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  Exhibit 10.121    
    


[*]=Information
redacted pursuant to a confidential treatment request. Such outlined information has been filed separately with the Securities and Exchange Commission. 


        THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR COMMERCE ENERGY
GROUP, INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.


 
 

  SENIOR SECURED CONVERTIBLE PROMISSORY NOTE    
    





			
	 Dated: August 22, 2008
	 	$2,225,410.98






        For
value received, 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 "Maker"), hereby promise to pay to the order of AP FINANCE, LLC, a limited
liability company organized under the laws of the State of Delaware, with an address at 152 West 57th Street, 4th Floor, New York, NY 10019 (together with its
successors, representatives, and assigns, the "Holder"), in accordance with the terms hereinafter provided, the principal amount of Two Million Two
Hundred Twenty-Five Thousand Four Hundred Ten Dollars and 98/100 ($2,225,410.98) hereunder, together with interest and all other obligations outstanding hereunder. 


        All
payments under or pursuant to this Senior Secured Convertible Promissory Note (this "Note") shall be made in United States Dollars in
immediately available funds to the Holder at the address of the Holder first set forth above or at such other place as the Holder may designate from time to time in writing to the Maker or by wire
transfer of funds to the Holder's account, instructions for which are attached hereto as Exhibit A. The outstanding principal balance of this
Note shall be due and payable
on December 22, 2008 (the "Maturity Date") or at such earlier time as provided herein. All obligations and undertaking of, and references to, the
Maker under this Note shall be joint and several. 


 
 

ARTICLE I    



        Section 1.1    Purchase Agreement.    This Note has been executed and delivered pursuant to the Note and
Warrant Purchase Agreement, bearing even date herewith (as amended, supplemented, restated or otherwise modified from time to time, the "Purchase Agreement"), by and between the Maker and the Holder
(as a Lender). Capitalized terms used and not otherwise defined herein shall have the meanings set forth for such terms in the Purchase Agreement. 


        Section 1.2    Interest.    The outstanding principal balance of this Note shall bear interest, in arrears, at
a rate per annum equal to twelve percent (12%), payable in cash on the Maturity Date. Interest shall be computed on the basis of a 360-day year of twelve (12) thirty-day
months, shall compound monthly and shall accrue commencing on the date hereof. Furthermore, upon the occurrence of an Event of Default (as defined in Section 2.1 hereof), the Maker will pay
interest to the Holder, payable on demand, on the outstanding principal balance of the Note and on all unpaid interest from the date of the Event of Default at a per annum rate equal to the lesser of
eighteen percent (18%) and the maximum applicable legal rate per annum, calculated based on a 360-day year. 


        Section 1.3    Payment of Principal; Prepayment.    


        (a)   The
principal amount hereof, plus an amount equal to 10% outstanding principal amount, and plus all outstanding interest and all other amounts due and owing hereunder,
shall be paid in full on the Maturity Date or, if earlier, upon acceleration of this Note in accordance with the terms hereof. 







 



Any
amount of principal repaid hereunder may not be reborrowed. The Maker may prepay all (but not less than all) of the principal amount of this Note in an amount equal to the sum of (i) 110%
of the face value of this Note, and (ii) all outstanding interest and all other amounts due and owing hereunder,
upon not less than three (3) Business Days prior written notice to the Holder, without other penalty or premium. 



        Section 1.4    Security Documents.    The obligations of the Maker hereunder are secured by a continuing
security interest in substantially all of the assets of the Maker pursuant to the terms of a Security Agreement bearing even date herewith by and between the Maker and the Holder and other collateral
documents. 


        Section 1.5    Payment on Non-Business Days.    Whenever any payment to be made shall be due on a
Saturday, Sunday or a public holiday under the laws of the State of New York, such payment shall be due on the next succeeding Business Day and such next succeeding day shall be included in the
calculation of the amount of accrued interest payable on such date. 


        Section 1.6    Transfer.    This Note may be transferred or sold, and may also be pledged, hypothecated or
otherwise granted as security, by the Holder; provided, however, that any transfer or sale of this Note must be in compliance with any applicable securities laws. 


        Section 1.7    Replacement.    Upon receipt of a duly executed, notarized and unsecured written statement from
the Holder with respect to the loss, theft or destruction of this Note (or any replacement hereof) and a standard indemnity, or, in the case of a mutilation of this Note, upon surrender and
cancellation of such Note, the Maker shall issue a new Note, of like tenor and amount, in lieu of such lost, stolen, destroyed or mutilated Note. 


        Section 1.8    Use of Proceeds.    The Maker shall use the proceeds of this Note as set forth in the Purchase
Agreement. 


 
 

ARTICLE II    



 
  EVENTS OF DEFAULT; REMEDIES


        Section 2.1    Events of Default.    The occurrence of any of the following events shall be an
"Event of Default" under this Note: 



        (a)   any
default in respect of any payment of the principal amount, interest or any other monetary obligation under this Note, as and when the same shall be due and payable
(whether on the Maturity Date or by acceleration or otherwise) or within three (3) days thereafter; or 


        (b)   the
occurrence of any Event of Default under the terms of the Initial Note (as such term is defined in the Purchase Agreement); or 


        (c)   the
Maker shall fail to observe or perform any other condition, covenant or agreement contained in this Note; or 



        (d)   other
than a suspension relating to the failure of the American Stock Exchange to approve the listing application being filed in connection with the transactions
contemplated hereby, the suspension from listing, without subsequent listing on any one of, or the failure of the Common Stock to be listed on at least one of the OTC Bulletin Board, the American
Stock Exchange, the Nasdaq Capital Markets, the Nasdaq Global Market, the Nasdaq Global Select Market or The New York Stock Exchange, Inc. for a period of five (5) consecutive Trading
Days, such a suspension to only constitute an Event of Default if the Holder provides the Maker written notification that it deems such suspension to be an Event of Default; or 



        (e)   the
Maker shall default in the performance or observance of (i) any undertaking, covenant, condition or agreement contained in the Purchase Agreement or any other
Transaction Document; or 


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        (f)    any
representation or warranty made by the Maker herein or in the Purchase Agreement or any other Transaction Document shall prove to have been false or incorrect or
breached in a material respect on the date as of which made; or 



        (g)   (A)
a default in any payment of any amount or amounts of principal of or interest on any Indebtedness of the Maker (other than the Indebtedness hereunder) the aggregate
principal amount of which Indebtedness is in excess of $100,000 or (B) a default in the observance or performance of any other agreement or condition relating to any Indebtedness or contained
in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to
permit the holder or holders or beneficiary or beneficiaries of such Indebtedness to cause with the giving of notice if required, such Indebtedness to become due prior to its stated maturity; or 



        (h)   the
Maker shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all
or a substantial part of its property or assets, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the United States Bankruptcy Code
(as now or hereafter in effect) or under the comparable laws of any jurisdiction (foreign or domestic), (iv) file a petition seeking to take advantage of any bankruptcy, insolvency,
moratorium, reorganization or other similar law affecting the enforcement of creditors' rights generally, (v) acquiesce in writing to any petition filed against it in an involuntary case under
United States Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of any jurisdiction (foreign or domestic), (vi) issue a notice of bankruptcy or winding down of its
operations or issue a press release regarding same, or (vii) take any action under the laws of any jurisdiction (foreign or domestic) analogous to any of the foregoing; or 


        (i)    a
proceeding or case shall be commenced in respect of the Maker, without its application or consent, in any court of competent jurisdiction, seeking (i) the
liquidation, reorganization, moratorium, dissolution, winding up, or composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of
it or of all or any substantial part of its assets in connection with the liquidation or dissolution of the Maker or (iii) similar relief in respect of it under any law providing for the relief
of debtors, and such proceeding or case described in clause (i), (ii) or (iii) shall continue undismissed, or unstayed and in effect, for a period of sixty (60) days or any
order for relief shall be entered in an involuntary case under United States Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of any jurisdiction (foreign or domestic)
against the Maker or action under the laws of any jurisdiction (foreign or domestic) analogous to any of the foregoing shall be taken with respect to the Maker and shall continue undismissed, or
unstayed and in effect for a period of sixty (60) days; or 


        (j)    a
judgment or judgments in the aggregate amount exceeding $100,000 is/are entered against the Maker and not dismissed or discharged within twenty (20) days
following the entry thereof; or 


        (k)   Maker
shall cease to actively conduct its business operations for a period of five (5) consecutive Business Days; or 


        (l)    any
material portion of the properties or assets of the Maker is seized by any governmental authority; or 


        (m)  the
Maker is indicted for the commission of any criminal activity; or 


        (n)   closing
of a purchase, tender or exchange offer made to the holders of more than fifty percent (5 0%) of the outstanding shares of Common Stock in which more than fifty
percent (50%) of the outstanding shares of Common Stock were tendered and accepted. 


        Section 2.2    Remedies Upon An Event of Default.    If an Event of Default shall have occurred and shall be
continuing, the Collateral Agent may at any time at its option (a) declare the entire unpaid principal balance of this Note, together with all interest accrued hereon, plus fees and expenses,
due 


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and
payable, and thereupon, the same shall be accelerated and so due and payable, without presentment, demand, protest, or notice, all of which are hereby expressly unconditionally and irrevocably
waived by the Maker; provided, however, that upon the occurrence of an Event of Default described in Sections 2.1 (h) or (i) above, the outstanding principal balance and accrued
interest hereunder, plus fees and expenses, shall be immediately and automatically due and payable, and/or (b) exercise or otherwise enforce any one or more of the Holder's rights, powers,
privileges, remedies and interests as well as its own rights, powers and remedies under this Note, the Purchase Agreement, the Security Agreement or other Transaction Document or applicable law. No
course of delay on the part of the Holder shall operate as a waiver thereof or otherwise prejudice the right of the Holder. No remedy conferred hereby shall be exclusive of any other remedy referred
to herein or now or hereafter available at law, in equity, by statute or otherwise. Upon and after an Event of Default, this Note shall bear interest at the default rate set forth in
Section 1.2 hereof. 


 
 

ARTICLE III    



 
  CONVERSION; ANTIDILUTION


        Section 3.1    Conversion Option.    At any time and from time to time on or after the Issuance Date, this Note
shall be convertible (in whole or in part), at the option of the Holder (the "Conversion Option"), into such number of fully paid and non-assessable shares of Common Stock (the "Conversion
Rate") as is determined by dividing (x) that portion of the outstanding principal balance plus any accrued but unpaid interest under this Note as of such date that the Holder elects to convert
by (y) the Conversion Price (as defined in Section 3.2 hereof) then in effect on the date on which the Holder delivers a notice of conversion (the "Conversion Notice"), duly executed, to
the Company (the "Voluntary Conversion Date"), provided, however, that the Conversion Price shall be subject to adjustment as described in Section 3.5 below. The Holder shall deliver this Note
to the Company at the address designated in the Purchase Agreement at such time that this Note is fully converted. With respect to partial conversions of this Note, the Company shall keep written
records of the amount of this Note converted as of each Conversion Date. 


        Section 3.2    Conversion Price.    The term "Conversion Price" shall mean $3.00, subject to adjustment under
Section 3.5 hereof (the "Set Price"). 


        Section 3.3    Mechanics
of Conversion. 


        (a)   Not
later than three (3) Trading Days after any Conversion Date, the Company or its designated transfer agent, as applicable, shall issue and deliver to the
Depository Trust Company ("DTC") account on the Holder's behalf via the Deposit Withdrawal Agent Commission System ("DWAC") as specified in the Conversion Notice, registered in the name of the Holder
or its affiliates, for the number of shares of Common Stock to which the Holder shall be entitled. In the alternative, not later than three (3) Trading Days after any Conversion Date, the
Company shall deliver to the applicable Holder by express courier a certificate or certificates which shall be free of restrictive legends and trading restrictions (other than those required by
Section 5.1 of the Purchase Agreement) representing the number of shares of Common Stock being acquired upon the conversion of this Note (the "Delivery
Date"). Notwithstanding the foregoing to the contrary, the Company or its transfer agent shall only be obligated to issue and deliver the shares to the DTC on the Holder's
behalf via DWAC (or certificates free of restrictive legends) if such conversion is in connection with a sale and the Holder has complied with the applicable prospectus delivery requirements (as
evidenced by documentation furnished to and reasonably satisfactory to the Company) or such shares may be sold pursuant to Rule 144 or other exemption under the Securities Act. If in the case
of any Conversion Notice such certificate or certificates are not delivered to or as directed by the applicable Holder by the Delivery Date, the Holder shall be entitled by written notice to the
Company at any time on or before its receipt of such certificate or certificates thereafter, to rescind such conversion, in which event the Company shall immediately return this Note tendered for
conversion, whereupon the Company and 


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the
Holder shall each be restored to their respective positions immediately prior to the delivery of such notice of revocation, except that any amounts described in Sections 3.3(b) and
(c) shall be payable through the date notice of rescission is given to the Company. 



        (b)   The
Company understands that a delay in the delivery of the shares of Common Stock upon conversion of this Note beyond the Delivery Date could result in economic loss to
the Holder. If the Company fails to deliver to the Holder such shares via DWAC (or, if applicable, certificates) by the Delivery Date, the Company shall pay to such Holder, in cash, an amount per
Trading Day for each Trading Day until such shares are delivered via DWAC or certificates are delivered (if applicable), together with interest on such amount at a rate of 10% per annum, accruing
until such amount and any accrued interest thereon is paid in full, equal to the greater of (A) 2% of the aggregate principal amount of the Notes requested to be converted for each Trading Day
and (B) $2,000 per day (which amount shall be paid as liquidated damages and not as a penalty). Nothing herein shall limit a Holder's right to pursue actual damages for the Company's failure to
deliver certificates representing shares of Common Stock upon conversion within the period specified herein and such Holder shall have the right to pursue all remedies available to it at law or in
equity (including, without limitation, a decree of specific performance and/or injunctive relief). Notwithstanding anything to the contrary contained herein, the Holder shall be entitled to withdraw a
Conversion Notice, and upon such withdrawal the Company shall only be obligated to pay the liquidated damages accrued in accordance with this Section 3.3(b) through the date the Conversion
Notice is withdrawn. 


        (c)   In
addition to any other rights available to the Holder, if the Company fails to cause its transfer agent to transmit via DWAC or transmit to the Holder a certificate or
certificates representing the shares of Common Stock issuable upon conversion of this Note on or before the Delivery Date, and if after such date the Holder is required by its broker to purchase (in
an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the shares of Common Stock issuable upon conversion of this Note which the Holder
anticipated receiving upon such conversion (a "Buy-In"), then the Company shall (1) pay in cash to the Holder the amount by which
(x) the Holder's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of shares of Common Stock issuable upon conversion of this Note that the Company was required to deliver to the Holder in connection with the conversion at issue times (B) the price at
which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Note and equivalent number of shares of
Common Stock for which such conversion was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its conversion and
delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of
shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Company shall be required to
pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and
other evidence reasonably requested by the Company. Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to timely deliver certificates representing shares of Common Stock upon conversion of this
Note as required pursuant to the terms hereof. 


        Section 3.4    Ownership Cap and Certain Conversion Restrictions.    


        (a)   Notwithstanding
anything to the contrary set forth in Section 3 of this Note, at no time may the Holder convert all or a portion of this Note if the number of
shares of Common Stock to be issued pursuant to such conversion, when aggregated with all other shares of Common Stock owned by the Holder at such time, would result in the Holder beneficially owning
(as determined in accordance with 


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Section 13(d)
of the Exchange Act and the rules thereunder) in excess of 4.99% of the then issued and outstanding shares of Common Stock outstanding at such time;  provided, however, that upon the Holder providing the
Company with 61 days' prior written notice that the Holder would like to waive
Section 3.4(a) of this Note with regard to any or all shares of Common Stock issuable upon conversion of this Note, this Section 3.4(a) shall be of no force or effect with regard to all
or a portion of the Note referenced in the waiver notice. 



        Section 3.5    Trading Market Regulation.    The Company shall not be obligated to issue any shares of Common
Stock upon conversion of this Note if the issuance of such shares of Common Stock would
exceed the aggregate number of shares of Common Stock which the Company may issue upon conversion or exercise, as applicable, of the Notes, Warrants and additional warrants to purchase up to 875,000
shares of Common Stock issuable to finders and placement agents in connection with transactions contemplated by the Purchase Agreement in the aggregate without breaching the Company's obligations
under the rules or regulations of any applicable Trading Market, except that such limitation shall not apply in the event that the Company (A) obtains the approval of its stockholders as
required by the applicable rules of such Trading Market for issuances of Common Stock in excess of such amount or (B) obtains a written opinion from outside counsel to the Company that such
approval is not required, which opinion shall be reasonably satisfactory to the Holder. 


        Section 3.6    Adjustment of Conversion Price.    


        (a)   Until
the Note has been paid in full or converted in full, the Set Price shall be subject to adjustment from time to time as follows (but shall not be increased, other
than pursuant to Section 3. 5(a)(i) hereof): 



        (i)    Adjustments for Stock Splits and Combinations.    If the Company shall at any time or from time to time after
the date hereof (the "Issuance Date"), effect a stock split of the outstanding Common Stock, the applicable Set Price in effect immediately prior to the stock split shall be proportionately decreased.
If the Company shall at any time or from time to time after the Issuance Date, combine the outstanding shares of Common Stock, the applicable Set Price in effect immediately prior to the combination
shall be proportionately increased. Any adjustments under this Section 3. 5(a)(i) shall be effective at the close of business on the date the stock split or combination occurs. 



        (ii)    Adjustments for Certain Dividends and Distributions.    If the Company shall at any time or from time to time
after the Issuance Date, make or become irrevocably obligated to issue the holders of Common Stock a dividend or other distribution payable in shares of Common Stock, then, and in each event, the
applicable Set Price in effect immediately prior to such event shall be decreased as of the time of such issuance or, in the event a record date shall have been fixed, as of the close of business on
such record date, by multiplying, the applicable Set Price then in effect by a fraction: 



        (1)   the
numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business
on such record date; and 


        (2)   the
denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution. 




        (iii)    Adjustment for Other Dividends and Distributions.    If the Company shall at any time or from time to time
after the Issuance Date, make or become irrevocably obligated to issue the holders of its Common Stock a dividend or other distribution payable in other than shares of Common Stock, then, and in each
event, an appropriate revision to the applicable Set Price shall be made and provision shall be made (by adjustments of the Set Price or otherwise) so that the 



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holders
of this Note shall receive upon conversions thereof, in addition to the number of shares of Common Stock receivable thereon, the number of securities of the Company or other issuer (as
applicable) which they would have received had this Note been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including
the Conversion Date, retained such securities (together with any distributions payable thereon during such period), giving application to all adjustments called for during such period under this
Section 3 .5(a)(iii) with respect to the rights of the holders of this Note; provided, however, that if a record date shall have been fixed and
such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Set Price shall be adjusted pursuant to this paragraph as of the time of actual payment of
such dividends or distributions. 


        (iv)    Adjustments for Reclassification, Exchange or Substitution.    If the Common Stock issuable upon conversion of
this Note at any time or from time to time after the Issuance Date shall be changed to the same or different number of shares of any class or classes of stock, whether by reclassification, exchange,
substitution or otherwise (other than by way of a stock split or combination of shares or stock dividends provided for in Sections 3.5(a)(i), (ii) and (iii), or a reorganization, merger,
consolidation, or sale of assets provided for in Section 3.5(a)(v)), then, and in each event, an appropriate revision to the Set Price shall be made and provisions shall be made (by adjustments
of the Set Price or otherwise) so that the Holder shall have the right thereafter to convert this Note into the kind and amount of shares of stock and other securities receivable upon
reclassification, exchange, substitution or other change, by holders of the number of shares of Common Stock into which such Note might have been converted immediately prior to such reclassification,
exchange, substitution or other change, all subject to further adjustment as provided herein. 


        (v)    Adjustments for Reorganization, Merger, Consolidation or Sales of Assets.    If at any time or from time to
time after the Issuance Date there shall be a capital reorganization of the Company (other than by way of a stock split or combination of shares or stock dividends or distributions provided for in
Section 3.5(a)(i), (ii) and (iii), or a reclassification, exchange or substitution of shares provided for in Section 3. 5(a)(iv)), or a merger or consolidation of the Company with
or into another Person where the holders of outstanding voting securities prior to such merger or consolidation do not own over fifty percent (50%) of the outstanding voting securities of the merged
or consolidated entity, immediately after such merger or consolidation, or the sale of all or substantially all of the Company's properties or assets to any other Person (an
"Organic Change"), then as a part of such Organic Change, (A) if the surviving entity in any such Organic Change is a public company the traded
equity securities of which are registered pursuant to the Securities Exchange Act of 1934, as amended, and such securities are listed or quoted on a national securities exchange (as defined in the
Securities Exchange Act of 1934) or the OTC Bulletin Board, an appropriate revision to the Set Price shall be made and provision shall be made (by adjustments of the Set Price or otherwise) so that
the Holder shall have the right thereafter to convert such Note into the kind and amount of shares of stock and other securities or property of the Company or any successor corporation resulting from
Organic Change, and (B) if the
surviving entity in any such Organic Change is not such a public company, or its equity securities are not listed or quoted on a national securities exchange or the OTC Bulletin Board, the Holder
shall have the right to demand prepayment pursuant to Section 1.3(b) hereof. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3
..5(a)(v) with respect to the rights of the Holder after the Organic Change to the end that the provisions of this Section 3.5(a)(v) (including any adjustment in the applicable Set Price then in
effect and the number of shares of stock or other securities deliverable upon conversion of this Note) shall be applied after that event in as nearly an equivalent manner as may be practicable. 



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        (d)    No Impairment.    The Company shall not, by amendment of its Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Company, but will at all times in good faith, assist in the carrying out of all the provisions of this Section 3.5 and in the taking of all
such action as may be necessary or appropriate in order to protect the Conversion Rights of the Holder against impairment. In the event the Holder shall elect to convert the Note as provided herein,
the Company cannot refuse conversion based on any claim that the Holder or any one associated or affiliated with the Holder has been engaged in any violation of law, violation of an agreement to which
the Holder is a party or for any reason whatsoever, unless, an injunction from a court, or notice, restraining and or adjoining conversion of the Note shall have issued and the Company posts a surety
bond for the benefit of the Holder in an amount equal to one hundred fifty percent (150%) of the amount of the Notes, which bond shall remain in effect until the completion of arbitration/litigation
of the dispute and the proceeds of which shall be payable to the Holder (as liquidated damages) in the event it obtains judgment. 



        (e)    Certificates as to Adjustments.    Upon occurrence of each adjustment or readjustment of the Conversion Price
or number of shares of Common Stock issuable upon conversion of this Note pursuant to this Section 3.5, the Company at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to the Holder a certificate setting forth such adjustment and readjustment, showing in detail the facts upon which such adjustment or readjustment is
based. The Company shall, upon written request of the Holder, at any time, furnish or cause to be furnished to the Holder a like certificate setting forth such adjustments and readjustments, the
applicable Conversion Price in effect at the time, and the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon the
conversion of this Note. Notwithstanding the foregoing, the Company shall not be obligated to deliver a certificate unless such certificate would reflect an increase or decrease of at least one
percent (1%) of such adjusted amount. 


        (f)    Issue Taxes.    The Company shall pay any and all issue and other taxes, excluding federal, state or local
income taxes, that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of this Note pursuant thereto; provided,
however, that the Company shall not be obligated to
pay any transfer taxes resulting from any transfer requested by the Holder in connection with any such conversion. 


        (g)    Fractional Shares.    No fractional shares of Common Stock shall be issued upon conversion of this Note. In
lieu of any fractional shares to which the Holder would otherwise be entitled, the Company shall pay cash equal to the product of such fraction multiplied by the average of the Closing Bid Prices of
the Common Stock for the five (5) consecutive Trading Days immediately preceding the Conversion Date. 



        (h)    Reservation of Common Stock.    The Company shall at all times when this Note shall be outstanding, reserve and
keep available out of its authorized but unissued Common Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of this Note and all interest
accrued thereon; provided that the number of shares of Common Stock so reserved shall at no time be less than one hundred fifty percent (150%) of the
number of shares of Common Stock for which this Note and all interest accrued thereon are at any time convertible. The Company shall, from time to time in accordance with Delaware law, increase the
authorized number of shares of Common Stock if at any time the unissued number of authorized shares shall not be sufficient to satisfy the Company's obligations under this Section 3.5(h). 


        (i)    Regulatory Compliance.    If any shares of Common Stock to be reserved for the purpose of conversion of this
Note or any interest accrued thereon require registration or listing with or approval 


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of
any governmental authority, stock exchange or other regulatory body under any federal or state law or regulation or otherwise before such shares may be validly issued or delivered upon conversion,
the Company shall, at its sole cost and expense, in good faith and as expeditiously as possible, endeavor to secure such registration, listing or approval, as the case may be. 


 
 

ARTICLE IV    



 
  MISCELLANEOUS


        Section 4.1    Notices.    Any notice, demand, request, waiver or other communication required or permitted to
be given hereunder shall be in writing and shall be effective (a) upon hand delivery, telecopy or facsimile at the address or number designated in the Purchase Agreement (if delivered on a
Business Day during normal business hours where such notice is to be received), or the first Business Day following such delivery (if delivered other than on a Business Day during normal business
hours where such notice is to be received) or (b) on the second Business Day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. 


        Section 4.2    Governing Law.    This Note shall be governed by and construed in accordance with the internal
laws of the State of New York, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction. This Note shall not
be interpreted or construed with any presumption against the party causing this Note to be drafted. 



        Section 4.3    Headings.    Article and section headings in this Note are included herein for purposes of
convenience of reference only and shall not constitute a part of this Note for any other purpose. 


        Section 4.4    Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief.    The remedies
provided in this Note shall be cumulative and in addition to all other remedies available under this Note, at law or in equity (including, without limitation, a decree of specific performance and/or
other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a holder's right to pursue
actual damages for any failure by the Maker to comply with the terms of this Note. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Maker (or the performance thereof). The
Maker acknowledges that a breach by it of its obligations hereunder will cause irreparable and material harm to the Holder and that the remedy at law for any such breach may be inadequate. Therefore
the Maker agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available rights and remedies, at law or in equity, to seek and
obtain such equitable relief, including but not limited to an injunction restraining any such breach or threatened breach, without the necessity of showing economic loss and without any bond or other
security being required. 


        Section 4.5    Enforcement Expenses.    The Maker agrees to pay all costs and expenses incurred from time to
time by the Holder with respect to any modification, consent or waiver of the provisions of this Note or
the Transaction Documents and any enforcement of this Note and the Transaction Documents, including, without limitation, reasonable attorneys' fees and expenses. 



        Section 4.6    Amendments.    


        (a)   This
Note may not be modified or amended in any manner except in writing executed by the Maker and the Holder. 


        (b)   To
the extent that amendments to this Note are required in connection with the filing of a listing application with the American Stock Exchange in connection with the
transactions contemplated 


9







 



hereby,
the Maker and the Holder shall cooperate in good faith to reach mutually acceptable resolutions with regard to such amendments, without penalty; provided that the Holder has, in its sole
discretion, determined such amendments to be advisable. 


        Section 4.7    Compliance with Securities Laws.    


        (a)   The
Holder of this Note acknowledges that this Note is being acquired solely for the Holder's own account and not as a nominee for any other party, and for investment,
and that the Holder shall not offer, sell or otherwise dispose of this Note except in accordance with applicable law. 



        (b)   The
Holder is an "accredited investor" (as defined in Rule 501 of Regulation D under the Securities Act), and such Holder has such experience in business
and financial matters that it is capable of evaluating the merits and risks of an investment in the Securities. The Holder is not required to be registered as a broker-dealer under Section 15
of the Exchange Act and it is not a broker-dealer. The Holder acknowledges that an investment in the Securities is speculative and involves a high degree of risk. 


        Section 4.8    Consent to Jurisdiction.    Each of the Maker and the Holder (i) hereby irrevocably
submits to the exclusive jurisdiction of the United States District Court sitting in the Southern District of New York and the courts of the State of New York located in New York county for the
purposes of any suit, action or proceeding arising out of or relating to this Note and (ii) hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. Each
of the Maker and the Holder consents to process being served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address in effect for notices to it under the Purchase Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in
this Section 3.8 shall affect or limit any right to serve process in any other manner permitted by law. 


        Section 4.9    Binding Effect.    This Note shall be binding upon, inure to the benefit of and be enforceable
by the Maker, the Holder and their respective successors and permitted assigns. The Maker shall not delegate or transfer this Note or any obligations or undertakings contained in this Note. 



        Section 4.10    Failure or Indulgence Not Waiver.    No failure or delay on the part of the Holder in the
exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise
thereof or of any other right, power or privilege. 


        Section 4.11    Maker Waivers; Dispute Resolution.    



        (a)   Except
as otherwise specifically provided herein, the Maker and all others that may become liable for all or any part of the obligations evidenced by this Note, hereby
waive presentment, demand, notice of nonpayment, protest and all other demands' and notices in connection with the delivery, acceptance, performance and enforcement of this Note, and do hereby consent
to any number of renewals of extensions of the time or payment hereof and agree that any such renewals or extensions may be made without notice to any such persons and without affecting their
liability herein and do further consent to the release of any person liable hereon, all without affecting the liability of the other persons, firms or Maker liable for the payment of this Note, AND DO
HEREBY WAIVE TRIAL BY JURY. 


        (b)   No
delay or omission on the part of the Holder in exercising its rights under this Note, or course of conduct relating hereto, shall operate as a waiver of such rights
or any other right of the Holder, nor shall any waiver by the Holder of any such right or rights on any one occasion be deemed a waiver of the same right or rights on any future occasion. 


10







 

        (c)   THE
MAKER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICABLE LAW, HEREBY WAIVES ITS
RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO USE. 


        Section 4.12    Definitions.    Terms used herein and not defined shall have the meanings set forth in the
Purchase Agreement. For the purposes hereof, the following terms shall have the following meanings: 



        "Business Day" (whether or not capitalized) shall mean any day banking transactions can be conducted in New York City, NY, USA and does
not include any day which is a federal or state holiday in such location. 


        "Closing Bid Price" means, on any particular date (i) the last trading price per share of the Common Stock on such date on the OTC
Bulletin Board or another registered national securities exchange on which the Common Stock is then listed, or if there is no such price on such date, then the last trading price on such exchange or
quotation system on the date nearest preceding such date, or (ii) if the Common Stock is not then listed or traded on a registered national securities exchange or quoted on the OTC Bulletin
Board, then the average of the "Pink Sheet" quotes for the relevant conversion period, as determined in good faith by the Holder, or (iii) if the Common Stock is not then publicly traded the
fair market value of a share of Common Stock as determined by the Holder and reasonably acceptable to the Maker. 


        "Common Stock" means shares of common stock, par value $0.00 1 per share, of the Company. 


        "Company" means Commerce Energy Group, Inc., a Delaware corporation. 


        "Person" means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind. 


        "Trading Day" means (a) a day on which the Common Stock is traded on the OTC Bulletin Board or a registered national securities
exchange, or (b) if the Common Stock is not traded on the OTC Bulletin Board or a registered national securities exchange, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding its functions of reporting prices);  provided, however, that in the
event that the Common Stock is not listed or quoted as set forth in (a) or (b) hereof, then Trading Day
shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other
government action to close. 


        "Trading Market" means the Over the Counter Bulletin Board, the New York Stock Exchange, the Nasdaq Capital Markets, the Nasdaq Global
Markets, the Nasdaq Global Select Market or the American Stock Exchange. 


        "Transaction Documents" means this Note, the Purchase Agreement, the Security Agreement, and all other security documents or related
agreements now or hereafter entered into in connection with and/or as security for this Note and all amendments and supplements thereto and replacements thereof and any other Transaction Document (as
that term is defined in the Purchase Agreement). 


 
 

  [Signature appears on following page]


11









 



































  
        IN WITNESS WHEREOF, each Maker has caused this Note to be duly executed by its duly authorized officer as of the date first above
indicated. 



					
	 
	 	 COMMERCE ENERGY, INC,
	 
	 	 By:
	 	 /s/ Gregory L. Craig








 
	 
	 	Name:	 	Gregory L. Craig
	 
	 	Title:	 	President and Chief Executive Officer
	 
	 	  COMMERCE ENERGY GROUP, INC.

	 
	 	 By:
	 	 /s/ Gregory L. Craig








 
	 
	 	Name:	 	Gregory L. Craig
	 
	 	Title:	 	Chief Executive Officer





S-1













































 
EXHIBIT A

WIRE INSTRUCTIONS 


 Wire instructions for AP Finance, LLC  



			
	Bank:	 	Commerce Bank
	
ABA#:	
 	
[*]
	
Account Name:	
 	
AP Finance, LLC
	
Account Number:	
 	
[*]





           



EXHIBIT B



           




           




           




[*]=Information
redacted pursuant to a confidential treatment request. Such outlined information has been filed separately with the Securities and Exchange Commission. 







EXHIBIT B



FORM
OF 


NOTICE
OF CONVERSION 


(To
be Executed by the Registered Holder in order to Convert the Note) 


        The
undersigned hereby irrevocably elects to convert $                        of the principal amount of the above Note
No.             into shares of Common Stock of Commerce Energy
Group, Inc. (the "Maker") according to the conditions hereof, as of the date written below. 



			
	Date of Conversion	 	  







 





			
	
 Applicable Conversion Price	
 	
 







 





			
	
Number of shares of Common Stock beneficially owned or deemed beneficially owned by the
	Holder on the Date of Conversion:	 	  







 





			
	
 Signature	
 	
 







 
	 	 	[Name]





			
	
 Address:	
 	
 







 




EXHIBIT B












QuickLinks



Exhibit 10.121


SENIOR SECURED CONVERTIBLE PROMISSORY NOTE

ARTICLE I

ARTICLE II

EVENTS OF DEFAULT; REMEDIES

ARTICLE III

CONVERSION; ANTIDILUTION


ARTICLE IV

MISCELLANEOUS

[ Signature appears on following page ]