EXHIBIT 10.7
COMMERCE ENERGY GROUP, INC.
BONUS PROGRAM
 
Plan Document
 
As Amended by First Amendment
Adopted March 27, 2007

 

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COMMERCE ENERGY GROUP, INC.
BONUS PROGRAM
 
Plan Document
 
ARTICLE I
PURPOSE OF THE PLAN
The Commerce Energy Group, Inc. (the “Company”) established this Commerce Energy
Group, Inc. Bonus Program (the “Plan”) to provide employees with an increased
awareness and ongoing interest in the direction of the Company. The Plan is
designed to ensure that employees are appropriately awarded for both corporate
and individual performance.
ARTICLE II
DEFINITIONS

2.1   “Board” shall mean the Board of Directors of the Company.   2.2   “Bonus”
shall mean the amount payable to a Participant under the Plan.   2.3   “Bonus
Group” shall mean the Executive Team, the Management Team or the Staff Team, or
any or all of them, as established and comprised of in the Committee’s sole
discretion.   2.4   “Bonus Pool” shall mean discretionary funds established by
the Committee pursuant to Sections 4.2(a)(i) and 4.2(a)(vi) herein.   2.5  
“Committee” shall mean the compensation committee of the Board.   2.6  
“Contractor” shall mean an individual who provides services to the Company, but
is not employed by the Company.   2.7   “Earned Bonus Percentage” shall mean the
portion of the Potential Bonus Percentage that a Participant may receive based
on the Committee’s evaluation and assessment of the Qualitative Individual
Measures set forth in Section 4.2(c) herein.   2.8   “Executive Team” shall mean
the executives responsible for the governance of the Company who are designated
as Executive Team members in the Committee’s sole discretion.   2.9   “Fiscal
Year” shall mean the period commencing August 1st and ending July 31st.

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2.10   “Management Team” shall mean the managers who are responsible for the
operations of the departments and functional units of the Company and who are
designated as Management Team members in the Committee’s sole discretion.

2.11   “Net Income” shall mean the Company’s net income from operations,
including interest income and expense, for any Fiscal Year after bonus accruals
under this Plan are deducted.

2.12   “Participant” shall mean the employees of the Company eligible to receive
a Bonus under the Plan, pursuant to Article III.

2.13   “Part-Time Employee” shall mean an employee who is customarily employed
by the Company for an average of fewer than 20 hours per week.

2.14   “Potential Bonus Percentage” shall mean the maximum amount of Bonus,
expressed as a percentage of a Participant’s base salary, that is potentially
payable to the Participant under the Plan based on the attainment of the
Quantitative Company Measures set forth in Section 4.2(a) herein.

ARTICLE III
ELIGIBILITY FOR PARTICIPATION

3.1   CONDITIONS FOR BECOMING AN ELIGIBLE PARTICIPANT. Conditions for becoming
an eligible participant are met upon the commencement of full-time employment
within the first nine months (August 1 through April 30) of the Fiscal Year,
subject to the limitation set forth in Section 4.3(a). Employees who participate
in one or more of the Company’s commission incentive programs are eligible to
participate in this Plan, subject to the limitation set forth in Section 4.3
herein.

3.2   EXCLUDED EMPLOYEES. Part-Time Employees and Contractors are not eligible
to participate in this Plan.

ARTICLE IV
PAYMENTS

4.1   AUTHORIZATION OF PAYMENTS. No Bonus is payable under the Plan for a Fiscal
Year unless the Committee determines Bonuses may be payable for such Fiscal Year
and provides Participants with written notice of such determination. The
Committee, thereafter, specifically authorizes the Bonus payments to the
Participants, provided the pre-established objectives are met for such Fiscal
Year.

4.2   FINANCIAL GOAL AND PERFORMANCE FACTORS TRIGGERING BONUS. In its sole and
absolute discretion, the Committee determines Bonus payments under the Plan by
establishing quantitative factors specific to the Company, taking into account
the Participant’s level in the Company, and assessing the Participant’s
attainment of qualitative individual performance measures.

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  (a)   Quantitative Company Measures. A Participant’s Potential Bonus
Percentage is determined based on the Company’s Net Income. If at the close of
any Fiscal Year, the Company achieves Net Income, the Plan will become active
for such year; otherwise, the Plan will be inactive for any Fiscal Year and no
Bonus payments will be made hereunder. Provided Net Income results for any
Fiscal Year, Potential Bonus Percentages or, if applicable, the discretionary
bonus pool is determined according to the following schedule:

  (i)   Net Income Less Than Trigger Target. If the Company’s Net Income for any
Fiscal Year is less than the Trigger Target (a Net Income amount determined by
the Committee from time to time), the Committee in its sole discretion may
establish a Bonus Pool and allocate bonuses among members of the Management Team
and/or Staff Team as the Committee deems appropriate. No bonuses may be paid to
the Executive Team under this Plan if Net Income for any Fiscal Year is less
than the Trigger Target.     (ii)   Trigger Target. If the Company’s Net Income
for any Fiscal Year is equal to or greater than the Trigger Target but less than
the Stretch Target (as described below), the Potential Bonus Percentages for the
CEO, Participants within the Executive Team (other than the CEO), the Management
Team and the Staff Team shall be amounts determined by the Committee by the last
day of the third month following the start of the Fiscal Year to which the bonus
relates.     (iii)   Stretch Target. If the Company’s Net Income for any Fiscal
Year is equal to or greater than the Stretch Target (a Net Income amount in
excess of the Trigger Target, which shall be determined by the Committee from
time to time), but less than the Enhanced Stretch Target (as described below),
the Potential Bonus Percentages for the CEO, Participants within the Executive
Team (other than the CEO), the Management Team and the Staff Team is shall be
amounts determined by the Committee by the last day of the third month following
the start of the Fiscal Year to which the bonus relates.     (iv)   Enhanced
Stretch Target. If the Company’s Net Income for any Fiscal Year is equal to or
greater than the Enhanced Stretch Target (a Net Income amount in excess of the
Stretch Target, which shall be determined by the Committee from time to time),
but less than the Super Stretch Target (as described below), the Potential Bonus
Percentages for the CEO, Participants within the Executive Team (other than the
CEO), the Management Team and the Staff Team shall be amounts determined by the
Committee by the last day of the third month following the start

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      of the Fiscal Year to which the bonus relates.

  (v)   Super Stretch Target. If the Company’s Net Income for any Fiscal Year is
equal to or greater than the Super Stretch Target (a Net Income amount in excess
of the Enhanced Stretch Target, which shall be determined by the Committee from
time to time), the Potential Bonus Percentages for the CEO, Participants within
the Executive Team (other than the CEO), the Management Team and the Staff Team
shall be amounts determined by the Committee by the last day of the third month
following the start of the Fiscal Year to which the bonus relates.     (vi)  
Net Income in Excess of the Super Stretch Target. If the Company’s Net Income
for any Fiscal Year is greater than Super Stretch Target, the Committee may
establish a Bonus Pool and allocate among and distribute the Bonus Pool to
members of the Bonus Groups as the Committee determines in its sole discretion.

  (b)   Participant’s Level. If the Committee determines that the Plan is active
for any Fiscal Year (as determined under Section 4.2(a) herein), the Bonus is
payable in an amount appropriate for the Participant’s level in the Company.
Bonus Groups, consisting of the Executive Team, Management Team and Staff Team,
are used to categorize the levels and bonus amounts of the Participants.     (c)
  Qualitative Individual Measures. The Plan, if active for any Fiscal Year (as
determined under Section 4.2(a) herein), is designed to link a Participant’s
Bonus with the Company’s performance by establishing target objectives for each
Participant and assessing the Participant’s attainment of such objectives. The
objectives for each Bonus Group fall within the following categories (also
referred to as “Compass Points”):

  (i)   Executive Team — Financial, investors, customers, peers and leadership.
    (ii)   Management Team — Financial, departmental and leadership.     (iii)  
Staff Team — Financial, departmental and individual.

  (d)   Creation of Goals. The Participants’ objectives and measurements thereof
shall be written and pre-established. To be pre-established, the objective must
be approved (consistent with the procedures set forth in parts (i) through (iii)
of this sub-section (d)) by the last day of the third month following the start
of the Fiscal Year to which the objective relates (or within 30 days after the
date the individual first becomes eligible to participate in the Plan, if
later), and the outcome must be uncertain at the time the objective is
established. To ensure a balanced approach to the various objectives applied to
determine a Participant’s Bonus, each objective will be assigned a weight value
(expressed as a percentage) based upon the overall objectives of the Company.
The foregoing shall be

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      communicated to each Participant as soon as practicable after the
establishment of the objectives, measurements and weight values.

  (i)   CEO and Executive Team. The CEO and members of the Executive Team shall
recommend objectives (as well as measurements and weight values thereof)
applicable to the CEO and members of the Executive Team for approval by the
Committee. Each Executive Team member shall have goals that are specific to
their position. Members of the Executive Team shall share at least two common
objectives, which encourages and requires the team to work closely together to
achieve the objectives.     (ii)   Management Team. The CEO and members of the
Executive Team shall establish and approve financial, departmental and
leadership objectives (as well as measurements and weight values thereof) for
members of the Management Team.     (iii)   Staff Team. The CEO, Executive Team
and Management Team, acting jointly or severally, shall establish and approve
financial, departmental and leadership objectives (as well as measurements and
weight values thereof) for members of the Staff Team.

  (e)   Review Process. As soon as practicable after the Fiscal Year audit is
completed and the Plan is determined to be active, each Participant’s
performance will be reviewed in relation to the pre-established Company
objectives, as well as the execution of the individually-assigned duties. The
performance ratings, expressed as a percentage (the Earned Bonus Percentage) are
applied to determine the amount of the Bonus Payment in accordance with
Section 4.3 herein.

  (i)   CEO Review Process. An annual review of the CEO will be completed by the
Chairman of the Board and the Chairman of the Committee.     (ii)   Executive
Team Review Process. An annual review of the Executive Team members, other than
the CEO, will be completed by the CEO and the Committee.     (iii)   Management
Team Review Process. An annual review of the Management Team members will be
completed by the CEO and members of the Executive Team.     (iv)   Staff Team
Review Process. An annual review of the Staff Team members will be completed by
the members of the Management Team.

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  (f)   Initial Year of Plan. For Fiscal Year 2007, the Committee shall, upon
the effective date of the Plan, (i) establish the Trigger Target, Stretch
Target, Enhanced Stretch Target, and Super Stretch Target (collectively, the
“Target Thresholds”); (ii) establish the Potential Bonus Percentages for the CEO
and the Bonus Groups with respect to the various Target Thresholds; and
(iii) create Participant objectives and corresponding measurements and weight
values thereof, notwithstanding the provisions of Sections 4.2(a) and 4.2(d)
herein with respect to the timing for completion of the foregoing.

4.3   CALCULATION OF BONUSES. If the Plan is active for any Fiscal Year (as
determined under Section 4.2(a) herein), each Participant shall become eligible
to receive a Bonus, to be paid in accordance with Section 4.5 herein, equal to:
the product of (x) the Participant’s Potential Bonus Percentage, and (y) the
Participant’s Earned Bonus Percentage, and (z) the Participant’s base annual
salary, as in effect on the last day of the ninth month (April 30th) of the
Fiscal Year to which the Bonus relates; plus any allocation from the Bonus Pool
as determined under Sections 4.2(a)(i) and 4.2(a)(vi) herein; and reduced (but
not below zero) by any amounts paid from the Company’s commission incentive
programs.

  (a)   Proration. If an employee enters the Plan after the first day of the
Fiscal Year to which the Bonus payment relates, the Bonus may be prorated, in
the sole discretion of the Committee, based on the length of time the individual
served as an employee of the Company during such Fiscal Year.

4.4   VESTING. To receive a Bonus pursuant to Section 4.5 below, a Participant
must complete at least three months of service and be an active employee of the
Company in good standing on the date the bonus is paid. The Bonus has no cash
out value until the payment date. If a Participant’s termination of service
occurs for any reason prior to the payment date, the Participant shall forfeit
all rights to the Bonus.

4.5   TIME AND METHOD OF PAYMENT. Each Participant’s Bonus shall be paid in a
lump sum payment after the Fiscal Year audit to which the Bonus relates is
completed and the individual evaluation process has been finalized.

4.6   APPLICABLE TAXES.

  (a)   Employment Taxes. The Company shall withhold from each Participant’s
Bonus, in a manner determined by the Company, the Participant’s share of FICA,
withholding taxes and other employment taxes.     (b)   Income Taxes and
Deferred Compensation. Participants are solely responsible and liable for the
satisfaction of all taxes and penalties that may arise in connection with this
Plan (including any taxes arising under Section 409A of the Internal Revenue
Code). Neither the Company nor its affiliates nor any of their directors, agents
or employees shall have any obligation to indemnify or otherwise hold any
Participant harmless from any or all of such taxes.

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ARTICLE V
RIGHTS OF PARTICIPANTS

5.1   IN GENERAL. All payments are subject to the terms and conditions herein.
Although Participant’s performance may be rated periodically during any Fiscal
Year and progress may be tracked, all Bonus payments are subject to the
calculation as set forth in Section 4.3 herein. The mere existence of periodic
performance assessments or Company performance tracking does not give the
Participant any basis for claiming any Bonus under this Plan on a pro rata basis
during the fiscal year or otherwise.

5.2   NOT A CONTRACT OF EMPLOYMENT. Nothing in this Plan gives a Participant the
right to remain in the employ of the Company. Except to the extent explicitly
provided otherwise in a then effective written employment contract executed by
the Participant and the Company, Participant is an at will employee whose
employment may be terminated without liability at any time for any reason.

5.3   CLAWBACK RELATING TO CERTAIN FINANCIAL RESTATEMENT. To the extent
permitted by governing law, the Board shall have the discretion to require that
each member of the Executive Team reimburse the Company for all or any portion
of the Bonus if:

  (a)   Bonus Payment Is Dependent on Financial Results. The payment, grant or
vesting was predicated upon the achievement of certain financial results that
were subsequently the subject of a material financial restatement;     (b)  
Fraud or Misconduct. In the Board’s view, the member of the Executive Team
engaged in fraud or misconduct that caused or partially caused the need for a
material financial restatement by the Company or any substantial affiliate; and
    (c)   Lower Payment Results. A lower payment, award or vesting would have
occurred based upon the restated financial results.         In each such
instance, the Company will, to the extent practicable and allowable under
applicable laws, require reimbursement of any Bonus awarded to a member of the
Executive Team in the amount by which the individual’s annual bonus exceeded the
lower payment that would have been made based on the restated financial results,
plus a reasonable rate of interest; provided that the Company will not seek to
recover bonuses paid more than three years prior to the date the applicable
restatement is disclosed.

In addition, the Board could terminate the member of the Executive Team for
cause, authorize legal action for breach of fiduciary duty, assert rights under
Section 304 of the Sarbanes-Oxley Act, or take such other action to enforce the
executive’s obligations to the Company as may fit the facts surrounding the
particular case.

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ARTICLE VI
ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall have the
right to construe the Plan, to interpret any provision of the Plan, to make
rules and regulations relating to the Plan, and to determine any factual
question arising in connection with the Plan’s operation after such
investigation or hearing as the Committee may deem appropriate. Any decision
made by the Committee under the provisions of this Article shall be conclusive
and binding on all parties concerned. The Committee may delegate to the officers
or employees of the Company the authority to execute and deliver those
instruments and documents, to do all acts and things, and to take all other
steps deemed necessary, advisable or convenient for the administration of this
Plan in accordance with its terms and purpose.
ARTICLE VII
AMENDMENT OR TERMINATION OF PLAN
The Board or the Committee shall have the unilateral right to amend, suspend or
terminate this Plan at any time with respect to all or some Participants and
with respect to any unearned or unvested Bonus that is or could become payable.
If such amendment or termination of the Plan would have a material and adverse
affect on a Participant’s earned, but unvested Bonus, then written consent of
the Participant is required with respect to such Bonus.
ARTICLE VIII
EFFECTIVE DATE
This Plan shall be effective January 25, 2007.

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