Item 1.01. Entry into a Material Definitive Agreement.
On November 16, 2007, Commerce Energy Group, Inc., a Delaware corporation (the “Company”),
Commerce Energy, Inc., a California corporation and wholly-owned subsidiary of the Company
(“Commerce”), Wachovia Capital Finance Corporation (Western), a California corporation, as Agent
and Lender (the “Agent”), and The CIT Group/Business Credit, Inc., as Lender, entered into a Sixth
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
and the Agent. Capitalized terms, not otherwise defined have the meaning set forth in the Credit
Facility.
The Amendment revises several provisions of the Credit facility, including, without
limitation, (i) certain financial covenants, (ii) the definition of Borrowing Base and (iii) the
maturity date and prepayment penalty.
Prior to the Amendment, Commerce was required to have cash or cash equivalents in an aggregate
amount equal to not less than $10,000,000 on deposit in a blocked deposit or securities account
(collectively, “Eligible Cash Collateral”) at all times. Under the Amendment, Commerce is no
longer required to maintain any Eligible Cash Collateral.
In connection with the deletion of the covenant to maintain Eligible Cash Collateral, the
Fixed Charge Coverage Ratio financial covenant was revised and a minimum EBITDA financial covenant
was added to the Credit Facility. Pursuant to the Amendment, the Fixed Charge Coverage Ratio that
the Company and its subsidiaries are required to maintain was changed from 1.00:1.00 to 1.50:1.00,
in each case, as of the last day of each month, as determined for the period twelve months then
ending.
Furthermore, pursuant to the Amendment, Commerce is required to earn EBITDA in an amount no
less than $3,500,000 for the six-month period ending January 31, 2008, $6,000,000 for the
nine-month period ending April 30, 2008 and $7,000,000 for each of 4 consecutive fiscal quarters
ending thereafter.
Additionally, under the Amendment, Commerce is required to maintain an amount of Excess
Availability equal to $2,500,000 at all times prior to July 1, 2008 and $10,000,000 at all times on
or after July 1, 2008. Prior to the Amendment, after October 5, 2007, Commerce was required to
maintain an amount of Excess Availability equal to $2,500,000 from October 6, 2007 through and
including October 30, 2007 and at all times from November 1, 2007 to November 30, 2007, $5,000,000
on October 31, 2007, and $10,000,000 at all times on or after December 1, 2007.
Also, the definition of the Borrowing Base was amended. Previously, the Borrowing Base
equaled the sum of (i) 85% of the Eligible Billed Accounts, plus (ii) the lesser of $12,000,000 or
65% of the Eligible Billed Accounts, plus (iii) the lesser of the $8,000,000 or 70% multiplied by
the value of Eligible Inventory, plus (iv) the lesser of $35,000,000 or 95% of Eligible Cash
Collateral (collectively, the “Eligible Collateral”), minus any Reserves. Pursuant to the
Amendment, the Borrowing Base means the lesser of (a) the sum of all collections received on the
accounts of borrowers during the immediately preceding 45 days, or (b) the sum of the Eligible
Collateral, provided, that the percentage of Eligible Billed Accounts may be increased from 65% to
75% no more that two times each year for a period of 60 days as specified in a written request by
Commerce to the Agent, minus any Reserves.
The Amendment also extends the maturity date of the Credit Facility from June 8, 2009 to June
8, 2010 and the prepayment penalty, which was previously payable from and after the first
anniversary of the date of the Credit Facility but not including the thirtieth day preceding the
third anniversary of the date of the Credit Facility, and is now payable from and after the first
anniversary of the date of the Credit Facility but not including the thirtieth day preceding the
fourth anniversary of the date of the Credit Facility.
The foregoing summary of the Amendment is not complete and is qualified in its entirety by
reference to the actual Amendment, which is attached hereto as Exhibit 99.1 and incorporated herein
by reference.
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