Agreement and Plan of Merger

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Cap Rock Holding Corporation | Cap Rock Holding, LLC | Continental Energy Systems LLC | PNM Merger Sub LLC | PNM Resources, Inc

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Title: Agreement and Plan of Merger
Governing Law: Delaware Date: 2/29/2008
Law Firm: Troutman Sanders;Cravath Swaine

EXHIBIT 2.1

Agreement and Plan of Merger

among

PNM Resources, Inc.,

PNM Merger Sub LLC,

Continental Energy Systems LLC,

and

Cap Rock Holding Corporation

Dated: January 12, 2008

TABLE OF CONTENTS

ARTICLE I

DEFINITIONS

Section 1.01.	Definitions	1
Section 1.02.	Other Definitional and Interpretive Matters	11
Section 1.03.	Joint Negotiation and Preparation of Agreement	12

ARTICLE II

THE MERGER

Section 2.01.	The Merger	12
Section 2.02.	Closing	12
Section 2.03.	Effective Time	12
Section 2.04.	Effects	13
Section 2.05.	Governing Documents	13
Section 2.06.	Additional Action	13

ARTICLE III

PURCHASE PRICE

Section 3.01.	Purchase Price	13
Section 3.02.	Determination of Adjustment Amount	14
Section 3.03.	Dissent Adjustment	15
Section 3.04.	Withholding Rights	15

ARTICLE IV

EFFECT ON THE CAPITAL STOCK OF THE CONSTITUENT ENTITIES; EXCHANGE OF CERTIFICATES

Section 4.01.	Effect on Capital Stock	16
Section 4.02.	Exchange of Certificates	17

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF CAP ROCK HOLDING LLC

Section 5.01.	Organization; Qualification	19
Section 5.02.	Authority Relative to this Agreement	19
Section 5.03.	Consents and Approvals; No Violation	19
Section 5.04.	Pro Forma Balance Sheet	19
Section 5.05.	Fees and Commissions	19

ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Section 6.01.	Organization; Qualification	20
Section 6.02.	Authority Relative to this Agreement	20
Section 6.03.	Consents and Approvals; No Violation	21
Section 6.04.	Financial Information	21
Section 6.05.	Capital Stock, Corporate Information	22
Section 6.06.	Environmental	23
Section 6.07.	Labor Matters	24
Section 6.08.	ERISA; Benefit Plans	25
Section 6.09.	Certain Contracts and Arrangements	28
Section 6.10.	Legal Proceedings and Orders	31
Section 6.11.	Permits	31
Section 6.12.	Compliance with Laws	32
Section 6.13.	Insurance	32
Section 6.14.	Taxes.	32
Section 6.15.	Fees and Commissions	34
Section 6.16.	Intellectual Property	34
Section 6.17.	Inspections	35
Section 6.18.	Absence of Certain Changes or Events; Major Customers	35
Section 6.19.	Regulatory Compliance	36
Section 6.20.	Title to Properties	36
Section 6.21.	Sufficiency of Assets	37
Section 6.22.	Other Activities	37
Section 6.23.	Bankruptcy	37
Section 6.24.	Absence of Certain Payments	37

ARTICLE VII

REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB

Section 7.01.	Organization, Qualification	38
Section 7.02.	Authority Relative to this Agreement	38
Section 7.03.	Consents and Approvals; No Violation	38
Section 7.04.	Parent’s Knowledge	39
Section 7.05.	Inspections	39

ARTICLE VIII

COVENANTS OF THE PARTIES

Section 8.01.	Conduct of Business	40
Section 8.02.	Access to Information	42
Section 8.03.	Expenses	44
Section 8.04.	Further Assurances	44

Section 8.05.	Public Statements	45
Section 8.06.	Consents and Approvals	45
Section 8.07.	Transfer Taxes	46
Section 8.08.	Company Stock Options	46
Section 8.09.	Company Stockholder Approval	47
Section 8.10.	Title Insurance, Surveys, Estoppel Certificates, and Non-Disturbance Agreements	47
Section 8.11.	Tax Matters	47
Section 8.12.	Minimum Net Worth/Disbursement Account	51
Section 8.13.	Supplements to Schedules	52
Section 8.14.	Eminent Domain; Casualty Loss.	52
Section 8.15.	Certain Cap Rock Employees	52

ARTICLE IX

CONDITIONS TO CLOSING

Section 9.01.	Conditions to Each Party’s Obligations to Effect the Closing	53
Section 9.02.	Conditions to Obligations of Parent	53
Section 9.03.	Conditions to Obligations of the Company	56

ARTICLE X

INDEMNIFICATION

Section 10.01.	Survival of Representations and Warranties	57
Section 10.02.	Indemnification.	57
Section 10.03.	Indemnification Procedures.	58
Section 10.04.	Limitations on Indemnification.	60
Section 10.05.	Applicability of Article X	62
Section 10.06.	Tax Treatment of Indemnity Payments	62
Section 10.07.	No Consequential Damages	62
Section 10.08.	Exclusive Remedy	63

ARTICLE XI

TERMINATION AND OTHER REMEDIES

Section 11.01.	Termination	63
Section 11.02.	Procedure and Effect of Termination	64
Section 11.03.	Remedies upon Termination	65

iii

ARTICLE XII

MISCELLANEOUS PROVISIONS

Section 12.01.	Amendment and Modification	66
Section 12.02.	Waiver of Compliance; Consents	66
Section 12.03.	Notices	66
Section 12.04.	Assignment	67
Section 12.05.	Governing Law	67
Section 12.06.	Severability	68
Section 12.07.	Entire Agreement	68
Section 12.08.	Delivery	68
Section 12.09.	Waiver of Jury Trial	68

EXHIBITS AND SCHEDULES

Exhibit 1.01 -A	Capital Expenditure Budget
Exhibit 1.01-B	Company Employees
Exhibit 3.01 (b)	Balance Sheet Principles

Schedule 1.01 -A	Material Business Agreements
Schedule 1.01 -B	Parent Required Regulatory Approvals
Schedule 1.01 -C	Permitted Encumbrances
Schedule 1.01 -D	The Company Required Regulatory Approvals
Schedule 1.01 -E	The Company’s Knowledge
Schedule 1.01 -F	Owned Real Property
Schedule 1.01 -G	Real Property Leases
Schedule 1.01-H	Territory
Schedule 1.01-I	Specified Employees
Schedule 1.01-J	Specified Agreements
Schedule 1.01-K	Indemnified Agreements
Schedule 7.03	Required Consents or Approvals of Parent and Sub

In accordance with Item 601(b)(2) of Regulation S-K, PNM Resources agrees to furnish supplementally a copy of any schedule to the Securities and Exchange Commission upon request.

AGREEMENT AND PLAN OF MERGER dated as of January 12, 2008, among PNM Resources, Inc., a New Mexico corporation (“ Parent ”), PNM Merger Sub LLC (“ Sub ”), a Delaware limited liability company, Continental Energy Systems LLC (“ CES ”), a Delaware limited liability company previously known as Cap Rock Holding, LLC, and Cap Rock Holding Corporation (the “ Company ”), a Delaware corporation.

WHEREAS the respective Boards of Directors of Parent and the Company and the sole manager of Sub have approved the merger (the “ Merger ”) of Sub into the Company, on the terms and subject to the conditions set forth in this Agreement, whereby each issued share of common stock, par value $0.01 per share, of the Company (the “ Company Common Stock ”) not owned by Parent, Sub or the Company shall be converted into cash; and

WHEREAS Parent, Sub and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various conditions to the Merger.

NOW THEREFORE, the Parties hereto agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01. Definitions. (a) As used in this Agreement, the following terms have the meanings specified in this Section 1.01 :

“ Adjustment Amount ” may be a positive or negative number, and will be determined in accordance with Section 3.02 .

“ Affiliate ” has the meaning set forth in Rule 12b-2 of the General Rules and Regulations under the Exchange Act.

“ Asset Purchase Agreement ” means the Asset Purchase Agreement by and among Public Service Company of New Mexico, a New Mexico corporation, Cap Rock Holding LLC, a Delaware limited liability company, and New Mexico Gas Company, Inc., a Delaware corporation, as amended from time to time.

“ BCAT ” means the Business Corporation Act of the State of Texas.

“ Business ” means the electric transmission and distribution utility business of the Cap Rock Entities in the Territory, including sales of electricity to residential, commercial and industrial customers.

“ Business Agreement ” means a Contract (other than the Franchises and the Real Property Leases to which any Cap Rock Entity is a party or by which any Cap Rock Entity is bound).

“ Business Day ” means any day other than Saturday, Sunday, any day which is a legal holiday or any day on which banking institutions in Albuquerque, New Mexico or New York, New York are authorized by Law to close.

“ Capital Expenditure Budget ” means the budget for capital expenditures for the Cap Rock Entities for fiscal year 2008 attached hereto as Exhibit 1.01 -A .

“ Cap Rock Energy ” means Cap Rock Energy Corporation, a Texas corporation.

“ Cap Rock Entity ” means the Company, Cap Rock Energy, Cap Rock Intermediate or NewCorp.

“ Cap Rock Excluded Matter ” means any one or more of the following: (a) any change in the international, national, regional or local markets or industries in which any Cap Rock Entity operates or of which any Cap Rock Entity is a part that does not disproportionately affect such Cap Rock Entity in any material respect as compared to similarly situated companies in the industry in which such Cap Rock Entity operates, (b) any change after the date of this Agreement in any Law to the extent not disproportionately affecting such Cap Rock Entity in any material respect (excluding from this clause (b) any change in any Law issued by, administered by or relating to the authority or responsibilities of the PUCT), (c) any change in accounting standards, principles or interpretations, (d) announcement of this Agreement or the Transactions (including disruption or loss of customers, suppliers or employee relationships to the extent related to any announcement with respect to this Agreement or the Transactions), (e) any general change in international, national, regional, or local economic, financial markets, or political conditions, including prevailing interest rates, that does not disproportionately affect any Cap Rock Entity in any material respect as compared to similarly situated companies in the industry in which such Cap Rock Entity operates, (f) weather conditions or related customer use patterns, (g) any change in the market price of commodities or publicly traded securities, (h) any change resulting from the actions of Parent or Sub after the date of this Agreement, (i) war or terrorism or (j) failure by the Cap Rock Entities to meet revenue or earnings predictions related to the Business.

“ Cap Rock Intermediate ” means Cap Rock Intermediate, Inc., a Delaware corporation.

“ Cap Rock Material Adverse Effect ” means a material adverse effect on (a) the business, assets, properties, results of operations or financial condition of the Cap Rock Entities, taken as a whole, other than an effect (i) resulting from a Cap Rock Excluded Matter occurring after the date of this Agreement or (ii) cured (including by payment of money or application of insurance proceeds) before the Closing Date or (b) the ability of the Company to perform its obligations under this Agreement.

“ CERCLA ” means the Comprehensive Environmental Response Compensation, and Liability Act, as amended.

“ Claims ” means any and all administrative, regulatory, or judicial actions or causes of action, suits, petitions, proceedings (including arbitration proceedings), investigations, hearings, demands, demand letters, claims, or notices of noncompliance or violation delivered by any Governmental Entity or other Person.

“ Code ” means the Internal Revenue Code of 1986, as amended.

“ Company Employees ” means the employees of each Cap Rock Entity set forth on Exhibit 1.01-B , together with all other persons who are hired by any Cap Rock Entity to replace any such employee.

“ Company Required Regulatory Approvals ” means (i) the filings by CES and Parent required by the HSR Act and the expiration or earlier termination of all waiting periods under the HSR Act, and (ii) the approvals set forth on Schedule 1.01 -D .

“ Company’s Knowledge ” or words to similar effect, means the knowledge of the Company and any other Cap Rock Entity, based on the actual knowledge of the persons set forth in Schedule 1.01 -E .

“ Confidentiality Agreement ” means the Confidentiality Agreement, dated October 27, 2007 between PNM Resources, Inc. and Cap Rock Holding Corporation.

“ Contract ” means any contract, lease, sublease, commitment, indenture, agreement, understanding, instrument or other legally binding agreement, whether oral or written.

“ Disbursement Account ” means the account under the Disbursing Agent Agreement between Cap Rock Holding Corporation and Mellon Investor Services LLC dated as of May 11, 2006, as amended or modified through the date hereof, in which cash is held pursuant to the Share Exchange.

“ Encumbrances ” means any and all mortgages, pledges, liens, claims, charges, security interests, conditional and installment sale agreements, activity and use limitations, leases and other occupancy agreements, options, easements, covenants, encumbrances, obligations, limitations, title defects, deed restrictions, and all other restrictions of any kind.

“ Environment ” means all or any of the following media: soil, land surface and subsurface strata, surface waters (including navigable waters, streams, ponds, drainage basins, and wetlands), groundwater, drinking water supply, stream sediments, ambient air (including the air within buildings and the air within other natural or man-made structures above or below ground), plant and animal life, and any other natural resource.

“ Environmental Claims ” means any and all Claims (including any such Claims involving toxic torts or similar liabilities in tort, whether based on negligence or other fault, strict or absolute liability, or any other basis) relating in any way to any Environmental Laws or Environmental Permits, or arising from the presence, Release, or threatened Release (or alleged presence, Release, or threatened Release) of any Hazardous Materials, including any and all Claims by any Governmental Entity or by any Person for enforcement, cleanup, remediation, removal, response, remedial or other actions or damages, contribution, indemnification, cost recovery, compensation, injunctive relief, or property damage or personal or bodily injury (including death) or threat of injury to health, safety, cultural resources and historic properties, natural resources, or the Environment pursuant to any Environmental Law.

“ Environmental Permits ” means all permits, certifications, licenses, approvals, consents, waivers, or other authorizations of Governmental Entities issued under or with respect to applicable Environmental Laws and applicable to the Cap Rock Entities.

“ ERCOT ” means the Electric Reliability Council of Texas, Inc.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

“ ERISA Affiliate ” means any Person that, together with the Company, would be considered a single employer under Section 414(b), (c) or (m) of the Code.

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

“ FCC ” means the Federal Communications Commission.

“ FERC ” means the Federal Energy Regulatory Commission.

“ Final Regulatory Order ” means, with respect to a Required Regulatory Approval, an Order granting such Required Regulatory Approval that has not been revised, stayed, enjoined, set aside, annulled, or suspended, and with respect to which (i) any required waiting period has expired and (ii) all conditions to effectiveness prescribed therein or otherwise by Law or Order have been satisfied.

“ Financial Hedge ” means a Contract consisting of a futures contract, options contract or other derivatives transaction, in any case relating to electricity (but not including contracts for physical delivery of such commodity).

“ GAAP ” means United States generally accepted accounting principles.

“ Good Utility Practice ” means the practices, methods, standards, guides, and acts, as applicable, that (i) are generally accepted in the region during the relevant time period in the electric transmission and distribution utility industry, (ii) are commonly used in prudent utility engineering, construction, project management, and operations, or (iii) would be expected if the Business is to be conducted at a reasonable cost in a manner consistent with Laws and Orders applicable to the Business and the objectives of reliability, safety, environmental protection, economy, and expediency. Good Utility Practice includes acceptable practices, methods, or acts generally accepted in the region, and is not limited to the optimum practices, methods, or acts to the exclusion of all others.

“ Governing Documents ” of a Person means the articles or certificate of incorporation and bylaws, or comparable governing documents, of such Person.

“ Governmental Entity ” means the United States of America and any other federal, state, tribal, local, municipal or foreign governmental or regulatory authority, department, agency, commission, body, court, or other governmental entity, including ERCOT and SPP.

“ Hazardous Material ” means (i) any chemicals, materials, substances, or wastes which are now or hereafter defined as or included in the definition of “hazardous substance,” “hazardous material,” “hazardous waste,” “solid waste,” “toxic substance,” “extremely hazardous substance,” “pollutant,” “contaminant,” or words of similar import under any applicable Environmental Laws; (ii) any petroleum, petroleum products (including crude oil or any fraction thereof), natural gas, natural gas liquids, liquefied natural gas or synthetic gas useable for fuel (or mixtures of natural gas and such synthetic gas), or oil and gas exploration or production waste, polychlorinated biphenyls, asbestos-containing materials, mercury, and lead-based paints; and (iii) any other chemical, material, substances, waste, or mixture thereof which is prohibited, limited, or regulated by Environmental Laws.

“ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“ Indebtedness ” of any Person shall mean without duplication: (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than trade payables not overdue by more than 60 days incurred in the ordinary course of such Person’s business, (c) all obligations of such Person evidenced by notes, bonds, debentures or similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all capitalized lease obligations of such Person (calculated in accordance with GAAP), (f) all obligations, contingent or otherwise, of such Person as an account party to reimburse any bank or other Person under acceptance, letter of credit or similar facilities, (g) all obligations of such Person in respect of interest rate, commodity or currency hedge agreements but excluding all Financial Hedges, (h) all obligations of such Person to purchase, redeem, retire or otherwise acquire for value any capital stock of such Person or any warrants, rights or options to acquire such capital stock, (i) all Indebtedness of other Persons guaranteed by such Person, (j) negative cash/overdraft, as calculated in accordance with GAAP, (k) all Indebtedness referred to in clauses (a) through (j) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Encumbrance on property (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness and (l) all accrued interest, prepayment premiums, fees, expenses or penalties related to any of the foregoing. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefore pursuant to any guarantee or as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness expressly provide that such Person is not liable therefore.

“ Independent Accounting Firm ” means KPMG LLP.

“ Law ” means any constitution, statute, regulation, rule, charter, ordinance, code, protocol, proceeding or similar act or promulgation of any Governmental Entity.

“ Losses ” means losses, liabilities, damages, obligations, payments, costs, and expenses (including the costs and expenses of any and all actions, suits, proceedings, assessments, judgments, settlements, and compromises relating thereto and reasonable attorneys’ fees and reasonable disbursements in connection therewith).

“ Leased Real Property ” means the real property subject to the Real Property Leases.

“ Material Business Agreement ” means a Contract (a) listed on Schedule 1.01 -A , (b) required to be listed on Schedule 1.01 -A or (c) that would be listed on Schedule 1.01 -A if such Contract were in effect on the date of this Agreement.

“ NewCorp ” means NewCorp Resources Electric Cooperative, Inc., a Texas corporation.

“ Order ” means any rule, regulation, order, judgment, writ, injunction, decree, directive, or award of a court, administrative agency, or other Governmental Entity acting in an adjudicative, rulemaking or regulatory capacity, or of an arbitrator with applicable jurisdiction over the subject matter.

“ Owned Real Property ” means the real property set forth in Schedule 1.01 -F .

“ Parent Excluded Matter ” means any one or more of the following: (a) any change in the international, national, regional or local markets or industries in which Parent operates or of which Parent is a part that does not disproportionately affect Parent in any material respect as compared to similarly situated companies in the industry in which Parent operates, (b) any change after the date of this Agreement in any Law to the extent not disproportionately affecting Parent in any material respect (excluding from this clause (b) any change in any Law issued by, administered by or relating to the authority or responsibilities of the PUCT or the New Mexico Public Regulatory Commission), (c) any change in accounting standards, principles or interpretations, (d) announcement of this Agreement or the Transactions (including disruption or loss of customers, suppliers or employee relationships to the extent related to any announcement with respect to this Agreement or the Transactions), (e) any general change in international, national, regional, or local economic, financial markets, or political conditions, including prevailing interest rates, that does not disproportionately affect Parent in any material respect as compared to similarly situated companies in the industry in which Parent operates, (f) weather conditions or related customer use patterns, (g) any change in the market price of commodities or publicly traded securities, (h) war or terrorism or (i) failure by Parent to meet revenue or earnings predictions.

“ Parent Material Adverse Effect ” means a material adverse effect on (a) the business, assets, properties, results of operations or financial condition of Parent and its consolidated subsidiaries, taken as a whole, other than an effect (i) resulting from a Parent Excluded Matter occurring after the date of this Agreement or (ii) cured (including by payment of money or application of insurance proceeds) before the Closing Date or (b) the ability of Parent to perform its obligations under this Agreement.

“ Parent Required Regulatory Approvals ” means (i) the filings by CES and Parent required by the HSR Act and the expiration or earlier termination of all waiting periods under the HSR Act, and (ii) the approvals set forth on Schedule 1.01 -B .

“ Parties ” shall mean, collectively, Parent and Sub, on the one hand, and CES and the Company, on the other, and “ Party ” means each of Parent and Sub, on the one hand, or each of CES and the Company, on the other.

“ Permits ” means all permits, certificates, certifications, licenses, approvals, consents, waivers or other authorizations of Governmental Entities issued under or with respect to applicable Laws or Orders and used or held by any Cap Rock Entity for the operation of the Business or the ownership, operation, or maintenance of its assets, other than Environmental Permits and Franchises.

“ Permitted Encumbrances ” means: (i) those Encumbrances set forth in Schedule 1.01 -C ; (ii) statutory liens for Taxes and assessments not yet due and payable or liens for Taxes being contested in good faith and by appropriate proceedings (and as listed set forth in Schedule 1.01 -C ) for which adequate reserves (in the good faith and judgment of the Company) have been established; (iii) mechanics’, warehousemen’s, carriers’, mechanics’ workers’, repairers’, landlords’, and other similar liens arising or incurred in the ordinary course of business, and (A) which do not in the aggregate materially detract from the value of property or assets subject to such Encumbrance or materially impair the continued use thereof in the operation of the Business as currently conducted or (B) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or asset subject to the Encumbrance, or liens (other than liens imposed by ERISA) incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, trade contracts, leases, government contracts, performance and return-of-money bonds and other similar obligations incurred in the ordinary course of business (exclusive of obligations in respect of the payment for borrowed money); (iv) zoning, entitlement, restriction, and other land use and environmental regulations by Governmental Entities and third party encroachment agreements which do not materially interfere with the continued use of any asset of any Cap Rock Entity as currently used in the conduct of the Business; (v) any Encumbrances set forth in any Franchise or governing ordinance under which any portion of the Business is conducted; and (vi) all rights of condemnation, eminent domain, or other similar rights of any Person.

“ Person ” means any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization, or Governmental Entity.

“ PUCT ” means the Public Utility Commission of the State of Texas.

“ Real Property Leases ” means the leases set forth in Schedule 1.01 -G .

“ Regulatory Order ” means an Order issued by the PUCT or FERC or any Texas municipality that affects, is related to or governs the rates, services, activities or operations of the Business.

“ Release ” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing of Hazardous Materials into or through the Environment.

“ Representatives ” means a Party’s accountants, employees, counsel, environmental consultants, financial advisors, and other representatives.

“ Required Regulatory Approvals ” means the Company Required Regulatory Approvals and the Parent Required Regulatory Approvals.

“ SEMCO ” means, collectively, Semco Holding Corporation and SEMCO Energy, Inc.

“ SEMCO Note ” means the promissory note dated December 14, 2007, and issued by Semco Holding Corporation to the Company.

" Share Exchange " means the exchange of the then-outstanding shares of common stock of Cap Rock Energy Corporation pursuant to the Agreement and Plan of Share Exchange between Cap Rock Holding Corporation and Cap Rock Energy Corporation dated as of November 4, 2005, for the right to receive $21.75 in cash.

“ SPP ” means the Southwest Power Pool.

“ Taxes ” means all taxes, charges, fees, levies, penalties, or other assessments imposed by any foreign or United States federal, state, tribal or local Taxing Authority, including income, excise, property, sales, use, gross receipts, windfall profits, environmental (including taxes under Code Section 59A), employment, severance, stamp, capital stock, unemployment, disability, registration, value added or add-on minimum, compensating, transfer, franchise, license, payroll, withholding, social security, estimated or other taxes (including any escheat or unclaimed property obligations), in each case including any interest, penalties, or additions attributable thereto, whether disputed or not, and including any obligations to indemnify or otherwise assume or succeed to the tax liability of any other Person.

“ Taxing Authority ” means any Governmental Entity (other than ERCOT and SPP) administering, regulating, or having general oversight over, or that imposes, determines, or assesses, any Tax.

“ Tax Return ” means any return, report, information return, or other document (including any related or supporting information) required to be supplied to any Governmental Entity with respect to Taxes.

“ Territory ” means the service territory described in Schedule 1.01-H .

(b) In addition, each of the following terms has the meaning specified in the Exhibit or Section set forth opposite such term:

Term	Location of Term
2006 Audited Balance Sheet	Section 6.04(a)
2006 Audited Financial Statements	Section 6.04(a)
Adjustment Dispute Notice	Section 3.02(b)
Adjustment Amount	Section 3.02(d)
Adjusted Purchase Price	Section 3.02(d)
Aggregate Consideration	Section 3.01(b)
Benefit Plan	Section 6.08(a)
Business Regulatory Entity	Section 6.19
Business Regulatory Proceeding	Section 6.19
Cash Consideration	Section 4.01(c)(1)
Certificate of Merger	Section 2.03

Closing	Section 2.02
Closing Date	Section 2.02
Collective Bargaining Agreement	Section 6.07
Company Balance Sheets	Section 6.04(a)
Company Disclosure Letter	Article VI
Company Financial Statements	Section 6.04(a)
Company Stockholders	Section 3.01(a)
Company Stock Options	Section 3.01(b)
Confidential Information	Section 8.02(b)
Contest	Section 8.11(b)
Current Assets	Exhibit 3.01(b)
Current Liabilities	Exhibit 3.01(b)
DGCL	Section 2.01
Dissent Shares	Section 4.01(d)
Dissenter Amount	Section 3.01(b)
Dissenter Fraction	Section 3.01(b)
DLLCA	Section 2.01
Easements	Section 6.20
Effective Time	Section 2.03
Environmental Reports	Section 6.06(d)
Estimated Closing Adjustment	Section 3.01(b)
Exchange Agent	Section 4.02(a)
Exchange Fund	Section 4.02(a)
Fair Market Value	Section 4.01(c)
Franchises	Section 6.09(d)
Intellectual Property	Section 6.16
Interim Company Balance Sheet	Section 6.04(a)
Interim Company Financial Statements	Section 6.04(a)
Leased Real Property	Section 6.09(a)(v)
Major Customer	Section 6.18(b)
Merger	Recitals
Merger Consideration	Section 4.01(c)
Other Adjustments	Section 3.01(b)
Outstanding Indebtedness	Section 3.01(b)
Post-Closing Adjustment Statement	Section 3.02
Pre-Closing Tax Period	Section 8.11(a)
Pro Forma Balance Sheet	Section 5.04
Purchase Fraction	Section 3.01(b)
Purchase Price	Section 3.01(b)
Real Property Leases	Section 1.01
Restricted Stock Agreement	Section 4.02(j)
Section 262	Section 3.03
Specified Employees	Section 8.15
Specified Agreement	Section 9.02(s)
Straddle Period	Section 8.11(a)
Surviving Entity	Section 2.01

Target Working Capital	Section 3.01(b)
Tax Sharing Agreement	6.14(d)
Transactions	Section 2.01
Total Enterprise Value	Section 3.01(b)
Total Equity Value	Section 3.01(b)
Termination Date	Section 11.01(b)
Voting Company Debt	Section 6.05(a)
Working Capital	Section 3.01(b)

SECTION 1.02. Other Definitional and Interpretive Matters. Unless otherwise expressly provided, for purposes of this Agreement, the following rules of interpretation apply:

(a) Calculation of Time Period . When calculating the period of time before which, within which, or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period will be excluded. If the last day of such period is a non-Business Day, the period in question will end on the next succeeding Business Day.

(b) Dollars . Any reference in this Agreement to “ dollars ” or “ $ ” means U.S. dollars.

(c) Exhibits and Schedules . Unless otherwise expressly indicated, any reference in this Agreement to an “ Exhibit ” or a “ Schedule ” refers to an Exhibit or Schedule to this Agreement. The Exhibits and Schedules to this Agreement are hereby incorporated and made a part hereof as if set forth in full herein and are an integral part of this Agreement. Any capitalized terms used in any Schedule or Exhibit but not otherwise defined therein are defined as set forth in this Agreement.

(d) Gender and Number . Any reference in this Agreement to gender includes all genders, and the meaning of defined terms applies to both the singular and the plural of those terms.

(e) Headings . The provision of a Table of Contents, the division of this Agreement into Articles, Sections, and other subdivisions, and the insertion of headings are for convenience of reference only and do not affect, and will not be utilized in construing or interpreting, this Agreement. All references in this Agreement to any “Section” are to the corresponding Section of this Agreement unless otherwise specified.

(f) “ Herein ”. The words such as “herein,” “hereinafter,” “hereof,” and “hereunder” refer to this Agreement (including the Schedules and Exhibits to this Agreement) as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires.

(g) “ Including ”. The word “including” or any variation thereof means “including, without limitation” and does not limit any general statement that it follows to the specific or similar items or matters immediately following it.

SECTION 1.03. Joint Negotiation and Preparation of Agreement. The Parties have participated jointly in the negotiation and drafting of this Agreement and, in the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as jointly drafted by the Parties hereto and no presumption or burden of proof favoring or disfavoring any Party will exist or arise by virtue of the authorship of any provision of this Agreement.

ARTICLE II

THE MERGER

SECTION 2.01. The Merger. On the terms and subject to the conditions set forth in this Agreement, and in accordance with the Delaware General Corporation Law (the “ DGCL ”) and the Delaware Limited Liability Company Act (the “ DLLCA ”), Sub shall be merged with and into the Company at the Effective Time, and at the Effective Time the separate existence of Sub shall cease and the Company shall continue as the surviving entity. The entity that survives the Merger is sometimes referred to in this Agreement as the “ Surviving Entity ”. The Merger and the other transactions contemplated hereby are referred to in this Agreement collectively as the “ Transactions ”.

SECTION 2.02. Closing. Upon the terms and subject to the satisfaction of the conditions contained in Article IX , the closing (the “ Closing ”) of the Merger will take place at the offices of Parent in Albuquerque, New Mexico, beginning at 10:00 A.M. (Albuquerque, New Mexico time) on the second Business Day following the date on which the conditions set forth in Article IX (other than conditions to be satisfied by deliveries at the Closing) have been satisfied or waived, or at such other place or time as the Parties may agree. The date on which the Closing occurs is referred to in this Agreement as the “ Closing Date ”. At the Closing (i) the Company shall deliver to Parent and Sub the various certificates, instruments and documents referred to in Section 9.02 , and (ii) Parent and Sub shall deliver to the Company the various certificates, instruments and documents referred to in Section 9.03. At the Closing, Parent shall deliver to the Company, or to the holders of the Outstanding Indebtedness on behalf of the Company, by wire transfer of cash in immediately available funds, an amount equal to the Outstanding Indebtedness plus accrued and unpaid interest if any, to the Closing Date, but in no event more than the Total Enterprise Value minus the Purchase Price, to pay such Outstanding Indebtedness and against release of any further liability or obligation with respect to such Outstanding Indebtedness and termination of any Encumbrances securing such Outstanding Indebtedness.

SECTION 2.03. Effective Time. Prior to the Closing, Parent shall prepare, and on the Closing Date or as soon as practicable thereafter the Surviving Entity shall file with the Secretary of State of the State of Delaware, a certificate of merger or other appropriate documents (in any such case, the “ Certificate of Merger ”) executed in accordance with the relevant provisions of the DGCL and the DLLCA and shall make all other filings or recordings required under the DGCL and the DLLCA. The Merger shall become effective at such time as the Certificate of Merger is duly filed with such Secretary of State, or at such other time as Parent and the Company shall agree and specify in the Certificate of Merger (the time the Merger becomes effective being the “ Effective Time ”).

SECTION 2.04. Effects. The Merger shall have the effects set forth in Section 259 of the DGCL and Section 18-209 of the DLLCA.

SECTION 2.05. Governing Documents. The Governing Documents of the Surviving Entity shall not be changed by the Merger.

SECTION 2.06. Additional Action . The Surviving Entity may, at any time after the Effective Time, take any action, including executing and delivering any document, in the name and on behalf of either the Company or the Sub, in order to consummate the Transactions.

ARTICLE III

PURCHASE PRICE

SECTION 3.01. Purchase Price. (a) The aggregate purchase price (the “Purchase Price”) to be paid by Parent to the holders of Company Common Stock (the “ Company Stockholders ”) in the Merger shall be calculated in accordance with Section 3.01(b) , subject to adjustment in accordance with Section 3.02 .

(b) For purposes of this Agreement:

“ Company Stock Options ” means employee stock options granted by the Company.

“ Dissenter Amount ” means the product of (i) (A) $202,500,000 plus or minus (B) the Estimated Closing Adjustment, as applicable, and (ii) the Dissenter Fraction.

“ Dissenter Fraction ” means a fraction, the numerator of which is the number of Dissent Shares (determined as of two Business Days preceding the Closing Date) and the denominator of which shall be the number of shares of Company Common Stock outstanding on the Closing Date assuming the exercise of all Company Stock Options outstanding immediately prior to their cancellation on the Closing Date.

“ Estimated Closing Adjustment ” means (i) Working Capital less Target Working Capital, less (ii) Other Adjustments, less (iii) Outstanding Indebtedness, in each case as estimated in good faith by the chief financial officer of the Company and delivered to Parent at least two Business Days prior to the Closing Date and approved by Parent.

“ Other Adjustments ” means all expenses incurred by the Company, including expenses (including legal counsel and accountants’ fees and expenses) incurred by CES or any of its Affiliates that the Company has agreed to pay, in connection with the Transactions (including all costs, expenses and Taxes associated with compliance with this Agreement or the Asset Purchase Agreement), that are paid on or after the Closing Date or on or after the “Closing Date” under the Asset Purchase Agreement.

“ Outstanding Indebtedness ” means the outstanding Indebtedness of the Cap Rock Entities, calculated on a consolidated basis on the Closing Date [less any such Indebtedness actually prepaid in full by CES immediately prior to the Closing on the Closing Date.

“ Purchase Fraction ” means a fraction, the numerator of which is the number of shares of Company Common Stock outstanding on the Closing Date and the denominator of which is the number of shares of Company Common Stock outstanding on the Closing Date assuming the exercise of all Company Stock Options outstanding immediately prior to their cancellation.

“ Purchase Price ” means the product of (i) the Purchase Fraction and (ii) (A) the Total Equity Value plus (B) the amount that would be received by the Company upon the exercise of all Company Stock Options outstanding immediately prior to the cancellation of all Company Stock Options.

“ Target Working Capital ” means $854,000.

“ Total Enterprise Value ” means $202,500,000 less the Dissenter Amount.

“ Total Equity Value ” means (i) if the Estimated Closing Adjustment is positive, (x) Total Enterprise Value plus (y) the Estimated Closing Adjustment, and (ii) if the Estimated Closing Adjustment is negative, (x) Total Enterprise Value less (y) the absolute value of the Estimated Closing Adjustment.

“ Working Capital ” means Current Assets minus Current Liabilities of the Cap Rock Entities on a consolidated basis, as determined in accordance with GAAP and Exhibit 3.01(b) .

SECTION 3.02. Determination of Adjustment Amount. (a) Within 120 days after the Closing Date, CES will prepare and deliver to Parent a statement (the “ Post-Closing Adjustment Statement ”) that reflects CES’s determination of the Adjustment Amount. In addition, CES will provide Parent with supporting calculations, in reasonable detail, for such determinations at the time it delivers the Post-Closing Adjustment Statement. Parent will cooperate with CES in connection with CES’s preparation of the Post-Closing Adjustment Statement and related information, and will provide CES with access to its books, records, information, and employees as CES may reasonably request.

(b) The amounts determined by CES as set forth in the Post-Closing Adjustment Statement will be final, binding, and conclusive for all purposes unless, and only to the extent, that within 30 days after CES has delivered the Post-Closing Adjustment Statement Parent notifies CES of any dispute with matters set forth in the Post-Closing Adjustment Statement. Any such notice of dispute delivered by Parent (an “ Adjustment Dispute Notice ”) will identify with specificity each item in the Post-Closing Adjustment Statement with respect to which Parent disagrees, the basis of such disagreement, and Parent’s position with respect to such disputed item.

(c) If Parent delivers an Adjustment Dispute Notice in compliance with Section 3.02(b) , then Parent and CES will attempt to reconcile their differences and any resolution by them as to any disputed amounts will be final, binding, and conclusive for all purposes on the Parties. If Parent and CES are unable to reach a resolution with respect to all disputed items within 45 days of delivery of the Adjustment Dispute Notice, Parent and CES will submit any items remaining in dispute for determination and resolution to the Independent Accounting Firm, which will be instructed to determine and report to the Parties, within 30 days after such submission, upon such remaining disputed items. The report of the Independent Accounting Firm will be final, binding, and conclusive on the Parties for all purposes. The fees and disbursements of the Independent Accounting Firm will be allocated between Parent and CES (acting on behalf of the Company Stockholders) so that Parent’s share of such fees and disbursements will be in the same proportion that the aggregate amount of such remaining disputed items so submitted to the Independent Accounting Firm that is unsuccessfully disputed by Parent (as finally determined by the Independent Accounting Firm) bears to the total amount of such remaining disputed amounts so submitted to the Independent Accounting Firm.

(d) The “ Adjustment Amount ” means (i) Working Capital less Target Working Capital, less (ii) Other Adjustments, less (iii) Outstanding Indebtedness, less (iv) the Estimated Closing Adjustment. The Purchase Price shall be increased or decreased, as applicable, by the product of (A) the Adjustment Amount and (B) the Purchase Fraction (as so adjusted, the “ Adjusted Purchase Price ”). If the Purchase Price is less than the Adjusted Purchase Price, Parent shall, and if the Purchase Price is more than the Adjusted Purchase Price, CES, on behalf of each Company Stockholder, shall, within five Business Days after the Post-Closing Adjustment Statement becomes final and binding on the Parties, make payment to the other by wire transfer of cash in immediately available funds of the amount of such difference. Any amount to be paid pursuant to this Section 3.02(d) shall be paid with interest thereon at a rate equal to JPMorgan’s prime rate from time to time in effect, from the Closing Date to the date of payment.

SECTION 3.03. Dissent Adjustment . In the event that the amount of the fair value of the Dissent Shares, determined in accordance with Section 262 of the DGCL (“ Section 262 ”) or by settlement, exceeds the Dissenter Amount, then CES, on behalf of each Company Stockholder, shall, within five Business Days of the final determination of the fair value under Section 262, make payment to Parent by wire transfer of cash in immediately available funds of the amount of such difference.

SECTION 3.04. Withholding Rights . Parent, Sub and the Surviving Entity shall be entitled to deduct and withhold from the consideration otherwise payable to any Person pursuant to this Agreement such amounts as it is required to deduct and withhold with respect to the making of such payment under any provision of federal, state, local or foreign tax law. If Parent, Sub or the Surviving Entity so withholds amounts, such amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which Parent, Sub or the Surviving Entity made such deduction and withholding.

ARTICLE IV

EFFECT ON THE CAPITAL STOCK OF THE CONSTITUENT ENTITIES; EXCHANGE OF CERTIFICATES

SECTION 4.01. Effect on Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of Company Common Stock or any equity interest of Sub:

(a) Sub. Each issued and outstanding equity interest of Sub shall be converted into and become one fully paid and nonassessable share of common stock, par value $0.01 per share, of the Surviving Entity.

(b) Cancellation of Treasury Stock and Parent-Owned Stock. Each share of Company Common Stock that is owned by the Company, Parent or Sub shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and no Parent Common Stock or other consideration shall be delivered or deliverable in exchange therefor.

(c) Conversion of Company Common Stock . (1) Subject to Sections 4.01(b) and 4.01(d) each issued share of Company Common Stock shall be converted into the right to receive (A) an amount in cash equal to the Purchase Price divided by the number of issued shares of Company Common Stock (the “ Cash Consideration ”), plus or minus (B) a pro rata share of the cash payment, if any, to be made pursuant to Section 3.02(d).

(2) The cash payable upon the conversion of shares of Company Common Stock pursuant to this Section 4.01 is referred to collectively as “ Merger Consideration ”. As of the Effective Time, all such shares of Company Common Stock shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such shares of Company Common Stock shall cease to have any rights with respect thereto, except the right to receive Merger Consideration upon surrender of such certificate in accordance with Section 4.02 , without interest.

(d) Notwithstanding anything in this Agreement to the contrary, shares (“ Dissent Shares ”) of Company Common Stock that are outstanding immediately prior to the Effective Time and that are held by any Person who is entitled to demand and properly demands payment of the fair value of such Dissent Shares pursuant to, and who complies in all respects with, Section 262 shall not be converted into Merger Consideration as provided in Section 4.01(c) , but rather the holders of Dissent Shares shall be entitled to payment of the fair market value of such Dissent Shares in accordance with Section 262; provided , however , that if any such holder shall fail to perfect or otherwise shall waive, withdraw or lose the right to appraisal under Section 262, then the right of such holder to be paid the fair value of such holder's Dissent Shares shall cease and such Dissent Shares shall be deemed to have been converted as of the Effective Time into, and to have become exchangeable solely for the right to receive, Merger Consideration as provided in Section 4.01(c) . The Company shall give Parent prompt notice of any written demands for appraisal of any Company Common Stock, withdrawals of any such demands, and any other instruments that relate to any such demands received by the Company.

SECTION 4.02. Exchange of Certificates. (a) Exchange Agent. Promptly following the Effective Time, Parent shall take all steps necessary to enable and cause the Surviving Entity to deposit with an exchange agent to be mutually agreed upon (the “ Exchange Agent ”), for the benefit of the Company Stockholders, all the cash necessary to pay for the shares of Company Common Stock converted into the right to receive cash pursuant to Section 4.01 (such cash being hereinafter referred to as the “ Exchange Fund ”).

(b) Exchange Procedures. As soon as reasonably practicable after the Effective Time, the Exchange Agent shall mail to each holder of record of a certificate or certificates (the “ Certificates ”) that immediately prior to the Effective Time represented outstanding shares of Company Common Stock whose shares were converted into the right to receive Merger Consideration pursuant to Section 4.01 , (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for Merger Consideration. Upon surrender of a Certificate for cancellation to the Exchange Agent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Exchange Agent, the holder of such Certificate shall be entitled to receive in exchange therefor the amount of cash into which the shares of Company Common Stock theretofore represented by such Certificate have been converted pursuant to the provisions of this Article IV , and the Certificate so surrendered shall forthwith be cancelled. Until surrendered as contemplated by this Section 4.02 , each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender Merger Consideration as contemplated by this Section 4.02 . No interest shall be paid or accrue on any cash payable upon surrender of any Certificate. Notwithstanding the foregoing, all Merger Consideration to be paid or issued to CES shall be paid or issued on the Closing Date against delivery of its Certificates.

(c) No Further Ownership Rights in Company Common Stock. The Merger Consideration issued (and paid) in accordance with the terms of this Article IV upon conversion of any shares of Company Common Stock shall be deemed to have been issued (and paid) in full satisfaction of all rights pertaining to such shares of Company Common Stock, and after the Effective Time there shall be no further registration of transfers on the stock transfer books of the Surviving Entity of shares of Company Common Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, any certificates formerly representing shares of Company Common Stock are presented to the Surviving Entity or the Exchange Agent for any reason, they shall be cancelled and exchanged as provided in this Article IV .

(d) Termination of Exchange Fund. Any portion of the Exchange Fund that remains undistributed to the holders of Company Common Stock for six months after the Effective Time shall be delivered to Parent, upon demand, and any holder of Company Common Stock who has not theretofore complied with this Article IV shall thereafter look only to Parent for payment of its claim for Merger Consideration.

(e) No Liability. None of Parent, Sub, the Company or the Exchange Agent shall be liable to any Person in respect of any cash from the Exchange Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law. If any Certificate has not been surrendered prior to five years after the Effective Time (or immediately prior to such earlier date on which Merger Consideration in respect of such Certificate would otherwise escheat to or become the property of any Governmental Entity) any such shares, cash, dividends or distributions in respect of such Certificate shall, to the extent permitted by applicable Law, become the property of the Surviving Entity, free and clear of all claims or interest of any Person previously entitled thereto.

(f) Investment of Exchange Fund. The Exchange Agent shall invest any cash included in the Exchange Fund, as directed by Parent, on a daily basis. Any interest and other income resulting from such investments shall be paid to Parent.

(g) Schedule for Payment. At the time of the delivery of the Estimated Closing Adjustment, CES shall deliver to Parent and the Exchange Agent a schedule showing (i) the number of shares of Company Common Stock to be outstanding immediately prior to the Effective Time (including shares under Restricted Stock Agreements that will be vested upon the consummation of the Merger) and the holders thereof, (ii) the number of shares of Company Common Stock subject to Company Common Stock Options that will be terminated at the Effective Time in exchange for payments pursuant to Section 8.08 and the holders thereof, (iii) the allocation of the Purchase Price (before adjustment pursuant to Section 3.01(b) ) among such holders and (iv) the amounts due to all such holders pursuant to Section 8.08(a) . Such schedule shall be binding upon all holders of Company Common Stock and all holders of Company Stock Options.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF CAP ROCK HOLDING LLC

CES represents and warrants to Parent, as of the date of this Agreement and as of the Effective Time, as set forth in this Article V :

SECTION 5.01. Organization; Qualification. CES is a Delaware limited liability company duly organized, validly existing and in good standing under the laws of the state of Delaware and has all requisite limited liability company power and authority to own, lease, and operate its properties and to carry on its business as is now being conducted. CES is duly qualified or licensed to do business as a foreign limited liability company and is in good standing in each jurisdiction in which it conducts its business, except where the failure to be so qualified has not had and would not reasonably be expected to have a material adverse effect.

SECTION 5.02. Authority Relative to this Agreement. CES has all limited liability company power and authority necessary to execute and deliver this Agreement and to consummate the Transactions. The execution and delivery of this Agreement and the consummation of the Transactions have been duly and validly authorized by the managing members of CES, and no other limited liability company proceedings on the part of CES are necessary to authorize this Agreement or to consummate the Transactions. This Agreement has been duly and validly executed and delivered by CES and constitutes the valid and binding agreement of CES, enforceable against CES in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, or other similar laws affecting or relating to enforcement of creditors’ rights generally or general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity).

SECTION 5.03. Consents and Approvals; No Violation. The execution and delivery of this Agreement by CES, and the consummation by CES of the Transactions, do not:

(a) conflict with or result in any breach of the Governing Documents of CES;

(b) result in a default (including with notice, lapse of time, or both), or give rise to any right of termination, cancellation, or acceleration, under any of the terms, conditions, or provisions of any Contract to which CES is a party or by which CES is bound; or

SECTION 5.04. Pro Forma Balance Sheet. The Company Disclosure Letter sets forth an unaudited consolidated balance sheet of CES and its subsidiaries, after giving effect to the consummation of the Transactions at the Closing and to the consummation of the transactions under the Asset Purchase Agreement at the “Closing” under the Asset Purchase Agreement, as if such transactions had occurred on December 31, 2007 (the “Pro Forma Balance Sheet”). The Pro Forma Balance Sheet is a good faith estimate of the consolidated pro forma financial condition of CES and its subsidiaries as of such date.

SECTION 5.05. Fees and Commissions. No broker, finder, or other Person is entitled to any brokerage fees, commissions, or finder’s fees for which the Company or any Cap Rock Entity could become liable or obligated in connection with the Transactions by reason of any action taken by CES.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth in, or qualified by any matter set forth in, the disclosure schedule delivered by the Company to Parent contemporaneously herewith, including the documents attached to or incorporated by reference in such disclosure schedule (collectively, the “ Company Disclosure Letter ”) ( provided , that any matter disclosed in a section of the Company Disclosure Letter shall be deemed disclosed for all purposes and all Sections only to the extent that the relevance of any such disclosure to any other Section is reasonably apparent from the text of such disclosure), the Company represents and warrants to Parent, as of the date of this Agreement and as of the Effective Time, as set forth in this Article VI.

SECTION 6.01. Organization; Qualification. Each Cap Rock Entity is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it was organized and has all requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business as presently conducted. Each Cap Rock Entity is duly qualified or licensed to do business as a foreign corporation and is in good standing in each jurisdiction in which the conduct of its business requires such qualification, except where the failure to be so qualified has not had and would not reasonably be expected to have a Cap Rock Material Adverse Effect. The Company has heretofore made available to Parent true, complete, and correct copies of the Governing Documents of each Cap Rock Entity, as currently in effect.

SECTION 6.02. Authority Relative to this Agreement. (a) The Company has all corporate power and authority necessary to execute and deliver this Agreement and to consummate the Transactions. The execution and delivery of this Agreement and the consummation of the Transactions have been duly and validly authorized by the board of directors of the Company and, except for approval of this Agreement by the Company Stockholders, no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the Transactions. This Agreement has been duly and validly executed and delivered by the Company, and constitutes the valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, or other similar laws affecting or relating to enforcement of creditors’ rights generally or general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity).

(b) The board of directors of the Company has adopted such resolutions, or such other actions have been taken, as are required to provide that, effective as of the Effective Time, without any further action or consent on the part of any holder of Company Stock Options, each Company Stock Option shall be cancelled and each holder thereof shall be entitled to receive in consideration for such cancellation an amount in cash as provided in Section 8.08 .

SECTION 6.03. Consents and Approvals; No Violation. The execution and delivery of this Agreement by the Company, and the consummation by the Company of the Transactions, do not:

(a) conflict with or result in any breach of the Company’s Governing Documents;

(b) result in a default (including with notice, lapse of time, or both), or give rise to any right of termination, cancellation, acceleration, or loss of a material benefit under, or result in the creation of any Encumbrance upon any asset of any Cap Rock Entity, under any of the terms, conditions, or provisions of any note, bond, mortgage, indenture, agreement, lease, or other instrument or obligation to which any Cap Rock Entity is a party or by which any Cap Rock Entity or any of its assets may be bound, except for such defaults (or rights of termination, cancellation, or acceleration) as to which requisite waivers or consents have been obtained and are listed on Section 6.03(b) of the Company Disclosure Letter, or will prior to the Effective Time be, obtained or which if not obtained or made, individually or in the aggregate, have not had and would not reasonably be expected to have a Cap Rock Material Adverse Effect;

(c) subject to obtaining the Company Required Regulatory Approvals, conflict with or result in a violation of any Law or Order applicable to any Cap Rock Entity or any of its assets which, individually or in the aggregate, has had or would reasonably be expected to have a Cap Rock Material Adverse Effect; or

(d) require any declaration, filing, or registration with, or notice to, or authorization, consent, or approval of any Governmental Entity, other than (i) the Company Required Regulatory Approvals, (ii) such declarations, filings, registrations, notices, authorizations, consents, or approvals which, if not obtained or made, individually or in the aggregate, have not had and would not reasonably be expected to have a Cap Rock Material Adverse Effect or (iii) any requirement which becomes applicable to any Cap Rock Entity as a result of the specific regulatory status of Parent (or any of its Affiliates) or as a result of any other facts that specifically relate to any business or activities in which Parent (or any of its Affiliates) is or proposes to be engaged.

(b) Except for matters reserved against in the Company Financial Statements, each of the Company and any Cap Rock Entity had not at September 30, 2007, and has not incurred since that date, any liabilities or obligations (whether absolute, accrued, contingent, fixed or otherwise, whether due or to become due) of any nature that would be required by GAAP to be reflected on a consolidated balance sheet of the Company (including the notes thereto), except liabilities or obligations which were incurred in the ordinary course of business consistent with past practice.

(c) The Cap Rock Entities maintain a system of internal accounting controls that is, to the Company’s Knowledge, sufficient to provide reasonable assurances that (i) normal course business transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

SECTION 6.05. Capital Stock, Corporate Information . (a) Section 6.05(a) of the Company Disclosure Letter sets forth for each Cap Rock Entity the amount of its authorized capital stock, the amount of its outstanding capital stock and the record and beneficial owners of its outstanding capital stock. Except as set forth in Section 6.05(a) of the Company Disclosure Letter, there are no shares of capital stock or other equity securities (or, in the case of NewCorp, member interests) of any Cap Rock Entity that have been issued, reserved for issuance or outstanding. The outstanding shares of capital stock of each Cap Rock Entity (and member interests in NewCorp) are duly authorized, validly issued, fully paid and nonassessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the DGCL or the BCAT, as applicable, the Governing Documents of any Cap Rock Entity or any Contract to which a Cap Rock Entity is a party or otherwise bound. The outstanding shares of capital stock (and member interests in the case of NewCorp) of each Cap Rock Entity are owned free and clear of all pledges, liens, charges, mortgages, assignments, rights of setoff, encumbrances and security interests or options, voting agreements, proxies, rights of first

refusal or other restrictions or matters affecting the disposition or voting thereof, of any kind whatsoever. None of the Cap Rock Entities has any outstanding bonds, debentures, notes or other Indebtedness having the right to vote (or which are convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of the capital stock (or member interests) of each such Cap Rock Entity may vote (“ Voting Company Debt ”). Except as set forth in Section 6.05(a) of the Company Disclosure Letter, there are not any options, warrants, rights, convertible or exchangeable securities, “phantom” stock rights, stock appreciation rights, stock-based performance units, commitments, Contracts, arrangements or undertakings of any kind to which any Cap Rock Entity is a party or by which any of them are bound (i) obligating any Cap Rock Entity to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of its capital stock or other equity interests in, or member interests in, or any security convertible or exercisable for or exchangeable into any capital stock of or other equity interest or member interest in the Company or any other Cap Rock Entity or Voting Company Debt, (ii) obligating any Cap Rock Entity to issue, grant, extend or enter into any such option, warrant, call, right, security, commitment, Contract, arrangement or undertaking or (iii) that give any Person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights occurring to holders of the capital stock or member interests of any Cap Rock Entity. There are not any outstanding contractual obligations of any Cap Rock Entity to repurchase, redeem or otherwise acquire any shares of its capital stock (or member interests) or the capital stock (or member interests) of any other Cap Rock Entity.

(b) Except for its interests in Cap Rock Entities, none of the Cap Rock Entities owns, directly or indirectly, any capital stock, membership interest, partnership interest, joint venture interest or other equity interest in any Person.

(c) Section 6.05(c) of the Company Disclosure Letter sets forth a list of the officers and directors of each Cap Rock Entity as of the date of this Agreement.

(d) The Company has made available to Parent the corporate minute books and stock records for each Cap Rock Entity, including original documentation or true, complete and correct copies of the minutes of all proceedings of the respective boards of directors (including any committees thereof), stockholders and members of each Cap Rock Entity, and any and all written consents of the respective boards of directors (including any committees thereof) and stockholders or members in lieu of meetings for each Cap Rock Entity, in the case of the Company and Cap Rock Intermediate since their respective dates of incorporation, for Cap Rock Energy its stock records since May 11, 2006 and corporate minutes since May 14, 2003, and in the case of NewCorp its member records and corporate minutes since April 22, 2003.

SECTION 6.06. Environmental. The only representations and warranties given in respect to Environmental Laws, Environmental Permits, Environmental Claims or other environmental matters are those contained in Sections 6.03, 6.04, 6.13 and this Section 6.06 , and none of the other representations and warranties contained in this Agreement will be deemed to constitute, directly or indirectly, a representation and warranty with respect to Environmental Laws, Environmental Permits, Environmental Claims, or other environmental matters. All such matters are governed exclusively by Sections 6.03, 6.04, 6.13, this Section 6.06 , and by Article X .

(a) Except as set forth in Section 6.06-(a)-1 of the Company Disclosure Letter, (i) the Company or other Cap Rock Entities possess all Environmental Permits necessary to operate the Business as currently being operated, (ii) to the Company’s Knowledge the Company and other Cap Rock Entities are in compliance, in all material respects, with the requirements of all Environmental Permits and Environmental Laws, and (iii) to the Company’s Knowledge, no Cap Rock Entity has received any written notice or information that any applicable Governmental Entity intends to modify, suspend, revoke, or withdraw (in a manner that would reasonably be expected to have a material adverse impact on such Cap Rock Entity), any Environmental Permit. Section 6.06(a) -2 of the Company Disclosure Letter sets forth a list of all material Environmental Permits held by the Cap Rock Entities for the operation of the Business as presently conducted.

(b) Except as set forth in Section 6.06(b) of the Company Disclosure Letter, no Cap Rock Entity has received within the last three years any written notice, report, or other information regarding any actual or alleged violation of Environmental Laws or Environmental Permits, or any liabilities or potential liabilities, including any investigatory, remedial, or corrective obligations, relating to the Business arising under Environmental Laws.

(c) Except as set forth in Section 6.06(c) of the Company Disclosure Letter, (i) to the Company’s Knowledge, there is and has been no Release or threatened Release (as that term is used or interpreted under or pursuant to CERCLA) from, in, on, or beneath the Owned Real Property, the Leased Real Property or any other real property used or occupied by any Cap Rock Entity or otherwise relating to the Business, including, to the Company’s Knowledge, any off site location, that could form a basis for an Environmental Claim against any Cap Rock Entity or Parent, and (ii) there are no Environmental Claims related to any Cap Rock Entity or the Business, which are pending or, to the Company’s Knowledge, threatened against any Cap Rock Entity.

(d) The Company has made available to Parent all material correspondence from any Governmental Entity, studies, audits, reviews, investigations, analyses, and reports on material environmental matters relating to the Cap Rock Entities or the Business that are in the possession or reasonable control of the Company (the “ Environmental Reports ”).

SECTION 6.07. Labor Matters. (a) Section 6.07 (a) of the Company Disclosure Letter lists each collective bargaining agreement covering any of the Company Employees to which any Cap Rock Entity is a party or is subject (each, a “ Collective Bargaining Agreement ”). Except as has not had and would not reasonably be expected to have a Cap Rock Material Adverse Effect, (i) the Company is in compliance with all Laws applicable to the Company Employees respecting employment and employment practices, terms and conditions of employment, and wages and hours; (ii) the Company has not received written notice of any unfair labor practice complaint against the Company pending before the National Labor Relations Board with respect to any of the Company Employees; (iii) the Company has not received notice that any representation petition respecting the Company Employees has been filed with the National Labor Relations Board; (iv) no grievance or arbitration proceeding arising out of or under the Collective Bargaining Agreements is pending against the Company; and (v) there is no labor strike, slowdown, work stoppage, or lockout actually pending or, to the Company’s Knowledge, threatened against the Company. The Company has made available to Parent a true, correct, and complete copy of each Collective Bargaining Agreement.

(b) Except as set forth in Section 6.07(b) of the Company Disclosure Letter, none of the Company and Cap Rock Intermediate now has, or has ever had any employees (whether on a full-time, part-time, or temporary basis). As of the date of this Agreement, there are no material complaints, charges or claims against any Cap Rock Entity pending or, to the Company’s knowledge, threatened which could be brought or filed with any Governmental Authority, arbitrator or court based on, arising out of, in connection with or otherwise relating to the employment or termination of employment by any Cap Rock Entity of any individual.

SECTION 6.08. ERISA; Benefit Plans. (a) Section 6.08(a) of the Company Disclosure Letter lists each employee benefit plan (as such term is defined in Section 3(3) of ERISA) and each other plan, program, arrangement, or legally binding agreement or commitment providing compensation (including bonus, deferred compensation or incentive compensation) or benefits to current or former employees or independent contractors that is maintained by, contributed to, or required to be contributed to by the Company (or any ERISA Affiliate of the Company) or with respect to which the Company (or any ERISA Affiliate of the Company) has any actual or contingent liability (each, a “ Benefit Plan ”). With respect to each Benefit Plan (where applicable): the Company has delivered or made available to Parent complete and accurate copies of (i) all plan documents, trust agreements, summary plan descriptions, summaries of material modifications, any material written interpretations or descriptions given to plan participants or others, any other descriptive material delivered to plan participants, and all annuity contracts or other funding arrangements or instruments, (ii) complete written descriptions of any Benefit Plan that is not in writing, (iii) all determination letters received from the Internal Revenue Service, (iv) annual reports (Forms 5500), including all schedules and audited financial statements, for the most recent three plan years, (v) actuarial reports, if any, for the most recent three plan years, (iv) all notices that were given by the Internal Revenue Service, the Pension Benefit Guaranty Corporation, or the Department of Labor with respect to any Benefit Plan within the last three years; and (vi) such other documents or information as Parent reasonably requests.

(b) Each Benefit Plan that is intended to be qualified under Section 401(a) of the Code has received a determination from the Internal Revenue Service that such Benefit Plan is so qualified, and each trust that is intended to be exempt under Section 501(a) of the Code has received a determination letter that such trust is so exempt. Nothing has occurred since the date of such most recent determination letter that would materially adversely affect the qualified or exempt status of such Benefit Plan or trust, nor will the consummation of the transactions provided for by this Agreement have any such effect. Each Benefit Plan has been administered and operated in all material respects in accordance with its terms and in compliance in all material respects with the applicable provisions of ERISA and all other applicable laws.

(d) Neither the Company nor any ERISA Affiliate of the Company has contributed in the past five years to a “multiemployer plan” within the meaning of Section 3(37) of ERISA, and, to the Company’s Knowledge, there is no circumstance, event or condition which could cause the Company or the Parent to incur any liability in respect of any multiemployer plan.

(e) Neither the Company nor any ERISA Affiliate of the Company has, or in the past six years has had, any obligation or liability with respect to any defined benefit plan subject to Title IV of ERISA. All contributions, premium payments and other payments due from the Company to or under the Benefit Plans have been paid in a timely manner and all contributions have been and are deductible for income tax purposes, and no such contributions or deductions have been challenged or disallowed by any governmental entity or other tribunal.

(f) Except as set forth in Section 6.08(f) of the Company Disclosure Schedule, the Company has not engaged in, and, to the Company’s Knowledge, no fiduciary of any Benefit Plan has engaged in, any transaction in violation of Section 406 of ERISA or any “prohibited transaction” (within the meaning of Section 4975 of the Code) for which no exemption exists under ERISA or the Code. No liability, claim, investigation, audit, action or litigation has been incurred, made, commenced or, to the Company’s Knowledge, threatened (other than routine claims for benefits) with respect to any Benefit Plan.

(g) The Company does not maintain or contribute to any employee benefit plan which provides, and has no liability or obligation to provide, life insurance, medical or other employee welfare benefits to any employee (or such employee’s beneficiary) upon such employee’s retirement or termination of employment, except as may be required by federal, state or local laws, rules or regulations.

(h) Each Benefit Plan which is a “group health plan” as defined in Section 5000(b)(1) of the Code has been operated in material compliance with the requirements of Section 4980B of the Code and Sections 601 through 608 of ERISA (COBRA), and each Benefit Plan, to the extent applicable, is in material compliance with the privacy, security and other provisions of the Health Insurance Portability and Accountability Act of 1996.

(i) Each Benefit Plan which is a nonqualified deferred compensation plan, within the meaning of Section 409A of the Code, maintained by the Company or any ERISA Affiliate on or after January 1, 2005, has been operated in good faith compliance with the requirements of Section 409A of the Code (or an available exemption therefrom).

(j) The Transactions will not result in any increase in liability of Parent with respect to any Benefit Plan (including under any employment, retention, severance, change in control or similar agreement or plan).

(k) Prior to the Closing Date, no Cap Rock Entity will terminate the employment of any officer employed by a Cap Rock Entity other than for cause or due to death, disability or failure to perform.

(l) Section 6.08(l) of the Company Disclosure Letter sets forth a list by individual of any outstanding obligations of any Cap Rock Entity under any deferred compensation plans.

(m) Neither the Company nor any ERISA Affiliate has announced any plan or legally binding commitment to create any additional Benefit Plans or to amend or modify any existing Benefit Plan except as otherwise required by law.

(n) The Company has substantially performed all material obligations required to be performed by it under ERISA, the Code and any other applicable state, federal or foreign law and under the terms of each Benefit Plan. To the Company’s Knowledge there is no, and the Company has received no written notice with respect to the existence of any, material default or violation by any Party

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