Exhibit 10.7



 




EXHIBIT
10.7



COMMERCE ENERGY GROUP, INC.

BONUS PROGRAM




 






Plan Document




 






As Amended by First Amendment

Adopted March 27, 2007





 









 








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.




1









 












	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.




2









 












	 	(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




3









 






	 	 	 	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




4









 






	 	 	 	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.




5









 












	 	(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.




6









 











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.





7









 





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.





8