Exhibit 99.1
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT AND WAIVER
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT AND WAIVER (this
"Amendment"), dated September 20, 2006, is entered into among COMMERCE ENERGY,
INC., a California corporation ("Borrower"), COMMERCE ENERGY GROUP, INC., a
Delaware corporation ("Parent"), WACHOVIA CAPITAL FINANCE CORPORATION (WESTERN),
a California corporation, as Agent and Lender ("Agent"), and THE CIT
GROUP/BUSINESS CREDIT, INC., a New York corporation, as co-Lender ("Co-Lender").
RECITALS
A. Borrower, Parent and Agent have previously entered into that certain
Loan and Security Agreement dated June 8, 2006 (the "Loan Agreement"), pursuant
to which Agent and Co-Lender, as assignee of a portion of Agent's original
rights and obligations under the Loan Agreement, have made certain loans and
financial accommodations available to Borrower. Terms used herein without
definition shall have the meanings ascribed to them in the Loan Agreement.
B. The following Events of Default have occurred and are continuing under
the Loan Agreement: (i) until July 19, 2006, Borrower failed to maintain
Eligible Cash Collateral of not less than $10,000,000 as required by Section
9.18 of the Loan Agreement; (ii) Borrower and Parent made Capital Expenditures
(excluding acquisitions permitted under Section 9.10(h)) in excess of $3,500,000
during the fiscal year ended July 31, 2006, in contravention of Section 9.19 of
the Loan Agreement; and (iii) Borrower granted Pacific Summit Energy LLC a
security interest in its accounts receivable owing by those customers identified
in Schedule 1 attached hereto, without giving Agent the thirty (30) days prior
written notice required in the last paragraph of Section 5.1 of the Loan
Agreement and in contravention of Section 9.8 of the Loan Agreement
(collectively, the "Known Existing Defaults").
C. Borrower has advised Agent and Co-Lender that Borrower intends to
acquire certain assets of Houston Energy Services Company, L.L.C. (the "Proposed
Acquisition"), as more particularly set forth in the Asset Purchase Agreement,
Transition Services Agreement, Trading Book Side Letter and Operating Agreement,
each dated September 20, 2006, and the other agreements referenced therein, each
to be entered into by the parties thereto (collectively, the "Proposed
Acquisition Documents") and substantially in the form delivered to Agent prior
to the date hereof, and that Borrower intends to grant Pacific Summit Energy LLC
a security interest in its accounts receivable owing by those customers whose
contracts are being assigned to Borrower pursuant to the Proposed Acquisition
Documents, which customers are identified in Schedule 2 attached hereto.
D. Borrower has requested that Agent and Co-Lender waive the Known Existing
Defaults and amend the Loan Agreement on the terms and conditions set forth
herein.
E. Borrower and Parent are entering into this Amendment with the
understanding and agreement that, except as specifically provided herein, none
of Agent's and Co-Lender's rights or remedies as set forth in the Loan Agreement
is being waived or modified by the terms of this Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Amendments to Loan Agreement.
(a) Addition to "Supplier Security Agreements". Section 1.101 of the
Loan agreement is hereby amended and restated in its entirety to read as
follows:
"1.101. 'Supplier Security Agreements' shall mean, collectively,
the Revised Security Agreement dated October 27, 2004 between Commerce
Energy and DTE Energy Trading, Inc. as originally executed, the
Security Agreement dated August 1, 2005 between Commerce Energy and
Tenaska Power Services Co. as amended by the First Amendment to the
Security Agreement dated March 7, 2006, the Security Agreement dated
April 12, 2006 between Commerce Energy and Pacific Summit Energy LLC
as originally executed, and the Security Agreement dated September 20,
2006 between Commerce Energy and Pacific Summit Energy LLC as
originally executed."
(b) Exclusion of New Pacific Summit Collateral from Security Interest.
Section 5.1 of the Loan Agreement is hereby amended by deleting the last
paragraph thereof in its entirety and replacing it with the following:
"Notwithstanding anything herein to the contrary, in no event
shall the security interest granted under this Section 5.1 attach to,
or shall "Collateral" include, the "Collateral" as defined in any
Supplier Security Agreement (the "Supplier Collateral") if and for so
long as such Supplier Security Agreement is in effect and the supplier
thereunder holds a security interest in the Supplier Collateral, and
if and for so long as the grant of Agent's security interest in the
Supplier Collateral shall constitute or result in a breach or a
default under such Supplier Security Agreement, provided, however,
that, (r) with respect to the Supplier Security Agreement with DTE
Energy Trading, Inc., the "RSCs" as defined therein shall not in any
event include any customer that is located outside the State of
Michigan and the foregoing exclusion from Agent's security interest
shall not apply to the extent the "RSCs" as defined therein do include
any customer that is located outside the State of Michigan, (s) with
respect to the Supplier Security Agreement dated April 12, 2006 with
Pacific Summit Energy LLC, an "RSC" as defined therein shall not in
any event include any customer that is not an Original Permitted PSE
Customer (as defined below) and the foregoing exclusion from Agent's
security interest shall not apply to the extent an "RSC" as defined
therein does include a customer that is not an Original Permitted PSE
Customer and (t) with respect to the Supplier Security Agreement
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dated September 20, 2006 with Pacific Summit Energy LLC, (i) a
"Customer Term Contract" as defined therein shall not in any case
include any contract that is not an "Assigned Contract" as defined in
that certain Asset Purchase Agreement dated September 20, 2006 between
Commerce Energy and Houston Energy Services Company, L.L.C. ("HESCO"),
and (ii) an "Assigned Customer" as defined therein shall not in any
event include any customer whose contract has not been assigned by
HESCO to Commerce Energy pursuant to such Asset Purchase Agreement,
and the foregoing exclusion from Agent's security interest shall not
apply to the extent the above clauses (i) and (ii) fail to be
satisfied. For the purposes of this section, "Original Permitted PSE
Customer" shall mean a customer that is hereafter included as an "RSC"
under and as defined in the Supplier Security Agreement dated April
12, 2006 with Pacific Summit Energy LLC, provided, that, written
notice of the inclusion of such customer as such an "RSC" is given by
Commerce Energy to Agent not less than thirty (30) days prior to the
effectiveness of such inclusion, and provided, further, that, no Event
of Default has occurred and is continuing as of the effective date of
such inclusion or would result from such inclusion, and the sum of all
Accounts owing by the Permitted PSE Customers shall not exceed
$5,000,000 in the aggregate outstanding at any time. To the extent any
Accounts or other Receivables are excluded from Collateral pursuant to
this paragraph, the provisions of Sections 6.3(a) and (c), 7.2 and 7.5
will not apply to such excluded Accounts or other Receivables."
(c) Sales Schedules. Clause (i) of Section 7.1(a) of the Loan
Agreement is hereby amended by inserting the following at the end thereof:
", which schedules shall separately and conspicuously identify any
sales made, credits issued and cash received on account of Receivables
excluded from Collateral pursuant to the last paragraph of Section 5.1
hereof"
(d) Accounts Receivable Agings. Clause (iii)(C) of Section 7.1(a) of
the Loan Agreement is hereby amended by inserting the following at the end
thereof:
", which agings shall separately and conspicuously identify any
accounts receivable excluded from Collateral pursuant to the last
paragraph of Section 5.1 hereof"
(e) Disclosure of New Pacific Summit Lien. Schedule 8.4 to the
Information Certificate is hereby amended by deleting the words "Supplier
Security Agreement" in the fourth row of the table contained therein, which
relates to Pacific Summit Energy LLC, in their entirety and replacing them with
the words "Supplier Security Agreements".
(f) Disclosure of New Deposit Account. Schedule 8.10 to the
Information Certificate is hereby amended by inserting a new fifth row into the
table included in the section entitled "A. Part 1 - Deposit Accounts" therein
with the information set forth under the headings below (which are included for
ease of reference and not intended to be incorporated into such Schedule 8.10):
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Name of
Company Name and Address of Bank Account No. Purpose
------- --------------------------- ------------- --------
"CEI Wachovia Bank 2000032631597 Lockbox"
0000 Xxxx X.X. Xxxxxx Xxxx.
Xxxxxxxxx, XX 00000
(g) Clarification of Insurance Covenant. Section 9.5 of the Loan
Agreement is hereby amended by inserting the word "such" after the word "All"
and before the words "policies shall provide" in the fourth sentence thereof.
(h) Parent Guaranty. Section 9.9 of the Loan Agreement is hereby
amended by deleting the word "and" in clause (f) thereof, deleting the period at
the end of clause (g) thereof and replacing it with a semicolon and inserting
thereafter the following new clause (h):
"(h) a guarantee by Parent of all or any part of the
obligations of Commerce Energy under that certain Transition Services
Agreement dated September 20, 2006 between Commerce Energy and Houston
Energy Services Company, L.L.C."
(i) Fixed Charge Coverage Ratio. Section 9.17 of the Loan Agreement is
hereby amended by inserting the following at the end thereof:
"provided, however, the foregoing covenant shall not be tested for the
period ending August 31, 2006 or for the period ending September 30,
2006, but instead Borrowers shall maintain Excess Availability of not
less than $10,000,000 at all times during the period from September
20, 2006 through the date on which Agent is furnished the financial
statements as required in Section 9.6(a)(i) for the month ending
October 31, 2006."
2. Waivers Regarding Proposed Acquisition. Agent and Co-Lender hereby waive
compliance with Sections 9.10(i)(iii), 9.10(i)(v) and 9.10(i)(vii) of the Loan
Agreement, but only to the extent necessary to avoid a Default or Event of
Default as a result of the Proposed Acquisition or any of the provisions of the
Proposed Acquisition Documents; provided, however, that the closing of the
Proposed Acquisition occurs on or prior to September 30, 2006; and provided,
further, that Agent and Co-Lender reserve their rights to require the strict
compliance with all of the conditions set forth in Section 9.10(i) of the Loan
Agreement in connection with all other acquisitions of the type described
therein.
3. Waiver of Known Existing Defaults. Each of Agent and Co-Lender hereby
waives enforcement of its rights against Borrower and Parent arising from the
Known Existing Defaults; provided, however, nothing herein shall be deemed a
waiver with respect to any failure of Borrower or Parent to comply fully with
Section 9.17 of the Loan Agreement (Fixed Charge Coverage Ratio) as it pertains
to periods ending after July 31, 2006, Section 9.18 thereof (Eligible Cash
Collateral) as it pertains to dates on or after June 19, 2006, Section 9.19
thereof (Capital Expenditures) as it pertains to fiscal years ending after July
31, 2006, and the notice requirement contained in the latest paragraph of
Section 5.1 thereof as it pertains to any customer other than those identified
in Schedule 1 attached hereto. Subject to this Amendment becoming
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effective as set forth in Section 4 below, this waiver shall be deemed
effective, as to each Known Existing Default, on the date of the first
occurrence of such Known Existing Default. This waiver shall be effective only
for the specific defaults comprising the Known Existing Defaults, and in no
event shall this waiver be deemed to be a waiver of enforcement of Agent's or
Co-Lender's rights with respect to any other Defaults or Events of Default now
existing or hereafter arising. Nothing contained in this Amendment nor any
communications between Borrower or Parent and Agent or Co-Lender shall be a
waiver of any rights or remedies Agent or Co-Lender has or may have against
Borrower or Parent, except as specifically provided herein. Except as
specifically provided herein, Agent and Co-Lender hereby reserve and preserve
all of their rights and remedies against Borrower and Parent under the Loan
Agreement and the other Financing Agreements.
4. Effectiveness of this Amendment. The effectiveness of this Amendment,
and the waivers provided herein, are conditioned upon the occurrence of each of
the following:
(a) Amendment. Agent shall have received this Amendment, fully
executed in a sufficient number of counterparts for distribution to all parties.
(b) Amendment Fee. Agent shall have received an amendment fee in the
amount of Twenty Thousand Dollars ($20,000) for the benefit of Agent and
Co-Lender based upon their respective Pro Rata Shares, which fee is fully earned
as of and due and payable on the date hereof.
(c) Representations and Warranties. The representations and warranties
set forth herein and in the Loan Agreement shall be true and correct.
(d) Other Required Documentation. All other documents and legal
matters in connection with the transactions contemplated by this Amendment shall
have been delivered or executed or recorded and shall be in form and substance
satisfactory to Agent.
5. Representations and Warranties. Each of Borrower and Parent represents
and warrants as follows:
(a) Authority. Such party has the requisite corporate power and
authority to execute and deliver this Amendment, and to perform its obligations
hereunder and under the Financing Agreements (as amended or modified hereby) to
which it is a party. The execution, delivery and performance by such party of
this Amendment have been duly approved by all necessary corporate action and no
other corporate proceedings are necessary to consummate such transactions.
(b) Enforceability. This Amendment has been duly executed and
delivered such party. This Amendment and each Financing Agreement (as amended or
modified hereby) is the legal, valid and binding obligation of such party,
enforceable against such party in accordance with its terms, and is in full
force and effect.
(c) Representations and Warranties. The representations and warranties
contained in each Financing Agreement (other than any such representations or
warranties that, by their terms, are specifically made as of a date other than
the date hereof) are correct on and as of the date hereof as though made on and
as of the date hereof.
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(d) Due Execution. The execution, delivery and performance of this
Amendment are within the power of such party, have been duly authorized by all
necessary corporate action, have received all necessary governmental approval,
if any, and do not contravene any law or any material contractual restrictions
binding on such party.
(e) No Default. After giving effect to the waivers contained in this
Amendment, no event has occurred and is continuing that constitutes a Default or
Event of Default.
6. Governing Law. The validity, interpretation and enforcement of this
Amendment and any dispute arising out of the relationship between the parties
hereto, whether in contract, tort, equity or otherwise, shall be governed by the
internal laws of the State of California but excluding any principles of
conflicts of law or other rule of law that would cause the application of the
law of any jurisdiction other than the laws of the State of California.
7. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of this Amendment by telefacsimile or other electronic method of
transmission shall have the same force and effect as the delivery of an original
executed counterpart of this Amendment. Any party delivering an executed
counterpart of this Amendment by telefacsimile or other electronic method of
transmission shall also deliver an original executed counterpart, but the
failure to do so shall not affect the validity, enforceability or binding effect
of this Amendment.
8. Reference to and Effect on the Financing Agreements.
(a) Upon and after the effectiveness of this Amendment, each reference
in the Loan Agreement to "this Agreement", "hereunder", "hereof" or words of
like import referring to the Loan Agreement, and each reference in the other
Financing Agreements to "the Loan Agreement", "thereof" or words of like import
referring to the Loan Agreement, shall mean and be a reference to the Loan
Agreement as modified and amended hereby.
(b) Except as specifically amended above, the Loan Agreement and all
other Financing Agreements, are and shall continue to be in full force and
effect and are hereby in all respects ratified and confirmed and shall
constitute the legal, valid, binding and enforceable obligations of Borrower or
Parent (as applicable) to Agent and Co-Lender.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of Agent or Co-Lender under any of the Financing Agreements, nor
constitute a waiver of any provision of any of the Financing Agreements.
(d) To the extent that any terms and conditions in any of the
Financing Agreements shall contradict or be in conflict with any terms or
conditions of the Loan Agreement, after giving effect to this Amendment, such
terms and conditions are hereby deemed modified or amended accordingly to
reflect the terms and conditions of the Loan Agreement as modified or amended
hereby.
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9. Estoppel. To induce Agent and Co-Lender to enter into this Amendment and
to continue to make advances to Borrower under the Loan Agreement, Borrower
hereby acknowledges and agrees that, as of the date hereof, there exists no
right of offset, defense, counterclaim or objection in favor of Borrower as
against Agent or Co-Lender with respect to the Obligations.
10. Integration. This Amendment, together with the other Financing
Agreements, incorporates all negotiations of the parties hereto with respect to
the subject matter hereof and is the final expression and agreement of the
parties hereto with respect to the subject matter hereof.
11. Severability. In case any provision in this Amendment shall be invalid,
illegal or unenforceable, such provision shall be severable from the remainder
of this Amendment and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
12. Submission of Amendment. The submission of this Amendment to the
parties or their agents or attorneys for review or signature does not constitute
a commitment by Agent or Co-Lender to waive any of their rights and remedies
under the Financing Agreements, and this Amendment shall have no binding force
or effect until all of the conditions to the effectiveness of this Amendment
have been satisfied as set forth herein.
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IN WITNESS WHEREOF, the parties have entered into this Amendment as of the
date first above written.
COMMERCE ENERGY, INC.,
a California corporation
By: /S/ XXXXXX X. BOSS
------------------------------------
Xxxxxx X. Boss
President
COMMERCE ENERGY GROUP, INC.,
a Delaware corporation
By: /S/ XXXXXX X. BOSS
------------------------------------
Xxxxxx X. Boss
Chief Executive Officer
WACHOVIA CAPITAL FINANCE CORPORATION
(WESTERN), a California corporation
By: /S/ XXXX XXXXX
------------------------------------
Xxxx Xxxxx
Vice President
THE CIT GROUP/BUSINESS CREDIT, INC.,
a New York corporation
By: /S/ XXXXX X. XXXXXX
------------------------------------
Xxxxx X. Xxxxxx
Senior Vice President
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SCHEDULES AND EXHIBITS OMITTED FROM
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT AND WAIVER
Exhibits:
None
Schedules:
Schedule 1 Existing Pacific Summit Energy LLC Customers
Schedule 2 New Pacific Summit Energy LLC Customers
