**Exhibit 10.78**

 

CAP ROCK ENERGY CORPORATION

SUPPLEMENTAL EXECUTIVE DEFERRED

COMPENSATION RETIREMENT PLAN

 

PLAN DOCUMENT

 

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**TABLE OF CONTENTS**

 
| ARTICLE I  PURPOSE OF PLAN                       |
|-------------------------------------------------------|
| 1.1                                                   | PURPOSE  OF PLAN |
|                                                  |   |
| ARTICLE II  DEFINITIONS                          |
| 2.1                                                   | ACCOUNT |
| 2.2                                                   | BENEFICIARY |
| 2.3                                                   | BOARD |
| 2.4                                                   | CODE |
| 2.5                                                   | COMMITTEE |
| 2.6                                                   | COMPANY |
| 2.7                                                   | COMPANY CONTRIBUTION |
| 2.8                                                   | COMPENSATION |
| 2.9                                                   | EFFECTIVE  DATE |
| 2.10                                                  | ELIGIBLE  EMPLOYEE |
| 2.11                                                  | ENTRY DATE |
| 2.12                                                  | NONQUALIFIED DEFERRAL CONTRIBUTION |
| 2.13                                                  | PARTICIPANT |
| 2.14                                                  | PARTICIPANT ENROLLMENT AND ELECTION FORM |
| 2.15                                                  | PLAN |
| 2.16                                                  | PLAN YEAR |
| 2.17                                                  | TRUST |
| 2.18                                                  | TRUSTEE |
| 2.19                                                  | VALUATION  DATE |
|                                                  |   |
| ARTICLE III  ELIGIBILITY AND PARTICIPATION       |
| 3.1                                                   | REQUIREMENTS |
| 3.2                                                   | RE-EMPLOYMENT |
| 3.3                                                   | CHANGE OF EMPLOYMENT CATEGORY |
|                                                  |   |
| ARTICLE IV   NONQUALIFIED DEFERRAL CONTRIBUTIONS |
| 4.1                                                   | NONQUALIFIED DEFERRAL ELECTIONS |
| 4.2                                                   | PAYROLL DEDUCTIONS |
| 4.3                                                   | TIMING OF CONTRIBUTION |
|                                                  |   |
| ARTICLE V   COMPANY CONTRIBUTIONS                |
| 5.1                                                   | COMPANY CONTRIBUTION |
| 5.2                                                   | TIMING OF CONTRIBUTION |

 

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| ARTICLE VI  PLAN ACCOUNTS            |
|-------------------------------------------|
| 6.1                                       | ESTABLISHMENT OF ACCOUNTS |
| 6.2                                       | NONQUALIFIED DEFERRAL ACCOUNT |
| 6.3                                       | COMPANY CONTRIBUTION ACCOUNT |
| 6.4                                       | ALLOCATION OF INCOME |
|                                      |   |
| ARTICLE VII  ALLOCATION OF FUNDS     |
| 7.1                                       | ALLOCATION OF EARNINGS OR LOSSES ON  ACCOUNTS |
| 7.2                                       | ACCOUNTING FOR DISTRIBUTION |
| 7.3                                       | INTERIM VALUATIONS |
|                                      |   |
| ARTICLE VIII  VESTING                |
| 8.1                                       | NONQUALIFIED DEFERRAL CONTRIBUTIONS |
| 8.2                                       | COMPANY CONTRIBUTIONS |
|                                      |   |
| ARTICLE IX   PAYMENTS OF BENEFITS    |
| 9.1                                       | PAYMENTS OF BENEFITS |
| 9.2                                       | WITHDRAWAL OF FUNDS |
|                                      |   |
| ARTICLE X   COMMITTEE ADMINISTRATION |
| 10.1                                      | COMMITTEE |
|                                      |   |
| ARTICLE XI  THE TRUST                |
| 11.1                                      | ESTABLISHMENT OF TRUST |
|                                      |   |
| ARTICLE XII  ADMINISTRATION          |
| 12.1                                      | ADMINISTRATIVE AUTHORITY |
| 12.2                                      | MUTUAL EXCLUSION OF RESPONSIBILITY |
| 12.3                                      | UNIFORMITY OF DISCRETIONARY ACTS |
| 12.4                                      | LITIGATION |
| 12.5                                      | PAYMENT OF ADMINISTRATION EXPENSES |
| 12.6                                      | CLAIMS  PROCEDURE |
| 12.7                                      | LIABILITY OF COMMITTEE, INDEMNIFICATION |
| 12.8                                      | EXPENSES |
| 12.9                                      | TAXES |
| 12.10                                     | ATTORNEY’S  FEES |

 

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**ARTICLEI - PURPOSE OF PLAN**

 

1.1                                 PURPOSE OF PLAN.   The Company intendsand desires by the adoption of this Plan to recognize the value to the Companyof the past and present services of Eligible Employees covered by the Plan andto encourage an assure their continued service with the Company by making moreadequate provisions for their future retirement security.

 

This Plan has been adopted toprovide certain select management and highly compensated employees of Cap RockEnergy Corporation the opportunity to accumulate deferred compensation untilretirement, disability, resignation, dismissal or death.

 

This Plan is intended to be “aplan which is unfunded and maintained by an employer primarily for the purposeof providing deferred compensation for a select group of management or highlycompensated employees” within the meaning of Sections 201(2), 301(a)(3) and401(a)(1) of the Employee Retirement Income Security Act of 1974 (“ERISA”) andshall be interpreted and administered in a manner consistent with that intent.

 

**ARTICLEII - DEFINITIONS**

 

2.1                                 ACCOUNT means those separate accounts established andmaintained under the Plan in the name of each Participant as required pursuantto the provisions of Article VII.

 

2.2                                 BENEFICIARY means a Participant’s beneficiary orbeneficiaries identified on the Participant Enrollment and Election Form.

 

2.3                                 BOARD means the Board of Directors of Cap Rock EnergyCorporation.

 

2.4                                 CODE means the Internal Revenue Code of 1986 and the regulationsthereunder, as amended from time to time.

 

2.5                                 COMMITTEE means the Retirement Committee appointed by theBoard.

 

2.6                                 COMPANY means Cap Rock Energy Corporation or any company whichis a successor as a result of merger, consolidation, liquidation, transfer ofassets, or other reorganization.

 

2.7                                 COMPANY CONTRIBUTION means an amount contributedby the Company pursuant to the provisions of Article V.

 

2.8                                 COMPENSATION means base salary or wages, plus overtime,bonuses, commissions, etc., which is paid the employee by the Company for theperformance of duties during the Plan Year. Compensation used shall be prior to any salary deferrals.

 

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2.9                                 EFFECTIVE DATE means the date on which the Companyadopts the Plan.

 

2.10                           ELIGIBLE EMPLOYEE means, for any Plan Year (orapplicable portion thereof), person employed by the Company who is determinedby the Board to be a member of select group of management or highly compensatedemployees, who is designated by the Board to be eligible under the Plan.  **By fifteendays prior to the beginning of a Plan Year, the Company shall notify thoseindividuals, if any, who will be Eligible Employees for the next Plan Year. Ifthe Company determines that an employee first becomes an Eligible Employeeduring a Plan Year, the Company shall notify such employee of its determinationand of the date during the Plan Year on**which the **employee shall. first become an Eligible Employee.**

 

2.11                           ENTRY DATE means the date as determined by the Company.

 

2.12                           NONQUALIFIED DEFERRAL CONTRIBUTIONmeans Compensation that is due to be earned and which would otherwise be paidto the Participant, which the Participant elects to defer under the Plan andwhich is contributed on behalf of each Participant by the Company pursuant tothe provisions of Article IV.

 

2.13                           PARTICIPANT means any person so designated in accordancewith the provisions of Article III, including where appropriate according tothe context of the Plan, any former employee who is or may become (or whoseBeneficiaries may become) eligible to receive a benefit under the Plan.

 

2.14                           PARTICIPANT ENROLLMENT AND ELECTIONFORM means the form on which a Participant elects to defer Compensationhereunder and on which the Participant makes certain other designations asrequired thereon.

 

2.15                           PLAN means this Cap Rock Energy Corporation SupplementalExecutive Deferred Compensation Retirement Plan.

 

2.16                           PLAN YEAR means the twelve (12) month period ending onDecember 31 each year.

 

2.17                           TRUST means the trust fund established pursuant to the Plan.

 

2.18                           TRUSTEE means the trustee named in the agreement establishingthe Trust and such successor and/or additional trustees as may be namedpursuant to the terms of the agreement establishing the Trust.

 

2.19                           VALUATION DATE means the last day of each Plan Year andany other date that the Company, in its sole discretion, designates as aValuation Date.

 

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**ARTICLE III - ELIGIBILITY AND PARTICIPATION**

 

3.1                                 REQUIREMENTS.   Every Eligible Employee asof the Effective Date shall be eligible to become a Participant on theEffective Date. Every other Eligible Employee shall be eligible to become aParticipant on the first Entry Date occurring on or after the date on which heor she becomes an Eligible Employee. No individual shall become a Participant,however, if he or she in not an Eligible Employee on the date his or herparticipation is to begin.

 

Participation in the Plan isvoluntary. In order to participate, an otherwise Eligible Employee must executea valid Participant Enrollment and Election Form in such manner as the Companymay require and must agree to make Nonqualified Deferral Contributions asprovided in Article IV.

 

3.2                                 RE-EMPLOYMENT.   If a Participant whoseemployment with the Company is terminated is subsequently re-employed, he orshe shall become a Participant in the Plan in accordance with the provisions ofSection 3.1 of this Article.

 

3.3                                 CHANGE OF EMPLOYMENT CATEGORY.   Duringany period in which a Participant remains in the employ of the Company, butceases to be an Eligible Employee, he or she shall not be eligible to makeadditional Nonqualified Deferral Contributions under this Plan.

 

**ARTICLE IV - NONQUALIFIED DEFERRALCONTRIBUTIONS**

 

4.1                                 NONQUALIFIED DEFERRAL ELECTIONS.   Inaccordance with rules established by the Company, a Participant may elect tomake a Nonqualified Deferral Contribution with respect to a Plan Year by use ofa Participant Enrollment and Election Form.

 

4.2                                 PAYROLL DEDUCTIONS.   NonqualifiedDeferral Contributions shall be made through payroll deductions. TheParticipant may change the amount of his or her Nonqualified DeferralContribution amount by delivering to the Company **at least fifteen days prior to****the beginning of any quarter a new Participant Enrollment and Electionform with such change being first effective for Compensation to be earned inthe first payroll period of the quarter.**Once made, a NonqualifiedDeferral Contribution payroll deduction election shall continue in forceindefinitely, until changed by the Participant on a subsequent ParticipantEnrollment and Election Form delivered to the Company.

 

4.3                                 TIMING OF CONTRIBUTION.   NonqualifiedDeferral Contributions shall be made at the same time Eligible Employees arepaid.

 

**ARTICLEV - COMPANY CONTRIBUTIONS**

 

5.1                                 COMPANY CONTRIBUTION.   In itssole discretion, the Company may make a Company Contribution on behalf aParticipant.

 

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5.2                                 TIMING OF CONTRIBUTION.   CompanyContributions shall be made as soon as administratively feasible after declaredby the Board.

 

**ARTICLEVI - PLAN ACCOUNTS**

 

6.1                                 ESTABLISHMENT OF ACCOUNTS.   Thereshall be established and maintained by the Company separate Accounts in thename of each Participant, as required and as described in this Article VI.

 

6.2                                 NONQUALIFIED DEFERRAL ACCOUNT.   TheCompany shall establish an Account to which are credited a Participant’sNonqualified Deferral Contributions, plus amounts equal to any income, gains,or losses (to extent realized, based upon fair market value of the Account’sassets) attributable or allocable to the Participant’s Account.

 

6.3                                 COMPANY CONTRIBUTION ACCOUNT.   TheCompany shall establish an Account to which are credited a Participant’sCompany Contributions, plus amounts equal to any income, gains, or losses (toextent realized, based upon fair market value of the Account’s assets)attributable or allocable to the Participant’s Account.

 

6.4                                 ALLOCATION OF INCOME.   The Companyshall have the discretion to allocate such income, gains, or losses amongAccounts pursuant to such allocation rules as the Company deems to bereasonable and administratively practicable.

 

**ARTICLEVII - ALLOCATION OF FUNDS**

 

7.1                                 ALLOCATION OF EARNINGS OR LOSSES ONACCOUNTS.   Each Participant’s Account shall be invested insuch investments as the Trustee shall determine. The Trustee may (but is notrequired to) consider the Participant’s investment preferences when investingamounts credited to the Participant’s Accounts.  Such investment preferences shall be related to the Trustee atthe time and in the manner prescribed by the Company, in its solediscretion.  The Participant’s Accountswill be credited or debited with the increase or decrease in the realizable netasset value or credited interest, as applicable, of each investment, asfollows. As of each Valuation Date, an amount equal to the net increase ofdecrease in realizable net asset value or credited interest, as applicable (asdetermined by the Trustee), of each investment option within the Trust sincethe preceding Valuation Date shall be allocated among all Participants’Accounts to be invested in that investment option in accordance with the ratiowhich the portion, determined as provided herein, bears to the aggregate of allamounts to be invested within that investment option.

 

7.2                                 ACCOUNTING FOR DISTRIBUTION.   Asof the date of any distribution under the Plan to a Participant or his or herBeneficiary or Beneficiaries, such distribution shall be charged to theapplicable Participant’s Account.

 

7.3                                 INTERIM VALUATIONS.   If it isdetermined by the Company that the value of the Trust as 

 

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of any date on whichdistributions are to be made differs materially from the value of the Trust onthe prior Valuation Date upon which the distribution is to be based, theCompany, in its discretion, shall have the right to designate any date in theinterim as a Valuation Date for the purpose of revaluing the Trust so that theAccount from which the distribution is being made will, prior to thedistribution, reflect its share of such material difference in value.

 

**ARTICLEVIII - VESTING**

 

8.1                                 NONQUALIFIED DEFERRAL CONTRIBUTIONS.   AParticipant shall always be one hundred percent (100%) vested in amountscredited to his or her Nonqualified Deferral Account.

 

8.2                                 COMPANY CONTRIBUTIONS.   AParticipant’s Company Contribution Account will be subject to the vestingschedule attached hereto as Exhibit “A”

 

**ARTICLE IX - PAYMENTS OF BENEFITS**

 

9.1                                 PAYMENTS OF BENEFITS.   The benefitpayable under this Plan on account of a Participant’s termination ofemployment, retirement, disability, or death shall be distributed in a cashlump sum as soon as practicable and no later than sixty (60) days after theearlier of such termination of employment, retirement, incurrence of disability(as determined by the Committee), or death. Any death benefit payable under thePlan shall be payable to the Participant’s Beneficiary.

 

9.2                                 WITHDRAWAL OF FUNDS.   Anyparticipate may withdraw any amount of money at anytime that he or she hascontributed to this Plan without penalty from the Plan. Any participatewithdrawing money from the Plan in this manner shall be responsible for taxesincluding income taxes as ordinary income.

 

**ARTICLE X - COMMITTEE ADMINISTRATION**

 

10.1                           COMMITTEE.   The Committee shalladminister, construe, and interpret this Plan and shall determine, subject tothe provision of this Plan, the Eligible Employees who become Participants inthe Plan from time to time and the amount, if any, due a Participant (or his orher Beneficiary) under this Plan. No member of the Committee shall be liablefor any act done or determination made in good faith. No member of theCommittee who is a Participant in this Plan may vote on matters affecting hisor her personal benefit under this Plan, but any such member shall otherwise befully entitled to act in matters arising out of or affecting this Plannotwithstanding his or her participation herein. In carrying out its dutiesherein, the Committee shall have discretionary authority to exercise all powersand to make all determinations, consistent with the terms of the Plan, in allmatters entrusted to it, and its determinations shall be given deference andshall be final and binding on all interested parties.

 

**ARTICLE XI - THE TRUST**

 

11.1                           ESTABLISHMENT OF TRUST.   TheCompany shall establish the Trust with the Trustee,

 

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pursuant to such terms andconditions as are set forth in the Trust agreement to be entered into betweenthe Company and the Trustee. The Trust is intended to be treated as a “grantor”trust under the Code, and the establishment of the Trust is not intended tocause Participants to realize current income on amounts contributed thereto,and the Trust shall be so interpreted.

 

**ARTICLE XII - ADMINISTRATION**

 

12.1                           ADMINISTRATIVE AUTHORITY.   Exceptas otherwise specifically provided herein, the Company shall have the soleresponsibility for and the sole control of the operation and administration ofthe Plan, and shall have the power and authority to take all actions includingthe right to amend or terminate the Plan, and to make all decisions andinterpretations which may be necessary or appropriate in order to administerand operate the Plan, including, without limiting the generality of the,foregoing, the power, duty, and responsibility to:

 

a)                                      Resolve anddetermine all disputes or questions arising under the Plan, including the powerto determine the rights of Eligible Employees, Participants, and Beneficiaries,and their respective benefits, and to remedy any ambiguities, inconsistencies,or omissions in the Plan.

 

b)                                     Adopt such rulesof procedure and regulations as in its opinion may be necessary for the properand efficient administration of the Plan and as are consistent with the Plan.

 

c)                                      Implement thePlan in accordance with its terms and the rules and regulations adopted asabove.

 

d)                                     Makedeterminations with respect to the eligibility of any Eligible Employee as aParticipant and make determination concerning the crediting and distribution ofPlan Accounts.

 

e)                                      Appoint anypersons or firms, or otherwise act to secure specialized advice or assistance,as it deems necessary or desirable in connection with the administration andoperation of the Plan, and the Company shall be entitled to rely conclusivelyupon, and shall be fully protected in any action or omission taken by it ingood faith reliance upon the advice or delegate from time to time by writteninstrument all or any part of its duties, powers, or responsibilities under thePlan, both ministerial and discretionary, as it deems appropriate, to anyperson or committee, and in the same manner to revoke any such delegation ofduties, powers, or responsibilities. Any action of such person or committee inthe exercise of such delegated duties, powers, or responsibilities shall havethe same force and effect for all purposes hereunder as if such action had beentaken by the Company.  Further, theCompany may authorize one or more persons to execute any certificate ordocument on behalf of the Company, in which event any person notified by theCompany of such authorization shall be entitled to accept and; conclusivelyrely upon any such certificate or document executed by such person as representingaction by the Company until such 

 

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third person shall have been notified of therevocation of such authority.

 

12.2                           MUTUAL EXCLUSION OF RESPONSIBILITY.   Neitherthe Trustee nor the Company shall be obliged to inquire into or be responsiblefor any act or failure to act, or the authority therefor, on the part of theother.

 

12.3                           UNIFORMITY OF DISCRETIONARY ACTS.   Wheneverin the administration or operation of the Plan discretionary actions by theCompany are required or permitted, such actions shall be consistently anduniformly applied to all persons similarly situated, and no such action shallbe taken which shall discriminate in favor of any particular person or

group of persons.

 

12.4                           LITIGATION.   Except as may be otherwiserequired by law, in any action or judicial proceeding affecting the Plan, noParticipant or Beneficiary shall be entitled to any notice or service ofprocess, and any final judgment entered in such action shall be binding on allpersons interested in or claiming under the Plan.

 

12.5                           PAYMENT OF ADMINISTRATION EXPENSES.   Allexpenses incurred in the administration and operation of the Plan and theTrust, including any taxes payable by the Company in respect of the Plan orTrust or payable by or from the Trust pursuant to its terms shall be paid bythe Company.

 

12.6                           CLAIMS PROCEDURE.

 

a)                                      Notice of Claim.Any Eligible Employee or Beneficiary, or the duly authorized representative ofan Eligible Employee or Beneficiary, may file with the Committee a claim for aPlan benefit. Such a claim must be in writing on a form provided by theCommittee and must be delivered to the Committee, in person or by mail, postageprepaid. Within ninety (90) days after the receipt of such a claim, theCommittee shall send to the claimant, by mail, postage prepaid, a notice of thegranting or the denying, in whole or in part, of such claim, unless specialcircumstances require an extension of time for processing the claim. In noevent may the extension exceed ninety (90) days from the end of the initialperiod. If such an extension is necessary, the claimant will be given a writtennotice to this effect prior to the expiration of the initial ninety (90) dayperiod. The Committee shall have full discretion to deny or grant a claim inwhole or in part in accordance with the terms of the Plan. If notice of thedenial of a claim is not furnished in accordance with this Section, the claimshall be denied and the claimant shall be permitted to exercise his or herright to review pursuant to Sections 13.6(c) and 13.6(d) of the Plan, asapplicable.

 

b)                                     Action on Claim.The Committee shall provide to every claimant who is denied a claim forbenefits a written notice setting forth, in a manner calculated to beunderstood by the claimant:

 

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(i)                                     The specificreason or reasons for the denial;

 

(ii)                                  A specific referenceto the pertinent Plan provisions on which the denial is based;

 

(iii)                               A description of anyadditional material or information necessary of the claimant to perfect theclaim and an explanation of why such material or information is necessary; and

 

(iv)                              An explanation of thePlan’s claim review procedure.

 

c)                                      Review of Denial.Within sixty (60) days after the receipt by a claimant of written notificationof the denial (in whole or in part) of a claim, the claimant or the claimant’ sduly authorized representative, upon written application to the Committee,delivered in person or by certified mail, postage prepaid, may review pertinentdocuments and may submit to the Committee, in writing, issues and commentsconcerning the claim.

 

d)                                     Decision onReview. Upon the Committee’s receipt of a notice of a request for review, theCommittee shall make a prompt decision on the review and shall communicate thedecision on review in writing to the claimant The decision on review shall bewritten in a manner calculated to be understood by the claimant and shallinclude specific reasons for the decision and specific references to thepertinent Plan provisions on which the decision is based.  The decision on review shall be made notlater than sixty (60) days after the Committee’s receipt of a request for areview, unless special circumstances require an extension of time forprocessing, in which case a decision shall be rendered not later than onehundred twenty (120) days after receipt of the request for review. If anextension is necessary, the claimant shall be given written notice of theextension by the Committee prior to the expiration of the initial sixty (60)day period. If notice of the decision on review is not furnished in accordancewith this Section, the claim shall be denied on review.

 

12.7                           LIABILITY OF COMMITTEE,INDEMNIFICATION.    To the extent permitted by law, theCommittee or any Company employee shall not be liable to any person for anyaction taken or omitted in connection with the interpretation andadministration of this Plan unless attributable to his or her own bad faith orwillful misconduct.

 

12.8                           EXPENSES.   The cost of the establishment ofthe Plan and the adoption of the Plan by the Company, including but not limitedto legal and accounting fees, shall be borne by the Company.

 

12.9                           TAXES.   All amounts payable hereunder shall bereduced by any and all federal, state, and local taxes imposed upon an EligibleEmployee or his or her Beneficiary which are required to be paid or withheld byCompany. The determination by the Company regarding applicable income and 

 

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employment tax withholdingrequirements shall be final and binding on the Eligible Employee.

 

12.10                     ATTORNEY’S FEES.   The Company shall paythe reasonable attorney’s fees incurred by any Eligible Employee in an actionbrought against Company to enforce Eligible Employee’s rights under the Plan,provided that such fees shall only be payable in the event that the EligibleEmployee prevails in such action.

 
| CAP ROCK  ENERGY CORPORATION |
|------------------------------|
|                         |   |
| By:  /s/ Celia Zinn     |   |
| Celia Zinn, Controller       |   |
|                         |   |
|                         |   |
| Date:                        | November 14,  2002 |   |   |
|                              |  |  |  |

 

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**Exhibit “A”**

 

**VESTING SCHEDULE**

 

| 1 Year - 10    | % |
|----------------|---|
| 2 Years - 20   | % |
| 3 Years - 30   | % |
| 4 Years - 40   | % |
| 5 Years - 60   | % |
| 6 Years - 80   | % |
| 7 Years -  100 | % |

 

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* This Vesting Schedule includesall prior years that a participant participating in this Plan participated inthe Cap Rock Electric Cooperative, Inc. Supplemental Executive DeferredCompensation Retirement Plan.

 

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