Document:

exv10w1

 

Exhibit 10.1

EMPLOYMENT AGREEMENT

     This Employment Agreement (“Agreement”) is entered into and effective as of the 1st day of
August, 2005 (“Effective Date”) by and between COMMERCE ENERGY GROUP, INC., a Delaware corporation
on behalf of itself and any and all subsidiaries (together the “Company”), and STEVEN S. BOSS
(“Executive”).

RECITALS

     A. The Company is in the business of providing a range of diversified energy services (the
“Business”).

     B. The Company wishes to employ Executive to serve as its Chief Executive Officer and to
continue to grow and develop the Business.

     C. Executive wishes to be employed by the Company and to serve in such capacity under the
terms and conditions below.

     NOW, THEREFORE, the parties agree as follows:

     1. Position and Duties.

          (a) On August 1, 2005, (“Commencement Date”) Company will employ Executive to serve as its
Chief Executive Officer, reporting to Company’s Board of Directors (“Board”). As Chief Executive
Officer, Executive will be responsible initially for developing and proposing to the Board a new
strategic business plan and initiative for the Company. Following Board approval, he will be
responsible generally for implementing the strategic plan and related budgets and proposing
revisions as appropriate. Executive is responsible to grow and develop the Business and generally
to perform the duties and responsibilities customarily expected to be performed by the chief
executive officer of a publicly reporting commercial business entity, and to perform such other
duties and functions as are reasonably required and/or as may be prescribed by the Board from time
to time.

          (b) The location of Executive’s employment will be the Company’s headquarters offices, but
Executive from time to time may be required to travel to other geographic locations in connection
with the performance of his duties.

     2. Standards of Performance. Executive will at all times faithfully, industriously and to the
best of his ability, experience and talents perform all of the duties required of and from him
pursuant to the terms of this Agreement. Executive will devote his full business energies and
abilities and all of his business time to the performance of his duties hereunder and will not,
without the Company’s prior written consent, render to others any service of any kind (whether or
not for compensation) that, in the Company’s sole but reasonable judgment, would or might interfere
with the full performance of his duties hereunder. Notwithstanding, Executive is permitted, for a
reasonable period following the Commencement Date, to spend reasonable amounts of time to wrap up
current assignments with his law firm, and continuing thereafter to manage his personal financial
and legal affairs and, with the Company’s consent which will not

 

 

be unreasonably withheld, to serve on civic, not-for-profit, charitable, or industry boards
and advisory committees, provided that such activities, individually and collectively, do not
materially interfere with the performance of Executive’s duties hereunder. In no event will
executive engage in any activities that could reasonably create a conflict of interest or the
appearance of a conflict of interest. Executive shall be subject to the Company’s policies,
procedures and approval practices, as generally in effect from time to time.

     3. Term. Executive will be employed for no specific term and until terminated pursuant to the
terms of this Agreement. Except as otherwise provided in the Agreement, the company and Executive
shall each have a right to terminate this Agreement upon 60 days written notice.

     4. Compensation, Benefits and Policies.

          (a) Base Salary. As an annual base salary (“Base Salary”) for all services rendered
pursuant to this Agreement, Executive will be paid an initial Base Salary in the gross amount of
Four Hundred Twelve Thousand Dollars ($412,000) calculated on an annualized basis, less necessary
withholdings and authorized deductions, and payable pursuant to the Company’s regular payroll
practices at the time. The Base Salary is first subject to review within the first three months
after the end of the fiscal year ending July 31, 2006 (“fiscal 2006”) and, thereafter, subject to
periodic review not less frequently than annually within the first three months after the end of
the next successive fiscal year, and to increase (but not decrease) as approved by the Compensation
Committee of the Board (“Compensation Committee”), or, if the Board desires to approve increases to
the Base Salary, the Board, in the sole discretion of the Compensation Committee or the Board, as
applicable.

          (b) Incentive Bonus Eligibility.

          (i) For fiscal 2006, Executive is eligible for consideration for an incentive bonus
(“Incentive Bonus”) calculated at between 50% and 150% of Base Salary based on achievement
of objectives established by the Compensation Committee within ninety (90) days of the start
of fiscal 2006 (“Targets”), such Targets to include but not necessarily be limited to
financial targets contained in the Company’s approved budget for fiscal 2006. The Incentive
Bonus earned for achieving the Targets as established will be 50% of the Base Salary
(“Target Bonus”) with eligibility to earn up to 150% of the Base Salary based on exceeding
the Targets. For the avoidance of doubt, the Target Bonus is only payable if the Targets
are achieved.

          (ii) Executive must be employed by the Company as of the last day of any fiscal year to
be eligible for consideration for the Incentive Bonus for that fiscal year. The Incentive
Bonus will be calculated as of the end of each fiscal year, and payable 90 days thereafter
or promptly following the filing of the Company’s Annual Report on Form 10-K, whichever is
later.

          (iii) Incentive Bonus eligibility for the Company’s fiscal year ending July 31, 2007
and thereafter will be established as part of any overall executive incentive

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compensation plan which Executive will be responsible for designing and proposing to
the Compensation Committee for its consideration.

          (c) Stock Options.

          (i) Term Option. On the Commencement Date, the Company shall grant to
Executive a non-qualified stock option (the “Term Option”) to purchase 300,000 shares of
common stock, par value $0.001 per share, of the Company (the “Common Stock”). The Term
Option shall become exercisable as follows: 100,000 shares shall be immediately vested and
fully exercisable on the Commencement Date and 100,000 shares shall become vested and fully
exercisable on each of the first and second anniversaries of the Commencement Date. The
exercise price per share shall be the greater of (A) Fair Market Value (as defined in this
Agreement) or (B) the Cash Value (as defined in this Agreement) of the Common Stock on the
Commencement Date, the date of grant.

          (ii) Definition of Fair Market Value. For purposes of this Agreement, “Fair
Market Value,” as of any date (the “Determination Date”) means: (a) 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 (b) if such stock is not traded on the Exchange but is quoted on The Nasdaq
Stock Market or a successor quotation system, (1) the last sales price (if the stock is then
listed on the Nasdaq National Market) or (2) 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 (c) 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 (d) if subsections (a)-(c) do not apply, the fair market value
established in good faith by the Board.

          (iii) Definition of Cash Value. For purposes of this Agreement, “Cash Value” as
of any date (the “Determination Date”) means the cash value per share of the Company’s
Common Stock on the Determination Date, determined by dividing (a) the sum of the Company’s
cash, restricted cash and deposits by (b) the number of shares of Common Stock outstanding,
in each case as reported in the Company’s most recent Annual Report on Form 10-K or
Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission.

          (iv) Option Agreements Controlling. The Term Option shall be evidenced by a
stock option agreement in substantially the same form as attached hereto as Exhibit
A. If a conflict arises between this Agreement and any such option agreement, the
option agreement will govern.

          (d) Restricted Stock Award. On the Commencement Date, the Company shall grant to
Executive a restricted stock award of 200,000 shares of Common Stock (the “Restricted Shares”).
Such Restricted Shares shall be subject to forfeiture, and shall vest as follows: (i) 50,000 of
the restricted shares shall vest as of the first anniversary of the Commencement

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Date; (ii) 50,000 of the restricted shares shall vest based on achievement of performance
targets for fiscal 2006 established by the Compensation Committee for such purpose within ninety
(90) days of the beginning of fiscal 2006; (iii) 50,000 of the restricted shares shall vest based
on achievement of performance targets for fiscal 2007 established by the Compensation Committee for
such purpose within ninety (90) days of the beginning of fiscal 2007; and (iv) 50,000 of the
restricted shares shall vest based on achievement of performance targets for fiscal 2008
established by the Compensation Committee for such purpose within ninety (90) days of the beginning
of fiscal 2008. To the extent that performance targets for any fiscal year include Company
achievement of financial targets, the determination as to whether Restricted Shares have vested
will be determined by reference to the Company’s audited financial statements for the applicable
fiscal year, as set forth in the Company’s annual report on Form 10-K filed with the Securities and
Exchange Commission with respect to such fiscal year. Executive must be employed as of the first
anniversary of the Commencement Date for 50,0000 Restricted Shares to vest as of that date, and
further must be employed as of the last day of any fiscal year for Restricted Shares to vest with
respect to that fiscal year. The restricted stock grant shall be evidenced by a restricted stock
agreement in the form attached hereto as Exhibit B. If a conflict arises between this
Agreement and the restricted stock agreement, the restricted stock agreement will govern.

          (e) Paid Time Off and Benefits. Executive will accrue paid time off for vacation at
the rate of four (4) weeks for each year of employment. Except for emergencies or other
unanticipated events, the days selected for Executive’s vacation must be mutually agreeable to the
Company and to Executive. Executive will accrue paid time off for illness pursuant to the
Company’s regular policies. In addition, Executive is entitled to participate in any plans
regarding benefits of employment, including pension, profit sharing, group health, disability
insurance and other employee welfare benefit plans now existing or hereafter established to the
extent that Executive is eligible under the terms of such plans and if the other executive officers
of the Company generally are eligible to participate in such plan. The Company may, in its sole
discretion and from time to time, establish additional senior management benefit plans as it deems
them appropriate. Executive understands that any such plans may be modified or eliminated in the
Company’s sole discretion in accordance with applicable law.

          (f) Reimbursement of Business Expenses. The Company will promptly reimburse to
Executive his reasonable, customary and documented out-of-pocket business expenses, including
cellular telephone expenses, in connection with the performance of his duties under this Agreement,
and in accordance with the policies and procedures established by the Company.

          (g) Sarbanes-Oxley Act Loan Prohibition. To the extent that any Company benefit,
program, practice, arrangement or this Agreement would or might otherwise result in Executive’s
receipt of an illegal loan (the “Loan”), the Company shall use commercially reasonable efforts to
provide Executive with a substitute for the Loan that is lawful and of at least equal value to
Executive. If this cannot be done, or if doing so would be significantly more expensive to the
Company than making the Loan, the Company need not make the Loan to Executive or provide him a
substitute for it.

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     5. Termination of Employment.

          (a) By Company Without Cause. The Company may terminate Executive’s employment
without Cause (as defined in this Agreement) effective on sixty (60) days’ written notice. In such
event and subject to the other provisions of this Agreement, Executive will be entitled to:

          (i) continued coverage under the Company’s benefit plans through the termination date;

          (ii) payment of all earned but unpaid compensation (including accrued unpaid vacation)
through the effective date of termination, payable on or before the termination date;

          (iii) reimbursement of any monies advanced or incurred by Executive in connection with
his Employment for reasonable and necessary Company-related business expenses incurred on or
before the termination date;

          (iv) payment of the equivalent of the Base Salary he would have earned over the next 12
months (less necessary withholdings and authorized deductions) at his then current Base
Salary rate (“Severance Payment”), payable in equal monthly installments over the 12 months
following the Termination Date (“Severance Period”);

          (v) at Executive’s option, reimbursement of insurance premiums payable to retain his
group health coverage as of the Termination Date pursuant to COBRA for the two (2) months
following the Termination Date.

          (vi) The number of outstanding unvested stock options and restricted stock previously
granted to Executive shall vest upon such termination that would have vested over the twelve
(12) month period after such termination as if Executive remained employed by the Company
(“Accelerated Vesting”).

          (b) By Company With Cause. The Company may terminate Executive’s employment at any
time and without prior notice, written or otherwise, for Cause. As used in this Agreement, “Cause”
shall mean any of the following conduct by Executive: (i) material breach of this Agreement, or 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 his 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. In the event of
termination for Cause, Executive will be entitled only to payment of any earned but unpaid
compensation (Base Salary and accrued but unpaid vacation) through the Termination date, which for
purposes of this subparagraph (b) will be the date on which the notice is given. The Company will
have no further obligation to pay any compensation of any kind (including without limitation any
bonus or portion of a bonus that otherwise may have

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become due and payable to Executive with respect to the year in which such Termination date
occurs), or severance payment of any kind nor to make any payment in lieu of notice.

          (c) Incapacity or Death.

          (i) If Executive becomes unable, due to physical or mental illness or injury, to perform the
essential duties of his position for more than 12 weeks in any twelve month period during this
Agreement with or without reasonable accommodation (“Incapacity”), the Company has the right to
terminate Executive’s employment on fifteen (15) days’ written notice. In the event of
termination for Incapacity, Executive will be entitled to receive: (A) payment of all earned but
unpaid compensation through the effective date of termination, as specified in the notice, and (B)
whatever benefits to which he may be entitled pursuant to the Company’s benefit plans; and

          (ii) Executive’s employment pursuant to this Agreement shall be immediately terminated
without notice by the Company upon the death of the Executive. If Executive should die while
actively employed pursuant to this Agreement, the Company will pay to his estate or designated
beneficiaries within sixty (60) days: (A) payment of all earned but unpaid compensation through
the date of executive’s death and (B) whatever benefits to which he or his estate may be entitled
pursuant to the Company’s benefit plans.

          (d) Resignation for Good Reason. Executive may terminate this Agreement for Good
Reason (as defined in this Agreement) by giving written notice of such termination, which
termination will become effective on the thirtieth day following receipt. As used in this
Agreement, “Good Reason” shall mean any one of the following, provided that with respect to (A) and
(B) herein, the Company has failed to cure the occurrence within twenty (20) days of receiving
written notice from Executive specifying the event or condition constituting the Good Reason and
the specific reasonable cure requested by Executive: (A) reduction in Executive’s salary or
participation in benefits, except as part of a general change in compensation plans or benefits for
all similarly situated executives; (B) any failure by the Company to comply with a material
provision of this Agreement; or (C) within 180 days after a Change of Control (as defined in this
Agreement). In the event of resignation for Good Reason, Executive will be entitled to the
benefits set forth in subsection 5(a) above in the event of termination by the Company without
Cause.

               As used in this Agreement, a “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

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(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

          (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);

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.

          (e) Resignation for other than Good Reason. In the event that the Executive resigns
for other than Good Reason as defined above in subsection (d), Executive will be entitled only to
payment of any earned but unpaid compensation (Base Salary and accrued but unpaid vacation) through
the Termination date. The Company will have no further obligation to pay any compensation of any
kind (including without limitation any bonus or portion of a bonus that otherwise may have become
due and payable to Executive with respect to the year in which such Termination date occurs), or
severance payment of any kind.

          (f) Release. As a condition of Executive or his estate receiving any severance
payment by the Company made pursuant to Section 5 of this Agreement, whether in a lump sum payment
or a string of payments or in the form of payment of benefits, Executive or his estate shall, in
consideration for payment of such amount or benefit, release, remise and forever discharge,
indemnify and hold harmless the Company, its officers, directors, and employee, pursuant to a form
of release customarily used by the Company for such purpose. Notwithstanding the foregoing, such
release and indemnification will not be construed to include any release of any indemnification
rights Executive may have against the Company pursuant to the Company’s certificate of
incorporation, bylaws, any indemnification agreement or pursuant to California Labor Code Section
2802 or any similar provision. As a further condition of Executive receiving any severance payment
by the Company made pursuant to Section 5 of this Agreement, he will specifically reaffirm the
provisions of Section 6 below and any severance payments will be conditioned on his continued
compliance with such provisions.

          (g) IRC Section 409A. Notwithstanding anything herein to the contrary, to the extent
that either party determines in good faith that any payment pursuant to this Section 5 provides for
a “deferral of compensation” under Section 409A of the Internal Revenue Code, as amended (“Section
409A”), the parties will discuss in good faith and thereafter will amend the

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provisions of this Agreement to preserve the original intent of the Agreement to the extent
possible without violating the provisions of Section 409A.

          (h) Board Membership. Further notwithstanding, the parties acknowledge that as of the
Commencement Date, Executive serves as a member of the Company’s Board of Directors. The parties
further agree that in the event Executive shall be serving as a member of the Company’s Board of
Directors as of the Termination Date, he shall voluntarily resign as a Director of the Company
effective as of the Termination Date, unless otherwise mutually agreed by the parties.

     6. Proprietary Information Obligations.

          (a) Proprietary Information and Confidentiality. Both before and during the term of
Executive’s employment, Executive will have access to and become acquainted with Company
confidential and proprietary information (together “Proprietary Information”), including but not
limited to information or plans concerning the Company’s customer relationships; personnel; sales,
marketing and financial operations and methods; trade secrets, formulae, devices; secret
inventions; processes; and other compilations of information, records, and specifications.
Executive will not disclose any of the Proprietary Information directly or indirectly, or use it in
any way, either during the term of this Agreement or at any time thereafter, except as reasonably
required or specifically requested in the course of his employment with the Company or as
authorized in writing by the Company. Notwithstanding, Proprietary Information does not include
information that is otherwise publicly known or available, provided it has not become public as a
result of a breach of this Agreement or any other agreement to keep it confidential. It is not a
breach of this Agreement for Executive to disclose Proprietary Information pursuant to order of a
court or other governmental or legal body. All files, records, documents, computer-recorded or
electronic information, drawings, specifications, equipment, and similar items relating to Company
business, whether prepared by Executive or otherwise coming into his possession, will remain the
Company’s exclusive property and will not be removed from Company premises under any circumstances
whatsoever without the Company’s prior written consent, except when, and only for the period,
necessary to carry out Executive’s duties hereunder, and if removed, will be immediately returned
to the Company on termination of employment, and Executive will keep no copies thereof.

          (b) Inventions Agreement and Assignment.

          (i) Executive hereby agrees to disclose promptly to the Company (or any persons designated by
it) all developments, designs, creations, improvements, original works of authorship, formulas,
processes, know-how, techniques and/or inventions, hereinafter referred to collectively as
“Inventions”) (i) which are made or conceived or reduced to practice by Executive, either alone or
jointly with others, in performing his duties during the period of Executive’s employment by the
Company, that relate to or are useful in the present or future business of the Company; or (ii)
which result from tasks assigned to Executive by the Company, or from Executive’s use of the
premises or other resources owned, leased or contracted by the Company.

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          (ii) Executive agrees that all such Inventions which the Company in its discretion determines
to be related to or useful in its business or its research or development, or which result from
work performed by Executive for the Company, will be the sole and exclusive property of the Company
and its assigns, and the Company and its assigns will have the right to use and/or to apply for
patents, copyrights or other statutory or common law protections for such Inventions in any and all
countries. Executive further agrees to assist the Company in every reasonable way (but at the
Company’s expense) to obtain and from time to time enforce patents, copyrights and other statutory
or common law protections for such Inventions in any and all countries. To that end, Executive
will execute all documents for use in applying for and obtaining such patents, copyrights and other
statutory or common law protections therefor and enforcing the same, as the Company may desire,
together with any assignments thereof to the Company or to persons or entities designated by the
Company. Should the Company be unable to secure Executive’s signature on any document necessary to
apply for, prosecute, obtain, or enforce any patent, copyright or other right or protection
relating to any Invention, whether due to his mental or physical incapacity or any other cause,
Executive hereby irrevocably designates and appoints the Company and each of its duly authorized
officers and agents as Executive’s agent and attorney-in-fact, to act for and in his behalf and
stead, to execute and file any such document, and to do all other lawfully permitted acts to
further the prosecution, issuance, and enforcement of patents, copyrights or other rights or
protections with the same force and effect as if executed and delivered by Executive. Executive’s
obligations under this Subsection will continue beyond the termination of Executive’s employment
with the Company, but the Company will compensate Executive at a reasonable rate after such
termination for time actually spent by Executive at the Company’s request in providing such
assistance.

          (iii) Executive hereby acknowledges that all original works of authorship which are made by
Executive (solely or jointly with others) within the scope of Executive’s employment which are
protectable by copyright are “works for hire,” as that term is defined in the United States
Copyright Act (17 USCA, Section 101).

          (iv) Any provision in this Agreement requiring Executive to assign Executive’s rights in any
Invention to the Company will not apply to any invention that is exempt under the provisions of
California Labor Code Section 2870, which provides:

(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights
in an invention to his or her employer shall not apply to an
invention that the employee developed entirely on his or her own
time without using the employer’s equipment, supplies, facilities,
or trade secret information except for those inventions that either:
(1) relate at the time of conception or reduction to practice of
the invention to the employer’s business, or actual or demonstrably
anticipated research or development of the employer; or (2) result
from any work performed by the employee for the employer. (b) To
the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from
being required to be assigned under subdivision (a), the

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provision is against the public policy of this state and is
unenforceable.”

          (c) Non-Solicitation, Non-Interference. While employed by the Company, and thereafter
for one (1) year following expiration of the Severance Period, Executive agrees not to (i) solicit,
attempt to solicit or accept business from, either directly or indirectly, any vendor, customer,
client, or supplier of the Company (including affiliates) which has or could reasonably be expected
to have a material adverse effect on such vendor’s, customer’s, client’s or supplier’s relationship
with the Company; or (ii) induce or attempt to induce any then existing employee or contractor to
leave their employment with or service to the Company (including affiliates), or to employ or seek
to employ any such person who was employed by or a consultant to the Company during the preceding
three (3) months, provided that the latter restriction shall not apply with respect to any person
involuntarily terminated by the Company, provided further that this exception shall not release any
such person from his/her obligations to the Company (including affiliates).

          (d) Non-competition. Executive agrees that during the term of employment, and for any
Severance Period thereafter, he will not, without the Company’s prior written consent, directly or
indirectly, be employed by, be connected with, lend his name to or have an interest of any kind in,
whether as an employee, consultant, officer, director, partner, stockholder, joint venturer, or
otherwise, any person or entity owning, managing, controlling, operating, or otherwise
participating or assisting in a Restricted Business. For purposes of this Agreement, Restricted
Business is defined as electric retail aggregation. Executive’s agreement not to engage in any
Restricted Business covers (i) during his employment by the Company, any location and (ii) after
Executive’s employment has ended, any county in which the Company is conducting or specifically
planning to conduct business or producing, marketing, distributing or selling any of its products
or services; provided, however, that the foregoing is not intended to prevent Executive
from being a stockholder of less than one percent of the issued and outstanding securities of a
corporation which has a class of securities publicly traded on an exchange, in The Nasdaq Stock
Market or in the over-the-counter market.

          (e) Remedies for Breach. Executive acknowledges that any breach by Executive of this
Section 6 would cause the Company irreparable injury and damage for which monetary damages are
inadequate. Accordingly, in the event of a breach or a threatened breach of this Section 6, the
Company will be entitled to seek an injunction restraining such breach. Nothing contained herein
will be construed as prohibiting the Company from pursuing any other remedy available to the
Company for such breach or such threatened breach. Executive has carefully read and considered
these restrictions and agrees they are fair and reasonable restrictions on Executive and are
reasonably required for the protection of the interests of the Company. Executive agrees not to
circumvent the spirit of these restrictions by attempting to accomplish indirectly what Executive
is otherwise restricted from doing directly.

          (f) Return of Materials. In the event of termination of Executive’s employment for
any reason, Executive will promptly deliver to the Company all Company equipment (including,
without limitation, any cellular phones, beeper/pagers, computer hardware and software, fax
machines and other tools of the trade) and all originals and copies of all documents, including
without limitation, all books, customer lists, forms, documents supplied by

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customers, records, product lists, writings, manuals, reports, financial documents and other
documents or property in Executive’s possession or control, which relate to the Company’s business
in any way whatsoever, and in particular to customers of the Company, or which may be considered to
constitute or contain Confidential Information as defined herein, and Executive will neither
retain, reproduce, nor distribute copies thereof (other than copies of Executive’s rolodex or
similar address and telephone directories).

     7. Interpretation, Governing Law and Exclusive Forum. The validity, interpretation,
construction, and performance of this Agreement shall be governed by the laws of the State of
California (excluding any that mandate the use of another jurisdiction’s laws). Any arbitration
(unless otherwise mutually agreed), litigation or similar proceeding with respect to such matters
only may be brought within California, and all parties to this Agreement consent to California’s
jurisdiction.

     8. Entire Agreement. Except for Executive’s Stock Option and Restricted Stock Agreements and
his Indemnification Agreement (the form of each agreement as set forth as an exhibit to this
Agreement) all oral or written agreements or representations, express or implied, with respect to
the subject matter of this Agreement are set forth in this Agreement.

     9. Severability. In the event that one or more of the provisions contained in this Agreement
are held to be invalid, illegal, or unenforceable in any respect by a court of competent
jurisdiction, such holding shall not impair the validity, legality or enforceability of the
remaining provisions herein.

     10. Successors and Assigns. This Agreement shall be binding upon, and shall inure to the
benefit of, Executive and his estate, but Executive may not assign or pledge this Agreement or any
rights arising under it, except to the extent permitted under the terms of the benefit plans in
which he participates. The Company may not assign this Agreement to any affiliate or successor
without Executive’s prior written consent.

     11. Notices. All notices, requests, demands and other communications hereunder shall be in
writing and shall be given by hand delivery, facsimile, telecopy, overnight courier service, or by
United States certified or registered mail, return receipt requested. Each such notice, request,
demand or other communication shall be effective (i) if delivered by hand or by overnight courier
service, when delivered at the address specified in this Section 11; (ii) if given by facsimile or
telecopy, when such facsimile or telecopy is transmitted to the facsimile or telecopy number
specified in this Section 11 and confirmation is received if during normal business hours on a
business day, otherwise, on the next business day; and (iii) if given by certified or registered
mail, three days after the mailing thereof. Notices shall be addressed to the parties as follows
(or at such other address or fax number as either party may from time to time specify in writing by
giving notice as provided herein):

-11-

 

	 	 	 	 	 
	 

	 	If to the Company:
	 	Commerce Energy Group, Inc.
	 

	 	 	 	600 Anton Boulevard
	 

	 	 	 	Suite 2000
	 

	 	 	 	Costa Mesa, California 92626
	 

	 	 	 	Attn: Chief Financial Officer
	 

	 	 	 	Fax No. (714) 481-6567
	 
	 	 	 	 
	 

	 	If to Executive:
	 	Mr. Steven S. Boss
	 

	 	 	 	600 Anton Boulevard
	 

	 	 	 	Suite 2000
	 

	 	 	 	Costa Mesa, California 92626
	 

	 	 	 	Fax No: (714) 481-6567

     12. Indemnification and Insurance. The Company will indemnify Executive to the fullest extent
permitted by the laws of the State of Delaware, as more fully described in the Indemnification
Agreement dated August 1, 2005, the form of which is attached hereto as Exhibit C. While employed
by the Company, and thereafter to the extent provided to the Company’s other senior executives, the
Company shall, at its cost, provide insurance coverage to Executive at least to the same extent as
other senior executive of the Company with respect to (a) officers and directors liability, (b)
errors and omissions and (c) general liability. The foregoing rights conferred upon Executive
shall not be exclusive of any other right which Executive may have or hereafter may acquire under
any statute, provision of the certificate of incorporation or bylaws of the Company, agreement,
vote of the stockholders or directors or otherwise.

     13. Dispute Resolution. The parties agree that all disputes, claims or controversies between
them and between Executive and any of the Company’s affiliated entities and the successor of all
such entities, including any dispute, claim or controversy arising from or otherwise in connection
with this Agreement and/or Executive’s employment with the Company, will be resolved as follows:

          (a) Prior to initiating any other proceeding, the complaining party will provide the other
party with a written statement of the claim identifying any supporting witnesses or documents and
the requested relief. The responding party shall within forty-five (45) days furnish a statement
of the relief, if any, that it is willing to provide, and identify supporting witnesses or
documents.

          (b) If the matter is not resolved by the exchange of statements of claim and statements of
response as provided herein, the parties shall submit the dispute to non-binding mediation, the
cost of the mediator to be paid by the Company, before a mediator and/or service to be jointly
selected by the parties. Each party will bear its own attorney’s fees and witness fees.

          (c) If the parties cannot agree on a mediator and/or if the matter is not otherwise resolved
by mediation, any controversy or claim arising out of or relating to this Agreement or breach
thereof shall be settled by final and binding arbitration in            the county in which the
Executive last worked, or elsewhere as mutually agreed by the parties, by a single arbitrator
pursuant to the Employment Dispute Rules of the JAMS Endispute. The parties may

-12-

 

conduct discovery to the extent permitted in a court of law; the arbitrator will render an
award together with a written opinion indicating the bases for such opinion; and the arbitrator
will have full authority to award all remedies that would be available in court. Judgment upon the
award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Each
party shall bear its own attorney’s fees and costs, unless the claim is based on a statute that
provides otherwise. The Company will pay the arbitrator’s fees and any administrative expenses of
the arbitration service.

          (d) EXECUTIVE AND THE COMPANY AGREE THAT THIS ARBITRATION PROCEDURE WILL BE THE EXCLUSIVE
MEANS OF REDRESS FOR ANY DISPUTES RELATING TO OR ARISING FROM EXECUTIVE’S EMPLOYMENT WITH THE
COMPANY OR TERMINATION THEREFROM, INCLUDING DISPUTES OVER UNPAID WAGES, BREACH OF CONTRACT OR TORT,
VIOLATION OF PUBLIC POLICY, RIGHTS PROVIDED BY FEDERAL, STATE OR LOCAL STATUTES, REGULATIONS,
ORDINANCES, AND COMMON LAW, LAWS THAT PROHIBIT DISCRIMINATION BASED ON ANY PROTECTED
CLASSIFICATION, AND ANY OTHER STATUTES OR LAWS RELATING TO AN EXECUTIVE’S RELATIONSHIP WITH THE
COMPANY. THE FOREGOING NOTWITHSTANDING, CLAIMS FOR WORKERS’ COMPENSATION BENEFITS OR UNEMPLOYMENT
INSURANCE, OR ANY OTHER CLAIMS WHERE MANDATORY ARBITRATION IS PROHIBITED BY LAW, ARE NOT COVERED BY
THIS ARBITRATION PROVISION. THE PARTIES EXPRESSLY WAIVE THE RIGHT TO A JURY TRIAL, AND AGREE THAT
THE ARBITRATOR’S AWARD SHALL BE FINAL AND BINDING ON BOTH PARTIES. THIS ARBITRATION PROVISION IS
TO BE CONSTRUED AS BROADLY AS IS PERMISSIBLE UNDER APPLICABLE LAW.

     14. Representations. Each person executing this Agreement hereby represents and warrants on
behalf of himself and of the entity/individual on whose behalf he is executing the Agreement that
he is authorized to represent and bind the entity/individual on whose behalf he is executing the
Agreement. Executive specifically represents and warrants to the Company that: he is not now
under any contractual or other obligations that are inconsistent or in conflict with this Agreement
or that would prevent, limit or impair Executive’s performance of his obligations under this
Agreement.

     15. Amendments and Waivers. No provisions of this Agreement may be modified, waived, or
discharged except by a written document signed by Executive and a duly authorized Company officer.
Thus, for example, promotions, commendations, and/or bonuses shall not, by themselves, modify,
amend, or extend this Agreement. A waiver of any conditions or provisions of this Agreement in a
given instance shall not be deemed a waiver of such conditions or provisions at any other time.

     16. Golden Parachute Limitation. Executive agrees that the payments and benefits under this
Agreement, and all other contracts, arrangements or programs that apply to him, shall not, in the
aggregate, exceed the maximum amount that may be paid to Executive without triggering golden
parachute penalties under Section 280G and related provisions of the Internal Revenue Code, as
determined in good faith by the Company’s independent auditors. If any benefits must be cut back
to avoid triggering such penalties, Executive’s benefits shall be cut

-13-

 

back in the priority order reasonably designated by the Company. If an amount in excess of
the limits set forth in this Section 16 is paid to Executive, Executive agrees to repay the excess
amount to the Company upon demand. The Company and Executive agree to cooperate with each other in
connection with any administrative or judicial proceedings concerning the existence or amount of
golden parachute penalties with respect to payments or benefits Executive receives.

     17. U.S. Citizenship and Immigration Services. Executive agrees to timely file all documents
required by the Department of Homeland Security to verify his identity and lawful employment in the
United States.

     18. Withholding Taxes. The Company may withhold from any salary and benefits payable under
this Agreement all federal, state, city and other taxes or amounts as shall be determined by the
Company to be required to be withheld pursuant to applicable laws, or governmental regulations or
rulings.

     19. Counterparts. This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which together shall constitute the same instrument.

EXECUTIVE ACKNOWLEDGES THAT ALL UNDERSTANDINGS AND AGREEMENTS BETWEEN THE
COMPANY AND HIM RELATING TO THE SUBJECTS COVERED IN THIS AGREEMENT ARE
CONTAINED IN IT (INCLUDING THE AGREEMENTS SET FORTH AS EXHIBITS) AND THAT HE
HAS ENTERED INTO THIS AGREEMENT VOLUNTARILY AND NOT IN RELIANCE ON ANY PROMISES
OR REPRESENTATIONS BY THE COMPANY OTHER THAN THOSE CONTAINED IN THIS AGREEMENT.

EXECUTIVE FURTHER ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT
(INCLUDING THE AGREEMENTS SET FORTH AS EXHIBITS), THAT HE UNDERSTANDS ALL OF
SUCH AGREEMENTS, AND THAT HE HAS BEEN GIVEN THE OPPORTUNITY TO DISCUSS SUCH
AGREEMENTS WITH HIS PRIVATE LEGAL COUNSEL AND HAS AVAILED HIMSELF OF THAT
OPPORTUNITY TO THE EXTENT HE WISHED TO DO SO. EXECUTIVE UNDERSTANDS THAT BY
SIGNING THIS AGREEMENT HE IS GIVING UP HIS RIGHT TO A JURY TRIAL.

[SIGNATURE PAGE FOLLOWS]

-14-

 

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.

	 	 	 	 	 
	 	 	"Company”
	 
	 	 	 	 
	 	 	COMMERCE ENERGY GROUP, INC.
	 
	 	 	 	 
	 

	 	By:	 	/s/ ROBERT C. PERKINS
	 

	 	 	 	 
	 

	 	Name:
	 	Robert C. Perkins
	 

	 	Title:
	 	Chairman of the Board
	 
	 	 	 	 
	 	 	"Executive”
	 	 	 

	 
	 	/s/ STEVEN S. BOSS 
	 	 	 
	 	 	STEVEN S. BOSS

-15-

 

Exhibit A

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

-2-

 

               (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:

-3-

 

                    (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.

-4-

 

     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.

-5-

 

          (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

-6-

 

               (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]

-7-

 

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:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	“OPTIONEE”
	 
	 	 	 	 
	 
	 	 	 	 
	 	 	 
	 	 	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

 

 

Exhibit B

RESTRICTED STOCK AGREEMENT

     This Restricted Stock 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 STEVEN S. BOSS (“Recipient”).

Recitals

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

     B. The Employment Agreement provides that Recipient shall receive an award of restricted
shares of the Company’s common stock, $0.001 par value per share;

     C. The Company maintains the 1999 Equity Incentive Plan, as amended (the “Plan”), which is
incorporated into and forms a part of this Agreement;

     D. The Compensation Committee of the Company’s Board of Directors (the “Committee”)
administers the Plan;

     E. Recipient has been selected by the Committee to receive an award of restricted shares of
the Company’s common stock, $0.001 par value per share (the “Common Stock”), under the Plan; and

     F. The grant of restricted stock is made pursuant to the terms of Section 4(e) of the
Employment Agreement.

Agreement

     1. Award and Consideration. On the terms and conditions set forth in this Agreement,
the Company, hereby issues to Recipient on August 1, 2005 (the “Grant Date”), Two Hundred Thousand
(200,000) shares (the “Restricted Shares”) of Common Stock. All of the Restricted Shares issued
hereunder shall be deemed issued to Recipient as fully paid and nonassessable shares, and Recipient
shall have all rights of a stockholder with respect thereto, including the right to vote, receive
dividends (including stock dividends), participate in stock splits or other recapitalizations, and
exchange such shares in a merger, consolidation or other reorganization. The Company shall pay any
applicable stock transfer taxes.

     2. Escrow and Repurchase Right.

          (a) Escrow. For purposes of facilitating the enforcement of the provisions of this
Section 2, Recipient agrees, immediately upon receipt of the certificate(s) for all the Restricted
Shares, to deliver such certificate(s), together with a “Stock Assignment Separate from
Certificate” in the form attached hereto as Exhibit A, executed in blank by Recipient (and
Recipient’s spouse if required for transfer) with respect to each such stock certificate issued
hereunder, to the Secretary or Assistant Secretary of the Company or their designee (the “Escrow
Holder”) to hold in escrow for so long as such Restricted Shares remains subject to any
Repurchase Right (as defined below), and granting the Company the authority to take all
actions

 

 

necessary to effectuate all transfers and/or releases (including releasing such shares of
Common Stock with respect to which the restrictions have lapsed) as may be necessary or appropriate
to accomplish the objectives of this Agreement in accordance with the terms hereof. Recipient
hereby acknowledges that such appointment of the Escrow Holder with such stated authorities is a
material inducement to the Company to enter into this Agreement, and such appointment is
accordingly irrevocable. Recipient agrees that neither the Company nor such Escrow Holder shall be
liable to the Recipient or any Permitted Transferee for any actions or omissions unless such Escrow
Holder is grossly negligent or engages in willful misconduct relative thereto. The Recipient
agrees that the Escrow Holder may rely upon any letter, notice or other document executed by any
signature purported to be genuine and may resign at any time.

          (b) Scope of Repurchase Right.

               (i) If Recipient’s employment by the Company is terminated before the Restricted Shares
and Additional Securities (as defined below) are released from the Company’s Repurchase
Right (as defined below), the Company shall, upon the date of such termination, have the
right to repurchase all or any portion of the Restricted Shares and Additional Securities
for $0.001 per share (the “Repurchase Right”). The Company may exercise the Repurchase
Right by delivering written notice to Recipient within ninety (90) days after the date of
termination.

               (ii) If the requisite period (in the case of Restricted Shares vesting over time)
(“Vesting Period”) or the Performance Goal (as defined below) for any Performance Period (as
defined below) are not met, the Company shall have the right to repurchase the Restricted
Shares and any Additional Securities allocated to the Vesting Period or that Performance
Period, for $0.001 per share (the “Repurchase Right”). The Company may exercise the
Repurchase Right by delivering written notice to Recipient within ninety (90) days after the
first anniversary of the Commencement Date, in the case of Restricted Shares vesting over
time, or within ninety (90) days after the date that the Company files its Annual Report on
Form 10-K with the Securities and Exchange Commission with respect to Restricted Shares
vesting during any applicable Performance Period.

               (iii) Upon delivery of a repurchase notice pursuant to this Section 2(b), the Company
shall become the legal and beneficial owner of the Restricted Shares being repurchased and
all rights and interests therein or relating thereto, and the Company shall have the right
to retain and transfer to its own name the number of Restricted Shares being repurchased by
the Company. Recipient shall forfeit the right to all cash or other property from time to
time received, receivable, or otherwise distributed in respect of or in exchange for all or
any part of the Restricted Shares and Additional Securities that are repurchased by the
Company pursuant hereto.

          (c) Termination of the Repurchase Right. With respect to each of the fiscal years
ending July 31, 2006 through July 31, 2008 (each a “Performance Period”), the Repurchase Right
shall terminate and cease to be exercisable with respect to 50,000 shares if the Company equals or
exceeds the performance targets established by the Board for purposes of this
Agreement (each a “Performance Goal”) for such Performance Period. Further, the Repurchase
Right shall terminate and cease to be exercisable with respect to 50,000 shares on the first
anniversary of the Commencement Date. Upon the Recipient’s termination of employment as a result
of termination by the Company without Cause or Resignation by the Recipient with Good

-2-

 

Reason (as each such term is defined in the Recipient’s employment agreement with the Company), the Repurchase
Right shall terminate and cease to be exercisable with respect to the number of shares that would
have vested during the twelve (12) month period after such termination if the Recipient remained
employed with the Company.

          (d) Additional Securities. For purposes of this Section 2, Restricted Shares shall
include all securities received in replacement of the Restricted Shares, as a stock dividend or as
a result of any stock split, recapitalization, merger, reorganization, exchange or the like, and
all new or additional securities or other properties to which Recipient is entitled by reason of
Recipient’s ownership of the Restricted Shares (hereinafter called “Additional Securities”).
Recipient shall be entitled to direct the Company to exercise any warrant or option received as
Additional Securities upon supplying the funds necessary to do so, in which event the securities so
purchased shall constitute Additional Securities, but the Recipient may not direct the Company to
sell any such warrant or option. If Additional Securities consist of a convertible security,
Recipient may exercise any conversion right, and any securities so acquired shall be deemed
Additional Securities. All Restricted Shares, including Additional Securities, shall be subject to
the restrictions contained in this Agreement.

          (e) Transfer Restrictions. Until the Right of Repurchase lapses, Recipient shall not
transfer, assign, encumber or otherwise dispose of or grant a lien in or to any Restricted Shares
or Additional Securities, without the prior written consent of the Company. Prior to the Right of
Repurchase lapsing, Recipient may transfer Restricted Shares and Additional Securities (a) by
beneficiary designation, will or intestate succession, or (b) to Recipient’s spouse, children or
grandchildren or to a trust established by Recipient for the benefit of Recipient or Recipient’s
spouse, children or grandchildren (each, a “Permitted Transfer”). If Recipient makes such a
Permitted Transfer of any Restricted Shares or Additional Securities, then this Section 2 shall
apply to the transferee to the same extent as to Recipient. The Company shall not be required (i)
to transfer on its books any Restricted Shares or Additional Securities which have been sold or
transferred in violation of the provisions of this Agreement (and the Company may issue appropriate
“stop transfer” instructions to its transfer agent accordingly) or (ii) to treat as the owner of
the Restricted Shares or Additional Securities, or otherwise to accord voting, dividend or
liquidation rights to, any transferee to whom the Restricted Shares or Additional Securities have
been transferred in contravention of this Agreement. All certificates representing the Restricted
Shares or Additional Securities shall have endorsed thereon the following legend:

“The shares represented by this certificate are subject to potential
forfeiture and to restrictions upon transfer, including certain
options to purchase such shares, set forth in an agreement between
the issuer and the registered holder, a copy of which is on file at
the principal office of the issuer corporation and will be furnished
upon request to such registered holder.”

     3. Representations and Warranties of The Recipient. Recipient represents and
warrants to the Company each of the following matters:

          (a) Authorization. Recipient has full power and authority to enter into this
Agreement and this Agreement constitutes its valid and legally binding obligation, enforceable in
accordance with its terms.

-3-

 

          (b) Purchase Entirely for Own Account. This Agreement is made with Recipient in
reliance upon Recipient’s representation to the Company, which by Recipient’s execution of this
Agreement Recipient hereby confirms, that the Restricted Shares will be acquired for investment for
Recipient’s own account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that Recipient has no present intention of selling, granting
any participation in, or otherwise distributing the same. By executing this Agreement, Recipient
further represents that he does not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participations to such person or to any third person, with
respect to any of the Restricted Shares.

          (c) Investment Experience. Recipient acknowledges that he has such knowledge and
experience in financial or business matters that he is capable of evaluating the merits and risks
of the investment in the Restricted Shares.

     4. Compliance With Securities Laws.

          (a) In addition to the restrictions contained in this Agreement, the Company at its discretion
may impose restrictions upon the sale, pledge or other transfer of the Restricted Shares and
Additional Securities (including the placement of appropriate legends on stock certificates or the
imposition of stop-transfer instructions) if, in the judgment of the Company, such restrictions are
necessary or desirable in order to achieve compliance with the Act, the securities laws of any
state or any other law.

          (b) THE SALE OF THE SECURITIES THAT ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED
WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY
SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO
THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.

          (c) All certificates representing the Restricted Shares or Additional Securities and all
certificates issued in transfer thereof or substitution therefor shall, where applicable, have
endorsed thereon the following legends:

               (i) “The securities represented by this certificate have not been registered under the
Securities Act of 1933, as amended. These securities have been acquired for investment and
not with a view to distribution and may not be offered for
sale, sold, pledged or otherwise transferred in the absence of an effective
registration statement for such securities under the Securities Act of 1933 or an opinion of
counsel reasonably satisfactory in form and content to the issuer that such registration is
not required under such Act.”

               (ii) Any legend required to be placed thereon by any applicable state securities law.

-4-

 

     5. Section 83(b) Election. Recipient hereby represents that he understands (a) the
contents and requirements of a timely election made pursuant to Section 83(b) of the Internal
Revenue Code or similar provision of state law (collectively, an “83(b) Election”), (b) the
application of Section 83(b) to the grant of the Restricted Shares by Recipient pursuant to this
Agreement, (c) the nature of the election to be made by Recipient under Section 83(b), and (d) the
effect and requirements of the 83(b) Election under relevant state and local tax laws. Recipient
further represents that he intends to file an election pursuant to Section 83(b), the form of which
election is attached hereto as Exhibit B, with the Internal Revenue Service within thirty (30) days
following the grant of the Restricted Shares hereunder, and a copy of such election with his
federal tax return for the calendar year in which the date of this Agreement falls. Recipient
covenants to inform the Company of any change in Recipient’s state of residency. Recipient shall
provide the Company with a copy of any timely 83(b) Election. If Recipient makes a timely 83(b)
Election, Recipient shall immediately pay to the Company the amount necessary to satisfy any
applicable federal, state, and local income and employment tax withholding requirements. If
Recipient does not make a timely 83(b) Election, Recipient shall, either at the time that the
restrictions lapse under this Agreement or at the time withholding is otherwise required by any
applicable law, pay the Company the amount necessary to satisfy any applicable federal, state, and
local income and employment tax withholding requirements. The Company may require Recipient 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 Restricted Shares.
Recipient hereby represents that he has had an opportunity to consult a tax advisor.

     6. Distributions. The Company shall disburse to Recipient all dividends, interest
and other distributions paid or made in cash or property (other than Additional Securities) with
respect to the Restricted Shares and Additional Securities, less any applicable federal or state
withholding taxes.

     7. Not An Employment Contract. The grant of Restricted Shares will not confer on
Recipient 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 the Recipient’s employment or other service at
any time.

     8. Amendment. Except as otherwise provided herein, any provision of this Agreement
may be amended or waived only with the prior written consent of Recipient and the Board of
Directors of the Company.

     9. Assignment; Successors. The Recipient shall not transfer, assign or encumber any
of his rights, privileges, duties or obligations under this Agreement without the prior written
consent of the Company, and any attempt to so transfer, assign or encumber shall be void. The
Company may transfer, assign or encumber its rights, privileges, duties or obligations under this
Agreement (including, without limitation, the right to maintain the escrow for the Restricted
Shares or Additional Securities and the Repurchase Right), to any of its subsidiaries or
affiliates. Subject to the foregoing, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, executors, administrators, successors and
assigns.

     10. Entire Agreement. The Agreement, together with the Employment Agreement and the
Plan, constitutes the entire agreement of the parties and supercedes any and all

-5-

 

agreements, either
oral or in writing, between the parties with respect to the subject matter hereof. If there is any
conflict in terms between this Agreement and the Employment Agreement, the terms of this Agreement
shall prevail. The terms of this Agreement shall be subject to the terms of the Plan, a copy of
which may be obtained by Recipient 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. Choice of Law. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of California as such laws are applied to contracts entered into and
performed in such State.

[SIGNATURE PAGE FOLLOWS]

-6-

 

     IN WITNESS WHEREOF, the parties have executed this Agreement as of August 1, 2005 to reflect
the grant which was authorized on the Grant Date as first above written.

	 	 	 	 	 
	 	 	“COMPANY”
	 
	 	 	 	 
	 	 	COMMERCE ENERGY GROUP, INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:
	 	Robert C. Perkins
	 

	 	Title:
	 	Chairman of the Board

	 	 	 	 	 
	 	 	“RECIPIENT”
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:
	 	Steven S. Boss
	 
	 	 	 	 
	 	 	Address:
	 
	 	 	 	 
	 	 	Mr. Steven S. Boss

Commerce Energy Group, Inc.

600 Anton Boulevard, Suite 2000

Costa Mesa, CA 92626

-7-

 

EXHIBIT A

STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE

FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Agreement between the undersigned
and Commerce Energy Group, Inc., a Delaware corporation (the “Company”), dated as of August 1, 2005
(the “Agreement”), the undersigned hereby sells, assigns and transfers unto the Company
                                                                                (                    ) shares of the Common Stock of the Company, standing in his
name on the books of the Company, represented by Certificate No. ___herewith, and does hereby
irrevocably constitute and appoint                                          attorney to transfer the said stock in the
books of the Company with full power of substitution.

 

DATED:                                                             ,                    

	 	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

	 	 

	 	 	 	 	 
	Print name:
	 	 	 	 
	 

	 	 

	 	 

Instruction: Please do not fill in any blanks other than the signature line. The purpose of this
assignment is to enable the Company to exercise its repurchase option set forth in the Agreement
without requiring additional signatures.

 

 

Exhibit C

INDEMNIFICATION AGREEMENT

     This Indemnification Agreement (this “Agreement”) is made and entered into and is effective as
of August 1, 2005, by and between Commerce Energy Group, Inc., a Delaware corporation (the
“Corporation”), and Steven S. Boss, an individual (“Indemnitee”).

Recitals

     A. Indemnitee performs a valuable service to the Corporation in his capacity as a director and
an officer of the Corporation.

     B. The Amended and Restated Certificate of Incorporation (the “Certificate”) and the Bylaws
(the “Bylaws”) of the Corporation provide for the indemnification of the officers and directors of
the Corporation as authorized by the Delaware General Corporation Law, as amended (the “DGCL”).

     C. The Certificate, the Bylaws and the DGCL, by their non-exclusive nature, permit contracts
between the Corporation and its directors, officers, employees and other agents with respect to
indemnification of such persons.

     D. In accordance with the authorization provided by the Certificate, the Bylaws and the DGCL,
the Corporation is entitled to purchase a policy or policies of directors’ and officers’ liability
insurance covering certain liabilities which may be incurred by its directors and officers in the
performance of their duties to the Corporation.

     E. As a result of developments affecting the terms, scope and availability of such insurance,
there exists general uncertainty as to the extent of protection afforded such persons by such
Insurance and by statutory and bylaw indemnification provisions.

     F. In order to induce Indemnitee to continue to serve as [a director/an officer] of the
Corporation, the Corporation has determined and agreed to enter into this Agreement with
Indemnitee.

Agreement

     1. Indemnity of Indemnitee. The Corporation shall hold harmless, indemnify and
advance expenses to Indemnitee as provided in this Agreement and to the fullest extent authorized,
permitted or required by the provisions of the Certificate, the Bylaws and the DGCL, as the same
may be amended from time to time (but, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than were permitted by the Certificate, the
Bylaws or the DGCL prior to adoption of such amendment); provided, however, that the Corporation
shall not indemnify Indemnitee in connection with any proceeding, (or part thereof) initiated by
Indemnitee, or any proceeding by Indemnitee against the Corporation or its directors, officers,
employees or other agents, unless (i) such indemnification is expressly required to be made by law,
(ii) the proceeding, was authorized by the Board of Directors of the Corporation, (iii) such
indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers
vested in the Corporation under the DGCL, or (iv) the proceeding is initiated with respect to a
proceeding to enforce rights to indemnification pursuant to Section 8

 

 

hereof. The rights of Indemnitee provided under the preceding sentence shall include, but
shall not be limited to, the rights set forth in the other sections of this Agreement.

     2. Additional Indemnity. In addition to and not in limitation of the indemnification
otherwise provided for herein, and subject only to the exclusions set forth in Section 3 hereof,
the Corporation hereby further agrees to hold harmless and indemnify Indemnitee:

          (a) Against all liabilities, losses, expenses (including attorney’s fees), judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement actually and reasonably incurred or
suffered by Indemnitee in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which he is a party or a
witness, by reason of the fact that Indemnitee is or was a director or officer of the Corporation
or is or was serving at the request of the Corporation as a director or officer of another
corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including
service with respect to employee benefit plans, whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent.

          (b) Otherwise to the fullest extent as may be provided to Indemnitee by the Corporation under
the non-exclusivity provisions of the DGCL.

     3. Limitations on Additional Indemnity. No indemnity pursuant to Section 2 hereof
shall be paid by the Corporation:

          (a) On account of any claim against Indemnitee for an accounting of profits made from the
purchase or sale by Indemnitee of securities of the Corporation pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions
of any federal, state or local statutory law;

          (b) On account of Indemnitee’s conduct that was knowingly fraudulent or deliberately
dishonest, or that constituted willful misconduct;

          (c) On account of, or attributable to, Indemnitee’s conduct that constituted a breach of
Indemnitee’s duty of loyalty to the Corporation or resulted in any personal profit or advantage to
which Indemnitee was not legally entitled;

          (d) For which payment has actually been made to Indemnitee under a valid and collectible
insurance policy or under a valid and enforceable indemnity clause, bylaw or agreement, except in
respect of any excess beyond payment under such insurance, clause, bylaw or agreement;

          (e) The payment of which by the Corporation under this Agreement is not permitted by
applicable law;

          (f) If indemnification is not lawful (and, in this respect, both the Corporation and
Indemnitee have been advised that the Securities and Exchange Commission believes that
indemnification for liabilities arising under the federal securities laws is against public policy
and is, therefore, unenforceable and that claims for indemnification should be submitted to

-2-

 

appropriate courts for adjudication) or is prohibited by any applicable state securities laws
with respect to any violation of applicable federal or state securities laws; or

          (g) In connection with any proceeding, (or part thereof) initiated by Indemnitee, or any
proceeding by Indemnitee against the Corporation or its directors, officers, employees or other
agents, unless (i) such indemnification is expressly required to be made by law, (ii) the
proceeding, was authorized by the Board of Directors of the Corporation, (iii) such indemnification
is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the
Corporation under the DGCL, or (iv) the proceeding is initiated pursuant to Section 8 hereof.

     4. Continuation of Indemnity. All agreements and obligations of the Corporation
contained herein shall continue during the period Indemnitee is a director, officer, employee or
other agent of the Corporation (or is or was serving at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise) and shall continue thereafter so long as
Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit
or proceeding, whether civil, criminal, arbitrative, administrative or investigative, by reason of
the fact that Indemnitee was (i) a director of the Corporation or (ii) serving in any other
capacity referred to herein, and shall inure to the benefit of Indemnitee’s heirs, executors and
administrators.

     5. Partial Indemnification. Indemnitee shall be entitled under this Agreement to
indemnification by the Corporation for a portion of the expenses (including attorneys’ fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any other amounts that
Indemnitee becomes legally obligated to pay in connection with any action, suit or proceeding
referred to in Section 2 hereof even if not entitled hereunder to indemnification for the total
amount thereof, and the Corporation shall indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled.

     6. Notification and Defense of Claim. Not later than thirty (30) days after receipt
by Indemnitee of notice of the commencement of any action, suit or proceeding, Indemnitee will, if
a claim in respect thereto is to be made against the Corporation under this Agreement, notify the
Corporation of the commencement thereof; but the omission so to notify the Corporation will not
relieve it from any liability which it may have to Indemnitee otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Indemnitee notifies the Corporation
of the commencement thereof

          (a) The Corporation will be entitled to participate therein at its own expense;

          (b) Except as otherwise provided below, the Corporation may, at its option and jointly with
any other indemnifying party similarly notified and electing to assume such defense, assume the
defense thereof, with counsel reasonably satisfactory to Indemnitee. After notice from the
Corporation to Indemnitee of its election to assume the defense thereof, the Corporation will not
be liable to Indemnitee under this Agreement for any legal or other expenses subsequently incurred
by Indemnitee in connection with the defense thereof except for reasonable costs of investigation
or otherwise as provided below. Indemnitee shall have the right

-3-

 

to employ separate counsel in such action, suit or proceeding but the fees and expenses of
such counsel incurred after notice from the Corporation of its assumption of the defense thereof
shall be at the expense of Indemnitee unless (i) the employment of counsel by Indemnitee has been
authorized by the Corporation, (ii) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Corporation and Indemnitee in the conduct of the defense of such
action, or (iii) the Corporation shall not in fact have employed counsel to assume the defense of
such action, in each of which cases the fees and expenses of Indemnitee’s separate counsel shall be
at the expense of the Corporation. The Corporation shall not be entitled to assume the defense of
any action, suit or proceeding brought by or on behalf of the Corporation or as to which Indemnitee
shall have made the conclusion provided for in (ii) above; and

          (c) The Corporation shall not be liable to indemnify Indemnitee under this Agreement for any
amounts paid in settlement of any action or claim effected without its written consent, which shall
not be unreasonably withheld. The Corporation shall be permitted to settle any action except that
it shall not settle any action or claim in any manner which would impose any penalty or limitation
on Indemnitee without Indemnitee’s written consent which may be given or withheld in Indemnitee’s
sole discretion.

     7. Expenses. The Corporation shall pay the expenses incurred by Indemnitee in
defending any proceeding in advance of its final disposition, provided that, to the
extent required by the DGCL, the payment of expenses in advance of the final disposition of the
proceeding shall be made only upon receipt of an undertaking by Indemnitee to repay all amounts
advanced if it should be ultimately determined by final judicial decision from which there is no
further right to appeal that Indemnitee is not entitled to be indemnified under this Agreement or
otherwise.

     8. Enforcement. Any right to indemnification or advances granted by this Agreement to
Indemnitee shall be enforceable by or on behalf of Indemnitee only in the Chancery Court of the
State of Delaware if (i) the claim for indemnification or advances is denied, in whole or in part,
or (ii) no disposition of such claim is made within sixty (60) days of request therefor.
Indemnitee, in such enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. It shall be a defense to any action for which a
claim for indemnification is made under Section 2 hereof (other than an action brought to enforce a
claim for advancement of expenses pursuant to Section 7 hereof, provided that the required
undertaking has been tendered to the Corporation) that Indemnitee is not entitled to
indemnification because of the limitations set forth in Section 3 hereof, but the burden of proving
such defense shall be on the Corporation. Neither the failure of the Corporation (including its
Board of Directors or its shareholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Indemnitee is proper in the circumstances, nor an
actual determination by the Corporation (including its Board of Directors or its shareholders) that
such indemnification is improper, shall be a defense to the action or create a presumption that
Indemnitee is not entitled to indemnification under this Agreement or otherwise.

     9. Subrogation. In the event of payment under this Agreement, the Corporation shall
be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who

-4-

 

     shall execute all documents required and shall do all acts that may be necessary to secure
such rights and to enable the Corporation effectively to bring suit to enforce such rights.

     10. Non Exclusivity of Rights. The rights conferred on Indemnitee by this Agreement
shall not be exclusive of any other right which Indemnitee may have or hereafter acquire under any
statute, provision of the Certificate, the Bylaws, agreement, vote of shareholders or directors or
otherwise, both as to action in his official capacity and as to action in another capacity while
holding office.

     11. Survival of Rights.

          (a) The rights conferred on Indemnitee by this Agreement shall continue after Indemnitee has
ceased to be a director, officer, employee or other agent of the Corporation or to serve at the
request of the Corporation as a director, officer, employee or other agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Indemnitee’s heirs, executors and administrators.

          (b) The Corporation shall require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business or assets of the
Corporation, expressly to assume and agree to perform this Agreement in the same manner and to the
same extent that the Corporation would be required to perform if no such succession had taken
place.

     12. Severability. Each of the provisions of this Agreement is a separate and distinct
agreement and independent of the others, so that if any provision hereof shall be held to be
invalid for any reason, such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof. Furthermore, if this Agreement shall be invalidated
in its entirety on any ground, then the Corporation shall nevertheless indemnify Indemnitee to the
fullest extent provided by the Certificate, the Bylaws, the DGCL or any other applicable law.

     13. Consent to Jurisdiction. The Corporation and Indemnitee each hereby irrevocably
consent to the jurisdiction of the Court of the State of Delaware for all purposes in connection
with any action or proceeding, which arises out of or relates to this Agreement, and agree that any
action instituted under this Agreement shall be brought only in the Chancery Courts of the State of
Delaware.

     14. Governing Law. This Agreement shall be interpreted and enforced in accordance with
the laws of the State of Delaware.

     15. Amendment and Termination. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by both parties hereto.

     16. Identical Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original but all of which
together shall constitute but one and the same Agreement. Only one such counterpart need be
produced to evidence the existence of this Agreement.

-5-

 

     17. Headings. The headings of the sections of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or to affect the
construction hereof.

     18. Notices. All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed to have been duly given (i) upon delivery if delivered by hand to
the party to whom such notice or other communication shall have been directed, or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day after the date on
which it is so mailed:

	 	(a)	 	If to Indemnitee, to:

Mr.
Steven S. Boss

Commerce Energy Group, Inc.

600 Anton Boulevard, Suite 2000

Costa Mesa, CA 92626

	 	(b)	 	If to the Corporation, to:

Commerce Energy Group, Inc.

600 Anton Boulevard, Suite 2000

Costa Mesa, CA 92626

Attn: Chairman of the Board

or to such other address(es) as may have been furnished to/by Indemnitee to/by the Corporation.

[SIGNATURE PAGE FOLLOWS]

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     IN WITNESS WHEREOF, the parties hereto have duly executed this Indemnification Agreement as of
the day and year first above written.

	 	 	 	 	 
	“Indemnitee”
	 	 	 	 
	 	 	 
	 	 	Steven S. Boss
	 
	 	 	 	 
	“Corporation”	 	COMMERCE ENERGY GROUP, INC., a
	 	 	Delaware corporation
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:
	 	Robert C. Perkins
	 

	 	Title:
	 	Chairman of the Board

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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.

-4-

 

     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.

-5-

 

          (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

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