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Exhibit 10.123

SECURITY AGREEMENT

        This SECURITY AGREEMENT, dated as of August 21, 2008 (this "Agreement"),
is by and among Commerce Energy, Inc., a corporation organized under the laws of
the State of California and Commerce Energy Group, Inc. a corporation organized
under the laws of the State of Delaware (collectively and severally, the
"Company" or the "Debtor") in favor of AP Finance, LLC as Lender under the
Purchase Agreement (together with its successors and assigns, the "Lender").

WITNESSETH:

        WHEREAS, the Lender is the holder of that certain Senior Secured
Convertible Promissory Note, issued jointly and severally by the Company,
bearing even date herewith in the principal amount of $20,931,579 (together with
any and all promissory notes issued by the Company after the date hereof
pursuant to the Purchase Agreement, collectively and each individually, the
"Note") issued or to be issued by the Company pursuant to the terms of the Note
and Warrant Purchase Agreement bearing even date herewith (the "Purchase
Agreement") by and among each Company and Lender.

        WHEREAS, pursuant to the terms and conditions of the Purchase Agreement,
Lender has agreed to extend a loan to the Company, the repayment of which is
evidenced by the Note;

        WHEREAS, in order to induce Lender to extend the loan pursuant to the
Purchase Agreement, each Company has agreed to execute and deliver to Lender
this Agreement and other collateral documents, and to grant Lender a security
interest in all personal property of each Company and certain other property of
each Company to secure the prompt payment, performance and discharge in full of
all of each Company's obligations under the Purchase Agreement, the Note and the
other Transaction Documents.

        WHEREAS, each of the parties hereto recognize and agree that the
Security Interests (as defined below) granted to Lender are subject to that
certain Senior Secured Security Interest granted in favor of Wachovia Capital
Finance Corporation (Western) ("Senior Lienholder"), pursuant to the terms of
that certain Intercreditor Agreement, by and among Senior Lender, Lender and
each Company, of even date herewith (the "Intercreditor Agreement").

        WHEREAS, all capitalized terms not otherwise specifically defined in
this Agreement shall have the meanings given thereto in the Note or if not
expressly defined in the Note, then in the Purchase Agreement.

        NOW, THEREFORE, in consideration of the agreements herein contained and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto hereby agree as follows:

        1.    Certain Definitions.    As used in this Agreement, the following
terms shall have the meanings set forth in this Section 1. Terms used but not
otherwise defined in this Agreement that are defined in Article 9 of the UCC
(including the terms "account," "chattel paper," "commercial tort claim,"
"deposit account," "document," "equipment," "fixtures," "general intangibles,"
"goods," "instruments," "inventory," "investment property," "letter-of-credit
rights," "proceeds," "securities" and "supporting obligations") shall have the
respective meanings given such terms in Article 9 of the UCC.

        (a)   "Collateral" means the collateral in which Lender is granted a
security interest by this Agreement which, except for such personal property
described on Exhibit A attached hereto and made a part hereof (the "Excluded
Collateral"), shall include the following personal property of each Debtor,
whether presently owned or existing or hereafter acquired or coming into
existence, wherever situated, and all additions and accessions thereto and all
substitutions and replacements thereof, and all proceeds, products and accounts
thereof, including, without limitation, all proceeds from the sale or transfer
of the Collateral and of insurance covering the same and of any tort claims in
connection therewith, and all dividends, interest, cash, Note, securities,
equity interest or

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other property at any time and from time to time acquired, receivable or
otherwise distributed in respect of, or in exchange for, any or all of the
Pledged Securities (as defined below):

        (i)    All goods, including, without limitation, (A) all machinery,
equipment, computers, motor vehicles, trucks, tanks, boats, ships, appliances,
furniture, rigs, drilling equipment, towers, special and general tools,
fixtures, test and quality control devices and other equipment of every kind and
nature and wherever situated, together with all documents of title and documents
representing the same, all additions and accessions thereto, replacements
therefor, all parts therefor, and all substitutes for any of the foregoing and
all other items used and useful in connection with the Debtor's businesses and
all improvements thereto; and (B) all inventory, including all materials, work
in process and finished goods;

        (ii)   All general intangibles, including, without limitation, all
contract rights, choses in action, partnership interests, membership interests,
stock or other securities, rights under any of the Organizational Documents,
agreements related to the Pledged Securities, licenses, distribution and other
agreements, computer software (whether "off-the-shelf," licensed from any third
party or developed by the Debtor), computer software development rights, leases,
franchises, licenses, permits, deposits, customer lists, quality control
procedures, grants and rights, goodwill, Intellectual Property, and income tax,
insurance and other refunds;

        (iii)  All accounts, together with all instruments, all documents of
title representing any of the foregoing, all rights in any merchandising, goods,
equipment, motor vehicles and trucks which any of the same may represent, and
all right, title, security and guaranties with respect to each account,
including any right of stoppage in transit;

        (iv)  All documents, letter-of-credit rights, instruments and chattel
paper;

        (v)   All commercial tort claims;

        (vi)  All deposit accounts and all cash (whether or not deposited in
such deposit accounts);

        (vii) All investment property;

        (viii)  All supporting obligations;

        (ix)  All files, records, books of account, business papers, and
computer programs; and

        (x)   the products and proceeds of all of the foregoing Collateral set
forth in clauses (i)-(x) above.

        Without limiting the generality of the foregoing, the "Collateral" shall
include all investment property and general intangibles respecting ownership
and/or other equity interests in each subsidiary of the Company (if any),
including, without limitation, the shares of capital stock and the other equity
interests listed on Schedule B hereto (as the same may be modified from time to
time pursuant to the terms hereof), and any other shares of capital stock and/or
other equity interests of any other direct or indirect subsidiary of the Debtor
obtained in the future, and, in each case, all certificates representing such
shares and/or equity interests and, in each case, all rights, options, warrants,
stock, other securities and/or equity interests that may hereafter be received,
receivable or distributed in respect of, or exchanged for, any of the foregoing
and all rights arising under or in connection with the Pledged Securities,
including, but not limited to, all dividends, interest and cash.

        Notwithstanding the foregoing, nothing herein shall be deemed to
constitute an assignment of any asset which, in the event of an assignment,
becomes void by operation of applicable law or the assignment of which is
otherwise prohibited by applicable law (in each case to the extent that such
applicable law is not overridden by Sections 9-406, 9-407 and/or 9408 of the UCC
or other similar

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applicable law); provided, however, that to the extent permitted by applicable
law, this Agreement shall create a valid security interest in such asset and, to
the extent permitted by applicable law, this Agreement shall create a valid
security interest in the proceeds of such asset.

        (b)   "Intellectual Property" means the collective reference to all
rights, priorities and privileges relating to intellectual property, whether
arising under United States, multinational or foreign laws or otherwise,
including, without limitation, (i) all copyrights arising under the laws of the
United States, any other country or any political subdivision thereof, whether
registered or unregistered and whether published or unpublished, all
registrations and recordings thereof, and all applications in connection
therewith, including, without limitation, all registrations, recordings and
applications in the United States Copyright Office, (ii) all letters patent of
the United States, any other country or any political subdivision thereof, all
reissues and extensions thereof, and all applications for letters patent of the
United States or any other country and all divisions, continuations and
continuations-in-part thereof, (iii) all trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade dress,
service marks, logos, domain names and other source or business identifiers, and
all goodwill associated therewith, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications in
connection therewith, whether in the United States Patent and Trademark Office
or in any similar office or agency of the United States, any State thereof or
any other country or any political subdivision thereof, or otherwise, and all
common law rights related thereto, (iv) all trade secrets arising under the laws
of the United States, any other country or any political subdivision thereof,
(v) all rights to obtain any reissues, renewals or extensions of the foregoing,
(vi) all licenses for any of the foregoing, and (vii) all causes of action for
infringement of the foregoing.

        (c)   "Necessary Endorsement" means undated stock powers endorsed in
blank or other proper instruments of assignment duly executed and such other
instruments or documents as Lender may reasonably request.

        (d)   "Obligations" means all of the liabilities and obligations
(primary, secondary, direct, contingent, sole, joint or several) due or to
become due, or that are now or may be hereafter contracted or acquired, or
owing, of the Debtor to Lender under this Agreement, the Note, the Purchase
Agreement, the other Transaction Documents, and any other instruments,
agreements or other documents executed and/or delivered in connection herewith
or therewith, in each case, whether now or hereafter existing, voluntary or
involuntary, direct or indirect, absolute or contingent, liquidated or
unliquidated, whether or not jointly owed with others, and whether or not from
time to time decreased or extinguished and later increased, created or incurred,
and all or any portion of such obligations or liabilities that are paid, to the
extent all or any part of such payment is avoided or recovered directly or
indirectly from Lender as a preference, fraudulent transfer or otherwise as such
obligations may be amended, supplemented, converted, extended or modified from
time to time. Without limiting the generality of the foregoing, the term
"Obligations" shall include, without limitation: (i) principal of, and interest
on, the Note and the loans extended pursuant thereto; (ii) any and all other
fees, legal fees and other expenses, indemnities, costs, obligations and
liabilities of the Debtor from time to time under or in connection with this
Agreement, the Note, the Purchase Agreement, the other Transaction Documents,
and any other instruments, agreements or other documents executed and/or
delivered in connection herewith or therewith; (iii) payment of the Redemption
Price (as defined in the Warrant), and the Subsequent Closing Origination Fees
(as defined in the Purchase Agreement) and (iv) all amounts (including but not
limited to post-petition interest) in respect of the foregoing that would be
payable but for the fact that the obligations to pay such amounts are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving any Debtor.

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        (e)   "Organizational Documents" means, with respect to each Debtor, the
documents by which such Debtor was organized (such as a certificate of
incorporation, certificate of limited partnership or articles of organization,
and including, without limitation, any certificates of designation for preferred
stock or other forms of preferred equity) and which relate to the internal
governance of such Debtor (such as bylaws, a partnership agreement or an
operating, limited liability or members agreement).

        "Pledged Securities" shall have the meaning ascribed to such term in
Section 4(i).

        (g)   "Purchase Agreement" means the Note and Warrant Purchase
Agreement, dated as of the date hereof, between the Company and Lender.

        (h)   "UCC" means the Uniform Commercial Code of the State of New York
and/or any other applicable law of any state or states which have jurisdiction
with respect to all, or any portion of, the Collateral or this Agreement, from
time to time. It is the intent of the parties that defined terms in the UCC
should be construed in their broadest sense so that the term "Collateral" will
be construed in its broadest sense. Accordingly if there are, from time to time,
changes to defined terms in the UCC that broaden the definitions, they are
incorporated herein, and if existing definitions in the UCC are broader than the
amended definitions, the existing ones shall be controlling.

        2.    Grant of Security Interest in Collateral.    As an inducement for
Lender to extend the loan as evidenced by the Note and to secure the complete
and timely payment, performance and discharge in full, as the case may be, of
all of the Obligations, each Debtor hereby unconditionally and irrevocably
pledges, grants and hypothecates to Lender, a security interest in and to, a
lien upon, and a right of set-off against, all of its right, title and interest
of whatsoever kind and nature in and to the Collateral (the "Security
Interests").

        3.    Delivery of Certain Collateral.    Subject to the provisions of
the Intercreditor Agreement, contemporaneously with or prior to the execution of
this Agreement, the Debtor shall deliver or cause to be delivered to Lender
(a) any and all certificates and other instruments representing or evidencing
the Pledged Securities, and (b) any and all certificates and other instruments
or documents representing any of the other Collateral, in each case, together
with all Necessary Endorsements. The Debtor is, contemporaneously with the
execution hereof, delivering to Lender, or has previously delivered to Lender, a
true and correct copy of each Organizational Document governing any of the
Pledged Securities.

        4.    Representations, Warranties, Covenants and Agreements of the
Debtor.    Except as set forth under the corresponding section of the disclosure
schedules delivered to Lender concurrently herewith (the "Disclosure
Schedules"), which Disclosure Schedules shall be deemed a part hereof, each
Debtor represents and warrants to, and covenants and agrees with, Lender as
follows:

        (a)   The Debtor has the requisite corporate, partnership, limited
liability company or other power and authority to enter into this Agreement and
otherwise to carry out its obligations hereunder. The execution, delivery and
performance by the Debtor of this Agreement and the filings contemplated herein
have been duly authorized by all necessary action on the part of the Debtor and
no further action is required by the Debtor. This Agreement has been duly
executed by the Debtor. This Agreement constitutes the legal, valid and binding
obligation of the Debtor, enforceable against the Debtor in accordance with its
terms except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization and similar laws of general application relating to
or affecting the rights and remedies of creditors and by general principles of
equity.

        (b)   The Debtor has no place of business or offices where its
respective books of account and records are kept (other than temporarily at the
offices of their attorneys or accountants) or places where Collateral is stored
or located, except as set forth on Schedule A attached hereto. The

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Debtor owns of record, subject only to Permitted Encumbrances (as defined in the
Purchase Agreement), the real property where such Collateral is located, as
identified on Schedule A. Except as disclosed on Schedule A, none of such
Collateral is in the possession of any consignee, bailee, warehouseman, agent or
processor.

        (c)   Except for Permitted Encumbrances, each Debtor is the sole owner
of the Collateral, free and clear of any liens, security interests,
encumbrances, rights or claims, and is fully authorized to grant the Security
Interest. Exbept with respect to Permitted Encumbrances, there is not on file in
any governmental or regulatory authority, agency or recording office an
effective financing statement, security agreement, license or transfer or any
notice of any of the foregoing (other than those that will be filed in favor of
Lender pursuant to this Agreement or the other Transaction Documents) covering
or affecting ally of the Collateral. Except with respect to Permitted
Encumbrances, and except pursuant to this Agreement, as long as this Agreement
shall be in effect, the Debtor shall not execute and shall not knowingly permit
to be on file in any such office or agency any other financing statement or
other similar document or instrument (except to the extent filed or recorded in
favor of Lender pursuant to the terms of this Agreement).

        (d)   No written claim has been received by any Debtor that any
Collateral or any Debtor's use of any Collateral violates the rights of any
third party. There has been no adverse decision to any Debtor's claim of
ownership rights in or exclusive rights to use the Collateral in any
jurisdiction or to such Debtor's right to keep and maintain such Collateral in
full force and effect, and there is no proceeding involving said rights pending
or, to the best knowledge of such Debtor, threatened before any court, judicial
body, administrative or regulatory agency, arbitrator or other governmental
authority.

        (e)   Each Debtor shall at all times maintain its books of account and
records relating to the Collateral at its principal place of business (except
when temporarily kept at the offices of its attorneys or accountants) and its
Collateral at the locations set forth on Schedule -A attached hereto and may not
relocate such books of account and records or tangible Collateral unless it
delivers to Lender at least 30 days prior to such relocation (i) written notice
of such relocation and the new location thereof (which must be within the United
States) and (ii) evidence that appropriate financing statements under the UCC
and other necessary documents have been filed and recorded and other steps have
been taken to perfect the Security Interests to create in favor of Lender,
subject to Permitted Encumbrances, a valid, perfected and continuing perfected
first priority lien in the Collateral.

        (f)    This Agreement creates in favor of Lender a valid, security
interest in the Collateral, subject only to Permitted Encumbrances, securing the
payment and performance of the Obligations. Upon making the filings described in
the immediately following paragraph, all security interests created hereunder in
any Collateral, which may be perfected by filing UCC financing statements, shall
have been duly perfected. Except for the filing of the UCC financing statements
referred to in the immediately following paragraph, the recordation of the
Intellectual Property Security Agreement (as defined below) (if any) with
respect to copyrights and copyright applications in the United States Copyright
Office referred to in paragraph (p), and the delivery of the certificates and
other instruments provided in Section 3, no action is necessary to create,
perfect or protect the security interests created hereunder. Without limiting
the generality of the foregoing, except for the filing of said financing
statements and the recordation of said Intellectual Property Security Agreement,
no consent of any third parties and no authorization, approval or other action
by, and no notice to or filing with, any governmental authority or regulatory
body is required for (I) the execution, delivery and performance of this
Agreement, (ii) the creation or perfection of the Security Interests created
hereunder in the Collateral or (iii) the enforcement of the rights of Lender
hereunder.

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        (g)   Each Debtor hereby authorizes Lender to file one or more financing
statements under the UCC with respect to the Security Interests with the proper
filing and recording agencies in any jurisdiction deemed proper by it, which UCC
financing statement may describe the collateral as "All assets."

        (h)   The execution, delivery and performance of this Agreement by each
Debtor do not (i) violate any of the provisions of any Organizational Documents
of any Debtor or any judgment, decree, order or award of any court, governmental
body or arbitrator or any applicable law, rule or regulation applicable to any
Debtor or (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation (with or
without notice, lapse of time or both) of, any agreement, credit facility, debt
or other instrument (evidencing such Debtor's debt or otherwise) or other
understanding to which any Debtor is a party or by which any property or asset
of any Debtor is bound or affected. If any, all required consents (including,
without limitation, from stockholders or creditors of the Debtor) necessary for
the Debtor to enter into and perform its obligations hereunder have been
obtained.

        (i)    The capital stock and other equity interests listed on Schedule B
hereto, if any (the "Pledged Securities"), represent all of the capital stock
and other equity interests in and to each of the subsidiaries of each Company,
and represent all capital stock and other equity interests owned, directly or
indirectly, by each Company. All of the Pledged Securities are validly issued,
fully paid and nonassessable, and the respective Company is the legal and
beneficial owner of the Pledged Securities, free and clear of any lien, security
interest or other encumbrance except for the security interests created by this
Agreement and other Permitted Liens. The Debtor shall cause the pledge and
security interest of Lender to be duly noted in its corporate books and records.

        (j)    The ownership and other equity interests in partnerships and
limited liability companies (if any) included in the Collateral (the "Pledged
Interests") by their express terms do not provide that they are securities
governed by Article 8 of the UCC and are not held in a securities account or by
any financial intermediary.

        (k)   Except for Permitted Encumbrances, each Debtor shall at all times
maintain the liens and Security Interests provided for hereunder as valid and
perfected first priority liens and security interests in the Collateral in favor
of Lender until this Agreement and the Security Interests hereunder shall be
terminated pursuant to Section 14 hereof. Each Debtor hereby agrees to use
commercially reasonable efforts to defend the same against the claims of any and
all persons and entities and to safeguard and protect all Collateral for the
account of Lender. At the reasonable request of Lender, the Debtor will sign and
deliver to Lender at any time or from time to time one or more financing
statements pursuant to the UCC in form reasonably satisfactory to Lender and
will pay the cost of filing the same in all public offices wherever filing is
necessary to effect the rights and obligations provided for herein. Without
limiting the generality of the foregoing, the Debtor shall pay all fees, taxes
and other amounts necessary to maintain the Collateral and the Security
Interests hereunder, and the Debtor shall obtain and furnish to Lender from time
to time, upon demand, such releases and/or subordinations of claims and liens
which may be required to maintain in accordance with this Agreement the priority
of the Security Interests hereunder.

        (l)    Except for Permitted Encumbrances, the Debtor will not transfer,
pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the
Collateral (except for non-exclusive, revocable licenses granted by the Debtor
in its ordinary course of business and sales of inventory by a Debtor in its
ordinary course of business) without the prior written consent of Lender.

        (m)  The Debtor shall keep and preserve its equipment, inventory and
other tangible Collateral in good condition, repair and order and shall not
operate or locate any such Collateral (or cause to be operated or located) in
any area excluded from insurance coverage.

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        (n)   The Debtor shall maintain with financially sound and reputable
insurers, insurance with respect to the Collateral, including Collateral
hereafter acquired, against loss or damage of the kinds and in the amounts
customarily insured against by entities of established reputation having similar
properties similarly situated and in such amounts as are customarily carried
under similar circumstances by other such entities and otherwise as is prudent
for entities engaged in similar businesses but in any event sufficient to cover
the full replacement cost thereof. The Debtor shall cause each insurance policy
issued in connection herewith to provide, and the insurer issuing such policy to
certify to Lender that (a) Lender will be named as lender loss payee (mortgagee,
as applicable) and additional insured under each such insurance policy; (b) if
such insurance be proposed to be cancelled or materially changed for any reason
whatsoever, such insurer will promptly notify Lender and such cancellation or
change shall not be effective as to Lender for at least thirty (30) days after
receipt by Lender of such notice, unless the effect of such change is to extend
or increase coverage under the policy; and (c) Lender will have the right (but
no obligation) at its election to remedy any default in the payment of premiums
within thirty (30) days of notice from the insurer of such default. If no Event
of Default (as defined in the Note) exists and if the proceeds arising out of
any claim or series of related claims do not exceed $25,000, loss payments in
each instance will be available to the Debtor and applied by the Debtor to the
repair and/or replacement of property with respect to which the loss was
incurred. If no Event of Default exists and such proceeds exceed $25,000, and in
any event after an Event of Default occurs, all proceeds then or thereafter in
existence shall, subject only to the rights of the Senior Lienholder, be paid to
Lender (for application to the Obligations) and, if received by the Debtor,
shall he held in trust for Lender and promptly paid over to Lender (for
application to the Obligations) unless otherwise directed in writing by Lender.
Copies of such policies or the related certificates, in each case, naming Lender
as lender loss payee and additional insured shall be delivered to Lender at
least annually and at the time any new policy of insurance is issued.

        (o)   The Debtor shall, within ten (10) days of obtaining knowledge
thereof, advise Lender promptly, in sufficient detail, of any material adverse
change in the Collateral, and of the occurrence of any event which would have a
material adverse effect on the value of the Collateral or on Lender's security
interest therein.

        (p)   The Debtor shall promptly execute and deliver to Lender such
further deeds, mortgages, assignments, security agreements, financing statements
or other instruments, documents, certificates and assurances and take such
further action as Lender may from time to time request as necessary to perfect,
protect or enforce Lender's security interest in the Collateral (including,
without limitation, the execution and delivery of a separate security agreement
with respect to the Debtor's Intellectual Property ("Intellectual Property
Security Agreement") to be delivered on the date hereof) in which Lender has
been granted a security interest hereunder, substantially in a form reasonably
acceptable to Lender.

        (q)   The Debtor shall permit Lender and its representatives and agents
reasonable access to inspect the Collateral during normal business hours, upon
reasonable prior notice and without undue interference with the Debtor's
business operations, and to make copies of records pertaining to the Collateral
as may be reasonably requested by Lender from time to time.

        (r)   The Debtor shall take all steps reasonably necessary to diligently
pursue and seek to preserve, enforce and collect any rights, claims, causes of
action and accounts receivable in respect of the Collateral.

        (s)   The Debtor shall promptly notify Lender in sufficient detail upon
becoming aware of any attachment, garnishment, execution or other legal process
levied against any Collateral and of any other information received by the
Debtor that would have a material adverse effect on the value of the Collateral,
the Security Interest or the rights and remedies of Lender hereunder.

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        (t)    All information heretofore, herein or hereafter supplied to
Lender by or on behalf of the Debtor with respect to the Collateral is accurate
and complete in all material respects as of the date furnished.

        (u)   Each Debtor shall at all times preserve and keep in full force and
effect their respective valid existence and good standing and any rights and
franchises material to their respective businesses.

        (v)   Each Debtor will not change its name, type of organization,
jurisdiction of organization, organizational identification number (if it has
one), legal or corporate structure, or identity, or add any new fictitious name
unless it provides at least 30 days' prior written notice to Lender of such
change and, at the time of such written notification, such Debtor provides any
financing statements or fixture filings necessary to perfect and continue the
perfection of the Security Interests granted and evidenced by this Agreement.

        (w)  No Debtor may consign any of its Inventory or sell any of its
Inventory on bill and hold, sale or return, sale on approval, or other
conditional terms of sale.

        (x)   No Debtor may relocate its chief executive office to a new
location without providing 30 days' prior written notification thereof to Lender
and so long as, at the time of such written notification, such Debtor provides
any financing statements or fixture filings necessary to perfect and continue
the perfection of the Security Interests granted and evidenced by this
Agreement.

        (y)   Each Debtor was organized and remains organized solely under the
laws of the state set forth next to the Debtor's name in Schedule C attached
hereto, which Schedule C sets forth the Debtor's respective organizational
identification number or, if the Debtor does not have one, states that one does
not exist.

        (z)   (i) The actual name of each Debtor is the name set forth in
Schedule C attached hereto; (ii) no Debtor has trade names except as set forth
on Schedule D attached hereto; (iii) no Debtor has used any name other than that
stated in the preamble hereto or as set forth on Schedule D for the preceding
five years; and (iv) no entity has merged into any Debtor or been acquired by
any Debtor within the past five years except as set forth on Schedule D.

        (aa) At any time and from time to time that any Collateral consists of
instruments, certificated securities or other items that require or permit
possession by Lender to perfect the security interest created hereby, the Debtor
shall deliver such Collateral to Lender.

        (bb) The Debtor, in its capacity as issuer, hereby agrees to comply with
any and all reasonable orders and instructions of Lender regarding the Pledged
Interests consistent with the terms of this Agreement without the further
consent of the Debtor as contemplated by Section 8-106 (or any successor
section) of the UCC. Further, the Debtor agrees that it shall not enter into a
similar agreement (or one that would confer "control" within the meaning of
Article 8 of the UCC) with any other person-or entity.

        (cc) The Debtor shall cause all tangible chattel paper constituting
Collateral to be delivered to Lender, or, if such delivery is not possible, then
to cause such tangible chattel paper to contain a legend noting that it is
subject to the security interest created by this Agreement. To the extent that
any Collateral consists of electronic chattel paper, the Debtor shall cause the
underlying chattel paper to be "marked" within the meaning of Section 9-105 of
the UCC (or successor section thereto).

        (dd) To the extent that any Collateral consists of letter-of-credit
rights, the Debtor shall cause the issuer of each underlying letter of credit to
consent to an assignment of the proceeds thereof to Lender.

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        (ee) To the extent that any Collateral is in the possession of any third
party, the Debtor shall join with Lender in notifying such third party of
Lender's security interest in such Collateral and shall endeavor to obtain an
acknowledgement and agreement from such third party with respect to the
Collateral, in form and substance reasonably satisfactory to Lender.

        (ff)  If the Debtor shall at any time hold or acquire a commercial tort
claim, the Debtor shall promptly notify Lender in a writing signed by the Debtor
of the particulars thereof and grant to Lender in such writing a security
interest therein and in the proceeds thereof, all upon the terms of this
Agreement, with such writing to be in form and substance reasonably satisfactory
to Lender.

        (gg) The Debtor shall promptly provide written notice to Lender of any
and all accounts which arise out of contracts with any governmental authority
and, to the extent necessary to perfect or continue the perfected status of the
Security Interests in such accounts and proceeds thereof, shall execute and
deliver to Lender an assignment of claims for such accounts and cooperate with
Lender in taking any other steps required under the Federal Assignment of Claims
Act or any similar federal, state or local statute or rule to perfect or
continue the perfected status of the Security Interests in such accounts and
proceeds thereof.

        (hh) The Debtor shall cause each subsidiary of the Debtor (if any) with
operations or material assets (which, if in doubt, shall be in the sole
determination of Lender) to immediately become a party hereto (an "Additional
Debtor"), by executing and delivering an Additional Debtor Joinder in
substantially the form of Annex A attached hereto and comply with the provisions
hereof applicable to the Debtor. As of the date hereof, the Debtor represents
and warrants that none of its subsidiaries have any operations or material
assets. Concurrent therewith, the Additional Debtor shall deliver replacement
schedules for, or supplements to all other Schedules to (or referred to in) this
Agreement, as applicable, which replacement schedules shall supersede, or
supplements shall modify, the Schedules then in effect. The Additional Debtor
shall also deliver such opinions of counsel, authorizing resolutions, good
standing certificates, incumbency certificates, organizational documents,
financing statements and other information and documentation as Lender may
reasonably request. Upon delivery of the foregoing to Lender, the Additional
Debtor shall be and become a party to this Agreement with the same rights and
obligations as the Debtor, for all purposes hereof as fully and to the same
extent as if it were an original signatory hereto and shall be deemed to have
made the representations, warranties and covenants set forth herein as of the
date of execution and delivery of such Additional Debtor Joinder, and all
references herein to the "Debtor" shall be deemed to include each Additional
Debtor.

        (ii)   The Debtor shall vote the Pledged Securities to comply with the
covenants and agreements set forth herein and in the Note and the other
Transaction Documents.

        (jj)   The Debtor shall register the pledge of the applicable Pledged
Securities on the books of the Debtor. The Debtor shall notify each issuer of
Pledged Securities to register the pledge of the applicable Pledged Securities
in the name of Lender on the books of such issuer. Further, except with respect
to certificated securities delivered to Lender, the Debtor shall endeavor to
deliver to Lender an acknowledgement of pledge (which, where appropriate, shall
comply with the requirements of the relevant UCC with respect to perfection by
registration) signed by the issuer of the applicable Pledged Securities, which
acknowledgement shall confirm that: (a) it has registered the pledge on its
books and records; and (b) at any time directed by Lender during the
continuation of an Event of Default, such issuer will transfer the record
ownership of such Pledged Securities into the name of any designee of Lender,
will take such steps as may be necessary to effect the transfer, and will comply
with all other reasonable instructions of Lender regarding such Pledged
Securities without the further consent of the Debtor.

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        (kk) In the event that, upon an occurrence of an Event of Default,
Lender shall sell all or any of the Pledged Securities to another party or
parties (herein called the "Transferee") or shall purchase or retain all or any
of the Pledged Securities, the Debtor shall, to the extent applicable:
(i) deliver to Lender or the Transferee, as the case may be, the articles of
incorporation, bylaws, minute books, stock certificate books, corporate seals,
deeds, leases, indentures, agreements, evidences of indebtedness, books of
account, financial records and all other Organizational Documents and records of
the Debtor and its direct and indirect subsidiaries; (ii) use its best efforts
to obtain resignations of the persons then serving as officers and directors of
the Debtor and its direct and indirect subsidiaries, if so requested; and
(iii) use its best efforts to obtain any approvals that are required by any
governmental or regulatory body in order to permit the sale of the Pledged
Securities to the Transferee or the purchase or retention of the Pledged
Securities by Lender and allow the Transferee to continue the business of the
Debtor and its direct and indirect subsidiaries.

        Without limiting the generality of the other obligations of the Debtor
hereunder, the Debtor shall promptly (i) cause to be registered at the United
States Copyright Office all of its material copyrights, (ii) cause the security
interest contemplated hereby with respect to all Intellectual Property
registered at the United States Copyright Office or United States Patent and
Trademark Office to be duly recorded at the applicable office, and (iii) give
Lender notice whenever it acquires (whether absolutely or by license) or creates
any additional material Intellectual Property.

        (mm)  The Debtor will from time to time, promptly execute and deliver
all such further instruments and documents, and take all such further action as
may be necessary or desirable, or as Lender may reasonably request, in order to
perfect and protect any security interest granted or purported to be granted
hereby or to enable Lender to exercise and enforce its rights and remedies
hereunder and with respect to any Collateral or to otherwise carry out the
purposes of this Agreement.

        (nn) Schedule E attached hereto lists all of the patents, patent
applications, trademarks, trademark applications, registered copyrights, and
domain names owned by the Debtor as of the date hereof. Schedule E lists all
material licenses in favor of the Debtor for the use of any patents, trademarks,
copyrights and domain names as of the date hereof. All material patents and
trademarks of the Debtor have been duly recorded at the United States Patent and
Trademark Office and all material copyrights of the Debtor have been duly
recorded at the United States Copyright Office.

        (oo) Except as set forth on Schedule F attached hereto, none of the
account debtors or other persons or entities obligated on any of the Collateral
is a governmental authority covered by the Federal Assignment of Claims Act or
any similar federal, state or local statute or rule in respect of such
Collateral.

        (pp) Schedule G lists all licenses and permits of every kind which the
Debtor has in respect of its business operations.

        5.    Effect of Pledge on Certain Rights.    If any of the Collateral
subject to this Agreement consists of nonvoting equity or ownership interests
(regardless of class, designation, preference or rights) that may be converted
into voting equity or ownership interests upon the occurrence of certain events
(including, without limitation, upon the transfer of all or any of the other
stock or assets of the issuer), it is agreed that the pledge of such equity or
ownership interests pursuant to this Agreement or the enforcement of any of
Lender's rights hereunder shall not be deemed to be the type of event which
would trigger such conversion rights notwithstanding any provisions in the
Organizational Documents or agreements to which the Debtor is subject or to
which the Debtor is party.

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        6.    Defaults.    The following events shall be "Events of Default":

        (a)   The occurrence of an Event of Default under the Note;

        (b)   Any representation or warranty of the Debtor in this Agreement
shall prove to have been incorrect in any material respect when made; or

        (c)   The failure by the Debtor to observe or perform any of its
undertakings, covenants and obligations in this Agreement (subject to any
applicable cure period with respect thereto set forth in the Note).

        7.    Duty To Hold In Trust.    

        (a)   Upon the occurrence and during the continuance of any Event of
Default and at any time thereafter, the Debtor shall, upon receipt of any
revenue, income, dividend, interest or other sums subject to the Security
Interests, whether payable pursuant to the Note or otherwise, or of any check,
draft, note, trade acceptance or other instrument evidencing an obligation to
pay any such sum, hold the same in trust for Lender and shall forthwith endorse
and transfer any such sums or instruments, or both, to Lender.

        (b)   If the Debtor shall become entitled to receive or shall receive
any securities or other property (including, without limitation, shares of
Pledged Securities or instruments representing Pledged Securities acquired after
the date hereof, or any options, warrants, rights or other similar property or
certificates representing a dividend, or any distribution in connection with any
recapitalization, reclassification or increase or reduction of capital, or
issued in connection with any reorganization of the Debtor or any of its direct
or indirect subsidiaries) in respect of the Pledged Securities (whether as an
addition to, in substitution of or in exchange for, such Pledged Securities or
otherwise), the Debtor agrees to (i) accept the same as the agent of Lender;
(ii) hold the same in trust on behalf of and for the benefit of Lender, subject
to the terms of the Intercreditor Agreement; and (iii) deliver any and all
certificates or instruments evidencing the same to Lender on or before the close
of business on the fifth business day following the receipt thereof by the
Debtor, in the exact form received together with the Necessary Endorsements, to
be held by Lender subject to the terms of this Agreement as Collateral.

        8.    Rights and Remedies Upon Default.    

        (a)   Upon the occurrence of any Event of Default and at any time
thereafter, subject to the terms of the Intercreditor Agreement, Lender shall
have the right to exercise all of the remedies conferred hereunder, under the
Note, under any and all other Transaction Documents, and Lender shall have all
the rights and remedies of a secured party under the UCC and all rights and
remedies available under any other applicable law and at equity. Without
limitation, Lender shall have the following rights and powers:

        (i)    Lender shall have the right to take possession of the Collateral
and, for that purpose, enter by reasonable means, with the aid and assistance of
any person, any premises where the Collateral, or any part thereof, is or may be
placed and remove the same, and the Debtor shall assemble the Collateral and
make it available to Lender at places which Lender shall reasonably select,
whether at the Debtor's premises or elsewhere, and make reasonably available to
Lender, without rent, all of the Debtor's respective premises and facilities for
the purpose of Lender taking possession of, removing or putting the Collateral
in saleable or disposable form.

        (ii)   Upon written notice to the Debtor by Lender, all rights of the
Debtor to exercise the voting and other consensual rights which it would
otherwise be entitled to exercise and all rights of the Debtor to receive the
dividends and interest which it would otherwise be authorized to receive and
retain, shall cease. Upon such notice, Lender shall have the right to

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receive any interest, cash dividends or other payments on the Collateral and, at
the option of Lender, to exercise in Lender's discretion all voting rights
pertaining thereto. Without limiting the generality of the foregoing, Lender
shall have the right (but not the obligation) to exercise all rights with
respect to the Collateral as if it were the sole and absolute owner thereof,
including, without limitation, to vote and/or to exchange, at its sole
discretion, any or all of the Collateral in connection with a merger,
reorganization, consolidation, recapitalization or other readjustment concerning
or involving the Collateral or any Debtor or any of its direct or indirect
subsidiaries.

        (iii)  Lender shall have the right to assign, sell, lease or otherwise
dispose of and deliver all or any part of the Collateral, at public or private
sale or otherwise, either with or without special conditions or stipulations,
for cash or on credit or for future delivery, in such parcel or parcels and at
such time or times and at such place or places, and upon commercially reasonable
terms and conditions. Upon each such sale, lease, assignment or other transfer
of Collateral, Lender, may, unless prohibited by applicable law which cannot be
waived, purchase all or any part of the Collateral being sold, free from and
discharged of all trusts, claims, right of redemption and equities of the
Debtor, which are hereby waived and released.

        (iv)  Lender shall have the right (but not the obligation) to notify any
account debtors and any obligors under instruments or accounts to make payments
directly to Lender, and to enforce Debtor's rights against such account debtors
and obligors.

        (v)   Lender, may (but is not obligated to) direct any financial
intermediary or any other person or entity holding any investment property to
transfer the same to Lender, or its designee.

        (vi)  Lender may (but is not obligated to) transfer any or all
Intellectual Property registered in the name of the Debtor at the United States
Patent and Trademark Office and/or Copyright Office into the name of Lender or
any designee or any purchaser of any Collateral.

        (b)   No compliance by Lender with any applicable law in connection with
a disposition of Collateral will be considered adversely to affect the
commercial reasonableness of any sale of the Collateral. Lender may sell the
Collateral without giving any warranties and may specifically disclaim such
warranties. In addition, the Debtor waives any and all rights that it may have
to a judicial hearing in advance of the enforcement of any of Lender's rights
and remedies hereunder, including, without limitation, its right following an
Event of Default to take immediate possession of the Collateral and to exercise
its rights and remedies with respect thereto.

        (c)   For the purpose of enabling Lender to further exercise rights and
remedies under this Section 8 or elsewhere provided by agreement or applicable
law, the Debtor hereby grants to Lender, an irrevocable, nonexclusive license
(exercisable without payment of royalty or other compensation to the Debtor) to
use, license or sublicense following an Event of Default, any Intellectual
Property now owned or hereafter acquired by the Debtor, and wherever the same
may be located, and including in such license access to all media in which any
of the licensed items may be recorded or stored and to all computer software and
programs used for the compilation or printout thereof.

        9.    Applications of Proceeds.    Subject to the terms of the
Intercreditor Agreement, the proceeds of any such sale, lease or other
disposition of the Collateral hereunder or from payments made on account of any
insurance policy insuring any portion of the Collateral shall be applied first,
to the reasonable and actually incurred expenses of retaking, holding, storing,
processing and preparing for sale, selling, and the like (including, without
limitation, any taxes, fees and other costs reasonably incurred in connection
therewith) of the Collateral, to the reasonable attorneys' fees and expenses

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incurred by Lender in enforcing the rights of Lender hereunder or of Lender and
Lender under any other Transaction Documents and in connection with collecting,
storing and disposing of the Collateral, and then to satisfaction of the
Obligations, and to the payment of any other amounts required by applicable law,
after which Lender shall pay to the Debtor any surplus proceeds. If, upon the
sale, license or other disposition of the Collateral, the proceeds thereof are
insufficient to pay all amounts to which Lender is legally entitled, the Debtor
will be liable for the deficiency, together with interest thereon, at the rate
of 18% per annum or the lesser amount permitted by applicable law (the "Default
Rate"), and the reasonable fees of any attorneys employed by Lender to collect
such deficiency. To the extent permitted by applicable law, the Debtor waives
all claims, damages and demands against Lender arising out of the repossession,
removal, retention or sale of the Collateral, unless due solely to the gross
negligence or willful misconduct of Lender as determined by a final judgment
(not subject to further appeal) of a court of competent jurisdiction.

        10.    Securities Law Provision.    The Debtor recognizes that Lender
may be limited in its ability to effect a sale to the public of all or part of
the Pledged Securities by reason of certain prohibitions in the Securities Act
of 1933, as amended, or other federal or state securities laws (collectively,
the "Securities Laws"), and may be compelled to resort to one or more sales to a
restricted group of purchasers who may be required to agree to acquire the
Pledged Securities for their own account, for investment and not with a view to
the distribution or resale thereof. The Debtor agrees that sales so made may be
at prices and on terms less favorable than if the Pledged Securities were sold
to the public, and that Lender has no obligation to delay the sale of any
Pledged Securities for the period of time necessary to register the Pledged
Securities for sale to the public under the Securities Laws. The Debtor shall
cooperate with Lender in its reasonable attempt to satisfy any requirements
under the Securities Laws (including, without limitation, registration
thereunder if reasonably requested by Lender) applicable to the sale of the
Pledged Securities by Lender.

        11.    Costs and Expenses.    The Debtor agrees to pay all reasonable
out-of-pocket fees, costs and expenses incurred in connection with any filing
required hereunder, including without limitation, any financing statements
pursuant to the UCC, continuation statements, partial releases and/or
termination statements related thereto or any expenses of any searches
reasonably required by Lender. The Debtor shall also pay all other claims and
charges which would be reasonably likely to prejudice, imperil or otherwise
affect the Collateral or the Security Interests therein. The Debtor will also,
upon demand, pay to Lender the amount of any and all reasonable expenses,
including the reasonable fees and expenses of its counsel and of any experts and
agents, which Lender may incur in connection with (i) the enforcement of this
Agreement, (ii) the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Collateral, or (iii) the exercise or
enforcement of any of the rights of Lender and Lender under the Note and the
other Transaction Documents. Until so paid, any fees payable hereunder shall be
added to the principal amount of the Note and shall bear interest at the Default
Rate.

        12.    Responsibility for Collateral.    The Debtor assumes all
liabilities and responsibility in connection with all Collateral, and the
Obligations shall in no way be affected or diminished by reason of the loss,
destruction, damage or theft of any of the Collateral or its unavailability for
any reason. Without limiting the generality of the foregoing, (a) in no event
shall Lender (i) have any duty (either before or after an Event of Default) to
collect any amounts in respect of the Collateral or to preserve any rights
relating to the Collateral, or (ii) have any obligation to clean-up or otherwise
prepare the Collateral for sale, and (b) the Debtor shall remain obligated and
liable under each contract or agreement included in the Collateral to be
observed or performed by the Debtor thereunder. Lender shall not have any
obligation or liability under any such contract or agreement by reason of or
arising out of this Agreement or the receipt by Lender of any payment relating
to any of the Collateral, nor shall Lender be obligated in any manner to perform
any of the obligations of the Debtor under or pursuant to any such contract or
agreement, to make inquiry as to the nature or sufficiency of any

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payment received by Lender in respect of the Collateral or as to the sufficiency
of any performance by any party under any such contract or agreement, to present
or file any claim, to take any action to enforce any performance or to collect
the payment of any amounts which may have been assigned to Lender or to which
Lender may be entitled at any time or times. Lender shall be entitled, in its
sole discretion, to abandon any and all Collateral and any and all records
concerning the Collateral or the Debtor's business at any time regardless of
whether it had obtained possession thereof, without any liability or
responsibility of any kind or nature therefore to the Debtor.

        13.    Security Interests Absolute.    All rights and all obligations of
the parties hereunder, shall be absolute and unconditional, irrespective of:
(a) any lack of validity or enforceability of this Agreement, the Note or any
agreement entered into in connection with the foregoing, or any portion hereof
or thereof; (b) any change in the time, manner or place of payment or
performance of, or in any other term of, all or any of the Obligations, or any
other amendment or waiver of or any consent to any departure from the Note or
any other agreement entered into in connection with the foregoing; (c) any
exchange, release or nonperfection of any of the Collateral, or any release or
amendment or waiver of or consent to departure from any other collateral for, or
any guarantee, or any other security, for all or any of the Obligations; (d) any
action by Lender to obtain, adjust, settle and cancel in its reasonable
discretion any insurance claims or matters made or arising in connection with
the Collateral; or (e) any other circumstance which might otherwise constitute
any legal or equitable defense available to the Debtor, or a discharge of all or
any part of the Security Interests granted hereby. Until the Obligations shall
have been paid and performed in full, the rights of Lender shall continue even
if the Obligations are barred for any reason, including, without limitation, the
running of the statute of limitations or bankruptcy. The Debtor expressly waives
presentment, protest, notice of protest, demand, notice of nonpayment and demand
for performance. In the event that at any time any transfer of any Collateral or
any payment received by Lender hereunder shall be deemed by final order of a
court of competent jurisdiction to have been a voidable preference or fraudulent
conveyance under the bankruptcy or insolvency laws of the United States, or
shall be deemed to be otherwise due to any party other than Lender, then, in any
such event and to the extent thereof, the Debtor's obligations hereunder shall
survive cancellation of this Agreement, and shall not be discharged or satisfied
by any prior payment thereof and/or cancellation of this Agreement, but shall
remain a valid and binding obligation enforceable in accordance with the terms
and provisions hereof. The Debtor waives all right to require Lender to proceed
against any other person or entity or to apply any Collateral which Lender may
hold at any time, or to marshal assets, or to pursue any other remedy.

        14.    Term of Agreement.    This Agreement and the Security Interests
shall terminate on the date on which all payments under the Note and all other
Obligations have been indefeasibly paid and satisfied in full. Lender has no
obligation to extend any credit to the Debtor after the date hereof except to
the extent expressly set forth in the Purchase Agreement.

        15.    Power of Attorney; Further Assurances.    

        (a)   Each Debtor authorizes Lender, and does hereby make, constitute
and appoint Lender and its officers, agents, successors or assigns with full
power of substitution, as each Debtor's true and lawful attorney-in-fact, with
power, in the name of Lender or such Debtor, to, after the occurrence and during
the continuance of an Event of Default, (i) endorse any note, checks, drafts,
money orders or other instruments of payment (including payments payable under
or in respect of any policy of insurance) in respect of the Collateral that may
come into possession of Lender; (ii) sign and endorse any financing statement
pursuant to the UCC or any invoice, freight or express bill, bill of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with accounts, and other documents
relating to the Collateral; (iii) pay or discharge taxes, liens, security
interests or other encumbrances at any time levied or placed on or threatened
against the Collateral; (iv) to demand, collect, receipt for, compromise, settle
and sue for monies due in respect of the Collateral; (v) transfer any
Intellectual

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Property or provide licenses respecting any Intellectual Property; and
(vi) generally, at the option of Lender, and at the expense of the Debtor, at
any time, or from time to time, execute and deliver any and all documents and
instruments and to do all acts and things which Lender deems necessary to
protect, preserve and realize upon the Collateral and the Security Interests
granted therein in order to effect the intent of this Agreement and the Note all
as fully and effectually as such Debtor might or could do; and each Debtor
hereby ratifies all that said attorney shall lawfully do or cause to be done by
virtue hereof. This power of attorney is coupled with an interest and shall be
irrevocable for the term of this Agreement and thereafter as long as any of the
Obligations shall be outstanding. The designation set forth herein shall be
deemed to amend and supersede any inconsistent provision in the Organizational
Documents or other documents or agreements to which such Debtor is subject or to
which such Debtor is a party. Without limiting the generality of the foregoing,
after the occurrence and during the continuance of an Event of Default, Lender
is specifically authorized to execute and file any applications for or
instruments of transfer and assignment of any patents, trademarks, copyrights or
other Intellectual Property with the United States Patent and Trademark Office
and the United States Copyright Office.

        (b)   On a continuing basis, the Debtor will make, execute, acknowledge,
deliver, file and record, as the case may be, with the proper filing and
recording agencies in any jurisdiction, including, without limitation, the
jurisdictions indicated on Schedule C attached hereto, all such instruments, and
take all such action as may reasonably be deemed necessary or advisable, or as
reasonably requested by Lender, to perfect the Security Interests granted
hereunder and otherwise to carry out the intent and purposes of this Agreement,
or for assuring and confirming to Lender the grant or perfection of a perfected
security interest in all the Collateral under the UCC.

        (c)   Each Debtor hereby irrevocably appoints Lender as the Debtor's
attorneyin-fact, with full authority in the place, on behalf of and in the name
of such Debtor, from time to time in Lender's discretion, to take any action and
to execute any instrument which Lender may deem necessary or advisable to
accomplish the purposes of this Agreement, including the filing, in its sole
discretion, of one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of such Debtor
where permitted by law, which financing statements may (but need not) describe
the Collateral as "all assets" or "all personal property" or words of like
import, and ratifies all such actions taken by Lender. This power of attorney is
coupled with an interest and shall be irrevocable for the term of this Agreement
and thereafter as long as any of the Obligations shall be outstanding.

        16.    Notices.    Any demand upon or notice to the Debtor hereunder
shall be effective when delivered by hand or when properly deposited in the
mails postage prepaid, or sent by telex, answerback received, or electronic
facsimile transmission, receipt acknowledged, or delivered to a telegraph
company or overnight courier, in each case addressed to the Debtor at the
address shown below or such other address as the Debtor may advise Lender in
writing. Any notice by the Debtor to Lender shall be given as aforesaid,
addressed to Lender at the address shown below or such other address as Lender
may advise the Debtor in writing.

Lender:   AP Finance, LLC
152 West 57th Street, 4th Floor
New York, NY 10019
Attn: Mr. David Levy
Debtor:
 
Commerce Energy, Inc.
600 Anton Boulevard, Suite 2000
Costa Mesa, CA 92626
Attn: C. Douglas Mitchell, Chief Financial Officer

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        17.    Other Security.    To the extent that the Obligations are now or
hereafter secured by property other than the Collateral or by the guarantee,
endorsement or property of any other person, firm, corporation or other entity,
then Lender shall have the right, in its sole discretion, to pursue, relinquish,
subordinate, modify or take any other action with respect thereto, without in
any way modifying or affecting any of Lender's rights and remedies hereunder.

        18.    Miscellaneous.    

        (a)   No course of dealing between the Debtor and Lender, nor any
failure to exercise, nor any delay in exercising, on the part of Lender, any
right, power or privilege hereunder or under the Note shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege.

        (b)   All of the rights and remedies of Lender with respect to the
Collateral, whether established hereby or by the Note, the Transaction Documents
or by any other agreements, instruments or documents or by law shall be
cumulative and may be exercised singly or concurrently.

        (c)   This Agreement, together with the exhibits and schedules hereto,
the Note and the related agreements contemplated hereby and thereby contain the
entire understanding of the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, oral or written, with
respect to such matters, which the parties acknowledge have been merged into
this Agreement and the exhibits and schedules hereto. No provision of this
Agreement may be waived, modified, supplemented or amended except in a written
instrument signed, in the ease of an amendment, by the Debtor and Lender or, in
the case of a waiver, by the party against whom enforcement of any such waived
provision is sought.

        (d)   If any term, provision, covenant or restriction of this Agreement
is held by a court of competent jurisdiction to be invalid, illegal, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.

        (e)   No waiver of any default with respect to any provision, condition
or requirement of this Agreement shall be deemed to be a continuing waiver in
the future or a waiver of any subsequent default or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right.

        (f)    This Agreement shall be binding upon and inure to the benefit of
the parties and their successors and permitted assigns. The Company may not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of Lender. Lender may assign any or all of its rights under this
Agreement to any Person to whom Lender assigns or transfers the Note.

        (g)   Each party shall take such further action and execute and deliver
such further documents as may be necessary or appropriate in order to carry out
the provisions and purposes of this Agreement.

        (h)   All questions concerning the construction, validity, enforcement
and interpretation of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws

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of the State of New York, without regard to the principles of conflicts of law
thereof. Each Debtor agrees that all proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement, the
Transaction Documents and the Note (whether brought against a party hereto or
its respective affiliates, directors, officers, shareholders, partners, members,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York, Borough of Manhattan. Each Debtor hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any proceeding, any claim that it is not
personally subject to the jurisdiction of any such court or that such proceeding
is improper. Each party hereto hereby irrevocably waives personal service of
process and consents to process being served in any such proceeding by mailing a
copy thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law. Each party hereto hereby irrevocably waives, to the fullest extent
permitted by applicable law, any and all right to trial by jury in any legal
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby. If any party shall commence a proceeding to enforce any
provisions of this Agreement, then the prevailing party in such proceeding shall
be reimbursed by the other party for its reasonable attorney's fees and other
reasonable costs and expenses incurred with the investigation, preparation and
prosecution of such proceeding.

        (i)    This Agreement may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same Agreement. In the event
that any signature is delivered by facsimile transmission, such signature shall
create a valid binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.

        (j)    Each Debtor shall jointly and severally indemnify, reimburse and
hold harmless Lender and each of its partners, members, shareholders, officers,
directors, employees and agents (and any other persons with other titles that
have similar functions) (collectively, "Indenmitees") from and against any and
all losses, claims, liabilities, damages, penalties, suits, costs and expenses,
of any kind or nature, (including fees relating to the cost of investigating and
defending any of the foregoing) imposed on, incurred by or asserted against such
Indemnitee in any way related to or arising from or alleged to arise from this
Agreement or the Collateral, except any such losses, claims, liabilities,
damages, penalties, suits, costs and expenses which result from the gross
negligence or willful misconduct of the Indemnitee as determined by a final,
nonappealable decision of a court of competent jurisdiction. This
indemnification provision is in addition to, and not in limitation of, any other
indemnification provision in the Note, the Transaction Documents or any other
agreement, instrument or other document executed or delivered in connection
herewith or therewith.

        (k)   Nothing in this Agreement shall be construed to subject Lender to
liability as a partner in a Debtor or any of its direct or indirect subsidiaries
that is a partnership or as a member in a Debtor or any of its direct or
indirect subsidiaries that is a limited liability company, nor shall Lender be
deemed to have assumed any obligations under any partnership agreement or
limited liability company agreement, as applicable, of any Debtor or any of its
direct or indirect subsidiaries or otherwise, unless and until Lender exercises
its right to be substituted for such Debtor as a partner or member, as
applicable, pursuant hereto.

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        (l)    To the extent that the grant of the security interest in the
Collateral and the enforcement of the terms hereof require the consent, approval
or action of any partner or member, as applicable, of any Debtor or any direct
or indirect subsidiary of any Debtor or compliance with any provisions of any of
the Organizational Documents, each Debtor hereby grants such consent and
approval and waive any such noncompliance with the terms of said documents.

        (m)  Each of the parties hereto recognize and agree that the Security
Interests granted to Lender are subordinated to those of the Senior Lienholder.
Notwithstanding anything to the contrary in this Agreement, each of the parties
hereto recognize and agree that all rights and remedies of the Lender and the
Debtor are subject to the terms of the Intercreditor Agreement, and to the
extent that there are express inconsistencies, the provisions of the
Intercreditor Agreement shall control.

[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]

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        IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed on the day and year first above written.

DEBTOR:

  COMMERCE ENERGY, INC.

 

By:

 

/s/ Gregory L. Craig

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  Name:   Gregory L. Craig

  Title:   President and Chief Executive Officer

 

COMMERCE ENERGY GROUP, INC.

 

By:

 

/s/ Gregory L. Craig

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  Name:   Gregory L. Craig

  Title:   Chief Executive Officer

LENDER:

 

AP FINANCE, LLC

 

By:

 

/s/ David Levy

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  Name:   David Levy

  Title:    

[SIGNATURE PAGE TO SECURITY AGREEMENT]

S-1

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EXHIBIT A
(Excluded Collateral)

        Notwithstanding anything herein to the contrary in this Agreement, in no
event shall the security interest granted under this Agreement attach to, or
shall "Collateral" include, the "Collateral" as defined in any Supplier Security
Agreement (the "Supplier Collateral") if and for so long as such Supplier
Security Agreement is in effect and the supplier thereunder holds a security
interest in the Supplier Collateral, and if and for so long as the grant of
Lender's security interest in the Supplier Collateral shall constitute or result
in a breach or a default under such Supplier Security Agreement, provided,
however, that (i) with respect to the Supplier Security Agreement with DTE
Energy Trading, Inc., the "RSCs" as defined therein shall not in any even
include any customer that is located outside the State of Michigan and the
foregoing exclusion from Lender's security interest shall not apply to the
extent the "RSCs" as defined therein do include any customer that is located
outside the State of Michigan, (ii) with respect to the Supplier Security
Agreement dated April 12, 2006 with Pacific Summit Energy LLC, an "RSC" as
defined therein shall not in any event include any customer that is not an
Original Permitted PSE Customer (as defined below) and the foregoing exclusion
from Lender's security interest shall not apply to the extent an "RSC" as
defined therein does include a customer that is not an Original Permitted PSE
Customer, and (iii) with respect to the Supplier Security Agreement dated
September 20, 2006 with Pacific Summit Energy LLC, (A) a "Customer Term
Contract" as defined therein shall not in any case include any contract that is
not an "Assigned Contract" as defined in that certain Asset Purchase Agreement
dated September 20, 2006 between Commerce Energy, Inc. and Houston Energy
Services Company, L.L.C. ("HESCO") and (B) an "Assigned Customer" as defined
therein shall not in any event include any customer whose contract has not been
assigned by HESCO to Commerce Energy, Inc. pursuant to such Asset Purchase
Agreement, and the foregoing exclusion from Lender's security interest shall not
apply to the extent the above clauses (A) and (B) fail to be satisfied.

        For the purposes of this Exhibit A, the following terms are defined as
follows:

        "Original Permitted PSE Customer" means a customer that is hereafter
included as an "RSC" under and as defined in the Supplier Security Agreement,
dated April 12, 2006 with Pacific Summit Energy LLC, provided that written
notice of the inclusion of such customer as an "RSC" is given by Commerce
Energy, Inc. to Lender not less than thirty (30) days prior to the effectiveness
of such inclusion, and, provided further that no Event of Default has occurred
and is continuing as of the effective date of such inclusion or would result
from such inclusion, and the sum of all Accounts owing by the Permitted PSE
Customers shall not exceed $5,000,000 in the aggregate outstanding at any time.

        "Supplier Security Agreements" means, collectively, the Revised Security
Agreement dated October 27, 2004 between Commerce Energy, Inc. and DIE Energy
Trading, Inc., as originally executed, the Security Agreement dated August 1,
2005 between Commerce Energy, Inc. and Tenaska Power Services Co. as amended by
the First Amendment to the Security Agreement, dated March 7, 2006, the Security
Agreement dated April 12, 2006 between Commerce Energy, Inc. and Pacific Summit
Energy LLC as originally executed, and the Security Agreement dated
September 20, 2006 between Commerce Energy, Inc. and Pacific Summit Energy LLC
as originally executed.

 
   
   
 

             

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*Schedules have been omitted and will be furnished to the Securities and
Exchange Commission upon request.

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QuickLinks

Exhibit 10.123

SECURITY AGREEMENT
WITNESSETH
EXHIBIT A (Excluded Collateral)