-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VHmkY2yVb1cmF937+1TsfJT2ROWvx1vI4Bz/l1Rj5SPiux+mQ1zBouMohKAL/CRF pqiCYOIUYWPiAHzHlgXtew== 0001104659-08-076077.txt : 20081212 0001104659-08-076077.hdr.sgml : 20081212 20081212060234 ACCESSION NUMBER: 0001104659-08-076077 CONFORMED SUBMISSION TYPE: DEFA14A PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20081212 DATE AS OF CHANGE: 20081212 EFFECTIVENESS DATE: 20081212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMERCE ENERGY GROUP, INC. CENTRAL INDEX KEY: 0001274150 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 200501090 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: DEFA14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-32239 FILM NUMBER: 081244797 BUSINESS ADDRESS: STREET 1: 600 ANTON BOULEVARD, STE. 2000 CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: (714) 259-2500 MAIL ADDRESS: STREET 1: 600 ANTON BOULDVARD, STE. 2000 CITY: COSTA MESA STATE: CA ZIP: 92626 FORMER COMPANY: FORMER CONFORMED NAME: COMMERCE ENERGY GROUP INC DATE OF NAME CHANGE: 20040223 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN ENERGY GROUP INC DATE OF NAME CHANGE: 20031222 DEFA14A 1 a08-30253_18k.htm DEFA14A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 11, 2008

COMMERCE ENERGY GROUP, INC.

(Exact Name of registrant as specified in its charter)

Delaware	001-32239	20-0501090
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

600 Anton Blvd., Suite 2000 Costa Mesa, California		92626
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (714) 259-2500

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

x Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2 (b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01. Entry into a Material Definitive Agreement

As Commerce Energy Group, Inc. (the “Company”) has previously disclosed in its filings with the Securities and Exchange Commission (“SEC”): (i) the Company entered into a Note and Warrant Purchase Agreement dated as of August 21, 2008 (as amended, the “Purchase Agreement”) with AP Finance, LLC, a Delaware limited liability company (“AP Finance”), whereby AP Finance agreed to purchase one or more secured promissory notes from the Company and Commerce Energy, Inc., a California corporation and wholly owned subsidiary of the Company (“Commerce”); (ii) pursuant to the terms and conditions of the Purchase Agreement, on August 21, 2008 and August 22, 2008, the Company and Commerce issued to AP Finance two Senior Secured Convertible Promissory Notes in the principal amounts of $20,931,579 and $2,225,410.98, respectively (the “Notes”); (iii) pursuant to the terms of the Security Agreement dated August 21, 2008 among the Company, Commerce and AP Finance (the “Security Agreement”), the Company’s and Commerce’s obligations under the Purchase Agreement and the Notes are secured by substantially all of the assets of the Company and Commerce, including, but not limited to, all of the Company’s shares of stock in Commerce; (iv) AP Finance’s security interest in substantially all of the assets of the Company and Commerce is subordinated to the senior security interest the Company and Commerce granted in favor of Wachovia Capital Finance Corporation (Western) (“Wachovia”) pursuant to the Loan and Security Agreement dated as of June 8, 2006 among the Company, Commerce and Wachovia (as amended, the “Credit Facility”); (v) on October 27, 2008, the Company and Commerce issued to AP Finance a Discretionary Line of Credit Demand Note (the “Demand Note”) in the principal amount of $6.0 million pursuant to the Purchase Agreement; and (vi) the Notes, the Credit Facility and the Demand Note all mature on December 22, 2008 (if, in the case of the Demand Note, not demanded sooner).

On December 11, 2008, AP Finance and Commerce Gas and Electric Corp., a Delaware corporation and wholly owned subsidiary of Universal Energy Group Ltd. (“CG&E”), notified the Company in writing that: (i) AP Finance had sold its interest in the Notes to CG&E; (ii) Wachovia had assigned all of its and the other lenders’ interests under the Credit Facility to AP Finance and CG&E; and (iii) AP Finance and CG&E made a demand under the Demand Note and notified us that a default exists under the Purchase Agreement and the Security Agreement, for which as a result an event of default exists under the Purchase Agreement, the Notes, the Demand Note and the Credit Facility, making all of the Company’s and Commerce’s obligations under the Purchase Agreement, the Notes, the Demand Note, the Security Agreement and the Credit Facility (the “Secured Debt”) immediately due and payable.

On December 11, 2008, AP Finance and CG&E proposed, under Section 9-620 of the Uniform Commercial Code (the “UCC”) as in effect in the State of New York, to accept all shares of common stock in Commerce and certain other securities held by the Company in satisfaction of the Company’s liabilities and obligations with respect to the Secured Debt pursuant to the terms and conditions of the Acceptance Agreement, as defined below (the “Consensual Foreclosure”).

The Company had the right not to consent to, and thereby delay, the Consensual Foreclosure. The Company recognized, however, that this delay would likely not prevent a foreclosure. To induce the Company to accept the Consensual Foreclosure, AP Finance and CG&E agreed to allow Commerce to pay a dividend to the Company in the aggregate amount of $3.1 million and to confirm it would satisfy certain liabilities. The Company’s board of directors determined that, as a result of the proposed Consensual Foreclosure and the dividend to be paid to the Company by Commerce, the Company would be able to assure that trade creditors would be paid by Commerce in the ordinary course of business and the Company would be able to make a cash distribution to its shareholders in the aggregate amount of $2,614,780, after providing for all known or reasonably foreseeable obligations of the Company. This distribution was comprised of a dividend on shares of the Company’s common stock in the amount of $0.084 per share and a redemption of all of the outstanding rights under the Company’s Shareholders Rights Agreement dated July 1, 2004 at a price of $0.001 per right. The record date for the dividend was set at December 11, 2008.

After careful consideration, the Company’s board of directors determined that the Consensual Foreclosure is fair and in the best interests of the Company and its shareholders. In reaching its determination, the Company’s board of directors considered, among other factors: (i) the Company’s inability, in light of the global credit crisis and the losses that the Company has faced during the fiscal year ended July 31, 2008, to secure replacement financing to repay or refinance the Secured Debt in a manner that the Company and its business could sustain or to enter into another strategic transaction that would have allowed the Company and Commerce to continue operations; (iii) the inability of the Company to obtain debtor-in-possession financing necessary for a

bankruptcy and the likelihood that such a bankruptcy would not result in value for the stockholders; (iv) the likelihood that an involuntary foreclosure or a voluntary or involuntary liquidation would not result in money being returned to the Company’s shareholders; (vi) the ability of the Company to make a distribution to its stockholders of $2,614,780 as a result of the Consensual Foreclosure; (vii) the ability of Commerce to continue in business as a subsidiary of CG&E, which would benefit its suppliers, customers and employees; and (viii) the board of directors’ receipt of an opinion of The Mentor Group, financial advisor to the Company, that the Consensual Foreclosure is fair, from a financial point of view, to the Company and its shareholders. Therefore, on December 11, 2008, the Company consented to the Consensual Foreclosure pursuant to the terns and conditions of an acceptance agreement dated as of December 11, 2008 among the Company, AP Finance and CG&E (the “Acceptance Agreement”).

Pursuant to the terms and conditions of the Acceptance Agreement, AP Finance and CG&E have: (i) consented to Commerce having paid the Company a $3.1 million dividend immediately prior to the delivery of the Acceptance Agreement; (ii) consented to Commerce’s assumption of certain liabilities and obligations of the Company identified in an assumption letter dated December 11, 2008 between the Company and Commerce (the “Assumption Letter”), including, but not limited to, all liabilities and obligations of the Company under the employment agreements between the Company and its executive officers (including any severance obligations thereunder); (iii) agreed to indemnify the Company and its officers, directors, employees, agents and representatives from liabilities arising from any breach by Commerce of its obligations under the Assumption Letter; (iv) released the Company from any and all liabilities and obligations with respect to the Secured Debt; and (v) cancelled all warrants to acquire shares of common stock of the Company held by AP Finance.

As a result of the consummation of the Consensual Foreclosure, the Company ceased all operations and Commerce now operates as a subsidiary of CG&E. The Company intends to call and hold a special meeting of its shareholders, at which the Company’s shareholders will be asked to consider and approve the dissolution of the Company.

There are no material relationships, other than with respect to the Purchase Agreement, the Notes, the Demand Note, the Credit Facility and the Amendments to the Employment Agreements between the Company and Messrs. Craig, Fallquist, Mitchell, Bomgardner and Yi which have been assumed by Commerce and are discussed in Item 5.02(e) herein, between the Company and its directors, officers (or any associate of any such director or officer) or affiliates, on the one side, and AP Finance or CG&E and their respective directors, officers (or any associate of any such directors or officers) or affiliates, on the other side. The information set forth under Item 5.02(e) of this Current Report on Form 8-K is hereby incorporated into this Item 1.01.

The foregoing description of the Acceptance Agreement and the Assumption Letter are qualified in their entirety by the full texts of the Acceptance Agreement and the Assumption Letter, copies of which are filed as Exhibits 99.1 and 99.2, respectively, to this Current Report on Form 8-K.

Item 1.02 Termination of a Material Definitive Agreement

The Information set forth under Item 1.01 of this Current Report on Form 8-K is hereby incorporated by reference into this Item 1.02.

Under the terms of the Acceptance Agreement, all of the Company’s obligations under the Purchase Agreement, the Notes, the Demand Note, the Security Agreement, the Credit Facility, and the warrants previously issued to AP Finance terminated on December 11, 2008.

Additionally, on December 11, 2008, Jesup & Lamont Incorporated (“Jesup”), Bill Corbett (“Corbett”) and the Lee E. Mikles Revocable Trust (“Mikles”) agreed to the cancellation of warrants exercisable for an aggregate of 875,000 shares of the Company’s common stock issued by the Company to Jesup, Corbett and Mikles for services rendered in connection with the sale of the Notes.

Effective December 11, 2008, the Board of Directors of the Company authorized the redemption of all of the outstanding Rights under the Company’s Shareholders Rights Agreement dated July 1, 2004 (the “Rights Plan”) at a redemption price of $0.001 per right. The result of this redemption is to effectively terminate the Rights Plan. In connection with the contemplated dissolution of the Company, the Company’s board of directors also terminated the Amended and Restated 2005 Employee Stock Purchase Plan, effective upon the consummation of the Consensual Foreclosure, and the Commonwealth Energy Corporation 1999 Equity Incentive Plan, as amended, and the Amended and Restated Commerce Energy Group, Inc. 2006 Stock Incentive Plan, effective upon the dissolution of the Company.

There are no material relationships, other than with respect to the cancelled warrants, between the Company and its directors, officers (or any associate of any such director or officer) or affiliates, on the one side, and Jesup, Corbett and Mikles and their respective affiliates, on the other side.

Item 2.01. Completion of Acquisition or Disposition of Assets

The Information set forth under Item 1.01 of this Current Report on Form 8-K is hereby incorporated by reference into this Item 2.01.

On December 11, 2008, in connection with the completion of the Consensual Foreclosure described in Item 1.01 of this Current Report on Form 8-K and pursuant to the terms and conditions of the Acceptance Agreement, the Company accepted the foreclosure of all its interest in the common stock in Commerce, and certain other securities, and agreed to the agreements of AP Finance and CG&E contained in the Acceptance Agreement, including the satisfaction of the Company’s liabilities and obligations with respect to the Secured Debt under Section 9-620 of the UCC as in effect in the State of New York.

As a result of the consummation of the Consensual Foreclosure, the Company has ceased all operations and the Company intends to call and hold a special meeting of its shareholders at which the Company’s shareholders will be asked to consider and approve the dissolution of the Company.

There are no material relationships, other than with respect to the Acceptance Agreement, the Secured Debt and the cancelled warrants, between the Company and its directors, officers (or any associate of any such director or officer) or affiliates, on the one side, and AP Finance or CG&E and their respective directors, officers (or any associate of any such directors or officers) or affiliates, on the other side.

The foregoing description of the Acceptance Agreement is qualified in its entirety by the full text of the Acceptance Agreement, a copy of which is filed as Exhibit 99.1 to this Current Report on Form 8-K.

Item 2.04 Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement

(a) The Information set forth under Item 1.01 of this Current Report on Form 8-K is hereby incorporated by reference into this Item 2.04.

On December 11, 2008, AP Finance and CG&E made a demand under the Demand Note and notified us that a default exists under the Purchase Agreement and the Security Agreement, for which as a result an event of default exists under the Purchase Agreement, the Notes, the Demand Note and the Credit Facility, making all of the Company’s and Commerce’s obligations under the Purchase Agreement, the Notes, the Demand Note, the Security Agreement and the Credit Facility (the “Secured Debt”) immediately due and payable in the aggregate amount of $28,743,144.

On December 11, 2008, AP Finance and CG&E proposed, under Section 9-620 of the UCC as in effect in the State of New York, to accept all shares of stock in Commerce and certain other securities held by the Company in satisfaction of the Company’s liabilities and obligations with respect to the Secured Debt pursuant to the terms and conditions of the Acceptance Agreement (the “Consensual Foreclosure”).

Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing

(d) In connection with the Consensual Foreclosure, the Company’s board of directors determined to initiate the withdrawal of the Company’s shares from the NYSE Alternext US, previously known as the American Stock Exchange (the “Exchange”). The Company is in the process of submitting a letter to the Exchange requesting the withdrawal of its shares of common stock from the Exchange. The Company also intends to file a Form 25 with the Securities and Exchange Commission regarding its withdrawal from the Exchange. The Company has ceased all operations and intends to call and hold a special meeting to seek stockholder approval to dissolve the Company. The Company also will not be in compliance with Section 1003 (a)(i) and Section 1003 (c)(i) of the Exchange’s continued listing standards.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

(b) On December 11, 2008, Gregory L. Craig resigned as Chief Executive Officer and as a director of the Company and a director of Commerce. Mr. Craig’s resignation as a director of the Company and as a director of Commerce was effective upon the consummation of the Consensual Foreclosure. Mr. Craig’s resignation as Chief Executive Officer of the Company shall become effective immediately following the filing of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2008 with the SEC.

Also on December 11, 2008: Michael J. Fallquist resigned as Chief Operating Officer of the Company and as a director of Commerce; John H. Bomgardner, II resigned as Senior Vice President and General Counsel of the Company; and David Yi resigned as Chief Risk Officer of the Company. The resignations of Messrs. Fallquist, Bomgardner and Yi were effective upon the consummation of the Consensual Foreclosure. Following the effectiveness of Mr. Craig’s resignation, Mr. Mitchell, as Chief Financial Officer and Secretary of the Company, will be the sole remaining officer of the Company. So long as Mr. Mitchell is employed by Commerce, Mr. Mitchell shall not receive separate compensation for his services as Chief Financial Officer and Secretary of the Company. If Mr. Mitchell is no longer employed by Commerce, however, Mr. Mitchell shall receive from the Company cash compensation equal to $275 per hour for hours actually worked in connection with his role as the Company’s Chief Financial Officer and Secretary.

In addition, on December 11, 2008, Charles E. Bayless, Gary J. Hessenauer, Mark S. Juergensen, Dennis R. Leibel and Robert C. Perkins resigned as directors of the Company, effective upon the consummation of the Consensual Foreclosure. Mr. Juergensen also resigned as a director of Commerce effective upon the consummation of the Consensual Foreclosure. Rohn E. Crabtree, an independent Class I director of the Company remains the sole director of the Company, the sole member of the Audit Committee and was named Chairman of the Board. It is the intention of Mr. Crabtree to serve through the winding up stage of the Company. The Company’s board of directors determined that Mr. Crabtree shall receive a cash retainer of $8,000 per quarter for his continued service as a director, a member of the Audit Committee and Chairman of the Board, which cash retainer shall be in lieu of any and all other compensation (cash or otherwise) to which Mr. Crabtree would have been entitled under the Company’s compensation policies applicable to non-employee directors.

(e) On December 11, 2008, the Company entered into amendments (collectively, the “Employment Agreement Amendments”) to the following employment agreements between the Company and its executive officers after being approved by the Compensation Committee of the Company’s Board of Directors (collectively, the “Employment Agreements”): the employment agreement dated as of February 20, 2008 between the Company and Gregory L. Craig; the employment agreement dated as of March 10, 2008 between the Company and Michael J. Fallquist; the employment letter agreement dated as of July 10, 2008 between the Company and C. Douglas

Mitchell; and the employment letter agreement dated as of July 18, 2008 between the Company and John H. Bomgardner, II.

Among other things, the Employment Agreement Amendments, which became effective immediately prior to the consummation of the Consensual Foreclosure described in Item 1.01 of this Current Report on Form 8-K: (i) assign the Employment Agreements and all liabilities and obligations of the Company thereunder, including but not limited to liabilities relating to severance, to Commerce; (ii) fix the term of employment with Commerce for the respective executives at one month following the consummation of the Consensual Foreclosure; (iii) provide for severance in an amount equal to eight months of salary continuation and eight months reimbursement of insurance premiums relating to continued health coverage; and (iv) except in the case of Mr. Mitchell, whose 66,667 remaining shares of unvested restricted stock vested in full upon the consummation of the Consensual Foreclosure, terminate any further vesting of stock options or shares of restricted stock previously granted to the respective executives. The Employment Agreement Amendments deleted the existing termination provisions in the Employment Agreements including the Change in Control provisions and replaced them with the provisions noted above.

Copies of the Employment Agreement Amendments for Messrs. Craig, Fallquist, Bomgardner and Mitchell are attached hereto as Exhibits 99.3, 99.4, 99.5 and 99.6, respectively.

Additionally, effective December 11, 2008, the Compensation Committee of the Company’s Board of Directors approved a retention agreement between the Company and David Yi, an officer, but not a named executive officer, of the Company (the “Retention Agreement”) dated as of December 8, 2008. The Retention Agreement, which became effective immediately prior to the consummation of the Consensual Foreclosure, provides that Mr. Yi shall be entitled to a bonus of $50,000 if he remains employed by Commerce and satisfies certain conditions during the 120 days immediately following the Consensual Foreclosure.

The Employment Agreements, as amended by the Employment Agreement Amendments, and the Retention Agreement were assigned to, and assumed by, Commerce in connection with the Consensual Foreclosure.

Item 7.01 Regulation FD Disclosure

On December 11, 2008, the Company issued a press release announcing that the Consensual Foreclosure was completed, describing the other transactions related thereto, disclosing the declaration of a cash dividend and the redemption of the rights issued pursuant to the Rights Agreement and also disclosing other actions disclosed in this Current Report on Form 8-K. A copy of the press release dated December 11, 2008 is being furnished as Exhibit 99.7 to this Current Report on Form 8-K.

Item 8.01. Other Events

On December 11, 2008, the Company’s board of directors declared a dividend of $0.084 per share on shares of the Company’s common stock payable to holders of record as of the close of business on December 11, 2008. Additionally, on December 11, 2008, the Company took action to redeem all outstanding rights under the Rights Agreement dated as of July 1, 2004 between the Company and Computershare Trust Company, as rights agent. The Company has delivered the aggregate amount of the distribution to its payment agent with irrevocable instructions to make distributions to the Company’s shareholders as soon as practical. The distribution is expected to be made to shareholders during the week of December 15, 2008.

Item 9.01. Financial Statements and Exhibits

(b) Pro Forma Financial Information

The pro forma financial information related to the disposition described in Item 2.01 above is included for the fiscal year ended July 31, 2008, and furnished with this Current Report on Form 8-K on pages F-1 through F-3 herein. The information being furnished pursuant to this Item 9.01(b) and set forth on pages F-1 through F-3 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.

(d) Exhibits

Exhibit No.		Description

99.1		Acceptance Agreement dated as of December 11, 2008 among Commerce Energy Group, Inc., AP Finance, LLC and Commerce Gas and Electric Corp.

99.2		Assumption Letter dated as of December 11, 2008 between Commerce Energy Group, Inc. and Commerce Energy, Inc.

99.3		Amendment to Employment Agreement dated December 11, 2008 between Commerce Energy Group, Inc. and Gregory L. Craig.

99.4		Amendment to Employment Agreement dated December 11, 2008 between Commerce Energy Group, Inc. and Michael J. Fallquist.

99.5		Amendment to Employment Letter Agreement dated December 11, 2008 between Commerce Energy, Inc. and C. Douglas Mitchell.

99.6		Amendment to Employment Letter Agreement dated December 11, 2008 between Commerce Energy, Inc. and John H. Bomgardner.

99.7		Press Release of Commerce Energy Group, Inc. dated December 11, 2008

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, Commerce Energy Group, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	COMMERCE ENERGY GROUP, INC. a Delaware corporation

Date: December 11, 2008	By:	/s/ C. DOUGLAS MITCHELL
		C. Douglas Mitchell
		Chief Financial Officer

EXHIBIT INDEX

Exhibit No.		Description

99.1		Acceptance Agreement dated as of December 11, 2008 among Commerce Energy Group, Inc., AP Finance, LLC and Commerce Gas and Electric Corp.

99.2		Assumption Letter dated as of December 11, 2008 between Commerce Energy Group, Inc. and Commerce Energy, Inc.

99.3		Amendment to Employment Agreement dated December 11, 2008 between Commerce Energy Group, Inc. and Gregory L. Craig.

99.4		Amendment to Employment Agreement dated December 11, 2008 between Commerce Energy Group, Inc. and Michael J. Fallquist.

99.5		Amendment to Employment Letter Agreement dated December 11, 2008 between Commerce Energy, Inc. and C. Douglas Mitchell.

99.6		Amendment to Employment Letter Agreement dated December 11, 2008 between Commerce Energy, Inc. and John H. Bomgardner.

99.7		Press Release of Commerce Energy Group, Inc. dated December 11, 2008

EX-99.1 2 a08-30253_1ex99d1.htm EX-99.1

Exhibit 99.1

Commerce Energy Group, Inc.

600 Anton Boulevard

Suite 2000

Costa Mesa, CA 92626

AP Finance, LLC

152 West 57th Street, 54th Floor

New York, New York

Commerce Gas and Electric Corp.

25 Sheppard Avenue West

Suite 1605

Toronto, ON M2N 6S6

Universal Energy Group Ltd.

25 Sheppard Avenue West

Suite 1605

Toronto, ON M2N 6S6

Re: Acceptance Agreement

We have received the notice of default from and proposal from AP Finance, LLC (“APF”) and Commerce Gas and Electric Corp. (“CGE” and, together with APF, collectively, the “Holders”) to accept collateral in full satisfaction of the obligations it secures dated December 10, 2008, given pursuant to Section 9-620 of the Uniform Commercial Code as in effect in the State of New York (the “Section 9-620 Proposal”) pursuant to the Note and Warrant Purchase Agreement dated August 21, 2008 (the “NPA”) and the Security Agreement of the same date (together with all agreements and documents executed by us in favor of APF in connection with the NPA, other than the Warrant (as defined therein), collectively, the “Note Purchase Documents”). You have confirmed to us that, immediately prior to the effectiveness of this Agreement, APF will have sold and assigned to CGE, and CGE will have accepted and assumed, all of APF’s remaining right, title and interest in and to, and obligations under, the Note Purchase Documents. You have also confirmed to us that Wachovia Capital Finance Corporation (Western) (“Wachovia”) has assigned to APF and CGE all of its rights, title and interest in the Loan and Security Agreement dated as of June 8, 2006, by and among Commerce Energy, Inc., Commerce Energy Group, Inc., Wachovia, as agent, Wachovia and Wells Fargo Foothill, LLC (together with the other Financing Agreements, as defined therein, collectively, the “Wachovia Agreements”). We acknowledge (on our own behalf and on behalf of Commerce Energy, Inc.) that (a) events of default have occurred and are continuing under the terms of the Note Purchase Documents, (b) as a result thereof, the Holders are entitled to exercise all of their rights, options and remedies available under the Note Purchase Documents, and otherwise available at law or in equity, and (c) prior to giving effect to the transactions contemplated by the Section 9-620 Proposal, all of the indebtedness and other obligations under the Note Purchase Documents are

unconditionally owing by us and Commerce Energy, Inc., on a joint and several basis, without offset, defense or counterclaim of any kind, nature and description whatsoever. Pursuant to Section 9-620 of the Uniform Commercial Code as in effect in New York we hereby consent to CGE’s acceptance of the following collateral in full satisfaction of the obligations under the Note Purchase Documents: (1) 100% of the shares of stock in Commerce Energy, Inc., and (2) all shares of stock of Power Efficiency Corporation owned by us (collectively, the “Subject Collateral”), provided that CGE and/or APF, as applicable, confirm by executing this Acceptance Agreement that, upon the effectiveness of this Agreement:

· CGE consents to Commerce Energy, Inc. having paid us a $3.1 million dividend prior to the delivery of this Acceptance Agreement and CGE agrees to indemnify the directors and officers of Commerce Energy, Inc. and their agents and representatives who assist in paying the dividend against any losses, claims, causes of action, liability, damage or expense arising in connection with such dividends.

· CGE consents to the assumption by Commerce Energy, Inc. of certain of our agreements and its agreement to pay certain other liabilities or obligations, as identified in a letter dated today (the “Assumption Letter”). CGE agrees to (i) cause Commerce Energy, Inc. to perform all of its obligations thereunder; and (ii) indemnify us, our officers, directors, employees, agents and representatives from any loss, claim, cause of action, liability, damage or expense arising from any breach by Commerce Energy, Inc. of the terms of the Assumption Letter.

· CGE releases Commerce Energy Group, Inc. from any and all liabilities or obligations under the Note Purchase Documents effective upon the delivery and acceptance of this Acceptance Agreement and the vesting in CGE of all our rights to the Subject Collateral and agree to look solely to Commerce Energy, Inc., for such amounts.

· Each of CGE and APF releases Commerce Energy Group, Inc. from any and all liabilities or obligations under the Wachovia Agreements effective upon the delivery and acceptance of this Acceptance Agreement and the vesting in CGE of all our rights to the Subject Collateral and agree to look solely to Commerce Energy, Inc., for such amounts.

· The Warrant to acquire our common stock held by APF is cancelled.

In addition, when this Acceptance Agreement becomes effective, in addition to our acknowledgement above that such effectiveness vests in CGE all our rights to the Subject Collateral, we hereby confirm to CGE and APF that:

1. General Release. Commerce Energy Group, Inc. hereby fully, completely, absolutely and unconditionally releases, discharges and holds harmless each of APF, CGE, Universal Energy Group Ltd. and Commerce Energy, Inc. and any successor to them, and each of their past and present managers, members, officers, directors, shareholders, employees, agents, attorneys, affiliates and assigns, whether acting in their representative or individual capacities, from any and all claims, causes of action, rights and actions of any kind or nature whatsoever, either at law or in equity, including without limitation all

claims in any way arising out of or relating to the Note Purchase Documents, the Subject Collateral or this foreclosure except for obligations arising from this Acceptance or the Assumption Letter.

2. Unknown Claims. It is Commerce Energy Group, Inc.’s intention to fully, finally and forever settle, release and resolve all claims against you or your affiliates, regardless of whether known or unknown, foreseen or unforeseen, suspected or unsuspected, vested or contingent, accrued or unaccrued except for obligations arising from this Acceptance or the Assumption Letter. The releases given herein shall be and remain in effect to their full extent, notwithstanding the discovery or existence of any additional or different facts. We knowingly and voluntarily waive the provisions of California Civil Code section 1542, which provides: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”

3. Representation and Warranty. We represent and warrant to APF and CGE that there are no secured parties or lienholders that are entitled to receive a copy of the Section 9-620 Proposal pursuant to Section 9-621(a)(2) or (3) of the Uniform Commercial Code.

4. Further Deliveries. We will immediately deliver to CGE, the following:

(a) evidence acceptable to CGE that the board of directors of Commerce Energy Group, Inc., by allocating a portion of the dividend it is paying to its stockholders for such purpose and giving appropriate notice, has redeemed in full all outstanding Rights, as defined in and pursuant to the terms of the rights agreement dated as of July 1, 2004, as amended, between Commerce Energy Group, Inc. and Computershare Trust Company, as agent; and

(b) certificates of the Chief Executive Officer of Commerce Energy Group, Inc. as to certain factual matters.

In addition, we confirm that we have received evidence of agreements to cancel warrants held by Jesup & Lamont, Incorporated, Bill Corbett and the Lee E. Mikles Revocable Trust Dated March 26, 1996.

5. Severability. If any provision of this Acceptance Agreement is invalid or unenforceable for any reason, then such provision shall be deemed automatically adjusted to the minimum extent necessary to conform to the requirements for validity and, as so adjusted, shall be deemed a provision of this Acceptance Agreement as though originally included herein. In the event that the provision invalidated is of such a nature that it cannot be so adjusted, the provision shall be deemed deleted from this Acceptance Agreement as though the provision had never been included herein. In either case, the remaining provisions of this Acceptance Agreement shall remain in effect.

6. Counterparts. This Acceptance Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Acceptance Agreement by signing any such counterpart. Delivery by facsimile or electronic transmission shall bind the parties.

7. Entire Agreement. This Acceptance Agreement constitutes the entire agreement between the parties hereto, and supersedes and replaces all prior and contemporaneous negotiations, representations and understandings, whether written or oral. No party has relied upon any promise or agreement not expressly set forth herein. No modification or waiver of any of the terms hereof shall be effective unless in writing, signed by the party to be charged with such modification or waiver.

8. Effectiveness. This Acceptance Agreement shall be effective upon the execution and delivery thereof by all signatories listed below. The transactions contemplated by the Section 9-620 Proposal shall be deemed to have been consummated upon the Effectiveness of this Acceptance Agreement.

9. APF. Except for the obligation to cancel the Warrant as set forth above, APF shall have no obligations under this Acceptance Agreement.

10. Wachovia Agreements. Notwithstanding any provision of the Assignment, Acceptance, Resignation and Consent Agreement, dated as of the date hereof, among APF, CGE, Wachovia Capital Finance Corporation (Western), Wells Fargo Foothill, LLC, Commerce Energy, Inc. and Commerce Energy Group, Inc., no obligations under this Acceptance Agreement or the Assumption Letter are released by the Wachovia Assignment. For sake of clarity, the parties acknowledge that the transactions contemplated by the Section 9-620 Proposal shall not affect the indebtedness or other obligations of Commerce Energy, Inc. under the Wachovia Agreements, which indebtedness and other obligations are unconditionally owing by Commerce Energy, Inc. without offset, defense or counterclaim of any kind, nature and description whatsoever.

[Signature page follows]

	COMMERCE ENERGY GROUP, INC.

	By:	/s/ GREGORY L. CRAIG
		Gregory L. Craig
		Chairman and Chief Executive Officer


Confirmed, agreed and accepted this 11^th day of December, 2008.

	UNIVERSAL ENERGY GROUP LTD.


	By:		/s/ Michael Silver	/s/ Shawn Dym
	Name:		Michael Silver	Shawn Dym
	Title:		General Counsel	Senior V.P.
			and Corp. Secy

	COMMERCE GAS AND ELECTRIC CORP.


	By:		/s/ Michael Silver	/s/ Shawn Dym
	Name:		Michael Silver	Shawn Dym
	Title:		General Counsel	Senior V.P.
			and Corp. Secy


	AP FINANCE, LLC


	By:		/s/ David Levy
	Name:		David Levy
	Title:

	COMMERCE ENERGY, INC.


	By:	/s/ C. Douglas Mitchell
	Name:	C. Douglas Mitchell
	Title:	CFO

EX-99.2 3 a08-30253_1ex99d2.htm EX-99.2

Exhibit 99.2

COMMERCE ENERGY, INC.

600 Anton Boulevard

Suite 2000

Costa Mesa, CA 92626

Commerce Energy Group, Inc.

600 Anton Boulevard

Suite 200

Costa Mesa, CA 92626

Ladies and Gentlemen:

You and our secured lenders (being AP Finance, LLC and Commerce Gas and Electric Corp.) have notified us that a default exists under the Note and Warrant Purchase Agreement dated August 21, 2008 and the Security Agreement of the same date between us and AP Finance, LLC (as amended and assigned, the “Secured Debt”). You have confirmed to us that, immediately prior to the effectiveness of this Agreement, AP Finance, LLC will have sold and assigned to Commerce Gas and Electric Corp., and Commerce Gas and Electric Corp. will have accepted and assumed, all of AP Finance, LLC’s remaining right, title and interest in and to, and obligations under, the Secured Debt. We understand that the secured lenders have proposed to accept: (1) 100% of the shares of stock in us, and (2) all shares of stock of Power Efficiency Corporation owned by you, which are pledged as collateral for the Secured Debt, in satisfaction of that debt (the “Debt Satisfaction Transaction”). We would benefit significantly from the satisfaction of the Secured Debt, and to induce you to accept the proposal from our secured lenders we agree with you as follows:

1. We will pay to you today a dividend of $3,100,000 which you agree to hold in trust until you accept the proposal and promptly return if you do not confirm your written acceptance of the proposal to AP Finance, LLC and Commerce Gas and Electric Corp. on or prior to 5:00 p.m. PST, December 12, 2008.

2. We confirm that, with respect to all contracts on which you and we are jointly liable, or with respect to which you have guaranteed our obligations, including all those which are set out as items 7 through 13 on Schedule A, we will fully perform. We will pay and perform all of our accounts, trade payables or other matters arising from the operation of the business of Commerce Energy, Inc. (regardless of by whom such claim is payable), all contracts of Commerce Energy Group, Inc. listed on Schedule A to this letter, and contracts of Commerce Energy Group, Inc. related to the business and operations of Commerce Energy, Inc. not listed involving aggregate payments or other consideration payable or receivable by or to Commerce Energy Group, Inc. thereunder over the term of each such contract of less than $100,000 per contract. We will indemnify you and your directors, officers, employees, representatives and agents against any loss, claim, cause of action, liability, damage or expense based on or arising from our failure to perform any of such obligations or agreements or from claims made against you because you were our

shareholder, excluding claims based on or arising from federal or state securities laws, environmental laws, or income tax laws.

3. We will make available to your accountants all records and reasonable assistance needed to file federal and state income tax returns for your fiscal year ended July 31, 2008 and for the period ending on the date your stockholders approve dissolution or dissolution otherwise occurs, provided such dissolution occurs in 2009. You agree that we may review and comment upon such returns before they are filed. We agree that any liability on such returns attributable to our operations is our responsibility, but you and we confirm that our tax advisors have determined no state or federal income tax is currently due or anticipated to be due.

4. We hereby assume responsibility for the sponsorship and administration of your employee benefit plans which cover our employees, except for the Commonwealth Energy Corporation 1999 Equity Incentive Plan, the Commerce Energy Group, Inc. 2006 Stock Incentive Plan, and the Commerce Energy Group, Inc. Amended and Restated 2005 Employee Stock Purchase Plan, which you will terminate. You and we will cooperate to obtain any required consents of third parties as soon as practicable. To the extent that the consent of a third party is required in respect of an employee benefit plan, such assumption hereunder will not be effective until such consent is obtained, but we will nonetheless pay any amounts for which you would be responsible for such plan. We will pay all costs to document such transfer of responsibility (including costs in respect of appropriate plan amendments to remove you as sponsor or fiduciary). It is acknowledged that it is our mutual intent that such assumptions hereunder take place effective as of today, to the extent permitted by the applicable plans and the providers thereof.

5. We hereby assume all liability for that certain Lease dated as of July, 2006 between SP IV Millennium Center, L.P. and Commerce Energy Group, Inc. for Suite 950-East, at Urban Towers-East, 222 West Las Colinas Boulevard, Irving, Texas as amended by Amendment No. 1 dated as of September 12, 2007, and you hereby assign to us all rights and benefits thereunder (including, without limitation, all rights to any refund or return of deposits or like amounts thereunder), and we will indemnify you and your directors, officers, employees, representatives and agents for any loss, claim, cause of action, liability, damage or expense based on or arising from such lease.

6. We hereby assume all responsibility for the defense of the proceedings identified on Schedule B to this Agreement and all related claims and will indemnify you and hold you and your directors, officers, employees, representatives and agents harmless from and against any loss, claim, cause of action, liability, damage or expense arising in connection with such matter. You will provide us with all requested cooperation and assistance in connection with our conduct of the defense of such proceedings as we may from time to time require.

7. We will assume the amended employment agreements with the individuals referred to on Schedule C to this letter on such terms as are mutually acceptable to us and such individuals as described in items 1, 2, 4 and 5 of Schedule A.

8. We will pay $218,000 of the premiums for a six year extension of policies No. 610-61-40 (D&O), ELU105497-08 (D&O Excess), HS-0303-2136-070608 (Side A) and 00-667-19-79 (EPLI) issued by American Insurance Group or one of its subsidiaries (it being acknowledged that you will pay the balance of the premiums owing in respect of such policies).

9. We will store your corporate records and make them available to your officers, representatives or agents for the purpose of winding up your corporate affairs provided that we shall have no duty except to exercise reasonable care. After December 31, 2012 we shall have the right to destroy these records unless you or your representatives have requested delivery of the records to them at their expense.

10. We will permit Mr. Douglas Mitchell as part, but not all, of his employment by us while it continues pursuant to his amended employment agreement, to administer the orderly winding up of your business and will provide him reasonable administrative and office support (irrespective of the length of time his employment with us continues) for a period of three (3) months following the Debt Satisfaction Transaction.

11. We agree to execute and deliver such assignment and assumption agreements or other instruments, and take such other actions, as you may reasonably request to further document, confirm or carry out the provisions of this Agreement.

[SIGNATURE PAGE FOLLOWS]

	COMMERCE ENERGY, INC.,
	a California corporation

	By:	/s/ C. Douglas Mitchell
	Name:	C. Douglas Mitchell
	Title:	CFO

Accepted, agreed and confirmed this 11^th day of December, 2008.

	COMMERCE ENERGY GROUP, INC.,
	a Delaware corporation


	By:	/s/ C. Douglas Mitchell
	Name:	C. Douglas Mitchell
	Title:	CFO

EX-99.3 4 a08-30253_1ex99d3.htm EX-99.3

Exhibit 99.3

AMENDMENT TO EMPLOYMENT AGREEMENT

This Amendment (this “Amendment”) to the Employment Agreement (the “Agreement”) dated as of February 20, 2008 by and between Gregory L. Craig (the “Executive”) and Commerce Energy Group, Inc. (“CEGI”), on behalf of itself and any and all of its subsidiaries, is made and entered into by the Executive, CEGI and Commerce Energy, Inc. (“CEI”) and shall become effective, if at all, as of immediately prior to the consummation of the Consensual Foreclosure (as defined below). Capitalized terms not defined in this Amendment shall have the meaning set forth in the Agreement.

RECITALS

WHEREAS, the parties hereto wish to amend certain provisions of the Agreement effective as of immediately prior to the Consensual Foreclosure, if at all.

NOW, THEREFORE, for $100 to be paid by CEI to Executive and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. Effectiveness

This Amendment shall become effective, if at all, immediately prior to the consummation of the consensual foreclosure under Section 9-620 of the Uniform Commercial Code as in effect in New York, pursuant to which CEGI consents to the acceptance by AP Finance, LLC and Commerce Gas and Electric Corp., a Delaware corporation and a subsidiary of Universal Energy Group Ltd., (collectively, the “Lenders”) of certain collateral in satisfaction of certain indebtedness owed to the Lenders (the “Consensual Foreclosure”). This Amendment shall not take effect if the Consensual Foreclosure does not occur.

2. Assignment

Upon the effectiveness of this Amendment, (A) the Agreement, as amended by this Amendment, and all liabilities and obligations of CEGI and its subsidiaries (other than CEI) thereunder, shall be assigned to CEI (the “Assignment”), (B) CEI accepts the Assignment and agrees to assume and be bound by, and fulfill its obligations under, the Agreement, as amended by this Amendment, (C) subject to the terms and conditions of the Agreement, as amended by this Amendment, Executive shall be employed by CEI, (D) all references to “Commerce Energy Group, Inc.” in the Agreement shall be replaced with “Commerce Energy, Inc.,” and (E) the Executive consents to the Assignment and hereby agrees that upon its effectiveness CEGI shall have no liability associated with the Agreement or this Amendment.

Neither the Consensual Foreclosure nor the assignment of the Agreement to CEI, shall entitle the Executive to payments except as identified in this Amendment.

Subject to the earlier effectiveness of this Amendment, Executive hereby resigns as an officer and employee of CEGI effective immediately following the filing of CEGI’s quarterly report on

Form 10-Q for the quarterly period ended October 31, 2008 with the Securities and Exchange Commission (the “CEGI Resignation Time”). Additionally, Executive hereby resigns as a director of CEGI and as a director of each of its subsidiaries, including, but not limited to, CEI, effective upon the effectiveness of this Amendment. Executive hereby resigns as an officer of CEI effective upon the conclusion of the Holdover Period (as defined below). Between the effectiveness of this Amendment and the CEGI Resignation Time, Executive shall not be entitled to any compensation or benefits from CEGI and shall only be entitled to the compensation and benefits provided by CEI under the Agreement, as amended by this Amendment.

3. Term

Executive shall be employed by CEI for a period of thirty (30) days following the effectiveness of this Amendment (the “Holdover Period”). If CEI terminates the employment of Executive or does not require his services during the Holdover Period, it shall nonetheless pay Executive’s compensation and benefits for the full Holdover Period and shall pay the amounts due under Section 6 of this Amendment.

4. Executive’s Duties

During the Holdover Period, the Executive’s authority, duties or responsibilities may be reduced or eliminated. Such reductions or eliminations shall not be a basis for the Executive to assert that CEI breached the Agreement nor shall they be a basis for the Executive to resign.

5. Release

As of the date the Executive signs this Amendment, the Executive, to the fullest extent permitted by law, releases CEGI, and each of its related entities (other than CEI) and their respective directors, officers, employees, representatives and agents from any and all known and unknown claims and liabilities, other than those arising under the Age Discrimination in Employment Act, except for claims against CEGI for applicable rights of indemnification.

6. Severance Payment

After the Holdover Period, the Executive shall continue to receive his Base Salary, payable monthly, for a period of eight (8) months, less necessary withholdings and authorized deductions. CEI will also pay the cost of Executive’s continued health care insurance coverage under COBRA, payable monthly, for a period of eight (8) months, provided Executive elects such continued coverage, or will pay Executive the cash equivalent of such premiums. The Executive shall receive no other compensation or benefits under the Agreement or this Amendment following the end of the Holdover Period; provided, however, that, at the end of the Holdover Period, Executive shall also be paid for (i) all earned but unpaid compensation (including accrued but unpaid vacation) through the effective date of termination, and (ii) reimbursement of expenses properly incurred on behalf of CEI.

7. Stock Options and Restricted Stock

No stock options or shares of restricted stock granted to Executive shall vest after the effectiveness of this Amendment.

8. Termination

Section 5 of the Agreement is deleted in its entirety.

9. Proprietary Information Obligations

Section 6 of the Agreement continues in full force and effect with regard to CEGI, CEI, and any and all of its affiliates.

10. Release

In order to receive any severance benefits or payments provided for under Section 6 of this Amendment, the Executive must execute and deliver to CEI a valid Waiver and Release Agreement in a form substantially similar to the release attached as Exhibit C to the Agreement (with appropriate modifications to reflect the provisions of this Amendment and otherwise ensure compliance with the current state of the law). No severance benefits or payments shall be paid under Section 6 of this Amendment unless and until the Executive has executed such Waiver and Release Agreement within the time period specified by CEI in the Waiver and Release Agreement (which shall not be more than 7 days after such agreement is tendered to the Executive unless otherwise required by law), and the period within which the Executive may revoke his or her Waiver and Release Agreement has expired without revocation. The Waiver and Release Agreement will release all claims the Executive might have against CEGI or CEI under the Agreement or this Amendment, except claims against CEI for amounts payable under Section 6 of this Amendment and claims against CEI or CEGI for applicable rights of indemnification.

The Executive may revoke his signed Waiver and Release Agreement within seven (7) days (or such other period provided by law) after his signing the Waiver and Release Agreement. Any such revocation must be made in writing and must be received by CEI within such seven (7) day (or such other) period. If the Executive timely revokes his Waiver and Release Agreement, he shall not be eligible to receive any severance benefits or payments under Section 6 of this Amendment. Notwithstanding the foregoing, if the expiration of the revocation period described above could occur in a calendar year later than the calendar year in which the Waiver and Release Agreement is tendered to the Executive for execution, then in no event will benefits or payments under the Agreement or this Amendment that are conditioned upon the effectiveness of the Waiver and Release Agreement be paid prior to the beginning of such later calendar year.

11. Modifications and Conflicts

Except as expressly provided for herein, all the terms and conditions of the Agreement remain in full force and effect; provided, however, that in the event of a conflict between the provisions of the Agreement and the provisions of this Amendment, the provisions of this Amendment shall control.

[Signature Page Follows]

IN WITNESS WHEREOF, the undersigned have duly executed this Amendment on the date(s) indicated below.

	EXECUTIVE

	/s/ GREGORY L. CRAIG
	Gregory L. Craig


	COMMERCE ENERGY GROUP, INC.

	By:	/s/ C. Douglas Mitchell
	Name: C. Douglas Mitchell
	Title: CFO

	COMMERCE ENERGY, INC.

	By:	/s/ C. Douglas Mitchell
	Name: C. Douglas Mitchell
	Title CFO

EX-99.4 5 a08-30253_1ex99d4.htm EX-99.4

Exhibit 99.4

AMENDMENT TO EMPLOYMENT AGREEMENT

This Amendment (this “Amendment”) to the Employment Agreement (the “Agreement”) dated as of March 10, 2008 by and between Michael J. Fallquist (the “Executive”) and Commerce Energy Group, Inc. (“CEGI”), on behalf of itself and any and all of its subsidiaries, is made and entered into by the Executive, CEGI and Commerce Energy, Inc. (“CEI”) and shall become effective, if at all, as of immediately prior to the consummation of the Consensual Foreclosure (as defined below). Capitalized terms not defined in this Amendment shall have the meaning set forth in the Agreement.

RECITALS

WHEREAS, the parties hereto wish to amend certain provisions of the Agreement effective as of immediately prior to the Consensual Foreclosure, if at all.

1. Effectiveness

2. Assignment

Neither the Consensual Foreclosure nor the assignment of the Agreement to CEI, shall entitle the Executive to payments except as identified in this Amendment.

Executive hereby resigns as an officer and employee of CEGI and as a director of all of its subsidiaries, including, but not limited to, CEI, effective upon the effectiveness of this

Amendment. Executive hereby resigns as an officer of CEI effective upon the conclusion of the Holdover Period (as defined below).

3. Term

4. Executive’s Duties

5. Release

6. Severance Payment

7. Stock Options and Restricted Stock

No stock options or shares of restricted stock granted to Executive shall vest after the effectiveness of this Amendment.

8. Termination

Section 5 of the Agreement is deleted in its entirety.

9. Proprietary Information Obligations

Section 6 of the Agreement continues in full force and effect with regard to CEGI, CEI, and any and all of its affiliates.

10. Release

In order to receive any severance benefits or payments provided for under Section 6 of this Amendment, the Executive must execute and deliver to CEI a valid Waiver and Release Agreement in a form substantially similar to the release attached as Exhibit C to the Agreement (with appropriate modifications to reflect the provisions of this Amendment and otherwise ensure compliance with the current state of the law). No severance benefits or payments shall be paid under Section 6 of this Amendment unless and until the Executive has executed such Waiver and Release Agreement within the time period specified by CEI in the Waiver and Release Agreement (which shall not be more than 7 days after such agreement is tendered to the Executive unless otherwise required by law), and the period within which the Executive may revoke his Waiver and Release Agreement has expired without revocation. The Waiver and Release Agreement will release all claims the Executive might have against CEGI or CEI under the Agreement or this Amendment, except claims against CEI for amounts payable under Section 6 of this Amendment and claims against CEI or CEGI for applicable rights of indemnification.

11. Modifications and Conflicts

[Signature Page Follows]

IN WITNESS WHEREOF, the undersigned have duly executed this Amendment on the date(s) indicated below.

	EXECUTIVE

	/s/ MICHAEL J. FALLQUIST
	Michael J. Fallquist


	COMMERCE ENERGY GROUP, INC.

	By:	/s/ Gregory L. Craig
	Name: Gregory L. Craig
	Title: Chairman and CEO

	COMMERCE ENERGY, INC.

	By:	/s/ Gregory L. Craig
	Name: Gregory L. Craig
	Title Chairman and CEO

EX-99.5 6 a08-30253_1ex99d5.htm EX-99.5

Exhibit 99.5

AMENDMENT TO EMPLOYMENT AGREEMENT

This Amendment (this “Amendment”) to the employment letter agreement (the “Agreement”) dated as of July 10, 2008 by and between C. Douglas Mitchell (the “Executive”), and Commerce Energy Group, Inc. (“CEGI”), on behalf of itself and any and all of its subsidiaries, is made and entered into by the Executive, CEGI and Commerce Energy, Inc. (“CEI”) and shall become effective, if at all, as of immediately prior to the consummation of the Consensual Foreclosure (as defined below). Capitalized terms not defined in this Amendment shall have the meaning set forth in the Agreement.

RECITALS

WHEREAS, the parties hereto wish to amend certain provisions of the Agreement effective as of immediately prior to the Consensual Foreclosure, if at all.

1. Effectiveness

2. Assignment

Neither the Consensual Foreclosure nor the assignment of the Agreement to CEI, shall entitle the Executive to payments except as identified in this Amendment.

Executive hereby resigns as an officer of CEI effective upon the conclusion of the Holdover Period (as defined below).

3. Term

4. Executive’s Duties

5. Release

6. Severance Payment

After the Holdover Period, the Executive shall continue to receive his Base Salary, payable monthly, for a period of eight (8) months, less necessary withholdings and authorized deductions. CEI will also pay Executive $1,200 per month for the cost of Executive’s continued health care insurance, payable monthly, for a period of eight (8) months. The Executive shall receive no other compensation or benefits under the Agreement or this Amendment following the end of the Holdover Period; provided, however, that, at the end of the Holdover Period, Executive shall also be paid for (i) all earned but unpaid compensation (including accrued but unpaid vacation) through the effective date of termination, and (ii) reimbursement of expenses properly incurred on behalf of CEI.

7. Stock Options and Restricted Stock

All unvested shares of restricted stock granted to Executive shall vest in full upon the consummation of the Consensual Foreclosure. No stock options granted to Executive, if any, shall vest after the effectiveness of this Amendment.

8. Termination

The Section of the Agreement entitled “Termination” is hereby deleted in its entirety.

9. Release

In order to receive any severance benefits or payments provided for under Section 6 of this Amendment, the Executive must execute and deliver to CEI a valid Waiver and Release Agreement, in a form substantially similar to the release attached as Exhibit A to the Agreement (with appropriate modifications to reflect the provisions of this Amendment). No severance benefits or payments shall be paid under Section 6 of this Amendment unless and until the Executive has executed such Waiver and Release Agreement within the time period specified by CEI in the Waiver and Release Agreement (which shall not be more than 7 days after such agreement is tendered to the Executive unless otherwise required by law), and the period within which the Executive may revoke his or her Waiver and Release Agreement has expired without revocation. The Waiver and Release Agreement will release all claims the Executive might have against CEGI or CEI under the Agreement or this Amendment, except claims against CEI for amounts payable under Section 6 of this Amendment and claims against CEI or CEGI for applicable rights of indemnification.

10. Modifications and Conflicts

[Signature Page Follows]

IN WITNESS WHEREOF, the undersigned have duly executed this Amendment on the date(s) indicated below.

	EXECUTIVE

	/s/ C. DOUGLAS MITCHELL
	C. Douglas Mitchell

	COMMERCE ENERGY GROUP, INC.

	By:	/s/ Gregory L. Craig
	Name: Gregory L. Craig
	Title: Chairman and CEO

	COMMERCE ENERGY, INC.

	By:	/s/ Gregory L. Craig
	Name: Gregory L. Craig
	Title Chairman and CEO

EX-99.6 7 a08-30253_1ex99d6.htm EX-99.6

Exhibit 99.6

AMENDMENT TO EMPLOYMENT AGREEMENT

This Amendment (this “Amendment”) to the employment letter agreement (the “Agreement”) dated as of July 18, 2008 by and between John H. Bomgardner, II (the “Executive”) and Commerce Energy Group, Inc. (“CEGI”), on behalf of itself and any and all of its subsidiaries, is made and entered into by the Executive, CEGI and Commerce Energy, Inc. (“CEI”) and shall become effective, if at all, as of immediately prior to the consummation of the Consensual Foreclosure (as defined below). Capitalized terms not defined in this Amendment shall have the meaning set forth in the Agreement.

RECITALS

WHEREAS, the parties hereto wish to amend certain provisions of the Agreement effective as of immediately prior to the Consensual Foreclosure, if at all.

1. Effectiveness

2. Assignment

Neither the Consensual Foreclosure nor the assignment of the Agreement to CEI, shall entitle the Executive to payments except as identified in this Amendment.

Executive hereby resigns as an officer and employee of CEGI, effective upon the effectiveness of this Amendment. Executive hereby resigns as an officer of CEI effective upon the conclusion of the Holdover Period (as defined below).

3. Term

4. Executive’s Duties

5. Release

6. Severance Payment

After the Holdover Period, the Executive shall continue to receive his base salary, payable monthly, for a period of eight (8) months, less necessary withholdings and authorized deductions. CEI will also pay the cost of Executive’s continued health care insurance coverage under COBRA, payable monthly, for a period of eight (8) months, provided Executive elects such continued coverage, or will pay Executive the cash equivalent of such premiums. In addition, CEI will forgive any repayment for relocation expenses that might otherwise be owed under the terms of the Agreement. The Executive shall receive no other compensation or benefits under the Agreement or this Amendment following the end of the Holdover Period; provided, however, that, at the end of the Holdover Period, Executive shall also be paid for (i) all earned but unpaid compensation (including accrued but unpaid vacation) through the effective date of termination, and (ii) reimbursement of expenses properly incurred on behalf of CEI.

7. Stock Options and Restricted Stock

No stock options or shares of restricted stock granted to Executive shall vest after the effectiveness of this Amendment.

8. Termination

Attachment A and the next to last bullet of the Agreement (which references Attachment A) are deleted in their entirety.

9. Release

In order to receive any severance benefits or payments provided for under Section 6 of this Amendment, the Executive must execute and deliver to CEI a valid separation agreement and general release (“Waiver and Release Agreement”) in a form substantially similar to the release attached as Exhibit A to the Agreement (with appropriate modifications to reflect the provisions of Section 6 of this Amendment and otherwise ensure compliance with the current state of the law). No severance benefits or payments shall be paid under Section 6 of this Amendment unless and until the Executive has executed such Waiver and Release Agreement within the time period specified by CEI in the Waiver and Release Agreement (which shall not be more than 7 days after such agreement is tendered to the Executive unless otherwise required by law), and the period within which the Executive may revoke his Waiver and Release Agreement has expired without revocation. The Waiver and Release Agreement will release all claims the Executive might have against CEGI or CEI under the Agreement or this Amendment, except claims against CEI for amounts payable under Section 6 of this Amendment and claims against CEI or CEGI for applicable rights of indemnification.

10. Modifications and Conflicts

[Signature Page Follows]

IN WITNESS WHEREOF, the undersigned have duly executed this Amendment on the date(s) indicated below.

	EXECUTIVE

	/s/ JOHN H. BOMGARDNER, II
	John H. Bomgardner, II

	COMMERCE ENERGY GROUP, INC.

	By:	/s/ Gregory L. Craig
	Name: Gregory L. Craig
	Title: Chairman and CEO

	COMMERCE ENERGY, INC.

	By:	/s/ Gregory L. Craig
	Name: Gregory L. Craig
	Title Chairman and CEO

EX-99.7 8 a08-30253_1ex99d7.htm EX-99.7

Exhibit 99.7

Contacts:		Commerce Energy Group, Inc.
		C. Douglas Mitchell Chief Financial Officer 714-259-2500

		PondelWilkinson Inc.
		Robert Jaffe/Roger Pondel 310-279-5980

Commerce Energy Consents to Foreclosure

and Declares Dividend

COSTA MESA, CA — December 11, 2008 — Commerce Energy Group, Inc. (AMEX:EGR) announced today that the company accepted a foreclosure by its secured lenders under a procedure under the Uniform Commercial Code on all shares of Commerce Energy, Inc. (“Commerce”), our wholly-owned subsidiary, and certain other securities held by the company, in satisfaction of the company’s liabilities and obligations with respect to the company’s secured debt. In connection therewith, the company declared a cash dividend of $0.084 per share on shares of the company’s common stock to all stockholders of record on December 11, 2008. The company also announced today that the company redeemed all of the rights outstanding under the company’s shareholder rights agreement at a price of $0.001 per right.

AP Finance, LLC (“AP Finance”) and Commerce Gas and Electric Corp., a wholly-owned subsidiary of Universal Energy Group Ltd. (“CG&E”), the holders of the company’s secured debt, notified the company today that a default existed under certain agreements relating to the company’s secured debt. AP Finance and CG&E, also proposed today, under Section 9-620 of the Uniform Commercial Code, as in effect in the State of New York, to accept all of the company’s stock in Commerce and certain other securities held by the company in satisfaction of the company’s liabilities and obligations with respect its secured debt pursuant to the terms and conditions of an acceptance agreement among the company, AP Finance and CG&E (the “Consensual Foreclosure”).

The company had a right not to consent to, and thereby delay, the Consensual Foreclosure. However, the company recognized that a delay would likely not prevent a foreclosure and instead chose to accept certain inducements offered by AP Finance and CG&E by consenting to the Consensual Foreclosure and executing and delivering an acceptance agreement today. Pursuant to the terms of the acceptance agreement, AP Finance and CG&E agreed to allow Commerce to pay a dividend to the company in the aggregate amount of $3.1 million. As a result of the Consensual Foreclosure and the dividend to be paid by Commerce to the company, the company’s board of directors determined that the company would be able to make a distribution to its shareholders in the aggregate amount of $2,614,780, comprised of a dividend in the amount of $0.084 per share on shares of the company’s common stock and a redemption of all of the rights outstanding under the company’s shareholder rights agreement at a price of $0.001 per right. The dividend will be payable to shareholders of record as of the close of business on December 11, 2008 and will be paid as soon as practical.

As a result of the Consensual Foreclosure, the company ceased all operations but Commerce will continue to market gas and electricity in its current markets as a subsidiary of CG&E, a wholly-owned subsidiary of Toronto Stock Exchange listed Universal Energy Group Ltd. The company will commence proceedings to wind-up and dissolve as soon as practicable.

Effective on December 11, 2008, in connection with the Consensual Foreclosure, the company determined to initiate the withdrawal of the company’s shares from the NYSE Alternext US, previously known as the American Stock Exchange (the “Exchange”). The company is in the process of submitting a letter to the Exchange requesting the withdrawal of its shares of common stock from the Exchange.

About Commerce Energy Group

Commerce Energy Group was a leading independent U.S. electricity and natural gas marketing company. Its formerly-owned, principal operating subsidiary, Commerce Energy, Inc., is licensed by the Federal Energy Regulatory Commission and by state regulatory agencies as an unregulated retail marketer of natural gas and electricity and serves homeowners, commercial and industrial consumers and institutional customers. For more information, visit www.CommerceEnergy.com.

Forward-Looking Statements

This press release contains forward-looking statements that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995, particularly those statements regarding the effects of the proposed transaction and those preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “estimates,” or similar expressions. Forward-looking statements relating to expectations about future results or events are based upon information available to Commerce as of today’s date, and Commerce does not assume any obligations to update any of these statements. The forward-looking statements are not guarantees of the future performance of Commerce and actual results may vary materially from the results and expectations discussed.

# # #

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As is described further in this Current Report on Form 8-K, on December 11, 2008, Commerce Energy Group, Inc. (the “Company”) consented to a consensual foreclosure under Section 9-620 of the Uniform Commercial Code as in effect in the State of New York, pursuant to which the holders of the Company’s secured debt agreed to accept all shares of stock in Commerce Energy, Inc. (“Commerce”) and certain other securities held by the Company in satisfaction of the Company’s liabilities and obligations with respect to its secured debt (the “Consensual Foreclosure”).

In connection with the Consensual Foreclosure, Commerce paid a dividend to the Company in the aggregate amount of $3.1 million and agreed to assume certain liabilities and obligations of the Company. Also in connection with the Consensual Foreclosure, the Company approved a distribution to its shareholders in the aggregate amount of $2,614,780. The distribution was comprised of a dividend on shares of the Company’s common stock in the amount of $0.084 per share and a redemption of all of the outstanding rights under the Company’s Shareholders Rights Agreement dated July 1, 2004 at a price of $0.001 per right.

As a result of the Consensual Foreclosure, the Company ceased all operations and the Company intends to call and hold a special meeting of the Company’s shareholders, at which the Company’s shareholders will be asked to consider and approve the dissolution of the Company.

The following unaudited pro forma condensed consolidated balance sheet for the year ended July 31, 2008 is presented as if the Consensual Foreclosure had been consummated on August 1, 2007, the first day of the fiscal year ended July 31, 2008. No statement of operations is presented because the Company ceased all operations in connection with the consummation of the Consensual Foreclosure. The adjustments set forth in the “Pro Forma Adjustments” column are described in the Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.

The unaudited pro forma condensed consolidated balance sheet for the year ended July 31, 2008 is provided for illustrative purposes only and is not necessarily indicative of what the financial position of the Company would actually have been had the Consensual Foreclosure occurred on the respective date indicated, nor do they represent a forecast of the financial position as of any future date.

All information contained herein is derived from and should be read in conjunction with the historical consolidated financial statements of the Company as of and for the year ended July 31, 2008, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on November 13, 2008.

Index to Unaudited Pro Forma Condensed Consolidated Financial Statements

	Page
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of July 31, 2008	F-2

Unaudited Notes to Pro Forma Condensed Consolidated Financial Statements	F-3

F-1

COMMERCE ENERGY GROUP, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

(in thousands)

	As reported July 31, 2008			Pro Forma Adjustments			Footnote	Pro Forma July 31, 2008

ASSETS

Current assets:
Cash and cash equivalents	$	5,042		$	(1,942	)	1	$	3,100
Accounts receivable, net	82,416			(82,416		)		0
Natural gas inventory	7,717			(7,717		)		0
Prepaid expenses and other current assets	13,269			(13,269		)		0
Total current assets	$	108,444		$	(105,344	)		$	3,100

Deposits	1,600			(1,600		)	2	0
Property and equipment, net	8,009			(8,009		)	2	0
Goodwill	0			0			2	0
Other intangible assets	3,976			(3,976		)	2	0
Total assets	$	122,029		$	(118,929	)		$	3,100

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Energy and accounts payable	$	58,500		$	(58,500	)	2	$	0
Dividend and redemption payable	2,615			3				2,615
Short term borrowings and accrued liabilities	23,657			(23,172		)	2	485
Total current liabilities	$	82,157		$	(79,057	)		$	3,100

Stockholders' equity:
Common stock $0.001 par value, 150,000 authorized, 30,875 shares issued and outstanding at April 30, 2008	61,919			(61,919		)	2	0
Other comprehensive loss	(996		)	996			2	0
Retained earnings (accumulated deficit)	(21,051		)	21,051			2	0
Total stockholders' equity	39,872			(39,872		)		0
Total liabilities and stockholders’ equity	$	122,029		$	(118,929	)		$	3,100

F-2

1. Basis of Pro Forma Presentation

The unaudited pro forma condensed consolidated balance sheet as of year ended July 31, 2008 is based on the historical financial statements of the Company, after giving effect to the Consensual Foreclosure.

The unaudited pro forma condensed consolidated balance sheet as of July 31, 2008 presents the financial position of the Company assuming the Consensual Foreclosure had been completed on August 1, 2007.

The unaudited pro forma condensed consolidated statement of operations is not included because the Company ceased all operations in connection with the Consummation of the Consensual Foreclosure and no further operations are contemplated. The pro forma adjustments and assumptions are based on estimates, evaluations and other data currently available and, in the Company's opinion, provide a reasonable basis for the fair presentation of the estimated effects directly attributable to the Consensual Foreclosure and the other transaction related thereto.

The unaudited pro forma condensed consolidated balance sheet as of July 31, 2008 is provided for illustrative purposes only and is not necessarily indicative of what the financial position of the Company would actually have been had the Consensual Foreclosure occurred on the respective date indicated, nor do they represent a forecast of the financial position as of any future date.

All information contained herein should be read in conjunction the following historical consolidated financial statements of the Company the year ended July 31, 2008, included in the Company's Annual Report on Form 10-K filed with the SEC on November 13, 2008.

2. Pro Forma Adjustments

The following pro forma adjustments are included in the unaudited pro forma condensed balance sheet as of July 31, 2008.

(1) To reflect the $3.1 million dividend paid by Commerce to the Company in connection with the Consensual Foreclosure.

(2) To reflect the Consensual Foreclosure.

(3) To reflect the declaration of the dividend on shares of the Company’s common stock and the redemption of the rights in connection with the Consensual Foreclosure.

F-3

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