I
tem
1.01 Entry
into a Material Definitive Agreement.
On
October 27, 2008, Commerce Energy Group, Inc. (the “Company”), its wholly-owned
subsidiary Commerce Energy, Inc. (“Commerce”) and AP Finance, LLC (“AP Finance”)
entered into a Third Amendment to Note and Warrant Purchase Agreement (the “AP
Note Third Amendment”). The AP Note Third Amendment amended the Note
and Warrant Purchase Agreement dated August 21, 2008, as amended (the
“Purchase Agreement”) among the Company, Commerce and AP
Finance. Pursuant to the Purchase Agreement, AP Finance previously
purchased from the Company and Commerce two senior secured promissory notes in
the aggregate principal amount of $22.9 million. The Company
previously disclosed the terms of the Purchase Agreement and the issuance of the
two senior secured promissory notes in its Current Report on Form 8-K filed with
the Securities and Exchange Commission (the “SEC”) on August 22,
2008.
Pursuant
to the AP Note Third Amendment, AP Finance agreed to establish a discretionary
line of credit of up to $6.0 million. In consideration of such
agreement, the Company and Commerce agreed to pay a fee equal to 5% with respect
to advances under the line of credit, provided that if the full amount of such
advances is repaid on or before the tenth business day following the funding of
such advance, the fee shall be reduced by 2.5%.
On
October 27, 2008, the Company and Commerce executed a Discretionary Line of
Credit Demand Note (the “Line of Credit Note”) in the principal amount of $6.0
million pursuant to the AP Note Third Amendment and AP Finance advanced to
Commerce $3.6 million under the terms of the Line of Credit Note. The
Line of Credit Note is payable in cash on demand, or in the absence of demand,
on December 22, 2008, the same maturity date of the senior secured promissory
notes issued pursuant to the Purchase Agreement, and bears interest, in arrears,
at a rate per annum equal to 12%, compounded monthly. The Line of
Credit Note may be prepaid at any time without penalty.
The
obligations of the Company and Commerce under the Line of Credit Note
are secured by substantially all the assets of the Company and Commerce (the
“Junior Security Interest”) pursuant to a Security Agreement among the Company,
Commerce and AP Finance, 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 Company, Commerce,
AP Finance, Wachovia Capital Finance Corporation (Western), as agent and a
lender under the Company’s senior credit facility (the “Agent”) and the other
lenders under the Company’s senior credit facility , the Junior Security
Interest is subordinated to the senior security interest which the Company and
Commerce previously granted to the Agent and the lenders under the Company’s
senior credit facility.
Item 2.01
Completion of Acquisition or
Disposition of Assets.
On
October 24, 2008, Commerce completed the sale of all of its electric service
contracts with its customers in Texas and certain assets related to these
contracts to Ambit Energy, L.P. (“Ambit”), pursuant to the terms and conditions
of an Asset Purchase Agreement dated October 23, 2008 by and between Commerce
and Ambit.
The
initial purchase price paid to Commerce in connection with the transaction is
$11.2 million with $8.5 million paid in cash 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 made customary representations, warranties and covenants in the
Purchase Agreement. Commerce and Ambit agreed to indemnify each other
for breaches of representations, warranties and covenants, and each party’s
liability with respect to such indemnification obligation is capped at $1.12
million.
In
connection with the closing, the parties entered into 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
foregoing description of the Asset Purchase Agreement is qualified in its
entirety by reference to such document, which is filed herewith as Exhibit 2.1
and incorporated herein by reference.
Item 2.02 Results
of Operations and Financial Condition
.
The
information being furnished in this Item 2.02 and in Exhibit 99.1 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 (the “Securities Act”), or
the Exchange Act, except as shall be expressly set forth by specific reference
in such filing.
On
October 29, 2008, the Company filed with the SEC a Notification of Late Filing
on Form 12b-25 (the "Notice") with respect to its Annual Report on Form 10-K
(the “Report”) for the fiscal year ended July 31, 2008 (“fiscal 2008”) stating
that it would not be able to timely file the Report without unreasonable effort
or expense. The responses set forth in the Notice under Part
IV, Question 3 thereof contain information about the Company’s results of
operations for fiscal 2008, which information is contained in Exhibit 99.1 to
this Form 8-K.
Item 2.03
Creation of a Direct
Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of
a Registrant.
The
information set forth under Item 1.01 of this Current Report on Form 8-K is
hereby incorporated by reference into this Item 2.03.
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 nine months ended April 30, 2008 and the year
ended July 31, 2007, and furnished with this Report as Exhibit
99.2. The information being furnished in this Item 9.01 (b) and in
Exhibit 99.2 shall not be deemed "filed" for purposes of Section 18 of the
Exchange Act, or incorporated by reference in any filing under the Securities
Act or the Exchange Act, except as shall be expressly set forth by specific
reference in such filing.
(c) Exhibits
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Exhibit No
.
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Description
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2.1
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Asset
Purchase Agreement dated October 23, 2008 by and between Commerce Energy,
Inc. and Ambit Energy, L.P. *
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99.1
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Information
regarding the results of operation for the fiscal year ended July 31,
2008: the responses to Question 3 to Part IV of Commerce Energy
Group, Inc.’s Form 12b-25 filed with the SEC on October 29, 2008
(Commission File No. 001-32239) are incorporated herein by
reference.
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99.2
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Unaudited
Pro Forma Financial Information.
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______
*
Exhibits and
schedules have been omitted pursuant to Item 601 (b)(2) of Regulation S-K and
will be furnished to the Securities and Exchange Commission upon
request.
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 29,
2008
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By:
/s/ C. DOUGLAS
MITCHELL
C.
Douglas Mitchell
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Chief
Financial Officer
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EXHIBIT
INDEX
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Exhibit No.
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|
Description
|
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2.1
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Asset
Purchase Agreement dated October 23, 2008 by and between Commerce Energy,
Inc. and Ambit Energy, L.P. *
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99.1
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Information
regarding the results of operation for the fiscal year ended July 31,
2008: the responses to Question 3 to Part IV of the Company’s
Form 12b-25 filed with the SEC on October 29, 2008 (Commission File No.
001-32239) are incorporated herein by reference.
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99.2
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Unaudited
Pro Forma Financial Information.
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____
* Exhibits
and schedules have been omitted pursuant to Item 601 (b)(2) of Regulation S-K
and will be furnished to the Securities and Exchange Commission upon
request.