exv10w2



 






Exhibit 10.2




STOCK OPTION AGREEMENT

(Nonqualified Stock Option)




     This Stock Option Agreement (this “Agreement”), is entered into effective as of the Grant Date
(as defined in paragraph 1), by and between Commerce Energy Group, Inc., a Delaware corporation
(the “Company”), and the employee and officer of the Company listed in paragraph 1 (the
“Optionee”).



Recitals




     WHEREAS, the Optionee has entered into an Employment Agreement (the “Employment Agreement”)
dated as of August 1, 2005 with the Company;



     WHEREAS, the Employment Agreement provides that Optionee shall be granted an option to
purchase 300,000 shares of the Company’s common stock, $0.001 par value per share, upon the
commencement of his employment;



     WHEREAS, the grant of stock options reflected by this Agreement is made pursuant to the terms
of Section 4(d)(i) of the Employment Agreement;



          WHEREAS, the Company maintains the Commonwealth Energy Corporation 1999 Equity Incentive Plan,
as amended (the “Plan”), which is incorporated into and forms a part of this Agreement;




          WHEREAS, the Compensation Committee of the Company’s Board of Directors (the “Board”)
administers the Plan with respect to option grants to officers and employees; and




          WHEREAS, the Optionee has been selected by the Committee to receive a non-qualified stock
option to purchase shares of the Company’s common stock under the Plan.




Agreement




     1. Terms of Award.



          (a) The following terms used in this Agreement shall have the meanings set forth in this
paragraph 1:





          (i) The “Optionee” is Steven S. Boss.




          (ii) The “Grant Date” is August 1, 2005.




          (iii) The number of “Option Shares” shall be 300,000 shares of Common Stock.




          (iv) The “Exercise Price” is $1.80 per share.



 









 





          (b) Other terms used in this Agreement are defined pursuant to paragraph 14 or elsewhere in
this Agreement.




     2. Award and Exercise Price. This Agreement specifies the terms of the option (the
“Option”) granted to the Optionee to purchase the number of Option Shares at the Exercise Price per
share as set forth in paragraph 1. The Option is not intended to constitute an “incentive stock
option” as that term is used in section 422 of the Code.



     3. Date of Exercise and Vesting.



          (a) Subject to the limitations of this Agreement, the Option shall be exercisable according to
the following schedule, with respect to each installment shown in the schedule on and after the
Vesting Date applicable to such installment:




	 	 	 	 	 
	 	 	Amount Vested per Period/
	Vesting Dates	 	Cumulative Amount Vested
	Grant Date
	 	 	100,000/100,000	 
	August 1, 2006
	 	 	100,000/200,000	 
	August 1, 2007
	 	 	100,000/300,000	 






          (b) Upon Optionee’s termination of employment as a result of Termination by the Company
without Cause or by the Optionee for Good Reason, a number of Options shall vest equal to the
Options that would have vested over the twelve (12) month period after such termination if the
Optionee remained employed by the Company.




          (c) An installment shall not become exercisable on the otherwise applicable vesting date if
the Optionee’s termination date occurs on or before such vesting date; provided,
however, that some or all of such Option Shares may become fully vested and exercisable in
the discretion of the Committee. Subject to the provisions of paragraph 4, the Option may be
exercised on or after the termination date only as to that portion of the Option Shares as to which
it was exercisable immediately prior to the termination date, or as to which it became exercisable
on the termination date in accordance with this paragraph 3.




     4. Expiration.



          (a) The vested portion of the Option shall not be exercisable after the Company’s close of
business on the last business day that occurs prior to the Expiration Date.




          (b) The “Expiration Date” shall be earliest to occur of:




               (i) August 1, 2015;



               (ii) if the Optionee’s termination date occurs by reason of death or Incapacity, the
one-year anniversary of such termination date;



               (iii) if the Optionee’s termination date occurs for reasons other than death,
Incapacity, or Cause, the three month anniversary of such termination date; or



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               (iv) the earliest to occur of any of the following events (each a “Corporate Event”):
(A) the dissolution or liquidation of the Company or a merger, consolidation or
reorganization (including the sale of substantially all of its assets) of the Company with
one or more entities, corporate or otherwise, as a result of which the Company is not the
surviving entity; or (B) the merger or other reorganization of the Company with one or more
entities, corporate or otherwise, as a result of which the outstanding shares of the Common
Stock are changed into or exchanged for shares of the capital stock or other securities of
another entity or for cash or other property; provided, however, that the
Company may, in its discretion, and immediately prior to any Corporate Event, cause a new
option to be substituted for this Option or cause this Option to be assumed by a successor
entity or a parent or subsidiary of such entity; and such new option shall apply to all
shares issued in addition to or substitution, replacement or modification of the shares of
Common Stock theretofore covered by this Option.



          (c) Notwithstanding subparagraphs (a) and (b) of this paragraph 4, if an Optionee ceases to be
an officer or employee of the Company or a Subsidiary due to Cause, all of the Optionee’s options
shall terminate immediately upon such cessation, whether or not then exercisable.




          (d) The Company shall cause written notice to be given to the Optionee of the proposed
Corporate Event not less than twenty (20) days prior to the anticipated effective date thereof, for
the purpose of affording the Optionee the opportunity to exercise the Option, in accordance with
the provisions of this Agreement, effective immediately prior to the consummation of the Corporate
Event.




     5. Method of Option Exercise.



          (a) Subject to the terms of this Agreement and the Plan, the Option may be exercised in whole
or in part by filing a written notice(s), in the form attached hereto as Exhibit A, with the
Secretary of the Company at its corporate headquarters prior to the Company’s close of business on
the last business day that occurs prior to the Expiration Date. Such notice shall specify the
number of shares of Common Stock which the Optionee elects to purchase, and shall be accompanied by
payment of the Exercise Price for such shares of Common Stock indicated by the Optionee’s election.
Payment shall be by cash or by check payable to the Company or, where expressly approved for the
Optionee by the Committee and where permitted by law:




               (i) by cancellation of indebtedness of the Company to the Optionee;



               (ii) by surrender of shares that either: (A) have been owned by the Optionee for more
than six (6) months and have been paid for within the meaning of Rule 144 under the
Securities Act of 1933, as amended; or (B) were obtained by the Optionee in the public
market;



               (iii) by waiver of compensation due or accrued to Optionee for services rendered;



               (iv) with respect only to purchases upon exercise of the Option, and provided that a
public market for the Company’s stock exists:



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                    (1) through a “same day sale” commitment from the Optionee and a broker-dealer that is a member of
the National Association of Securities Dealers (an “NASD Dealer”) whereby the Optionee irrevocably
elects to exercise the Option and to sell a portion of the Option Shares so purchased to pay for
the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Option
Shares to forward the Exercise Price directly to the Company; or



                    (2) through a “margin” commitment from the Optionee and a NASD Dealer whereby the Optionee
irrevocably elects to exercise the Option and to pledge the Option Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the
Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Option Shares
to forward the Exercise Price directly to the Company; or



               (v) by any combination of the foregoing.



     6. Transferability of Option. The Option granted hereunder may not be transferred by
the Optionee except upon death by will or the laws of descent and distribution. Unless the context
otherwise requires, references herein to the Optionee are deemed to include any permitted
transferee under this paragraph 6. During the Optionee’s lifetime, only the Optionee (or his
guardian or legal representative) may exercise the Option. In the event of the Optionee’s death,
the Option (to the extent still held by the Optionee at such time) may be exercised only (i) by the
executor or administrator of the Optionee’s estate or the person or persons to whom his rights
under the Option shall pass by will or the laws of descent and distribution and (ii) to the extent
that the Optionee was entitled hereunder at the date of the Optionee’s death.



     7. Withholding of Taxes.



          (a) Withholding Generally. Upon exercise of this Option, the Company may require the
Optionee to remit to the Company an amount sufficient to satisfy federal, state and local
withholding tax requirements prior to the delivery of any certificate or certificates for the
Option Shares.




          (b) Stock Withholding. When, under applicable tax laws, the Optionee incurs tax
liability in connection with the exercise or vesting of this Option that is subject to tax
withholding and the Optionee is obligated to pay the Company the amount required to be withheld,
the Committee may in its sole discretion allow the Optionee to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Option Shares to be issued that number
of shares having a Fair Market Value equal to the minimum amount required to be withheld,
determined on the date that the amount of tax to be withheld is to be determined. All elections by
the Optionee to have Option Shares withheld for this purpose will be made in accordance with the
requirements established by the Committee and be in writing in a form acceptable to the Committee.




     8. Compliance With Securities Laws. This Option shall not be exercisable if such
exercise would involve a violation of any applicable Federal or state securities law.



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     9. No Rights As Shareholder. The Optionee shall not have any rights of a shareholder
with respect to the shares subject to the Option, until a stock certificate has been duly issued
following exercise of the Option as provided herein.



     10. Plan Governs. Notwithstanding anything in this Agreement to the contrary, the
terms of this Agreement shall be subject to the terms of the Plan, a copy of which may be obtained
by the Optionee from the office of the Secretary of the Company; and this Agreement is subject to
all interpretations, amendments, rules and regulations promulgated by the Board from time to time
pursuant to the Plan.



     11. Not An Employment Contract. The Option will not confer on the Optionee any right
with respect to continuance of employment or other service with the Company or any Subsidiary, nor
will it interfere in any way with any right the Company or any Subsidiary would otherwise have to
terminate or modify the terms of such Optionee’s employment or other service at any time.



     12. Adjustments. In the event that the number of outstanding shares is changed by a
stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination,
reclassification or similar change in the capital structure of the Company without consideration,
then the Exercise Prices of and number of Option Shares subject to this Option will be
proportionately adjusted, subject to any required action by the Committee or the stockholders of
the Company and compliance with applicable securities laws; provided, however, that
fractions of a Share will not be issued but will either be replaced by a cash payment equal to the
Fair Market Value of such fraction of a Share or will be rounded up to the nearest whole Share, as
determined by the Committee.



     13. Amendment. Except as otherwise provided herein, any provision of this Agreement
may be amended or waived only with the prior written consent of the Optionee and the Committee.



     14. Certain Definitions. For the purposes of this Agreement, the following terms
shall have the meanings set forth below:



          (a) “Board” means the Board of Directors of the Company.




          (b) “Cause” shall mean any of the following: (i) material breach by Optionee of the
Employment Agreement, of a Company policy or of a law, rule or regulation applicable to the Company
or its operations; (ii) demonstrated and material neglect of duties, or failure or refusal to
perform the material duties of Optionee’s position following written notice from the Board and a
reasonable opportunity to cure of not less than 20 days, or the failure to follow a reasonable and
lawful instruction of the Board following written notice from the Board and an opportunity to cure
of at least ten (10) days; (iii) misconduct, dishonesty, self-dealing, fraud or similar conduct; or
(iv) conviction of a crime or plea of guilty or nolo contendere for other than a minor traffic
offense.




          (c) “Code” shall mean the Internal Revenue Code of 1986, as amended, and any successor
statute.




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          (d) “Committee” shall mean the Compensation Committee of the Board, or in the absence
of a Compensation Committee, the Board.




          (e) “Common Stock” shall mean the Common Stock, $0.001 par value per share, of the
Company, and any other shares into which such stock may be changed by reason of a recapitalization,
reorganization, merger, consolidation or any other change in the corporate structure or capital
stock of the Company.




          (f) “Fair Market Value” of a share of Common Stock of the Company shall mean, as of
any date (the “Determination Date”): (i) the closing price of a share of Common Stock on the New
York Stock Exchange or the American Stock Exchange (collectively, the “Exchange”), on the
Determination Date, or, if shares were not traded on the Determination Date, then on the nearest
preceding trading day during which a sale occurred; or (ii) if such stock is not traded on the
Exchange but is quoted on The Nasdaq Stock Market or a successor quotation system, (A) the last
sales price (if the stock is then listed on the Nasdaq National Market) or (B) the mean between the
closing representative bid and asked prices (in all other cases) for the stock on the Determination
Date as reported by The Nasdaq Stock Market or such successor quotation system; or (iii) if such
stock is not traded on the Exchange or quoted on The Nasdaq Stock Market but is otherwise traded in
the over-the-counter market, the mean between the representative bid and asked prices on the
Determination Date; or (iv) if clauses (i)-(iii) do not apply, the fair market value established in
good faith by the Board.




          (g) “Good Reason” shall mean any one of the following, provided that with respect to
(i) and (ii) below, the Company has failed to cure the occurrence within twenty (20) days of
receiving written notice from Optionee specifying the event or condition constituting the Good
Reason and the specific reasonable cure requested by Optionee: (i) reduction in Optionee’s salary
or participation in benefits, except as part of a general change in compensation plans or benefits
for all similarly situated executives; (ii) any failure by the Company to comply with a material
provision of the Employment Agreement; or (iii) within 180 days after a Change in Control (as
defined in this Agreement).




          (h) “Change in Control” shall mean any of the following events:




               (i) the acquisition by any person (as such term is defined in Section 13(c) or 14(d) of
the Securities Exchange Act of 1934, as amended (the “1934 Act”)), other than (i) a trustee
or other fiduciary holding securities of the Company under an employee benefit plan of the
Company or (ii) an entity in which the Company directly or indirectly beneficially owns 50%
or more of the voting securities of such entity (an “Affiliate”), of any securities of the
Company, immediately after which such Person has beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the 1934 Act) of more than fifty percent (50%) of (i) the
outstanding shares of Common Stock or (ii) the combined voting power of the Company’s then
outstanding securities entitled to vote generally in the election of directors;



               (ii) the Company is a party to a merger or consolidation with a person other than an
Affiliate which results in the holders of voting securities of the Company outstanding
immediately before such merger or consolidation failing to continue to
represent (either by remaining outstanding or being converted into voting securities of
the surviving entity) more than 50% of the combined voting power of the then outstanding
voting securities of the corporation resulting from such merger or consolidation; or



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               (iii) all or substantially all of the assets of the Company are, in any transaction or
series of transactions, sold or otherwise disposed of (other than to an Affiliate);



               (iv) provided, however, that in no event shall a “Change in Control” be deemed to have
occurred for purposes of this Agreement (i) solely because the Company engages in an
internal reorganization, which may include a transfer of assets to, or a merger or
consolidation with, one or more Affiliates, or (ii) as a result of any transaction or series
of transactions that has been approved by the Board.



          (i) “Incapacity” means Optionee becomes unable, due to physical or mental illness or
injury, to perform the essential duties of his employment for more than 12 weeks in any twelve
month period with or without reasonable accommodation.




          (j) “Subsidiary” shall mean any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company if each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.




     15. Entire Agreement. The Agreement, together with the Plan, constitutes the entire
agreement of the parties and supercedes any and all agreements, either oral or in writing, between
the parties with respect to the subject matter hereof.



[SIGNATURE PAGE FOLLOWS]





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Signature Page to Stock Option Agreement




     IN WITNESS WHEREOF, the parties have executed this Agreement to reflect the grant which was
authorized on the Grant Date as first above written.



	 	 	 	 	 
	 	 	“COMPANY”
	 
	 	 	 	 
	 	 	COMMERCE ENERGY GROUP, INC.
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	By:	 	/s/ ROBERT C. PERKINS
	 

	 	 	 	 
	 

	 	Name:	 	Robert C. Perkins
	 

	 	 	 	 
	 

	 	Title:	 	Chairman of the Board
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	“OPTIONEE”
	 
	 	 	 	 
	 
	 	/s/ STEVEN S. BOSS
	 	 	 
	 	 	Steven S. Boss






 









 






EXHIBIT A




Form of Letter to be Used to Exercise Nonqualified Stock Option



                                        

Date



Commerce Energy Group, Inc.

600 Anton Boulevard, Suite 2000

Costa Mesa, CA 92626

Attention: Chief Financial Officer



     I wish to exercise the stock option granted on August 1, 2005 and evidenced by a Stock Option
Agreement to acquire 300,000 shares of Common Stock of Commerce Energy Group, Inc., at an option
price of $1.80 per share (the “Option”) as follows (please check the applicable box):



	 	 	 	 	 
	 

	 	o
	 	in part for                                         shares of Common Stock
	 
	 	 	 	 
	 

	 	o
	 	in full for all                                         shares of Common Stock that remain subject to the
Option






     In accordance with the provisions of the Stock Option Agreement, I wish to make payment of the
exercise price as follows (please check all that apply):



	 	 	 	 	 
	 

	 	o
	 	in cash
	 
	 	 	 	 
	 

	 	o
	 	by delivery of shares of Common Stock held by me
	 
	 	 	 	 
	 

	 	o
	 	by simultaneous sale through a broker of Option Shares
	 
	 	 	 	 
	 

	 	o
	 	by authorizing the Company to withhold Option Shares






EXHIBIT A




 









 







Please issue a certificate for these shares in the following name:




	 	 	 
	 

Name

	 	  
	 
	 	 
	 
	 	 
	 

Address

	 	  
	 
	 	 
	 
	 	 
	 


	 	 
	 
	 	 
	 
	 	 
	 

	 	Very truly yours,
	 
	 	 
	 
	 	 
	 

	 	 
	 

	 	Signature
	 
	 	 
	 

	 	Steven S. Boss
	 

	 	 
	 

	 	Typed or Printed Name
	 
	 	 
	 
	 	 
	 

	 	 
	 

	 	Social Security Number