EXHIBIT 10.5
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT is entered into as of March 31, 2004
(the "Amendment") by and among Commonwealth Energy Corporation, a California
corporation (the "Company"), Commerce Energy Group, Inc. ("Commerce"), and Xxxx
X. Xxxxxxxx ("Employee").
WHEREAS, the parties entered into a certain Employment Agreement dated as
of November 1, 2000, a copy of which is attached hereto as Exhibit A (the
"Employment Agreement," the defined terms of which shall be used in this
Amendment unless otherwise defined herein);
WHEREAS, pursuant to Section 3.3 of the Employment Agreement, upon the
occurrence of a Change of Control (as defined in the Employment Agreement) of
the Company, the Employee has the right to receive certain bonus payments.
Pursuant to Section 3.5 of the Employment Agreement, upon the occurrence certain
sales of assets and change of control events, the Employee shall have the right
to require the Company to repurchase from the Employee all capital stock and
stock options then owned by or owing to Employee at an aggregate repurchase
price equal to the lesser of (a) $10.00 per share or (b) two (2) times the then
aggregate price value (as defined in the Employment Agreement) of the Company's
capital stock;
WHEREAS, the Company intends to complete a reorganization transaction (the
"Transaction") pursuant to which (a) a newly formed subsidiary of Commerce would
be merged with and into the Company; (b) the Company would be the surviving
corporation in the merger; and (c) the Company would become a wholly-owned
subsidiary of Commerce;
WHEREAS, as currently contemplated, the Transaction may constitute a Change
of Control (as defined in the Employment Agreement) and may trigger (a) the
payment of a bonus under Section 3.3 of the Employment Agreement and (b) and the
Employee's right to exercise the stock repurchase option under Section 3.5 of
the Employment Agreement;
WHEREAS, in order to facilitate the Transaction, and in consideration of
the cash payment provided for by and the other provisions of this Amendment,
Employee is willing to amend the Employment Agreement to modify certain of the
terms thereof, including amending Sections 3.3 and 3.5 to effectively waive in
connection with the Transaction (a) any payment of a bonus under Section 3.3 of
the Employment Agreement and (b) any right to exercise the stock repurchase
option under Section 3.5 of the Employment Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged by each of the parties hereto, the
parties hereto, intending to be legally bound, do hereby agree as follows:
1. Agreements Between the Company and Employee. Employee represents,
warrants and agrees that this Agreement and the Employment Agreement are the
only agreements between the Company and Employee relating to the Employee's
employment with the Company, and that any other employment agreement purportedly
between the Company and Employee is void and of no force or effect.
2. Issuance of Stock Options. The Company shall issue to Employee an option
to purchase 125,000 shares of Commonwealth common stock at an exercise price of
$1.92 per share (the "New Options"), which shall be fully vested and immediately
exercisable as of the date of grant under Commonwealth's 1999 Equity Incentive
Plan, as amended ("the Plan"). The New Options shall be non-qualified and
subject to the terms of the Plan. Notwithstanding any earlier termination of
Employee's employment with the Company, the New Options may be exercised at any
time for a period of ten (10) years following the date of this Amendment or
seven (7) years following the termination of Employee's employment with the
Company, Commerce or any of the Affiliated Entities, whichever is earlier. The
New Options will be evidenced by a stock option grant agreement or other
agreement in the form customarily used by the Company in connection with grants
of stock options and with terms consistent with those set forth herein.
3. Amendment to Paragraph 1. Paragraph 1 of the Employment Agreement is
hereby amended and restated in its entirety to read as follows:
"1. Term of Employment. The Company hereby employs Employee and
Employee accepts such employment for a term of fifty-two (52) months,
commencing on November 1, 2000 and terminating on December 31, 2004 (the
"Initial Term"); notwithstanding the foregoing, however, the term of this
Agreement is subject to termination as provided in Paragraph 7, below.
Employee's employment shall continue after the Initial Term until either of
the parties hereto terminates this Agreement and the employment
relationship in accordance with the provisions of Paragraph 7 of the
Agreement."
4. Amendment of Paragraph 2. Paragraph 2 of the Employment Agreement is
hereby amended and restated in its entirety to read as follows:
"2. Title and Responsibilities.
"2.1 During the term of this Agreement, Employee shall serve as
General Counsel and Secretary of the Company, and General Counsel and
Senior Vice President of Commerce. With the consent of both parties,
Employee shall have such other positions with Commerce, the Company or any
parent, affiliate or subsidiary of the Company ("Affiliated Entities") as
the board of directors of Commerce, the Company or any of the Affiliated
Entities shall decide from time to time. Employee shall have such duties,
responsibilities and authority as the board of directors of the Company,
Commerce, or any of the Affiliated Entities employing Employee shall
determine. Employee's office location shall at all times be in offices of
the Company located in Orange County, California; provided, however, that
commencing on July 30, 2004, Employee shall, with the prior consent of the
Company's Chief Executive Officer, be permitted to work out of his home in
Grover Beach, California, as long as he is reasonably available to provide
the services required by this Agreement. Employee may be required to travel
from time to time to the extent reasonably necessary to the performance of
his duties hereunder.
"2.2 Employee shall in good faith and consistent with his ability,
experience and talent perform the duties set forth in this Paragraph 2, and
shall
2
devote substantially all of his productive time and efforts to the
performance of such duties; provided, however, that Employee may
participate in civic, charitable, and other not-for-profit activities and
manage personal and family investments (including real estate development
activities) to the extent that the same does not materially conflict with
the discharge of his duties hereunder."
5. Amendment of Paragraph 3.2. Paragraph 3.2 of the Employment Agreement is
hereby amended and restated in its entirety to read as follows:
"3.2 Bonus. Employee shall not be entitled to any bonus compensation
as a result of the financial performance of the Company, Commerce and/or
any of the Affiliated Entities, or as a result of the performance of his
duties and responsibilities under this Agreement. Notwithstanding the
foregoing, the board of directors of the Company, Commerce and/or any of
the Affiliated Entities may, in its sole discretion, award Employee with
such bonus compensation, if any, it deems to be warranted, in which case
the amount will be similar to bonuses paid to other executives at
Employee's level in any annual bonus pool approved by the board."
6. Amendment of Paragraph 3.3. Paragraph 3.3 of the Employment Agreement is
hereby amended and restated in its entirety to read as follows:
"3.3 Bonus Upon Change in Control of the Company.
"(a) Voluntary or Involuntary Termination Following a Change in
Control. If Employee (i) voluntarily resigns for any reason, or (ii)
receives written notice of termination from the Company, Commerce or any of
the Affiliated Entities for any reason, in either case, within six (6)
months following a transaction that would constitute a Change in Control
(as defined in Section 3.3(b), below) if it had not been approved by the
board of directors of the Company, Commerce or any of the Affiliated
Entities that occurs during the Initial Term, then, in addition to the
amounts due under Paragraph 7.3 of this Agreement, the Company shall pay
Employee a cash bonus in an amount equal to $100,000 plus the amount of
taxes payable by Employee under Internal Revenue Code Section 280G with
respect to the bonus contemplated by this Paragraph 3.3.
"(b) For purposes of 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 (A) a trustee or other fiduciary
holding securities of the Company or Commerce, respectively, under an
employee benefit plan of the Company or Commerce, respectively; or (B)
an entity in which the Company or Commerce directly or indirectly
beneficially owns 50% or more of the voting securities of such entity
(an "Affiliate"), of any securities of the Company or Commerce,
immediately after which such Person has beneficial ownership (within
the meaning of Rule 13d-3
3
promulgated under the 0000 Xxx) of fifty percent (50%) or more of (1)
the outstanding shares of Common Stock of the Company or Commerce, or
(2) the combined voting power of the Company's or Commerce's then
outstanding securities entitled to vote generally in the election of
directors;
(ii) the Company or Commerce 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 or Commerce
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) at least 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 or
Commerce are, in any transaction or series of transactions, sold or
otherwise disposed of (other than to any of the Affiliated Entities);
provided, however, that in no event shall a "Change in Control" be deemed
to have occurred for purposes of this Agreement (A) solely because the
Company or Commerce engages in an internal reorganization, which may
include a transfer of assets to, or a merger or consolidation with, one or
more of the Affiliated Entities, creation of a holding company structure or
a reincorporation; or (B) as a result of any transaction or series of
transactions that has been approved by the board of directors of the
Company, Commerce or any of the Affiliated Entities."
"(c) Stock and Option Repurchase on Change of Control. Notwithstanding
any other provision of this Agreement, in the event of a Change in Control
which is determined by the Board to be a hostile takeover, (i) Employee's
right to exercise any options to purchase stock of the Company or Commerce
shall be accelerated as to all of the remaining shares then covered by the
options which have not otherwise vested under the terms thereof, and (ii)
Employee shall have the right, subject to applicable law, to require the
Company or Commerce to repurchase from Employee all stock options and any
shares owned of the Company or Commerce at a price per share equal to the
lesser of (A) two times the market value of the Company's or Commerce's
common stock on the date of the Change in Control, less the exercise price
or (B) $10.00 per share."
7. Amendment of Paragraph 3.5. Paragraph 3.5 of the Employment Agreement is
hereby deleted in its entirety.
8. Amendment of Paragraph 7.1(f). Paragraph 7.1(f) of the Employment
Agreement is hereby amended and restated in its entirety to read as follows:
"(f) the expiration of ten (10) days after receipt by the Company of
written notice of termination executed by Employee if, during the Initial
Term, without Employee's
4
written consent, there shall have been any adverse change in Employee's job
responsibilities; or"
9. Amendment of Paragraph 7.1. Paragraph 7.1 of the Employment Agreement is
hereby amended to add a new Paragraph 7.1(h) to read as follows:
"(h) the expiration of sixty (60) days after (i) receipt by the
Company of written notice of termination executed by Employee, or (ii)
receipt by the Employee of written notice of termination executed on behalf
of the Company; provided, however, that the Company cannot provide this
notice of termination without cause more than sixty (60) days before
January 1, 2005, unless Employee agrees to an earlier end of this Agreement
and the employment relationship without cause."
10. Amendment of Paragraph 7.3. Paragraph 7.3 of the Employment Agreement
is hereby amended and restated in its entirety to read as follows:
"7.3 Separation Compensation. If Employee's employment terminates
pursuant to Section 7.1(a), (b), (c) or (d) of this Agreement, Employee
shall be entitled to receive the Base Salary and other compensation and
benefits provided for under this Agreement through the date of termination,
but shall not be entitled to receive any severance pay or non-vested
employment benefits or options, or any other termination benefits, except
to the extent otherwise required to be paid under applicable California
law. If Employee's employment terminates for any reason other than pursuant
to the provisions of this Agreement referred to in the immediately
preceding sentence, including pursuant to Paragraph 7.1 (e), (f), (g) or
(h), such as the termination of this Agreement upon the conclusion of the
Initial Term or any termination without cause after the completion of the
Initial Term, then Employee shall be entitled to receive (i) the Base
Salary and other compensation and benefits provided for under this
Agreement through the date of termination (which amount will be paid on
Employee's last day of employment), (ii) an amount equal to Employee's then
current annual Base Salary, and (iii) the Company will pay for Employee's
health insurance premiums (including the continuation of dependent coverage
(if any)) for up to eighteen months from the date of termination; provided
Employee makes a timely COBRA election and provided further that Employee
continues to contribute the same amount (if any) Employee currently
contributes for health insurance premiums. The amount specified in clause
(ii) above shall be payable in a lump sum within 2 business days following
the termination of Employee's employment. The Company and Employee both
agree that the amount of the severance payment specified by the immediately
preceding sentence is reasonable under the circumstances existing at the
time of the execution of this Agreement."
11. Change in Control. Employee hereby acknowledges and agrees that in
connection with the Transaction, he shall not be entitled to (a) receive a bonus
under Paragraph 3.3 of the Employment Agreement or (b) exercise the stock
repurchase option under Paragraph 3.5 of the Employment Agreement.
12. Additional Representations. Employee represents and acknowledges that
he has received all monies, compensation and/or benefits that are owed, or that
he claims or could claim are owed, to him under the terms of the Employment
Agreement or otherwise as a result of his
5
employment by the Company through the date of this Amendment, including but not
limited to, bonus compensation, if any, under Paragraph 3.2 of the Employment
Agreement for the current or any preceding fiscal or calendar years.
13. Effect of Amendment. Except as specifically amended herein, the
Employment Agreement shall remain in full force and effect without any other
changes, amendments or modifications.
14. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15. Further Acts. The parties agree to execute and deliver all such further
documents, agreements and instruments and take such other and further action as
may be necessary or appropriate to carry out the purposes and intent of this
Amendment.
16. Entire Agreement. This Amendment and the Employment Agreement, as
amended by this Amendment, sets forth the entire understanding of the parties
with respect to the subject matter of the Employment Agreement, supersede all
existing agreements between them concerning such subject matter, and may be
modified only by a written instrument duly executed by each party.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
"Company" COMMONWEALTH ENERGY CORPORATION
By: /S/ XXXXXX X. XXXXXXX
------------------------------------
Xxxxxx X. Xxxxxxx
Chairman, Compensation Committee
By: /S/ XXX X. XXXXXX
-------------------------------------
Xxx X. Xxxxxx
President, Chief Executive Officer
and Chairman of the Board
"Commerce" COMMERCE ENERGY GROUP, INC.
By: /S/ XXX X. XXXXXX
-------------------------------------
Xxx X. Xxxxxx
President, Chief Executive Officer,
Treasurer and Chairman of the Board
"Employee" /S/ XXXX X. XXXXXXXX
----------------------------------------
Xxxx X. Xxxxxxxx
6
