EXHIBIT
10.77


 


FUNDING AGREEMENT


 


THIS FUNDING AGREEMENT (this “Agreement”) is
made and entered into this 1st day of October, 2002, 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


 


C.    On even date herewith, the Company created the Trust and
deposited 346,958 issued and outstanding shares of common stock,  $.01 par value, of the Company with the
Trustees for the benefit of certain former members of the Company’s
predecessor;


 


D.    The instrument creating the Trust provides, among other things,
that the Company will provide the Trust with the funds necessary to pay the
compensation and expenses of the Trustees, which agreement with the Company was
a material inducement to the Trustees to consent to serve in such capacity;


 


E.     The parties now desire to set forth the specific terms and
conditions under which the funds to pay the compensation and expenses of the
Trustees will be provided by the Company.


 


TERMS AND CONDITIONS


 


In consideration of the sum of $10.00 in cash
paid by the Trust to the Company, 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:


 


22.   FUNDING NOTIFICATION.  The
Trustees may, from time to time, notify the Company in writing (a “Funding
Notice”) of the need of the Trust for funds to pay:


 


(a)          the compensation and expenses of
the Trustees under the terms of the instrument creating the Trust; and


 

















 


(b)         the obligations of the Trust to
indemnify the Trustees under the terms of the instrument creating the Trust.


 


Each Funding Notice may be in any format
deemed appropriate by the Trustees, as long as it clearly sets forth the basis
of the funding requirement (e.g., Trustee compensation or Trustee expense
reimbursement), the amount needed and such backup material as may be requested
by the Company (which, in the case of expense reimbursement requests, may include
a copy of the expense reports being paid and a copy of the receipt backup to
such reports).


 


23.   ADVANCEMENT OF FUNDS. Within fifteen (15) business days of the
delivery of a Funding Notice, the Company shall pay to the Trust the amount
requested in the Funding Notice. Such advancement shall be in the form of cash,
bank cashiers’ check or deposit into the account of the Trust by wire transfer
of immediately available funds.


 


24.   AGREEMENT TERM. The term of this Agreement shall commence on the
date of this Agreement and shall continue until the termination of the Trust in
accordance with the instrument creating the Trust.


 


25.   ADMINISTRATIVE EXPENSES. The Company shall be responsible for
payment of all expenses reasonably incurred by the Trust in connection with
this Agreement, including, but not limited to, delivery and copying expenses,
attorneys’ fees and costs and the expenses and costs of other professionals
hired by the Trustees on behalf of the Trust, and other similar expenses.


 


26.   SPECIFIC PERFORMANCE. The Company acknowledges and agrees that, in
the event of any breach of this Agreement, the Trust would be irreparably and
immediately harmed and could not be made whole by monetary damages alone.
Accordingly, it is agreed that, in addition to any other remedy to which it may
be entitled at law or in equity, the Trust shall be entitled to compel specific
performance of this Agreement, and that the Company will not oppose the
granting of such relief. The Company also agrees to reimburse the Trust for all
costs and expenses, including attorneys’ fees, incurred by the Trust in
attempting to enforce the obligations of the Company under this Agreement.


 


27.   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, President


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.


 


28.   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.


 


29.   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 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 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.


 


30.   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.


 


31.   LIMITATIONS ON ASSIGNMENTS. The Company shall not, during the term
of this Agreement, assign, transfer or otherwise dispose of any of its rights
or obligations 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 or obligations 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. As used in this Agreement, the term “Affiliate of the
Company” means a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Company, and a person shall be deemed to control another person (including
the Company) 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.


 


32.   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. 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.


 

















 


33.   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.


 


34.   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.


 


35.   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.


 


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


 


37.   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 16 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 16 with its independent
legal counsel.


 


38.   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, President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CAP ROCK ENERGY CORPORATION

  SHAREHOLDERS’ TRUST

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Alfred J. Schwartz

  
	
   

  	
  Alfred J. Schwartz, Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Robert G. Holman

  
	
   

  	
  Robert G. Holman, Trustee