Item 2.01. Completion of Acquisition or Disposition of Assets.
On February 9, 2005, Commerce Energy Group, Inc., a Delaware corporation (Commerce), Commonwealth
Energy Corporation, a California corporation and a wholly-owned subsidiary of Commerce
(Purchaser), entered into an Asset Purchase Agreement (the Purchase Agreement) with American
Communications Network, Inc., a Michigan corporation (ACN), ACN Utility Services, Inc., a
Michigan corporation (ACN Utility Services), ACN Energy, Inc., a Michigan corporation (ACN
Energy), and ACN Power, Inc., a Michigan corporation (ACN Power, and collectively with ACN
Utility Services and ACN Energy, Sellers). Each of the Sellers is a wholly-owned subsidiary of
ACN. Under the Purchase Agreement, Purchaser will acquire certain assets of the Sellers retail
electric power and natural gas sales business (the Retail Energy Business), and assume specified
liabilities of, the Sellers. The Sellers currently sell retail electric power in Texas and
Pennsylvania and sell retail natural gas in California, Ohio, Georgia, New York, Pennsylvania and
Maryland. The assets of the Sellers to be acquired include equipment, gas inventory associated
with utility and pipeline storage and transportation agreements and electricity supply, scheduling
and capacity contracts, software and other infrastructure plus approximately 80,000 residential and
small commercial customers. Employees of ACN Energy will be offered employment with Purchaser.
Certain of the acquired assets were transferred to the Purchaser immediately upon the closing of
the transaction on February 9, 2005. The remaining acquired assets, which are subject to
regulatory approval or third party consent requirements, will be transferred to the Purchaser as
such approvals and consents are obtained. The Sellers granted the Purchaser a security interest in
the assets remaining to be transferred pursuant to a Security Agreement dated as of February 9,
2005.
As set forth in the Purchase Agreement, the initial consideration paid by Purchaser was (a) $6.5
million in cash, plus (b) 930,233 shares of Commerce Common Stock, valued at $2.0 million, based
upon the market price for Commerces Common Stock as of February 8, 2005, the date immediately
prior to the the closing date. The shares of Commerce Energy common stock will initially be placed
in escrow and released upon satisfaction of certain performance targets related to customer growth.
ACN was also paid at closing an estimated prepayment amount of approximately $5.5 million dollars
as payment for certain working capital and prepayment items relating to the assets being acquired,
and are subject to a final adjustment and settlement.
In connection with the Purchase Agreement, the parties executed a Transition Services Agreement
dated as of February 9, 2005 (the Transition Services Agreement) under which the parties will
provide certain transition services to each other in order to provide for the orderly transition of
the Retail Energy Business and the employees of such Business from ACN and the Sellers to
Purchaser.
In addition, Commerce, Purchaser and ACN entered into a Sales Agency Agreement dated as of February
9, 2005 (the Sales Agency Agreement), pursuant to which Purchaser will be permitted to utilize
ACNs network of independent sales representatives. Under the Sales Agency Agreement, Purchaser
will pay ACN (a) an amount equal to sales representative commissions that are payable by ACN to
its independent sales representatives in connection with customers acquired by Purchaser through
such representatives, and (b) a per-customer acquisition fee for each customer acquired through the
Sales Agency Agreement. Under the Sales Agency Agreement, Sales commissions due under the Sales
Agency Agreement will be paid in cash, while customer acquisition fees will be paid by the issuance
of Commerce Common Stock to ACN, based on the fair market value of the Commerce Common Stock when a
customer acquisition fee is due.
The shares of Commerce Common Stock to be issued to ACN pursuant to the Purchase Agreement and the
Sales Agency Agreement will be withheld and delivered to a third party escrow agent. The shares
issued pursuant to the Purchase Agreement will be held in escrow and released to ACN as certain
customer targets are achieved, as described in the Purchase Agreement. The shares issued pursuant
to the Sales Agency Agreement will be held in