The contract between the City of Evansville and Earthcare Energy that was signed by Mayor Winnecke on on behalf of the City and Ken Haney as Chairman and CEO of Earthcare Energyon March 1, 2012 is for the most part standard and easy to understand. There are some items in the contract that merit further review based on the fact that it is now widely reported that the deal is dead.
The first revelation is on page 5 where it clearly states that “Earthcare shall have a period of thirty (30) days to cure such failure, default, or breach.” Contrary to the sentiment in Evansville this deal may not be dead yet. Earthcare may well come back to assert that they have the cure to the items that the city has stated that they are in default for.
The City of Evansville specifically has stated that the default was because of two deficiencies.
The first was Earthcare’s failure to secure a DOE guarantee for the $5 Million loan that the City was committing to make to Earthcare when they had satisfied the pre-funding obligations. Obligation (1) reads “Prior to consummation of the loan transaction contemplated hereby, Earthcare shall APPLY FOR and take all actions necessary to secure from the DOE a loan guarantee of the Loan to be made by the City to Earthcare.” On page 2 of the contract it explicitly states that “The parties hereto both agree and acknowledge that securing a DOE loan guarantee may not be feasible prior to the execution of the agreements” and if it is not secured Earthcare will keep working diligently to try to get a DOE guarantee.
Will making an application for a loan guarantee be that difficult to do to cure Obligation (1)?
With respect to Earthcare’s failure to deliver to the City of Evansville the “license agreement” with Langson Energy on page 6 under the section titled “Conditions to Closing”, Condition #7 reads as follows: “Prior to the consummation of the Loan transaction, Earthcare shall prvide to the City A LETTER from Langson Energy addressed to Mayor Winnecke which outlines the agreement between Langson Energy and EarthCare with respect to Langson Energy’s intellectual property.”
There is no reference to any license agreement that was cited yesterday as reason for default. Of course the term “intellectual property” could and may be interpretted as meaning both the license agreement and the patent that has been represented as having been applied for. The question will be, can Earthcare come back during the next 30 days with a “license agreement” or a “Letter from Langson Energy” as the contract states and claim that they have cured the deficiency?
What is NOT in the contract that is somewhat confusing is any “Condition” or “Requirement” that the Evansville City Council has to vote to approve the loan. Quite frankly, there is no reference to the City Council anywhere in the contract.
There are other details that seem to have been distorted by public statements including the alleged $2.5 Million payments to be made to the City of Evansville by Earthcare in a profit sharing arrangement. The contract has no reference to any profit sharing but does refer in Article 8 of the Obligations of Earthcare to a $0.005 per kWh fee to be paid to the City by Earthcare for power generated under PPA’s with Vectren or other customers for a period of 15 years and not to exceed a total of $32 Million. A quick calculation reveals that to capture the full $32 Million that Earthcare would have to generate 6.4 Billion kWh through their devices and sell it back to utilities.
Perhaps in view of yesterday’s results the most haunting words in the contract are the words that comprise Item 7 of the Miscellaneous Items.
“Earthcare hereby acknowledges and agrees that (a)the City would be irreparable injured in the event of a breach by Earthcare of its obligations hereunder, and (b)monetary damages may not be an adequate remedy for the City in the event of a beach by Earthcare hereunder and (c) in the event of a breach by Earthcare hereunder, the City shall be entitled to seek specific performance or other injunctive relief with respect thereto (without posting of a bond), in addition to any other remedy that the City may have in equity or at law.”
Well, the breach is upon the City of Evansville and there is now 30 days for Earthcare to cure such breaches. Hopefully, for the sake of the people of Evansville this shall pass without further discourse. There is however plenty of opportunity for discourse if either party wishes to be discourseful.
On Monday night City Councilwoman Stephanie Riley will be introducing a resolution to rescind their loan approval and the Council will once again vote for or against a loan to Earthcare. The omission of Council approval as a condition of consummation is bumfuddling. So what if they rescind it, does that not just turn the clock back to when this was signed in the first place?
Of course the burning question is how was the City of Evansville able to justify making a $200,000 loan to Earthcare through the DMD? It would seem since this contract calls for a $5 Million loan that the City has violated its own contract by making that loan. It will be interesting to see what the $184,000 of those funds that have not yet been recovered were used for.
All of this could have been avoided by requiring that the LICENSE AGREEMENT be on file before signing this contract. Please Evansville, learn something about vetting and due diligence before doing another thing involving the use of taxpayer dollars. Put a process in place that makes sense and make sure that the implementation is done in a way and by people who do not have the potential for conflicts of interest.
Source: Contract Supplied to the CCO by the City of Evansville on May 9, 2012 after a press conference regarding the default of Earthcare
