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): August 21, 2008
COMMERCE ENERGY GROUP, INC.
(Exact Name of
registrant as specified in its charter)
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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Registrants 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))
Item
1.01.
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Entry
into a Material Definitive Agreement.
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The
Eleventh Amendment to the Senior Loan and Security Agreement
On August 21, 2008,
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
Wells Fargo Foothill LLC, as Lender, entered into the Eleventh 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.
Pursuant to the Amendment, the term of the Credit
Facility was extended from October 1, 2008 to December 22, 2008. The Amendment modifies certain covenants in
the Credit Facility to allow for subordinated debt of $20,931,579 plus amounts
necessary to satisfy certain disputed sales tax obligations alleged against Commerce
under audit. The Amendment also
provides that the Company and Commerce shall effect a sale of assets resulting
in the receipt of at least $8,000,000 in net proceeds by November 3, 2008.
Under the terms of the Amendment, Loans may only be
requested during a period commencing on the 20th calendar day of each month and
ending on the fifth calendar day of the following month. Letter of Credit issuances may continue to be
made at any time during the calendar month.
On the earlier to occur of: (i) the
receipt of net proceeds of at least $8,000,000 from the sale of assets in a
transaction designated by the Agent as a trigger sale or (ii) November 4,
2008, the aggregate outstanding Loans shall be zero, no further Loans may be
requested and the outstanding principal amount of Obligations, including Letter
of Credit Obligations, shall not exceed the lesser of (x) the amount
equal to the Blocked Account plus 50% of the Eligible Amount as determined as
of the Trigger Date and (y) the Blocked Amount plus 50% of the Eligible Amount
as determined as of the date of such
determination.
The Fixed Charge Coverage Ratio and EBITDA covenants
were deleted, and Commerce is required to maintain Excess Availability greater
than $2,500,000. The Amendment amends the Borrowing Base under the Credit
Facility to exclude Eligible Cash Collateral from the Borrowing Base and
include collections from the immediately preceding thirty (30) day period.
Finally, the Amendment provides for a waiver of any
and all Events of Default arising prior to August 21, 2008 and Commerce
agreed to pay an Amendment Fee of $450,000, payable in equal installments on September 19,
2008, October 20, 2008 and November 19, 2008.
Financing with AP Finance, LLC
The information set forth under Item 3.02 of this
Current Report on Form 8-K is hereby incorporated by reference into this
Item 1.01.
Item
2.03.
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Creation
of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet
Arrangement of a Registrant.
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The information set forth under Item 3.02 of this
Current Report on Form 8-K is hereby incorporated by reference into this
Item 2.03.
2
Item 3.02. Unregistered Sales of Equity Securities.
On August 21, 2008, the Company, Commerce and AP
Finance, LLC (the AP Lender) entered into a Note and Warrant Purchase
Agreement (the Purchase Agreement) whereby the AP Lender agreed to purchase
from the Company and Commerce one or more senior secured promissory notes.
Pursuant to the Purchase Agreement, on August 21,
2008, the Company and Commerce executed a Senior Secured Convertible Promissory
Note (the Note) in the principal amount of $20,931,579. The Note matures on December 22, 2008
(the Maturity Date) and bears interest, in arrears, at a rate per annum equal
to twelve percent (12%), compounded monthly, payable in cash on the Maturity
Date. On the Maturity Date, an amount
equal to: (i) the principal amount, plus (ii) 10%
of the principal amount, and plus (iii) all outstanding interest and other
amounts due and owing thereunder shall be due and payable. The Note may be prepaid at any time in an
amount equal to 110% of the face value of the Note plus outstanding
interest. The Note is immediately convertible
(in whole or in part) at the option of the AP Lender into such number of shares
of common stock of the Company (Common Stock) as determined by dividing that
portion of the outstanding principal balance plus any accrued but unpaid
interest under the Note as of the date the AP Lender elects to convert by $3.00
(subject to adjustments,
e.g.,
stock
splits, combinations, dividends, distributions and reclassifications).
The Company and Commerce may repay the entire
principal amount of the Note at any time throughout its term at 110% of its
face value, plus all outstanding interest and all other amounts due and owing
thereunder without other penalty or premium.
The second note contemplated in the Purchase Agreement
relates to the payment of certain disputed sales tax obligations alleged against
Commerce under audit. Such note would be
in the aggregate principal amount of up to $2,039,468.48, or such other amount
as is necessary to pay off such tax obligations in full. If issued, the note would have terms such as
interest, conversion and repayment substantially similar to the Note.
The Note contains customary events of default and
affirmative and negative covenants for transactions of this nature, including
without limitation defaults in the performance or observance of any covenant contained
in the Purchase Agreement, covenants regarding the ongoing operations of the
business, new indebtedness, liens, compliance with laws and regulations,
financial condition and delivery of financial statements. The Purchase Agreement contains covenants
with respect to a trigger sale as contemplated in the Amendment, and requires
the Company to provide the AP Lender with an executed term sheet from BNP
Paribas, S.A., or another comparable lender, on or prior to October 30,
2008 providing for a complete refinancing of the Credit Facility, with a contemplated
closing prior to December 22, 2008. The Note is subject to acceleration
upon an event of default and the collateral agent may, at any time thereafter,
declare the entire principal balance of the Note, together with all interest
accrued thereon, plus fees and expenses, due and payable. For certain types of events of defaults (
e.g.
, bankruptcy cases) the outstanding principal balance
and accrued interest, plus fees and expenses, shall be automatically due and
payable.
Commerce and the Companys obligations under the Note
are secured by substantially all the assets of Commerce and the Company (the Junior
Security Interest) pursuant to a Security Agreement among Commerce, the
Company and the AP Lender dated August 21, 2008 (the Security Agreement). Under the terms of an Intercreditor Agreement
dated as of August 21, 2008 (the Intercreditor Agreement) among the AP Lender,
Commerce, the Company and the Agent, the Junior Security Interest is
subordinated to the senior security interest (the Senior Security Interest) Commerce
and the Company granted in favor of the Agent pursuant to the Credit Facility.
As partial inducement to purchase the Note, the
Company issued to the AP Lender a warrant exercisable for 2,773,333 shares of
the Companys Common Stock (the AP Lender Warrant). The AP Lender Warrant has an exercise price
equal to $1.15 per share (subject to adjustments,
e.g.,
stock splits, combinations, dividends, distributions and reclassifications) of
Common Stock, has a cashless exercise feature, and is exercisable at any time
through August 21, 2013. At any
time commencing on February 20, 2009, the AP Lender may require the
Company to redeem the unexercised portion of the AP Lender Warrant for cash at
a redemption price equal to $0.30 per share of Common Stock for which the AP Lender
Warrant is then exercisable, without giving effect to any adjustments (
e.g.,
stock splits, combinations and the like) occurring after
August 21, 2008.
As compensation for services in connection with the
sale of the Note, the Company also issued warrants, exercisable for an
aggregate of 625,000 shares of Common Stock (collectively, the Jesup Warrants),
to Jesup &
3
Lamont, Incorporated (Jesup)
and Bill Corbett (Corbett), with a warrant for 375,000 shares issued to Jesup
and a warrant for 250,000 shares issued to Corbett, who is a principal of Jesup.
As compensation for investment banking services to the
Company by Lee E. Mikles, the Company issued a warrant, exercisable for 250,000
shares of Common Stock (the Mikles Warrant), to the Lee E. Mikles Revocable
Trust (Mikles). The terms and
conditions of each of the Jesup Warrants and Mikles Warrant, including an exercise
price of $1.15 per share (subject to adjustments,
e.g.,
stock splits, combinations, dividends, distributions and reclassifications),
cashless exercise, and the redemption feature, are substantially similar to
those of the AP Lender Warrant.
The Note, the AP Lender Warrant, the Jesup Warrants
and the Mikles Warrant were sold in a private placement not involving any
public offering under Section 4(2) of the Securities Act of 1933, as
amended, and are exempt from the registration obligations under Section 5
of the Securities Act. Each of the AP Lender,
Jesup, Corbett and Mikles has represented to the Company that he or it is an accredited
investor as such term is defined in Rule 501 under the Securities
Act. The issuance of shares of Common
Stock upon the conversion of the Note or exercise of the above-referenced warrants
will be made through a private placement not involving any public offering
under Section 4(2) of the Securities Act and will be exempt from
registration obligations under Section 5 of the Securities Act.
Item 7.01. Regulation FD Disclosure.
On August 21, 2008, the Company issued a press
release announcing the financing transaction with the AP Lender described in
Item 3.02. A copy of the press release
is attached hereto as Exhibit 99.1 and is incorporated by reference
herein.
Item 9.01. Financial Statements and Exhibits.
Exhibit No.
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Description
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99.1
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Press Release of the
Company dated August 21, 2008
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4
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.
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a
Delaware corporation
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Date:
August 21, 2008
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By:
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/s/ C. DOUGLAS MITCHELL
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C. Douglas Mitchell
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Chief Financial Officer
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5
Exhibit Index
Exhibit No.
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Description
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99.1
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Press Release of the
Company dated August 21, 2008
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