QS Energy Inc (QSEP)

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TransCanada is in default of the contract

I received these notes from a contact who said I could post them. It consists of a few parts.

1) Noting that TransCanada is now in default of the contract, since the didn't return the goods by Oct. 15
2) Consideration of what that means.

TransCanada terminated its lease with ZERO on July 15th based on the 90 days notification provision in the lease. That lease termination became effective on October 15th. Since TransCanada has not returned the AOT to ZERO, they are in default under the lease:

10. Default.
10.1 TransCanada shall be in default hereunder if TransCanada fails to pay the Monthly Lease Payment as required hereunder within ten (10) business days of the due date thereof.
10.2 Either Party will be in default under this Lease if the Party defaults in the performance of an obligation required from the Party under this Lease.
10.3 If either Party defaults in performance of any of its obligations under this Lease, the other Party shall provide a written notice of the default to the defaulting Party and if the defaulting Party does not remedy the default within ten (10) business days after the receipt of such notice, the other Party may rely on any legal or equitable remedy available in law or equity.
11.1 Return Condition. Subject to TransCanada's option to purchase under Section 12, below, upon the expiration or termination of this Lease, TransCanada shall return, at TransCanada's expense, such Equipment and any parts, additions or improvements made thereon or thereto, to the Lessor at Lessor's offices or other place designated by the Lessor. On return to the Lessor, the Equipment shall be free and clear of oil, operational and in good working order and repair, except for ordinary wear and tear.

Based on the video it doesn't appear that the AOT will be disassembled anytime soon, but more importantly, the AOT is still running. Nor, does ZERO have the cash on hand to just let TransCanada sit on the AOT.


Consensus amongst my friends is that TransCanada is negotiating a larger deal with ZERO. Each AOT has to be built to the specifications for where it will be deployed and that's why a deal could be taking so long. Also, testing may have just been completed in October, but I doubt it. I think it was completed in September. It doesn't take that long to figure out if the technology works or not. The engineering is the more difficult part of this.


With that all said, I believe a friend of mine characterized the current situation best, if the AOT didn't work, TransCanada wouldn't allow the default of the lease to occur and then have to turn around and pay for a piece of junk. They would have returned the AOT by October 15th to ZERO.

Take that for what you will. I received it from a serious investor who in turn received it from someone else (I don't know who.)

The key point to note is that it is a fact that TransCanada is now in default, unless potentially they have ANOTHER bridging contract after the expiration of the previous contract, or they have even signed a large deal. I don't know if the existence of such a deal would trigger an 8k.

In any case, any event that triggers an 8K must be publicized within 4 days. (read more: http://www.sec.gov/answers/form8k.htm, http://www.sec.gov/divisions/corpfin/guidance/8-kinterp.htm)

And breach of the default clause in the contract must trigger some action within 10 days (i.e. October 25).

It takes several days to dismantle and ship out the AOT. They would have had to start that a week ago if they were returning it for October 15. As the note I received said, "What some people don't get is this, just like an apartment or any other thing that is leased, you have to turn over the keys on the day the lease ends. In the case of TransCanada, they would have had to already shipped and delivered the AOT to ZERO by October 15th to be in compliance with the agreement."

My feeling is that the only logical conclusion now is that some kind of deal is in the works between the two companies. That's the only possibility that really makes sense.

The nature of the deal could be anything. So, I suppose that even another deal with TransCanada may possibly not be the proof of industry acceptance we're looking for (for example, they only order one other unit, extend the lease on this one, and test the other in a colder climate). But that would be very strange, because they have had months to look into this. They expedited the testing. So I'm thinking that in the few weeks ahead, we'll truly have a watershed moment.

Any thoughts or other possibilities?