(b) **Attention****.**During the Employment Period, and excluding any periods of vacation andsick leave to which the Executive is entitled, the Executive shall devote substantially all of hisbusiness time, energy and best efforts to the business and affairs of theCompany. The Executive may not engage, directly or indirectly, in any other business, investment oractivity that interferes with the Executive’s performance of his duties hereunder, is contrary tothe interests of the Company, or requires any significant portion of the Executive’s business time.It shall not be considered a violation of the foregoing for the Executive to serve on corporate,industry, civic or charitable boards or committees, so long as such activities do not materiallyinterfere with the performance of the Executive’s responsibilities as an employee of the Company inaccordance with this Agreement. Following the first anniversary of the Effective Date, theExecutive may serve on the board of directors of up to one non-competing for-profit businesseswhich does not materially interfere with his duties hereunder.3.**Compensation.** The Executive shall receive the following compensation forhis services hereunder to the Company:(a) **Salary and Bonus.** The Executive’s initial annual base salary (the “**Annual BaseSalary**”), payable in accordance with the Company’s general payroll practices, in effect from timeto time, shall be at the annual rate of $130,000. The Board shall review such base salary at leastannually and may from time to time direct such upward adjustments in Annual Base Salary as theBoard deems to be necessary or desirable, including, without limitation, adjustments in order toreflect surveys of compensation for comparable positions at other companies. The Annual Base Salaryshall not be reduced after any increase thereof. Any increase in the Annual Base Salary shall notserve to limit or reduce any other obligation of the Company under this Agreement. During eachcalendar year during the Employment Period, the Executive shall be eligible to receive adiscretionary bonus targeted at twenty percent (20%) of his Annual Base Salary. The discretionarybonus shall be based on performance criteria determined by the Company, which may include, but notbe limited to, revenue and customer additions in the North Carolina and Maineoperations areas.(b) **Retirement and Welfare Benefit Plans.** During the Employment Period and so long asthe Executive is employed by the Company, he shall be eligible (subject to any generally applicablewaiting periods) to participate in all other savings, retirement and welfare plans, practices,policies and programs applicable generally to employees and/or senior executive officers of theCompany in accordance with the terms of such plans. The Company reserves the right to modify,eliminate or add to its retirement and welfare benefit plans, practices and policies at any time inits sole discretion.(c) **Options.** During the Employment Period, the Executive shall be eligible to receivegrants of stock options under the Company’s then existing stock option plan(s) under such terms andconditions as determined by the Board of Directors of the Company (the “**Board**”) acting in its solediscretion.(d) **Expenses.** The Company shall reimburse the Executive for all expenses, includingthose for travel and entertainment, properly incurred by him in the performance of his dutieshereunder, subject to any reasonable policies established from time to time by the Board.
 
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(e) **Fringe Benefits.** During the Employment Period and so long as the Executive isemployed by the Company, he shall be entitled to receive vacation and fringe benefits in accordancewith the plans, practices, programs and policies of the Company from time to time ineffect, commensurate with his position; provided, however, the Company reserves the right tomodify, eliminate or add to its fringe benefits at any time in its sole discretion. It is agreedand understood that within six months of the Effective Date, the Executive shall relocate hisprimary residence within the Company’s North Carolina service territory or within a thirty-fivemile radius of that service territory. In addition, the Company shall reimburse the Executive forhis moving expenses actually incurred during the first six (6) months of the Employment Period upto a maximum of $20,000. The Executive shall be required to provide documentation of such movingexpenses in a form reasonably satisfactory to the Company. The Executive shall also be eligible forreimbursement of reasonable temporary housing expenses for up to ninety (90) days and reasonableexpenses related to two (2) house hunting trips to the North Carolina operations area involvinganother adult.4. **Termination of Employment****.**(a) **Death****.**The Executive’s employment shall terminate automatically upon theExecutive’s death during the Employment Period.(b) **Disability****.**The Executive shall be relieved of his position as a Vice President ofthe Company automatically upon the Executive being unable to perform the material duties of hisposition due to physical or mental illness or injury for a period of 60 consecutive days, or for 90days within any one-year time period and his employment shall terminate automatically 120 daysafter the date that he is relieved of his position.(c) **By the Company for Cause****.** The Company may terminate the Executive’s employmentduring the Employment Period for Cause. For purposes of this Agreement, **“Cause”**shall mean (i)conduct which is a material breach of this Agreement and is not cured within 30 days after writtennotice to Executive or willfully repeated thereafter, (ii) conduct which is a material violation ofCompany policies; (iii) willful failure to perform substantially all of Executive’s duties aslawfully delineated by the President and Chief Executive Officer;(iv) conduct that constitutes fraud, gross negligence of willful misconduct; or (v) the Executiveis convicted of, or enters a plea of guilty or no contest to, any felony or other criminal offenseinvolving moral turpitude.(d) **By the Company Without Cause****.**During the term of this Agreement, the Company, byaction of the President and Chief Executive Officer, may terminate the Executive’s employment forany reason other than for Cause during the Employment Period upon 30 days’ advance written notice.(e) **By the Executive****.**The Executive may terminate his employment during the EmploymentPeriod, either with Good Reason, or without Good Reason upon 30 days’ advance written notice to theBoard. For purposes of this Agreement, **“Good Reason”**shall mean:(i) Without the prior consent of the Executive: any diminution intitle; any material diminution in the Executive’s duties or authority; assignmentof duties materially inconsistent with the Executive’s duties; any change resultingin Executive’s being required to report internally to a person other than thePresident and Chief Executive Officer; any requirement imposed by the Company thattheExecutive relocate his principal residence once the Executive has relocated to theNorth Carolina area; or(ii) Any material breach by the Company of this Agreement not cured withinthirty days after written notice to the Company.
 
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5. **Obligations of the Company Upon Termination****.**(a) **Obligations Upon Termination for any Reason****.**If, during the Employment Period, theExecutive’s employment shall terminate for any reason (termination in any such case being referredto as **a “Termination”)**, the Company shall pay to the Executive a lump sum amount in cash equal tothe sum of (A) the Executive’s salary at the rate of the Annual Base Salary earned through the dateof Termination to the extent not theretofore paid, provided that in the case of termination becauseof the Executive’s disability, the Executive shall be entitled only to the amount provided in theCompany’s sick leave policy, (B) accrued but unpaid vacation pay. In addition, the Company shallprovide benefit continuation or conversion rights (including COBRA) as provided under Companybenefit plans and vested benefits under Company benefit plans. The amounts specified in thisSection 5(a)(A) and (B) shall be paid within 30 days after the date of Termination.(b) **Obligations Upon Termination with Good Reason or Without Cause****.**In theevent of Termination by the Executive with Good Reason or by the Company without Cause, in additionto the amounts and benefits set out in Section 5(a), the Company shall pay to the Executive asseparation benefits (A) Annual Base Salary payable monthly for twelve months following the date ofTermination, medical benefits at active employee contribution rates for the Executive and hiseligible dependents for twelve months following the Termination Date, and up to $10,000 foroutplacement services by an outplacement firm selected by the Executive and reasonably approved bythe Company, and (B) if the Termination occurs within twenty-four (24) months of the EffectiveDate, the Company shall reimburse Executive for his moving expenses actually incurred during thesix (6) month period following the Termination up to a maximum of $20,000. The Executive shall berequired to provide documentation of such moving expenses in a form reasonably satisfactory to theCompany.The payment of separation benefits under this Agreement is expressly conditioned upon receiptby the Company of an enforceable waiver and release from the Executive in a formreasonably satisfactory to the Company.(c) **Stock Incentive Awards****.**No grants or awards of nonqualified stock options orrestricted stock will be made to the Executive on or after the date the notice of Termination isgiven.(d) **Suspension****.**The Company may, in its sole discretion, suspend the Executive with orwithout pay for any act or omission that may otherwise constitute a basis for termination of thisAgreement by the Company, or that is otherwise in violation of the Company’s policies, practices,procedures, rules or regulations and/or this Agreement. Such suspension may be in lieu oftermination or as an interim action pending a final decision by the Company as to whethertermination of the Executive’s employment is appropriate.
 
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(e) **Payments in the Event of Application of An Excise Tax.** In the event that anypayments under this Agreement or any other compensation, benefit or other amount from the Companyfor the benefit of the Executive are subject to the tax imposed by Section 4999 of the InternalRevenue Code of 1986, as amended (the “**Code**”) (including any applicable interest and penalties, the“**Excise Tax**”), the payments provided for under this Agreement shall be reduced (except for requiredtax withholdings) to an amount that is $1.00 less than the amount that would trigger such ExciseTax.(f) **Timing of Payments.** In the event that at the time that Executive’s date oftermination from Company employment occurs the Company is publicly traded (as defined in Section409A of the Internal Revenue Code), any amounts payable under Section 5(b) that would otherwise beconsidered deferred compensation subject to the additional twenty percent (20%) tax imposed bySection 409A if paid within six (6) months following the date of termination of Company employmentshall commence being paid at the later of the time otherwise provided in Section 5(b) or the timeperiod that will prevent such amounts from being considered deferred compensation. Any amounts thatwould have otherwise been paid during such time period shall be accumulated and paid in a singlelump sum payment without interest upon the expiration of such time period that will prevent suchamounts from being considered deferred compensation.6. **Nonexclusivity of Rights.** Except as provided in Section 5(d) and the last sentenceof this Section 6, nothing in this Agreement shall prevent or limit the Executive’s continuing orfuture participation in any benefit, plan, program, policy or practice provided by the Company andfor which the Executive may qualify (except with respect to any benefit to which the Executive haswaived his rights in writing), nor, except as provided in Sections 5(d) and 12(g), shall anythingherein limit or otherwise affect such rights as the Executive may have under any other contract oragreement entered into after the Effective Date with the Company. Amounts which are vested benefitsor which the Executive is otherwise entitled to receive under any benefit, plan, policy, practiceor program of, or any contract or agreement entered into with, the Company shall be payable inaccordance with such benefit, plan, policy, practice or program or contract or agreement except asexplicitly modified by this Agreement. Notwithstanding the foregoing, the benefits payable uponTermination hereunder shall be in lieu of any severance pay or separation benefits under any otherseverance plan, policy or practice of the Company, including the Company’s Change in ControlSeverance Plan.7. **Full Settlement; Mitigation.** In no event shall the Executive be obligated to seekother employment or take any other action by way of mitigation of the amounts (including amountsfor damages for breach) payable to the Executive under any of the provisions of this Agreement and,except as provided in Section 5(a), such amounts shall not be reduced whether or not the Executiveobtains other employment.
 
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8. **Confidential Information.** The Executive agrees not to disclose during theEmployment Period or thereafter any of the Company’s confidential or trade secret information,except as required by law. The Executive recognizes that the Executive shall be employed in asensitive position in which, as a result of a relationship of trust and confidence, the Executivewill have access to trade secrets and other highly confidential and sensitive information. TheExecutive further recognizes that the knowledge and information acquired by the Executiveconcerning the Company’s materials regarding employer/employee contracts, customers, pricingschedules, advertising and interviewing techniques, manuals, systems, procedures and formsrepresent the most vital part of the Company’s business and constitute by their very nature, tradesecrets and confidential knowledge and information. The Executive hereby stipulates and agrees thatall such information and materials shall be considered trade secrets and confidential information.If it is at any time determined that any of the information or materials identified in thisparagraph 8 are, in whole or in part, not entitled to protection as trade secrets, they shallnevertheless be considered and treated as confidential information in the same manner as tradesecrets, to the maximum extent permitted by law. The Executive further agrees that all such tradesecrets or other confidential information, and any copy, extract or summary thereof, whetheroriginated or prepared by or for the Executive or otherwise coming into the Executive’s knowledge,possession, custody, or control, shall be and remain the exclusive property of the Company.9. **Conflict of Interest****.**The Executive acknowledges and agrees that he owes afiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of theCompany and to do no act which would injure the Company’s business, its interests or itsreputation. It is agreed that any direct or indirect interest in, connection with, or benefit fromany outside activities, particularly commercial activities, which interest might in any wayadversely affect the Company or any of its affiliates, involves a possible conflict of interest. Inkeeping with the Executive’s fiduciary duty to the Company, the Executive agrees that he shall notknowingly become involved in a conflict of interest with the Company affiliates, or upon discoverythereof, allow such a conflict to continue. Moreover, the Executive agrees that he shall discloseto the Board any facts which might involve such a conflict of interest that has not been approvedby the Board. The Executive and the Company recognize that it is impossible to provide anexhaustive list of actions or interests which constitute a conflict of interest. Moreover, theExecutive and the Company recognize there are many borderline situations. In some instances, fulldisclosure of facts by the Executive to the Board may be all that is necessary to enable theExecutive, the Company or its affiliates to protect its interests. In others, if no impropermotivation appears to exist and the interests of the Company or its affiliates have not suffered,prompt elimination of the outside interest will suffice. In still others, it may be necessary forthe Company to terminate the employment relationship. The Company and the Executive agree that theCompany’s determination as to whether a conflict of interest exists shall be conclusive. TheCompany reserves the right to take such action as, in its judgment, will end the conflict.10. **Nonsolicitation.** During the period of his business affiliation with, oremployment by, the Company and for a period of two years after the Executive’s termination ofemployment for any reason whatsoever, the Executive will not directly or indirectly, individuallyor as a consultant to, or as employee, officer, director, stockholder, partner or other owner orparticipant in any business entity other than the Company, solicit or endeavor to entice away fromthe Company, or otherwise materially interfere with the business relationship of the Company with,(i) any person who is, or was within the 12-month period immediately prior to the termination ofthe Executive’s business affiliation with or employment by the Company, employed by or associatedwith the Company or (ii) any person or entity who is, or was within the 12-month period immediatelyprior to the termination of the Executive’s business affiliationwith or employment by the Company, a customer or client of the Company.
 
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11. **Successors****.**(a) **Assignment by Executive****.**This Agreement is personal to the Executive and withoutthe prior written consent of the Company shall not be assignable by the Executive otherwise than bywill or the laws of descent and distribution. This Agreement shall inure to the benefit of and beenforceable by the Executive’s legal representatives. Without the prior written consent of theExecutive, no assignment of this Agreement by the Company or any successor of the Company shallrelieve the assignor of its financial responsibility for performance of the Company’s obligationshereunder.(b) **Successors and Assigns of Company****.**This Agreement shall inure to the benefitof and be binding upon the Company, its successors and assigns.12. **Miscellaneous.**(a) **Remedies****.**The Company and the Executive agree that if a dispute arises out of oris related to this Agreement or Executive’s employment by the Company, such dispute shall, if notearlier resolved by negotiations of the parties, be submitted to binding arbitration by a singlearbitrator under the American Arbitration Association National Rules for Resolution of EmploymentDisputes in Great Falls, Montana, or the equivalent. Either party may provide written notice to theother party that the dispute is not able to be resolved by negotiation and such notifying partyshall then contact the American Arbitration Association for appointment of an arbitrator to resolvesuch dispute. Attorneys’ fees and costs shall be awarded to the prevailing party as determined bythe arbitrator.(b) **Governing Law****.**This Agreement shall be governed by and construed in accordancewith the laws of the State of Montana, without reference to its principles of conflict of laws. Thecaptions of this Agreement are not part of the provisions hereof and shall have no force or effect.This Agreement may not be amended, modified, repealed, waived, extended or discharged except by anagreement in writing signed by the party against whose enforcement of such amendment, modification,repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution ofthe Board or a committee thereof, shall have authority on behalf of the Company to agree to amend,modify, repeal, waive, extend or discharge any provision of this Agreement or anything in referencethereto.(c) **Notices****.**All notices and other communications hereunder shall be in writing andshall be given by hand delivery to the other party or by registered or certified mail,return-receipt requested, postage prepaid, addressed, in either case, at the Company’s headquartersor to such other address as either party shall have furnished to the other in writing inaccordance herewith. Notices and communications shall be effective when actually received by theaddressee.(d) **Severability****.**The invalidity or unenforceability of any provision ofthis Agreement shall not affect the validity or enforceability of any other provision ofthis Agreement.(e) **Withholding****.**The Company may withhold from any amounts payable under thisAgreement such federal, state or local taxes as shall be required to be withheld pursuant to anyapplicable law or regulation.
 
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(f) **No Waiver****.**The Executive’s or the Company’s failure to insist upon strictcompliance with any provision hereof or any other provision of this Agreement or the failure toassert any right the Executive or the Company may have hereunder, including, without limitation,the right of the Executive to terminate employment for Good Reason pursuant to Section 4(e) of thisAgreement, or the right of the Company to terminate the Executive’s employment for Cause pursuantto Section 4(b) of this Agreement shall not be deemed to be a waiver of such provision or right orany other provision or right of this Agreement.(g) **Entire Agreement****.**This instrument contains the entire agreement of the Executive,the Company or any predecessor or subsidiary thereof with respect to the subject matter hereof, andmay be modified only by a writing signed by the parties hereto. All promises, representations,understandings, arrangements and prior agreements, are merged herein and superseded hereby. Anyagreement with regard to severance benefits entered into after the Effective Date shall beeffective only if it expressly references this Agreement.In the event of any difference between the terms of this Agreement and the terms of anyCompany benefit, option or other plan or policy, the terms of this Agreement shall control, unlesssuch terms violate applicable law, or would require shareholder approval or would cause the Companyto be in material breach of its obligations under such other benefit, option or other plan orpolicy. The Company shall not amend any benefit, option or other plan or policy in a manner thatwould cause the agreements set forth herein to be nullified, provided that nothing herein shalllimit the Company’s discretion in establishing, maintaining and amending its generally applicablewelfare benefit programs such as health coverage.(h) **Indemnification****.**The Company shall indemnify the Executive pursuant to theCompany’s bylaws and the articles of incorporation. In addition, the Company shall maintaindirectors and officers liability insurance coverage covering the Executive during the term ofemployment and thereafter, so long as the Company elects to continue such coverage for its activeofficers and directors.(i) **Survivorship****.**The respective rights and obligations of the parties hereundershall survive any termination of this Agreement to the extent necessary to the intendedpreservation of such rights and obligations.(j) **Headings****.**All descriptive headings of sections and paragraphs in thisAgreement are intended solely for convenience, and no provision of this Agreement is to beconstrued by reference to the heading of any section or paragraph.(k) **Counterparts****.**This Agreement may be executed in counterparts, each of whichshall be deemed an original, but all of which together shall constitute one and the sameinstrument.(l) **Construction****.**The parties acknowledge that this Agreement is the result ofarm’s-length negotiations between sophisticated parties each afforded representation by legalcounsel. Each and every provision of this Agreement shall be construed as though both partiesparticipated equally in the drafting of same, and any rule of construction that a document shall beconstrued against the drafting party shall not be applicable to this Agreement.
 
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IN WITNESS WHEREOF, the Executive and, pursuant to due authorization from its Board ofDirectors, the Company have caused this Agreement to be executed as of the day and year first abovewritten.         /s/ David C. Shipley         David C. Shipley           ENERGY WEST, INCORPORATED           By: /s/ David Cerotzke      ** **Name: David CerotzkeTitle:   President and Chief Executive Officer  
 
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