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): October 23, 2008
COMMERCE
ENERGY GROUP, INC.
(Exact
Name of registrant as specified in its charter)
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Delaware
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001-32239
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20-0501090
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(State
or other jurisdiction of
incorporation)
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(Commission
File Number)
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(IRS
Employer
Identification
No.)
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600
Anton Blvd., Suite 2000
Costa Mesa
,
California
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92626
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(Address
of principal executive offices)
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(Zip
Code)
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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)
o
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))
I
tem
1.01. Entry into a Material Definitive
Agreement.
Sale
of Texas Electric Service Contracts
On
October 23, 2008, Commerce Energy, Inc. (“Commerce”), a wholly-owned subsidiary
of Commerce Energy Group, Inc. (the “Company”), entered into an asset
purchase agreement (the “Purchase Agreement”) with Ambit Energy, L.P. (“Ambit”).
Pursuant to the terms and subject to the conditions set forth in the Purchase
Agreement, Commerce agreed to sell to Ambit all of its retail electric service
contracts with its customers in Texas, and certain assets related to these
contracts. Commerce will retain its business marketing retail electric power and
natural gas in all other States in which it currently operates.
The
initial purchase price to be paid to Commerce in connection with the transaction
shall be $11.2 million with $8.5 million payable in cash at the closing
date, which occurred on October 24, 2008, and $2.7 million, to be reduced by
customer deposits and adjusted by positive or negative monetary adjustments if
the number of active customers transferred deviates by more than 2.5% from
57,588 customers, payable in cash on or before November 24, 2008. In addition,
Ambit will assume certain liabilities relating to the assets being sold. Ambit
has also agreed to make residual payments to Commerce during a period beginning
on the closing date and continuing through December 31, 2010. The residual
payments, which are calculated and paid monthly, generally consist of $3.50 for
each electric service contract being transferred that has charges invoiced to
Ambit that are not past due and are estimated to be approximately $3.6
million.
Commerce
and Ambit have made customary representations, warranties and covenants in the
Purchase Agreement. Commerce and Ambit have agreed to indemnify each other for
breaches of representations, warranties and covenants, and each party’s
liability with respect to such indemnification obligations is capped at $1.12
million.
Consummation
of the transaction is subject to various closing conditions, including the
execution of a transition services agreement and a non-competition agreement.
The transition services agreement covers transition services such as billing,
customer service and transaction management services, primarily to be provided
by Commerce after the closing for additional consideration. Pursuant to the
non-competition agreement, for a two-year period after the closing, Commerce
shall not, and shall ensure that its affiliates do not, compete in the retail
electricity business in the State of Texas, or
solicit Ambit’s employees,
customers or clients in the State of Texas.
The
Company will file on or before October 30, 2008, another Current Report on Form
8-K and disclose under Item 2.01 (Completion of Acquisition of Disposition of
Assets) and Item 9.01 (Financial Statements and Exhibits) further information
concerning this transaction, including pro forma financial
information.
The
Twelfth Amendment to the Senior Loan and Security Agreement
On
October 23, 2008, the Company, Commerce, Wachovia Capital Finance
Corporation (Western), a California corporation, as Agent and Lender (the
“Agent”), and Wells Fargo Foothill LLC, as Lender, entered into the
Twelfth Amendment to Loan and Security Agreement (the “Amendment”) amending
that certain Loan and Security Agreement dated June 8, 2006, as
amended (the “Credit Facility”) by and among the Company, Commerce, the Agent
and the Lenders. Capitalized terms not otherwise defined have the meaning set
forth in the Credit Facility.
Pursuant
to the Amendment, the Revolving Loan Limit was reduced to (i) $40,000,000 prior
to November 7, 2008, (ii) $32,000,000 from November 7, 2008 through
December 2, 2008 and (iii) $22,000,000 from and after December 3, 2008. In
addition, the Letter of Credit Limit was reduced to (i) $32,000,000 from
November 7, 2008 through December 2, 2008 and (ii) $22,000,000 from
and after December 2, 2008.
The
limitation on additional Loans from October 7, 2008 through October 19, 2008 was
deleted and the Lenders agreed to make Loans in accordance with the Credit
Facility until the Trigger Date, provided that in the event the aggregate
outstanding amount of Loans and Letter of Credit Obligations exceeds the
Borrowing Base,
Loans
will only be made if AP Finance, LLC (“AP Finance”) has guaranteed the
Obligations and pledged security for the Obligations as collateral in an amount
equal to $6,000,000. Pursuant to the Amendment, the aggregate outstanding Loans
after the Trigger Date shall be zero, but not including any Overadvance Amount
outstanding to the extent Agent has received pledged collateral from AP Finance.
The Amendment also permits AP Finance to make additional revolving loans to
Commerce of up to $6,000,000 pursuant to its Subordinated Note
Agreements.
Pursuant
to the Amendment, the Company and Commerce must consummate a sale of assets,
such as the sale of the Texas retail electric service contracts to Ambit as
described above, and cause to be delivered to Lender net cash proceeds of at
least $8,000,000 not later than November 3, 2008 (a “Trigger Sale”).
Additionally, upon consummation of the Trigger Sale, any available funds in the
Blocked Accounts will be transferred to a Blocked Securities Account and, as of
the seventh day following consummation of the Trigger Sale and on each seventh
day thereafter an amount of at least $200,000 must be deposited in the Blocked
Securities Account and may not be withdrawn without the prior written consent of
Agent.
The
Amendment also requires the Company and Commerce to maintain an actual aggregate
weekly cash receipts in respect of accounts receivable from customers sold in
the Trigger Sale in an amount within a range equal to at least 65% to at least
85% of the projected aggregate weekly cash receipts.
The
interest rate charged for Prime Rate Loans was increased from 2.25% per annum in
excess of the Prime Rate to 4.25% per annum in excess of the Prime Rate and the
interest rate charged on Eurodollar Rate Loans was increased from 4.75% per
annum in excess of the Adjusted Eurodollar Rate to 6.75% in excess of the
Adjusted Eurodollar Rate. In addition, the Letter of Credit Rate was increased
from 3.75% per annum to 5.75% per annum if the average daily Excess Availability
is less than or equal to $25,000,000 and from 3.50% per annum to 5.50% per annum
if the average daily Excess Availability is greater than
$25,000,000.
Finally,
the Amendment provides for a waiver of existing Events of Default related to the
liquidity covenant and arising prior to October 23, 2008 and Commerce
agreed to pay an Amendment Fee of $150,000, payable on the earlier to occur of
the Trigger Sale or November 4, 2008.
Second
Amendment to the Note and Warrant Purchase Agreement
On
October 23, 2008, the Company, Commerce and AP Finance, entered into a Second
Amendment to Note and Warrant Purchase Agreement (the “AP Note Second
Amendment”), amending a Note and Warrant Purchase Agreement dated August 21,
2008, as amended.
Pursuant
to the AP Note Second Amendment, AP Finance agreed to guarantee $6,000,000 of
Loans under the Credit Facility and to pledge cash collateral as security to
support the guaranty. In consideration of such agreement, Commerce and the
Company agreed to indemnify AP Finance for any liability, damage or loss
sustained in connection with such guarantee and cash collateral
pledge.
The AP
Note Second Amendment deleted the requirement that Commerce receive a
refinancing term sheet by October 30, 2008 and also deleted the
liquidity covenant. Finally, the AP Note Second Amendment provides for a waiver
of existing Events of Default related to the liquidity covenant arising prior to
October 23, 2008, and Commerce and the Company agreed to pay an
amendment fee of $300,000, subject to reduction to $150,000 in certain
circumstances, payable on
December 22, 2008.
Item 7.01
Regulation FD
Disclosure.
On October 27, 2008,
Commerce
Energy Group, Inc. issued a press release announcing that it has completed the
sale of its retail electric service contracts with its customers in Texas and
entered into the Amendment and the AP Note Second Amendment. A copy of the press
release is attached hereto as Exhibit 99.1.
Item 9.01
Financial Statements and
Exhibits.
(d) Exhibits.
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Exhibit
No.
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Description
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99.1
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Press
release by Commerce Energy Group, Inc. dated October 27,
2008.
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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.
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COMMERCE
ENERGY GROUP, INC.,
a
Delaware corporation
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Date:
October 27,
2008
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By:
/s/ C. DOUGLAS
MITCHELL
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Chief Financial
Officer
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EXHIBIT
INDEX
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99.1
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Press
release by Commerce Energy Group, Inc. dated October 27,
2008.
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