**EXHIBIT10.77**

 

FUNDING AGREEMENT

 

THIS FUNDING AGREEMENT (this “Agreement”) ismade and entered into this 1st day of October, 2002, by and between CAP ROCKENERGY CORPORATION (the “Company”), a Texas corporation, and ALFRED J. SCHWARTZand ROBERT G. HOLMAN, Trustees (together with their successors, the “Trustees”)of the CAP ROCK ENERGY CORPORATION SHAREHOLDERS’ TRUST (the “Trust”) dated ofeven date herewith.

 

BACKGROUND

 

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

 

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

 

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

 

TERMS AND CONDITIONS

 

In consideration of the sum of $10.00 in cashpaid by the Trust to the Company, the mutual benefits to be derived and therepresentations and warranties, conditions and promises herein contained, andother good and valuable consideration, the receipt and sufficiency of which arehereby acknowledged, and intending to be legally bound hereby, the parties heretohereby agree as follows:

 

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

 

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

 

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

 

Each Funding Notice may be in any formatdeemed appropriate by the Trustees, as long as it clearly sets forth the basisof the funding requirement (e.g., Trustee compensation or Trustee expensereimbursement), the amount needed and such backup material as may be requestedby the Company (which, in the case of expense reimbursement requests, may includea copy of the expense reports being paid and a copy of the receipt backup tosuch reports).

 

23.   ADVANCEMENT OF FUNDS. Within fifteen (15) business days of thedelivery of a Funding Notice, the Company shall pay to the Trust the amountrequested 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 transferof immediately available funds.

 

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

 

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

 

26.   SPECIFIC PERFORMANCE. The Company acknowledges and agrees that, inthe event of any breach of this Agreement, the Trust would be irreparably andimmediately 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 maybe entitled at law or in equity, the Trust shall be entitled to compel specificperformance of this Agreement, and that the Company will not oppose thegranting of such relief. The Company also agrees to reimburse the Trust for allcosts and expenses, including attorneys’ fees, incurred by the Trust inattempting to enforce the obligations of the Company under this Agreement.

 

27.   NOTICE DELIVERY REQUIREMENTS. All notices or other communicationswhich are required or permitted hereunder shall be in writing and shall bedelivered either personally or by telegram, telex, telecopy or similarfacsimile means, by registered or certified mail (postage prepaid and returnreceipt requested), or by express courier or delivery service, addressed asfollows:

 

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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 havepreviously designated by written notice given to the other party in the mannerhereinabove set forth. Notices shall be deemed given when received, if sent bytelegram, telex, telecopy or similar facsimile means (confirmation of suchreceipt by confirmed facsimile transmission being deemed receipt ofcommunications sent by telex, telecopy or other facsimile means); and whendelivered and receipted for (or upon the date of attempted delivery wheredelivery is refused), if hand-delivered, sent by express courier or deliveryservice, or sent by certified or registered mail.

 

28.   FURTHER ASSURANCES. The parties hereto agree (i) to furnish uponrequest to each other such further information; (ii) to execute and deliver toeach 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 thepurpose of carrying out the intent of this Agreement.

 

29.   WAIVER. The rights and remedies of the parties to this Agreementare cumulative and not alternative. Neither the failure nor any delay on thepart of any party in exercising any right, power or privilege under thisAgreement shall operate as a waiver thereof, nor shall any single or partialexercise of any such right, power or privilege

 

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preclude any other or further exercise thereof or the exercise of anyother right, power or privilege. To the maximum extent permitted by applicablelaw, (i) no claim or right arising out of this Agreement can be discharged byone party hereto, in whole or in part, by a waiver or renunciation of the claimor right unless in writing signed by the other party hereto; (ii) no waiverwhich may be given by a party hereto shall be applicable except in the specificinstance for which it is given; and (iii) no notice to or demand on one partyhereto shall be deemed to be a waiver of any obligation of such party or of theright of the party giving such notice or demand to take further action withoutnotice or demand as provided in this Agreement.

 

30.   ENTIRE AGREEMENT AND MODIFICATION. This Agreement is intended bythe parties to this Agreement as a final expression of their agreement withrespect to the subject matter hereof, and is intended as a complete andexclusive statement of the terms and conditions of that agreement. ThisAgreement may not be modified, rescinded or terminated orally, and nomodification, rescission, termination or attempted waiver of any of theprovisions hereof (including this Section) shall be valid unless in writing andsigned by the party against whom the same is sought to be enforced.

 

31.   LIMITATIONS ON ASSIGNMENTS. The Company shall not, during the termof this Agreement, assign, transfer or otherwise dispose of any of its rightsor 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 whomany rights or obligations hereunder may have been transferred in accordancewith this Agreement shall not, during the term of this Agreement, assign,transfer or otherwise dispose of any of its rights hereunder to a person otherthan the Company or another Affiliate of the Company, without the prior writtenconsent of the Trust. As used in this Agreement, the term “Affiliate of theCompany” means a person that directly, or indirectly through one or moreintermediaries, controls, or is controlled by, or is under common control with,the Company, and a person shall be deemed to control another person (includingthe Company) if the controlling person is the beneficial owner (as defined inRule 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 thecontrolled person or possesses, directly or indirectly, the power to direct orcause the direction of the management or policies of the controlled person,whether through ownership of securities, through serving as an officer ordirector, by contract or otherwise.

 

32.   PERSONS BOUND. This Agreement shall apply to and be binding in allrespects upon, and shall inure to the benefit of the parties hereto and theirpermitted successors and assigns. Nothing expressed or referred to in thisAgreement is intended or shall be construed to give any person or entity otherthan the parties to this Agreement, and their permitted successors and assigns,any legal or equitable right, remedy or claim under or with respect to thisAgreement, or any provision hereof, it being the intention of the partieshereto that this Agreement and all of its provisions and conditions are for thesole and exclusive benefit of the parties to this Agreement, their successorsand assigns, and for the benefit of no other person or entity.

 

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33.   SEVERANCE. In the event any court of competent jurisdiction shallhold any provision of this Agreement invalid or unenforceable, such holdingshall not invalidate or render unenforceable any other provisions hereof. Anyprovision of this Agreement held invalid or unenforceable only in part ordegree shall remain in full force and effect to the extent not held invalid orunenforceable.

 

34.   SECTION HEADINGS, CONSTRUCTION. The headings of articles andsections contained in this Agreement are provided for convenience only. Theyform no part of this Agreement and shall not affect its construction orinterpretation. All references to articles and sections in this Agreement referto the corresponding articles and sections of this Agreement. All words usedherein shall be construed to be of such gender or number as the circumstancesrequire. Unless otherwise specifically noted, the words “herein,” “hereof,”“hereby,” “hereinabove,” “hereinbelow,” “hereunder,” and words of similarimport, 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 asotherwise expressly stated herein, whenever the consent or permission of aparty hereto is required hereunder, such consent or permission shall not beunreasonably withheld or delayed.

 

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

 

37.   GOVERNING LAW. This Agreement and all rights arising hereundershall be construed and determined in accordance with the laws of the State ofTexas, and the performance thereof shall be governed and enforced in accordancewith such laws. In the event any controversy arises out of or relates to thisAgreement, the Trustees and representatives of the Company shall first meet inMidland, Texas, and attempt to negotiate a resolution of their dispute. In theevent such negotiation shall fail to resolve any such conflict, the partieshereby agree to submit to arbitration administered by the American ArbitrationAssociation under its then current Commercial Arbitration Rules. Any suchcontroversy shall be submitted in Dallas, Texas, to a panel of three (3)arbitrators, one chosen by each party and the third under the AmericanArbitration Rules. At least two (2) of the arbitrators shall have experiencewith securities. The arbitrators will have no authority to award punitive orother damages not measured by the prevailing party’s actual damages and maynot, in any event, make any ruling, finding, or award that does not conform tothe terms and conditions of this Agreement. The parties shall faithfully observethis Agreement and such rules, and will abide by and perform any award renderedby the arbitrators, and a judgment of any court having jurisdiction may beentered on the award. The provisions of this Section 16 are a materialinducement for both the Company and the Trust entering into the Agreement andthe transactions

 

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contemplated herein. The Company and the Trust each hereby acknowledgethat it has reviewed the provisions of this Section 16 with its independentlegal counsel.

 

38.   COUNTERPARTS. This Agreement may be executed in one or morecounterparts, each of which shall be deemed to be an original copy of thisAgreement, and all of which, when taken together, shall be deemed to constitutebut one and the same agreement.

 

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SIGNATURES

 

To evidence the binding effect of thecovenants and agreements described above, the Company (by its duly authorizedofficer) and the Trust (by the Trustees) have caused this Agreement to beexecuted and delivered as of, but not necessarily on, the date first writtenabove.

 
|   | 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                             |

 

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