<PAGE>
Exhibit 2.1
ASSET PURCHASE AGREEMENT
DATED SEPTEMBER 20, 2006
BY AND BETWEEN
HOUSTON ENERGY SERVICES COMPANY, L.L.C.,
AS "SELLER",
AND
COMMERCE ENERGY, INC.,
AS "BUYER"
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS....................................................
1
ARTICLE II THE ASSET
PURCHASE............................................ 11
2.1 Purchase and Sale of
Assets.................................... 11
2.2 Assumption of
Liabilities...................................... 11
2.3 Purchase
Price................................................. 11
2.4 The
Closing....................................................
11
2.5
Allocation.....................................................
14
2.6
Apportionment..................................................
14
2.7 Gas
Imbalances.................................................
14
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
SELLER................. 15
3.1 Organization,
Qualification and Limited Liability
Company Power..................................................
16
3.2 Authorization of
Transaction................................... 16
3.3
Noncontravention...............................................
16
3.4 Tax
Matters....................................................
17
3.5 Ownership and
Condition of Assets.............................. 17
3.6 Assigned Contracts;
Risk Management............................ 18
3.7
Litigation.....................................................
19
3.8
Employees......................................................
19
3.9 Employee
Benefits.............................................. 20
3.10
Legal
Compliance...............................................
21
3.11
Customers and
Suppliers........................................ 21
3.12
Permits........................................................
22
3.13
Certain Business
Relationships With Affiliates................. 22
3.14
Brokers'
Fees.................................................. 22
3.15
Books and
Records.............................................. 22
3.16
Limitations of
Seller's Representations and Warranties......... 22
3.17
Buyer's Breach
of Representation or Warranty................... 23
3.18
Non-Foreign
Entity............................................. 23
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3.19
Solvency; the
Seller's Intent.................................. 23
3.20
Trading
Book...................................................
24
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE
BUYER................... 24
4.1 Organization and
Corporate Power............................... 24
4.2 Authorization of the
Transaction............................... 24
4.3
Noncontravention...............................................
24
4.4
Litigation.....................................................
25
4.5
Financing......................................................
25
4.6 Broker's
Fees.................................................. 25
4.7 Buyer's
Reliance...............................................
25
4.8 Limitations of the
Buyer's Representations and Warranties...... 25
4.9 Seller's Breach of
Representation or
Warranty................. 25
ARTICLE V
COVENANTS......................................................
26
5.1 Governmental and
Third-Party Notices and Consents.............. 26
5.2 Proprietary
Information........................................ 26
5.3 Solicitation and
Hiring........................................ 27
5.4
Non-Competition................................................
27
5.5 Tax
Matters....................................................
27
5.6 Sharing of
Data................................................ 27
5.7 Cooperation in
Litigation...................................... 28
5.8
Employees......................................................
28
5.9 Transition
Services............................................ 28
5.10
Substitution
Letters of Credit................................. 29
5.11
Collection of
Receivables...................................... 29
5.12
Further
Assurances.............................................
29
5.13
Assistance with
Preparation of Financial Statements............ 29
5.14
Refund of Customer
Deposits.................................... 29
ARTICLE VI
INDEMNIFICATION...............................................
30
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6.1 Indemnification by the
Seller.................................. 30
6.2 Indemnification by the
Buyer................................... 30
6.3 Indemnification
Claims......................................... 30
6.4 Survival of
Representations and Warranties..................... 33
6.5
Limitations....................................................
33
6.6 Treatment of Indemnity
Payments................................ 34
6.7 Waiver of Deceptive
Trade Practices Acts....................... 34
ARTICLE VII
MISCELLANEOUS................................................
35
7.1 Press Releases and
Announcements............................... 35
7.2 No Third Party
Beneficiaries................................... 36
7.3 Entire
Agreement...............................................
36
7.4 Succession and
Assignment...................................... 36
7.5 Counterparts and
Facsimile Signature........................... 36
7.6
Headings.......................................................
36
7.7
Notices........................................................
36
7.8 Governing
Law.................................................. 37
7.9 Amendments and
Waivers......................................... 37
7.10
Severability...................................................
37
7.11
Expenses.......................................................
38
7.12
Submission to
Jurisdiction..................................... 38
7.13
Specific
Performance........................................... 38
7.14
Construction...................................................
38
7.15
Limitation on
Damages.......................................... 39
7.16
Acknowledgement................................................
39
7.17
Conspicuousness
of Provisions.................................. 39
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<PAGE>
Exhibits
Exhibit A - Bill of Sale
Exhibit B - Assumption Agreement
Exhibit C - Non-Solicitation Agreement
Exhibit D - Transition Services Agreement
Exhibit E - Trading Book Side Letter
Exhibit F - Guaranty Agreement
Schedules
Schedule 2.1(b) - Excluded
Assets
Schedule 2.5
- Allocation of Purchase Price
Disclosure Schedule
Schedule 5.8
- Transferred Employees
-iv-
<PAGE>
ASSET PURCHASE AGREEMENT
This
Asset Purchase Agreement is entered into on September 20, 2006 by
and
between Houston Energy Services Company, L.L.C., a Texas limited
liability
company (the "Seller"), and Commerce Energy, Inc., a California
corporation (the
"Buyer").
WITNESSETH:
In
consideration of the representations, warranties and covenants
herein
contained, the Parties agree as follows:
ARTICLE I
DEFINITIONS
For
purposes of this Agreement, each of the following terms shall have
the
meaning set forth below.
"Acquired Assets" shall mean the following assets, properties and
rights of
the Seller existing as of the Closing to the extent they relate to
the Business:
(a) all rights under Assigned Contracts relating to periods from
and
after September 1, 2006, including all accounts receivable arising
thereunder
during such periods;
(b) all Permits;
(c) all books, records, accounts, ledgers, files, documents,
correspondence, lists (including customer and prospect or lead
lists, including
oil users), employment records, operating and/or procedural
manuals, end-user
customer records (including credit review files, to the extent
permitted to be
transferred by applicable Law), sales and promotional materials,
studies,
reports and other printed or written materials;
(d) all positions comprising the Trading Book, except for the
Designated NYMEX Positions;
(e) all rights to firm distribution capacity released to the Seller
by
Central Florida Gas for end-user customers of the Business in the
Central
Florida Gas distribution territory;
(f) all rights to storage, peaking and transportation capacity
released to the Seller by TECO Peoples Gas for end-user customers
of the Seller
in the TECO Peoples Gas distribution territory;
(g) all rights to storage, peaking and transportation capacity
released to the Seller by Sequent Energy for end-user customers of
the Seller in
the Central Florida Gas, Florida Public Utilities and Florida City
Gas
distribution territories;
<PAGE>
(h) all rights to storage, peaking and transportation capacity
released to the Seller by any party for end-user customers of the
Seller in the
Restricted Area used in the Business; and
(i) all Customer Deposits.
"Affiliate" shall mean any affiliate, as defined in Rule 12b-2
under the
Securities Exchange Act of 1935.
"Agreed Amount" shall mean part, but not all, of the Claimed
Amount.
"Ancillary Agreements" shall mean the Bill of Sale, the
Assumption
Agreement, the Non-Solicitation Agreement, the Transition Services
Agreement,
the Guaranty Agreement and the Trading Book Side Letter.
"Arbitrator" shall have the meaning set forth in Section
6.3(e).
"Assigned Contracts" shall mean all Contracts, other than the
Supply
Agreements, to which the Seller is a party relating exclusively to
the Business
existing as of the Closing, each of which is set forth on Section
3.6 of the
Disclosure Schedule (but shall not include any such Contracts
reflected on
Schedule 2.1(b)), including:
(a) All Customer Contracts;
(b) All Hedging Agreements to which the Seller is a party,
including
all Contracts evidencing existing basis positions backing Customer
Contracts,
and all credit support agreements or other collateral arrangements
relating to
Customer Contracts, but not including the NYMEX positions;
(c) All of Seller's rights to storage, peaking and
transportation
capacity released by Central Florida Gas for end-user customers of
the Business
in the Central Florida Gas distribution territory;
(d) All of Seller's rights to storage, peaking and
transportation
capacity released by TECO Peoples Gas for end-user customers of the
Business in
the TECO Peoples Gas distribution territory; and
(e) All of Seller's rights to storage, peaking and
transportation
capacity released by Sequent Energy for end-user customers of the
Business in
the Central Florida Gas, Florida Public Utilities and Florida City
Gas
distribution territories.
"Assumed Liabilities" shall mean the Liabilities of the Seller
arising from
and after September 1, 2006 under the Assigned Contracts.
"Assumption Agreement" shall have the meaning set forth in
Section
2.4(b)(vi).
-2-
<PAGE>
"Bill of Sale" shall have the meaning set forth in Section
2.4(b)(v).
"Business" shall mean the Seller's business of selling natural gas
to
Customers in California, Florida, Nevada, Kentucky and Texas.
"Buyer" shall have the meaning set forth in the first paragraph of
this
Agreement.
"Buyer Certificate" shall mean a certificate to the effect that
the
representations and warranties of the Buyer set forth in the first
sentence of
Section 4.1 and in Section 4.2 and any representations and
warranties of the
Buyer set forth in this Agreement that are qualified as to
materiality shall be
true and correct in all respects, and all other representations and
warranties
of the Buyer set forth in this Agreement shall be true and correct
in all
material respects, in each case as of the date of this Agreement,
except to the
extent such representations and warranties are specifically made as
of a
particular date (in which case such representations and warranties
shall be true
and correct as of such date).
"Buyer Indemnified Party" shall have the meaning set forth in
Section
6.1(a).
"Buyer's Knowledge" means the actual knowledge, following
reasonable
inquiry, of each of the officers of Buyer that are involved in the
negotiation,
structuring or effectuation of the Transactions or the due
diligence review of
the operations of the Seller or its Subsidiaries conducted by or on
behalf of
the Buyer in connection therewith.
"Claimed Amount" shall mean the amount of any Damages incurred
or
reasonably expected to be incurred by the Indemnified Party.
"Claim Notice" shall mean written notification which contains (i)
a
description of the Damages incurred or reasonably expected to be
incurred by the
Indemnified Party and the Claimed Amount of such Damages, to the
extent then
known, (ii) a statement that the Indemnified Party is entitled
to
indemnification under Article VI for such Damages (or, if
applicable, a
statement that the Indemnified Party is entitled to injunctive
relief) and a
reasonable explanation of the basis therefor, and (iii) a demand
for payment in
the amount of such Damages (or, if applicable, a demand for action
to cure the
applicable breach).
"Closing" shall have the meaning set forth in Section 2.4(a).
"Closing Amount" shall mean the meaning set forth in Section
2.3.
"Closing Date" shall have the meaning set forth in Section
2.4(a).
"Code" shall mean the Internal Revenue Code of 1986, as amended,
and the
rules and regulations thereunder.
"Commercial Rules" shall mean the Commercial Arbitration Rules of
the AAA.
"Contract" means any contract, agreement, lease, license, sales
order,
purchase order, instrument or other commitment or arrangement,
whether written
or oral, that is binding on any Person or any part of its property
under
applicable Law, and any amendments thereto.
-3-
<PAGE>
"Controlling Party" shall mean the party controlling the defense of
any
Third Party Action.
"Customer" means the Seller's counterparty with respect to each
contract
for the sale of natural gas by the Seller, including existing
Customers and
pending additional Customers.
"Customer Contracts" means all of the Seller's retail natural gas
Contracts
for sales of gas to Customers in the State of California, the State
of Florida,
the State of Nevada, the State of Kentucky and the State of Texas,
each of which
is set forth on Section 3.6(a)(xii) of the Disclosure Schedule and
each of which
is an Assigned Contract.
"Customer Deposits" means deposits of cash or cash equivalents made
by or
on behalf of any Customers as of September 1, 2006 as security
under any
Customer Contract that are in the possession or control of the
Seller.
"Customer Letters of Credit" means letters of credit issued by or
on behalf
of any Customers in favor of the Seller as of September 1, 2006 as
security
under any Customer Contract that are in the possession or control
of the Seller.
"Damages" shall mean any and all debts, obligations and other
Liabilities
(whether absolute, accrued, contingent, fixed or otherwise, or
whether known or
unknown, or due or to become due or otherwise), diminution in
value, monetary
damages, fines, fees, penalties, interest obligations,
deficiencies, losses and
expenses (including amounts paid in settlement, interest, court
costs, costs of
investigators, fees and expenses of attorneys, accountants,
financial advisors
and other experts, and other expenses of litigation), other than
those costs and
expenses of arbitration of a Dispute which are to be shared equally
by the
Indemnified Party and the Indemnifying Party as set forth in
Section 6.3(e)(vi).
"Designated NYMEX Positions" shall mean the Seller's existing
NYMEX
positions set forth on Exhibit A to the Trading Book Side
Letter.
"Disclosure Schedule" shall mean the disclosure schedule provided
by the
Seller to the Buyer on the date hereof and accepted in writing by
the Buyer or
otherwise attached to this Agreement.
"Dispute" shall mean the dispute resulting if the Indemnifying
Party in a
Response disputes its liability for all or part of the Claimed
Amount.
"Employee Benefit Plan" shall mean any "employee pension benefit
plan" (as
defined in Section 3(2) of ERISA), any "employee welfare benefit
plan" (as
defined in Section 3(1) of ERISA), and any other written or oral
plan, agreement
or arrangement involving direct or indirect compensation, including
insurance
coverage, severance benefits, disability benefits, deferred
compensation,
bonuses, stock options, stock purchase, phantom stock, stock
appreciation or
other forms of incentive compensation or post-retirement
compensation.
-4-
<PAGE>
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as
amended.
"ERISA Affiliate" shall mean any Person which is, or at any
applicable time
was, a member of (1) a controlled group of corporations (as defined
in Section
414(b) of the Code), (2) a group of trades or businesses under
common control
(as defined in Section 414(c) of the Code), or (3) an affiliated
service group
(as defined under Section 414(m) of the Code or the regulations
under Section
414(o) of the Code), any of which includes or included the Seller
or a
Subsidiary.
"Excluded Assets" shall mean those assets listed on Schedule
2.1(b)
attached hereto.
"Expected Claim Notice" shall mean a notice that, as a result of a
legal
proceeding instituted by or written claim made by a third party, an
Indemnified
Party reasonably expects to incur Damages for which it is entitled
to
indemnification under Article VI.
"GAAP" shall mean United States generally accepted accounting
principles,
applied consistent with prior practice of the party to which it
relates.
"Governmental Entity" shall mean any domestic or foreign national,
state or
local government, any subdivision, agency, board, commission,
bureau, court,
tribunal or other instrumentality or authority thereof, or any
quasi-governmental or private body exercising any regulatory or
taxing authority
thereunder.
"Guaranty Agreement" shall
mean the guaranty agreement being entered into
between all of the members of the Seller and the Buyer at the
Closing,
substantially in the form attached to this Agreement as Exhibit
F.
"Hedging Agreements" means (i) any hedging agreements, futures
Contracts,
commodity price swap agreements, forward agreements, Contracts of
sale, collars,
puts, calls, floors, caps, options or other Contracts that are
intended to
benefit from or reduce or eliminate the risk associated with
fluctuations in the
price of hydrocarbons, interest rates and/or currency exchange
rates and (ii)
any other agreements, including physical and financial purchase and
sale
Contracts, transportation agreements, throughput agreements, in
each case
relating to the Business.
"Indemnified Party" shall mean any Person entitled, or seeking to
assert
rights, to indemnification under Article VI of this Agreement.
"Indemnifying Party" shall mean the Party from whom indemnification
is
sought by the Indemnified Party.
"Law" shall mean any United States or non-United States statute,
law,
ordinance, regulation, rule, code, executive order, injunction,
judgment, decree
or other order.
"LDC" shall have the meaning set forth in Section 2.7(a).
"Legal Proceeding" shall mean any action, suit, proceeding,
claim,
arbitration or investigation before any Governmental Entity or
before any
arbitrator.
-5-
<PAGE>
"Liabilities" shall mean any and all debts, liabilities and
obligations,
whether accrued or fixed, absolute or contingent, matured or
unmatured or
determined or determinable, including those arising under any Law
or Legal
Proceeding and those arising under any Contract.
"Non-controlling Party" shall mean the Party not controlling the
defense of
any Third Party Action.
"Non-Solicitation Agreement" shall have the meaning set forth in
Section
2.4(b)(iv).
"Ordinary Course of Business" shall mean the ordinary course of
business of
the Business consistent with past custom and practice (including
with respect to
frequency and amount).
"Organizational Documents" shall mean, with respect to an entity,
all of
the following that are applicable: its Certificate or Articles of
Incorporation,
Organization or Formation, its by-laws, its limited liability
company operating
agreement, its regulations, its indenture of trust or any
organizational
document or agreement functionally equivalent to any of the
foregoing.
"Parties" shall mean the Buyer and the Seller.
"Party" shall mean any of the Buyer and the Seller, as
applicable.
"Payment Period" shall mean any period of time for which payments
have been
made in advance by the Seller or are to be made in arrears by the
Buyer.
"Permits" shall mean all permits, licenses, registrations,
certificates,
orders, approvals, franchises, variances, exemptions, tariffs, rate
schedules,
authorizations and similar rights issued by or obtained from any
Governmental
Entity (including those issued or required under environmental Laws
and those
relating to the occupancy or use of owned or leased real
property).
"Person" means an individual, corporation, partnership, limited
partnership, limited liability company, syndicate, person, trust,
association or
entity or government, political subdivision, agency or
instrumentality of a
government.
"Purchase Price" shall have the meaning set forth in Section
2.3.
"Quantifiable Losses" shall mean (without duplication) any losses
and
Liabilities incurred by or imposed upon the Seller or any of its
Subsidiaries,
but excluding Liabilities which are disclosed in the Disclosure
Schedule, it
being understood and agreed that the purposes of this Agreement the
amount of
such losses and Liabilities shall be quantified using valuation
methods that are
generally accepted in the natural gas industry (to the extent that
such methods
exist).
"Reasonable Best Efforts" shall mean best efforts, to the
extent
commercially reasonable, but without any requirement to institute a
Legal
Proceeding or expend in excess of $1,000.00
-6-
<PAGE>
(other than expenditures for attorneys' fees and costs) with
respect to efforts
made as to any individual matter or thing.
"Response" shall mean a written response containing the
information
provided for in Section 6.3(c).
"Restricted Area" shall mean the Service Territories of: Louisville
Gas and
Electric; Central Florida Gas; Florida Public Utilities; TECO
Peoples Gas;
Florida City Gas; SoCal Edison; Pacific Gas & Electric;
Southwest Gas (Southern
Div.); Southern California Gas Company; Southwest Gas Corporation;
and Pacific
Gas and Electric Company.
"Restricted Employee" shall mean any individual who either (i) was
an
employee of the Buyer on the date of this Agreement or (ii) was an
employee of
the Seller on the date of this Agreement and received an employment
offer from
the Buyer within five business days following the Closing Date.
"Retained Liabilities" shall mean any and all Liabilities (whether
known or
unknown, absolute or contingent, liquidated or unliquidated, due or
to become
due and accrued or unaccrued, and whether claims with respect
thereto are
asserted before or after the Closing) of the Seller and its
Affiliates that are
not Assumed Liabilities. The Retained Liabilities shall include all
Liabilities
of the Seller and any of its Affiliates arising out of, relating
to, resulting
from or in connection with:
(a) income taxes accruing with respect to Seller's ownership
and
operation of the Business prior to the Closing;
(b) costs and expenses incurred in connection with this Agreement
or
the consummation of the Transactions;
(c) this Agreement and the Ancillary Agreements;
(d) any Taxes, including deferred taxes or taxes measured by income
of
the Seller earned prior to September 1, 2006 or in connection with
the
consummation of the Transactions, any Liabilities for federal and
state income
tax and FICA taxes of employees of the Seller which the Seller is
legally
obligated to withhold, any Liabilities of the Seller for employer
FICA and
unemployment taxes incurred, and any Liabilities of the Seller for
sales, use or
excise taxes or customs and duties;
(e)
any Contracts which are listed on Schedule 2.1(b);
(f) all Liabilities arising prior to September 1, 2006 under
the
Assigned Contracts, and all Liabilities for any breach, act or
omission by the
Seller prior to the Closing under any of the Assigned
Contracts;
(g) events, conduct or conditions existing or occurring prior to
the
Closing that constitute a violation of or non-compliance with any
Law, any
judgment, decree or order of any Governmental Entity, or any
Permit;
-7-
<PAGE>
(h) severance benefits to any employee of the Seller whose
employment
is terminated (or treated as terminated) in connection with the
consummation of
the Transactions;
(i) the employment, or termination of employment, of current
and
former employees of the Seller and its Affiliates;
(j) indemnification obligations owed to any Person by reason of
the
fact that such Person was a director, officer, employee, or agent
of the Seller
or was serving at the request of the Seller as a partner, trustee,
director,
officer, employee, or agent of another Person (whether such
indemnification is
for judgments, damages, penalties, fines, costs, amounts paid in
settlement,
losses, expenses, or otherwise and whether such indemnification is
pursuant to
any statute, charter document, bylaw, agreement, or otherwise);
(k) injury to or death of persons or damage to or destruction
of
property occurring prior to the Closing (including any workers'
compensation
claim);
(l) any Seller Plan, together with all medical, dental and
disability
benefits (both long-term and short-term benefits), whether insured
or
self-insured, owed to employees or former employees of the Seller
based upon
conditions or disabilities existing prior to the Closing (including
any
liabilities arising out of any conditions or disabilities which may
have been
aggravated following the Closing);
(m) the servicing of Customer accounts by the Seller prior to
September 1, 2006, including short-term shipping costs, charges
and
pass-throughs; and
(n) obligations to Customers arising prior to September 1,
2006.
"Security Interest" shall mean any mortgage, pledge, security
interest,
encumbrance, charge, option, pledge, restriction on transfer of
title or voting,
restrictive covenant, right of first refusal, other lien or any
adverse claim of
any nature whatsoever (whether arising by Contract or by operation
of Law),
other than (i) mechanic's, materialmen's, and similar liens, (ii)
liens arising
under worker's compensation, unemployment insurance, social
security,
retirement, and similar legislation and (iii) liens on goods in
transit incurred
pursuant to documentary letters of credit, in each case arising in
the Ordinary
Course of Business of the Seller and not material to the
Seller.
"Seller" shall have the meaning set forth in the first paragraph of
this
Agreement.
"Seller Certificate" shall mean a certificate to the effect that
the
representations and warranties of the Seller set forth in the first
sentence of
Section 3.1 and in Section 3.2 and any representations and
warranties of the
Seller set forth in this Agreement that are qualified as to
materiality shall be
true and correct in all respects, and all other representations and
warranties
of the Seller set forth in this Agreement shall be true and correct
in all
material respects, in each case as of the date of this Agreement,
except to the
extent such representations and warranties are specifically made as
of a
particular date (in which case such representations and warranties
shall be true
and correct as of such date).
-8-
<PAGE>
"Seller's Knowledge" shall mean the actual knowledge, following
reasonable
inquiry, of the officers of the Seller that are involved in the
operations of
the Seller or any of its Subsidiaries.
"Seller Material Adverse Effect" shall mean any material adverse
change,
event, circumstance or development with respect to, or material
adverse effect
on, (i) the business, assets, Liabilities, capitalization,
financial condition,
or results of operations of the Business that (x) results in
Quantifiable Losses
of more than $10,000.00, or (y) results in the imposition of a Lien
or a third
party adverse claim on the Acquired Assets (other than a Lien or
third party
adverse claim that can be discharged through the payment of not
more than
$10,000.00), or (ii) makes impossible the consummation of the
Transactions, but
in each case excludes:
(a)
any change or effect generally affecting the international,
national,
regional or local natural gas gathering, transmission or
distribution industry
as a whole and not adversely affecting the Acquired Assets in any
manner or
degree materially different than other facilities similar to the
Acquired
Assets.
(b)
any change or effect resulting from changes in the
international,
national, regional or local markets for natural gas or in natural
gas prices
paid in any such markets; or
(c)
any Order or act of any Governmental Authority applicable to
the
gathering, transmission or distribution of natural gas generally
that imposes
restrictions, regulations or other requirements thereon.
Any determination as to whether any condition or other matter has a
Seller
Material Adverse Effect shall be reasonable and shall be made only
after taking
into account all proceeds or amounts that are expected to be
received by Buyer
or any of its Subsidiaries with respect to such condition or matter
from (i)
insurance coverages, (ii) indemnification provisions or (iii)
commitments by
Seller or its Affiliates to the Buyer or any of its Subsidiaries in
anticipation
of receipt of insurance proceeds or indemnification payments. For
the avoidance
of doubt, the parties agree that the terms "material", "materially"
or
"materiality" as used in this Agreement with an initial lower case
"m" shall
have their respective customary and ordinary meanings, without
regard to the
meaning ascribed to Seller Material Adverse Effect.
"Seller Plan" shall mean any Employee Benefit Plan maintained,
or
contributed to, by the Seller, any Subsidiary of the Seller, or any
ERISA
Affiliate, or with respect to which the Seller, any Subsidiary of
the Seller, or
any ERISA Affiliate has any Liabilities.
"Subsidiary" shall mean, with respect to any Person, any
corporation,
limited liability company, partnership, association or other
business entity of
which (i) if a corporation, a majority of the total voting power of
shares of
stock entitled (without regard to the occurrence of any
contingency) to vote in
the election of directors, managers or trustees thereof is at the
time owned or
controlled, directly or indirectly, by that Person or one or more
of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a
limited
liability company, partnership, association or other business
entity, a majority
of the partnership or other similar ownership interests thereof is
at the time
owned or controlled, directly or indirectly, by any
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Person or one or more Subsidiaries of that Person or a combination
thereof. For
purposes hereof, a Person or Persons shall be deemed to have a
majority
ownership interest in a limited liability company, partnership,
association or
other business entity if such Person or Persons shall be allocated
a majority of
limited liability company, partnership, association or other
business entity
gains or losses or shall be or control any managing director or
general partner
of such Person.
"Supply Agreements" means those agreements of the Seller providing
for gas
supply relating to the Business, as listed on and comprising a part
of Schedule
2.1(b).
"Taxes" shall mean all taxes, charges, fees, levies or other
similar
assessments or Liabilities, including income, gross receipts, ad
valorem,
premium, value-added, excise, real property, personal property,
sales, use,
transfer, withholding, employment, unemployment, insurance, social
security,
business license, business organization, environmental, natural
gas, workers
compensation, payroll, profits, license, lease, service, service
use, severance,
stamp, occupation, windfall profits, customs, duties, franchise and
other taxes
imposed by the United States of America or any state, local or
foreign
government, or any agency thereof, or other political subdivision
of the United
States or any such government, and any interest, fines, penalties,
assessments
or additions to tax resulting from, attributable to or incurred in
connection
with any tax or any contest or dispute thereof.
"Tax
Returns" shall mean all reports, returns, declarations, statements
or
other information required to be supplied to a taxing authority in
connection
with Taxes.
"Third Party Action" shall mean any suit or proceeding by a Person
other
than a Party for which indemnification may be sought by a Party
under Article
VI.
"Trading Book" shall mean the combination of active risk
positions,
including discretionary trading, system supply, prompt and future
sales, hedges,
options, physical and financial purchase and sale Contracts,
transportation
agreements, throughput agreements and other Hedging Agreements, in
each case
relating to the Business, all of which are set forth on Section
3.20 of the
Disclosure Schedule.
"Trading Book Side Letter" shall mean the side letter to be entered
into
between the Buyer and the Seller at the Closing regarding the
Trading Book,
substantially in the form attached hereto as Exhibit E.
"Transactions" means the transactions contemplated by this
Agreement and
the Ancillary Agreements.
"Transition Services Agreement" shall mean the Transition
Services
Agreement being entered into between the Buyer and the Seller at
the Closing,
substantially in the form attached to this Agreement as Exhibit
D.
"Transferred Employees" shall have the meaning set forth in Section
5.8(a).
"WARN Act" shall have the meaning set forth in Section 3.8(c).
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ARTICLE II
THE ASSET PURCHASE
2.1
Purchase and Sale of Assets.
(a) Concurrently with the execution of this Agreement, the Buyer
is
purchasing from the Seller, and the Seller is selling,
transferring, assigning
and delivering to the Buyer, for the consideration specified below
in this
Article II, all right, title and interest of Seller in, to and
under the
Acquired Assets, free and clear of all Security Interests.
(b) Notwithstanding the provisions of Section 2.1(a), the
Acquired
Assets shall not include the Excluded Assets.
2.2
Assumption of Liabilities.
(a) Concurrently with the execution of this Agreement, the Buyer
is
assuming and becoming responsible for the Assumed Liabilities.
(b) Notwithstanding the terms of Section 2.2(a) or any other
provision
of this Agreement to the contrary, the Buyer shall not assume or
become
responsible for, and the Seller shall remain liable for, the
Retained
Liabilities.
2.3
Purchase Price. The amount being paid by the Buyer for the
Acquired
Assets is two million two hundred twenty-five thousand and no/100
dollars
($2,225,000.00) (the "Closing Amount"), subject to adjustment as
provided in
Section 2.6 (as adjusted, the "Purchase Price").
2.4
The Closing.
(a) The purchase and sale of the Acquired Assets and Assumed
Liabilities provided for in this Agreement is taking pace (the
"Closing") at the
offices of the Buyer at 600 Anton Boulevard, Suite 2000, Costa
Mesa, California
92626, commencing at 9:00 a.m. local time on the date hereof (the
"Closing
Date"). All transactions at the Closing shall be deemed to take
place
simultaneously, and no transaction shall be deemed to have been
completed and no
documents or certificates shall be deemed to have been delivered
until all other
transactions are completed and all other documents and certificates
are
delivered.
(b) At the Closing, the Seller is:
(i)
executing and delivering to the Buyer the Seller Certificate;
(ii) executing and delivering to the Buyer documents evidencing
the release or termination of all Security Interests on the
Acquired Assets, and
copies of filed UCC-3 termination statements with respect to all
UCC-1 financing
statements pertaining to the Acquired Assets, or alternatively,
executed letters
from the owner(s) and holder(s) of all such Security Interests,
addressed to the
Buyer and agreeing to execute and deliver such releases, and file
such UCC-3
termination statements immediately following the Closing, in each
case in form
and substance reasonably satisfactory to the Buyer;
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(iii) delivering a certificate to the Buyer, executed by its
Secretary and dated as of the date hereof, certifying (A) as to the
incumbency
of the persons executing this Agreement and the Ancillary
Agreements on the
Seller's behalf, (B) that attached to such certificate is a true
and complete
copy of resolutions that have been duly and validly adopted by the
board of
directors (or managing member) of the Seller evidencing (i) the
authorization of
the execution and delivery of this Agreement and each Ancillary
Agreement to
which the Seller is a party and the consummation of the
Transactions, and (ii)
the matters set forth in Section 3.19, together with a statement to
the effect
that such resolutions are in full force and effect on the Closing
Date, (C) that
attached to such certificate is a copy of the Seller's
Organizational Documents
that are in effect on the Closing Date and (D) that attached to
such certificate
is a copy of a certificate of good standing of the Seller in its
jurisdiction of
organization, dated as of a date on or after September 1, 2006;
(iv) delivering to the Buyer counterparts of that certain
non-solicitation agreement attached hereto as Exhibit C executed by
Thomas L.
Goudie and James Bujnoch, Jr. (the "Non-Solicitation
Agreement");
(v) executing and delivering to the Buyer a bill of sale in
substantially the form attached hereto as Exhibit A (the "Bill of
Sale"), and
such other instruments of conveyance (such as assigned negotiable
instruments)
as the Buyer may reasonably request in order to effect the sale,
transfer,
conveyance and assignment to the Buyer of valid ownership of the
Acquired
Assets;
(vi) executing and delivering to the Seller an assumption
agreement in substantially the form attached hereto as Exhibit B
(the
"Assumption Agreement");
(vii) executing and delivering to the Buyer a duplicate
original
of the Transition Services Agreement;
(viii) executing and delivering to the Buyer a duplicate
original
of the Trading Book Side Letter;
(ix) causing all of the members of Seller to execute and
deliver
the Guaranty Agreement to Buyer;
(x) executing and delivering to the Buyer a duplicate original
of
the guaranty to be issued by Commerce Energy Group, Inc., as
required by Section
2.08 of the Transition Services Agreement; and
(xi) paying to the Buyer, by wire transfer or other delivery of
immediately available funds to an account designated by the Seller,
an amount in
cash equal to the aggregate amount of the Customer Deposits.
(c) At the Closing, the Buyer is:
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<PAGE>
(i) executing and delivering to the Seller the Buyer
Certificate;
(ii) delivering a certificate to the Seller, executed by its
Secretary and dated as of the date hereof, certifying (A) as to the
incumbency
of the persons executing this Agreement and the Ancillary
Agreements on the
Buyer's behalf, (B) that attached to such certificate is a true and
complete
copy of resolutions that have been duly and validly adopted by the
board of
directors (or managing member) of the Buyer evidencing the
authorization of the
execution and delivery of this Agreement and each Ancillary
Agreement to which
the Buyer is a party and the consummation of the Transactions,
together with a
statement to the effect that such resolutions are in full force and
effect on
the Closing Date, and (C) that attached to such certificate is a
copy of a
certificate of good standing of the Buyer in its jurisdiction of
organization,
dated as of a date on or after September 1, 2006;
(iii) executing and delivering to the Seller a duplicate
original
of the Non-Solicitation Agreement;
(iv) executing and delivering to the Seller a duplicate
original
of the Bill of Sale;
(v) executing and delivering to the Seller a duplicate original
of the Assumption Agreement and such other instruments as the
Seller may
reasonably request in order to effect the assumption by the Buyer
of the Assumed
Liabilities;
(vi) executing and delivering to the Seller a duplicate
original
of the Transition Services Agreement;
(vii) executing and delivering to the Seller a duplicate
original
of the Trading Book Side Letter;
(viii) executing and delivering to the Seller a duplicate
original of the Guaranty Agreement;
(ix) paying to the Seller, by wire transfer or other delivery
of
immediately available funds to an account designated by the Seller,
the Closing
Amount, as adjusted pursuant to Section 2.6;
(x) paying to the Seller by wire transfer or other delivery of
immediately available funds to an account designated by the Seller,
the sum of
twelve thousand four hundred forty-five and 30/100 dollars
($12,445.30), as
reimbursement to the Seller for (i) payroll and payroll taxes
attributable to
the Transferred Employees for the period from September 1, 2006
through
September 20, 2006, and (ii) health insurance premiums paid by the
Seller with
respect to the Transferred Employees for the month of September,
2006;
(xi) paying to the Seller by wire transfer or other delivery of
immediately available funds to an account designated by the Seller,
the sum of
one million eight hundred thirty-seven thousand one hundred ten and
no/100
dollars ($1,837,110.00), as required by Section 1(b) of the Trading
Book Side
Letter;
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<PAGE>
(xii) causing an irrevocable and unconditional standby letter
of
credit in the amount of one million five hundred thousand and
no/100 dollars
($1,500,000.00) to be issued and delivered by Wachovia Bank,
National
Association, to the Seller as required by Section 2.08 of the
Transition
Services Agreement; and
(xiii) causing a guaranty to be issued by Commerce Energy
Group,
Inc. and delivered to the Seller, as required by Section 2.08 of
the Transition
Services Agreement.
2.5
Allocation. The Buyer and the Seller agree to allocate the
Purchase
Price (and all other capitalizable costs) among the Acquired Assets
and the
non-solicitation and non-competition covenants set forth in
Sections 5.3 and 5.4
for all purposes (including financial accounting and tax purposes)
in accordance
with the allocation attached hereto as Schedule 2.5. Further, the
Buyer and the
Seller have completed Internal Revenue Service Form 8594 in
accordance with
Schedule 2.5 and will file such Form 8594 promptly after the
Closing. The Seller
and the Buyer each covenant and agree not to voluntarily take any
tax position
inconsistent herewith on any Tax Returns or in any legal or
administration
proceedings or otherwise.
2.6
Apportionment.
(a) The Closing Amount shall be subject to adjustment as set forth
in
this Section 2.6. In the event that any of the adjustments provided
for in this
Section 2.6 cannot be calculated as of the Closing Date, the
appropriate payment
shall be made by the Buyer or the Seller, as the case may be, to
the other party
as promptly following the Closing Date as is practicable.
(b) For each Assigned Contract for which payments have been made
in
advance by the Seller covering a Payment Period that includes time
after
September 1, 2006, the Closing Amount shall be increased by the
amount
determined by multiplying such advance payment by a fraction, the
numerator of
which is the number of days remaining in the Payment Period after
September 1,
2006 and the denominator of which is the total number of days in
the Payment
Period.
(c) For each Assigned Contract for which payments are to be made
in
arrears by the Buyer covering a Payment Period that includes time
on or before
September 1, 2006, the Closing Amount shall be decreased by the
amount
determined by multiplying such payment by a fraction, the numerator
of which is
the number of days in the Payment Period through and including
September 1, 2006
and the denominator of which is the total number of days in the
Payment Period.
(d) [INTENTIONALLY OMITTED]
(e) The allocation of the Purchase Price among the Acquired Assets
as
set forth in Schedule 2.5 attached hereto shall be appropriately
modified to
reflect the adjustments made pursuant to this Section 2.6.
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<PAGE>
2.7
Gas Imbalances. With respect to the Assigned Contracts, the
Seller
shall be responsible for gas imbalances occurring prior to
September 1, 2006 and
the Buyer shall be responsible for gas imbalances occurring on and
after
September 1, 2006. To that end, the Seller and the Buyer agree that
gas
imbalances of the Seller as of September 1, 2006 will be handled in
the manner
provided for in subsections (a), (b) and (c) of this Section
2.7.
(a) LDC Imbalances. Each gas balancing position of the Seller as
of
September 1, 2006 with each local distribution company ("LDC")
pertaining to the
Business, whether a positive or negative position, will be cashed
out by the
Seller prior to the Closing, with the exception of the Seller's
accounts with
Southwest Gas Corporation and City Gas Florida, so that the Buyer's
net gas
balancing position with respect to the Assigned Contracts as of
September 1,
2006 will be zero (with the exception of Southwest Gas Corporation
and City Gas
Florida).
(b) Southwest Gas Corporation Imbalance. The Seller anticipates
that
as of September 1, 2006 there will be a small gas imbalance
(whether short or
long) with Southwest Gas Corporation. Accordingly, the Parties
agree to
"true-up" with respect to the Seller's gas imbalance position with
Southwest Gas
Corporation as of September 1, 2006. If the Seller's position is
short, then the
Seller shall pay to the Buyer, and, if Seller's position is long,
then the Buyer
shall pay to the Seller, a cash sum of money equal to (i) the
number of
dekatherms by which its position is short or long, as applicable,
times (ii) the
Mid-Point Price for SoCal on the Closing Date as published by "Gas
Daily".
(c) Florida City Gas. The Seller anticipates that the dictated
volumes
customers behind Florida City Gas will generate a small gas
imbalance during
September and/or October, 2006, which the Parties will need to
"true-up". The
"true-up" volumes will be deliveries or credits established by the
LDC which
will cause the Seller's gas pool balance with the LDC to be zero
following the
migration of the Seller's customers to the Buyer's pool with the
LDC. Should the
Seller have "true-up" volumes that it must deliver to its pool with
the LDC for
any period on or after September 1, 2006, then the Buyer shall
nominate and
deliver those volumes to the Seller's pool and invoice the
customers of such
pool for those "true-up" volumes.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The
Seller represents and warrants to the Buyer that, except as set
forth
in the Disclosure Schedule, the statements contained in this
Article III are
true and correct as of the date of this Agreement, except to the
extent such
representations and warranties are specifically made as of a
particular date (in
which case such representations and warranties will be true and
correct as of
such date). The Disclosure Schedule is arranged in sections and
subsections
corresponding to the numbered and lettered sections and subsections
contained in
this Article III. The disclosure in any section or subsection of
the Disclosure
Schedule shall qualify not only the corresponding section or
subsection in this
Article III, but all other sections and subsections in this Article
III so long
as such disclosure contains sufficient factual detail to render its
relevance to
such other purpose readily apparent.
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<PAGE>
3.1
Organization, Qualification and Limited Liability Company Power.
The
Seller is a limited liability company duly organized, validly
existing and in
organizational and tax good standing under the Laws of the State of
Texas. The
Seller is duly qualified to conduct business and is in
organizational and tax
good standing under the Laws of each jurisdiction listed in Section
3.1 of the
Disclosure Schedule, which jurisdictions constitute the only
jurisdictions in
which the conduct of the Business or the ownership or leasing of
the Seller's
properties used in the Business requires such qualification, except
for those
jurisdictions in which the failure to be so qualified or in good
standing,
individually or in the aggregate, would not reasonably be expected
to adversely
affect the ability of the Seller to satisfy its obligations under
this Agreement
and the Ancillary Agreements. The Seller has all requisite limited
liability
company power and authority to carry on the businesses in which it
is engaged
and to own and use the properties owned and used by it.
3.2
Authorization of Transaction. The Seller has all requisite power
and
authority to execute and deliver this Agreement and the Ancillary
Agreements and
to perform its obligations hereunder and thereunder. The execution
and delivery
by the Seller of this Agreement, the performance by the Seller of
this Agreement
and the Ancillary Agreements and the consummation by the Seller of
the
Transactions have been duly and validly authorized by all necessary
action on
the part of the Seller, and no other proceedings on the part of any
of the
Seller and the holders of its limited liability company interests,
as
applicable, are necessary to authorize this Agreement or to
consummate the
Transactions. Each of this Agreement and the Ancillary Agreements
to which the
Seller is a party has been duly a
