATIONAL ID #, if any

 

o NONE

 

12.
o ADDITIONAL LENDER’S or o ASSIGNOR S/P’S NAME - insert only one
name (12a or 12b)

 

	
   

  	
  12a. ORGANIZATION’S NAME

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  OR

  	
  12b. INDIVIDUAL’S LAST NAME

  	
   

  	
  FIRST
  NAME

  	
   

  	
  MIDDLE
  NAME

  	
   

  	
  SUFFIX

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12c. MAILING ADDRESS

  	
   

  	
  CITY

  	
   

  	
  STATE

  	
   

  	
  POSTAL
  CODE

  	
   

  	
  COUNTRY

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
										

 

	
  13. This FINANCING
  STATEMENT covers

  o timber to be cut or
o as–extracted collateral, or is filed as a
o fixture filing.

  	
   

  	
  16. Additional collateral
  description:

  
	
   

  	
   

  	
   

  
	
  14. Description of real
  estate:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  15.
  Name and address of RECORD OWNER of above-described real estate (if Debtor
  does not have a record interest):

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  17. Check only if applicable
  and check only one box.

   

  Debtor is a o Trust or o Trustee acting with respect to property
  held in trust or o Decedent’s Estate

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  18. Check only if
  applicable and check only one box.

   

  ý 
  Debtor is a TRANSMITTING UTILITY

  o 
  Filed in connection with a Manufactured–Home Transaction — effective
  30 years

  o 
  Filed in connection with a Public–Finance Transaction — effective 30
  years

  

 

FILING OFFICE COPY - NATIONAL UCC FINANCING STATEMENT
ADDENDUM (FORM UCC1Ad) (REV. 07/29/98)

 

 

Instructions for National UCC Financing Statement Addendum
(Form UCCIAd)

 

9.             Insert name of first Debtor shown on Financing
Statement to which this Addendum is related, exactly as shown in item 1 of
Financing Statement.

 

10.           Miscellaneous:  Under certain circumstances, additional information not provided
on Financing Statement may be required. Also, some states have non-uniform
requirements. Use this space to provide such additional information or to
comply with such requirements; otherwise, leave blank.

 

11.           If this Addendum adds an additional Debtor,
complete item 11 in accordance with Instruction 1 on Financing Statement. To
add more than one additional Debtor, either use an additional Addendum form for
each additional Debtor or replicate for each additional Debtor the formatting
of Financing Statement Item 1 on an 8-1/2x11 Inch sheet (showing at the top of
the sheet the name of the first Debtor shown on the Financing Statement), and
in either case give complete Information for each additional Debtor in
accordance with Instruction 1 on Financing Statement. All additional Debtor
Information, especially the name, must be presented in proper format exactly
identical to the format of item I of Financing Statement.

 

12.           If this Addendum adds an additional Lender,
complete item 12 in accordance with Instruction 3 on Financing Statement. In
the case of a total assignment of Lender’s interest before the filing of this
Financing Statement, if filer has given the name and address of the Total
Assignee in item 3 of the Financing Statement, filer may give the Assignor S/P’s
name and address in Item 12.

 

13-15.      If collateral is timber to be cut or
as-extracted collateral, or if this Financing Statement is filed as a fixture
filing, check appropriate box in item 13; provide description of real estate in
item 14; and, if Debtor is not a record owner of the described real estate,
also provide, in item 15, the name and address of a record owner. Also provide
collateral description in item 4 of Financing Statement. Also check box 6 on
Financing Statement. Description of real estate must be sufficient under the
applicable law of the jurisdiction where the real estate is located.

 

16.           Use this space to provide continued
description of collateral, if you cannot complete description in item 4 of
Financing Statement.

 

17.           If Debtor is a trust or a trustee acting with
respect to property held in trust or is a decedent’s estate, check the
appropriate box.

 

18.           If Debtor is a transmitting utility or if the
Financing Statement relates to a Manufactured–Home Transaction or a
Public-Finance Transaction as defined in the applicable Commercial Code, check
the appropriate box.

 

 

UBS FINANCIAL SERVICES INC.

 

ACCOUNT CONTROL AGREEMENT

 

	
  FULL
  ACCOUNT TITLE

  	
   

  	
  BRANCH

  	
   

  	
  ACCOUNT

  NUMBER

  	
   

  	
  BROKER

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NEW CORP RESOURCES ELECTRIC

  CO-OPERATIVE INC.

  	
   

  	
  WQ

  	
   

  	
  14862

  	
   

  	
  01

  
	
  at

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  UBS
  Financial Services Inc.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

	
  ACCOUNT
  TRADING PERMITTED?

  (See Section 3 below)

  	
  YES
  o

  	
  NO
  ý

  	
   

  
	
  ACCOUNT
  WITHDRAWALS PERMITTED?

  (See Section 4 below)

  	
  YES
  o

  	
  NO
  ý

  	
   

  
	
  INVESTMENT
  ADVISER

  	
  NONE

  	
   

  	
   

  
	
  (If any See Section 3
  below)

  	
   

  	
  (Name)

  	
   

  
	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Address
  for Notices)

  	
   

  
							

 

This Agreement
is between UBS Financial Services Inc. (“UBSFS”), the party or parties signing
this Agreement as Client where indicated below (together and individually,
“Client”), any party signing this Agreement as Investment Adviser where
indicated below, and the party signing this Agreement as Creditor where
indicated below (“Creditor”).

 

WHEREAS, UBSFS
has established the above-referenced account (“Account ”) as a “securities
account,” within the meaning of Section 8-501 of the Uniform Commercial Code as
in effect in the State of New York (“UCC”);

 

WHEREAS, pursuant to a separate security agreement between Client and
Creditor, Client has granted Creditor a security interest in (a) the Account,
(b) all credit balances therein, (c) all the security entitlements held
therein, and (d) all other financial assets held therein (collectively, the
“Collateral”); and

 

WHEREAS,
Creditor, Client and UBSFS are entering into this Agreement to provide for the
control of the Account and the other Collateral, and to perfect Creditor’s
security interest in the Collateral;

 

NOW THEREFORE,
the parties hereby agree as follows:

 

 

Section 1.          The Account.

 

(a)    UBSFS
hereby represents and warrants to Creditor and Client that (i) the Account has
been established in the name and with the account number recited above, and
(ii) except for the claims and interests of Creditor and Client in the Account,
and except for any claim in favor of UBSFS permitted under Section 2, UBSFS
does not know of any claim to or interest in the Account.

 

(b)    If
the Account is a new UBSFS account, Client hereby agrees to transfer the assets
listed on Exhibit A into the Account. 
All property now or hereafter credited by UBSFS to the Account will be
treated as financial assets under Article 8 of the UCC.  However, Client and Creditor acknowledge
that shares of RMA or UBSFS money market funds, shares of UBSFS mutual funds
and, to the extent so indicated on the periodic account statements sent to
Client, certain other assets, are held directly by Client and are shown on the
account statements relating to the Account only for informational
purposes.  Such assets are not credited
to or carried in the Account, can be transferred without UBSFS’s consent, and
are not covered by this Agreement. 
UBSFS is not responsible for assuring that informational items are not
shown on the periodic statements for the Account or are not acquired with
assets that are credited to the Account.

 

Section 2.          Priority of Lien.  UBSFS hereby acknowledges the security
interest granted to Creditor by Client. 
UBSFS hereby confirms that the Account is a cash account and that it
will not advance any margin or other credit to Client with respect to the
assets carried in the Account.  UBSFS
hereby subordinates all liens, encumbrances, claims and rights of setoff it may
have against the Collateral, except for liens, encumbrances, claims and
rights of setoff for the payment of UBSFS customary fees and commissions
pursuant to its agreement with Customer or for the payment for financial assets
purchased for the Account.  UBSFS will
not agree with any third party that UBSFS will comply with entitlement orders
concerning the Account originated by such third party without the prior written
consent of Creditor and Client.

 

Section 3.          Control; Trading in the
Account; Investment Advisers.

 

(a)    UBSFS
will comply with entitlement orders originated by Creditor concerning the
Account without further consent by Client. 
Unless “ACCOUNT TRADING PERMITTED?” at the top of this Agreement is
marked “NO,” and except as otherwise provided in Section 4, UBSFS also will
comply with entitlement orders concerning the Account originated by Client or
Client’s authorized representatives, including any investment adviser, which
may be an affiliate of UBSFS, that Client has authorized to exercise investment
discretion with respect to the Account (“Investment Adviser”), until such time
as Creditor delivers a written notice to UBSFS that Creditor is thereby
exercising exclusive control over the Account (a “Notice of Exclusive
Control”).  After UBSFS receives a
Notice of Exclusive Control and has had reasonable opportunity to comply with
it, UBSFS will cease complying with entitlement orders or other directions
concerning the Account that are originated by Client or its

 

2

 

representatives ) until such time as UBSFS receives a written notice
from Creditor rescinding the Notice of Exclusive Control.

 

(b)    Creditor
agrees that, if an Investment Adviser is identified at the top of this
Agreement, no Notice of Exclusive Control shall be effective as between UBSFS
and Creditor unless and until Creditor has provided a copy of any Notice of
Exclusive Control to such Investment Adviser. 
Notwithstanding the foregoing, however, Client agrees that UBSFS shall
have no obligation to comply with entitlement orders or other directions
originated by Client or its representatives (including such Investment Adviser)
following UBSFS’s receipt of a Notice of Exclusive Control, irrespective of
whether a copy of such Notice of Exclusive Control has been provided to
Investment Adviser in accordance with this paragraph.

 

(c)    By
signing this Agreement where indicated below, Investment Adviser agrees to all
of the terms and conditions hereof and covenants and agrees that it will not
originate any directions or entitlement orders, or otherwise enter into trades
for the Account if either:  (i) “ACCOUNT
TRADING PERMITTED?” at the top of this Agreement has been marked “NO;” or (ii)
Investment Adviser has received a copy of a Notice of Exclusive Control that
has not been rescinded in accordance with paragraph (a) of this Section 3.

 

Section 4.          Withdrawals from the
Account.  Unless “ACCOUNT
WITHDRAWALS PERMITTED?” at the top of this Agreement is marked “YES,” then
notwithstanding the provisions of Section 3, UBSFS will neither accept nor
comply with any entitlement order from Client or its authorized representatives
withdrawing or making a free delivery of any financial assets from the Account
nor deliver any such financial assets to Client nor pay any free credit balance
or other amount owing from UBSFS to Client with respect to the Account without
the specific prior written consent of Creditor except that interest payments
made on the financial assets held in the Account may be withdrawn by the Client
until such time as Creditor delivers a Notice of Exclusive Control.  After UBSFS receives a Notice of Exclusive
Control and has had reasonable opportunity to comply with it and until such
time as UBSFS receives a written notice from Creditor rescinding the Notice of
Exclusive Control, UBSFS: (a) will cease complying with entitlement orders or
other directions concerning the withdrawal of interest earned on the financial
assets held in the Account that are originated by Client or its
representatives; (b) will not otherwise transfer such interest to the Client;
and (c) will credit the Account for the amount of such interest or otherwise
comply with the entitlement orders originated by the Creditor with respect
thereto.

 

Section 5.          Statements,
Confirmations and Notices of Adverse Claims. 
UBSFS will send copies of all periodic account statements and
confirmations concerning the Account to Creditor at the address set forth
below.

 

Section 6.          Limited Responsibility
of UBSFS.  Except to the extent that
it permits trading or a withdrawal or payment in violation of Sections 3 or 4
or advances margin or other credit to Client in

 

3

 

violation of Section 2. UBSFS shall have no responsibility or liability
to Creditor for making trades of financial assets held in the Account at the
direction of Client or Client’s authorized representatives, including any
Investment Adviser, or for complying with entitlement orders concerning the
Account from Client, or Client’s authorized representatives, including any
Investment Adviser.  UBSFS shall have no
responsibility or liability to Client for complying with a Notice of Exclusive
Control or complying with entitlement orders concerning the Account originated
by Creditor.  UBSFS shall have no
responsibility or liability to Creditor with respect to increases or decreases
in the value of the Account or increases or decreases in the market value of
any asset held therein.  UBSFS shall
have no duty to investigate or make any determination as to whether Creditor is
entitled or has been authorized to give any Notice of Exclusive Control, as to
whether Creditor has provided a copy thereof to any Investment Adviser, or as
to whether a default exists under any agreement between Client and Creditor,
and UBSFS shall comply with a Notice of Exclusive Control even if it believes
that no such default exists.  This
Agreement does not create any obligation or duty of UBSFS other than those
expressly set forth herein.

 

Section 7.          Indemnification of
UBSFS.  Client and any Investment
Adviser party hereto hereby agree to indemnify and hold harmless UBSFS, its
affiliates and their respective directors, officers, agents and employees
against any and all claims, causes of action, liabilities, lawsuits, demands
and damages, including without limitation, any and all court costs and
reasonable attorneys’ fees, in any way related to or arising out of or in
connection with this Agreement or any action taken or not taken pursuant
hereto, except to the extent caused by UBSFS’s breach of its obligations
hereunder.  Creditor shall indemnify
UBSFS for any damages of UBSFS caused by the actions or inactions of Creditor
related to or arising out of or in connection with this Agreement.

 

Section 8.          Client Account
Agreement.  Client, Creditor and any
Investment Adviser party hereto acknowledge and agree that this Agreement
supplements the UBSFS account agreement(s) applicable to the Account and, if
applicable, any related account management agreements between Client and either
UBSFS or its affiliates, and except as otherwise expressly provided herein,
does not supersede or abridge any rights or obligations of any of the parties
to such agreements.  In the event of a
conflict between the express terms of this Agreement and any other agreement
between UBSFS and the Client, the terms of this Agreement will prevail.  Regardless of any provision in any such
agreement relating to the law governing the Account, the parties hereto agree
that the establishment and maintenance of the Account, and all interests,
duties and obligations with respect thereto, shall be governed by the law of
the State of New York.

 

Section 9.          Termination.  Unless earlier terminated by UBSFS pursuant
to this section, the obligations of UBSFS under Sections 2, 3, 4 and 5 shall
continue in effect until Creditor has notified UBSFS in writing that this
Agreement is to be terminated or that Creditor’s security interest in the
Account has terminated.  Upon receipt of
such notice, the obligations of UBSFS under Sections 2, 3, 4 and 5 with respect
to the operation and maintenance of the Account after the receipt of such
notice shall terminate, Creditor shall have no further right to originate
entitlement orders concerning the Account and any previous Notice of Exclusive
Control delivered by Creditor shall be deemed to be of no further

 

4

 

force and effect.  UBSFS
reserves the right, unilaterally, to terminate this Agreement, such termination
to be effective (30) days after written notice thereof is given to Client and
Creditor.

 

Section 10.        Entire Agreement;
Amendments.  This Agreement, any
schedules or exhibits hereto and the instructions and notices required or
permitted to be executed and delivered hereunder set forth the entire agreement
of the parties with respect to the subject matter hereof.  No amendment, modification or (except as
otherwise specified in Section 9) termination of this Agreement, nor any
assignment of any rights hereunder (except to the extent contemplated under
Section 12), shall be binding on any party hereto unless it is in writing and
is signed by each of UBSFS, Creditor and Client, and any attempt to so amend,
modify, terminate or assign except pursuant to such a writing shall be null and
void.  No waiver of any rights hereunder
shall be binding on any party hereto unless such waiver is in writing and
signed by the party against whom enforcement is sought.

 

Section 11.        Severability.  If any term or provision set forth in
this Agreement shall be invalid or unenforceable, the remainder of this
Agreement, or the application of such terms or provisions to persons or
circumstances, other than those to which it is held invalid or unenforceable,
shall be construed in all respects as if such invalid or unenforceable term or
provision were omitted.

 

Section 12.        Successors.  The terms of this Agreement shall be
binding upon, and shall inure to the benefit of, the parties hereto and their
respective corporate successors or assigns.

 

Section 13.        Notices.  Any notice, request or other
communication required or permitted to be given under this Agreement shall be
in writing and deemed to have been properly given when delivered in person, or
when sent by telecopy or other electronic means and electronic confirmation of
error free receipt is received or upon receipt of notice sent by certified or
registered United States mail, return receipt requested, postage prepaid,
addressed to that party: in the case of Creditor, at the address set forth
below; in the case of Client, at the address reflected in UBSFS’s records with
respect to the Account or, if such notice is given by Creditor, at the address
specified to Creditor by Client; in the case of any Investment Adviser party
hereto, at the address set forth for such Investment Adviser above; and in the
case of UBSFS, at 1200 Harbor Boulevard,10th Floor, Weehawken, New Jersey
07086, Attn: Manager/SLG Group.  Any
party may change its address for notices in the manner set forth above.

 

Section 14.        Counterparts.  This Agreement may be executed in any
number of counterparts, all of which shall constitute one and the same
instrument, and any party hereto may execute this Agreement by signing and
delivering one or more counterparts.

 

Section 15.        Choice of Law;
Jurisdiction; Waiver of Jury Trial.

 

(a)    This
Agreement shall be governed by and construed in accordance with the law of the
State of New York.

 

5

 

(b)        ANY SUIT, ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR ANY JUDGMENT ENTERED BY ANY COURT WITH RESPECT TO THIS AGREEMENT OR
SUCH TRANSACTIONS SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF
THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. EACH OF THE
PARTIES HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK AND OF THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF
ANY SUCH ACTION OR PROCEEDING AS SET
FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH SUCH ACTION OR PROCEEDING. EACH OF THE PARTIES
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY
SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY
CLAIM THAT ANY SUCH ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.

 

(c)        EACH OF THE PARTIES (FOR
ITSELF, ANYONE CLAIMING THROUGH IT OR IN ITS NAME) HEREBY IRREVOCABLY WAIVES
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.

 

[REMAINDER OF PAGE LEFT BLANK]

 

6

 

TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH
ACTION OR PROCEEDING. EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR
HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH ACTION
OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

 

(c)  EACH OF THE PARTIES (FOR ITSELF, ANYONE
CLAIMING THROUGH IT OR IN ITS NAME) HEREBY IRREVOCABLY WAIVES ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED UPON OR ARISING
OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.

 

IN WITNESS
WHEREOF, the parties have signed this Agreement, or caused it to be signed on
their behalf by their duly authorized representatives, as of the date indicated
below.

 

	
  DATE:

  	
  9/10/03

  	
   

  	
   

  
	
   

  	
   

  
	
  CLIENT:

  	
  CREDITOR:

  
	
   

  	
   

  
	
  New Corp Resources
  Electric, Cooperative, Inc.

  	
  Beal Bank,
  S.S.B.

  
	
   

  	
   

  
	
  By:

  	
    /s/ David W. Pruitt

  	
   

  	
  By:

  	
    /s/ William T. Saurenmann

  	
   

  
	
   

  	
   

  
	
  Title:

  	
  CEO / President

  	
   

  	
  Title:

  	
  S.V.P.

  	
   

  
	
   

  	
   

  
	
  By:

  	
    /s/ Lee D. Atkins

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
  SVP / CFO

  	
   

  	
  CREDITOR’S
  ADDRESS FOR NOTICES:

  
	
   

  	
   

  
	
  UBS Financial Services Inc.

  	
  6000 Legacy Drive

  	
   

  
	
   

  	
   

  
	
  By:

  	
    /s/ Diane Binford

  	
   

  	
  Plano, TX 75024

  	
   

  
	
   

  	
   

  
	
  Title:

  	
  SALES MANAGER

  	
   

  	
    Attn: Bill Saurenmann

  	
   

  
	
   

  	
   

  
	
  INVESTMENT ADVISER (if applicable)

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
														

 

7

 

Exhibit A to

Account Control Agreement

 

Pledged Assets

 

Client agrees
to transfer the assets described below to the Account described in the Account
Control Agreement to which this Exhibit A is attached.

 

	
  QUANTITY

  	
   

  	
  DESCRIPTION

  
	
  $

  	
  14,168,715.04

  	
   

  	
  CASHExhibit
10.80

 

 

MODIFICATION AND EXTENSION AGREEMENT

 

 

THIS MODIFICATION AND EXTENSION AGREEMENT (herein
called “Agreement”) is made effective as of the 1st day of
October, 2003, by and between EDDINS-WALCHER
COMPANY, a Texas corporation  (“EWC”
or “Borrower”), CAP ROCK ENERGY
CORPORATION, a Texas corporation, successor-in-interest to CAP ROCK ELECTRIC COOPERATIVE, INC., a
Texas corporation (“Cap Rock”), and UNITED
FUEL & ENERGY CORPORATION, a Texas corporation (“United”)
(Cap Rock and United together, “Corporate  Guarantors”), THOMAS E. KELLY, GLENDA KELLY and RICHARD C. SKILLERN (each referred to
individually as an “Individual Guarantor” and together as “Individual
Guarantors”) (the Individual Guarantors and the Corporate Guarantors are
referred to herein collectively as the “Guarantors”) and WASHINGTON MUTUAL BANK, FA, a federal
association (“Lender”).

 

W  I  T
N  E  S  S  E  T  H:

 

WHEREAS, Lender made a loan (the “Loan”) to New
West Resources, Inc., predecessor-in-interest to NewCorp Resources Electric
Cooperative, Inc., a Texas electric cooperative (“NewCorp”), as of
July 12, 2000 in the original principal amount of FIFTEEN MILLION AND
NO/100 DOLLARS ($15,000,000.00);

 

WHEREAS, NewCorp, Cap Rock, Thomas E. Kelly, Richard
C. Skillern and Lender entered into that certain Loan Agreement (as renewed,
extended or modified, the “NewCorp Loan Agreement”) dated July 12,
2000, which Loan Agreement sets forth certain terms and conditions of the Loan;

 

WHEREAS, NewCorp executed and delivered to Lender that
certain Commercial Variable Rate Revolving or Draw Note (as renewed, extended
or modified, the “NewCorp Note”) dated July 12, 2000, payable to
the order of Lender, in the amount of and evidencing the Loan;

 

WHEREAS, Cap Rock, Thomas E. Kelly and Richard C.
Skillern each executed those respective Unconditional Guaranties (collectively,
the “Guaranty”) dated July 12, 2000, in which each jointly and
severally guaranteed NewCorp’s payment and performance under the Loan Documents
(as defined in the NewCorp Loan Agreement);

 

WHEREAS, as security for the Loan, NewCorp executed
that certain Security Agreement (as amended or otherwise modified prior to the
date hereof, the “Security Agreement”) dated as of July 12, 2000
pursuant to which NewCorp granted to Lender a security interest in the
collateral described therein, and NewCorp further granted to Lender a
collateral assignment (the “Collateral Assignment”) of the real,
personal and investment property described in the EW/FF Loan Agreement (as
hereinafter defined) (collectively, the “Collateral”), including,
without limitation, those certain Deeds of Trust (the “Deeds of Trust”)
executed in connection with the EW/FF Loan Agreement, which Deeds of Trust are
more particularly described in Exhibit A attached hereto and made a part
hereof;

 

WHEREAS, concurrently with NewCorp’s execution and
delivery of the Loan Documents to Lender, NewCorp made two loans (collectively,
the “EW/FF Loan”) in the aggregate principal amount of FIFTEEN MILLION
AND NO/100 DOLLARS ($15,000,000.00) to (i) EWC, evidenced by that certain
Eddins-Walcher Company Term Note in the original principal amount of TWELVE
MILLION AND NO/100 DOLLARS ($12,000,000.00), dated July 12, 2000 (the “EW
Note”), and (ii) Frank’s Fuels, Inc. (“FFI”), evidenced by that
certain Frank’s Fuels, Inc. Term Note in the original principal amount of

 

 

THREE MILLION AND NO/100 DOLLARS ($3,000,000), dated July 12, 2000
(the “FF Note”) (the FF Note and the EW Note are collectively
referred to herein as the “EW/FF Notes”);

 

WHEREAS, as security for the EW/FF Loan, EWC and FFI
granted certain liens, security interests and pledged to NewCorp the Collateral
described in that certain Term Loan Agreement between NewCorp, EWC, FFI,
United, Thomas E. Kelly, Richard Skillern, Billy D. Grimes and Jonny B. Grimes
dated as of July 12, 2000 (the “EW/FF Loan Agreement”) (all
documents related to, pertaining to, evidencing, governing or securing the
EW/FF Loan are referred to herein as the “EW/FF Loan Documents”).

 

WHEREAS, United and each of Thomas E. Kelly, joined by
Glenda Kelly; Richard Skillern; Billy D. Grimes, joined by Myra Grimes; and
Johnny B. Grimes, joined by Melissa Grimes (collectively, the “EW/FF
Guarantors”) executed those respective Guaranties of Debt (collectively,
the “EW/FF Guaranty”) and Pledge Agreements (collectively, the “Pledge
Agreements”) dated July 12, 2000, to secure EWC and FF’s payment and
performance of the EW/FF Notes and the EW/FF Loan Documents.

 

WHEREAS, EWC is the successor by merger to FFI and is
fully obligated to perform each of FFI’s obligations under the EW/FF Loan
Documents, including without limitation, repayment in full of the FF Note;

 

WHEREAS, NewCorp has requested that Lender cancel all
of NewCorp’s obligations under the NewCorp Note and release the security
interests in the Collateral granted in the Collateral Assignment, and Lender
has agreed to provide such cancellation and release upon (i) NewCorp’s absolute
transfer and assignment to Lender of all of NewCorp’s right, title and interest
in the EW/FF Loan Documents, including, without limitation, the EW/FF Loan
Agreement, the EW Note, the FF Note, the EW/FF Guaranty, the Pledge Agreements,
the Deeds of Trust and all of the other EW/FF Loan Documents, (ii) the
execution and delivery by Guarantors of Guaranty Agreements in form and
substance satisfactory to Lender, and (iii) certain modifications to the EW/FF
Loan Documents.

 

WHEREAS, in order to
satisfy one of Lender’s conditions described above, Lender and Borrower now
propose to modify certain terms and provisions of the EW/FF Notes, EW/FF Loan
Agreement and other EW/FF Loan Documents pursuant to the terms and conditions
contained herein.

 

WHEREAS, the Guarantors
have joined herein to evidence their respective ratification and consent to the
provisions of this Agreement; and

 

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

 

1.                                       Upon payment of the Principal Payment
(hereinafter defined), Borrower, Guarantors and Lender hereby acknowledge that
the unpaid principal balance of the EW/FF Notes is THREE MILLION FIVE HUNDRED
THOUSAND AND 00/100 DOLLARS ($3,500,000.00).

 

2.                                       The
EW/FF Loan Agreement is hereby
amended as follows:

 

(a)          The
defined term “Contract Interest Rate” (as defined in Section 1.1 of the
EW/FF Loan Agreement) shall mean a fixed rate of nine percent (9%) per annum.

 

(b)         The
defined term “Corporate Guarantor” (as defined in Section 1.1 of the EW/FF
Loan Agreement) shall mean collectively United Fuel & Energy Corporation
and Cap Rock

 

2

 

Energy Corporation and
any subsidiary of each not a “Borrower” hereunder, excluding, however, Three D
Oil Co. of Kilgore, Inc..

 

(c)          The
defined term “EWC Term Note Maturity Date” (as defined in Section 2.1(b)
of the EW/FF Loan Agreement) shall mean September 30, 2004.

 

(d)         Section 2.1 (d) is
deleted in its entirety and the following shall be substituted therefore:

 

On the earlier to occur of (i) May 1, 2004 or
(ii) five business days after Borrower has delivered to The CIT Group/Business
Credit, Inc. the 2003 annual audited financial statements of UFEC and Borrower,
a principal payment in the amount of $144,000.00 shall be due and payable to
Lender.

 

(e)          The
following shall be added to the beginning of Section 2.1(e):

 

Interest on the EWC Term Note shall be due and payable
monthly as it accrues on the first Business Day of each month, beginning
November 1, 2003, and continuing regularly thereafter until and including
the EWC Term Note Maturity Date.

 

(f)            The
“FFI Term Note Maturity Date” (as defined in Section 2.2(b) of the EW/FF
Loan Agreement) shall mean September 30, 2004.

 

(g)         Section 2.2 (d) is
deleted in its entirety and the following shall be substituted therefore:

 

On the earlier to occur of (i) May 1, 2004 or
(ii) five business days after Borrower has delivered to The CIT Group/Business
Credit, Inc. the 2003 annual audited financial statements of UFEC and Borrower,
a principal payment in the amount of $36,000.00 shall be due and payable to
Lender.

 

(h)         The
following shall be added to the beginning of Section 2.2(e):

 

Interest on the FFI Term Note shall be due and payable
monthly as it accrues on the first Business Day of each month, beginning
November 1, 2003, and continuing regularly thereafter until and including
the FFI Term Note Maturity Date.

 

(i)             The reference to
“Bank One” in Section 6.1.2 is deleted, and a reference to “CIT” is
substituted in lieu thereof.

 

(j)             The reference to
“Bank One” in Section 6.1.3(a) is deleted, and a reference to “CIT” is
substituted in lieu thereof.

 

(k)          Section 6.1.3(b) is
deleted in its entirety, and the following shall be substituted in lieu
thereof:

Intentionally deleted.

 

(l)             The following shall
be added to the end of Section 6.1.4:

 

In addition to obtaining the prior written consent of
Lender, in the event Borrower or UFEC sells, assigns or otherwise disposes of
any property of UFEC or Borrower directly related to the supply and sale by
UFEC or Borrower of propane fuel to their residential

 

3

 

and commercial propane fuel customers, UFEC or
Borrower shall apply all of the proceeds of such disposition to prepayment of
the outstanding balance of the Loans.

 

(m)       Section 8.1(ix) shall
be modified to substitute “TWO HUNDRED FIFTY THOUSAND

AND NO/100” for “ONE
HUNDRED THOUSAND AND NO/100.”

 

(n)         Section 9.4 is
hereby deleted and replaced with the following:

 

This Loan Agreement, the Notes and each of the Loan
Documents shall be deemed to be contracts under the laws of the State of Texas
and for all purposes shall be construed in accordance with the laws of the
State of Texas, except to the extent that federal law may apply.

 

Any suit, action or proceeding arising out of the Loan
or with respect to the Loan Documents or any judgment entered by any court in
respect thereof, may be brought in the courts of the State of Texas, County of
Harris, or in the United States courts located in the State of Texas, County of
Harris as Lender, in its sole discretion, may elect and Borrower, Corporate
Guarantors and Individual Guarantors hereby submit to the non-exclusive
jurisdiction of such courts for the purpose of any such suit, action or
proceeding.  The Borrower, Corporate
Guarantors and Individual Guarantors hereby irrevocably waive any objection
which they may now or hereafter have to the laying of venue of any suit, action
or proceeding arising out of or relating to any Loan Document brought in the
courts located in Harris County, Texas; and hereby further irrevocably waives
any claim that such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.

 

3.                                       The
Loan Documents are hereby amended as follows:

 

(a)          The
maturity date shall mean September 30, 2004; subject, however, to the
right of acceleration as provided in the EW/FF Loan Agreement and as provided
elsewhere in the EW/FF Loan Documents.

 

(b)         All
payments made by Borrower under the EW/FF Loan Documents shall be made to
Lender at its offices located at 3200 Southwest Freeway, Suite 1600, Houston,
Texas 77027, Attn: Energy Lending Group.

 

4.                                       The
effectiveness of this Agreement is expressly conditioned upon Lender’s receipt
of (i) an absolute transfer and assignment of the EW/FF Notes, all liens and
security interests securing the EW/FF Notes and all other EW/FF Loan Documents;
(ii) execution and delivery by Guarantors of a Guaranty Agreement in form and
substance satisfactory to Lender; (iii) an extension fee in the amount of
THIRTY-FIVE THOUSAND AND NO/100 DOLLARS ($35,000.00); (iv) a principal
payment (“Principal Payment”) in the amount sufficient to reduce the
outstanding principal balance of the EW/FF Loan to THREE MILLION FIVE HUNDRED
THOUSAND AND NO/100 ($3,500,000.00); (v) a fully executed Intercreditor
and Subordination Agreement by and among The CIT Group/Business Credit, Inc.
(“CIT”), Lender, Borrower, United and Three D Oil Co. of Kilgore, Inc. (“Intercreditor
Agreement”); and (vi) this Agreement, fully executed by the appropriate
parties and properly notarized.

 

5.                                       EWC
expressly assumes, confirms and ratifies all of the obligations and
indebtedness of FFI arising in connection with the EW/FF Loan (including,
without limitation the FF Note), as evidenced by the EW/FF Loan Documents, as
amended.  Cap Rock expressly assumes all
of the obligations of a Corporate Guarantor described in the EW/FF Loan
Agreement and the other EW/FF Loan Documents.

 

4

 

6.                                       Except
as otherwise specified herein, the terms and provisions hereof shall in no
manner impair, limit, restrict or otherwise affect the obligations of Borrower,
Corporate Guarantors, Individual Guarantors or any third party to Lender, as
evidenced by the EW/FF Loan Documents. 
Borrower, Corporate Guarantors and Individual Guarantors hereby
acknowledge, agree, and represent that (a) Borrower is indebted to Lender
pursuant to the terms of the EW/FF Notes, as modified hereby; (b) the liens,
security interests and assignments created and evidenced by the EW/FF Loan
Documents are, respectively, valid and subsisting liens, security interests and
assignments of the respective dignity and priority recited in the EW/FF Loan Documents;
(c) the EW/FF Loan Documents are validly existing and are in full force and
effect and the liens of the Deeds of Trust have been renewed and extended so as
to secure the payment of the EW/FF Notes; (d) there are no claims or offsets
against, or defenses or counterclaims to, the terms or provisions of the EW/FF
Loan Documents and the obligations created or evidenced by the EW/FF Loan
Documents; (e) neither Borrower, Corporate Guarantors nor Individual Guarantors
have any claims, offsets, defenses or counterclaims arising from any of
Lender’s acts or omissions with respect to the Collateral, the EW/FF Loan
Documents or Lender’s performance under the EW/FF Loan Documents or with
respect to the Collateral; (f) the representations and warranties contained in
the EW/FF Loan Documents, including, without limitation, any representations
and warranties regarding title or ownership of the Collateral (other than
Collateral consisting of those certain Pledge Agreements executed by each of
Billy D. Grimes, Myra Grimes, Johnny B. Grimes and Melissa Grimes in favor of
NewCorp), are true and correct representations and warranties of Borrower,
Guarantors and third parties, as of the date hereof; and (g) Borrower is not in
default and no event has occurred which, with the passage of time, giving of
notice, or both, would constitute a default by Borrower of Borrower’s
obligations under the terms and provisions of the EW/FF Loan Documents.  To the extent Borrower, Corporate Guarantors
or Individual Guarantors now have any claims, offsets, defenses or
counterclaims against Lender or the repayment of all or a portion of the EW/FF
Loan, whether known or unknown, fixed or contingent, same are hereby forever
irrevocably waived and released in their entirety.  For purposes of this Paragraph, “Lender” shall include the
Lender’s predecessors, successors, assigns, agents, present and former
officers, directors, employees and representatives.

 

7.                                       Borrower,
Corporate Guarantors and Individual
Guarantors, upon request from Lender, agree to execute such other and
further documents as may be reasonably necessary or appropriate to consummate
the transactions contemplated herein or to perfect the liens and security
interests intended to secure the payment of the EW/FF Loan, including specifically
without limitation (a) one or more financing statements showing Borrower as
debtor and (b) Notice and Agreement under Section 26.02 of the Texas and
Business Commerce Code.

 

8.                                       Except
as provided herein and in the Intercreditor Agreement, the terms and provisions of the EW/FF Note, the EW/FF Loan
Agreement, and the other EW/FF Loan Documents shall remain unchanged and shall
remain in full force and effect.  Any
modification herein of the EW/FF Note, the EW/FF Loan Agreement, and the other
EW/FF Loan Documents shall in no way affect the security of the Collateral, and
the other EW/FF Loan Documents for the payment of the EW/FF Note.  The “Notes” described in the EW/FF Loan
Agreement and other EW/FF Loan Documents as the “Notes” secured thereby shall
hereafter mean the EW/FF Notes as modified by this Agreement.  The EW/FF Note, the EW/FF Loan Agreement,
and the other EW/FF Loan Documents as modified and amended hereby are hereby
ratified and confirmed in all respects. 
All liens, security interests, mortgages and assignments granted or
created by or existing under the EW/FF Loan Documents remain unchanged and
continue, unabated, in full force and effect, to secure Borrower’s obligation
to repay the EW/FF Notes except as modified under the terms of the Intercreditor
Agreement.

 

9.                                       Upon
execution and delivery hereof, each Corporate Guarantor and Individual
Guarantor hereby (a) acknowledges and consents to the terms and provisions
hereof, (b) ratifies, confirms, and agrees that each respective Guaranty is and
shall remain in full force and effect as of the date hereof, except as modified
by the terms of any new Guaranty Agreement(s) entered into as of the date
hereof at

 

5

 

the request of and in favor of Lender, (c) acknowledges that there are
no claims or offsets against, or defenses or counterclaims to, the terms and
provisions of and the obligations created and evidenced by any Guaranty, (d)
certifies that the representations and warranties contained in each respective
Guaranty remain true and correct representations and warranties of each
respective Corporate Guarantor and Individual Guarantor as of the date hereof,
and (e) agrees to execute a new Guaranty Agreement in form satisfactory to
Lender if so requested by Lender.  Any
limitation of liability of any Individual Guarantor described in the EW/FF Loan
Agreement (including without limitation Section 3.3(b) of the EW/FF Loan
Agreement) is hereby terminated and no longer in effect.

 

10.                                 Lender
acknowledges that NewCorp and its agents in the past may have accepted, without
exercising the remedies to which NewCorp was entitled, payments and performance
by Borrower that constituted defaults under the EW/FF Notes and the EW/FF Loan
Documents.  In addition, Lender hereby
waives any and every default by Borrower or Guarantors which exists as of the
date of this Agreement known to Lender, provided, all conditions described in
paragraph 4 are satisfied. Borrower, Corporate Guarantors and Individual
Guarantors acknowledge that no such acceptance or grace granted by Lender or
its agents in the past, or Lender’s agreement to the modifications evidenced
hereby, has in any manner diminished Lender’s right in the future to insist
that Borrower strictly comply with the terms of the EW/FF Note, the EW/FF Loan
Agreement, and the other EW/FF Loan Documents, as modified by the terms hereof.
Furthermore, Borrower, Corporate Guarantors and Individual Guarantors
specifically acknowledge that any future grace or forgiveness of default by
Lender shall not constitute a waiver or diminishment of any right of Lender
with respect to any future default of Borrower, Corporate Guarantors or
Individual Guarantors whether or not similar to any default with respect to
which Lender has in the past chosen, or may in the future choose, not to
exercise all of the rights and remedies granted to it under the EW/FF Note, the
EW/FF Loan Agreement and the other EW/FF Loan Documents.

 

11.                                 This
Agreement supersedes and merges all
prior and contemporaneous promises, representations and agreements with respect
to the subject matter hereof.  No
modification of this Agreement, the EW/FF Note, the EW/FF Loan Agreement, or
any other EW/FF Loan Document, or any waiver of rights under any of the
foregoing, shall be effective unless made by supplemental agreement, in
writing, executed by Lender and Borrower. 
Lender and Borrower further agree that this Agreement may not in any way
be explained or supplemented by a prior, existing or future course of dealings
between the parties or by any prior, existing, or future performance between
the parties pursuant to this Agreement or otherwise.

 

12.                                 Any
notice or communication required or
permitted hereunder or under the EW/FF Note, EW/FF Loan Agreement or any other
EW/FF Loan Document shall be given in writing, sent by (a) personal delivery,
or (b) expedited delivery service with proof of delivery, or (c) United States
mail, postage prepaid, registered or certified mail, or (d) prepaid telegram,
telex or telecopy, addressed as follows:

 

	
  To Borrower/United:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  To Cap Rock:

  	
   

  	
  500 West Wall, Suite 400

  
	
   

  	
   

  	
  Midland, Texas 79701

  

 

6

 

	
  With a copy to:

  	
   

  	
  Ronnie Lyon

  
	
   

  	
   

  	
  115 South Travis

  
	
   

  	
   

  	
  Sherman, Texas 75090

  
	
   

  	
   

  	
   

  
	
  To Individual Guarantors:

  	
   

  	
  405 North Marienfeld

  
	
   

  	
   

  	
  Midland, Texas 79701

  
	
   

  	
   

  	
   

  
	
  To Lender:

  	
   

  	
  3200 Southwest Freeway, Suite 1600

  
	
   

  	
   

  	
  Houston, Texas 77027

  
	
   

  	
   

  	
  Attn: Energy Lending Group / Mr. Gardner Cannon

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Thompson & Knight LLP

  
	
   

  	
   

  	
  333 Clay Street, Suite 3300

  
	
   

  	
   

  	
  Houston, Texas 77002

  
	
   

  	
   

  	
  Attention: David W. Jones, Esq.

  
	
   

  	
   

  	
  Telecopy: (713) 654-1871

  

 

or to such other address or to the attention of such other person as
hereafter shall be designated in writing by the applicable party sent in
accordance herewith.  Any such notice or
communication shall be deemed to have been given either at the time of personal
delivery or, in the case of delivery service or mail, as of the date of first
attempted delivery at the address and in the manner provided herein, or in the
case of telegram, telex or telecopy, upon receipt; provided that, service of a
notice required by Texas Property Code 51.002 shall be considered complete when
the requirements of that statute are met.

 

13.                                 Borrower,
Corporate Guarantors and Individual
Guarantors acknowledge that the execution of this Agreement by Lender is
not intended nor shall it be construed as (i) an actual or implied waiver
of any subsequent default under the EW/FF Notes, the EW/FF Loan Agreement, or
any other EW/FF Loan Document or (ii) an actual or implied waiver of any
condition or obligation imposed upon Borrower pursuant to the EW/FF Notes, the
EW/FF Loan Agreement, or any other EW/FF Loan Document, except to the extent
expressly set forth herein.

 

14.                                 Contemporaneously
with the execution and delivery hereof, Borrower shall pay, or cause to be
paid, all costs and expenses incident to the preparation hereof and the
consummation of the transactions related hereto, including without limitation,
recording fees and fees and expenses of legal counsel to Lender.

 

15.                                 Borrower
and Guarantors hereby release, remise, acquit and forever discharge Lender,
together with its employees, agents, representatives, consultants, attorneys,
fiduciaries, servants, officers, directors, partners, predecessors, successors
and assigns, subsidiary corporations, parent corporations, and related
corporate divisions (all of the foregoing hereinafter called the “Released
Parties”), from any and all actions and causes of action, judgments, executions,
suits, debts, claims, demands, liabilities, obligations, damages and expenses
of any and every character, known or unknown, direct and/or indirect, at law or
in equity, of whatsoever kind or nature, heretofore accruing, for or because of
any matter or things done, omitted or suffered to be done by any of the
Released Parties prior to and including the date hereof, and in any way
directly or indirectly arising out of or in any way connected to this
Agreement, the EW/FF Notes, the EW/FF Loan Agreement or any other EW/FF Loan
Document, or any of the transactions associated therewith, or the Collateral,
including specifically but not limited to claims of usury.

 

16.                                 This
Agreement may be executed in any
number of counterparts with the same effect as if all parties hereto had signed
the same document.  All such
counterparts shall be construed together and shall constitute one instrument,
but in making proof hereof it shall only be necessary to produce one such counterpart.

 

7

 

17.                                 If
any covenant, condition, or provision herein contained is held to be invalid by
final judgment of any court of competent jurisdiction, the invalidity of such
covenant, condition, or provision shall not in any way affect any other
covenant, condition or provision herein contained.

 

18.                                 It
is expressly agreed by the parties
hereto that time is of the essence with respect to this Agreement.

 

19.                                 The
parties acknowledge and confirm that
each of their respective attorneys have participated jointly in the review and
revision of this Agreement and that it has not been written solely by counsel
for one party.  The parties hereto
therefore stipulate and agree that the rule of construction to the effect that
any ambiguities are to or may be resolved against the drafting party shall not
be employed in the interpretation of this Agreement to favor either party
against the other.

 

20.                                 This
Agreement and the rights and duties of the parties hereunder shall be governed
for all purposes by the law of the State of Texas and the law of the United
States applicable to transactions within said State.

 

21.                                 The
terms and provisions hereof shall be
binding upon and inure to the benefit of the parties hereto, their heirs,
representatives, successors and assigns.

 

22.                                 The
EW/FF Loan Documents have been executed under, and shall be construed and
enforced in accordance with, the laws of the State of Texas, except as such
laws are preempted by federal law.  The
EW/FF Loan Documents are intended to be performed in accordance with, and only
to the extent permitted by, all applicable usury laws.  If any provision hereof or of any of the
EW/FF Loan Documents or the application thereof to any person or circumstance
shall, for any reason and to any extent, be invalid or unenforceable, neither
the application of such provision to any other person or circumstance nor the
remainder of the instrument in which such provision is contained shall be
affected thereby and shall be enforced to the greatest extent permitted by law.  It is expressly stipulated and agreed to be
the intent of Borrower and Lender to at all times comply with the usury and
other applicable laws now or hereafter governing the interest payable on the
EW/FF Loan.  If the applicable law is
ever revised, repealed or judicially interpreted so as to render usurious any
amount called for under the EW/FF Notes or under any of the other EW/FF Loan
Documents, or contracted for, charged, taken, reserved or received with respect
to the EW/FF Loan, or if Lender’s exercise of the option to accelerate the
maturity of the Loan, or if any prepayment of the EW/FF Loan results in the
payment of any interest in excess of that permitted by law, then it is the
express intent of Borrower and Lender that all excess amounts theretofore
collected by Lender be credited on the principal balance of the EW/FF Notes
(or, if the EW/FF Notes and all of such other indebtedness due under the EW/FF
Loan have been paid in full, refunded), and the provisions of the EW/FF Notes
and the other EW/FF Loan Documents immediately be deemed reformed and the
amounts thereafter collectable hereunder and thereunder reduced, without the
necessity of the execution of any new document, so as to comply with the then
applicable law, but so as to permit the recovery of the fullest amount
otherwise called for hereunder or thereunder. 
All sums paid, or agreed to be paid, for the use, forbearance,
detention, taking, charging, receiving or reserving on the EW/FF Loan shall, to
the extent permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full term of such EW/FF Loan until payment in full so
that the rate or amount of interest on account of such indebtedness does not
exceed the usury ceiling from time to time in effect and applicable thereto for
so long as debt is outstanding under the EW/FF Loan.  To the extent federal law permits Lender to contract for, charge
or receive a greater amount of interest, Lender will rely on federal law
instead of such article, as amended, for the purpose of determining the maximum
rate of interest.  Additionally, to the
extent permitted by applicable law now or hereafter in effect, Lender may, at
its option and from time to time, implement any other method of computing the
maximum rate of interest under such article, as amended, or under other
applicable law by giving notice, if required, to Borrower as provided by

 

8

 

applicable law now or hereafter in effect.  In no event shall the provisions of Chapter 346 of the Texas
Finance Code (which regulates certain revolving credit loan accounts and
revolving tri-party accounts) apply to the EW/FF Loan.  Notwithstanding anything to the contrary
contained herein or in any of the EW/FF Loan Documents, it is not the intention
of Lender to accelerate the maturity of any interest that has not accrued at
the time of such acceleration or to collect unearned interest at the time of
such acceleration.

 

23.                                 Borrower,
Corporate Guarantors, Individual Guarantors
and Lender hereby take notice of and agree to the following:

 

A.                                   PURSUANT
TO SUBSECTION 26.02(b) OF THE TEXAS BUSINESS AND COMMERCE CODE, A CREDIT
AGREEMENT IN WHICH THE AMOUNT INVOLVED THEREIN EXCEEDS $50,000 IN VALUE IS NOT
ENFORCEABLE UNLESS THE AGREEMENT IS IN WRITING AND SIGNED BY THE PARTY TO BE
BOUND OR BY THAT PARTY’S AUTHORIZED REPRESENTATIVE.

 

B.                                     PURSUANT
TO SUBSECTION 26.02(c) OF THE TEXAS BUSINESS AND COMMERCE CODE, THE RIGHTS
AND OBLIGATIONS OF THE PARTIES TO THE LOAN DOCUMENTS SHALL BE DETERMINED SOLELY
FROM THE LOAN DOCUMENTS, AND ANY PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES ARE
SUPERSEDED BY AND MERGED INTO THE LOAN DOCUMENTS.

 

C.                                     THE
NOTE, THE LOAN AGREEMENT, THE SECURITY AGREEMENT, AND THE OTHER LOAN DOCUMENTS,
EACH AS AMENDED HEREBY, AND THIS AGREEMENT REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES
THERETO.  THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

 

24.                                 WAIVER OF JURY TRIAL.  THE PARTIES HERETO EACH ACKNOWLEDGE THAT THE RIGHT TO
TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED.  EACH PARTY HERETO, AFTER CONSULTING OR
HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR CHOICE, KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT ANY OF THEM MAY HAVE TO A
TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF ANY LOAN DOCUMENT
OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS OR ANY COURSE OF
CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTION OF ANY OF
THEM.  THESE PROVISIONS SHALL NOT BE
DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY ANY PARTY
HERETO, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM.

 

25.                                 Subordination.  In accordance with the terms of the
Intercreditor Agreement, Lender’s liens and security interests in the
Collateral are subordinate to CIT’s liens and security interests in the
Collateral.  The Intercreditor Agreement
contains other agreements between Lender and CIT concerning each party’s rights
and priorities as such rights and priorities relate to the Collateral.

 

[End of
Page; Signatures to Follow on Next Page] 

 

9

 

Executed by Borrower, Corporate Guarantors, Individual
Guarantors and Lender on the dates of their respective acknowledgements, but to
be effective as of the date first set forth above.

 

 

	
  BORROWER:

  	
   

  	
  INDIVIDUAL GUARANTORS:

  
	
   

  	
   

  	
   

  
	
  EDDINS-WALCHER COMPANY,

  	
   

  	
  By:

  	
  /s/
  Richard C. Skillern

  	
   

  
	
  a Texas corporation

  	
   

  	
  Richard
  C. Skillern

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Scott Heller

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Scott
  Heller

  	
   

  	
   

  	
  By:

  	
  /s/
  Thomas E. Kelly

  	
   

  
	
  Title:

  	
  President
  COO

  	
   

  	
   

  	
  Thomas E. Kelly

  
	
   

  	
   

  	
   

  
	
  CORPORATE GUARANTORS:

  	
   

  	
  By:

  	
  /s/
  Glenda Kelly

  	
   

  
	
   

  	
   

  	
  Glenda Kelly

  
	
  CAP ROCK ENERGY CORPORATION,

  	
   

  	
   

  
	
  a
  Texas corporation

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  David W. Pruitt

  	
   

  	
   

  	
   

  
	
  Name:

  	
  David
  W. Pruitt

  	
   

  	
   

  	
   

  
	
  Title:

  	
  President/CEO

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  UNITED FUEL & ENERGY CORPORATION,

  	
   

  	
   

  
	
  a
  Texas corporation

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Scott Heller

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Scott
  Heller

  	
   

  	
   

  	
   

  
	
  Title:

  	
  President
  COO

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  LENDER:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  WASHINGTON MUTUAL BANK, FA,

  	
   

  	
   

  
	
  a federal association

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Gardner W. Cannon

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Gardner
  W. Cannon

  	
   

  	
   

  	
   

  
	
  Title:

  	
  First
  Vice President

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  When Recorded Return To:

  	
   

  	
   

  
	
  THOMPSON & KNIGHT LLP

  	
   

  	
   

  
	
  333 Clay, Suite 3300

  	
   

  	
   

  
	
  Houston, Texas 77002

  	
   

  	
   

  
	
  Attn: Tami Huntley

  	
   

  	
   

  
									

 

10

 

	
  THE STATE OF TEXAS

  	
  §

  	
   

  
	
   

  	
  §

  	
   

  
	
  COUNTY OF Midland

  	
  §

  	
   

  

 

This instrument was
acknowledged before me on October, 9, 2003 by Scott Heller, the President of
EDDINS-WALCHER COMPANY, a Texas corporation, on behalf of said corporation.

 

 

	
   

  	
  /s/ China J. Hughes

  	
   

  
	
   

  	
  Notary Public, State of Texas

  

 

	
  THE STATE OF TEXAS

  	
  §

  	
   

  
	
   

  	
  §

  	
   

  
	
  COUNTY OF Midland

  	
  §

  	
   

  

 

This instrument was
acknowledged before me on October 9, 2003 by David W. Pruitt, the
President of CAP ROCK ENERGY CORPORATION, a Texas corporation, on behalf of
said corporation.

 

 

	
  [SEAL]

  	
  /s/ Renee Diane Rister

  	
   

  
	
   

  	
  Notary Public, State of Texas

  

 

 

	
  THE STATE OF TEXAS

  	
  §

  	
   

  
	
   

  	
  §

  	
   

  
	
  COUNTY OF Midland

  	
  §

  	
   

  

 

This instrument was
acknowledged before me on October 9, 2003 by Scott Heller, the President of
UNITED FUEL & ENERGY CORPORATION, a Texas corporation, on behalf of said
corporation.

 

	
   

  	
  /s/ China J. Hughes

  	
   

  
	
   

  	
  Notary Public, State of Texas

  

 

	
  THE STATE OF TEXAS

  	
  §

  	
   

  
	
   

  	
  §

  	
   

  
	
  COUNTY OF Ector

  	
  §

  	
   

  

 

This instrument was
acknowledged before me on October 9, 2003 by RICHARD C. SKILLERN.

 

 

	
   

  	
  /s/ Beth Corrales

  	
   

  
	
   

  	
  Notary Public, State of Texas

  

 

11

 

	
  THE STATE OF TEXAS

  	
  §

  	
   

  
	
   

  	
  §

  	
   

  
	
  COUNTY OF Midland

  	
  §

  	
   

  

 

This instrument was
acknowledged before me on October 9, 2003 by THOMAS E. KELLY.

 

 

	
   

  	
  /s/ China J. Hughes

  	
   

  
	
   

  	
  Notary Public, State of Texas

  

 

 

	
  THE STATE OF TEXAS

  	
  §

  	
   

  
	
   

  	
  §

  	
   

  
	
  COUNTY OF Midland

  	
  §

  	
   

  

 

This instrument was
acknowledged before me on October 9, 2003 by GLENDA KELLY.

 

 

	
   

  	
  /s/ China J. Hughes

  	
   

  
	
   

  	
  Notary Public, State of Texas

  

 

 

	
  THE STATE OF TEXAS

  	
  §

  	
   

  
	
   

  	
  §

  	
   

  
	
  COUNTY OF HARRIS

  	
  §

  	
   

  

 

 

This instrument was
acknowledged before me on October 10, 2003, by Gardner W. Cannon, First Vice
President of WASHINGTON MUTUAL BANK, FA, a federal association.

 

	
   

  	
  /s/ Tamarra S. Huntley

  	
   

  
	
   

  	
  Notary Public, State of Texas

  

 

12

 

Exhibit A

 

Schedule of
Deed of Trust Recordings

 

1.               Eddins-Walcher
Company Deed of Trust filed on July 14, 2000 under Clerk’s File No.
00-2237; recorded on July 17, 2000, in Volume 754, Page 804, Official
Public Records, Andrews County, Texas.

 

2.               Frank’s Fuels, Inc.
Deed of Trust filed on July 14, 2000 under Clerk’s File No. 00-2243;
recorded on July 17, 2000, in Volume 754, Page 837, Official Public Records,
Andrews County, Texas.

 

3.               Eddins-Walcher
Company Deed of Trust filed on July 14, 2000 in Volume 417, Page 685,
Official Public Records, Crane County, Texas.

 

4.               Frank’s Fuels, Inc.
Deed of Trust filed on July 14, 2000 in Volume 417, Page 717, Official
Public Records, Crane County, Texas.

 

5.               Frank’s Fuels, Inc.
Deed of Trust filed on July 17, 2000 under Clerk’s File No. 132292,
recorded on July 21, 2000 in Volume 584, Page 709, Official Public
Records, Crockett County, Texas.

 

6.               Eddins-Walcher
Company Deed of Trust filed on July 14, 2000 in Volume 1539, Page 369,
Official Public Records, Ector County, Texas.

 

7.               Frank’s Fuels, Inc.
Deed of Trust filed on July 14, 2000 in Volume 1539, Page 331, Official
Public Records, Ector County, Texas.

 

8.               Eddins-Walcher
Company Deed of Trust filed on July 14, 2000 in Volume 706, Page 140,
Official Public Records, Gaines County, Texas.

 

9.               Eddins-Walcher
Company Deed of Trust filed on July 17, 2000 under Clerk’s File No.
00-2968, recorded on July 18, 2000, in Volume 659, Page 123, Official
Public Records, Hockley County, Texas.

 

10.         Eddins-Walcher Company
Deed of Trust filed on July 26, 2000 under Clerk’s File No. 3924, recorded
on July 27, 2000, in Volume 808, Page 422-445, Official Public Records,
Howard County, Texas.

 

11.         Eddins-Walcher Company
Deed of Trust filed on August 29, 2000 in Volume 334, Page 45, Official
Public Records, Lynn County, Texas.

 

12.         Eddins-Walcher Company
Deed of Trust filed on July 17, 2000 in Volume 6749, Page 1, Official
Public Records, Lubbock County, Texas.

 

13.         Eddins-Walcher Company
Deed of Trust filed on July 14, 2000 in Volume 1792, Page 239, Official
Public Records, Midland County, Texas.

 

14.         Frank’s Fuels, Inc. Deed
of Trust filed on July 14, 2000 in Volume 1792, Page 275, Official Public
Records, Midland County, Texas.

 

15.         Eddins-Walcher Company
Deed of Trust filed on July 27, 2000 in Volume 306, Page 51, Deed of Trust
Records, Pecos County, Texas.

 

13

 

16.         Frank’s Fuels, Inc. Deed
of Trust filed on September 20, 2000 under Clerk’s No. 67349, recorded on
September 21, 2000 in Volume 307, Page 1, Deed of Trust Records, Pecos
County, Texas.

 

17.         Eddins-Walcher Company
Deed of Trust filed on July 18, 2000 in Volume 463, Page 308, Official
Public Records, Scurry County, Texas.

 

18.         Eddins-Walcher Company
Deed of Trust filed on July 14, 2000 in Volume 652, Page 395, Official
Public Records, Terry County, Texas.

 

19.         Eddins-Walcher Company
Deed of Trust filed on July 14, 2000 in Document No. 0125433, Volume 692,
Page 801, Official Public Records, Upton County, Texas.

 

20.         Eddins-Walcher Company
Deed of Trust filed on July 18, 2000 in Document No. 0182041, Volume 748,
Page 403, Official Public Records, Val Verde County, Texas.

 

21.         Eddins-Walcher Company
Deed of Trust filed on July 24, 2000 under Clerk’s File No. 1928, recorded
on July 25, 2000, in Volume 696, Page 233, Official Public Records, Ward
County, Texas.

 

22.         Frank’s Fuels, Inc. Deed
of Trust filed on August 14, 2000 under Clerk’s File No. 2115, recorded on
August 15, 2000, in Volume 697, Page 254, Official Public Records, Ward
County, Texas.

 

23.         Frank’s Fuels, Inc. Deed
of Trust filed on August 14, 2000 under Clerk’s File No. 2117, recorded on
August 15, 2000, in Volume 697, Page 279, Official Public Records, Ward
County, Texas.

 

24.         Eddins-Walcher Company
Deed of Trust filed on July 14, 2000, in Volume 472, Page 749, Official
Public Records, Winkler County, Texas.

 

25.         Eddins-Walcher Company
Deed of Trust filed on July 14, 2000, in Volume 210, Page 832, Official
Public Records, Yoakum County, Texas.

 

26.         Eddins-Walcher Company
Deed of Trust filed on July 20, 2000, under File No. 61349, Book 1028,
Page 23, Lea County Records, New Mexico.

 

14

 

UNCONDITIONAL
GUARANTY

 

THIS UNCONDITIONAL GUARANTY (“Guaranty”) is
made effective October 1, 2003, by CAP ROCK ENERGY CORPORATION, a Texas
corporation (“Corporate Guarantor”) for the benefit of WASHINGTON MUTUAL BANK,
FA, a federal association (“Bank”).

 

1.                                       Definitions.
As used in this Guaranty, the following terms shall have the meanings indicated
below:

 

a.                                       The
term “Bank” shall mean WASHINGTON MUTUAL BANK, FA, a federal association.

 

b.                                      The
term “Borrower” shall mean EDDINS-WALCHER COMPANY, a Texas Corporation.

 

c.                                       The
term “Corporate Guarantor” shall mean and refer to CAP ROCK ENERGY CORPORATION,
a Texas corporation.

 

d.                                      The
term “Guaranteed Indebtedness” shall mean (i) all indebtedness, obligations and
liabilities of Borrower to Bank of any kind or character now existing or
hereafter arising, whether direct, indirect, related, unrelated, fixed,
contingent, liquidated, unliquidated, joint, several or joint and several, and
regardless of whether such indebtedness, obligations and liabilities may, prior
to their acquisition by Bank, be or have been payable to or in favor of a third
party and subsequently acquired by Bank (it being contemplated that Bank may
make such acquisitions from third parties), arising from those certain
promissory notes dated July 12, 2000 in the aggregate principal amount of
$15,000,000.00 from Borrower and Frank’s Fuels, Inc. originally payable to the
order of New West Resources, Inc., (the “Original Promissory Notes”) as
assigned, modified and endorsed over to Bank, and including without limitation
all indebtedness, obligations and liabilities of Borrower to Bank now existing
or hereafter arising by note, draft, acceptance, guaranty, endorsement, letter
of credit, assignment, purchase, overdraft, discount, indemnity agreement or
otherwise with regard to the Original Promissory Notes, (ii) all accrued but
unpaid interest on any of the indebtedness described in (i) above; (iii) all
obligations of Borrower to Bank under any documents evidencing, securing,
governing and/or pertaining to all or any part of the indebtedness described in
(i) and (ii) above, (iv) all costs and expenses incurred by Bank in connection
with the collection and administration of all or any part of the indebtedness
and obligations described in (i), (ii) and (iii) above or the protection or
preservation of, or realization upon, the collateral securing all or any part
of such indebtedness and obligations, including without limitation all
reasonable attorneys’ fees, and (v) all renewals, extensions, modifications and
rearrangements of the indebtedness and obligations described in (i), (ii),
(iii) and (iv) above.

 

2.                                       Obligations.
As an inducement to Bank to extend or continue to extend credit and other
financial accommodations to Borrower, Corporate Guarantor, for value received,
does hereby unconditionally and absolutely guarantee the prompt and full
payment and performance of the Guaranteed Indebtedness when due or declared to
be due and at all times thereafter. The liability

 

 

of Corporate Guarantor hereunder shall be limited to the maximum amount
of liability that can be incurred without rendering the obligations of
Corporate Guarantor hereunder voidable under applicable laws relating to
fraudulent conveyance or fraudulent transfer, and not for a greater amount.

 

3.                                       Character
of Obligations. This is an absolute, continuing and unconditional Guaranty
of payment and not of collection,
provided however that if at any time or from time to time there is no
outstanding Guaranteed Indebtedness, the obligations of the Corporate Guarantor
with respect to any and all Guaranteed Indebtedness of Borrower to Bank shall
terminate. All Guaranteed Indebtedness heretofore, concurrently herewith or
hereafter made by Bank to Borrower shall be conclusively presumed to have been made
or acquired in acceptance hereof. Corporate Guarantor shall be primarily
liable, jointly and severally, with Borrower and any other guarantor of all or
any part of the Guaranteed Indebtedness.

 

4.                                       Representations
and Warranties. Corporate Guarantor hereby represents and warrants the
following to Bank:

 

a.                                       This
Guaranty may reasonably be expected to benefit, directly or indirectly,
Corporate Guarantor;

 

b.                                      Corporate
Guarantor is familiar with, and has independently reviewed the books and
records regarding the financial condition of Borrower and is familiar with the
value of any and all collateral intended to be security for the payment of all
or any part of the Guaranteed Indebtedness; provided, however, Corporate
Guarantor is not relying on such financial condition or collateral as an
inducement to enter into this Guaranty;

 

c.                                       Corporate
Guarantor has adequate means to obtain from Borrower on a continuing basis
information concerning the financial condition of Borrower and Corporate
Guarantor is not relying on Bank to provide such information to Corporate
Guarantor either now or in the future;

 

d.                                      Corporate
Guarantor has the power and authority to execute, deliver and perform this
Guaranty and any other agreements executed by Corporate Guarantor contemporaneously
herewith, and the execution, delivery and performance of this Guaranty and any
other agreements executed by Corporate Guarantor contemporaneously herewith
does not and will not violate, (i) any agreement or instrument to which
Corporate Guarantor is a party or (ii) any law, rule, ration or order of any
governmental authority to which Corporate Guarantor is subject;

 

e.                                       Neither
Bank nor any other party has made any representation, warranty or statement to
Corporate Guarantor in order to induce Corporate Guarantor to execute this
Guaranty;

 

f.                                         The
financial statements and other financial information regarding Corporate
Guarantor heretofore and hereafter delivered to Bank are and shall be true and
correct in all material respects and fairly present the financial position of
Corporate Guarantor as of the dates thereof, and no material adverse change has
occurred in the financial condition of Corporate

 

2

 

Guarantor reflected in the financial statements and other financial
information regarding Corporate Guarantor heretofore delivered to Bank since
the date of the last statement thereof; and

 

g.                                      As
of the date hereof, and after giving effect to this Guaranty and the
obligations evidenced hereby, (i) Corporate Guarantor is and will be solvent,
(ii) the fair saleable value of Corporate Guarantor’s assets exceeds and will
continue to exceed Corporate Guarantor’s liabilities (both fixed and
contingent), (iii) Corporate Guarantor is and will continue to be able to pay
Corporate Guarantor’s debts as they mature, and (iv) Corporate Guarantor has
and will continue to have sufficient capital to carry on its business and all
businesses in which it is about to engage.

 

5.                                       Covenants.
Corporate Guarantor hereby covenants and agrees with Bank as follows:

 

a.                                       Corporate
Guarantor shall not, so long as Corporate Guarantor’s obligations under this
Guaranty continue, transfer or pledge any material portion of Corporate
Guarantor’s assets for less than full and adequate consideration;

 

b.                                      Corporate
Guarantor shall promptly furnish to Bank at any time and from time to time such
financial statements and other financial information of Corporate Guarantor as
the Bank may require, in form and substance satisfactory to Bank;

 

c.                                       Corporate
Guarantor shall comply with all terms and provisions of the instruments and
agreements evidencing, governing and securing all or any part of the Guaranteed
Indebtedness that apply to Corporate Guarantor; and

 

d.                                      Corporate
Guarantor shall promptly inform Bank of (i) any litigation or governmental
investigation against Corporate Guarantor or affecting any security for all or
any part of the Guaranteed Indebtedness or this Guaranty which, if determined
adversely, might have a material adverse effect upon the financial condition of
Corporate Guarantor or upon such security or might cause a default under any of
the instruments or agreements evidencing, governing or securing all or any part
of the Guaranteed Indebtedness, (ii) any claim or controversy which might
become the subject of such litigation or governmental investigation, and (iii)
any material adverse change in the financial condition of Corporate Guarantor.

 

6.                                       Consent
and Waiver.

 

a.                                       Corporate
Guarantor waives (i) promptness, diligence and notice of acceptance of this
Guaranty and notice of the incurring of any obligation, indebtedness or
liability to which this Guaranty applies or may apply and waives presentment
for payment, notice of nonpayment, protest, demand, notice of protest, notice
of intent to accelerate, notice of acceleration, notice of dishonor, diligence
in enforcement and indulgences of every kind, and (ii) the taking of any other
action of Bank, any other notice to, or making any demand on, Borrower or any
other guarantor of all or any part of the Guaranteed Indebtedness or any other
party.

 

3

 

b.                                      Corporate
Guarantor waives any rights Corporate Guarantor has under, or any requirements
imposed by Chapter 34 of the Texas Business and Commerce Code, as in effect on
the date of this Guaranty or as it may be amended from time to time, but solely
as such rights apply to Bank. Corporate Guarantor waives no rights as may exist
between Corporate Guarantor and Borrower and other guarantors.

 

c.                                       Bank
may at any time, without the consent of or notice to Corporate Guarantor,
without incurring responsibility to Corporate Guarantor and without impairing,
releasing, reducing or affecting the obligations of Corporate Guarantor
hereunder: (i) change the manner, place or terms of payment of all or any part
of the Guaranteed Indebtedness, or renew, extend, modify, rearrange or alter
all or any part of the Guaranteed Indebtedness; (ii) sell, exchange, release,
surrender, subordinate, realize upon or otherwise deal with in any manner and
in any order any collateral for all or any part of the Guaranteed Indebtedness
or this Guaranty or setoff against all or any part of the Guaranteed
Indebtedness; (iii) neglect, delay, omit, fail or refuse to take or prosecute any
action for the collection of all or any part of the Guaranteed Indebtedness or
this Guaranty or to take or prosecute any action in connection with any
instrument or agreement evidencing, governing or securing all or any part of
the Guaranteed Indebtedness or this Guaranty; (iv) exercise or refrain from
exercising any rights against Borrower or others, or otherwise act or refrain
from acting; (v) settle or compromise all or any part of the Guaranteed
Indebtedness and subordinate the payment of all or any part of the Guaranteed
Indebtedness to the payment of any obligations, indebtedness or liabilities
which may be due or become due to Bank or others; (vi) apply any deposit
balance, fund, payment, collections through process of law or otherwise or
other collateral of Borrower to the satisfaction and liquidation of the
indebtedness or obligations of Borrower to Bank not guaranteed under this
Guaranty pursuant to paragraph 4 herein; and (vii) apply any sums paid to Bank
by Corporate Guarantor, Borrower, or others to the Guaranteed Indebtedness in
such order and manner as Bank, in its sole discretion, may determine.

 

d.                                      Notwithstanding
any provision in this Guaranty to the contrary, Corporate Guarantor hereby
waives and releases (i) any and all rights of subrogation, reimbursement,
indemnification or contribution which Corporate Guarantor may have, before
payment in full of the Guaranteed Indebtedness, against others liable on all or
any part of the Guaranteed Indebtedness, (ii) any and all rights to be
subrogated to the rights of Bank in any collateral or security for all or any
part of the Guaranteed Indebtedness before payment in full of the Guaranteed
Indebtedness, and (iii) any and all other rights and claims of such Corporate
Guarantor against Borrower or any third party as a result of such Corporate
Guarantor’s payment, before payment in full of the Guaranteed Indebtedness.

 

e.                                       Should
Bank seek to enforce the obligations of Corporate Guarantor hereunder by action
in any court or otherwise, Corporate Guarantor waives any requirement,
substantive or procedural, that (i) Bank first enforce any rights or remedies
against Borrower, or any other person or entity liable to Bank for all or any
part of the Guaranteed Indebtedness, including without limitation that a judgment
first be rendered against Borrower or any other person or entity, or that
Borrower or any other person or entity should be joined in such cause, or (ii)
Bank shall first enforce rights against any collateral which shall ever have
been given to secure all or any part of the Guaranteed Indebtedness or this
Guaranty. Such waiver shall be without prejudice

 

4

 

to Bank’s right, at its option, to proceed against Borrower or any
other person or entity, whether by separate action or by joinder.

 

f.                                         In
addition to any other waivers, agreements and covenants of Corporate Guarantor
set forth herein, Corporate Guarantor hereby further waives and releases all
claims, causes of action, defenses and offsets for any act or omission of Bank,
its directors, officers, employees, representatives or agents in connection
with Bank’s administration of the Guaranteed Indebtedness, except for Bank’s
willful misconduct and gross negligence.

 

7.                                       Obligations
Not Impaired.

 

a.                                       Corporate
Guarantor agrees that Corporate Guarantor’s obligations hereunder shall not be
released, diminished, impaired, reduced or affected by the occurrence of any
one or more of the following events: (i) the lack of corporate power of
Borrower or any other guarantor of all or any part of the Guaranteed
Indebtedness, (ii) any receivership, insolvency, bankruptcy or other
proceedings affecting Borrower or any other guarantor of all or any part of the
Guaranteed Indebtedness, or any of their respective property; (iii) the partial
or total release or discharge of Borrower or any other guarantor of all or any
part of the Guaranteed Indebtedness, or any other person or entity from the
performance of any obligation contained in any instrument or agreement
evidencing, governing or securing all or any part of the Guaranteed
Indebtedness, whether occurring by reason of law or otherwise; (iv) the taking
or accepting of any collateral for all or any part of the Guaranteed
Indebtedness or this Guaranty; (v) the taking or accepting of any other
guaranty for all or any part of the Guaranteed Indebtedness; (vi) any failure
by Bank to acquire, perfect or continue any lien or security interest on
collateral securing all or any part of the Guaranteed Indebtedness or this
Guaranty; (vii) the impairment of any collateral securing all or any part of
the Guaranteed Indebtedness or this Guaranty; (viii) any failure by Bank to
sell any collateral securing all or any part of the Guaranteed Indebtedness or
this Guaranty in a commercially reasonable manner or as otherwise required by
law; (ix) any invalidity or unenforceability of or defect or deficiency in any
instrument or agreement evidencing, governing or securing all or any part of
the Guaranteed Indebtedness or this Guaranty; or (x) any other circumstances
which might otherwise constitute a defense available to, or discharge of,
Borrower, Corporate Guarantor or any other guarantor of all or any part of the
Guaranteed Indebtedness, other than payment of the Guaranteed Indebtedness.

 

b.                                      This
Guaranty shall continue to be effective or be reinstated, as the case may be,
if at any time any payment of all or any part of the Guaranteed Indebtedness is
rescinded or must otherwise be returned by Bank upon the insolvency, bankruptcy
or reorganization of Borrower, Corporate Guarantor or any other guarantor of
all or any part of the Guaranteed Indebtedness, or otherwise, all as though
such payment had not been made.

 

c.                                       None
of the following shall affect Corporate Guarantor’s liability hereunder: (i) the
unenforceability of all or any part of the Guaranteed Indebtedness against
Borrower by reason of the fact that the Guaranteed Indebtedness exceeds the
amount permitted by law; (ii) the act of creating all or any part of the
Guaranteed Indebtedness is ultra vires; or (iii) the officers or partners
creating all or any part of the Guaranteed Indebtedness acted in excess of
their authority. Corporate Guarantor hereby acknowledges that withdrawal from,
or termination of, any

 

5

 

ownership interest in Borrower now or hereafter owned or held by
Corporate Guarantor shall not alter, affect or in any way limit the obligations
of Corporate Guarantor hereunder.

 

8.                                       Actions
against Corporate Guarantor. In the event of a default in the payment or
performance of all or any part of the Guaranteed Indebtedness when such
Guaranteed Indebtedness becomes due, whether by its terms, by acceleration or
otherwise, or in the event of death or incompetency of Thomas E. Kelly, or the
bankruptcy, dissolution or insolvency of Borrower, Corporate Guarantor, or any
other guarantor, or upon an assignment by Borrower, Corporate Guarantor, or any
guarantor for the benefit of creditors, then and in any such event Corporate
Guarantor shall immediately, without notice or demand, promptly pay the amount
due thereon to Bank, in lawful money of the United States, at Bank’s address.
One or more successive or concurrent actions may be brought against Corporate
Guarantor, either in the same action in which Borrower is sued or in separate
actions, as often as Bank deems advisable. The exercise by Bank of any right or
remedy under this Guaranty or under any other agreement or instrument, at law,
in equity or otherwise, shall not preclude concurrent or subsequent exercise of
any other right or remedy. The books and records of Bank shall be admissible in
evidence in any action or proceeding involving this Guaranty and shall be prima
facie evidence of the payments made on, and the outstanding balance of, the
Guaranteed Indebtedness.

 

9.                                       Payment
by Corporate Guarantor. Whenever Corporate Guarantor pays any sum which is
or may become due under this Guaranty, written notice must be delivered to Bank
contemporaneously with such payment. Such notice shall be effective for
purposes of this paragraph when contemporaneously with such payment Bank
receives such notice either by: (a) personal delivery to the address and
designated department of Bank, or (b) United States mail, certified or
registered, return receipt requested, postage prepaid, addressed to Bank. In
the absence of such notice to Bank by Corporate Guarantor in compliance with
the provisions hereof, any sum received by Bank on account of the Guaranteed
Indebtedness shall be conclusively deemed paid by Borrower.

 

10.                                 Notice
of Sale. In the event that Corporate Guarantor is entitled to receive any
notice under the Uniform Commercial Code, as it exists in the state governing
any such notice, of the sale or other disposition of any collateral securing
all or any part of the Guaranteed Indebtedness or this Guaranty, reasonable
notice shall be deemed given when such notice is deposited in the United States
mail, postage prepaid, at the address for Corporate Guarantor, five (5) days
prior to the date any public sale, or after which any private sale, if any such
collateral is to be held; provided, however, that notice given in any other
reasonable manner or at any other reasonable time shall be sufficient.

 

11.                                 Waiver
of Bank. No delay on the part of Bank in exercising any right hereunder or
failure to exercise the same shall operate as a waiver of such right. In no
event shall any waiver of the provisions of this Guaranty be effective unless
the same be in writing and signed by an officer of Bank, and then only in the
specific instance and for the purpose given.

 

12.                                 Successors
and Assigns. This Guaranty is for the benefit of Bank, its successors and
assigns, including, without limitation, any assignee or participant. This
Guaranty is binding upon Corporate Guarantor’s successors and assigns,
including without limitation any person or entity

 

6

 

obligated by operation of law upon the reorganization, merger,
consolidation or other change in the organizational structure of Corporate
Guarantor.

 

13.                                 Costs
and Expenses. Corporate Guarantor shall pay on demand by Bank all costs and
expenses (including without limitation all reasonable attorneys’ fees) incurred
by Bank in connection with the preparation, administration, enforcement and/or
collection of this Guaranty. This covenant shall survive the payment of the
Guaranteed Indebtedness.

 

14.                                 Severability.
If any provision of this Guaranty is held by a court of competent jurisdiction
to be illegal, invalid or enforceable under present or future laws, such
provision shall be fully severable, shall not impair or invalidate the
remainder of this Guaranty and the effect thereof shall be confined to the
provision held to be illegal, invalid or unenforceable.

 

15.                                 No
Obligation. Nothing contained herein shall be construed as an obligation on
the part of Bank to extend or continue to extend credit to Borrower.

 

16.                                 Amendment.
No modification or amendment of any provision of this Guaranty, nor consent to
any departure by Corporate Guarantor therefrom, shall be effective unless the
same shall be in writing and signed by an officer of Bank, and then shall be
effective only in the specific instance and for the purpose for which given.

 

17.                                 Cumulative
Rights. All rights and remedies of Bank hereunder are cumulative of each
other and of every other right or remedy which Bank may otherwise have, at law
or in equity or under any instrument or agreement, and the exercise of one or
more of such rights or remedies shall not prejudice or impair the concurrent or
subsequent exercise of any other rights or remedies.

 

18.                                 Governing
Law. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL LAWS.

 

19.                                 Venue.
This Guaranty has been entered into in Harris County, Texas, and it shall be
performable for all purposes in such county. Courts within the State of Texas
shall have jurisdiction over any and all disputes arising under or pertaining
to this Guaranty and venue for any such disputes shall be Harris County, Texas.

 

20.                                 Compliance
with Applicable Usury Laws. Notwithstanding any other provision of this
Guaranty or of any instrument or agreement evidencing, governing or securing
all or any part of the Guaranteed Indebtedness, Corporate Guarantor and Bank by
its acceptance hereof agree that Corporate Guarantor shall never be required or
obligated to pay interest in excess of the maximum nonusurious interest rate as
may be authorized by applicable law for the written contracts which constitute
the Guaranteed Indebtedness. It is the intention of Corporate Guarantor and
Bank to conform strictly to the applicable laws which limit interest rates, and
any of the aforesaid contracts for interest, if and to the extent payable by
Corporate Guarantor, shall be held to be subject to reduction to the maximum
nonusurious interest rate allowed under said law.

 

7

 

21.                                 Descriptive
Headings. The captions in this Guaranty are for convenience only and shall
not define or limit the provisions hereof.

 

22.                                 Gender.
Within this Guaranty, words of any gender shall be held and construed to
include the other gender.

 

23.                                 Notice.
For purposes of notice under this Guaranty, the addresses of the parties is as
follows:

 

Cap Rock Energy
Corporation

500 West Wall, Suite 400

Midland, Texas 79701

 

Washington Mutual Bank,
FA

3200 Southwest Freeway,
Suite 1700

Houston, Texas 77027

 

24.                                 Security.  The
undersigned agrees that no security now or later held by the Bank for the
payment of any Guaranteed Indebtedness or this Guaranty, whether from the
Borrower, Corporate Guarantor or any guarantor, or otherwise, and whether in
the nature of a security interest, pledge, lien, assignment, setoff,
suretyship, guaranty, indemnity, insurance or otherwise, shall affect in any
manner the unconditional obligation of the undersigned under this Guaranty, and
the Bank, in its sole discretion, without notice to the undersigned, may
release, exchange, enforce and otherwise deal with any security without affecting
in any manner the unconditional obligation of the undersigned under this
Guaranty.  The undersigned acknowledges
and agrees that the Bank has no obligation to acquire or perfect any lien on or
security interest in any assets, whether realty or personalty, to secure
payment of the Guaranteed Indebtedness or this Guaranty, and the undersigned is
not relying upon any assets in which the Bank has or may have a lien or
security interest for payment of the Guaranteed Indebtedness or this Guaranty.

 

25.                                 Entire
Agreement. This Guaranty contains the entire agreement between Corporate
Guarantor and Bank regarding the subject matter hereof and supersedes all prior
written and oral agreements and understandings, if any, regarding same,
including that certain Unconditional Guaranty dated July 12, 2000 by Cap Rock Electric Cooperative, Inc., to
which Cap Rock Energy Corporation, a
Texas corporation, is successor-in-interest, in favor of Bank United Texas FSB.

 

EXECUTED to be effective
as of October 1, 2003.

 

	
  CAP ROCK ENERGY CORPORATION,

  	
   

  
	
  a
  Texas corporation

  	
   

  
	
   

  	
   

  
	
   

  
	
  By:

  	
  /s/
  David W. Pruitt

  	
   

  
	
  Name:

  	
   

  	
  David W. Pruitt

  	
   

  
	
  Title:

  	
   

  	
  President

  	
   

  
							

 

8

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