-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WVKk0EvqJhJwHhm3GJi9pPBWvkXLhpJzfyhPj1yExM74FPk2ysbOcOGuAqUg8mX0 a1V4gKGK/P11wGWOKAaXZQ== 0001104659-05-000771.txt : 20050107 0001104659-05-000771.hdr.sgml : 20050107 20050107150802 ACCESSION NUMBER: 0001104659-05-000771 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20050107 DATE AS OF CHANGE: 20050107 GROUP MEMBERS: CAP ROCK ENERGY CORPORATION SHAREHOLDERS' TRUST GROUP MEMBERS: ROBERT G. HOLMAN FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SCHWARTZ ALFRED J CENTRAL INDEX KEY: 0001196543 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 2765 FM 3093 CITY: GARDEN CITY STATE: TX ZIP: 79739 BUSINESS PHONE: 9156835422 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CAP ROCK ENERGY CORP CENTRAL INDEX KEY: 0001129162 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 752794300 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-78508 FILM NUMBER: 05518104 BUSINESS ADDRESS: STREET 1: 500 WEST WALL STREET SUITE 400 CITY: MIDLAND STATE: TX ZIP: 79701 BUSINESS PHONE: 2142373223 MAIL ADDRESS: STREET 1: 500 WEST WALL STREET SUITE 400 CITY: MIDLAND STATE: TX ZIP: 79701 SC 13D/A 1 a05-1213_1sc13da.htm SC 13D/A

	UNITED STATES
	SECURITIES AND EXCHANGE COMMISSION
	Washington, D.C. 20549

	SCHEDULE 13D

(Rule 13d-101)

Under the Securities Exchange Act of 1934
(Amendment No. 1 )*

Cap Rock Energy Corporation

(Name of Issuer)

Common Stock, par value $.01 per share

(Title of Class of Securities)

13910R 10 2

(CUSIP Number)

Ronald W. Lyon

Cap Rock Energy Corporation Shareholders’ Trust

115 S. Travis Street

Sherman, Texas 75090

(903)813-0377

(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)

December 31, 2004

(Date of Event which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. o

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See §240.13d-7 for other parties to whom copies are to be sent.

^* The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

CUSIP No. 13910R 10 2

	1.	Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only) Cap Rock Energy Corporation Shareholders’ Trust

	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			o

	3.	SEC Use Only

	4.	Source of Funds (See Instructions) N/A

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) o

	6.	Citizenship or Place of Organization Texas

Number of Shares Beneficially Owned by Each Reporting Person With			7.	Sole Voting Power 0

			8.	Shared Voting Power 325,223

			9.	Sole Dispositive Power 0

			10.	Shared Dispositive Power 325,223

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person 325,223

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) o

	13.	Percent of Class Represented by Amount in Row (11) 20.2%*

	14.	Type of Reporting Person (See Instructions) OO

* The percent is calculated pursuant to Section 13(d)(4) of the Securities Exchange Act.

	1.	Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only) Alfred J. Schwartz

	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			o

	3.	SEC Use Only

	4.	Source of Funds (See Instructions) SC

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) o

	6.	Citizenship or Place of Organization USA

Number of Shares Beneficially Owned by Each Reporting Person With			7.	Sole Voting Power 18,191

			8.	Shared Voting Power 325,223

			9.	Sole Dispositive Power 18,191

			10.	Shared Dispositive Power 325,223

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person 343,414

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) o

	13.	Percent of Class Represented by Amount in Row (11) 21.3%

	14.	Type of Reporting Person (See Instructions) IN

* The percent is calculated pursuant to Section 13(d)(4) of the Securities Exchange Act

	1.	Names of Reporting Persons. I.R.S. Identification Nos. of above persons (entities only) Robert G. Holman

	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			o

	3.	SEC Use Only

	4.	Source of Funds (See Instructions) N/A

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) o

	6.	Citizenship or Place of Organization USA

Number of Shares Beneficially Owned by Each Reporting Person With			7.	Sole Voting Power 0

			8.	Shared Voting Power 325,223

			9.	Sole Dispositive Power 0

			10.	Shared Dispositive Power 325,223

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person 325,223

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) o

	13.	Percent of Class Represented by Amount in Row (11) 20.2%*

	14.	Type of Reporting Person (See Instructions) IN

* The percent is calculated pursuant to Section 13(d)(4) of the Securities Exchange Act

Item 1.	Security and Issuer
This Schedule 13D relates to the common stock, par value $.01 per share, of Cap Rock Energy Corporation (the “Company” or the “Issuer”), a publicly held corporation. This Statement supplements and amends the statement on Schedule 13D originally filed by the Cap Rock Energy Corporation Shareholders’ Trust (the Trust”) and its Trustees, Alfred J. Schwartz and Robert G. Holman, with the Commission on October 3, 2002 (as amended, the "Schedule 13D").
The address of the principal executive office of the Company is 500 West Wall Street, Suite 400, Midland, Texas 79701.
Item 2.	Identity and Background
The third paragraph of the Reporting Persons’ disclosure under Item 2 is hereby amended to read in its entirety as follows:
As a result of their positions as Trustees of the Trust, Alfred J. Schwartz and Robert G. Holman are also filing this Schedule. They are deemed to be indirect beneficial owners of the Shares because of their voting and investment powers as Trustees. The Trust and each of the Trustees disclaim beneficial interest in any of the Shares reported in the Trust or the proxy granted to the Company by the Trust. Alfred J. Schwartz owns 18,191 shares of the Company on his own behalf, and has sole voting power over those shares.
Item 3.	Source and Amount of Funds or Other Consideration
The Reporting Persons’ disclosure under Item 3 is hereby amended by adding the following:
As consideration for the rights granted to the Company under the Voting Agreement, the Company has agreed to pay to the beneficial owners of the Shares, or their heirs, for whom the Shares are currently held in Trust, ten percent of the value of the shares as of the close of the stock market on December 30, 2004, at the time any such shares are issued to the beneficial owner as set forth in the Voting Agreement. If the Shares are transferred to any party other than the beneficial owner, this payment is forfeited and not payable by the Company. Based upon the closing price of the Company’s common stock on the American Stock Exchange on December 30, 2004, the payment would total $809,805. The Company currently plans to pay such amounts from cash on hand at the time of payment and not from borrowed funds.
Item 4.	Purpose of Transaction
The Reporting Persons’ disclosure is hereby amended by adding the following paragraph following the first paragraph of the disclosure under Item 4:
The proxy granted to the Company and held by the Company grants the holder of the proxy the right to vote the Shares held by the Trust or any subsequent holder of the Shares, other than the beneficial owners of the Shares, during the term of the Voting Agreement in accordance with the terms of the Voting Agreement as described in Item 6 below and attached as Exhibit 7.
Item 5.	Interest in Securities of the Issuer
(a) Based on information provided by the Company, the Company had 1,612,125 shares of common stock outstanding as of January 5, 2005. The aggregate number of shares held by the Trust is 325,223, representing 20.2% of the outstanding shares.

(b) For each Reporting Person:

	Shareholders’ Trust	Alfred J. Schwartz	Robert G. Holman
	Shareholders’ Trust	Alfred J. Schwartz	Robert G. Holman
1. Sole power to vote or to direct vote:	0	18,191	0

2. Shared power to vote or to direct vote:	325,223	325,223	325,223

3. Sole power to dispose or to direct the disposition:	0	18,191	0

4. Shared power to dispose or to direct disposition:	325,223	325,223	325,223

Alfred J. Schwartz and Robert G. Holman, as Trustees of the Trust, have shared power to vote and dispose of the Shares, subject to the restrictions contained in the Trust Agreement, as amended, and the Voting Agreement. Alfred J. Schwartz has sole power to vote and dispose of 18,191 shares which are owned on his own behalf. See Item 2 for a description of the Identity and Background of the Trustees.

		Number
Date		of Shares
10/26/04		41
11/02/04		594
11/05/04		366
11/29/04		28
12/07/04		208

Because the Cap Rock Energy common stock was transferred directly to each beneficial owner and no amount was paid or received in connection with the transfers, there are no dollar values recorded herein.

Alfred J. Schwartz received 17,500 of issuer’s common stock on July 1, 2003 that were previously deferred as Director compensation. The value of the shares was $306,425 on July 1, 2003 based on the market closing price of $17.51. Mr. Schwartz had two sale transactions in the past 60 days:

	Number	Market
Date	of Shares	Close Price
11/05/04	200	29.50
11/08/04	300	29.50

(d) No person other than a Reporting Person has the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the securities covered by this Schedule.
(e) Not applicable.
Item 6.	Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer
The Reporting Persons’ disclosure under Item 6 is hereby amended by adding the following:
On December 31, 2004, the Cap Rock Energy Corporation Shareholders’ Trust was amended to provide that any sale or transfer of Shares not to the beneficial owners or the Company shall be done in a manner such that any purchaser of Shares is not or will not be the beneficial owner of more than 1% of the issued and outstanding voting shares of the Company. In addition, any sale or transfer of the Shares to any person or party other than the Company or the beneficial owners shall be done in a manner such that the number of shares sold or transferred does not exceed the volume limitations provided in Rule 144(e)(1) of the Securities Act of 1933. The Trust was also amended to provide that the Trustees and any successor or holder of the Shares other than the beneficial owners shall vote the Shares in accordance with the recommendation of the Board of Directors of the Company with regard to the election of Directors to the Board of Directors of the Company and any sale, mortgage, or pledge of all or substantially all of the assets of the Company, or for any change in the capital structure or the powers of the Company, or in connection with any merger, consolidation, sale, reorganization, dissolution or similar type of transaction involving the Company, unless the Trustees are advised by counsel in writing that to do so would violate their fiduciary duty to the beneficial owners. The amended Cap Rock Energy Corporation Amended Shareholders’ Trust is attached as Exhibit 5.
On December 31, 2004, the Trust and the Company entered into a Right of First Refusal Agreement which grants the Company the right, for a period of twenty (20) business days following receipt of a notice of disposition, to purchase any or all of the Shares subject to the notice upon the same terms as those specified therein or upon such other terms to which the Trust or subsequent holder other than the beneficial owner consents. The Right of First Refusal continues until December 31, 2009. The Right of First Refusal Agreement is attached as Exhibit 6.
On December 31, 2004, the Company and the Trust entered into a Voting Agreement which requires the Trust or any subsequent holder of the Shares, other than a beneficial owner or subsequent owner acquiring the Shares in accordance with the transfer restrictions contained in the Trust Agreement, to vote the shares for the persons nominated by the Company’s nominating committee for Director of

the Company or any replacement nominated or appointed by the Board or the nominating committee at any election of directors; and in accordance with the recommendations of the Board of Directors of the Company on other matters, including, but not limited to, (i) any amendment to the Company’s Certificate of Incorporation; (ii) any amendment to the Company’s By-laws; (iii) merger, consolidation or binding share exchange; (iv) sale or other disposition of all or substantially all of the assets of the Company; (v) bankruptcy; (vi) dissolution; or (vii) any other matter submitted to a vote of the shareholders, provided however, that with regard to any tender offer, if the premium (i.e., the price per Share offered in the tender offer or other repurchase offer over the then market price per share of the Shares) for the Shares covered by the tender offer (or other repurchase offer) is 25% or greater, the Trustees or subsequent holder shall sell all of the Shares held in the corpus of the Trust to the Offeror at the highest cash price offered under the tender offer or other repurchase offer. The agreement expires December 31, 2009, unless otherwise extended or terminated. The Voting Agreement is attached as Exhibit 7.

Item 7.

Material to Be Filed as Exhibits

Exhibit No.		Description

99.5.		Cap Rock Energy Corporation Amended Shareholders’ Trust
99.6.		Right of First Refusal Agreement
99.7.		Voting Agreement

SIGNATURES

After reasonable inquiry and to the best of my knowledge and belief, the undersigned certify that the information set forth in this statement is true, complete and correct.

Date: January 6, 2005	Cap Rock Energy Corporation Shareholders’ Trust
	By:	/s/ Alfred J. Schwartz
	Name: Alfred J. Schwartz
	Title: Trustee


Date: January 6, 2005	Cap Rock Energy Corporation Shareholders’ Trust
	By:	/s/ Robert G. Holman
	Name: Robert G. Holman
	Title: Trustee


Date: January 6, 2005	Alfred J. Schwartz, Individually
	By:	/s/ Alfred J. Schwartz
	Alfred J. Schwartz


Date: January 6, 2005	Robert G. Holman, Individually
	By:	/s/ Robert G. Holman
	Robert G. Holman

EX-99.5 2 a05-1213_1ex99d5.htm EX-99.5

EXHIBIT 99.5

CAP ROCK ENERGY CORPORATION

AMENDED SHAREHOLDERS’ TRUST

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

ARTICLE I

Purpose

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

ARTICLE II

Trust Corpus

A. Initial Deposit. Concurrently with the execution of this Trust, the Settlor has delivered to the Trustees a total of 346,958 shares of the $.01 par value common stock of the Settlor issued in the name of this Trust, and the Trustees shall hold, administer and distribute the Shares (as such term is herein defined) in accordance with the terms and provisions of this Trust. The Settlor may from time to time add additional Shares to the corpus of this Trust by causing such additional Shares to be issued in the names of the Trustees of this Trust, and the Trustees shall hold, administer and distribute the additional Shares in accordance with the terms and provisions of this Trust as if such additional Shares had originally been deposited with the Trustees of this Trust. As used

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

B. Rights in the Shares. The Trustees are hereby vested, subject to the limitations set forth in Article III of this Trust, with all right, title and interest in and to the Shares, and the Trustees are authorized and empowered, subject to such limitations, to exercise and enjoy, for the purposes of this Trust and as record owner of the Shares, all the rights, privileges and benefits attributable to the Shares, including, but not limited to, the right, subject to the limitations set forth in Section C of Article III of this Trust, to vote the Shares on all matters and the right to receive any and all dividends and other distributions made with respect to the Shares. Until all of the Shares have been transferred out of the Trust and into the names of the beneficial owners thereof on the stock ownership records of the Settlor, the Settlor shall recognize the Trustees as record owners of the Shares held at any time and from time to time in the Trust and as fully entitled, subject to the limitations set forth in Article III of this Trust, to all rights, privileges, benefits and interests therein.

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

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

(2) When a beneficiary is located, the Trustees shall cause the Shares held for such beneficiary to be transferred on the books and records of the Settlor into the name of the beneficiary or as otherwise directed by the beneficiary, and the Trustees shall then distribute the Shares so transferred, as well as the beneficiary’s pro rata share of any other property held as a part of the corpus of this Trust, to such beneficiary (or his designee), free and clear of this Trust.

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

ARTICLE III

Rights and Powers

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

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

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

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

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

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

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

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

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

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

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

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

(1) In the case of an exercise pursuant to the Option Agreement by the Settlor, or an Affiliate of the Settlor (as such term is defined in Section H of Article III of this Trust), of the option to acquire the Shares held in the corpus of this Trust, the Trustees shall sell all of the Shares to the Settlor or its Affiliate in accordance with the terms and conditions of the Option Agreement. In the case of a tender offer or other repurchase offer by the Settlor or an Affiliate of the Settlor for shares of the capital stock of the Settlor (including, but not limited to, the tender offer for the Shares that the Settlor is required to make on the first anniversary of the issuance of the Shares), the Trustees may, in their sole discretion and acting jointly in the best interest of the beneficiaries of this Trust, sell all of the eligible Shares held in the corpus of this Trust to the Settlor or the Affiliate of the Settlor at the highest all cash price offered under the tender offer or other repurchase offer; provided, however, that notwithstanding the foregoing, with regard

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE IV

Successor Trustees

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

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

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

ARTICLE V

Indemnification of Trustees

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

a party, or is threatened to be made a party to, any threatened, pending or completed action, claim, litigation, suit or proceeding, whether civil, criminal, administrative or investigative, whether predicated on foreign, federal, state or local law, and whether formal or informal (collectively, “actions”) by reason of his status as, or the fact that he is or was or has agreed to become, a Trustee of this Trust (an “Indemnitee”), and as to acts performed in the course of an Indemnitee’s duty to this Trust and to the beneficiaries of this Trust, against:

(i) expenses, fees, costs and charges, including, without limitation, attorneys’ fees and disbursements (collectively, “expenses”) reasonably incurred by or on behalf of an Indemnitee in connection with any action (including, without limitation, in connection with the investigation, defense, settlement or appeal of such action), no matter by whom brought; provided, that it is not determined pursuant to Section B of Article V of this Trust, or by the court before which such action was brought, that:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Notwithstanding the foregoing, the payment of the requested amounts may be denied by this Trust if (i) the disinterested Trustees of this Trust, by a majority vote thereof, determine that such payment, in whole or in part, would not be in the best interests of this Trust and the beneficiaries of this Trust and would contravene the terms and conditions of Article V of this Trust; or (ii) a majority of the Trustees of this Trust are a party in interest to such action. In either of such events, the Trustees shall immediately authorize and direct, by appropriate resolution, that an independent determination be made as to whether the Indemnitee has met the applicable standard of conduct set forth in Section A of Article V of this Trust and, therefore, whether indemnification is proper pursuant to this Article V.

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

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

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

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

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

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

The court shall make an independent determination of whether the Indemnitee is entitled to indemnification as provided under Article V of this Trust, irrespective of any prior determination made by the Authority; provided, however, that there shall exist a rebuttable presumption that the Indemnitee has met the applicable standard of conduct and is therefore entitled to indemnification pursuant to Article V of this Trust. The burden of rebutting such presumption by clear and convincing evidence shall be on this Trust.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

such capacity as a Trustee of this Trust or of an affiliate, or arising out of his status as such, whether or not this Trust would have the power to indemnify him against such liability under the provisions of Article V of this Trust.

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

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

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

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

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

on behalf of the Indemnitee, whether for judgments, fines, penalties, amounts incurred in settlement or for expenses in connection with any action, no matter by whom brought, in such proportion as deemed fair and reasonable by the Authority pursuant to Section B of Article V of this Trust, or by the court before which such action was brought, taking into account all of the circumstances of such action, in order to reflect (i) the relative benefits received by this Trust and the Indemnitee as a result of the event or transaction giving cause to such action; and (ii) the relative fault of this Trust (and its other Trustees) and the Indemnitee in connection with such event or transaction.

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

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

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

ARTICLE VI

Miscellaneous Provisions

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

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

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

D. Manner of Distribution. The Trustees may distribute the Shares and other property held as a part of the corpus of this Trust to the beneficiary directly or to the guardian, custodian, trustee, receiver, conservator or other similar official for the beneficiary. The Trustees will not be responsible for any distribution of the Shares or other property held as a part of the corpus of this Trust once it has been made to the beneficiary or for his benefit as herein provided.

E. Severability. If any part, clause, provision or condition set forth in this Trust shall be held to be invalid or unenforceable, the remainder of this Trust shall be construed in all respects as if such invalid or unenforceable part, clause, provision or condition were omitted.

F. Rules of Construction. In this Trust, words in the singular number include the plural, and in the plural include the singular. Words of the masculine gender include the feminine and the neuter, and when the sense so indicates, words of the neuter gender

may refer to any gender, and the word “or” is disjunctive but not exclusive. The captions and section numbers appearing in this Trust are inserted only as a matter of convenience and do not define, limit or describe the scope or intent of the provisions of this Trust.

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

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

SIGNATURES

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

					Settlor:

					CAP ROCK ENERGY CORPORATION

					By:	/s/ David W. Pruitt
						David W. Pruitt, Chief Executive Officer

					Trustees:

					By	/s/ Alfred J. Schwartz
						Alfred J. Schwartz


					By	/s/ Robert G. Holman
						Robert G. Holman

EX-99.6 3 a05-1213_1ex99d6.htm EX-99.6

EXHIBIT 99.6

THIS AGREEMENT IS SUBJECT TO ARBITRATION

UNDER THE TEXAS GENERAL ARBITRATION ACT

RIGHT OF FIRST REFUSAL AGREEMENT

THIS AGREEMENT (this “Agreement”) is made and entered into effective this 31^st day of December, 2004, by and between CAP ROCK ENERGY CORPORATION (the “Company”), a Texas corporation, and ALFRED J. SCHWARTZ and ROBERT G. HOLMAN, Trustees (together with their successors, the “Trustees”) of the CAP ROCK ENERGY CORPORATION SHAREHOLDERS’ TRUST (the “Trust”) dated of even date herewith.

BACKGROUND

A. The Trust is presently the owner of record of 346,958 shares of common stock, $.01 par value, of the Company and may, through stock splits or other means, hereafter acquire additional shares of the common stock, $.01 par value of the Company (collectively, the “Shares”);

B. The Trust and the Company recognize that due to the limited number of shares of the Company sold on the open market, the sale of the Shares in more than limited numbers would have a detrimental effect upon the market value of the Shares and the Beneficial Owners;

C. In order to protect the value of the Shares, the Trust desires to grant to the Company, and the Company desires to obtain from the Trust, the exclusive right of first refusal to purchase the Shares upon and subject to the terms and conditions hereinafter set forth.

TERMS AND CONDITIONS

In consideration of the sum of $10.00 in cash paid by the Company to the Trust, the mutual benefits to be derived and the representations and warranties, conditions and promises herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows:

1. GRANT OF RIGHT OF FIRST REFUSAL. The Trust hereby grants to the Company the right of first refusal (the “First Refusal Right”), exercisable in connection with any proposed transfer of the Shares. For purposes of this Agreement, the term “transfer” shall include any sale, assignment, pledge, encumbrance or other disposition of the Shares intended to be made by the Trust or any subsequent holder of the Shares (“Holder”), but shall not include any Permitted Transfer to a Beneficial Owner.

2. NOTICE OF INTENDED DISPOSITION. In the event any Holder desires to sale or otherwise dispose of all or any part of the Shares on the open market or accept a bona fide third-party offer for the transfer of any or all of such shares (the Shares subject to such intention to sale or offer to be hereinafter referred to as the “Target Shares”), Holder shall promptly deliver to the Company written notice (the “Disposition Notice”) of the terms of the proposed sale, including the purchase price and the identity of any third-party offeror.

3. EXERCISE OF THE FIRST REFUSAL RIGHT. The Company shall, for a period of twenty (20) business days following receipt of the Disposition Notice, have the right to repurchase any or all of the Target Shares subject to the Disposition Notice upon the same terms as those specified therein or upon such other terms (not materially different from those specified in the Disposition Notice) to which Holder consents. Such right shall be exercisable by delivery of written notice (the “Exercise Notice”) to Holder prior to the expiration of the exercise period. If such right is exercised with respect to all the Target Shares, then the Company shall effect the repurchase of such shares, including payment of the purchase price, not more than five (5) business days after delivery of the Exercise Notice; and at such time the certificates representing the Target Shares shall be delivered to the Company.

If the intended method of sale or disposition of the shares specified in the Disposition Notice is through open market sales, the purchase price to be paid by the Company for the Shares shall be the average of the Current Per Share Market Price (as such term is hereinafter defined) of the Shares for thirty (30) consecutive Trading Days (as such term is hereinafter defined) ending five Trading Days preceding the delivery of the Exercise Notice (as such term is defined in Section 3 of this Agreement) by the Company. The “Current Per Share Market Price” means the closing price for each day which shall be the last sale price, regular way, or, in case no sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the American Stock Exchange or, if the Shares are not listed or admitted to trading on the American Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Shares are listed or admitted to trading or, if the Shares are not listed or admitted to trading on any national securities exchange, the last sales price, or if not so reported, then the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the NASDAQ or such other system then in use of, if on any such date the Shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Shares, which professional market maker shall be selected by the Holder and agreeable to the Company, less any commission, fees or other charges that would have been paid by Holder in connection with the sale or disposition of the Shares or deducted from any proceeds thereof. The term “Trading Days” means a day on which the American Stock Exchange or other principal national securities exchange on which the Shares are listed or admitted to trading is open for the transaction of business or, if the Shares are not listed or

admitted to trading on any national securities exchange, a Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in the State of Texas are not authorized or obligated by law or executive order to close.

Should the purchase price specified in the Disposition Notice be payable in property other than cash or evidences of indebtedness, the Company shall have the right to pay the purchase price in the form of cash equal in amount to the value of such property. If Holder and the Company cannot agree on such cash value within ten (10) business days after the Company’s receipt of the Disposition Notice, the valuation shall be made by an appraiser of recognized standing selected by Holder and the Company or, if they cannot

agree on an appraiser within twenty (20) business days after the Company’s receipt of the Disposition Notice, each shall select an appraiser of recognized standing and the two (2) appraisers shall designate a third appraiser of recognized standing, whose appraisal shall be determinative of such value. The cost of such appraisal shall be shared equally by Holder and the Company. The closing shall then be held on the LATER of (i) the fifth (5th) business day following delivery of the Exercise Notice or (ii) the fifth (5th) business day after such valuation shall have been made.

4. NON-EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the Exercise Notice is not given to Holder prior to the expiration of the twenty (20) business-day exercise period, Holder shall have a period of thirty (30) days thereafter in which to sell or otherwise dispose of the Target Shares to the third-party offeror identified in the Disposition Notice or in open market sales if the Notice of Disposition specified open market sales as the method of disposition, upon terms (including the purchase price) no more favorable to the purchaser than those specified in the Disposition Notice; PROVIDED, however, that any such sale or disposition must not be effected in contravention of the provisions of Section 12 hereof. In the event Holder does not affect such sale or disposition of the Target Shares within the specified thirty (30)-day period, the First Refusal Right shall continue to be applicable to any subsequent disposition of the Target Shares by Holder until such right lapses.

5. PARTIAL EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the Company makes a timely exercise of the First Refusal Right with respect to a portion, but not all, of the Target Shares specified in the Disposition Notice, Holder shall have the option, exercisable by written notice to the Company delivered within five (5) business days after Holder’s receipt of the Exercise Notice, to effect the sale of the Target Shares pursuant to either of the following alternatives:

(i) sale or other disposition of all the Target Shares on the open market or to the third-party offeror identified in the Disposition Notice, but in full compliance with the requirements of Section 4, as if the Company did not exercise the First Refusal Right; or

(ii) sale to the Company of the portion of the Target Shares which the Company has elected to purchase, such sale to be effected in substantial conformity with the provisions of Section 3. The First Refusal Right shall continue to be applicable to any subsequen t disposition of the remaining Target Shares until such right lapses.

Holder’s failure to deliver timely notification to the Company shall be deemed to be an election by Owner to sell the Target Shares pursuant to alternative (i) above.

6. ESCROW.

A. DEPOSIT. The certificates for the Shares which are subject to the Repurchase Right shall be deposited in escrow with the Company to be held in accordance with the provisions of this Section 6. Each deposited certificate shall be accompanied by a duly-executed Assignment Separate from Certificate in the form of Exhibit I. The deposited certificates, together with any other assets or securities from time to time deposited with the Company pursuant to the requirements of this Agreement, shall remain in escrow until such time or times as the certificates (or other assets and securities) are to be released or otherwise surrendered for cancellation in accordance with Section 3. Upon delivery of the certificates (or other assets and securities) to the Company, Holder shall be issued a receipt acknowledging the number of Shares (or other assets and securities) delivered in escrow.

B. RECAPITALIZATION. Any new, substituted or additional securities or other property which is by reason of any Recapitalization distributed with respect to the Shares shall be immediately delivered to the Company to be held in escrow under this Section 6, but only to the extent the Shares are at the time subject to the escrow requirements hereunder. However, all regular cash dividends on the Shares (or other securities at the time held in escrow) shall be paid directly to Holder and shall not be held in escrow.

C. RELEASE/SURRENDER. The Shares, together with any other assets or securities held in escrow hereunder, shall be subject to the following terms relating to their release from escrow or their surrender to the Company for repurchase and cancellation:

(i) Should the Company elect to exercise the First Refusal Right with respect to any Target Shares held at the time in escrow hereunder, then the escrowed certificates for those Target Shares (together with any other assets or securities attributable thereto) shall be surrendered to the Company concurrently with the payment of the purchase price for such Target Shares to Holder, and Holder shall cease to have any further rights or claims with respect to such Target Shares (or other assets or securities attributable thereto).

(ii) Should the Company elect NOT to exercise the First Refusal Right with respect to any Target Shares held at the time in escrow hereunder, then the escrowed certificates for those shares (together with any other assets or securities attributable thereto) shall be immediately released to Holder.

(iii) Transfers of Shares to a Beneficial Owner (and any other vested assets and securities attributable thereto) shall be released within thirty (30) days.

7. TERM. The term of this Agreement shall commence on the date of this Agreement and shall continue until December 31, 2009

8. CLOSING. The consummation of the purchase of the Shares (the “Closing”) by the Company shall take place at the principal executive offices of the Company in Midland, Texas, or at such other place, time or date as shall be mutually agreed.

9. CANCELLATION OF SHARES. If the Company shall make available, at the time and place and in the amount and form provided in this Agreement, the consideration for the Shares to be repurchased in accordance with the provisions of this Agreement, then from and after such time, the person from whom such shares are to be repurchased shall no longer have any rights as a holder of such shares (other than the right to receive payment of such consideration in accordance with this Agreement). Such shares shall be deemed purchased in accordance with the applicable provisions hereof, and the Company shall be deemed the owner and holder of such shares, whether or not the certificates therefore have been delivered as required by this Agreement.

10. DISPOSITION LIMITATIONS. Neither the Trust nor any subsequent Holder shall make any disposition of the Shares (other than a Transfer to a Beneficial Owner) unless and until it shall have complied with all requirements of this Agreement applicable to the disposition of the Shares. The Company shall NOT be required (i) to transfer on its books any Shares which have been sold or transferred in violation of the provisions of this Agreement OR (ii) to treat as the owner of the Shares, or otherwise to accord voting, dividend or liquidation rights to, any transferee to whom the Shares have been transferred in contravention of this Agreement.

11. RESTRICTIVE LEGENDS. The stock certificates for the Shares shall be endorsed with the following restrictive legend and any legend required to be placed thereon by the applicable blue sky laws of any state:

“The shares represented by this certificate are subject to certain rights of first refusal granted to the Company and accordingly may not be sold, assigned, transferred, encumbered, or in any manner disposed of except in conformity with the terms of a written agreement dated December 31, 2004, between the Company and the registered holder of the shares (or the predecessor in interest to the shares). A copy of such agreement is maintained at the Company’s principal corporate offices.”

12. TRANSFER RESTRICTIONS

A. RESTRICTIONS ON TRANSFER. Except for any Permitted Transfer, the Shares shall not be sold, transferred, assigned, encumbered or otherwise disposed of (i) in contravention of the First Refusal Right, (ii) in a manner such that any purchaser of Shares is or will be the beneficial owner of more than 1% of the issued and outstanding voting shares of the Company, or (iii) in a manner such that the number of shares sold or transferred exceeds the volume limitations provided in Rule 144 (e)(1) of the Securities Act of 1933.

B. TRANSFEREE OBLIGATIONS. Each person (other than the Company or the beneficial holders as they are located) to whom the Shares are transferred by means of a Permitted Transfer must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Company that such person is bound by the provisions of this Agreement and that the transferred shares are subject to the First Refusal Right, to the same extent such shares would be so subject if retained by trust.

13. ADJUSTMENTS. If, on or after the date of this Agreement, there shall occur any stock dividend, stock split, recapitalization, combination or exchange of shares, merger, consolidation, reorganization or other change or transaction of or by the Company as a result of which shares of any class of stock or other securities shall be issued in respect of any of the Shares, or if any of the Shares shall be changed into the same or a different number of shares of the same or another class of stock or other securities, or upon any other acquisition of any securities of the Company in any other manner, and whether in compliance with the provisions of this Agreement or otherwise, any such shares or other securities shall, from and after their receipt or acquisition by the Trust, constitute additional Shares and shall be subject to this Agreement as if originally included thereunder.

14. NOTICE DELIVERY REQUIREMENTS. All notices or other communications which are required or permitted hereunder shall be in writing and shall be delivered either personally or by telegram, telex, telecopy or similar facsimile means, by registered or certified mail (postage prepaid and return receipt requested), or by express courier or delivery service, addressed as follows:

If to the Company:

Cap Rock Energy Corporation

500 W. Wall Street

Suite 400

Midland, Texas 79701

Attention: Mr. David W. Pruitt, CEO

Telecopy: 915-684-0333

If to the Trust:

Cap Rock Energy Corporation Shareholders’ Trust

115 S. Travis Street

Sherman, Texas 75090

Attention: Mr. Ronald W. Lyon

Telecopy: 903-868-2492

or at such other address and number as either party shall have previously designated by written notice given to the other party in the manner hereinabove set forth. Notices shall be deemed given when received, if sent by telegram, telex, telecopy or similar facsimile

means (confirmation of such receipt by confirmed facsimile transmission being deemed receipt of communications sent by telex, telecopy or other facsimile means); and when delivered and receipted for (or upon the date of attempted delivery where delivery is refused), if hand-delivered, sent by express courier or delivery service, or sent by certified or registered mail.

15. FURTHER ASSURANCES. The parties hereto agree (i) to furnish upon request to each other such further information; (ii) to execute and deliver to each other such other documents; and (iii) to do such other acts and things, all as the other party hereto may at any time reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to herein.

16. WAIVER. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay on the part of any party in exercising any right, power or privilege under this Agreement or the documents referred to herein shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable law, (i) no claim or right arising out of this Agreement or the documents referred to herein can be discharged by one party hereto, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party hereto; (ii) no waiver which may be given by a party hereto shall be applicable except in the specific instance for which it is given; and (iii) no notice to or demand on one party hereto shall be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to herein.

17. ENTIRE AGREEMENT AND MODIFICATION. This Agreement is intended by the parties to this Agreement as a final expression of their agreement with respect to the subject matter hereof, and is intended as a complete and exclusive statement of the terms and conditions of that agreement. This Agreement may not be modified, rescinded, or terminated orally, and no modification, rescission, termination or attempted waiver of any of the provisions hereof (including this Section) shall be valid unless in writing and signed by the party against whom the same is sought to be enforced.

18. LIMITATIONS ON ASSIGNMENTS. The Company shall not, during the term of this Agreement, assign, transfer or otherwise dispose of any of its rights hereunder to a person other than an Affiliate of the Company, without the prior written consent of the Trust. An Affiliate of the Company to whom any rights hereunder may have been transferred in accordance with this Agreement shall not, during the term of this Agreement, assign, transfer or otherwise dispose of any of its rights hereunder to a person other than the Company or another Affiliate of the Company, without the prior written consent of the Trust.

19. PERSONS BOUND. This Agreement shall apply to and be binding in all respects upon, and shall inure to the benefit of the parties hereto and their permitted successors

and assigns whether or not any such person shall have become a party to this agreement and have agreed in writing to join herein and be bound by the terms hereof. Nothing expressed or referred to in this Agreement is intended or shall be construed to give any person or entity other than the parties to this Agreement, and their permitted successors and assigns, any legal or equitable right, remedy or claim under or with respect to this Agreement, or any provision hereof, it being the intention of the parties hereto that this Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement, their successors and assigns, and for the benefit of no other person or entity.

20. SEVERANCE. In the event any court of competent jurisdiction shall hold any provision of this Agreement invalid or unenforceable, such holding shall not invalidate or render unenforceable any other provisions hereof. Any provision of this Agreement held invalid or unenforceable only in part or degree shall remain in full force and effect to the extent not held invalid or unenforceable.

21. SECTION HEADINGS, CONSTRUCTION. The headings of articles and sections contained in this Agreement are provided for convenience only. They form no part of this Agreement and shall not affect its construction or interpretation. All references to articles and sections in this Agreement refer to the corresponding articles and sections of this Agreement. All words used herein shall be construed to be of such gender or number as the circumstances require. Unless otherwise specifically noted, the words “herein,” “hereof,” “hereby,” “hereinabove,” “hereinbelow,” “hereunder,” and words of similar import, refer to this Agreement as a whole and not to any particular section, subsection, paragraph, clause or other subdivision hereof.

22. CONSENT OR PERMISSION NOT TO BE UNREASONABLY WITHHELD. Except as otherwise expressly stated herein, whenever the consent or permission of a party hereto is required hereunder, such consent or permission shall not be unreasonably withheld or delayed.

23. TIME OF ESSENCE. With regard to all time periods set forth or referred to in this Agreement, time is of the essence.

24. GOVERNING LAW. THIS AGREEMENT AND ALL RIGHTS ARISING HEREUNDER SHALL BE CONSTRUED AND DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, AND THE PERFORMANCE THEREOF SHALL BE GOVERNED AND ENFORCED IN ACCORDANCE WITH SUCH LAWS. IN THE EVENT ANY CONTROVERSY ARISES OUT OF OR RELATES TO THIS AGREEMENT, THE TRUSTEES AND REPRESENTATIVES OF THE COMPANY SHALL FIRST MEET IN MIDLAND, TEXAS, AND ATTEMPT TO NEGOTIATE A RESOLUTION OF THEIR DISPUTE. IN THE EVENT SUCH NEGOTIATION SHALL FAIL TO RESOLVE ANY SUCH CONFLICT, THE PARTIES HEREBY AGREE TO SUBMIT TO ARBITRATION ADMINISTERED BY THE AMERICAN ARBITRATION ASSOCIATION UNDER ITS THEN CURRENT COMMERCIAL ARBITRATION RULES. ANY SUCH CONTROVERSY SHALL BE

SUBMITTED IN DALLAS, TEXAS, TO A PANEL OF THREE (3) ARBITRATORS, ONE CHOSEN BY EACH PARTY AND THE THIRD UNDER THE AMERICAN ARBITRATION RULES. AT LEAST TWO (2) OF THE ARBITRATORS SHALL HAVE EXPERIENCE WITH SECURITIES. THE ARBITRATORS WILL HAVE NO AUTHORITY TO AWARD PUNITIVE OR OTHER DAMAGES NOT MEASURED BY THE PREVAILING PARTY’S ACTUAL DAMAGES AND MAY NOT, IN ANY EVENT, MAKE ANY RULING, FINDING, OR AWARD THAT DOES NOT CONFORM TO THE TERMS AND CONDITIONS OF THIS AGREEMENT. THE PARTIES SHALL FAITHFULLY OBSERVE THIS AGREEMENT AND SUCH RULES, AND WILL ABIDE BY AND PERFORM ANY AWARD RENDERED BY THE ARBITRATORS, AND A JUDGMENT OF ANY COURT HAVING JURISDICTION MAY BE ENTERED ON THE AWARD. THE PROVISIONS OF THIS SECTION 20 ARE A MATERIAL INDUCEMENT FOR BOTH THE COMPANY AND THE TRUST ENTERING INTO THE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREIN. THE COMPANY AND THE TRUST EACH HEREBY ACKNOWLEDGE THAT IT HAS REVIEWED THE PROVISIONS OF THIS SECTION 20 WITH ITS INDEPENDENT LEGAL COUNSEL.

25. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original copy of this Agreement, and all of which, when taken together, shall be deemed to constitute but one and the same agreement.

SIGNATURES

To evidence the binding effect of the covenants and agreements described above, the Company (by its duly authorized officer) and the Trust (by the Trustees) have caused this Agreement to be executed and delivered as of, but not necessarily on, the date first written above.

	CAP ROCK ENERGY CORPORATION

	By:	/s/ DAVID W. PRUITT
		David W. Pruitt, CEO

	CAP ROCK ENERGY CORPORATION SHAREHOLDERS’ TRUST
	CAP ROCK ENERGY CORPORATION SHAREHOLDERS’ TRUST

	By:	/s/ ALFRED J. SCHWARTZ
		Alfred J. Schwartz, Trustee

	By:	/s/ ROBERT G. HOLMAN
		Robert G. Holman, Trustee

EXHIBIT I

ASSIGNMENT SEPARATE FROM CERTIFICATE

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

Dated:

	CAP ROCK ENERGY CORPORATION SHAREHOLDERS’ TRUST


		Alfred J. Schwartz, Trustee


		Robert G. Holman, Trustee

INSTRUCTION: Please do not fill in any blanks other than the signature line. Please sign exactly as you would like your name to appear on the issued stock certificate. The purpose of this assignment is to enable the Corporation to exercise the First refusal Right without requiring additional signatures on the part of the Holder.

APPENDIX

The following definitions shall be in effect under the Agreement:

A. AGREEMENT shall mean this Right of First Refusal Agreement.

B. BENEFICIAL OWNER shall mean the former members of Cap Rock Electric Cooperative, Inc. (the “Cooperative” and predecessor to the Company) for whom the Company does not have valid addresses and are entitled to the Shares that would have otherwise been distributed to those former members of the Cooperative in connection with the full implementation of the conversion of the Cooperative from a member owned electric cooperative to a shareholder owned business corporation.

C. COMMON STOCK shall mean the Company’s common stock.

D. COMPANY shall mean Cap Rock Energy Corporation, a Texas corporation, and any successor corporation to all or substantially all of the assets or voting stock of Cap Rock Energy Corporation.

E. DISPOSITION NOTICE shall have the meaning assigned to such term in Section 2.

F. EXERCISE NOTICE shall have the meaning assigned to such term in section 3.

G. FIRST REFUSAL RIGHT shall mean the right granted to the Company in accordance with Section 1.

H. 1933 ACT shall mean the Securities Act of 1933, as amended.

I. HOLDER shall have the meaning assigned in Section 1 and shall also mean the Trust and all subsequent holders of the Shares who derive their chain of ownership through a Permitted Transfer from the Trust.

J. PERMITTED TRANSFER shall mean (i) a transfer to a Beneficial Owner and (ii) a transfer to the State of Texas pursuant to the escheat laws of that state; provided that any subsequent transfer or sale by the State of Texas, other than to a Beneficial Owner shall be subject to this Agreement.

K. PURCHASE PRICE shall have the meaning assigned to such term in Section 3.

L. RECAPITALIZATION shall mean any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the Company’s outstanding Common Stock as a class without the Company’s receipt of consideration.

M. SEC shall mean the Securities and Exchange Commission.

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

Y. TARGET SHARES shall have the meaning assigned to such term in Section 2.

EX-99.7 4 a05-1213_1ex99d7.htm EX-99.7

EXHIBIT 99.7

VOTING AGREEMENT

THIS AGREEMENT entered into as of December 31, 2004 by and among Alfred Schwartz and Robert Holman as Trustees of the Cap Rock Energy Trustees’ Trust (Trustees) and Cap Rock Energy Corporation (“Cap Rock”).

W I T N E S S E T H:

WHEREAS, Trustees currently hold and control 325,223 shares of issued and outstanding voting common stock of Cap Rock, a corporation organized and existing under the laws of Texas;

WHEREAS, the Trustees and Cap Rock desire to maintain the continuity and stability of the policy and management of the Corporation; and

WHEREAS, the Trustees believe it to be in the best interests of the shareholders whose stock is currently held in the Cap Rock Shareholders’ Trust (the “Trust”) and in the best interest of Cap Rock that the shares held and controlled by Trustees (the “Shares”) be voted in accordance with the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the foregoing, and of the mutual promises and covenants contained herein, it is hereby agreed as follows:

A. Voting

1. General. The Trustees hereby agree to pool the voting of the Shares held in the Cap Rock Energy Shareholders’ Trust (the “Trust”), and to vote or consent with respect to all of such Shares as a block or unit in all votes, in person or by proxy at any and all meetings of the shareholders of Cap Rock, for whatever purpose called or held, and in any and all proceedings, whether at a meeting of the shareholders or otherwise, wherein the vote or written consent of the Trustees (or subsequent holder or owner of the Shares) may be required or authorized by law. Without limiting the generality of the foregoing, with respect to the following matters the Trustees, or their successors or the subsequent holders or owners of the Shares, shall vote the Shares as follows:

(a) Vote for Directors

(i) Election. The Shares shall be voted for the persons nominated by Cap Rock’s nominating committee.

(ii) Replacement. If any director so elected should die, resign, be removed or become incapacitated or otherwise refuse to act in his or her capacity as director, the Trustees shall vote

for the replacement nominated or appointed by the Board or the nominating committee at any election required.

(b) Vote on Other Issues. In the event of a vote of the shareholders involving authorization of (i) any amendment to the Corporation’s Certificate of Incorporation; (ii) any amendment to the Corporation’s By-laws; (iii) merger, consolidation or binding share exchange; (iv) sale or other disposition of all or substantially all of the assets of the Corporation; (v) bankruptcy; (vi) dissolution; or (vii) any other matter submitted to a vote of the shareholders, the Trustees agree to pool the Shares and to vote them as a block or unit. A vote on any particular issue shall be made in the manner that the Board of Directors of Cap Rock has recommended, provided, however, that notwithstanding the foregoing, with regard to any tender offer if the premium (i.e., the price per Share offered in the tender offer or other repurchase offer over the then market price per share of the Shares) for the Shares covered by the tender offer ( or other repurchase offer) is 25% or greater, the Trustees shall sell all of the Shares held in the corpus of the Trust to the Offerror at the highest cash price offered under the tender offer or other repurchase offer.

B. Arbitration. Any dispute regarding this Agreement, or any vote hereunder, shall be settled by the appointment of an independent third party arbitrator in accordance with the rules of the American Arbitration Association.

C. Proxy. In order to facilitate the resolution of any dispute referred to in Section B hereof, and to avoid any future dispute, and to carry out the provisions of Section A hereof, the Trustees do hereby grant, pursuant to Texas Business Corporation Act Article 2.29, to such person as may be designated in writing by Cap Rock, within ten days of receipt of notice of a meeting or other shareholder action, an irrevocable proxy to vote the Shares in accordance with this Agreement.

D. Provisions to Survive Death or Incapacity of any Trustee or Transfer of the Shares to the State. In the event of the death, incapacity or incompetence of any Trustee, the provisions of this Agreement will continue to be binding on the Trust and the Shares held therein. In the event any of the Shares currently held in the Trust are transferred out of the Trust, to the State of Texas through an escheat process, the provisions of this Agreement will continue to be binding on the owner or holder of the Shares.

E. Transfer of Shares. Shares may be transferred only in accordance with the terms and conditions of the Trust or pursuant to the escheat laws of the State of Texas. Upon a transfer of Shares out of the Trust, the shares shall remain subject to, and be voted in accordance with, the terms of this Agreement, so long as the Shares are held are owned by the State of Texas or other governmental entity.

F. Endorsement of Share Certificates. Certificates for Shares of Cap Rock subject to this Agreement shall be endorsed as follows: “Any assignment, transfer, pledge or other disposition of the shares represented by this certificate, and any subsequent disposition thereof, is restricted by, and subject to, the By-laws of the Corporation and the terms and provisions of a Voting Agreement dated as of December 31, 2004, copies of which are on file with the Secretary of the Corporation.”

G. Termination. This Agreement shall terminate upon the occurrence of the earliest of any of the following events:

1. The written agreement of all of the Trustees, or their successors, or the subsequent owners or holders of the Shares, and Cap Rock;

2. The expiration of the term of this Agreement or any renewal thereof and the failure of some or all of the remaining Trustees and Cap Rock to have agreed to renew this Agreement;

3. The merger or consolidation of Cap Rock with or into another entity or a binding share exchange between the Cap Rock and another entity, if Cap Rock is not the surviving corporation and the Shares represent less than the number of outstanding shares of such surviving corporation that is needed to confer upon Cap Rock more than fifty percent (50%) of the outstanding voting power of such surviving corporation.

4. The issuance of the Shares to the legal owner of the Shares, or their heirs. This provision applies to release the restrictions herein only to those particular shares which are issued to the legal owner for whom the Shares are currently held in Trust.

5. The sale or transfer of the Shares by the State of Texas, after the Shares have escheated to the State of Texas, to a third party. This provision applies to release the restrictions herein only to those particular shares which are sold are transferred by the State of Texas to a third party.

H. Term. This Agreement shall become effective upon the date hereof and continue in effect for a period of five years from the date hereof.

I. Renewal. This Agreement may be renewed for successive one-year periods or such other term as may be permitted by law, provided that the Trustees desiring to extend and renew this Agreement give their written consent to such renewal prior to the expiration of this Agreement.

J. Consideration. In addition to the recitals and promises herein, Cap Rock agrees to pay to the legal owner of the Shares, or their heirs, for whom the Shares are currently held in Trust, ten percent of the current value of the shares as of the close of the stock market on December 30, 2004, at the time any such shares are issued to the legal owner as set forth above. Such amounts shall be due and payable to each legal

owner of the Shares, or their heirs, within ten days of the date any of the Shares currently held in Trust are issued to the legal owner for whom the shares are currently held in Trust. This consideration shall not be payable to any person or entity that subsequently acquires such shares, other than the person or entity for whom the Shares are currently held in Trust. Any of the Shares that are not subsequently issued to the person or entity for whom the Shares are currently held in Trust, shall not be entitled to the above referenced payment.

K. Amendment. This Agreement may be amended by the written agreement of all of the parties hereto.

L. Benefit. This Agreement shall be for the benefit of the parties hereto and shall be binding on the parties hereto, their heirs, legal representatives, successors, assigns and transferees.

M. Governing Law. This Agreement shall be governed, construed and enforced in accordance with the laws of Texas.

IN WITNESS WHEREOF, the Trustees have executed this Agreement as of the date and year first written above.

By:	/s/ Alfred Schwartz
Alfred Schwartz, Trustee

By:	/s/ Robert Holman
Robert Holman, Trustee


Cap Rock Energy Corporation


By:	/s/ Will West
Will West, President

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