With Government Money Spent, ECOtality Files For Bankruptcy
Having spent all of the DoE’s $99.8 million grant to develop the “EV Project,” or at least as much as they could before the Department cut them off last month, and facing an investor class action suit, as well as a threat from major OEMs to make public critical flaws in their charging stations, ECOtality filed for Ch. 11 bankruptcy protection on Tuesday.
Ecotality is now looking to sell its assets through an auction next month, pending bankruptcy court’s approval.
That auction, of which the failed charging company says there is 8 companies looking to scoop up…something, is tentatively planned for October 9, with a closing to occur within two days.
Interestingly, Nissan has agreed to provide a “delayed draw loan” to ECOtality for up to $1.25 million dollars to keep the company operational until that auction happens. Naturally, a credit and security agreement is in place, so Nissan looks to make out fairly well in the deal.
According to ECOtality’s 8-K filed Tuesday:
Subject to the provisions of the Credit Agreement, Lender agrees to loan to Borrower in the amounts (each, an “Advance”) and on the dates following: (i) At closing of the Credit Agreement – $500,000, (ii) On September 25, 2013 – $250,000, (iii) On September 30, 2013 – $250,000, and (iv) On October 7, 2013 – $250,000.
So, why did ECOtality go bankrupt?
That is besides having no viable business model, and featuring defective products both now (ECOtality was forced to turn down charge rates to avoid overheating and fires) and in future (Minit Charger lineup was postponed due to R&D failures), and having lost $9.6 million in 2012 after losing $22.5 million in 2011?
We will let them explain some of their current woes from Tuesday’s Ch. 11 brief:
Item 2.04Triggering Events that Accelerate or Increase a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement.
The Bankruptcy Filing described in Item 1.03 above, which is incorporated by reference into this Item 2.04, constituted an event of default, and triggered repayment obligations of the Company and certain of its subsidiaries and/or gave rise to certain other rights and remedies, including termination rights, of counterparties. The Company believes that any efforts to enforce such payment obligations or rights and remedies are subject to limitation by, and automatically stayed as a result of, the Bankruptcy Filing and the applicable provisions of the Bankruptcy Code. The Bankruptcy Filing and/or related circumstances constituted an event of default or otherwise triggered rights and remedies of counterparties under the following instruments, agreements or arrangements:
(a) The Bankruptcy Filing described under Item 1.03 above constituted an event of default with respect to $5,000,000 in aggregate principal amount of unsecured indebtedness under the Company’s 5.05% Convertible Note due March 13, 2015 (the “Note”). The Note is senior to the Company’s preferred stock and common stock. Under the terms of the Note, when the Company or any significant subsidiary commences a case under any bankruptcy law, the holder may require the Company to redeem all or any portion of the Note by delivering written notice thereof.
(b) The Company previously executed several EV Pilot Program Master Agreements, also referred to as National Account Agreements, under which the Company installed Level 2 chargers and DC Fast Chargers in connection with the EV Project with the Department of Energy. Under the terms of those agreements, the Company’s filing of a case under the Bankruptcy Code qualifies as a cause for termination of those agreements, under which the Company could be required to remove installed chargers at its own expense. The extent to which the Participants in the agreements may request early termination for cause and the amount of de-installation expense that would be incurred under that scenario cannot be reasonably estimated at this time.
(c) As previously reported on a Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 12, 2013, on August 8, 2013, the Company notified the DOE that, even though the Company continues to aggressively pursue certain options for additional financing and is exploring other alternatives, in the event additional financing is not obtained, the Company may not be able to fulfill its operational obligations, including under the EV Project. In response, the DOE sent a letter to the Company stating that it was suspending all payments under the EV Project while it investigates the situation and determines whether the award should continue.
Under the EV Project agreement, ECOtality is required to immediately notify the DOE of the occurrence of any of several events including the Company’s filing of a voluntary case seeking liquidation or reorganization under the Bankruptcy Act. Upon the occurrence of the filing of a voluntary case seeking liquidation or reorganization under the Bankruptcy Act, the DOE reserves the right to conduct a review of the Company’s award to determine its compliance with the required elements of the award (including such items as cost share, progress towards technical project objectives, and submission of required reports). If the DOE review determines that there are significant deficiencies or concerns with the Company’s performance under the agreement, the DOE reserves the right to impose additional requirements, as needed, including (i) changing of payment method; or (ii) institution of payment controls.
(d) On June 28, 2013, the Company entered into a lease agreement upon expiration of its existing lease with Railroad Properties, LLC under which the Company occupies facilities in Phoenix, Arizona which provide approximately 30,000 square feet for office, warehousing, and test facility functions. The five-year lease, set to expire on June 30, 2018, provides for monthly base rent payments of approximately $13,700 and 3% annual increases in monthly base rent. The lease contains options to extend the lease for two additional twenty-four (24) month periods. Under the terms of the Lease, becoming a debtor under the Bankruptcy Code is deemed a breach of the agreement that entitles the lessor to various remedies, including termination.
(e) The Company is party to a Master Lease Agreement (the “Lease”) with Cisco Systems Capital Corporation (“Cisco”) for equipment totaling approximately $314.0 thousand. The terms of the Lease provide for monthly payments of approximately $9.5 thousand and obligate the Company to $341.0 thousand of total lease payments. The Lease is scheduled to expire on November 30, 2014.
Added thanks to Michael R on this story.