Document:

ex10-5.htm

    
      
         

      

      
         

        
          

        

      

      
         

      
Exhibit 10.5

    
      

      

      

      

      

      

      

      

      

      COMMERCE
ENERGY GROUP, INC.

      BONUS
PROGRAM

       ____________________________

      

      Plan
Document

      ____________________________

    

    
      

    

    
      As
Amended and Restated, Effective January 25, 2008

      

    

    
      

      

      

      

      

      

      

      

      

      

      

      

      

      

      

      

      

      

      

      

    

    
      
        
          

          

          

           

        

         

      

      
         

        
          

        

      

      
         

      

    

    COMMERCE
ENERGY GROUP, INC.

    BONUS
PROGRAM

    ____________________________

    

    Plan
Document

    ____________________________

    

    

    ARTICLE
I

    PURPOSE
OF THE PLAN

    

    The
Commerce Energy Group, Inc. (the “Company”) established this Commerce Energy
Group, Inc. Bonus Program (the “Plan”) to provide employees with an increased
awareness and ongoing interest in the direction of the Company.  The
Plan is designed to ensure that employees are appropriately awarded for both
corporate and individual performance. The Plan is intended to be exempt from
Code Section 409A, and shall be operated and maintained in accordance with that
intention.

    

    

    ARTICLE
II

    DEFINITIONS

    

    
      	
              2.1  

            	
              “Board” shall
      mean the Board of Directors of the
Company.

            

    

    

    
      	
              2.2  

            	
              “Bonus” shall
      mean the amount payable to a Participant under the
  Plan.

            

    

    

    
      	
              2.3  

            	
              “Bonus Group”
      shall mean the Executive Team, the Director and VP Team, the Management
      Team or the Staff Team, or any or all of them, as established and
      comprised of in the Committee’s sole
discretion.

            

    

    

    
      	
              2.4  

            	
              “Bonus Pool”
      shall mean discretionary funds established by the Committee pursuant to
      Sections 4.2(a)(i) and 4.2(a)(vi)
herein.

            

    

    

    
      	
              2.5  

            	
              “Code” shall
      mean the Internal Revenue Code of 1986, as amended, or any successor
      statute.

            

    

    

    
      	
              2.6  

            	
              “Committee”
      shall mean the compensation committee of the
  Board.

            

    

    

    
      	
              2.7  

            	
              “­Contractor”
      shall mean an individual who provides services to the Company, but is not
      employed by the Company.

            

    

    

    
      	
              2.8  

            	
              “Director and VP
      Team” shall mean the director level and vice president level
      employees who together with the Management Team, are responsible for the
      operations of the departments and functional units of the Company and who
      are designated as Director and VP Team members in the Committee’s sole
      discretion.

            

    

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

       

    

    
      	
              2.9  

            	
              “Earned Bonus
      Percentage” shall mean the portion of the Potential Bonus
      Percentage that a Participant may receive based on the Committee’s
      evaluation and assessment of the Qualitative Individual Measures set forth
      in Section
4.2(c)  herein.

            

    

    

    
      	
              2.10  

            	
              “Executive Team”
      shall mean the executives responsible for the governance of the Company
      who are designated as Executive Team members in the Committee’s sole
      discretion.

            

    

    

    
      	
              2.11  

            	
              “Fiscal Year”
      shall mean the period commencing August 1st and ending July
      31st.

            

    

    

    
      	
              2.12  

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

            

    

    

    
      	
              2.13  

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

            

    

    

    
      	
              2.14  

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

            

    

    

    
      	
              2.15  

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

            

    

    

    
      	
              2.16  

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

            

    

    

    

    ARTICLE
III

    ELIGIBILITY
FOR PARTICIPATION

    

    
      	
              3.1  

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

            

    

    

    
      	
              3.2  

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

            

    

    
 

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    ARTICLE
IV

    PAYMENTS

    

    
      	
              4.1  

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

            

    

    

    
      	
              4.2  

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

            

    

    

    
      	
              (a)  

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

            

    

    

    
      	
              (i)  

            	
               Net Income Less Than
      Trigger Target.  If the Company’s Net Income for any
      Fiscal Year is less than the Trigger Target (a Net Income amount
      determined by the Committee from time to time), the Committee in its sole
      discretion may establish a Bonus Pool and allocate bonuses among members
      of the Director and VP Team, the Management Team and/or Staff Team as the
      Committee deems appropriate.  No bonuses may be paid to the
      Executive Team under this Plan if Net Income for any Fiscal Year is less
      than the Trigger Target.

            

    

    

    
      	
              (ii)  

            	
              Trigger
      Target.  If the Company’s Net Income for any Fiscal Year
      is equal to or greater than the Trigger Target but less than the Stretch
      Target (as described below), the Potential Bonus Percentages for the CEO,
      Participants within the Executive Team (other than the CEO), the Director
      and VP Team, the Management Team and the Staff Team shall be amounts
      determined by the Committee as soon as administratively practicable
      following the start of the Fiscal Year to which the bonus
      relates.

            

    

    

    
      	
              (iii)  

            	
               Stretch
      Target.   If the Company’s Net Income for any Fiscal
      Year is equal to or greater than the Stretch Target (a Net Income amount
      in excess of the Trigger Target, which shall be determined by the
      Committee from time to time), but less than the Enhanced Stretch Target
      (as described below), the Potential Bonus Percentages for the CEO,
      Participants within the Executive Team (other than the CEO), the Director
      and VP Team, the Management Team, and the Staff Team shall be amounts
      determined by the Committee as soon as administratively practicable
      following the start of the Fiscal Year to which the bonus
      relates.

            

    

    
 

    
      
         

      

      
        3

        
          

        

      

      
         

      

       

    

    
      	
              (iv)  

            	
              Enhanced Stretch
      Target.  If the Company’s Net Income for any Fiscal Year
      is equal to or greater than the Enhanced Stretch Target (a Net Income
      amount in excess of the Stretch Target, which shall be determined by the
      Committee from time to time), but less than the Super Stretch Target (as
      described below), the Potential Bonus Percentages for the CEO,
      Participants within the Executive Team (other than the CEO), the Director
      and VP Team, the Management Team, and the Staff Team shall be amounts
      determined by the Committee as soon as administratively practicable
      following the start of the Fiscal Year to which the bonus
      relates.

            

    

    

    
      	
              (v)  

            	
              Super Stretch
      Target.  If the Company’s Net Income for any Fiscal Year
      is equal to or greater than the Super Stretch Target (a Net Income amount
      in excess of the Enhanced Stretch Target, which shall be determined by the
      Committee from time to time), the Potential Bonus Percentages for the CEO,
      Participants within the Executive Team (other than the CEO), the Director
      and VP Team, the Management Team, and the Staff Team shall be amounts
      determined by the Committee as soon as administratively practicable
      following the start of the Fiscal Year to which the bonus
      relates.

            

    

    

    
      	
              (vi)  

            	
              Net Income in Excess of the
      Super Stretch Target.  If the Company’s Net Income for
      any Fiscal Year is greater than Super Stretch Target, the Committee may
      establish a Bonus Pool and allocate among and distribute the Bonus Pool to
      members of the Bonus Groups as the Committee determines in its sole
      discretion.

            

    

    

    
      	
              (b)  

            	
              Participant’s
      Level.  If the Committee determines that the Plan is
      active for any Fiscal Year (as determined under Section 4.2(a) herein),
      the Bonus is payable in an amount appropriate for the Participant’s level
      in the Company.  Bonus Groups consisting of the Executive Team,
      the Director and VP Team, the Management Team, and the Staff Team, are
      used to categorize the levels and bonus amounts of the
      Participants.

            

    

    

    
      	
              (c)  

            	
              Qualitative Individual
      Measures.  The Plan, if active for any Fiscal Year (as
      determined under Section 4.2(a) herein), is designed to link a
      Participant’s Bonus with the Company’s performance by establishing target
      objectives for each Participant and assessing the Participant’s attainment
      of such objectives.  The objectives for each Bonus Group fall
      within the following categories (also referred to as “Compass
      Points”):

            

    

     

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    
 

    
      	
              (i)  

            	
              Executive Team –
      Financial, investors, customers, peers and
  leadership.

            

    

    

    
      	
              (ii)  

            	
              Director and VP Team –
      Financial, departmental and
leadership.

            

    

    

    
      	
              (iii)  

            	
              Management Team – Financial,
      departmental and leadership.

            

    

    

    
      	
              (iv)  

            	
               Staff Team –
      Financial, departmental and
individual.

            

    

    

    
      	
              (d)  

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

            

    

    

    
      	
              (i)  

            	
              CEO and Executive
      Team.   The CEO and members of the Executive Team
      shall recommend objectives (as well as measurements and weight values
      thereof) applicable to the CEO and members of the Executive Team for
      approval by the Committee.  Each Executive Team member shall
      have goals that are specific to their position.  Members of the
      Executive Team shall share at least two common objectives, which
      encourages and requires the team to work closely together to achieve the
      objectives.

            

    

    

    
      	
              (ii)  

            	
              Director and VP Team.
      The CEO and members of the Executive Team shall establish and approve
      financial, departmental and leadership objectives (as well as measurements
      and weight values thereof) for members of the Director and VP
      Team.

            

    

    

    
      	
              (iii)  

            	
              Management
      Team.  The CEO and members of the Executive Team shall
      establish and approve financial, departmental and leadership objectives
      (as well as measurements and weight values thereof) for members of the
      Management Team.

            

    

     

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    
 

    
      	
              (iv)  

            	
               Staff
      Team.  The CEO, Executive Team, the Director and VP Team,
      and Management Team, acting jointly or severally, shall establish and
      approve financial, departmental and leadership objectives (as well as
      measurements and weight values thereof) for members of the Staff
      Team.

            

    

    

    
      	
              (e)  

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

            

    

    

    
      	
              (i)  

            	
              CEO Review
      Process.  An annual review of the CEO will be completed
      by the Chairman of the Board and the Chairman of the
      Committee.

            

    

    

    
      	
              (ii)  

            	
              Executive Team Review
      Process.  An annual review of the Executive Team members,
      other than the CEO, will be completed by the CEO and the
      Committee.

            

    

    

    
      	
              (iii)  

            	
              Director and VP Team
      Review Process. An annual review of the Director and VP Team
      members will be completed by the CEO and members of the Executive
      Team.

            

    

    

    
      	
              (iv)  

            	
              Management Team Review
      Process.  An annual review of the Management Team members
      will be completed by the CEO and members of the Executive
      Team.

            

    

    

    
      	
              (v)  

            	
              Staff Team Review
      Process.  An annual review of the Staff Team members will
      be completed by the members of the Management
  Team.

            

    

    

    
      	
              (f)  

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

            

    

    

    
      	
              4.3  

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

            

    

     

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    
 

    
      	
              (a)  

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

            

    

    

    
      	
              4.4  

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

            

    

    

    
      	
              4.5  

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

            

    

    

    
      	
              4.6  

            	
              APPLICABLE
      TAXES.

            

    

    

    
      	
              (a)  

            	
              Employment
      Taxes.  The Company shall withhold from each
      Participant’s Bonus, in a manner determined by the Company, the
      Participant’s share of FICA, withholding taxes and other employment
      taxes.

            

    

    

    
      	
              (b)  

            	
              Income Taxes and
      Deferred Compensation.  Participants are solely
      responsible and liable for the satisfaction of all taxes and penalties
      that may arise in connection with this Plan (including any taxes arising
      under Section 409A of the Internal Revenue Code).  Neither the
      Company nor its affiliates nor any of their directors, agents or employees
      shall have any obligation to indemnify or otherwise hold any Participant
      harmless from any or all of such
taxes.

            

    

    

    

    ARTICLE
V

    RIGHTS OF
PARTICIPANTS

    

    
      	
              5.1  

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

            

    

    
      	
              5.2  

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

            

    

     

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    
 

    
      	
              5.3  

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

            

    

    

    
      	
              (a)  

            	
              Bonus Payment Is
      Dependent on Financial Results.  The payment, grant or
      vesting was predicated upon the achievement of certain financial results
      that were subsequently the subject of a material financial
      restatement;

            

    

    

    
      	
              (b)  

            	
              Fraud or
      Misconduct.  In the Board’s view, the member of the
      Executive Team engaged in fraud or misconduct that caused or partially
      caused the need for a material financial restatement by the Company or any
      substantial affiliate; and

            

    

    

    
      	
              (c)  

            	
              Lower Payment
      Results.  A lower payment, award or vesting would have
      occurred based upon the restated financial
  results.

            

    

    

    
      	
               
      

            	
              In
      each such instance, the Company will, to the extent practicable and
      allowable under applicable laws, require reimbursement of any Bonus
      awarded to a member of the Executive Team in the amount by which the
      individual’s annual bonus exceeded the lower payment that would have been
      made based on the restated financial results, plus a reasonable rate of
      interest; provided that the Company will not seek to recover bonuses paid
      more than three years prior to the date the applicable restatement is
      disclosed.

            

    

    

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

    

    

    ARTICLE
VI

    ADMINISTRATION

    

    The Plan
shall be administered by the Committee.  The Committee shall have the
right to construe the Plan, to interpret any provision of the Plan, to make
rules and regulations relating to the Plan, and to determine any factual
question arising in connection with the Plan’s operation after such
investigation or hearing as the Committee may deem appropriate.  Any
decision made by the Committee under the provisions of this Article shall be
conclusive and binding on all parties concerned.  The Committee may
delegate to the officers or employees of the Company the authority to execute
and deliver those instruments and documents, to do all acts and things, and to
take all other steps deemed necessary, advisable or convenient for the
administration of this Plan in accordance with its terms and
purpose.

    
 

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    

    

    ARTICLE
VII

    AMENDMENT
OR TERMINATION OF PLAN

    

    The Board
or the Committee shall have the unilateral right to amend, suspend or terminate
this Plan at any time with respect to all or some Participants and with respect
to any unearned or unvested Bonus that is or could become payable.  If
such amendment or termination of the Plan would have a material and adverse
affect on a Participant’s earned, but unvested Bonus, then written consent of
the Participant is required with respect to such Bonus.

    

    This Plan is
intended to or be exempt from Code Section 409A, and
the Company shall have complete discretion to interpret and construe this
Plan and any associated documents in any manner that establishes an exemption
from (or otherwise conforms them to) the requirements of Code Section
409A.  If, for any reason including imprecision in drafting, any Plan
provision does not accurately reflect its intended establishment of an exemption
from Code Section 409A, as demonstrated by consistent interpretations or other
evidence of intent, the provision shall be considered ambiguous and shall be
interpreted by the Company in a fashion consistent herewith, as
determined in the sole and absolute discretion of the Company.  The
Company reserves the right to unilaterally amend this Plan without the
consent of any Participant in order to accurately reflect its correct
interpretation and operation, as well as to maintain an exemption from or
compliance with Code Section 409A.

    

    

    

    ARTICLE
VIII

    EFFECTIVE
DATE

    

    This Plan
shall be effective January 25, 2007.

    
      
        
           

          

          

           

        

         

      

      
        9ex10-18.htm

    
      
         

      

      
         

        
          

        

      

      
         

      
EXHIBIT
10.18

    SEVENTH
AMENDMENT TO LOAN AND SECURITY AGREEMENT AND WAIVER

     

    THIS
SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT AND WAIVER (this "Amendment"), dated as
of March 12, 2008, is entered into among COMMERCE ENERGY, INC., a
California corporation ("Borrower"), COMMERCE
ENERGY GROUP, INC., a Delaware corporation ("Parent"), WACHOVIA
CAPITAL FINANCE CORPORATION (WESTERN), a California corporation, as Agent
("Agent") and
the financial institutions party to the below referenced Loan Agreement as
Lenders (collectively, "Lenders").

     

    RECITALS

     

    A.           Borrower,
Parent, Agent and Lenders have previously entered into that certain Loan and
Security Agreement dated June 8, 2006 (the "Loan Agreement") as
amended by the First Amendment to Loan and Security Agreement and Waiver dated
September 20, 2006 (the "First Amendment"),
the Second Amendment to Loan and Security Agreement and Waiver dated
October 26, 2006 (the "Second Amendment"),
the Third Amendment to Loan and Security Agreement and Waiver dated
March 15, 2007 (the "Third Amendment"),
the Fourth Amendment to Loan and Security Agreement dated June 26, 2007 (the
"Fourth
Amendment"), the Fifth Amendment to Loan and Security Agreement dated
August 1, 2007 (the "Fifth Amendment") and
the Sixth Amendment to Loan and Security Agreement dated November 16, 2007
(the "Sixth
Amendment"), pursuant to which Agent and Lenders have made certain loans
and financial accommodations available to Borrower.  Terms used herein
without definition shall have the meanings ascribed to them in the Loan
Agreement.

     

    B.           The
following Events of Default have occurred and are continuing under the Loan
Agreement:  after Revolving Loans had been outstanding for more than
five (5) days, Borrower failed to transfer the funds deposited into the Lockbox
Accounts to the Blocked Accounts for application to the Obligations as provided
in Sections 6.3(a) and (c) of the Loan Agreement (as amended by Section 1(g) of
the Sixth Amendment) and instead transferred such funds to its operating
account; and Parent and its Subsidiaries failed to earn EBITDA of not less than
$3,500,000 during the six (6) months ended January 31, 2008 as required in
Section 9.17.2 of the Loan Agreement (collectively, the “Known Existing
Defaults”).

     

    C.           Borrower
and Parent have requested that Agent and Lenders waive the Known Existing
Defaults and amend the Loan Agreement on the terms and conditions set forth
herein.

     

    D.           Borrower
and Parent are entering into this Amendment with the understanding and agreement
that, except as specifically provided herein, none of Agent's or any Lender's
rights or remedies as set forth in the Loan Agreement is being waived or
modified by the terms of this Amendment.

     

    AGREEMENT

     

    NOW,
THEREFORE, in consideration of the foregoing and the mutual covenants herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    1. Amendments to Loan
Agreement.

     

    (a) The
definition of “Interest Rate” in Section 1.58 of the Loan Agreement is hereby
amended and restated to read in its entirety as follows:

     

    “1.58.                      ‘Interest
Rate’ shall mean,

     

    (a)           Subject
to clause (b) of this definition below:

     

    (i)           as
to Prime Rate Loans, a rate equal to three-quarters of one (0.75%) percent per
annum in excess of the Prime Rate,

     

    (ii)           as
to Eurodollar Rate Loans, a rate equal to three and one-quarter (3.25%) percent
per annum in excess of the Adjusted Eurodollar Rate (in each case, based on the
London Interbank Offered Rate applicable for the Interest Period selected by a
Borrower, or by Administrative Borrower on behalf of such Borrower, as in effect
two (2) Business Days prior to the commencement of the Interest Period, whether
such rate is higher or lower than any rate previously quoted to any Borrower or
Guarantor);

     

    provided that, if the
EBITDA of Parent and its Subsidiaries during any period of twelve (12)
consecutive months is equal to or greater than $7,000,000 and the Fixed Charge
Coverage Ratio of Parent and its Subsidiaries during the same period is equal to
or greater than 1.5 to one, then so long as no Default or Event of Default has
occurred and is continuing, and effective on the first day of the second month
following such period, the Interest Rates set forth above shall be reduced by
one-half of one (0.50%) percent per annum; and

     

    (b)           Notwithstanding
anything to the contrary contained in clause (a) of this definition, the
applicable Interest Rates set forth in such clause (a) shall be increased by two
(2.0%) percent per annum, at Agent's option, without notice, (i) either (A) for
the period on and after the date of termination or non-renewal hereof until such
time as all Obligations are indefeasibly paid and satisfied in full in
immediately available funds, or (B) for the period from and after the date of
the occurrence of any Event of Default, and for so long as such Event of Default
is continuing as reasonably determined by Agent or (ii) on the Revolving Loans
to any Borrower at any time outstanding in excess of the Borrowing Base of such
Borrower or the Revolving Loan Limit (whether or not such excess(es) arise or
are made with or without Agent's or any Lender’s knowledge or consent and
whether made before or after an Event of Default).”

     

    (b) The
definition of “Letter of Credit Rate” in Section 1.66 of the Loan Agreement is
hereby amended and restated to read in its entirety as follows:

     

    “1.66.                      ‘Letter
of Credit Rate’ shall mean, for any month, the following rates based upon the
average daily Excess Availability (calculated without giving effect to the
Revolving Loan Limit) during the immediately preceding
month:  (a) two and one-quarter (2.25%) percent per annum if such
average daily Excess Availability is less than or equal to $25,000,000; and (b)
two (2.0%) percent per annum if such average daily Excess Availability is
greater than $25,000,000; provided that, if the
EBITDA of Parent and its Subsidiaries during any period of twelve (12)
consecutive months is equal to or greater than $7,000,000 and the Fixed Charge
Coverage Ratio of Parent and its Subsidiaries during the same period is equal to
or greater than 1.5 to one, then so long as no Default or Event of Default has
occurred and is continuing, and effective on the first day of the second month
following such period, the applicable Letter of Credit Rate set forth above
shall be reduced by one-half of one (0.50%) percent per annum; and provided, further, that, the Letter of
Credit Rate shall be two (2.0%) percent per annum higher than the applicable
rate set forth above, at Agent’s option, without notice, (i) either
(A) for the period on and after the date of termination or non-renewal
hereof until such time as all Obligations are indefeasibly paid and satisfied in
full in immediately available funds, or (B) for the period from and after
the date of the occurrence of any Event of Default, and for so long as such
Event of Default is continuing as reasonably determined by Agent or (ii) on the
Letter of Credit Obligations at any time outstanding in excess of the Borrowing
Base or the Revolving Loan Limit (whether or not such excess(es) arise or are
made with or without Agent’s or any Lender’s knowledge or consent and whether
made before or after an Event of Default).”

     

    
      
        
        

      

      
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    (c) Collections.  Notwithstanding
any prior course of conduct, Borrower acknowledges and reaffirms its agreement
under Sections 6.3(a) and (c) of the Loan Agreement to promptly deposit
into the Lockbox Accounts and to direct its account debtors to directly remit
into the Lockbox Accounts all payments on Receivables and all payments
constituting proceeds of Inventory or other Collateral in the identical form in
which such payments are made, whether by cash, check or other manner, and to
transfer the funds deposited into the Lockbox Accounts to the Blocked Accounts
for application to the Obligations; provided, however, that such agreement
shall apply only if (i) any Revolving Loans have been outstanding for more
than fifteen (15) consecutive days, (ii) a Default or Event of Default has
occurred and is continuing or (iii) Agent in its sole and absolute
discretion gives written notice to Administrative Borrower to comply with such
agreement.

     

    (d) Projections.  The
phrase "forty-five (45) days after the end of each fiscal year" in
Section 9.6(a)(iii) of the Loan Agreement is hereby replaced with "thirty
(30) days after the end of each fiscal year".

     

    (e) Fixed Charge Coverage
Ratio.  Section 9.17 of the Loan Agreement is hereby amended
and restated to read in its entirety as follows:

     

    “9.17                      Fixed Charge Coverage
Ratio.  Parent and its Subsidiaries shall maintain a Fixed
Charge Coverage Ratio of not less than 1.5 to one during each of the twelve (12)
consecutive month periods ending January 31, 2008 and April 30, 2008 and shall
thereafter maintain a Fixed Charge Coverage Ratio as of the last day of each
month after July 31, 2008, as determined for the period of twelve (12)
consecutive months then ending, of not less than the ratio established by Agent
for that period.  Based upon the projected financial statements
furnished by Borrowers to Agent pursuant to Section 9.6(a)(iii) hereof for each
fiscal year after July 31, 2008, Agent shall reasonably establish minimum Fixed
Charge Coverage Ratio levels for Parent and its Subsidiaries for each period of
twelve (12) consecutive months ending during such fiscal year (it being
understood that such levels will be no less stringent than 1.5 to
one).”

     

     

    
      
        
        

      

      
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    (f) EBITDA.  Section 9.17.2
of the Loan Agreement is hereby amended and restated to read in its entirety as
follows:

     

    "9.17.2  EBITDA.  Parent
and its Subsidiaries shall earn EBITDA during each of the periods set forth
below of not less than the amount set forth opposite such period:

     

    
      	
              Periods

            	
              Amounts

            
	
              9
      months ending 4/30/08

            	
              $3,500,000

            
	
              12
      months ending 7/31/08

            	
              $3,600,000

            

    

    

    Based
upon the projected financial statements furnished by Borrowers to Agent pursuant
to Section 9.6(a)(iii) hereof for each fiscal year after July 31, 2008,
Agent shall reasonably establish minimum EBITDA levels for Parent and its
Subsidiaries for specified periods  ending during such fiscal year (it
being understood that such levels will be no less stringent than those set forth
above), and Parent and its Subsidiaries shall earn EBITDA during each such
period of not less than the applicable minimum EBITDA level so established by
Agent."

     

    (g) Capital
Expenditures.  Section 9.19 of the Loan Agreement is hereby
amended and restated to read in its entirety as follows:

     

    “9.19.  Capital
Expenditures.  Borrowers and Guarantors shall not make Capital
Expenditures (excluding acquisitions permitted under Section 9.10(i)
hereof) in excess of $6,000,000 in the aggregate during each fiscal
year.”

     

    2. Waiver of Known Existing
Defaults.  Agent and Lenders hereby waive enforcement of their
rights and remedies arising from the Known Existing Defaults; provided, however,
nothing herein shall be deemed a waiver with respect to any failure to comply
fully with Sections 6.3(a) and (c) and 9.17.2 of the Loan Agreement (as amended
or modified by this Amendment) at any time hereafter or with respect to any
period ending after the date hereof.  This waiver shall be effective
only for the specific defaults comprising the Known Existing Defaults, and in no
event shall this waiver be deemed to be a waiver of Agent’s or any Lender’s
rights and remedies with respect to any other Defaults or Events of Default now
existing or hereafter arising.  Nothing contained in this Amendment
nor any communications between Borrower or Parent and Agent or any Lender shall
be a waiver of any rights or remedies Agent and Lenders have or may have, except
as specifically provided herein.  Except as specifically provided
herein, Agent and Lenders hereby reserve and preserve all of their rights and
remedies under the Loan Agreement and the other Financing
Agreements.

     

     

    
      
        
        

      

      
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    3. Amendment
Fee.  Borrower shall pay Agent, for the benefit of Lenders
based upon their respective Pro Rata Shares, an amendment fee in the amount of
$50,000, which shall be due and payable by Borrower and fully earned by Lenders
on and as of the date of this Amendment.

     

    4. Effectiveness of this
Amendment.  The effectiveness of this Amendment, and the
waivers provided herein, are conditioned upon the occurrence of each of the
following:

     

    (a) Amendment.  Agent
shall have received this Amendment, fully executed in a sufficient number of
counterparts for distribution to all parties.

     

    (b) Representations and
Warranties.  The representations and warranties set forth
herein and in the Loan Agreement shall be true and correct.

     

    (c) Other Required
Documentation.  All other documents and legal matters in
connection with the transactions contemplated by this Amendment shall have been
delivered or executed or recorded and shall be in form and substance
satisfactory to Agent.

     

    5. Representations and
Warranties.  Each of Borrower and Parent represents and
warrants as follows:

     

    (a) Authority.  Such
party has the requisite corporate power and authority to execute and deliver
this Amendment, and to perform its obligations hereunder and under the Financing
Agreements (as amended or modified hereby) to which it is a
party.  The execution, delivery and performance by such party of this
Amendment have been duly approved by all necessary corporate action and no other
corporate proceedings are necessary to consummate such
transactions.

     

    (b) Enforceability.  This
Amendment has been duly executed and delivered such party.  This
Amendment and each Financing Agreement (as amended or modified hereby) is the
legal, valid and binding obligation of such party, enforceable against such
party in accordance with its terms, and is in full force and
effect.

     

    (c) Representations and
Warranties.  The representations and warranties contained in
each Financing Agreement (other than any such representations or warranties
that, by their terms, are specifically made as of a date other than the date
hereof) are correct on and as of the date hereof as though made on and as of the
date hereof.

     

    (d) Material Adverse
Effect.  There has been no Material Adverse
Effect.

     

    (e) Due
Execution.  The execution, delivery and performance of this
Amendment are within the power of such party, have been duly authorized by all
necessary corporate action, have received all necessary governmental approval,
if any, and do not contravene any law or any material contractual restrictions
binding on such party.

     

     

    
      
        
        

      

      
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    (f) No
Default.  After giving effect to the waivers contained herein,
no event has occurred and is continuing that constitutes a Default or Event of
Default.

     

    6. Governing
Law.  The validity, interpretation and enforcement of this
Amendment and any dispute arising out of the relationship between the parties
hereto, whether in contract, tort, equity or otherwise, shall be governed by the
internal laws of the State of California but excluding any principles of
conflicts of law or other rule of law that would cause the application of the
law of any jurisdiction other than the laws of the State of
California.

     

    7. Counterparts.  This
Amendment may be executed in any number of counterparts, each of which shall be
an original, but all of which taken together shall constitute one and the same
agreement.  Delivery of an executed counterpart of this Amendment by
telefacsimile or other electronic method of transmission shall have the same
force and effect as the delivery of an original executed counterpart of this
Amendment.  Any party delivering an executed counterpart of this
Amendment by telefacsimile or other electronic method of transmission shall also
deliver an original executed counterpart, but the failure to do so shall not
affect the validity, enforceability or binding effect of this
Amendment.

     

    8. Reference to and Effect on
the Financing Agreements.

     

    (a) Upon and
after the effectiveness of this Amendment, each reference in the Loan Agreement
to "this Agreement", "hereunder", "hereof" or words of like import referring to
the Loan Agreement, and each reference in the other Financing Agreements to "the
Loan Agreement", "thereof" or words of like import referring to the Loan
Agreement, shall mean and be a reference to the Loan Agreement as modified and
amended hereby.

     

    (b) Except as
specifically amended above, the Loan Agreement and all other Financing
Agreements, are and shall continue to be in full force and effect and are hereby
in all respects ratified and confirmed and shall constitute the legal, valid,
binding and enforceable obligations of Borrower or Parent (as applicable) to
Agent and Lenders.

     

    (c) The
execution, delivery and effectiveness of this Amendment shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of
Agent or Lenders under any of the Financing Agreements, nor constitute a waiver
of any provision of any of the Financing Agreements.

     

    (d) To the
extent that any terms and conditions in any of the Financing Agreements shall
contradict or be in conflict with any terms or conditions of the Loan Agreement,
after giving effect to this Amendment, such terms and conditions are hereby
deemed modified or amended accordingly to reflect the terms and conditions of
the Loan Agreement as modified or amended hereby.

     

    9. Estoppel.  To
induce Agent and Lenders to enter into this Amendment and to continue to make
advances to Borrower under the Loan Agreement, Borrower hereby acknowledges and
agrees that, as of the date hereof, there exists no right of offset, defense,
counterclaim or objection in favor of Borrower as against Agent or Lenders with
respect to the Obligations.

     

    
      
        
        

      

      
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    10. Integration.  This
Amendment, together with the other Financing Agreements, incorporates all
negotiations of the parties hereto with respect to the subject matter hereof and
is the final expression and agreement of the parties hereto with respect to the
subject matter hereof.

     

    11. Severability.  In
case any provision in this Amendment shall be invalid, illegal or unenforceable,
such provision shall be severable from the remainder of this Amendment and the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.

     

    12. Submission of
Amendment.  The submission of this Amendment to the parties or
their agents or attorneys for review or signature does not constitute a
commitment by Agent to waive any of its rights and remedies under the Financing
Agreements, and this Amendment shall have no binding force or effect until all
of the conditions to the effectiveness of this Amendment have been satisfied as
set forth herein.

     

    [signature
to follow on next page]

     

    

    
      
        
          
            	
                     

                  	 
      	 
      

          

          

        

         

      

      
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    IN
WITNESS WHEREOF, the parties have entered into this Amendment as of the date
first above written.

     

    COMMERCE
ENERGY, INC.,

     

    a
California corporation

     

    

     

    By:           s/MICHAEL
FALLQUIST________

    Name:_Michael
Fallquist_______________

    Title:   _Chief
Operating Officer_________

    

    

    COMMERCE
ENERGY GROUP, INC.,

     

    a
Delaware corporation

     

    

     

    By:     s/C. DOUGLAS
MITCHELL______

    Name:_C. Douglas
Mitchell_____________

    Title:  __Interim Chief Financial
Officer___

    

    

    WACHOVIA
CAPITAL FINANCE CORPORATION (WESTERN),

    a
California corporation, as Agent and Lender

     

    

     

    By:    __s/CARLOS
VALLES___________

    Name: __Carlos
Valles_________________

    Title:       Director_____________________

    

    

    THE CIT
GROUP/BUSINESS CREDIT, INC.,

    as
Lender

     

    

     

    By:     s/JACQUELINE
PICCIONE_______

    Name:
__Jacqueline
Piccione____________

    Title:   Assistant Vice
President__________

    

    
      
        
          
            	
                     

                  	
                     

                  	 
      

          

          

        

         

      

      
         
8

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