As filed with the Securities and Exchange Commission on March 28, 2008
Registration No. 333-149092
UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
REAL GOODS SOLAR, INC.
(Exact name of registrant as specified in its charter)
|
|
|
|
|
|
|
Colorado
|
|
8711
|
|
26-1851813
|
|
(State or other jurisdiction of
incorporation or organization)
|
|
(Primary Standard Industrial
Classification Code Number)
|
|
(I.R.S. Employer
Identification Number)
|
360 Interlocken Boulevard
Broomfield, Colorado 80021
(303) 222-8400
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Jirka Rysavy
Chairman
Real Goods Solar, Inc.
360
Interlocken Boulevard
Broomfield, Colorado 80021
(303) 222-8400
(Name, address, including zip code, and telephone number, including area code, of
agent for service)
Copies to:
|
|
|
|
|
Thomas R. Stephens, Esq.
Bartlit Beck Herman Palenchar & Scott LLP
1899 Wynkoop Street, 8
th
Floor
Denver, Colorado 80202
(303) 592-3100
|
|
Robert S. Kant, Esq.
Scott K. Weiss, Esq.
Greenberg Traurig, LLP
2375 East Camelback Road
Phoenix,
Arizona 85016
(602) 445-8000
|
Approximate date of
commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box.
¨
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
¨
_________________
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities
Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
¨
_________________
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering.
¨
_________________
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a),
shall determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until
the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is
not permitted.
|
|
|
|
|
|
|
SUBJECT TO COMPLETION, DATED MARCH 28, 2008
|
PRELIMINARY PROSPECTUS
|
|
|
|
|
|
|
Shares
Class A Common Stock
$ per Share
|
This is the initial public offering of shares of Class A common stock by Real Goods Solar, Inc.
We are offering shares of our Class A common stock. We expect the initial public offering price to be between
$ and $ per share. Prior to this offering, there has been no public market for our Class A common
stock.
We intend to apply to have our Class A common stock included for quotation on the Nasdaq Global Market under the symbol “RSOL.”
Investing in our Class A common stock involves risk. See “
Risk Factors
” beginning on page 8 to read about factors you should consider before buying shares of our Class A common stock.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal
offense.
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
Total
|
|
Initial public offering price
|
|
$
|
|
|
$
|
|
|
Underwriting discounts
|
|
$
|
|
|
$
|
|
|
Proceeds, before expenses, to Real Goods Solar, Inc.
|
|
$
|
|
|
$
|
|
We have granted the underwriters the right to purchase up to
additional shares of our Class A common stock to cover any over-allotments. The underwriters can exercise this right at any time within 30 days after this offering. We
expect that delivery of the shares will be made to investors on or about , 2008.
ThinkEquity Partners LLC
Canaccord Adams
Broadpoint.
, 2008
Table of contents
You should rely only on the information contained in this
prospectus or to which we have referred you, including any free writing prospectus that we file with the Securities and Exchange Commission relating to this prospectus. We have not, and the underwriters have not, authorized any other person to
provide you with different information. This prospectus is not an offer to sell nor is it seeking offers to buy these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is correct
only as of the date on the front cover, but information may have changed since that date. Information contained in our website does not constitute part of this prospectus.
Until , all dealers that effect transactions in these securities, whether or not participating in this offering, may be
required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
For investors outside of the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this
prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.
This prospectus includes market and industry data that we obtained from periodic industry publications, third-party studies and surveys, governmental agency
sources, filings of public companies in our industry and internal company surveys that we believe to be reliable as of the date of this prospectus. Industry publications and surveys generally state that the information contained therein has been
obtained from sources believed to be reliable.
i
Prospectus summary
This summary highlights information contained elsewhere in this prospectus that we consider important to
investors. You should read the entire prospectus carefully, including the “Risk Factors” section and our financial statements and the related notes to those statements, before making an investment decision. References in this prospectus to
“Real Goods,” “we,” “us,” “our” or “our company” refer to Real Goods Solar, Inc., its predecessors and its consolidated subsidiaries, unless we indicate otherwise. We are a Colorado corporation
formed on January 29, 2008 and a wholly owned subsidiary of Gaiam, Inc. which is a publicly traded company. Prior to January 29, 2008, we did not exist as a separate legal entity and have no history of operating as a stand-alone business. The
unaudited consolidated pro forma statement of operations for the year ended December 31, 2007 gives pro forma effect to the acquisitions of Marin Solar, Inc., or Marin Solar, and Carlson Solar, described below, as if the acquisitions had been
completed as of January 1, 2007.
Overview
We
are a leading residential solar energy integrator. We offer turnkey services to our solar energy system customers, including design, procurement, permitting, build-out, grid connection, financing referrals and warranty and customer satisfaction
activities. Our solar energy systems use high-quality solar PV modules from manufacturers such as Sharp, SunPower and Kyocera Solar. We use proven technologies and techniques to help customers achieve meaningful savings by reducing their utility
costs. In addition, we help customers lower their emissions output and reliance upon fossil fuel energy sources.
We have 30 years of experience in residential
solar energy, beginning with our sale in 1978 of the first solar photovoltaic, or PV, panels in the United States. We believe that we have installed more residential solar energy systems in the United States than any other company, including more
than 2,400 residential and small commercial solar energy systems. In addition, we have sold a variety of solar products to more than 30,000 customers since our founding.
For the fiscal year ended December 31, 2007, our net revenue was $18.9 million, and for the fiscal year ended December 31, 2006, our net revenue was $16.8 million. On a pro forma basis (giving effect to the acquisitions of Marin
Solar and Carlson Solar as if such transactions had occurred on January 1, 2007), for the fiscal year ended December 31, 2007, our net revenue was $32.7 million and we generated a 30.0% gross margin and $1.0 million of income from operations.
Immediately after the completion of this offering, after application of the net proceeds of this offering, we will have $ million of cash and no outstanding debt.
Our focused customer acquisition approach and our efficiency in converting leads into customers enable us to have what we believe are low customer acquisition costs. We believe that our Real Goods brand has a national
reputation for the highest quality customer service in the solar energy market, which leads to a significant number of word-of-mouth referrals and new customers. In addition, our parent company, Gaiam, is a leader in the sustainable and renewable
energy lifestyle market and has a base of over 8 million direct customers, providing us additional lead generation for potential solar energy customers. We also generate leads by selling solar and other renewable energy and sustainable living
products and resources through our nationally distributed catalog and website. We believe that this cross-marketing ability lowers our customer acquisition costs to below what we estimate they would be if we were to rely solely on traditional
marketing methods such as print, radio, television and Internet search words. Our Solar Living Center in Hopland, California features interactive demonstrations for renewable energy and environmentally sensible technologies and is the largest
facility of its kind, with approximately 2 million visitors since it opened in 1996.
Market Opportunity
We believe that as demand for electric power increases, the electric power industry will face various challenges. As a result of aging infrastructure and high energy demand,
customers are facing rising electricity rates, creating economic pressures for consumers and businesses alike. In addition, concerns about global warming and greenhouse gas emissions have resulted in international efforts to reduce such emissions,
and various states have enacted stricter emissions control laws or mandated that utilities generate a certain amount of power from renewable sources, such as solar energy.
1
Because the solar energy industry offers solutions to these challenges, we believe it has extremely large growth potential. Currently, only approximately one-tenth of one
percent of the world’s power is generated from solar energy sources. The global solar energy market is estimated to grow to between $19 billion and $32 billion by 2011, with annual solar energy installations reaching between 4.2 and 7.6
gigawatts, or GW, by 2011, compared to 1.7 GW in 2006, according to Solarbuzz, an international solar energy research and consulting company.
We expect that a
number of factors will contribute to growth in the solar energy industry. A variety of initiatives have been enacted by the federal government and various states, municipalities and utilities that encourage or require the installation of grid-tied
solar energy systems. For example, the California Solar Initiative, or CSI, adopted in 2007 provides for the expenditure of up to $3.4 billion in incentives for solar energy system installations by 2017. It is common for financial incentives to be
required under such initiatives, including rebates, tax credits, net metering, time-of-use credits, performance-based incentives, renewable energy credits and property tax exemptions. These incentives make the purchase of solar energy systems more
affordable and open additional solar markets in the United States.
We believe that growth in the solar energy industry also faces challenges. The decision to
install a solar energy system represents a significant investment for many customers. In addition, financing sources specifically for solar energy systems are currently limited. The solar energy industry is significantly driven by federal, state and
local regulations and incentives, and changes in these regulations and incentives could adversely affect the demand for solar energy systems and the growth of the industry. Also, the manufacture of solar PV modules depends on the availability of
silicon, an essential raw material. Currently, there is a global shortage of silicon, which has resulted in some price increases and limited availability of solar PV modules.
Growth Strategy
Our goal is to continue to build on our industry-leading position and be the largest and most profitable
residential solar energy integrator in the United States. We intend to pursue the following strategies to achieve this goal:
|
|
Ø
|
|
Enhance and leverage the Real Goods brand name to increase our market presence
. We intend to enhance and leverage the Real Goods brand name, which we believe is the
strongest name in the residential solar energy market, and our reputation for outstanding customer service to continue to win business in existing markets and to expand into new markets in which our competitors have little or no brand recognition.
|
|
|
Ø
|
|
Expand into markets in which legislation and government incentives are favorable for solar energy
. We plan to expand the geographic scope of our business as
jurisdictions adopt new or improve existing incentive programs that enhance the economics of solar energy systems for a broader customer base. In addition to the $3.4 billion CSI, 29 states, including Arizona, Colorado, Connecticut, Hawaii,
Massachusetts, Nevada, New Jersey and New York, have adopted legislation and incentives favorable to solar energy, and other states are considering adopting such legislation and incentives.
|
|
|
Ø
|
|
Consolidate the fragmented U.S. solar energy system installer market
. The U.S. solar energy system installer market remains highly fragmented, with over 300
independent installers or integrators in California alone. We intend to continue our consolidation activities in order to penetrate new markets, expand our business and further enhance our national brand and leverage our national marketing programs.
We plan to create economies of scale through our consolidation activities in order to increase our operating efficiencies, with a goal of improving our margins and profitability.
|
|
|
Ø
|
|
Expand our “community of customers” to enhance revenue and lower our customer acquisition costs.
We intend to leverage the reputation for authenticity
associated with our Real Goods brand to expand our “community of customers.” We believe these customers care deeply about solar energy and a renewable energy lifestyle and view us as the premier provider of products, services and support
to enable this lifestyle. In addition to our solar energy
|
2
|
|
systems, we plan to cross-market our wide array of energy-saving and carbon footprint-reducing products and services, which we believe will enhance our revenue and
create additional customer loyalty. We also intend to leverage our customer base to continue to provide us with new leads and referrals, which, in conjunction with our cross-marketing efforts, should allow us to continue to lower our customer
acquisition costs.
|
|
|
Ø
|
|
Make a difference in the world
. We intend to promote our solar energy systems and sustainable living resources as a way for
individuals and communities to reduce their carbon footprint, eliminate U.S. dependence on foreign and fossil fuel-based energy sources and foster a culture of respect for the Earth and its natural resources for the benefit of future generations. We
estimate the energy savings resulting from our products that were purchased in the 1990s will prevent the production of over one billion pounds of carbon dioxide over the life of those products, which is the equivalent of removing approximately
83,000 passenger vehicles from use for one year. We anticipate that products that we expect to sell through 2010 will prevent an additional one billion pounds of carbon dioxide from being released into the atmosphere. We calculated this energy
savings by estimating how many kilowatt-hours were saved over the life of these products by their use, and estimating that U.S. power plants generate an average of 1.5 pounds of carbon dioxide in producing 1 kilowatt of electricity. For example, a
15 watt compact fluorescent light bulb saves 45 watts per hour and lasts 10,000 hours and therefore saves 450 kilowatts and prevents the generation of 675 pounds of carbon dioxide over its product life.
|
Competitive Advantages
We believe that we have a number of advantages over
our competitors, including the following:
|
|
Ø
|
|
Brand recognition and authenticity
. We believe that our customers often buy our solar energy systems because of the strength of the Real Goods brand, our longevity in
the marketplace and our reputation for excellent customer service. In addition, our reference guide authored by our founder, the “Solar Living Sourcebook,” has sold approximately 250,000 copies to date. As a result of our 30 years of
operating in the solar energy industry, we believe that we are frequently the first company in the industry approached by new solar companies with innovative products.
|
|
|
Ø
|
|
Strength of management
. We have a highly experienced management team. Our founder and Chief Executive Officer, John Schaeffer, has more than 30 years of experience in
the solar energy industry. In addition, our Chairman, Jirka Rysavy, founded and grew Corporate Express from $30 million to $3 billion in revenue in less than five years. Mr. Rysavy and other members of our management team have considerable
experience in the consolidation of fragmented industries, having acquired over 250 companies.
|
|
|
Ø
|
|
Low-cost customer acquisition model
. Our business model gives us a significant cross-marketing advantage by providing us access to potential purchasers of solar energy
systems through our catalog and Internet sales, from visitors to our Solar Living Center and from Gaiam’s 8 million direct customers. In addition, our strong brand name and reputation for outstanding customer service provide us with
word-of-mouth referrals.
|
|
|
Ø
|
|
Relationship with Gaiam
. We believe that our relationship with Gaiam provides us with additional expertise across brand building, marketing, acquisition completion and
integration and certain administrative functions, which should enable us to operate more efficiently and cost-effectively.
|
|
|
Ø
|
|
Strong supplier base
. We maintain strong relationships with many leading solar PV module manufacturers, including Sharp, SunPower and Kyocera Solar, which provides us
with continued access to a supply of our key systems products and early review of innovative market products. Our financial strength and market position enable us to purchase directly from these manufacturers which lowers our purchasing costs
relative to those of our competitors that are only able to purchase through third-party distributors.
|
3
|
|
Ø
|
|
Strong balance sheet.
Immediately after the completion of this offering, after application of the net proceeds of this offering, we will have $
million of cash and no outstanding debt. We believe that our strong balance sheet and our financial strength meaningfully differentiate us from our competitors, providing our suppliers and customers with confidence in our financial strength and
longevity and further supporting our consolidation strategy.
|
Corporate Information
We are currently a wholly owned subsidiary of Gaiam. We were incorporated in Colorado in 2008 as a successor to a business that began in 1978. Our principal executive offices are
located at 360 Interlocken Boulevard, Broomfield, Colorado 80021, and our telephone number at that location is (303) 222-8400. Our operations headquarters are located at 13771 South Highway 101, Hopland, California 95449, and our telephone
number at that location is (888) 507-2561. Our website is
www.realgoodssolar.com
. The information available on or that can be accessed through our website and the information that is contained in the “Solar Living Sourcebook”
is not incorporated by reference into and is not a part of this prospectus and should not be considered to be part of this prospectus. Our trade names or trademarks include “Real Goods,” “Real Goods Solar,” “Real Goods
Renewables” and “Own Your Power.” This prospectus contains additional trade names, trademarks and service marks of other companies. We do not intend our use or display of other companies’ trade names, trademarks or service marks
to imply a relationship with, or endorsement or sponsorship of us by, these other companies.
4
The Offering
|
Class A common stock offered
|
shares
|
|
Class A common stock to be outstanding after this offering
|
shares
|
|
Class B common stock to be outstanding after this offering
|
shares
|
|
Use of proceeds
|
We estimate that our net proceeds from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $
million, based upon an assumed initial public offering price of $ per share, which is the midpoint of
the offering range indicated on the cover of this prospectus.
|
|
|
We will use approximately $19.8 million of the net proceeds to repay amounts owed to Gaiam for costs to acquire and expand our business. We intend to use the remainder of the net proceeds for working capital and
general corporate purposes, which may include future acquisitions of businesses. We currently have no agreements or commitments to complete any such acquisitions and are not involved in any negotiations to do so. The amounts and timing of our actual
expenditures will depend upon numerous factors. See “Use of Proceeds.”
|
|
Proposed Nasdaq Global Market symbol
|
RSOL
|
|
Risk Factors
|
You should consider carefully the information set forth in the section entitled “Risk Factors” beginning on page 8 of this prospectus, in deciding whether or not to invest in our Class A common stock.
|
The number of shares of our Class A common stock that will be outstanding after this offering excludes the following:
|
|
Ø
|
|
650,000 shares of Class A common stock issuable upon exercise of all outstanding options granted or assumed by us, certain warrants issued in connection with the
acquisitions of Marin Solar and Carlson Solar at a combined weighted-average exercise price of $3.20 per share, and shares issuable upon the exercise of certain contractual rights we granted prior to this offering and
|
|
|
Ø
|
|
700,000 shares of Class A common stock reserved for future grant or issuance under the Real Goods 2008 Long-Term Incentive Plan, or Incentive Plan, subject to adjustment
as provided in such plan.
|
Except as otherwise indicated, all of the information in this prospectus assumes no exercise of the underwriters’
over-allotment option.
5
Summary Consolidated Financial Data
The following tables present
summary historical consolidated financial data regarding our business. You should read the summary consolidated financial data presented below together with “Selected Consolidated Financial Data,” “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and our financial statements and related notes, all included elsewhere in this prospectus.
We
derived the summary consolidated statements of operations data for each of the years ended December 31, 2005, 2006, and 2007 and the actual amounts for the summary consolidated balance sheet data as of December 31, 2007 from our audited
consolidated financial statements included elsewhere in this prospectus. We derived the summary consolidated statement of operations data for the year ended December 31, 2004 from our unaudited financial statements, which are not included in
this prospectus, and the unaudited pro forma amounts for the summary consolidated statement of operations and balance sheet data as of and for the year ended December 31, 2007 from the unaudited pro forma consolidated financial statements
included elsewhere in this prospectus. The summary consolidated financial data for 2007 includes the effects of the Marin Solar acquisition from the November 2007 date of the transaction.
Our audited and unaudited consolidated financial statements include allocations of certain Gaiam expenses, including costs of fulfillment, customer service, financial and other
administrative services, and income taxes. The expense allocations are based on what we and Gaiam considered to be reasonable reflections of the utilization of services provided or the benefits received by us. The historical financial information in
our audited and unaudited consolidated financial statements may not be indicative of what our results of operations, financial position, changes in equity and cash flows will be in the future, or what they would have been had we been a separate
stand-alone entity during the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
(in thousands, except per share data)
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
Pro Forma
2007
(1)
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
9,268
|
|
$
|
12,114
|
|
$
|
16,812
|
|
$
|
18,922
|
|
$
|
32,745
|
|
|
Cost of goods sold
|
|
|
5,730
|
|
|
7,763
|
|
|
10,862
|
|
|
12,426
|
|
|
22,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,538
|
|
|
4,351
|
|
|
5,950
|
|
|
6,496
|
|
|
9,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and operating
|
|
|
2,987
|
|
|
3,464
|
|
|
4,964
|
|
|
5,728
|
|
|
7,916
|
|
|
General and administrative
|
|
|
480
|
|
|
492
|
|
|
567
|
|
|
582
|
|
|
905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
3,467
|
|
|
3,956
|
|
|
5,531
|
|
|
6,310
|
|
|
8,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
71
|
|
|
395
|
|
|
419
|
|
|
186
|
|
|
989
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interest
|
|
|
71
|
|
|
395
|
|
|
419
|
|
|
186
|
|
|
957
|
|
|
Income tax expense
|
|
|
30
|
|
|
159
|
|
|
169
|
|
|
84
|
|
|
389
|
|
|
Minority interest in net income of consolidated subsidiary, net of income taxes
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
41
|
|
$
|
236
|
|
$
|
250
|
|
$
|
102
|
|
$
|
491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.00
|
|
$
|
0.02
|
|
$
|
0.03
|
|
$
|
0.01
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
10,000
|
|
|
10,000
|
|
|
10,000
|
|
|
10,000
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
1
)
|
The Pro Forma column presents our consolidated results of operations giving pro forma effect to the acquisitions of Marin Solar
and Carlson Solar as if such transactions had occurred on January 1, 2007.
|
|
(2)
|
Net income per share is calculated as if Gaiam had transferred our business assets and operations to us in return for 10,000,000
shares of our Class B common stock on January 1, 2003. We did not exist as a separate company during the historical periods presented. We computed earnings per share based on the shares outstanding following this contribution as if such
shares were outstanding from the beginning of the periods presented.
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
(in thousands)
|
|
Actual
(1)
|
|
|
Pro Forma
(1)
|
|
|
Pro Forma
As Adjusted
(2)
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
542
|
|
|
$
|
542
|
|
|
$
|
|
|
|
Working capital (deficit)
|
|
|
(11,266
|
)
|
|
|
(13,488
|
)
|
|
|
|
|
|
Deferred tax assets
|
|
|
2,478
|
|
|
|
2,478
|
|
|
|
—
|
(3)
|
|
Total assets
|
|
|
20,986
|
|
|
|
25,371
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
279
|
(3)
|
|
Payable to Gaiam
|
|
|
16,286
|
|
|
|
19,822
|
|
|
|
|
|
|
Minority interest
|
|
|
—
|
|
|
|
371
|
|
|
|
|
|
|
Total liabilities
|
|
|
19,336
|
|
|
|
23,350
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
1,650
|
|
|
|
1,650
|
|
|
|
|
|
|
(1)
|
The Actual column as of December 31, 2007 reflects our acquisition of Marin Solar. The Pro Forma column as of
December 31, 2007 reflects our consolidated balance sheet giving pro forma effect to our new corporate structure and the acquisition of Carlson Solar as if those events had occurred on December 31, 2007. Our new corporate structure
reflects the contribution to us by Gaiam of our business assets and operations in exchange for 10,000,000 shares of our Class B common stock. See “Unaudited Pro Forma Consolidated Financial Information” for further information regarding
the pro forma adjustments.
|
|
(2)
|
The Pro Forma As Adjusted column reflects the sale of
shares of Class A common stock by us in this offering at an assumed initial public offering price of $ per share, the midpoint of the range indicated on the cover page of
this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and after giving effect to our receipt of the estimated net proceeds. A $1.00 increase (decrease) in the assumed public offering
price of $ per share would increase (decrease) each of cash and cash equivalents, working capital (deficit), total assets and total shareholders’ equity by
$ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and
commissions and estimated offering expenses payable by us.
|
|
(3)
|
After the date we cease to be a member of Gaiam’s consolidated group for federal income tax purposes, to the extent we become
entitled to utilize loss carryforwards from our separate tax returns, we will distribute to Gaiam the tax effect (estimated to be 34% for federal income tax purposes) of the amount of such tax loss carryforwards so utilized. Accordingly, we expect
to recognize a valuation allowance against certain of our deferred tax assets resulting in a net deferred tax liability upon completion of this offering.
|
7
Risk factors
An investment in our Class A
common stock offered by this prospectus involves a substantial risk of loss. You should carefully consider these risks factors, together with all the other information included in this prospectus, before you decide to purchase shares of our
Class A common stock. We believe the risks and uncertainties described below are the most significant ones we face. The occurrence of any of the following factors could harm our business. In that case, the trading price of our Class A
common stock could decline, and you could lose all or part of your investment.
Risk Factors Related to Our Business and Our Industry
Our business prospects could be harmed if solar energy is not widely adopted or sufficient demand for solar energy systems does not develop or
takes longer to develop than we anticipate.
The solar energy market is at a relatively early stage of development, and the extent to which solar energy will
be widely adopted and the extent to which demand for solar energy systems will increase are uncertain. If solar energy does not achieve widespread adoption or demand for solar energy systems fails to develop sufficiently, we may be unable to grow
our business at the rate we desire. In addition, demand for solar energy systems in our targeted markets may not develop or may develop to a lesser extent or more slowly than we anticipate. Many factors may affect the demand for solar energy
systems, including the following:
|
|
Ø
|
|
fluctuations in economic and market conditions that affect the viability of conventional and non-solar renewable energy sources, such as increases or decreases in the price
of oil and other fossil fuels;
|
|
|
Ø
|
|
availability of government subsidies and incentives to support the development of the solar energy industry;
|
|
|
Ø
|
|
cost-effectiveness, performance and reliability of solar energy systems compared with conventional and other non-solar renewable energy sources and products;
|
|
|
Ø
|
|
success of other renewable energy generation technologies, such as hydroelectric, wind, geothermal, solar thermal, concentrated solar and biomass;
|
|
|
Ø
|
|
fluctuations in expenditures by purchasers of solar energy systems, which tend to decrease in slower economic environments and periods of rising interest rates; and
|
|
|
Ø
|
|
deregulation of the electric power industry and the broader energy industry.
|
A drop in the retail price of conventional energy or non-solar renewable energy sources may negatively impact our business.
The demand for our solar energy systems depends in part on the price of conventional energy, which affects return on investment resulting from the purchase of solar energy systems. Fluctuations in economic and market conditions that impact
the prices of conventional and non-solar renewable energy sources, such as decreases in the prices of oil and other fossil fuels, could cause the demand for solar energy systems to decline, which would have a negative impact on our business. Changes
in utility electric rates could also have a negative effect on our business.
8
Risk factors
The reduction, elimination or expiration of government subsidies and economic incentives for solar energy systems could reduce the demand for our products.
Government subsidies are an important factor in the economic determination to purchase a solar energy system. Certain states, including California and Colorado, localities and
utilities offer incentives to offset a portion of the cost of qualified solar energy systems. These incentives can take many forms, including direct rebates, state tax credits, system performance payments and renewable energy credits, or RECs. The
reduction or elimination of such incentives or delays or interruptions in the implementation of favorable federal or state laws could substantially increase the cost of our systems to our customers, resulting in a significant reduction in demand for
our solar energy systems, which would negatively impact our business.
Existing regulations, and changes to such regulations, may present technical,
regulatory and economic barriers to the installation of solar energy systems, which may significantly reduce demand for our solar energy systems.
The
installation of solar energy systems is subject to oversight and regulation under local ordinances; building, zoning and fire codes; environmental protection regulation; utility interconnection requirements for metering; and other rules and
regulations. We attempt to keep up-to-date about these requirements on a national, state and local level and must design and install our solar energy systems to comply with varying standards. Certain cities may have ordinances that prevent or
increase the cost of installation of our solar energy systems. In addition, new government regulations or utility policies pertaining to the installation of solar energy systems are unpredictable and may result in significant additional expenses or
delays, which could cause a significant reduction in demand for solar energy systems.
Existing regulations and policies pertaining to electricity
pricing and technical interconnection of customer-owned electricity generation and changes to these regulations and policies may deter the purchase and use of solar energy systems and negatively impact development of the solar energy industry.
The market for solar energy systems is heavily influenced by foreign, federal, state and local government regulations and policies concerning the electric
utility industry, as well as policies adopted by electric utilities. These regulations and policies often relate to electricity pricing and technical interconnection of customer-owned electricity generation. For example, there currently exist
metering caps in certain jurisdictions, which limit the aggregate amount of power that may be sold by solar power generators into the electric grid. These regulations and policies have been modified in the past and may be modified in the future in
ways that could deter purchases of solar energy systems and investment in the research and development of solar energy technology. For example, without a mandated regulatory exception for solar energy systems, utility customers are often charged
interconnection or standby fees for putting distributed power generation on the electric utility grid. Such fees could increase the cost to our customers of using solar energy systems and make them less desirable, thereby harming our business,
operating results and financial condition. Changes in net metering policies could also deter the purchase and use of solar energy systems. In addition, electricity generated by solar energy systems competes primarily with expensive peak hour
electricity rates rather than with the less expensive average price of electricity. Modifications to the peak hour pricing policies of utilities, such as to a flat rate, would require solar energy systems to achieve lower prices in order to compete
with the price of electricity.
Our inability to respond to changing technologies and issues presented by new technologies could harm our business.
The solar energy industry is subject to technological change. If we rely on products and technologies that are not attractive to customers, or if we are
unable to respond appropriately to changing technologies and changes in product function and quality, we may not be successful in capturing or retaining a significant market share. In addition, any new technologies utilized in our solar energy
systems may not perform as expected or as desired, in which event our adoption of such products or technologies may harm our business.
9
Risk factors
We derive all of the revenue from our solar energy integration services from sales in two states.
We currently
derive all of the revenue from our solar energy integration services from projects in California and Colorado. This geographic concentration exposes us to growth rates, economic conditions, and other factors that may be specific to those states to
which we would be less subject if we were more geographically diversified. The growth of our business will require us to expand our operations in California and Colorado and to commence operations in other states. Any geographic expansion efforts
that we may make may not be successful, which would limit our growth opportunities.
Our success may depend in part on our ability to continue
to make successful acquisitions.
As part of our business strategy, we plan to expand our operations through strategic acquisitions in our current markets
and in new geographic markets. We acquired Marin Solar in November 2007 and Carlson Solar in January 2008. We cannot accurately predict the timing, size and success of our acquisition efforts. Our acquisition strategy involves significant risks,
including the following:
|
|
Ø
|
|
our ability to identify suitable acquisition candidates at acceptable prices,
|
|
|
Ø
|
|
our ability to complete successfully the acquisitions of candidates that we identify,
|
|
|
Ø
|
|
our ability to compete effectively for available acquisition opportunities,
|
|
|
Ø
|
|
increases in asking prices by acquisition candidates to levels beyond our financial capability or to levels that would not result in the returns required by our acquisition
criteria,
|
|
|
Ø
|
|
diversion of management’s attention to expansion efforts,
|
|
|
Ø
|
|
unanticipated costs and contingent liabilities associated with acquisitions,
|
|
|
Ø
|
|
failure of acquired businesses to achieve expected results,
|
|
|
Ø
|
|
our failure to retain key customers or personnel of acquired businesses and
|
|
|
Ø
|
|
difficulties entering markets in which we have no or limited experience.
|
These risks, as well as other circumstances that often accompany expansion through acquisitions, could inhibit our growth and negatively impact our operating results. In addition, the size, timing and success of any future acquisitions may
cause substantial fluctuations in our operating results from quarter to quarter. Consequently, our operating results for any quarter may not be indicative of the results that may be achieved for any subsequent quarter or for a full fiscal year.
These fluctuations could adversely affect the market price of our Class A common stock.
Our failure to integrate the operations of acquired
businesses successfully into our operations or to manage our anticipated growth effectively could materially and adversely affect our business and operating results.
In order to pursue a successful acquisition strategy, we must integrate the operations of acquired businesses into our operations, including centralizing certain functions to achieve cost savings and pursuing programs and processes that
leverage our revenue and growth opportunities. The integration of the management, operations, and facilities of acquired businesses with our own could involve difficulties, which could adversely affect our growth rate and operating results. We may
be unable to complete effectively the integration of the management, operations, facilities and accounting and information systems of acquired businesses with our own; to manage efficiently the combined operations of the acquired businesses with our
operations; to achieve our operating, growth and performance goals for acquired businesses; to achieve additional
10
Risk factors
revenue as a result of our expanded operations; or to achieve operating efficiencies or otherwise realize cost savings as a result of anticipated acquisition
synergies. Our rate of growth and operating performance may suffer if we fail to manage acquired businesses profitably without substantial additional costs or operational problems or to implement effectively combined growth and operating strategies.
We may require significant additional funds, the amount of which will depend upon our working capital and general corporate needs and the size,
timing and structure of future acquisitions.
Our operations may not generate sufficient cash to enable us to operate or expand our business. Any borrowings
made to finance future acquisitions or for operations could make us more vulnerable to a downturn in our operating results, a downturn in economic conditions or increases in interest rates on future borrowings. If our cash flow from operations is
insufficient to meet our debt service requirements, we could be required to sell additional equity securities, refinance our obligations or dispose of assets in order to meet our debt service requirements. Adequate financing may not be available if
and when we need it or may not be available on terms acceptable to us. In addition, our operations may not generate sufficient cash for our acquisition plans. The extent to which we would be able or willing to use our equity to consummate future
acquisitions will depend on the market price of our equity from time to time and the willingness of potential sellers to accept our equity as full or partial payment. Using our equity for this purpose also may result in significant dilution to our
shareholders. To the extent that we are unable to use our equity to make future acquisitions, our ability to grow through acquisitions may be limited by the extent to which we are able to raise capital for this purpose through debt or equity
financings. The failure to obtain sufficient financing on favorable terms and conditions could have a material adverse effect on our business, financial condition, operating results and growth prospects.
The loss of or failure to hire additional personnel could materially and adversely affect our business, operating results and our ability to expand.
The expansion of our business could place a significant strain on our managerial, financial and personnel resources, particularly given our current reliance
on our Chairman, Jirka Rysavy, who also is the Chairman and Chief Executive Officer of Gaiam. To reach our goals, we must successfully recruit, train, motivate and retain additional employees, including management and technical personnel, integrate
new employees into our overall operations and enhance our financial and accounting systems, controls and reporting systems. While we believe we have personnel sufficient for the current requirements of our business, expansion of our business could
require us to employ additional personnel. The loss of personnel or our failure to hire additional personnel could materially and adversely affect our business, operating results and our ability to expand.
Our success depends on the value of our Real Goods brand.
We depend on
the name recognition of our Real Goods brand in our marketing efforts. Maintaining and building recognition of our brand are important to expanding our customer base. If the value of our brand were adversely affected, our ability to attract
customers would be negatively impacted and our growth could be impaired.
We depend upon a limited number of suppliers for the components used in our
solar energy systems.
We rely on third-party suppliers for components used in our solar energy systems. Sharp, SunPower and Kyocera Solar currently account
for over 90% of our purchases of solar PV modules; and Xantrex, Fronius, PVPowered and SMA currently account for over 90% of our purchases of inverters. The failure of our suppliers to supply us with components in a timely manner or on commercially
reasonable terms could result in lost orders, delay our project schedules and harm our operating results and business expansion efforts. Our orders with certain of our suppliers may represent a very small portion of their
11
Risk factors
total business. As a result, these suppliers may not give priority to our business, leading to potential delays in or cancellation of our orders. If any of our
suppliers were to fail to supply our needs on a timely basis or to cease providing us key components we use, we would be required to secure alternative sources of supply. We may have difficulty securing alternative sources of supply in a timely
manner and on commercially reasonable terms. If this were to occur, our business would be harmed.
Shortages in the supply of silicon could adversely
affect the availability and cost of the solar PV modules used in our solar energy systems.
Shortages of silicon could adversely affect the availability and
cost of the solar PV modules we use in our solar energy systems. Manufacturers of solar PV modules depend upon the availability and pricing of silicon, one of the primary materials used in the manufacture of solar PV modules. The worldwide market
for silicon from time to time experiences a shortage of supply, primarily because of demand for silicon by the semiconductor industry. Shortages of silicon cause the prices for solar PV modules to increase and supplies to become difficult to obtain.
While we have been able to obtain sufficient supplies of solar PV modules to satisfy our needs to date, this may not be the case in the future. Future increases in the price of silicon could result in an increase in costs to us, price increases to
our customers or reduced margins.
Because the solar energy system installation market is highly competitive and has low barriers to entry, we may
face the loss of market share or reduced margins.
The solar energy system installation market is highly competitive and fragmented with low barriers to
entry. We currently compete with a large number of relatively small installers and integrators, some of which do not have extensive industry experience and may lack adequate systems and capital, but some of which benefit from operating efficiencies
or from having lower overhead, which enables them to offer lower prices. As the solar energy industry expands and industry consolidation occurs, we are more likely to encounter competition from larger companies, some of which may have greater
financial, technical and marketing resources and greater name recognition than we do.
We believe that our ability to compete depends in part on a number of
factors outside of our control, including the following:
|
|
Ø
|
|
the ownership by competitors of proprietary tools to customize solar energy systems to the needs of particular customers,
|
|
|
Ø
|
|
the price at which competitors offer comparable products,
|
|
|
Ø
|
|
the extent of our competitors’ responsiveness to customer needs and
|
|
|
Ø
|
|
integrator technologies.
|
Competition in the solar energy system
installation market may increase in the future as a result of low barriers to entry. Increased industry competition could result in reductions in price, margins, and market share and in greater competition for qualified personnel. Our business and
operating results would be adversely affected if we are unable to compete effectively.
Our failure to meet customer expectations in the performance
of our services, and the risks and liabilities associated with placing our employees and technicians in our customers’ homes and businesses could give rise to claims against us.
Our failure or inability to meet customer expectations in the performance of our services could damage our reputation or result in claims against us. In addition, we are subject
to various risks and liabilities associated with our employees and technicians providing installation services in the homes and businesses of our customers, including possible claims of errors and omissions, harassment, theft of customer property,
criminal activity and other claims.
12
Risk factors
Product liability claims against us could result in adverse publicity and potentially significant monetary damages.
As
a seller of consumer products, we face an inherent risk of exposure to product liability claims in the event that our solar energy systems’ use results in injuries. Since solar energy systems are electricity producing devices, it is possible
that our products could result in injury, whether by product malfunctions, defects, improper installation or other causes. If such injuries or claims of injuries were to occur, we could incur monetary damages and our business could be adversely
affected by any resulting negative publicity. The successful assertion of product liability claims against us also could result in potentially significant monetary damages and, if our insurance protection is inadequate to cover these claims, could
require us to make significant payments from our own resources.
We may be subject to unexpected warranty expenses or service claims that could
reduce our profits.
As a result of the length of the warranty periods we provide, we bear the risk of warranty claims long after we have completed the
installation of a solar energy system. Our current standard warranty for our installation services includes a 10-year warranty period for defects in material and workmanship in California and a five-year warranty period for defects in material and
workmanship in Colorado. In addition, most manufacturers of solar PV modules offer a 25-year warranty period for declines in power performance. Although we maintain a warranty reserve for potential warranty or service claims and we have not had
material warranty claims in the past, claims in excess of our reserve could adversely affect our operating results. Our failure to predict accurately future warranty claims could result in unexpected volatility in our financial condition.
We rely upon our catalog and Internet sales channels for potential customers, and interruptions or failures associated with these sales channels
could adversely impact our overall business.
We rely upon our Real Goods catalog and Internet channels to increase the awareness of the Real Goods brand and
generate potential solar energy system purchaser leads. We believe these cross-marketing channels provide us with an advantage over our competitors because customers that purchase products through these channels may become potential buyers of solar
energy systems. As a result, interruptions or failures associated with these channels could have an adverse impact on our business that goes beyond their normal contribution to our revenue.
We rely on communications and shipping networks to deliver our products.
Given our emphasis on customer service, the efficient and uninterrupted operation of order-processing and fulfillment functions is critical to our catalog and Internet business. To maintain a high level of customer service, we rely on a
number of third-party service providers, such as delivery companies, telecommunications companies and printers. Any interruption in services from our principal third-party service providers, including delays or disruptions resulting from labor
disputes, power outages, human error, adverse weather conditions or natural disasters, could materially and adversely affect our business. In addition, products that we source overseas must be shipped to our distribution center by freight carriers,
and a work stoppage or political unrest could adversely affect our ability to fulfill our customer orders.
An increase in interest rates could make
it difficult for customers to finance the cost of solar energy systems and could reduce demand for our services and products.
Some of our prospective
customers may depend on debt financing, such as home equity loans, to fund the initial capital expenditure required to purchase a solar energy system. Third-party financing sources specifically for solar energy systems are currently limited.
Currently, approximately 40% of our customers rely on some form of third-party financing, including home equity loans, to purchase solar energy systems. The lack of financing sources or an increase in interest rates could make it difficult or more
costly for our potential customers to secure the financing necessary to purchase a solar energy system on favorable terms, or at all, thus lowering demand for our services and products and negatively impacting our business.
13
Risk factors
Risk Factors Related to our Relationship with Gaiam
Our historical financial information as a business
conducted by Gaiam may not be representative of our results as an independent public company.
The historical financial information included in this
prospectus does not necessarily reflect what our financial position, operating results or cash flows would have been had we been an independent entity during the historical periods presented. The historical costs and expenses reflected in our
consolidated financial statements include amounts for certain corporate functions historically provided by Gaiam, including costs of fulfillment, systems, finance and other administrative services, and income taxes. These expense allocations were
developed on the basis of what we and Gaiam considered to be reasonable prices for the utilization of services provided or the benefits received by us. The historical financial information in our audited and unaudited consolidated financial
statements may not be indicative of what our results of operations, financial position, changes in equity and cash flows would have been had we been a separate stand-alone entity during the periods presented or will be in the future. We have not
made adjustments to reflect many significant changes that will occur in our cost structure, funding and operations as a result of our separation from Gaiam, including changes in our employee base, changes in our tax structure, potential increased
costs associated with reduced economies of scale and increased costs associated with being a publicly traded, stand-alone company, such as audit fees, directors and officers insurance costs and compliance costs, nor have we made offsetting
adjustments to reflect the benefits of and income expected from this offering, as these factors are presently difficult to quantify.
Our
ability to operate our business effectively may suffer if we or Gaiam terminate our intercorporate services agreement, or if we are unable to establish on a cost-effective basis our own administrative and other support functions in order to operate
as a stand-alone company after the expiration or termination of our intercorporate services agreement with Gaiam.
As a wholly owned subsidiary of Gaiam,
we have relied on administrative and other resources of Gaiam to operate our business. In connection with this offering, we have entered into an intercorporate services agreement to retain the ability for specified periods to use certain Gaiam
resources. We may elect to continue this agreement for eighteen months following the completion of this offering and, provided we are not in material default under this agreement, Gaiam may not terminate this agreement during this time if it owns
more than 20% of our outstanding common equity. Any decision by us to terminate this agreement would be approved by disinterested members of our management and board of directors under our procedures regarding related party transactions. After the
expiration or termination of this agreement, we will need to create our own administrative and other support systems or contract with third parties to replace Gaiam’s services. In addition, we must also establish disclosure controls and
procedures and internal controls over financial reporting as part of our becoming a separate public company. These services may not be provided at the same level as when we were a wholly owned subsidiary of Gaiam, and we may not be able to obtain
the same benefits that we received prior to the separation. These services may not be sufficient to meet our needs, and after our agreement with Gaiam expires or is terminated, we may not be able to replace these services at all or obtain these
services at prices and on terms as favorable as we currently have with Gaiam. Any failure or significant downtime in our own administrative systems or in Gaiam’s administrative systems during the transitional period could result in unexpected
costs, impact our results or prevent us from paying our suppliers or employees and performing other administrative services on a timely basis.
The agreement we
entered into with Gaiam may be amended by the parties. While we are controlled by Gaiam, we may not have the leverage to negotiate amendments to this agreement if required on terms as favorable to us as those we would negotiate with an unaffiliated
third party.
14
Risk factors
Our inability to resolve any disputes that arise between us and Gaiam with respect to our past and ongoing relationships may result in a reduction of our revenue, and such disputes may also result in claims for
indemnification.
Disputes may arise between Gaiam and us in a number of areas relating to our past and ongoing relationships, including the following:
|
|
Ø
|
|
labor, tax, employee benefit, indemnification and other matters arising from our separation from Gaiam;
|
|
|
Ø
|
|
employee retention and recruiting;
|
|
|
Ø
|
|
business combinations involving us;
|
|
|
Ø
|
|
pricing for shared and transitional services;
|
|
|
Ø
|
|
sales or distributions by Gaiam of all or any portion of its ownership interest in us;
|
|
|
Ø
|
|
the nature, quality and pricing of services Gaiam has agreed to provide us; and
|
|
|
Ø
|
|
business opportunities that may be attractive to both Gaiam and us.
|
We may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable than if we were dealing with an unaffiliated party. In addition, we will have indemnification obligations under the tax,
intercorporate services and registration rights agreements we will enter into with Gaiam, and disputes between us and Gaiam may result in claims for indemnification. However, we do not currently expect that these indemnification obligations will
materially affect our potential liability compared to what it would be if we did not enter into these agreements with Gaiam.
Some of our
directors and executive officers may have conflicts of interest because of their ownership of Gaiam common stock, options to acquire Gaiam common stock and positions with Gaiam.
Some of our directors and executive officers own Gaiam common stock and options to purchase Gaiam common stock. In addition, some of our directors are also directors of Gaiam.
Ownership of Gaiam common stock and options to purchase Gaiam common stock by our directors and officers after this offering and the presence of directors of Gaiam on our board of directors could create, or appear to create, conflicts of interest
with respect to matters involving both us and Gaiam. For example, corporate opportunities may arise that are applicable or complementary to both of our businesses and that each business would be free to pursue, such as the potential acquisition of a
particular business or technology focused on environmental sustainability including renewable energy sources, energy efficiency or energy use reduction. However, Gaiam does not intend to acquire businesses that are focused on solar energy. We have
not established at this time any procedural mechanisms to address actual or perceived conflicts of interest of these directors and officers and expect that our board of directors, in the exercise of its fiduciary duties, will determine how to
address any actual or perceived conflicts of interest on a case-by-case basis. If any corporate opportunity arises and if our directors and officers do not pursue it on our behalf, we may not become aware of, and may potentially lose, a significant
business opportunity.
Risk Factors Related to this Offering
Gaiam controls us, and its interests may conflict with or differ from your interests as a shareholder.
Gaiam holds
100% of the currently outstanding shares of our common stock, consisting of 7,846,707 shares of our Class A common stock and 2,153,293 shares of our Class B common stock. The holders of our Class A common stock and our Class B common stock have
substantially similar rights, preferences, and privileges except with respect to voting and conversion rights and other protective provisions as set forth in this prospectus. Each share of Class B common stock has ten votes per share, and each share
of Class A common stock has one vote per share. Each share of Class B common stock is convertible
15
Risk factors
at any time into one share of Class A common stock. In addition, if Gaiam transfers shares of our Class B common stock, it must elect whether or not to transfer
the shares as Class B common stock or convert those shares into Class A common stock. The Class A common stock has no conversion rights. Immediately after completion of this offering, Gaiam will beneficially own approximately
% of our outstanding shares of common stock, assuming Gaiam’s Class B common stock were converted into Class A common stock. In addition, immediately following this
offering and assuming no conversion of any shares of Class B common stock that are currently outstanding, Gaiam will have approximately % of the total voting power of our common
stock voting as a single class. Consequently, Gaiam will be able to exert substantial influence over our company and control matters requiring approval by our shareholders, including the election of directors, increasing our authorized capital
stock, financing activities, a merger or sale of our assets and the number of shares available for issuance under our Incentive Plan. Our articles of incorporation provide that our board of directors may authorize the issuance of preferred stock,
subject only to the approval of holders of our Class B common stock. As a result of Gaiam’s control, no change of control of our company can occur without Gaiam’s consent. Our Chairman, Jirka Rysavy, who is also the Chairman and Chief
Executive Officer of Gaiam, currently owns approximately 25% of the outstanding equity, and in excess of 50% of the voting power, of Gaiam.
Gaiam’s and
Mr. Rysavy’s voting control may discourage transactions involving a change of control of our company, including transactions in which you as a holder of our Class A common stock might otherwise receive a premium for your shares over
the then current market price. Gaiam is not prohibited from selling a controlling interest in our company to a third party and may do so without your approval and without providing for a purchase of your shares of Class A common stock.
Accordingly, your shares of Class A common stock may be worth less than they would be if Gaiam did not maintain voting control over us.
Because
there is no existing market for our Class A common stock, our initial public offering price may not be indicative of the market price of our Class A common stock after this offering, which may decrease significantly.
Prior to this offering, there has not been a public market for our Class A common stock, and an active trading market may not develop or be sustained after this offering. The
initial public offering price for the Class A common stock will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this
offering. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on the Nasdaq Global Market or otherwise or how liquid that market might become. The lack of an active market
may reduce the value of your shares and impair your ability to sell your shares at the time or price at which you wish to sell them. An inactive market may also impair our ability to raise capital by selling additional shares of our Class A
common stock and may impair our ability to acquire or invest in other companies, products or technologies by using our Class A common stock as consideration.
The market price of our Class A common stock may be volatile, which could result in substantial losses for investors.
The market price
of our Class A common stock is likely to be volatile and could fluctuate widely in response to various factors, many of which are beyond our control, including the following:
|
|
Ø
|
|
actual or anticipated changes in our operating results;
|
|
|
Ø
|
|
regulatory, legislative or other developments affecting us or the solar energy industry generally;
|
|
|
Ø
|
|
changes in expectations relating to our services and products, plans and strategic position or those of our competitors or customers;
|
|
|
Ø
|
|
market conditions and trends within the solar energy industry;
|
|
|
Ø
|
|
acquisitions or strategic alliances by us or by our competitors;
|
16
Risk factors
|
|
Ø
|
|
litigation involving us, our industry or both;
|
|
|
Ø
|
|
introductions of new technological innovations, new services or products or new pricing policies by us or by our competitors;
|
|
|
Ø
|
|
the gain or loss of significant customers;
|
|
|
Ø
|
|
recruitment or departure of key personnel;
|
|
|
Ø
|
|
our ability to execute our business plan;
|
|
|
Ø
|
|
volume and timing of customer orders;
|
|
|
Ø
|
|
price and volume fluctuations in the overall stock market from time to time;
|
|
|
Ø
|
|
changes in investor perception;
|
|
|
Ø
|
|
the level and quality of any research analyst coverage of our Class A common stock;
|
|
|
Ø
|
|
changes in earnings estimates or investment recommendations by analysts;
|
|
|
Ø
|
|
the financial guidance we may provide to the public, any changes in such guidance or our failure to meet such guidance;
|
|
|
Ø
|
|
trading volume of our Class A common stock or the sale of such stock by Gaiam, our management team or directors; and
|
|
|
Ø
|
|
economic and other external factors that impact purchasing decisions of our potential customers.
|
In addition, the stock market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies
and industries. These fluctuations may include a so-called “bubble market” in which investors temporarily raise the price of the stocks of companies in certain industries, such as the renewable energy industry, to unsustainable levels.
These market fluctuations may significantly affect the market price of our Class A common stock.
If you purchase our Class A common stock
in this offering, you will incur immediate and substantial dilution in the book value of your shares.
The initial public offering price of our Class A
common stock is substantially higher than the net pro forma tangible book value per share of our Class A common stock. Investors purchasing Class A common stock in this offering will pay a price per share that substantially exceeds the
book value of our tangible assets after subtracting our liabilities. As a result, investors purchasing Class A common stock in this offering will incur immediate dilution of
$ per share, based on the initial public offering price of $ per share, which is the midpoint of the
offering range indicated on the cover of this prospectus. If the holders of outstanding options and warrants exercise those options and warrants, you will suffer further dilution.
Possible future sales of shares by Gaiam could adversely affect the market price of our Class A common stock, even if our business is doing well.
Immediately after completion of this offering, we will have outstanding shares of Class A common
stock and 2,153,293 shares of Class B common stock. Subject to the restrictions described under “Shares Eligible for Future Sale” and
17
Risk factors
applicable law, Gaiam could sell any or all of the shares of common stock owned by it from time to time for any reason. Under a registration rights agreement between
us and Gaiam, Gaiam has the right to require us to register the shares of Class A common stock it owns and the shares it may acquire upon conversion of its shares of Class B common stock to facilitate the possible sale of such shares. Although
we cannot predict the effect, if any, that future sales of shares of Class A common stock by Gaiam would have on the market price prevailing from time to time, sales of substantial amounts of Class A common stock or the availability of
such shares for sale could adversely affect prevailing market prices.
We do not expect to pay any cash dividends on our Class A common stock
for the foreseeable future.
We do not anticipate paying any cash dividends on our Class A common stock for the foreseeable future. Accordingly, you may have
to sell some or all of your Class A common stock in order to generate cash flow from your investment. You may not receive a gain on your investment when you sell our Class A common stock and may lose some or all of the amount of your
investment. Any determination to pay dividends in the future on our Class A common stock will be made at the discretion of our board of directors and will depend on our results of operations, financial conditions, contractual restrictions,
restrictions imposed by applicable law, capital requirements and other factors that our board of directors deems relevant.
We will incur increased
costs as a result of being a public company.
As a public company, we will incur significant legal, accounting and other expenses. In addition, the
Sarbanes-Oxley Act, as well as rules implemented by the Securities and Exchange Commission, or the SEC, require us to adopt corporate governance practices applicable to public companies. We also expect to incur additional compliance costs as a
result of our Class A common stock being included for quotation on the Nasdaq Global Market. We expect these new rules and regulations to increase our legal and financial compliance costs and to make some activities more time consuming and
costly. We will incur additional costs associated with our public company reporting requirements. We also expect these new rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance,
and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain our desired coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of
directors or as executive officers.
Our compliance with the Sarbanes-Oxley Act and SEC rules concerning internal controls will be time consuming,
difficult, and costly.
It will be time consuming, difficult and costly for us to develop and implement the additional internal controls, processes and
reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls, processes and reporting procedures personnel. If we are unable to comply with the requirements of the Sarbanes-Oxley Act,
we may not be able to obtain the independent accountant certifications that the Sarbanes-Oxley Act requires publicly traded companies to obtain.
If we fail to
comply in a timely manner with the requirements of Section 404 of the Sarbanes-Oxley Act regarding internal control over financial reporting, or if we identify or fail to remedy any material weaknesses in our internal controls, such failures
could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial information, limit our ability to raise capital and have a negative effect on the trading price of our Class A
common stock.
Under Section 404 of the Sarbanes-Oxley Act and current SEC regulations, beginning with our annual report on Form 10-K for our fiscal year ending
December 31, 2009, we will be required to furnish a report by our management on our internal control over financial reporting. We will soon begin the process of documenting and testing our internal control procedures in order to satisfy these
requirements, which is likely to result in increased general and administrative expenses and may shift management time and attention from revenue-generating activities to compliance activities. While we expect to expend significant resources to
complete this important project, we may not be able to achieve our objective on a timely basis.
18
Information regarding forward-looking statements
Some
of the statements under “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this prospectus may
contain forward-looking statements that reflect our current views with respect to, among other things, future events and financial performance. We generally identify forward-looking statements by terminology such as “outlook,”
“believes,” “expects,” “potential,” “continues,” “may,” “will,” “could,” “should,” “seeks,” “approximately,” “predicts,”
“intends,” “plans,” “estimates,” “anticipates” or the negative version of those words or other comparable words. Any forward-looking statements contained in this prospectus are based upon the historical
performance of us and our subsidiaries and on our current plans, estimates and expectations. We caution you that no forward-looking statement is a guarantee of future performance, and you should not regard any forward-looking statement as a
representation by us, the underwriters or any other person that the future plans, estimates or expectations contemplated by us will be achieved. You should not place undue reliance on these forward-looking statements which reflect our view only as
of the date of this prospectus. While we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we caution you that these statements are based on a combination of facts and factors currently known by
us and our projections of the future, about which we cannot be certain. Such forward-looking statements are subject to various known and unknown risks and uncertainties and assumptions relating to our operations, financial results, financial
condition, business prospects, growth strategy and liquidity, including the risks outlined in this prospectus. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual
results may vary materially from those expressed or implied by these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this prospectus. We do
not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. We qualify all the forward-looking statements contained in
this prospectus by the foregoing cautionary statements.
The risk factors discussed in “Risk Factors” could also cause our results to differ
materially from those expressed in forward-looking statements. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business.
19
Use of proceeds
We estimate that our net proceeds from this
offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $ million, or approximately $
million if the underwriters exercise their over-allotment option, based upon an assumed initial public offering price of $
per share, which is the midpoint of the offering range indicated on the cover of this prospectus.
We will use approximately $19.8 million of the net proceeds to repay amounts owed to Gaiam for costs to acquire and expand our business. We have no formal written loan agreement with Gaiam regarding our intercompany payable,
and it has no maturity date. Gaiam historically did not charge us interest on this intercompany payable. We expect to use approximately $ of the net proceeds to pay expenses
related to this offering. While we do not currently have a specific plan for the use of the balance of the net proceeds, our principal reason for this offering is to provide adequate funds for our working capital needs and general corporate
purposes, which may include future acquisitions of businesses. We currently have no agreements or commitments to complete any such transaction and are not involved in any negotiations to do so. The amounts and timing of our actual expenditures will
depend upon numerous factors, such as our ability to attract new solar energy customers, market acceptance of our product offerings, the cost of ongoing upgrades to our product offerings, our level of expenditures for sales and marketing, our level
of investment in support systems and facilities, the availability of market expansion opportunities and other market conditions.
A $1.00 increase (decrease) in
the assumed initial public offering price of $ per share would increase (decrease) the net proceeds to us from this offering by $
million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and
commissions and estimated offering expenses payable by us. We do not expect that a change in the offering price would have a material effect on our uses of the proceeds from this offering, although it may impact the amount of time prior to which we
will need to seek additional capital.
Pending any use of the net proceeds, we intend to invest the net proceeds in investment-grade, short-term interest-bearing
securities.
Dividend policy
We have not declared or paid any cash dividends on our Class A common stock, and we do not anticipate doing so in the
foreseeable future. We currently intend to retain future earnings, if any, to operate our business and support our future growth strategies. Any future determination to pay dividends on our Class A common stock will be at the discretion of our board
of directors and will depend on our financial condition, results of operations, contractual restrictions, restrictions imposed by applicable law, capital requirements and other factors that our board of directors deems relevant.
20
Capitalization
The following table sets forth our capitalization as of December 31, 2007 on an actual basis, on a pro forma
basis to give effect to our new corporate structure and the Carlson Solar acquisition as if those events had occurred on December 31, 2007, and on a pro forma basis as adjusted to give effect to our sale of
shares of Class A common stock in this offering at an assumed initial public offering price of $
per share, the midpoint of the range indicated on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses
payable by us, and the application of the net proceeds from this offering as described under “Use of Proceeds.”
You should read the information in this
table together with “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included
elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
(in thousands, except share and per share data)
|
|
Actual
(1
)
|
|
|
Pro Forma
(1)
|
|
|
Pro Forma
As Adjusted
(2)
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
Cash and cash equivalents
|
|
$
|
542
|
|
|
$
|
542
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
2,478
|
|
|
|
2,478
|
|
|
|
—
|
(3)
|
|
Deferred tax liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
279
|
(3)
|
|
|
|
|
|
|
Payable to Gaiam
|
|
|
16,286
|
|
|
|
19,822
|
|
|
|
—
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, par value $.0001 per share; 50,000,000 shares authorized; no shares issued and outstanding, actual, pro forma, and pro forma as
adjusted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Class A common stock, par value $.0001 per share; 150,000,000 shares authorized, no shares issued and outstanding, actual and pro forma; and
shares issued and outstanding pro forma as adjusted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
Class B common stock, $.0001 par value per share; 50,000,000 shares authorized; no shares issued and outstanding, actual; 10,000,000 shares issued and
outstanding, pro forma, and 2,153,293 shares issued and outstanding pro forma as adjusted
(1)
|
|
|
—
|
|
|
|
1
|
|
|
|
1
|
|
|
Additional paid-in capital
|
|
|
2,150
|
|
|
|
2,149
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(500
|
)
|
|
|
(500
|
)
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
1,650
|
|
|
|
1,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
17,936
|
|
|
$
|
21,472
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The Actual column as of December 31, 2007 reflects our acquisition of Marin Solar. The Pro Forma column as of December 31,
2007 reflects our consolidated balance sheet giving pro forma effect to our new corporate structure and the acquisition of Carlson Solar as if those events had occurred on December 31, 2007. Our new corporate structure reflects the contribution
by Gaiam to us of our business assets and operations in exchange for the issuance of 10,000,000 shares of our Class B common stock. See “Unaudited Pro Forma Consolidated Financial Information” for further information regarding the pro
forma adjustments. The Pro Forma As Adjusted column gives effect to Gaiam’s conversion of 7,846,707 shares of our Class B common stock into Class A common stock in 2008 prior to the completion of this offering.
|
|
(2)
|
A $1.00 increase (decrease) in the assumed public offering price of
$ per share would increase (decrease) each of cash and cash equivalents, total shareholders’ equity and total capitalization by
$ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and
commissions and estimated offering expenses payable by us and after giving effect to our receipt of the estimated net proceeds.
|
|
(3)
|
After the date we cease to be a member of Gaiam’s consolidated group for federal income tax purposes, to the extent we become
entitled to utilize loss carryforwards from our separate tax returns, we will distribute to Gaiam the tax effect (estimated to be 34% for federal income tax purposes) of the amount of such tax loss carryforwards so utilized. Accordingly, we expect
to recognize a valuation allowance against certain of our deferred tax assets resulting in a net deferred tax liability upon completion of this offering.
|
21
Dilution
If you invest in our Class A common stock, your interest will be diluted immediately to the extent of the difference
between the initial public offering price per share of our Class A common stock and the pro forma net tangible book value of our Class A common stock immediately after the completion of this offering. Dilution results from the fact that
the per share offering price of our Class A common stock is substantially in excess of the pro forma net tangible book value per share. Pro forma net tangible book value represents our pro forma net book equity excluding intangible assets. Our
pro forma net book equity is derived from our unaudited consolidated pro forma balance sheet, which gives effect to our new corporate structure and the acquisition of Carlson Solar as if those events had occurred on December 31, 2007. Our pro
forma net tangible book value at December 31, 2007 was approximately $(6.8) million, or $(0.68) per share. Pro forma net tangible book value per share before this offering has been determined by dividing pro forma net tangible book value (total
book value of tangible assets less total liabilities) by the pro forma number of shares of common stock outstanding at December 31, 2007.
After giving effect
to the sale of our Class A common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover
page of this prospectus, and after deducting (a) underwriting discounts and commissions and estimated offering expenses payable by us, (b) the use of the estimated net proceeds as described under “Use of Proceeds,” and (c) the effects
on our deferred tax assets and liabilities as a result of our tax sharing agreement with Gaiam, our pro forma as adjusted net tangible book value at December 31, 2007 would have been
$ million or $ per share. This represents an immediate increase in pro forma net tangible book value per
share of $ to our existing shareholder and immediate dilution in pro forma net tangible book value per share of
$ to new investors who purchase Class A common stock in this offering. The following table illustrates this pro forma as adjusted per share dilution to new investors,
assuming the underwriters do not exercise their over-allotment option:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per share
|
|
|
|
|
|
$
|
|
|
Pro forma net tangible book value per share at December 31, 2007, before giving effect to this offering
|
|
$
|
(0.68
|
)
|
|
|
|
|
Increase in pro forma net tangible book value per share attributable to investors purchasing Class A common stock in this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma as adjusted net tangible book value per share after giving effect to this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma as adjusted dilution per share to new investors
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase
(decrease) our pro forma as adjusted net tangible book value by approximately $ million, or approximately
$ per share, and the pro forma as adjusted dilution per share to investors in this offering by approximately
$ , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and
commissions and estimated offering expenses payable by us, and the use of the estimated net proceeds as described under “Use of Proceeds.”
We may also
increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 shares in the number of shares offered by us would increase (decrease) our pro forma as adjusted net tangible book value by approximately
$ million, or $ per share, and the pro forma as adjusted dilution per share to investors in this offering
would be $ , assuming that the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses
payable by us, and the use of the estimated net proceeds as described under “Use of Proceeds.”
22
Dilution
If the underwriters exercise their option in full to purchase additional shares of Class A common stock in this offering, the pro forma as adjusted net tangible
book value per share after this offering would be $ per share, the increase in the pro forma as adjusted net tangible book value per share to the existing shareholder would be
$ per share, and the pro forma as adjusted dilution to new investors in this offering would be $ per
share.
The following table sets forth, on the pro forma as adjusted basis described above, at December 31, 2007, the difference between the number of shares of
common stock purchased, the total consideration paid, and the average price per share paid by the existing shareholder and by investors purchasing shares in this offering at an assumed initial public offering price of
$ per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting underwriting discounts and commissions and estimated offering
expenses payable by us.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Average Price
Per Share
|
|
|
|
Number
|
|
Percent
|
|
|
Amount
|
|
Percent
|
|
|
|
Existing shareholder
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New investors
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
100
|
%
|
|
|
|
100
|
%
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The discussions and tables above are based on shares of our Class A common stock and 10,000,000 shares
of our Class B common stock outstanding as of December 31, 2007, and excludes the following:
|
|
Ø
|
|
650,000 shares of Class A common stock issuable upon exercise of all outstanding options granted or assumed by us, warrants issued in connection with the acquisitions of
Marin Solar and Carlson Solar at a combined weighted-average exercise price of $3.20 per share, and shares issuable upon the exercise of certain contractual rights we granted prior to this offering and
|
|
|
Ø
|
|
700,000 shares of Class A common stock reserved for future grant or issuance under the Incentive Plan, subject to adjustment as provided in such plan.
|
Effective upon the completion of this offering, an aggregate of up to 700,000 shares of our Class A common stock will be reserved for future
issuance under the Incentive Plan, subject to increase in accordance with the terms of the Incentive Plan. To the extent that new options are issued under the Incentive Plan or we issue additional shares of common stock in the future, there will be
further dilution to investors participating in this offering. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future
operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our shareholders.
23
Unaudited pro forma consolidated financial information
The
unaudited pro forma consolidated balance sheet as of December 31, 2007 reflects our consolidated balance sheet giving pro forma effect to our new corporate structure as well as the acquisition of Carlson Solar as if those events had occurred on
December 31, 2007. Our new corporate structure reflects the contribution to us by Gaiam of our business assets and operations in exchange for 10,000,000 shares of our Class B common stock. The Marin Solar acquisition is included in our
historical balance sheet as of December 31, 2007.
The unaudited pro forma consolidated statement of operations for the year ended December 31, 2007
presents our consolidated results of operations giving pro forma effect to the acquisitions of Marin Solar and Carlson Solar as if such transactions had occurred on January 1, 2007. Our historical statement of operations includes Marin
Solar’s results of operations for November and December 2007.
Our audited and unaudited pro forma consolidated financial statements include allocations of
certain Gaiam expenses, including costs of fulfillment, customer service, financial and other administrative services, and income taxes. The expense allocations are based on what we and Gaiam considered to be reasonable reflections of the
utilization of services provided or the benefits received by us. The historical financial information in our audited and unaudited pro forma consolidated financial statements may not be indicative of what our results of operations, financial
position, changes in equity and cash flows will be in the future, or what they would have been had we been a separate stand-alone entity during the periods presented.
The pro forma adjustments are based on currently available information and upon assumptions that we believe are reasonable in order to reflect, on a pro forma basis, the impact of these transactions, on our historical financial information.
Obtaining additional information necessary to calculate the actual purchase price of the Marin Solar and Carlson Solar acquisitions is subject to final purchase price adjustments as provided for in their respective purchase agreements and to final
purchase price allocations. The actual adjustments, therefore, may differ from the pro forma adjustments.
Our unaudited consolidated pro forma financial information
should be read together with “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical financial statements and related notes included elsewhere in this
prospectus.
The unaudited pro forma consolidated financial information does not purport to reflect our results of operations or financial position that would
have occurred had we operated as a public company, rather than as a wholly owned subsidiary of Gaiam, during the periods presented. The unaudited pro forma consolidated financial information should not be relied upon as being indicative of our
results of operations or financial condition had the Marin and Carlson acquisitions occurred on the dates assumed. The unaudited pro forma consolidated financial information also does not project the results of operations or financial position for
any future period or date.
24
Unaudited pro forma consolidated financial information
Unaudited Pro Forma Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
(in thousands)
|
|
Real Goods
|
|
|
Carlson
Solar
|
|
Pro Forma
Adjustments
|
|
|
Notes
|
|
Pro Forma
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
542
|
|
|
$
|
309
|
|
$
|
(309
|
)
(4)
|
|
|
|
$
|
542
|
|
|
Accounts receivable, net
|
|
|
3,632
|
|
|
|
336
|
|
|
—
|
|
|
|
|
|
3,968
|
|
|
Inventory, less allowances
|
|
|
2,454
|
|
|
|
1,262
|
|
|
—
|
|
|
|
|
|
3,716
|
|
|
Deferred costs on uncompleted contracts
|
|
|
992
|
|
|
|
193
|
|
|
—
|
|
|
|
|
|
1,185
|
|
|
Deferred advertising costs
|
|
|
277
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
277
|
|
|
Deferred tax assets
|
|
|
154
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
154
|
|
|
Other current assets
|
|
|
19
|
|
|
|
1
|
|
|
—
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
8,070
|
|
|
|
2,101
|
|
|
(309
|
)
|
|
|
|
|
9,862
|
|
|
Property and equipment, net
|
|
|
4,382
|
|
|
|
199
|
|
|
—
|
|
|
|
|
|
4,581
|
|
|
Goodwill and other intangibles, net
|
|
|
6,094
|
|
|
|
—
|
|
|
2,393
|
(1)(2)
|
|
|
|
|
8,487
|
|
|
Deferred tax assets
|
|
|
2,324
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
2,324
|
|
|
Other assets
|
|
|
116
|
|
|
|
1
|
|
|
—
|
|
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
20,986
|
|
|
$
|
2,301
|
|
$
|
2,084
|
|
|
|
|
$
|
25,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,275
|
|
|
$
|
507
|
|
$
|
(498
|
)
(4)
|
|
|
|
$
|
1,284
|
|
|
Accrued liabilities
|
|
|
421
|
|
|
|
217
|
|
|
—
|
|
|
|
|
|
638
|
|
|
Deferred revenue on uncompleted contracts
|
|
|
1,354
|
|
|
|
251
|
|
|
—
|
|
|
|
|
|
1,605
|
|
|
Payable to Gaiam
|
|
|
16,286
|
|
|
|
—
|
|
|
3,410
|
(1)
(7)
|
|
|
|
|
19,823
|
|
|
|
|
|
|
|
|
|
|
|
|
(371
|
)
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
498
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
19,336
|
|
|
|
975
|
|
|
3,039
|
|
|
|
|
|
23,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
—
|
|
|
|
—
|
|
|
371
|
(3)
|
|
|
|
|
371
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, par value $.0001 per share; 50,000,000 shares authorized; no shares issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
—
|
|
|
Class A common stock, par value $.0001 per share; 150,000,000 shares authorized; no shares issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
—
|
|
|
Class B common stock, par value $0.0001 per share; 50,000,000 shares authorized; no shares issued and outstanding, actual; 10,000,000 shares issued and
outstanding, pro forma as adjusted
|
|
|
—
|
|
|
|
2
|
|
|
(2
|
)
(6)
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
—
|
|
|
1
|
(5)
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
2,150
|
|
|
|
2
|
|
|
(2
|
)
(6)
|
|
|
|
|
2,149
|
|
|
|
|
|
|
|
|
|
—
|
|
|
(1
|
)
(5)
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(500
|
)
|
|
|
1,322
|
|
|
(1,322
|
)
(6)
|
|
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
1,650
|
|
|
|
1,326
|
|
|
(1,326
|
)
|
|
|
|
|
1,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
20,986
|
|
|
$
|
2,301
|
|
$
|
2,084
|
|
|
|
|
$
|
25,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Unaudited pro forma consolidated financial information
|
(1)
|
To record the $3,210,000 cash paid as purchase consideration for Carlson Solar, to record the estimated transaction
costs of approximately $200,000, and to record the preliminary allocation of the purchase price based on the estimated fair value of assets acquired and liabilities assumed. Certain of the purchase price allocations are preliminary and may be
different from the final allocation of the purchase price.
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Calculation of purchase price:
|
|
|
|
|
|
Cash consideration
|
|
$
|
3,210
|
(a)
|
|
Estimated transaction costs
|
|
|
200
|
|
|
Total purchase price
|
|
$
|
3,410
|
|
|
|
|
|
Preliminary allocation of purchase price:
|
|
|
|
|
|
Accounts receivable
|
|
$
|
336
|
|
|
Inventory
|
|
|
1,262
|
|
|
Other assets
|
|
|
195
|
|
|
Property & equipment
|
|
|
199
|
|
|
Current liabilities
|
|
|
(975
|
)
|
|
Non-compete
|
|
|
100
|
|
|
Intangible – trademarks & copyrights
|
|
|
200
|
|
|
Goodwill
|
|
|
2,093
|
(a)
|
|
Total purchase price
|
|
$
|
3,410
|
|
|
|
(a)
|
Based on the aggregate cash purchase price pursuant to the Carlson Solar purchase agreement. See also Note 2.
|
|
(2)
|
As additional consideration to the Marin Solar and Carlson Solar acquisitions, we granted to the sellers warrants to
purchase an aggregate of 70,000 shares of our Class A common stock at an exercise price of $3.20 per share. The warrants have a seven year term and vest 50% upon the earlier to occur of the completion of this offering or a transaction resulting in
Gaiam’s ownership of us to be less than 50% of our outstanding shares. Following such initial vesting, 2% of the warrants will vest each month thereafter. We have not yet recognized the contingent consideration because its amount is not
determinable beyond a reasonable doubt. At the time any of the consideration becomes probable and can be estimated, we will recognize it as additional purchase price and allocate it to goodwill.
|
|
(3)
|
To record the 11.6% minority interest in our Real Goods Carlson Inc. subsidiary that acquired certain of the assets and
assumed certain liabilities of Carlson Solar. The income statement component reflects the effects of the transactions discussed in Notes 1 and 2 to the “Unaudited Pro Forma Consolidated Statement of Operations” for Carlson Solar.
|
|
(4)
|
To record the excluded assets and liabilities mandated in the Carlson Solar purchase agreement consisting of $309,000
of cash and cash equivalents and $498,000 of two vendor liabilities. This liability is retained by Gaiam until the discharge of these excluded liabilities post closing. The assets acquired were determined to have all the necessary inputs and
processes necessary for the transferred assets to continue to conduct normal operations after acquisition.
|
|
(5)
|
To reflect our new corporate structure under which Gaiam contributed to us our business assets and operations in
exchange for 10,000,000 shares of our Class B common stock.
|
|
(6)
|
To eliminate Carlson Solar historical equity balances.
|
|
(7)
|
To record the borrowing of the Carlson Solar purchase price from Gaiam.
|
26
Unaudited pro forma consolidated financial information
Unaudited Pro Forma Consolidated Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
(in thousands, except per share data)
|
|
Real
Goods
|
|
Marin &
Carlson
|
|
Pro Forma
Adjustments
|
|
|
Notes
|
|
|
Pro Forma
As Adjusted
|
|
|
Net revenue
|
|
$
|
18,922
|
|
$
|
13,823
|
|
$
|
—
|
|
|
|
|
|
$
|
32,745
|
|
|
Cost of goods sold
|
|
|
12,426
|
|
|
10,509
|
|
|
—
|
|
|
|
|
|
|
22,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
6,496
|
|
|
3,314
|
|
|
—
|
|
|
|
|
|
|
9,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and operating
|
|
|
5,728
|
|
|
2,188
|
|
|
—
|
|
|
|
|
|
|
7,916
|
|
|
General and administrative
|
|
|
582
|
|
|
203
|
|
|
120
|
|
|
(1
|
)
|
|
|
905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
6,310
|
|
|
2,391
|
|
|
120
|
|
|
|
|
|
|
8,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
186
|
|
|
923
|
|
|
(120
|
)
|
|
|
|
|
|
989
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
—
|
|
|
32
|
|
|
—
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and minority interest
|
|
|
186
|
|
|
891
|
|
|
(120
|
)
|
|
|
|
|
|
957
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
84
|
|
|
26
|
|
|
279
|
|
|
(2
|
)
|
|
|
389
|
|
|
Minority interest in net income of consolidated subsidiary, net of income taxes
|
|
|
—
|
|
|
—
|
|
|
(77
|
)
|
|
(3
|
)
|
|
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
102
|
|
$
|
865
|
|
$
|
(476
|
)
|
|
|
|
|
$
|
491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weight average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
To record amortization of marketing-related intangibles as a result of the preliminary purchase price allocations for Marin Solar
and Carlson Solar.
|
|
(2)
|
To record the tax impact of historical operations and the amortization of marketing-related intangibles discussed in Note 1 using
our estimated effective tax rate of 39.5%. This rate reflects the expected federal income tax expense at a statutory rate of 34%, the effect of our permanent differences, and the expected state income tax expense, net of federal benefit and
utilization of net operating loss.
|
|
(3)
|
To record the 11.6% minority interest in our Real Goods Carlson Inc. subsidiary that acquired certain of the assets and assumed
certain liabilities of Carlson Solar. The income statement component reflects the effects of the transactions discussed in Notes 1 and 2 hereto for Carlson Solar.
|
27
Selected consolidated financial data
You should read the
following selected consolidated financial data together with our consolidated financial statements and the related notes appearing elsewhere in this prospectus and in “Management’s Discussion and Analysis of Financial Condition and Results
of Operations.”
We derived the consolidated statements of operations data for each of the years ended December 31, 2005, 2006, and 2007 and the consolidated
balance sheet data as of December 31, 2006 and 2007 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the consolidated statement of operations data for each of the years ended December 31, 2003 and
2004 and the consolidated balance sheet data as of December 31, 2003, 2004, and 2005 from our unaudited financial statements, which are not included in this prospectus. The consolidated financial data for 2007 includes the effects of the Marin Solar
acquisition from the November 2007 date of the transaction.
Our audited and unaudited consolidated financial statements include allocations of certain Gaiam
expenses, including costs of fulfillment, customer service, financial and other administrative services, and income taxes. The expense allocations are based on what we and Gaiam considered to be reasonable reflections of the utilization of services
provided or the benefits received by us. Income tax expenses were calculated on the separate return approach. The historical financial data in our audited and unaudited consolidated financial statements may not be indicative of what our results of
operations, financial position, changes in equity and cash flows will be in the future, or what they would have been had we been a separate stand-alone entity during the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
(in thousands, except per share data)
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
9,008
|
|
$
|
9,268
|
|
$
|
12,114
|
|
$
|
16,812
|
|
$
|
18,922
|
|
Cost of goods sold
|
|
|
5,793
|
|
|
5,730
|
|
|
7,763
|
|
|
10,862
|
|
|
12,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,215
|
|
|
3,538
|
|
|
4,351
|
|
|
5,950
|
|
|
6,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and operating
|
|
|
2,427
|
|
|
2,987
|
|
|
3,464
|
|
|
4,964
|
|
|
5,728
|
|
General and administrative
|
|
|
452
|
|
|
480
|
|
|
492
|
|
|
567
|
|
|
582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
2,879
|
|
|
3,467
|
|
|
3,956
|
|
|
5,531
|
|
|
6,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
336
|
|
|
71
|
|
|
395
|
|
|
419
|
|
|
186
|
|
Income tax expense
|
|
|
137
|
|
|
30
|
|
|
159
|
|
|
169
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
199
|
|
$
|
41
|
|
$
|
236
|
|
$
|
250
|
|
$
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.02
|
|
$
|
0.00
|
|
$
|
0.02
|
|
$
|
0.03
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
10,000
|
|
|
10,000
|
|
|
10,000
|
|
|
10,000
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Net income per share is calculated as if Gaiam transferred our business assets and operations to us in return for 10,000,000
shares of our Class B common stock on January 1, 2003. We did not exist as a separate company during the historical periods presented. We computed earnings per share based on the shares outstanding following this contribution as if such shares
were outstanding from the beginning of the periods presented.
|
28
Selected consolidated financial data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
(in thousands)
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
172
|
|
|
$
|
115
|
|
|
$
|
214
|
|
|
$
|
248
|
|
|
$
|
542
|
|
|
Working capital (deficit)
|
|
|
(9,465
|
)
|
|
|
(9,332
|
)
|
|
|
(8,871
|
)
|
|
|
(8,126
|
)
|
|
|
(11,266
|
)
|
|
Total assets
|
|
|
12,724
|
|
|
|
12,369
|
|
|
|
13,643
|
|
|
|
16,041
|
|
|
|
20,986
|
|
|
Payable to Gaiam
|
|
|
11,561
|
|
|
|
11,075
|
|
|
|
11,794
|
|
|
|
13,919
|
|
|
|
16,286
|
|
|
Total liabilities
|
|
|
11,702
|
|
|
|
11,307
|
|
|
|
12,345
|
|
|
|
14,493
|
|
|
|
19,336
|
|
|
Total shareholders’ equity
|
|
|
1,022
|
|
|
|
1,062
|
|
|
|
1,298
|
|
|
|
1,548
|
|
|
|
1,650
|
|
29
Management’s discussion and analysis of financial
condition and results of operations
The following discussion and analysis provides information that we believe is relevant to an
assessment and understanding of our results of operation and financial condition. You should read this analysis in conjunction with our audited consolidated financial statements and related footnotes. This discussion and analysis contains statements
of a forward-looking nature relating to future events or our future financial performance. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results, level of activity, performance or
achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements, including those set forth in this prospectus.
Overview
We are a leading residential solar energy integrator. We offer
turnkey services to our solar energy system customers, including design, procurement, permitting, build-out, grid connection, financing referrals and warranty and customer satisfaction activities. Our solar energy systems use high-quality solar PV
modules from manufacturers such as Sharp, SunPower and Kyocera Solar. We use proven technologies and techniques to help customers achieve meaningful savings by reducing their utility costs. In addition, we help customers lower their emissions output
and reliance upon fossil fuel energy sources.
We have 30 years of experience in residential solar energy, beginning with our sale in 1978 of the first solar
photovoltaic, or PV, panels in the United States. We believe that we have installed more residential solar energy systems in the United States than any other company, including more than 2,400 residential and small commercial solar energy systems.
In addition, we have sold a variety of solar products to more than 30,000 customers since our founding.
Our focused customer acquisition approach and our
efficiency in converting leads into customers enable us to have what we believe are low customer acquisition costs. We believe that our Real Goods brand has a national reputation for the highest quality customer service in the solar energy market,
which leads to a significant number of word-of-mouth referrals and new customers. In addition, our parent company, Gaiam, is a leader in the sustainable and renewable energy lifestyle market and has a base of over 8 million direct customers,
providing us additional lead generation for potential solar energy customers. We also generate leads by selling solar and other renewable energy and sustainable living products and resources through our nationally distributed catalog and website,
including books and DVDs on renewable energy and sustainable living, products for solar and other water heating, green building products and systems, air purification products, water conservation and purification products and other solar and
sustainable living related products. Our Solar Living Center in Hopland features interactive demonstrations for renewable energy and environmentally sensible technologies and is the largest facility of its kind, with approximately 2 million visitors
since it opened in 1996.
Mergers and Acquisitions
Marin Solar, Inc.
On November 1, 2007, we purchased 100% ownership of Marin Solar for $3.2 million in cash, plus direct acquisition costs of
approximately $0.2 million. The purchase agreement provides for additional consideration contingent upon the amount of revenue generated from certain potential customers and the collection of certain rebates. As additional consideration we granted
to the sellers warrants to purchase 40,000 shares of our Class A common stock.
30
Management’s discussion and analysis of financial condition and results of operations
Carlson Solar
On January 1, 2008, our 88.4% owned subsidiary acquired certain of the assets of and assumed certain
liabilities from Carlson Solar for $3.2 million in cash, plus direct acquisition costs of approximately $0.2 million. As part of the acquisition, as additional consideration, we granted warrants to purchase 30,000 shares of our Class A common
stock at an exercise price of $3.20 per share, which will vest 50% upon the earlier to occur of the completion of this offering or a transaction resulting in Gaiam’s ownership of less than 50% of our outstanding shares. Following such initial
vesting, 2% of the warrants will vest each month thereafter. The warrants have a seven year term. The assets acquired were determined to have all inputs and processes necessary for the transferred assets to continue to conduct normal operations
after acquisition; accordingly, the purchase price was treated as a business combination pursuant to SFAS No. 141,
Business Combinations
.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our
financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have identified the following to be critical accounting policies
whose application have a material impact on our reported results of operations, and which involve a higher degree of complexity, as they require us to make judgments and estimates about matters that are inherently uncertain.
Revenue Recognition
Revenue consists of solar energy system installation fees
and sales of renewable and sustainable energy products. We recognize revenue from fixed price contracts using either the completed or percentage-of-completion method, based on the size of the solar energy system installation. We recognize revenue
from solar energy system installations of less than 250 kilowatts, or kW, when the installation is substantially complete, while we recognize revenue from solar energy system installations equal to or greater than 250 kW on a
percentage-of-completion basis, measured by the percentage of contract costs incurred to date to total estimated costs for each contract. We recognize revenue from the sale of renewable and sustainable energy products when the following four basic
criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the seller’s price to the buyer is fixed and determinable; and (4) collectibility is reasonably assured.
Goodwill
Goodwill represents the excess of the purchase consideration
over the estimated fair value of assets acquired less liabilities assumed in a business acquisition. Goodwill is no longer amortized but is reviewed for impairment annually or more frequently if impairment indicators arise. We compare the estimated
fair value of a reporting unit with its carrying amount, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a
reporting unit exceeds its estimated fair value, the goodwill impairment test is performed to measure the amount of impairment loss. Since we operate in only one business segment, we assess impairment at the enterprise level. The annual process of
evaluating the potential impairment of goodwill is highly subjective and requires significant judgment at many points during the analysis. Historically, Gaiam has used a market value method for purposes of testing its reporting units for potential
goodwill impairment. Factors historically considered by Gaiam were comparable company market values and the ratio of enterprise value to revenue. In assessing our goodwill for impairment, we plan to use a combination of factors, including comparable
company market values and multiples of revenue to the extent the information is available. If comparable market information is insufficient, we expect to supplement our assessment with other approaches, such as present value techniques, which will
require us to make estimates and judgments about our future cash flows. These cash flow forecasts will be based on assumptions that are consistent with the plans and estimates we use to manage our business. Application of alternative assumptions
could yield significantly different results.
31
Management’s discussion and analysis of financial condition and results of operations
Purchase Accounting
We account for the acquisition of a controlling interest in a business using
the purchase method. In determining the estimated fair value of certain acquired assets and liabilities, we make assumptions based upon historical and other relevant information and, in some cases, independent expert appraisals. Assumptions may be
incomplete, and unanticipated events and circumstances may occur that could affect the validity of such assumptions, estimates, or actual results. The estimated fair value of assets and liabilities acquired in recent business combinations are
preliminary as of December 31, 2007. We expect to obtain information necessary to finalize the estimated values during 2008.
Stock-Based Compensation
As of January 1, 2006, we adopted the provisions of SFAS No. 123(R),
Accounting for Stock-Based Compensation
(“SFAS 123(R)”), which
requires companies to recognize compensation cost for stock-based awards based on the estimated fair value of the award on date of grant. We measure compensation cost at the grant date based on the estimated fair value of the award and recognize
compensation cost upon the probable attainment of a specified performance condition or over a service period. We use the Black-Scholes option pricing model to calculate the fair value disclosures under SFAS 123(R). In calculating this fair value,
there are certain highly subjective assumptions that we use, as disclosed in note 6 of the notes to our consolidated financial statements, consisting of estimated market value of our stock, the expected life of the option, risk-free interest rate,
dividend yield, and volatility. The use of a different estimate for any one of these components could have a material impact on the amount of calculated compensation expense. We do not recognize share-based compensation expense unless the vesting of
the options is probable. In determining the estimated fair value of our common stock at the date of grant of stock awards, we set the market value based on the combination of two factors: an independent offer to purchase a portion of us in exchange
for preferred stock and the value of recent acquisitions.
Income Taxes
For financial reporting purposes, income tax expense and deferred income tax balances were calculated as if we were a separate entity and had prepared our own separate tax return. We provide for income taxes pursuant to the
liability method as prescribed in SFAS No. 109,
Accounting for Income Taxes
. The liability method requires recognition of deferred income taxes based on temporary differences between financial reporting and income tax bases of assets and
liabilities, using current enacted income tax rates and regulations. These differences will result in taxable income or deductions in future years when the reported amount of the asset or liability is recovered or settled, respectively. Considerable
judgment is required in determining when these events may occur and whether recovery of an asset is more likely than not. Our effective tax rate remains fairly consistent.
After the date we cease to be a member of Gaiam’s consolidated group for federal income tax purposes, to the extent we become entitled to utilize loss carryforwards from our separate tax returns, we will distribute to Gaiam the tax
effect (estimated to be 34% for federal income tax purposes) of the amount of such tax loss carryforwards so utilized. Accordingly, we expect to recognize a valuation allowance against certain of our deferred tax assets as of the effective date of
the tax sharing agreement. As of December 31, 2007, we had NOL carryforwards of approximately $6.9 million, meaning that such potential future payments to Gaiam, which would be made over a period of several years, would therefore aggregate
to approximately $2.6 million. These NOL carryforwards expire beginning in 2020 if not utilized. Due to Gaiam’s step acquisitions of our company, we experienced “ownership changes” as defined in Section 382 of the Internal
Revenue Code. Accordingly, our use of the NOL carryforwards is limited by annual limitations described in Sections 382 and 383 of the Internal Revenue Code. We expect our NOLs to be fully recoverable unless we make a public offering of more than 20%
of our capital, in which case we will effectively lose one year of our carryforward period and have to impair our deferred tax asset by approximately $0.2 million.
32
Management’s discussion and analysis of financial condition and results of operations
Effective January 1, 2007, we adopted the provisions of SFAS Interpretation No. 48,
Accounting of Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109
(“FIN 48”). Under FIN 48, we must recognize the
tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. We measure the tax benefits recognized in
the consolidated financial statements from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The application of income tax law is inherently complex. Laws and regulations
in this area are voluminous and are often ambiguous. As such, we are required to make many subjective assumptions and judgments regarding our income tax exposures. Interpretations of and guidance surrounding income tax law and regulations change
over time and may result in changes to our subjective assumptions and judgments which can materially affect amounts recognized in our consolidated financial statements.
Results of Operations
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
Net revenue
. Net revenue increased $2.1 million, or 12.6%, to $18.9 million during 2007 from $16.8 million during 2006. This increase in net
revenue primarily reflects $1.3 million additional revenue recognized in the Northern California market as a result of the acquisition of Marin Solar in November 2007, with the majority of the remaining increase coming from increased penetration in
existing markets.
Gross profit
. Gross profit increased $0.5 million, or 9.2%, to $6.5 million during 2007 from $6.0 million during 2006. As a percentage
of net revenue, gross profit decreased to 34.3% during 2007 from 35.4% during 2006. The decrease in gross profit percentage primarily reflects the acquisition of Marin Solar, which historically has produced lower margins.
Selling and operating expenses.
Selling and operating expenses increased $0.8 million, or 15.4%, to $5.7 million during 2007 from $5.0 million during 2006. As a percentage
of net revenue, selling and operating expenses increased to 30.3% during 2007 from 29.5% during 2006. The increase in selling and operating expenses resulted primarily from investments in personnel to support the revenue increases described above
and the addition of costs associated with the acquisition of Marin Solar in November 2007.
General and administrative expenses
. General and administrative
expenses increased $15,000, or 2.6%, to $0.6 million during 2007 from $0.6 million during 2006. As a percentage of net revenue, general and administrative expenses decreased to 3.1% during 2007 from 3.4% during 2006, reflecting the stabilization of
our fixed costs.
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
Net revenue
. Net revenue increased $4.7 million, or 38.8%, to $16.8 million during 2006 from $12.1 million during 2005. The increase in net revenue resulted primarily from
increased sales in our existing California solar energy systems market and the launch of our solar energy system installations in Colorado.
Gross profit
.
Gross profit increased $1.6 million, or 36.8%, to $6.0 million during 2006 from $4.4 million during 2005. As a percentage of net revenue, gross profit decreased to 35.4% during 2006 from 35.9% during 2005.
Selling and operating expenses.
Selling and operating expenses increased $1.5 million, or 43.3%, to $5.0 million during 2006 from $3.5 million during 2005. As a percentage
of net revenue, selling and operating expenses increased to 29.5% during 2006 from 28.6% during 2005. This increase was primarily due to increased selling and operating expenses to support the revenue growth described above, the addition of the
Colorado solar energy systems sales and support team, and other investments in our infrastructure.
33
Management’s discussion and analysis of financial condition and results of operations
General and administrative expenses.
General and administrative expenses increased $75,000, or 15.2%, to $0.6 million during 2006 from $0.5 million during 2005. As a percentage of net revenue, general and administrative expense
improved to 3.4% during 2006 from 4.1% during 2005, reflecting the stabilization of our fixed costs.
Quarterly and Seasonal Fluctuations
The following table sets forth our unaudited quarterly results of operations during each of the quarters in 2006 and 2007. We believe this unaudited financial
information includes all adjustments, consisting solely of normal recurring accruals and adjustments, necessary for a fair presentation of the results of operations for the quarters presented. This financial information should be read in conjunction
with our consolidated financial statements and related notes included elsewhere in this prospectus. The results of operations for any quarter are not necessarily indicative of future results of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
|
Fiscal Year 2006 Quarters Ended
|
|
|
|
March 31
|
|
|
June 30
|
|
September 30
|
|
December 31
|
|
Net revenue
|
|
$
|
3,197
|
|
|
$
|
4,443
|
|
$
|
4,849
|
|
$
|
4,323
|
|
Gross profit
|
|
|
958
|
|
|
|
1,485
|
|
|
1,457
|
|
|
2,050
|
|
Income (loss) before income taxes
|
|
|
(113
|
)
|
|
|
144
|
|
|
59
|
|
|
329
|
|
Net income (loss)
|
|
|
(67
|
)
|
|
|
86
|
|
|
35
|
|
|
196
|
|
Diluted net income (loss) per share
|
|
$
|
(0.01
|
)
|
|
$
|
0.01
|
|
$
|
0.00
|
|
$
|
0.02
|
|
Weighted average shares outstanding-diluted
|
|
|
10,000
|
|
|
|
10,000
|
|
|
10,000
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
|
Fiscal Year 2007 Quarters Ended
|
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
|
December 31
|
|
Net revenue
|
|
$
|
4,364
|
|
$
|
4,514
|
|
$
|
4,279
|
|
|
$
|
5,765
|
|
Gross profit
|
|
|
1,488
|
|
|
1,763
|
|
|
1,285
|
|
|
|
1,960
|
|
Income (loss) before income taxes
|
|
|
72
|
|
|
275
|
|
|
(206
|
)
|
|
|
45
|
|
Net income (loss)
|
|
|
40
|
|
|
151
|
|
|
(113
|
)
|
|
|
24
|
|
Diluted net income (loss) per share
|
|
$
|
0.00
|
|
$
|
0.02
|
|
$
|
(0.01
|
)
|
|
$
|
0.01
|
|
Weighted average shares outstanding-diluted
|
|
|
10,000
|
|
|
10,000
|
|
|
10,000
|
|
|
|
10,000
|
Our quarterly net revenue and operating results for solar energy system installations are difficult to predict and have in the past and may in the future fluctuate from quarter to
quarter as a result of changes in state, federal, or private utility company subsidies, as well as weather and other factors. With regards to our renewable and sustainable energy products sold through catalogs and the Internet, sales tend to peak
during the spring and end of year holiday seasons.
Liquidity and Capital Resources
Our capital needs arise from working capital required to fund our purchases of solar PV modules and inverters, capital related to acquisitions of new businesses, development of
renewable energy products, replacements, expansions and improvements to our infrastructure, and future growth. These capital requirements depend on numerous factors, including business acquisitions, the ability to attract new solar energy system
installation customers, market acceptance of our product offerings, the cost of ongoing upgrades to our product offerings, the level of expenditures for sales and marketing, the level of investment in support systems and facilities and other
factors. The timing and amount of these capital requirements are variable and cannot accurately be predicted. We did not have any material commitments for capital expenditures as of December 31, 2007, and we do not presently have any plans for
future material capital expenditures. Recently, we acquired two solar energy system installation businesses. We plan to continue to pursue business acquisition and other opportunities to expand our sales territories, technologies, and products and
increase our sales and marketing programs as needed.
34
Management’s discussion and analysis of financial condition and results of operations
Intercompany Borrowings from Gaiam
Prior to this offering and since 1999, our business has been funded through our operating
income, supplemented by intercompany borrowings from Gaiam. As of December 31, 2007, we had approximately $0.5 million in cash and cash equivalents and approximately $16.3 million of intercompany borrowings owed to Gaiam. The intercompany
borrowings include amounts used to acquire and expand our business.
Cash Flows
The following table summarizes our primary sources (uses) of cash during the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
(in thousands)
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(620
|
)
|
|
$
|
(2,049
|
)
|
|
$
|
1,306
|
|
|
Investing activities
|
|
|
—
|
|
|
|
(42
|
)
|
|
|
(3,378
|
)
|
|
Financing activities
|
|
|
719
|
|
|
|
2,125
|
|
|
|
2,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
$
|
99
|
|
|
$
|
34
|
|
|
$
|
294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
. Our operating activities provided net cash of $1.3 million during 2007 and used net cash of $2.0 million during 2006. Our net cash generated from
operating activities during 2007 was primarily attributable to cash provided by increased accounts payable of $0.7 million and increased deferred revenue on uncompleted contracts of $0.6 million, partially offset by uses of funds resulting from
increased deferred costs on uncompleted contracts of $0.5 million. Our net cash used in operating activities during 2006 was primarily attributable to increases in inventory and accounts receivable by $1.6 million and $1.0 million,
respectively, and reductions of accounts payable by $0.4 million, partially offset by cash provided by deferred income taxes of $0.4 million.
Investing
activities
. Our investing activities used net cash of $3.4 million and $42,000 during 2007 and 2006, respectively. The cash used in investing activities during 2007 was used primarily to acquire Marin Solar on November 1, 2007 and in 2006 to
acquire property and equipment.
Financing activities
. Our financing activities provided net cash of $2.4 million and $2.1 million during 2007 and 2006,
respectively. The financing provided during both 2007 and 2006 that came from Gaiam was used to fund our daily operations and to acquire Marin Solar in November of 2007. We plan to repay these amounts with proceeds from this offering.
We believe our available cash, cash expected to be generated from operations, and cash generated by the sale of Class A common stock should be sufficient to fund our business for
the foreseeable future. However, our projected cash needs may change as a result of possible acquisitions, unforeseen operational difficulties, or other factors.
In
the normal course of our business, we investigate, evaluate and discuss acquisition, joint venture, minority investment, strategic relationship and other business combination opportunities in the solar energy markets. For any future investment,
acquisition, or joint venture opportunities, we may consider using then-available liquidity, issuing equity securities, or incurring additional indebtedness.
35
Management’s discussion and analysis of financial condition and results of operations
Contractual Obligations
We have commitments under operating leases, our payable to Gaiam, and various service agreements with
Gaiam (see note 10 to our notes to consolidated financial statements), but do not have any outstanding commitments under long-term debt obligations or purchase obligations. The following table shows our commitments to make future payments under
operating leases and our payable to Gaiam:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Total
|
|
< 1 year
|
|
1-3 years
|
|
3-5 years
|
|
> 5 yrs
|
|
Operating lease obligations
|
|
$
|
240
|
|
$
|
132
|
|
$
|
108
|
|
$
|
—
|
|
$
|
—
|
|
Payable to Gaiam
(1)
|
|
|
16,286
|
|
|
16,286
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
16,526
|
|
$
|
16,418
|
|
$
|
108
|
|
$
|
0
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents the balance of our intercompany payable to our parent, Gaiam. We have no formal written loan agreement with Gaiam
regarding our intercompany payable. We intend to repay the entire balance with the proceeds from this offering. As of the date of this prospectus, the payable to Gaiam was approximately $19.8 million. See “Use of Proceeds.”
|
After the date we cease to be a member of Gaiam’s consolidated group for federal income tax purposes, to the extent we become entitled to
utilize loss carryforwards from our separate tax returns, we will distribute to Gaiam the tax effect (estimated to be 34% for federal income tax purposes) of the amount of such tax loss carryforwards so utilized. Accordingly, we expect to recognize
a valuation allowance against certain of our deferred tax assets as of the effective date of the tax sharing agreement. As of December 31, 2007, we had net operating loss carryforwards, or NOLs, of approximately $6.9 million, meaning that such
potential future payments to Gaiam, which would be made over a period of several years, would therefore aggregate to approximately $2.6 million. These NOLs expire beginning in 2020 if not utilized. Due to Gaiam’s step acquisitions of us, we
experienced “ownership changes” as defined in the Internal Revenue Code. Accordingly, our use of these NOLs is limited by annual limitations described in the Internal Revenue Code. We expect our NOLs to be fully recoverable unless we make
a public offering of more than 20% of our capital, in which case we will effectively lose one year of our carryforward period and have to impair our deferred tax asset by approximately $0.2 million.
Recent Accounting Pronouncements
In December 2007, the Financial Accounting
Standards Board, or FASB, issued FASB Statement No. 141 (Revised 2007),
Business Combinations
(“SFAS 141R”). This statement will significantly change the accounting for business combinations. Under SFAS 141R, an acquiring entity
will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141R will change the accounting treatment for certain specific items, including the
following:
|
|
Ø
|
|
acquisition costs will be generally expensed as incurred,
|
|
|
Ø
|
|
noncontrolling interests (formerly known as “minority interests”—see SFAS 160 discussion below) will be valued at fair value at the acquisition date,
|
|
|
Ø
|
|
acquired contingent liabilities will be recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined
under existing guidance for non-acquired contingencies,
|
|
|
Ø
|
|
in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date,
|
36
Management’s discussion and analysis of financial condition and results of operations
|
|
Ø
|
|
restructuring costs associated with a business combination will be generally expensed subsequent to the acquisition date, and
|
|
|
Ø
|
|
changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense.
|
Also included in the statement are a substantial number of new disclosure requirements. SFAS 141R applies prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. Accordingly, a calendar year-end company is required to record and
disclose business combinations following existing GAAP until January 1, 2009. Consequently, we will adopt the provisions of SFAS 141R for our fiscal year beginning January 1, 2009. We believe that SFAS 141R is applicable to us, but cannot yet
reasonably estimate the impact of the statement.
In December 2007, FASB issued FASB Statement No. 160,
Noncontrolling Interests in Consolidated Financial
Statements—An Amendment of ARB No. 51
(“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this
statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest
will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent
retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the estimated fair value of the
noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. We will adopt SFAS 160 at the beginning of our fiscal year commencing January 1, 2009. We believe SFAS 160 will be applicable to us, but
cannot yet reasonably estimate the impact to our consolidated financial statements.
In September 2006, FASB issued FASB Statement No. 157,
Fair Value
Measurements
(“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies under
other accounting pronouncements that require or permit fair value measurements, FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS 157 does not require any new
fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting
entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year. We will adopt the provisions of SFAS 157 in our fiscal year commencing January 1, 2008. We
currently believe that adoption of the provisions of SFAS 157 will not have a material impact on our consolidated financial statements.
In June 2006, FASB issued
Interpretation No. 48,
Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109
(“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes
. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. This Interpretation is effective for fiscal years beginning
after December 15, 2006. Earlier application of the provisions of this Interpretation is encouraged if the enterprise has not yet issued financial statements, including interim financial statement, in the period this Interpretation is adopted.
Consequently, we adopted the provisions of FIN 48 for our fiscal year beginning on January 1, 2007 and it has not had a material impact on our consolidated financial statements.
37
Management’s discussion and analysis of financial condition and results of operations
Off-Balance Sheet Arrangements
We do not participate in transactions that generate relationships with unconsolidated entities
or financial partnerships, such as special purpose entities or variable interest entities, which have been established for the purpose of facilitating off-balance sheet arrangements or other limited purposes.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to
market risks, which include foreign exchange rates and changes in U.S. interest rates. We do not engage in financial transactions for trading or speculative purposes.
We purchase a significant amount of renewable energy and organic product inventory from vendors outside of the United States in transactions that are primarily U.S. dollar denominated transactions. Since the percentage of our international
purchases denominated in currencies other than the U.S. dollar is small, any currency risks related to these transactions are immaterial to us. However, a decline in the relative value of the U.S. dollar to other foreign currencies could lead to
increased purchasing costs. In order to mitigate this exposure, we make virtually all of our purchase commitments in U.S. dollars.
38
Business
Introduction
We are a leading residential solar energy integrator. We offer turnkey services to our solar energy system customers, including design, procurement, permitting, build-out, grid
connection, financing referrals and warranty and customer satisfaction activities. Our solar energy systems use high-quality solar PV modules from manufacturers such as Sharp, SunPower and Kyocera Solar. We use proven technologies and techniques to
help customers achieve meaningful savings by reducing their utility costs. In addition, we help customers lower their emissions output and reliance upon fossil fuel energy sources.
We have 30 years of experience in residential solar energy, beginning with our sale in 1978 of the first solar photovoltaic, or PV, panels in the United States. We believe that we have installed more residential solar energy
systems in the United States than any other company, including more than 2,400 residential and small commercial solar energy systems. In addition, we have sold a variety of solar products to more than 30,000 customers since our founding.
For the fiscal year ended December 31, 2007, our net revenue was $18.9 million, and for the fiscal year ended December 31, 2006, our net revenue was $16.8 million. On
a pro forma basis (giving effect to the acquisitions of Marin Solar and Carlson Solar as if such transactions had occurred on January 1, 2007), for the fiscal year ended December 31, 2007, our net revenue was $32.7 million and we generated a 30.0%
gross margin and $1.0 million of income from operations. Immediately after the completion of this offering, after application of the net proceeds of this offering, we will have $ million of cash and no outstanding debt.
Our focused customer acquisition approach and our efficiency in converting leads into customers enable us to have what we believe are low customer acquisition
costs. We believe that our Real Goods brand has a national reputation for the highest quality customer service in the solar energy market, which leads to a significant number of word-of-mouth referrals and new customers. In addition, our parent
company, Gaiam, is a leader in the sustainable and renewable energy lifestyle market and has a base of over 8 million direct customers, providing us additional lead generation for potential solar energy customers. We also generate leads by
selling solar and other renewable energy and sustainable living products and resources through our nationally distributed catalog and website, including books and DVDs on renewable energy and sustainable living, products for solar and other water
heating, green building products and systems, air purification products, water conservation and purification products and other solar and sustainable living related products. Our Solar Living Center in Hopland features interactive demonstrations for
renewable energy and environmentally sensible technologies and is the largest facility of its kind, with approximately 2 million visitors since it opened in 1996.
Our History
We are currently a wholly owned subsidiary of Gaiam. We were incorporated in Colorado in 2008 as a successor
to a business that began in 1978. Our operations are headquartered in Hopland, California. We acquired Marin Solar in November 2007 and Carlson Solar in January 2008, together representing over 1,000 cumulative solar energy system installations.
Growth Strategy
Our goal is to continue to build on our
industry-leading position and be the largest and most profitable residential solar energy integrator in the United States. We intend to pursue the following strategies to achieve this goal:
|
|
Ø
|
|
Enhance and leverage the Real Goods brand name to increase our market presence
. We intend to enhance and leverage the Real Goods brand name, which we believe is the
strongest name in the residential solar energy market, and our reputation for outstanding customer service to continue to win business in existing markets and to expand into new markets in which our competitors have little or no brand recognition.
|
39
Business
|
|
Ø
|
|
Expand into markets in which legislation and government incentives are favorable for solar energy
. We plan to expand the geographic scope of our business as
jurisdictions adopt new or improve existing incentive programs that enhance the economics of solar energy systems for a broader customer base. In addition to the $3.4 billion California Solar Initiative, or CSI, adopted in 2007, 29 states, including
Arizona, Colorado, Connecticut, Hawaii, Massachusetts, Nevada, New Jersey and New York, have adopted legislation and incentives favorable to solar energy and other states are considering adopting such legislation and incentives.
|
|
|
Ø
|
|
Consolidate the fragmented U.S. solar energy system installation market
. The U.S. solar energy system installation market remains highly fragmented, with over 300
independent installers or integrators in California alone. We intend to continue our consolidation activities in order to penetrate new markets, expand our business and further enhance our national brand and leverage our national marketing programs.
We plan to create economies of scale through our consolidation activities in order to increase our operating efficiencies, with a goal of improving our margins and profitability.
|
|
|
Ø
|
|
Expand our “community of customers” to enhance revenue and lower our customer acquisition costs.
We intend to leverage the reputation for authenticity
associated with our Real Goods brand to expand our “community of customers,” which cares deeply about solar energy and a renewable energy lifestyle and views us as the premier provider of products, services and support to enable this
lifestyle. We plan to cross-market our wide array of energy-saving and carbon footprint-reducing products and services in addition to our solar energy systems, which we believe will enhance our revenue and create additional customer loyalty. We also
intend to leverage our customer base to continue to provide us with new leads and referrals, which, in conjunction with our cross-marketing efforts, should allow us to continue to lower our customer acquisition costs.
|
|
|
Ø
|
|
Make a difference in the world
. We intend to promote our solar energy systems and sustainable living resources as a way for
individuals and communities to reduce their carbon footprint, eliminate U.S. dependence on foreign and fossil fuel-based energy sources and foster a culture of respect for the Earth and its natural resources for the benefit of future generations. We
estimate the energy savings resulting from our products that were purchased in the 1990s will prevent the production of over one billion pounds of carbon dioxide over the life of those products, which is the equivalent of removing approximately
100,000 passenger cars from use for one year. We anticipate that products we expect to sell through 2010 will prevent an additional one billion pounds of carbon dioxide from being released into the atmosphere. We calculated this energy savings by
estimating how many kilowatt-hours were saved over the life of these products by their use, and estimating that U.S. power plants generate an average of 1.5 pounds of carbon dioxide in producing 1 kW of electricity. For example, a 15 watt compact
fluorescent light bulb saves 45 watts per hour and lasts 10,000 hours and therefore saves 450 kW and prevents the generation of 675 pounds of carbon dioxide over its product life.
|
Competitive Advantages
We believe that we have a number of advantages over
our competitors, including the following:
|
|
Ø
|
|
Brand recognition and authenticity
. We believe that our customers often buy our solar energy systems because of the strength of the Real Goods brand, our longevity in
the marketplace and our reputation for excellent customer service. In addition, our reference guide authored by our founder, the “Solar Living Sourcebook,” has sold approximately 250,000 copies to date. As a result of our 30 years of
operating in the solar energy industry, we believe that we are frequently the first company in the industry approached by new solar companies with innovative products.
|
|
|
Ø
|
|
Strength of management
. We have a highly experienced management team. Our founder and Chief Executive Officer, John Schaeffer, has more than 30 years of experience in
the solar energy industry. In addition, our Chairman, Jirka Rysavy, founded and grew Corporate Express from $30 million to $3 billion in revenue in less than five years. Mr. Rysavy and other members of our management team have considerable
experience in the consolidation of fragmented industries, having acquired over 250 companies.
|
40
Business
|
|
Ø
|
|
Low-cost customer acquisition model
. Our business model gives us a significant cross-marketing advantage by providing us access to potential purchasers of solar energy
systems through our catalog and Internet sales, from visitors to our Solar Living Center and from Gaiam’s 8 million direct customers. In addition, our strong brand name and reputation for outstanding customer service provide us with
word-of-mouth referrals.
|
|
|
Ø
|
|
Relationship with Gaiam
. We believe that our relationship with Gaiam provides us with additional expertise across brand building, marketing, acquisition completion and
integration and certain administrative functions, which should enable us to operate more efficiently and cost-effectively.
|
|
|
Ø
|
|
Strong supplier base
. We maintain strong relationships with many leading solar PV module manufacturers, including Sharp, SunPower and Kyocera Solar, which provides us
with continued access to a supply of our key systems products and early review of innovative market products. Our financial strength and market position enable us to purchase directly from these manufacturers which lowers our purchasing costs
relative to those of our competitors that are only able to purchase through third-party distributors.
|
|
|
Ø
|
|
Strong balance sheet.
Immediately after the completion of this offering, after application of the net proceeds of this offering, we will have $
million of cash and no outstanding debt. We believe that our strong balance sheet and our financial strength meaningfully differentiate us from our competitors, providing our suppliers and customers with confidence in our financial strength and
longevity, and further supporting our consolidation strategy.
|
Industry Overview
We believe that as demand for electric power increases, the electric power industry will face various challenges, including the
following:
|
|
Ø
|
|
Power industry at peak capacity with aging infrastructure.
A majority of U.S. power plants in highly populated areas approach capacity during times of peak usage.
Additionally, over half of U.S. power plants are more than 30 years old. In order to meet the rising demand for electric power, additional plants will need to be constructed and the aging existing plant infrastructure will require significant
capital investment.
|
|
|
Ø
|
|
Finite resources.
Non-renewable energy resources are finite. Although coal, the largest non-renewable energy resource, is estimated to have over 100 years of reserves
left, the rate of global energy consumption is expected to continue to increase, jeopardizing economical access to sufficient energy supply for future generations if renewable energy sources are not developed.
|
|
|
Ø
|
|
Increased electricity rates.
As a result of aging infrastructure and high energy demand, residential and commercial customers are facing rising electricity rates,
creating economic pressures for consumers and businesses alike.
|
|
|
Ø
|
|
Pollution concerns and climate change.
Non-renewable, fossil fuel-based energy sources, including coal, create environmental pollution, and there is significant local
resistance to new coal-fired power plants in populated areas. Concerns about global warming and greenhouse gas emissions have resulted in international efforts to reduce such emissions, and various states have enacted stricter emissions control laws
or mandated that utilities comply with renewable portfolio standards, or RPS, which require the generation of a certain amount of power from renewable sources.
|
Because the solar energy industry offers solutions to these challenges, we believe it has extremely large growth potential. Currently, only approximately one-tenth of one percent of the world’s power is generated from
solar energy sources. Between
2000 and 2006, manufacturers’ shipments of solar PV modules have increased at a compound annual growth rate of 41%,
according to Navigant Consulting. The global solar energy market is estimated to grow to between $19 billion and $32 billion
41
Business
by 2011, with annual solar energy installations reaching between 4.2 and 7.6 gigawatts, or GW, by 2011, compared to 1.7 GW in 2006, according to Solarbuzz.
Drivers of Solar Energy Industry Growth
We expect a number of factors will
contribute to growth in the solar energy industry, including the following:
|
|
Ø
|
|
Legislative initiatives
. A number of initiatives have been enacted by the federal government and various states, municipalities and utilities that encourage or require
the installation of grid-tied solar energy systems. In 1996, the state of California enabled individual energy systems to tie into the conventional utility grid and began to require that various rebates and incentives be provided to support the use
of solar energy systems, making California the focus for the development of the solar energy market in the United States. By 2006, California had approximately 24,000 installed residential solar energy systems and accounted for approximately
two-thirds of the U.S. residential market for solar energy systems. California is now the third largest market for solar energy behind Germany and Japan. The CSI provides for the expenditure of up to $3.4 billion in incentives for installation of
solar energy systems with generation capacity of 3 GW of electricity by 2017. California has also mandated an increase in the percentage of renewable energy retail sales by certain utilities by at least 1% per year to reach at least 20% by
the end of 2010, with a goal of 33% by 2020. Colorado has enacted an RPS of 20% for investor-owned utilities and 10% for electric cooperatives and municipal utilities serving more than 40,000 customers by 2020. In some jurisdictions, such as
Colorado, operation of a solar energy system that is located on the property of a utility customer can satisfy a portion of the utility’s RPS requirements.
|
|
|
Ø
|
|
Financial incentives
. As these RPS programs are implemented, it is common for financial incentives to be required, making the purchase of solar energy systems more
affordable and opening additional solar markets in the United States.
|
|
|
¡
|
|
Rebates
. Rebates offered to customers or integrators reduce the initial cost of solar energy systems. Several states, including California and Colorado, require
certain utilities to offer rebates that can substantially reduce the costs of installing solar energy systems. California’s residential rebate is currently $2.20 to $2.50 per watt, and Colorado currently offers a total effective rebate of up to
$4.50 per watt. These rebates typically reduce the customer’s out-of-pocket cost for purchasing a solar energy system by 20% to 50%.
|
|
|
¡
|
|
Tax credits
. There is currently a 30% federal tax credit with a $2,000 cap for residential solar energy systems and a 30% federal tax credit with no cap for commercial
solar energy systems. The credit for residential systems is currently set to expire on December 31, 2008, and the credit for commercial systems is currently set to be reduced to 10% on January 1, 2009, unless extended.
|
|
|
¡
|
|
Other incentives
. Other incentives, such as net metering, time-of-use credits and performance-based incentives, are provided to consumers based on the amount of
electricity their solar energy systems generate. Currently, 38 states have required certain utility providers to accept net metering, and four additional states have partial net metering administered by individual utilities within such states. Net
metering allows residential and small-scale commercial solar energy producers to sell excess power generated by their systems to their utility companies, through existing electric meters, at standard retail prices. Time-of-use metering allows
customers to sell solar power to their utility for very high rates during peak times when traditional loads are at their highest demand. These customers can then buy back electricity from the utilities during other times at a much lower rate,
providing them an additional financial benefit. Performance-based incentives, or PBIs, reward customers based on the output of their solar energy system over time, as opposed to through an initial rebate. The CSI currently requires that residential
customers who choose not to accept the purchase rebate be provided a PBI of $0.34 to $0.39 per kilowatt-hour for a period of five years. This PBI amount declines in steps as the aggregate number of residential solar energy systems increases.
|
42
Business
|
|
¡
|
|
Renewable energy credits
. In many states, the installation of a solar energy system generates a renewable energy credit, or REC, which is marketable in certain states.
These RECs are of little value in the hands of individual solar energy system owners because of the limited market for RECs and the associated transaction costs, which are high relative to the value of RECs typically available to an individual
residential user. In most cases, we will retain the RECs that result from our integration projects, and we expect additional revenues may be generated from the sale of these aggregated RECs in the future if a market for RECs develops.
|
|
|
¡
|
|
Property tax exemptions
. In certain jurisdictions, such as California, the assessor is prohibited from increasing a solar energy system owner’s property tax
assessment as a result of the added value of qualified solar energy systems, which we provide.
|
|
|
Ø
|
|
Benefits of solar energy systems.
Solar energy as a source of electrical power offers the following benefits compared to conventional energy sources:
|
|
|
¡
|
|
Lower energy prices
. The cost of electricity generated by a solar energy system is essentially fixed at the time of installation, providing a hedge against utility
electricity price increases and inflation. According to the U.S. Energy Information Administration, average retail prices for electricity in the United States increased by 9.3% from 2005 to 2006. We believe that the monthly savings resulting from
the solar power produced by an average 4 kW residential solar energy system in California is approximately $100. Solar energy systems generate much of their electricity during the afternoon when the sun’s rays are strongest and when the
greatest demand for electricity occurs. Customers can use their solar energy systems’ energy to replace peak time conventional electricity, which can be more expensive and less reliable than electricity purchased during non-peak times. In
addition, solar energy systems typically have low operating expense because they require minimal maintenance over their expected lives.
|
|
|
¡
|
|
Versatility and ease of installation
. Solar energy systems can generate electricity in any location that receives sunlight, while relatively few locations have both
the infrastructure and natural resources required to support other forms of renewable energy, including hydroelectric, wind and geothermal. Solar energy systems can be installed directly at sites where power is needed, reducing conventional
electrical transmission and distribution costs.
|
|
|
¡
|
|
Security
. The use of solar energy systems improves energy security by reducing fossil fuel purchases from hostile or politically or economically unstable countries and
by reducing power strains on local electrical transmission and distribution systems.
|
Challenges to the Solar Energy Industry
We believe growth in the solar energy industry faces the following challenges:
|
|
Ø
|
|
Customer economics and financing
. The decision to install a solar energy system represents a significant investment of approximately $15,000 to $30,000 (net of rebates
and federal tax credits) for the typical home in California and $10,000 to $20,000 (net of rebates and federal tax credits) for the typical home in Colorado. In addition, financing sources specifically for solar energy systems are currently limited.
The return on each customer’s investment in a solar energy system will occur over a different period or at a different rate depending upon individual circumstances. A potential purchaser has to weigh the initial investment decision against the
longer-term utility cost reductions, increased property value and low system maintenance costs provided by a solar energy system. The installation cost of a residential solar energy system purchased from us typically ranges from $8.00 to $9.00 per
AC watt based on total system cost before rebates or incentives.
|
43
Business
|
|
Ø
|
|
Evolving regulatory landscape
. The solar energy industry is significantly driven by federal, state and local regulations and incentives, which are continually
changing. Changes in regulations and incentives could adversely affect the economic viability of solar energy systems.
|
|
|
Ø
|
|
Supply of solar PV modules
. The manufacture of solar PV modules depends on the availability of silicon, an essential raw material. Currently, there is a global
shortage of silicon, which has resulted in some price increases and limited availability for solar PV modules. This shortage is likely to continue in the short term and could negatively impact the industry.
|
Services
We offer turnkey services to our solar energy customers,
including design, procurement, permitting, build-out, grid connection, financing referrals and warranty and customer satisfaction activities. We install residential and small commercial systems that are generally between 1 kW and 500 kW output, with
the average residential installation being approximately 4 kW output.
We design and build our solar energy systems to meet each customer’s individual needs and
circumstances. We assess a customer’s annual power requirements and average daily consumption rates in different seasons of the year to size the solar energy system and engineer its wiring. We assess the customer’s roof size,
configuration, and composition to determine the optimum location for the solar PV modules. We factor in information about the customer’s electrical service territory and its rate structures, and we identify the customer’s budget and
preferred financing method, as well as the customer’s aesthetic preferences. We also identify the relevant federal, state and local regulations, including building codes, that are important to the cost, operation and return on investment of the
customer’s solar energy system, as well as relevant tax rates and various other factors. We assess this data using solar monitoring tools and analytical calculations, which enable us to design a solar energy system to a size and configuration
that maximizes energy efficiency for each customer’s circumstances.
We prepare final construction plans to obtain a building permit which is necessary for
rebate processing. We also provide customers with a return on investment analysis and determine the rebates and performance-based incentives that are available to each customer. As soon as the building permit is approved, our installation
professionals begin the installation by placing metal racking on the customer’s roof (or by building a ground mount if indicated), followed by installation of the solar PV modules, inverter(s) and the balance of systems components and safety
equipment. We do not custom manufacture solar PV modules or inverters. Rather, we purchase these manufactured components for incorporation into our constructed solar energy systems.
After the solar PV modules and inverter(s) are installed on the customer’s home or business, we obtain a final inspection of the installation by the local building department, prepare and submit all rebate applications to
the appropriate rebating jurisdiction and at the same time apply for the local utility company to interconnect the customer’s solar energy system to the utility grid. The entire process from signing of the contact through final inspection by
the local building department typically takes between 30 to 60 days, with the actual installation work usually requiring two to three days.
Solar
Energy Systems
A basic solar energy system has no moving parts and consists of a number of solar PV modules wired together and mounted on a metal framing
structure, an inverter and the balance of systems and safety equipment necessary to connect the system to the customer’s existing utility service.
|
|
Ø
|
|
Solar PV modules
. We source solar PV modules from three main manufacturers: Sharp, SunPower and Kyocera Solar. These modules range in conversion efficiency from 12% to
19%. Solar PV modules can be manufactured using different semiconductor materials, including mono- and poly-crystalline silicon, amorphous silicon, gallium arsenide, copper indium gallium selenide, or CIGS, and cadmium telluride. Developments in
solar PV technology have generated advances in the conversion efficiency of solar PV cells, reductions in manufacturing costs and improvements in manufacturing yields.
|
44
Business
|
|
Ø
|
|
Inverters
. An inverter is an electronic device that converts the low-voltage DC power that is generated by solar PV modules to conventional 120-volt AC power that is
used by standard household lights and appliances. While an inverter may need to be replaced approximately 15 years after installation, other system components typically do not require replacement during the 20- to 25-year warranty period applicable
to solar PV modules. Individual solar energy systems are connected to the utility grid by an inverter, which also allows the excess electricity produced to flow into the grid, causing the customer’s electric meter effectively to run backwards,
to the credit of the customer’s utility account at standard retail prices. A customer that has a grid-connected solar energy system draws energy from the grid through the conventional local utility when the sun is not shining, or when household
energy consumption exceeds the solar energy system’s energy generation capacity.
|
Typical Grid-Tied Residential
Solar Energy System Installation
Warranty Terms
Most
manufacturers of solar PV modules currently offer a 20- to 25-year transferable warranty of their products. As required by these states, we offer a 10-year parts and labor warranty in California and a five-year parts and labor warranty in Colorado,
which may also involve claims of property damage arising from the installation. We generally handle manufacturer warranty claims for solar PV modules as part of our customer service offerings and are reimbursed by the manufacturers for our labor and
materials. Historically, our costs associated with warranty claims have been minimal.
Financing
While a majority of our customers choose to purchase their solar energy systems without the use of financing, we connect our customers with preferred third-party financing sources
as requested. We handle some of the administrative processing for our customers that choose to use third-party financing.
45
Business
Working Capital Items
For purchases of a solar energy system, we typically require a deposit upon execution of the purchase
contract, payment of 80% of the balance upon delivery of materials and the balance upon building department sign off. The price we invoice customers for solar energy systems is net of any available incentive or rebate which is assigned to us and
which we then process and collect. We typically hold enough solar energy system components in inventory at one of our warehouse facilities to supply our delivery requirements. Payment terms with component vendors are typically on revolving credit
limits that generally range from 45 to 90 day terms. Gaiam fulfills approximately 80% of our catalog and Internet sales through its central distribution center. We pay Gaiam, through our Intercorporate Services Agreement, supplier product costs,
order fulfillment fees, and freight charges to drop-ship these sales to our customers.
Sales and Marketing
Our conventional marketing program includes presentation booths at tradeshows and consumer shows, inserts or an advertising page in our catalogs, of which we distribute more than
1.6 million copies annually, postcard mailings to targeted consumer markets (including portions of Gaiam’s 8 million customer base), Internet search engine optimization, pay-per-click ad words, affiliate marketing programs, radio
advertising and customer referral programs.
To enhance our solar energy integration business by generating leads of potential solar energy system customers and
promoting our brand awareness, we operate our Solar Living Center, distribute our catalog nationally and maintain our website. Our mail order catalog and website also provide pricing tools, media programming, in-depth articles and product
information as well as how-to instructional content. Our customer service staff is trained in cross-selling all of our products, including solar energy systems, and they help us achieve a full integration of our cross-marketing efforts. We also
receive new customer leads from the referrals of our satisfied customers, through our customer rewards and affinity programs, from designers and architects with whom we have worked on previous projects and through the strength and longevity of our
Real Goods brand name and reputation. We use these channels to offer renewable energy and sustainable living products and resources, as well as to create a “community of customers.” We believe that our business model gives us a significant
cross-marketing advantage by providing us access to potential purchasers of solar energy systems through a variety of existing sales channels and selective customer bases, through which we are able to market to a highly targeted group of potential
customers who have likely purchased other renewable energy and sustainable living products and resources in the past. We believe that this cross-marketing ability lowers our customer acquisition costs to below what we estimate they would be if we
were to rely solely on traditional marketing methods such as print, radio, television and Internet search words.
After we receive these high-quality leads, our
sales representatives conduct an extensive telephone interview of the potential customer during which we determine, among other things, information about the customer’s site, location, and solar exposure, and that the customer and any relevant
family member or co-owner is genuinely interested in and able to finance the purchase of a solar energy system. We use this focused customer qualification process to identify which potential customers are most likely to respond positively to our
direct sales efforts before we make a site visit to the customer’s location. We then utilize our direct sales force to pursue these qualified leads. This qualification process lowers our customer acquisition costs because it narrows our
customer leads and allows us to focus our direct sales efforts on highly targeted customers.
46
Business
Focused Customer Acquisition Model
47
Business
We own a 12-acre campus located in Hopland, California, approximately 95 miles north of San Francisco, called the Real Goods Solar Living Center. The Solar Living Center is a demonstration site for the technology and culture of solar
living, with interactive educational displays. In addition, the site features a 132 kW grid-tied solar energy system that generates more than 175,000 kilowatt-hours of electricity annually. In 2007, the Solar Living Center had approximately 220,000
visitors. Since it opened in 1996, nearly 2 million people have visited the Solar Living Center, and it has become one of the largest tourist attractions in Northern California throughout the year and especially during SolFest, the premier
solar and renewable energy trade show held annually at the Solar Living Center campus.
We have been honored for our ethical and environmental business
standards, having received Corporate Conscience Awards from the Council on Economic Priorities. Our founder and Chief Executive Officer, John Schaeffer, received the 2007 Green Power Pioneer Award from the Center for Resource Solutions in
conjunction with the Department of Energy. We are a member of California Solar Energy Industries Association (CAL SEIA), Northern California Solar Energy Association (NorCal Solar), American Solar Energy Society (ASES), Redwood Empire Solar Living
Association (RESLA), and Colorado Solar Energy Industries Association (CoSEIA). Our Vice President of Commercial Sales and founder of Marin Solar, Roy Phillips, is a board member on CAL SEIA and advocates both in California and nationally for the
solar energy industry.
Customers
Our residential customers
have historically shared a number of characteristics. They tend to be college-educated homeowners, 30 to 65 years in age, high-income earners who are generally motivated both by environmental and economic reasons to install a solar energy system.
Our residential solar energy systems are generally 10kW or smaller in size, and our commercial solar energy systems are generally no larger than 500 kW in size. Our typical residential customer is connected to the utility grid. Our commercial
customers have included wineries, schools, apartment buildings, churches and retail facilities.
Suppliers
We do not manufacture solar PV modules, inverters or other components used in our solar energy systems, but purchase those components directly from manufacturers or, in some
cases, from third-party distributors. We purchase solar PV modules manufactured by Sharp, SunPower, Kyocera Solar and others. Silicon is one of the primary materials used in the manufacture of solar PV modules. The worldwide market for silicon from
time to time experiences a shortage of supply, primarily because of demand for silicon by the semiconductor industry. Shortages of silicon could adversely affect the availability and cost of the solar PV modules we use in our solar energy systems.
We purchase inverters manufactured by Xantrex, Fronius, PVPowered, SMA and others. We currently purchase the components we use in our solar energy systems on a purchase order basis from a select group of manufacturers or suppliers. If we are unable
to purchase from any of these sources in the future, we do not believe we would have difficulty in securing alternative supply sources, because all of the components we use in our solar energy systems are readily available from a number of different
sources.
Competition
The solar energy industry is in
its early stages of development and is highly fragmented, consisting of many small, privately held companies with limited resources and operating histories but some of which benefit from operating efficiencies or low overhead requirements. A number
of competitors exist in the California market, including companies such as REC Solar, Akeena Solar and Solar City. Several of our competitors have expanded their market share in the California market by opening multiple offices within the state.
According to data published by the California Energy Commission, as of the end of 2007, we were one of the top two solar energy system installers in California both in terms of total sales (installed system price) and cumulative watts (installed
system size). Based upon other information, we estimate that we are currently in the top three solar energy system installers in California. In Colorado our competitors include Namaste Solar Electric and REC Solar, but there is no published data
regarding competitive positions in Colorado. We compete on factors such as brand recognition, quality of services and products, pricing, speed and quality of installation.
48
Business
Regulations
Solar integrator services are subject to oversight and regulation by national and local ordinances, including
building, zoning and fire codes, environmental protection regulations, utility interconnection requirements for metering and other rules and regulations. Our design and engineering teams design and install solar energy systems to comply with these
varying standards as well as to minimize the installation and operating costs of each system. Our operations are also subject to generally applicable laws and regulations relating to discharge of materials into the environment and protection of the
environment; however, because our operations do not typically involve any such discharge, there are no material effects on our business relating to our compliance with such environmental laws and regulations.
Intellectual Property
We have registered the trademarks “Real
Goods” (effective in 1993 and renewed once) and “Own Your Power” (effective in 2008) with the U.S. Patent & Trademark Office. These registrations are each valid for ten years and we endeavor to keep such registrations valid
by filing all required renewal forms when due. We have also registered the trade names “Real Goods Solar” and “Real Goods Renewables” in Colorado and “Own Your Power” in California. In addition, we hold the copyright
for most of the contents of the “Solar Living Sourcebook.”
Seasonality
Our solar energy integration business has not been seasonal to date, but may become more seasonal as we expand our business into new markets.
Employees
As of January 22, 2008, we had 83 full-time employees,
including installation personnel.
Facilities and Locations
We
own a 12-acre campus in Hopland, California, which includes offices, our retail store, and the Solar Living Center. We sublease office space from Gaiam in Broomfield, Colorado, from which we manage our Colorado solar energy integration business and
perform other management and customer service functions. We sublease warehouse space from Gaiam in Cincinnati, Ohio from which we distribute products. We also lease the following facilities from unrelated third parties: an office and warehouse
facility in San Rafael, California; an office facility in Hemet, California, and a warehouse facility in Ukiah, California.
Legal Proceedings
From time to time, we are involved in legal proceedings that we consider to be in the normal course of business. We do not believe that any of these proceedings
will have a material adverse effect on our business.
49
Management
The following tables set forth information
regarding our directors, officers and key employees. All of our directors and officers were elected or appointed to their current positions effective February 1, 2008, unless otherwise specified.
Officers and Key Employees
|
|
|
|
|
|
|
Name and Position
|
|
Age
|
|
Background
|
|
Jirka Rysavy,
Chairman
|
|
53
|
|
Mr. Rysavy was appointed as our Chairman January 29, 2008. Mr. Rysavy is the founder and currently serves as the Chairman and Chief Executive Officer of Gaiam. He has served as Chairman of Gaiam since
its inception and became its full-time Chief Executive Officer in December 1998. In 1986, Mr. Rysavy founded Corporate Express, Inc., which, under his leadership, grew to become a Fortune 500 company supplying office and computer products and
services. He served as its Chairman and Chief Executive Officer until September 1998. Mr. Rysavy also founded and served as Chairman and Chief Executive Officer of Crystal Market, a health foods market, which was sold in 1987 to become the first
Wild Oats Markets store.
|
|
|
|
|
|
John Schaeffer,
Chief Executive Officer and Director
|
|
58
|
|
Mr. Schaeffer founded our business in 1978 and serves as our Chief Executive Officer. Prior to 2008, Mr. Schaeffer served as the Chief Executive Officer of our predecessor,
Real Goods Trading Corporation since 1986. Mr. Schaeffer has been involved in businesses selling solar and renewable energy products for more than 30 years. In 1995, Mr. Schaeffer helped create the Solar Living Center in Hopland, California.
Mr. Schaeffer has been honored with numerous awards for his environmental business practices and his entrepreneurial successes.
|
|
|
|
|
|
Vilia Valentine,
Chief Financial Officer
|
|
47
|
|
Ms. Valentine has served as Gaiam’s Chief Financial Officer since April 2006. From March 2000 to March 2006, Ms. Valentine served as acting Chief Financial Officer and Controller for Verio Inc., a
worldwide Internet service provider, where she managed all financial matters for global operations. Verio was purchased in 2000 for $6.5 billion by NTT Communications Corporation. From April 1983 to March 2000, Ms. Valentine held various
financial positions at Corporate Express, Inc. up to and including Vice President and Controller. She was an integral member of the management team that grew Corporate Express from $30 million to $3 billion in revenue in less than five
years.
|
|
|
|
|
|
Mark Lipien,
Vice President, Operations
|
|
43
|
|
Mr. Lipien has served as Gaiam’s Vice President, Operations since 1996. Over the past five years, Mr. Lipien was responsible for a wide variety of functions and departments within Gaiam, including
distribution, purchasing, customer service, information technology, catalog circulation, human resources and facilities. Mr. Lipien has also played a major role in integrating Gaiam’s acquisitions into its operations and business model. From
1993 to 1996, Mr. Lipien worked at Corporate Express, Inc. as a member of the acquisition integration team.
|
50
Management
|
|
|
|
|
|
|
Name and Position
|
|
Age
|
|
Background
|
|
Christina Maxwell,
Vice President of Finance
|
|
36
|
|
Ms. Maxwell has served in various capacities for Gaiam since 2000 and has served as Gaiam’s Corporate Finance Director from 2003 to 2007. She was also responsible for
Gaiam’s International Business division from 2004 to 2006. Ms. Maxwell was responsible for Gaiam’s business integration and development functions from 2000 to 2003. Prior to joining Gaiam, Ms. Maxwell was with Apartment Investment and
Management Company, serving as corporate controller from 1997 to 1999 and working on large acquisition integrations from 1999 to 2000. Ms. Maxwell has been a CPA since 1994 and served in the audit departments of Deloitte & Touche and Ernst &
Young from 1993 to 1997.
|
|
Non-Management Directors
|
|
James Argyropoulos
|
|
63
|
|
Mr. Argyropoulos has been primarily engaged as a private investor over the last 15 years. Mr. Argyropoulos founded The Cherokee Group, Inc., a shoe manufacturing and apparel business, in 1972 and
served as Chairman and Chief Executive Officer. Mr. Argyropoulos also serves on the board of directors of Gaiam.
|
|
|
|
|
|
Barbara Mowry
|
|
60
|
|
Ms. Mowry has served as Chief Executive Officer of Silver Creek Systems, a provider of enterprise data usability software, since 2003. From 1997 until February 2001, Ms. Mowry served as the President
and Chief Executive Officer of Requisite Technology, a business-to-business e-commerce company, specializing in the creation and management of electronic content and catalogs. Prior to joining Requisite Technology, Ms. Mowry was an officer of
Telecommunications, Inc. (cable television) from 1995 to 1997 and UAL, Inc. (airline) from 1983 to 1990. Ms. Mowry also serves on the board of directors of Gaiam.
|
|
|
|
|
|
Ted Nark
|
|
49
|
|
Mr. Nark has been a partner at KRG Capital Partners, L.L.C., a private equity investment firm based in Denver, Colorado, since August 2007. From July 2006 until August 2007, Mr. Nark served as a
partner at Leonard Green and Partners, a private equity investment firm based in Los Angeles, California. Mr. Nark served as Chief Executive Officer of White Cap Construction Supply, a distributor of specialty hardware, tools and materials to
construction contractors, from April 2002 through January 2006. From 1998 until 2002, Mr. Nark served as the Chief Executive Officer and Managing Director of Corporate Express Australia, a publicly traded business-to-business office product
distribution company in Australia. From 1992 until 1998, Mr. Nark served in various capacities with Corporate Express, Inc., including as Northwest Division President from 1992 to 1995 and as Group President from 1995 to 1998. Mr. Nark also serves
on the board of directors of FTD Group, Inc. Mr. Nark serves on the board of directors of Gaiam but has indicated his intention to resign from that board upon the completion of this offering.
|
51
Management
We have also entered into an agreement with Erik Zech, age 36, by which Mr. Zech has consented to become our President and Chief Financial Officer upon the completion of this offering. From February 2001 until March 2008, Mr. Zech worked
with the investment banking firm Thomas Weisel Partners LLC, most recently as a Principal of the firm. From June 1999 until December 2000, Mr. Zech was Chief Financial Officer of Creditland, Inc., from 1995 until 1997 he was in investment banking
with Merrill Lynch and from 1993 until 1995 he was a certified public accountant with Price Waterhouse.
Structure of the Board of Directors and
Director Independence
We have a board of directors consisting of five directors. Our bylaws provide that the number of directors is fixed by a majority vote of
the board of directors. Our articles of incorporation and bylaws provide that the board of directors consists of a single class, with our directors being elected each year by a plurality of the votes cast at our annual meeting of shareholders. Our
board of directors may be removed with or without cause by a majority vote of shareholders. Our board of directors has determined that three of our non-employee directors, namely Messrs. Argyropoulos and Nark and Ms. Mowry, each satisfy Nasdaq
Global Market standards to qualify as independent directors as well as any additional independence standards that may be established by the board. Membership on the audit committee is limited to independent directors.
Our board of directors has adopted corporate governance guidelines that, along with the charters of our board committees and our code of ethics, provide the framework for the
governance of our company.
Committees of the Board of Directors
Our board of directors has two standing committees: audit and compensation. Assignments to, and chairs of, the committees are selected by the board of directors. Each of these committees operates under a charter approved by the board of
directors, which describes the principal functions of the committees. Our board of directors has determined that each of the members of our audit committee satisfies all of the independence requirements of the Nasdaq Global Market as well as all
independence requirements of the SEC. We will be exempt from certain of the Nasdaq Global Market rules, for example those relating to nominating committees, because we will be deemed to be a controlled company on the basis of Gaiam’s control of
more than 50% of our voting power. Accordingly, we do not have a standing nominating committee.
Compensation Committee Interlocks and Insider
Participation
The salary and bonus amounts for 2007 reflect payments made by Gaiam or one of its subsidiaries for all services rendered by our executive
officers. In the case of Mr. Rysavy and Ms. Valentine, only a portion of these services were rendered to our company. Accordingly, the Gaiam compensation committee determined the compensation of each of our executive officers during fiscal 2007.
None of the members of our compensation committee has formerly been an officer or, within the last fiscal year, an employee, of our company or any of its subsidiaries, or had any relationship required to be disclosed under the section entitled
“Relationships with Gaiam” below. None of our executive officers
|
|
Ø
|
|
serves as a member of the compensation committee of another entity, one of whose executive officers serves on our compensation committee or board of directors or
|
|
|
Ø
|
|
serves as a director of another entity, one of whose executive officers serves on our compensation committee.
|
Directors’ Compensation
Directors who are not employees of our company
or its affiliates receive a fee of $3,000 for each meeting of our board that they attend and a fee of $1,000 for each telephonic meeting attended. In addition, non-employee directors receive a fee of $500 for attendance at each committee meeting and
$250 for each telephonic committee meeting attended. Non-employee chairpersons of each standing committee receive an annual fee of $2,000. Directors may also be awarded stock options from time to time. All directors may elect to receive their
compensation in shares of Class A common stock. None of our directors received compensation from us during 2007.
52
Executive compensation
Compensation
Discussion and Analysis
Overview of Our Compensation Program and Philosophy
Our compensation program is intended to meet three principal objectives: (1) attract, reward and retain qualified, energetic officers and other key employees; (2) motivate these individuals to achieve short-term and
long-term corporate goals that enhance shareholder value; and (3) support our corporate values by promoting internal equity and external competitiveness.
Our
executive compensation program will be overseen and administered by our compensation committee, which will have the ultimate authority to make decisions with respect to the compensation of our named executive officers, but may, if it chooses,
delegate any of its responsibilities to subcommittees. The compensation committee will operate under a written charter adopted by our board of directors and is empowered to review and approve the annual compensation for our executive officers.
The principal objectives that will guide the compensation committee in assessing our executive and other compensation programs will include the proper allocation
among current cash compensation, short-term bonus compensation and long-term compensation. Other considerations will include our business objectives, our fiduciary and corporate responsibilities (including internal considerations of fairness and
affordability), competitive practices and trends and regulatory requirements.
In determining the particular elements of compensation that will be used to implement
our overall compensation objectives, the compensation committee will take into consideration a number of factors related to our performance, such as our earnings per share, profitability, revenue growth, and the specific operational and financial
performance of certain groups, as well as the competitive environment for our business. Stock price performance is not expected to be a factor in determining annual compensation because the market price of our Class A common stock will be
subject to a variety of factors outside of our control.
The compensation committee may, when appropriate as determined on an annual basis, identify individual
performance goals for executive and other officers which will play a significant role in determining such officers’ incentive compensation for that year and which will be taken into consideration in setting base salary for the next year.
The compensation committee may meet with certain of our executive officers to obtain recommendations with respect to our compensation programs, practices and
packages for executives, other employees and directors. The compensation committee may ask management for its recommendations regarding the base salary, bonus targets and equity compensation for the executive team and other employees. The
compensation committee will consider, but will not be bound by and may not always accept, management’s recommendations with respect to executive compensation. Our Chief Executive Officer does not determine the compensation of any of our named
executive officers. The compensation committee may also seek input from one or more independent compensation consultants prior to making determinations on material aspects of our compensation programs, practices and packages.
Elements of Our Compensation Program
The compensation committee believes that
compensation paid to our executive officers and other members of our senior management should be closely aligned with our performance on both a short-term and a long-term basis and that such compensation should assist us in attracting and retaining
talented persons who are committed to our mission and critical to our long-term success. To that end, the compensation committee believes that the compensation packages for executive officers should consist of three principal components:
|
|
Ø
|
|
Base Salary
. Base salaries for executive officers are reviewed on an annual basis and at the time of promotion or other change in responsibilities. Starting salary
levels and increases in salary are based on subjective evaluation of
|
53
Executive compensation
|
|
such factors as the level of responsibility, individual performance, market value of the officer’s skill set, and relative salary differences within our company
for different job levels.
|
|
|
Ø
|
|
Annual Incentive Bonus.
Incentive bonuses are generally granted based on a percentage of each executive officer’s base salary. After the end of the fiscal year,
the compensation committee determines the extent to which the performance goals were achieved and approves the amount of the bonus to be paid to each executive. The total bonus award is determined according to the level of achievement of both the
objective performance and individual performance goals. Both our and an individual’s performance goals are expected to be established annually, and based upon both our and individual achievement of such goals, our executive officers’
annual incentive bonus potentials are expected to be from approximately 20% to 40% of each executive officer’s base salary, depending upon his or her position. If either we do not achieve our performance goals, or if we achieve our goals but
the individual does not, an incentive bonus award will not be granted pursuant to the objective performance goal.
|
|
|
Ø
|
|
Long-Term Incentive Compensation.
During fiscal 2007, long-term, performance-based compensation of executive officers and other employees took the form of stock option
awards granted by our predecessor and such options were assumed by us and became options under the Incentive Plan. The compensation committee believes in the importance of equity ownership for all executive officers and a broader-based segment of
our work force, for purposes of economic incentive, key employee retention and alignment of employees’ interests with those of shareholders. The compensation committee believes the Incentive Plan provides us with valuable flexibility to achieve
a balance between providing equity-based compensation for employees at all levels, and creating and maintaining long-term shareholder value. Upon an executive officer’s hiring, the compensation committee will make its determination regarding
long-term incentive compensation awards based upon prevailing compensation levels in the market for the individual’s position. Thereafter, such determinations will be based upon the executive officer’s past and expected future
contributions to our business.
|
Stock option grants are typically expected to be made when a new executive officer is hired, and in determining the
size of stock option grants, the compensation committee will base its determinations on such subjective considerations as the individual’s position within management, experience, market value of the executive’s skill set, and historical
grant amounts to similarly positioned executives of our company. All stock options granted during fiscal 2007 will vest at 50% upon completion of this offering, and thereafter approximately 2.0% will vest monthly over the 25 months following
completion of this offering.
We have selected these elements because each is considered useful or necessary to meet one or more of the principal objectives of
our compensation policy. For instance, base salary and bonus target percentages are set with the goal of attracting employees and adequately compensating and rewarding them on a day-to-day basis for the time spent and the services they perform,
while our equity programs are geared toward providing an incentive and reward for the achievement of long-term business objectives and retaining key talent. We believe that these elements of compensation, when combined, are effective, and will
continue to be effective, in achieving the objectives of our compensation program.
The compensation committee will review our compensation program on an annual
basis. In setting compensation levels for a particular executive, the compensation committee will take into consideration the proposed compensation package as a whole and each element individually, but will not be expected to apply any specific
formula in doing so. While the importance of one compensation element to another may vary among executive officers, the compensation committee will attempt to correlate the overall compensation package to each executive officer’s past and
expected future contributions to our business. We do not have any employment or severance agreements with our current executive officers.
54
Executive compensation
Summary Compensation Table
The table below presents the compensation for services in all capacities to our company and its
subsidiaries for the periods shown, for our principal executive officer, principal financial officer and the other named executive officer of our company for the year ended December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
|
Salary
(1)
|
|
Bonus
(1)
|
|
Option
Awards
(2)
|
|
All Other
Compensation
(3)
|
|
Total
|
|
Jirka Rysavy, Chairman
|
|
$
|
310,151
|
|
$
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
310,151
|
|
John Schaeffer, Chief Executive Officer
|
|
$
|
161,271
|
|
$
|
|
|
$
|
1,854
|
|
$
|
3,768
|
|
$
|
166,893
|
|
Vilia Valentine, Chief Financial Officer
|
|
$
|
229,589
|
|
$
|
|
|
$
|
97,326
|
|
$
|
8,736
|
|
$
|
335,651
|
|
(1)
|
The Salary and Bonus amounts for 2007 reflect payments made by Gaiam or one of its subsidiaries for all services
rendered. In the case of Mr. Rysavy and Ms. Valentine, only a portion of these services were rendered to our company. The current annual salary rate for each named executive officer is $315,000 for Mr. Rysavy, $170,000 for
Mr. Schaeffer and $250,000 for Ms. Valentine. Bonuses for 2007 will be awarded by Gaiam’s compensation committee and will be paid in 2008.
|
|
(2)
|
The amounts in the Option Awards column reflect the dollar amount recognized for financial statement reporting purposes
for the fiscal year ended December 31, 2007, in accordance with SFAS 123(R), rather than an amount paid to or realized by the named executive officer. These option awards were issued by Gaiam. Assumptions used in the calculation of this amount
for the fiscal year ended December 31, 2007 are included in footnote to Gaiam’s audited financial statements for the fiscal year ended December 31, 2007.
|
|
(3)
|
All Other Compensation reflects paid time off amounts accrued during 2007 that would be payable upon termination from employment
with us and our subsidiaries.
|
Grants of Plan-Based Awards
The following table sets forth certain information with respect to the options granted for the year ended December 31, 2007 to the executive officers listed in the Summary Compensation Table above, giving effect to the
options assumed from our predecessor.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Goods Options
|
|
Gaiam Options
|
|
Name
|
|
Grant Date
|
|
All Other
Option Awards:
Number of
Securities
Underlying
Options
|
|
Exercise or
Base Price
of Option
Awards
|
|
Grant Date
Fair Value of
Stock and
Option
Awards
|
|
Grant
Date
|
|
All Other
Option Awards:
Number of
Securities
Underlying
Options
|
|
Exercise or
Base Price
of Option
Awards
|
|
Grant Date
Fair Value of
Stock and
Option
Awards
|
|
John Schaeffer
(1)
|
|
1/31/2008
|
|
270,000
|
|
$
|
3.20
|
|
$
|
471,549
|
|
|
|
|
|
|
|
|
|
|
|
Vilia Valentine
(2)
|
|
|
|
|
|
|
|
|
|
|
|
6/19/07
|
|
1,154
|
|
$
|
0.00
|
|
$
|
19,999
|
|
(1)
|
These options were granted by our predecessor and approved by Gaiam’s board of directors effective July 30, 2007, and were
assumed by us after our incorporation on January 29, 2008 and became options under the Incentive Plan on January 31, 2008. The grant date fair value of these options was determined in accordance with SFAS 123(R) using the Black-Scholes option
pricing model. These options vest 50% upon the earlier to occur of the completion of this offering or a transaction resulting in Gaiam’s ownership of less than 50% of our outstanding shares. Following such initial vesting, 2% of the options
will vest each month thereafter.
|
|
(2)
|
This grant of restricted shares of Gaiam Class A common stock was made by Gaiam under its 1999 Long-Term Incentive Plan for all
services rendered, only a portion of which were rendered to our company. The grant date fair value of this restricted stock was determined based on the closing price of Gaiam’s Class A common stock on the Nasdaq Global Market on the date of
grant. These restricted shares vest 50% on the first anniversary of the date of grant and 50% on the second anniversary of the date of grant.
|
55
Executive compensation
Outstanding Equity Awards at Fiscal Year-End
The following table includes certain information as of December 31, 2007
with respect to the value of unexercised options previously awarded to any of our executive officers listed in the Summary Compensation Table above, giving effect to the options assumed from our predecessor.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Goods Options
|
|
Gaiam Options
|
|
Name
|
|
Number of Securities
Underlying Unexercised
Options (#)
|
|
|
Option
Exercise
Price
|
|
Option
Expiration
Date
|
|
Number of Securities
Underlying Unexercised
Options (#)
|
|
|
Option
Exercise
Price
|
|
Option
Expiration
Date
|
|
|
Exercisable
|
|
Unexercisable
|
|
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
|
|
John Schaeffer
|
|
—
|
|
270,000
|
(1)
|
|
$
|
3.20
|
|
1/30/2015
|
|
7,000
|
(2)
|
|
1,000
|
(2)
|
|
$
|
5.30
|
|
5/22/2010
|
|
Vilia Valentine
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
(2)
|
|
24,000
|
(2)
|
|
$
|
16.00
|
|
4/10/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
(2)
|
|
27,000
|
(2)
|
|
$
|
11.89
|
|
9/14/2013
|
|
(1)
|
These options were granted by us and vest 50% upon the earlier to occur of the completion of this offering or a transaction
resulting in Gaiam’s ownership of less than 50% of our outstanding shares. Following such initial vesting, 2% of the options will vest each month thereafter. For further information, see footnote 6 to our audited financial statements for the
fiscal year ended December 31, 2007, included elsewhere in this prospectus.
|
|
(2)
|
These options were granted by Gaiam under its 1999 Long-Term Incentive Plan. Gaiam’s options normally vest and
become exercisable at 2% per month over the 50 months beginning in the eleventh month after date of grant. The exercise price of the options is normally equal to Gaiam’s closing stock market price on the date of grant and the options expire
seven years from date of grant. For further information, see footnote 11 to Gaiam’s audited financial statements for the fiscal year ended December 31, 2007, included in Gaiam’s Annual Report on Form 10-K filed with the SEC on
March 17, 2008.
|
Option Exercises
None of the named executive officers exercised any of our options during 2007. However, on December 24, 2007, Mr. Schaeffer exercised options to acquire 2,000 shares of Gaiam’s Class A common stock, realizing net proceeds of
$46,334.
Employment, Change of Control and Severance Arrangements
We do not have employment, change of control or severance agreements with any of our current executive officers. However, our directors, officers, and managers are generally required to sign a confidentiality agreement and, upon receiving a
stock option grant, a two-year non-compete agreement commencing with the date they leave the employment of our company.
Accounting and Tax
Considerations
In designing our compensation programs, we take into consideration the accounting and tax effect that each element will or may have on us and the
executive officers and other employees as a group. We aim to keep the expense related to our compensation programs as a whole within certain affordability levels. When determining how to apportion between differing elements of compensation, our goal
is to meet our objectives while maintaining relative cost neutrality. For instance, if we increase benefits under one program resulting in higher compensation expense, we may seek to decrease costs under another program in order to avoid a
compensation expense that is above the level then deemed affordable under existing circumstances. We typically will recognize a charge to earnings for accounting purposes from the grant date until the end of the vesting period of options.
56
Executive compensation
We have structured our compensation programs to comply with Internal Revenue Code Sections 162(m) and 409A. Under Section 162(m) of the Internal Revenue Code, a limitation is placed on tax deductions of any publicly held corporation
for individual compensation to certain executives of such corporation exceeding $1.0 million during any taxable year, unless the compensation is performance-based. If an executive is entitled to nonqualified deferred compensation benefits that are
subject to Section 409A and such benefits do not comply with Section 409A, then the benefits are taxable in the first year they are not subject to a substantial risk of forfeiture. In such case, the service provider is subject to regular
federal income tax, interest and an additional federal income tax of 20% of the benefit includible in income. We have no individuals with non-performance-based compensation paid in excess of the Internal Revenue Code Section 162(m) tax
deduction limit.
Certain Other Plans and Arrangements
The Real Goods 2008 Long-Term Incentive Plan
The Incentive Plan was approved by our board and by Gaiam, our sole shareholder, on
January , 2008. The purpose of the Incentive Plan is to advance the interests of our company and its shareholders by providing incentives to certain employees and other key individuals who perform services for us,
including those who contribute significantly to the strategic and long-term performance objectives and growth of our company.
The Incentive Plan is administered by
our board of directors or, if the board of directors so designates, by a committee of the board. Our board of directors is expected to designate the compensation committee to administer the Incentive Plan. The Incentive Plan administrator may
delegate administrative responsibilities if so permitted by applicable law, other than with respect to executive officers who are subject to Section 16 of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The Incentive Plan
provides for the granting of several types of awards, including stock options, stock appreciation rights, or SARs, (rights to receive, without payment to us, cash, Class A common stock, other property or any combination thereof, based on the
increase in the value of the number of shares of Class A common stock specified in the award), restricted stock (an award of a number of shares of Class A common stock that are subject to certain restrictions, such as a requirement that the shares
shall be forfeited if the holder’s employment or performance of services for us terminates), performance grants (cash, shares of Class A common stock, other consideration such as other of our company’s securities or property or a
combination thereof that is paid based on the performance of the holder, our company, one or more of our subsidiaries, divisions or units, or any combination thereof) and other awards deemed by the Incentive Plan administrator to be consistent with
the purposes of the Incentive Plan. Awards may be granted alone, or in conjunction with one or more other awards, as determined by the Incentive Plan administrator.
A maximum of 1,000,000 shares of our Class A common stock are authorized to be issued under the Incentive Plan in connection with the grant of awards, subject to adjustments described below. After this offering, approximately 700,000
shares will be available for grant. The Class A common stock issued under the Incentive Plan may be either newly issued shares, treasury shares, reacquired shares or any combination thereof. If our Class A common stock issued as restricted
stock or otherwise subject to repurchase or forfeiture rights is reacquired by us pursuant to such rights, or if any award is canceled, terminates or expires unexercised, the Class A common stock which would otherwise have been issuable
pursuant to such awards will be available for issuance under new awards.
The Incentive Plan administrator will have exclusive discretion to select the employees
and other key individuals performing services for us to whom awards will be granted; to determine the type, size and terms of each award; to modify within certain limits the terms of any award; to determine the time when awards will be granted; to
establish performance objectives; to prescribe the form of documents representing awards under the Incentive Plan; and to make all other determinations that it deems necessary or desirable in the interpretation and administration of the Incentive
Plan. The Incentive Plan administrator will have the authority to administer and interpret the Incentive Plan, and its decisions will be final, conclusive and binding.
57
Executive compensation
Awards under the Incentive Plan
|
|
Ø
|
|
Stock Options
. A stock option, which may be a nonqualified or an incentive stock option, is the right to purchase a specified number of shares of Class A common
stock at a price fixed by the Incentive Plan administrator. The option exercise price for nonqualified options may be equal to or greater than the fair market value of the Class A common stock. In the case of incentive stock options, the option
exercise price may not be less than the fair market value of the underlying shares of Class A common stock on the date of grant and, with respect to incentive stock options granted to our employees or any of our affiliates who own more than 10%
of the voting power of all classes of our stock or the stock of any of our affiliates, the option exercise price may not be less than 110% of fair market value on the date of the grant.
|
Stock options will generally expire not later than ten years or, in the case of incentive stock options granted to employees who own more than 10% of our stock,
five years, after the date on which they are granted. Stock options become exercisable at such times and in such installments as the Incentive Plan administrator determines. Payment of the option exercise price must be made in full at the time of
exercise in cash, by tendering to us shares of Class A common stock, by a combination thereof or by any other means that the Incentive Plan administrator deems appropriate, which may include the surrender of rights in one or more outstanding
awards.
|
|
Ø
|
|
Other Awards
. The Incentive Plan also authorizes several other types of awards. These include SARs, restricted stock, and performance grants.
|
Additional Information
Under the
Incentive Plan, if any change in the outstanding shares of Class A common stock occurs by reason of a stock split, stock dividend, combination, subdivision or exchange of shares, recapitalization, merger, consolidation, reorganization or other
extraordinary or unusual event, the Incentive Plan administrator may direct appropriate changes in the terms of any award or the number of shares of Class A common stock available for awards. Such changes may include the number or kind of
securities that may be issued, the number or kind of securities subject to, or the option exercise price under, any outstanding stock option, the number or kind of securities which have been awarded as restricted stock or any related repurchase
option price, the number or value of performance grants, the number or value of any other award, or any measure of performance of any award.
The Incentive Plan
permits the Incentive Plan administrator to determine whether it is advisable for us or any of our affiliates to provide financing in connection with the exercise of an award and the payment of related taxes, or to assist in obtaining financing from
a bank or other third party in this regard. Such assistance may take any form and be on such terms as the Incentive Plan administrator considers appropriate, which may include a direct loan, a guaranty of the obligation to a third party or the
maintenance by us or any of our affiliates of deposits with a bank or third party.
The Incentive Plan administrator may permit payment of taxes required to be
withheld with respect to an award in any appropriate manner, which may include by the surrender to us of shares of Class A common stock owned by such person or that would otherwise be distributed, or have been distributed, as the case may be,
pursuant to such award.
Generally, no awards under the Incentive Plan may be assigned or transferred in whole or in part, either directly or by operation of law or
otherwise (except in the event of a holder’s death), although the Incentive Plan administrator may approve transfers of awards to certain permitted transferees as defined under the Incentive Plan.
The expenses of the Incentive Plan are borne by us. The Incentive Plan will terminate upon the earlier of the adoption of a resolution by the board of directors terminating the
Incentive Plan or ten years following the effective date, unless extended by action of the board of directors for up to an additional five years for the grant of awards other than incentive stock options. The
58
Executive compensation
board of directors may amend the Incentive Plan at any time and from time to time for any purpose consistent with the goals of the Incentive Plan. However, if failure
to obtain shareholder approval would adversely affect compliance of the Incentive Plan with Rule 16b-3 promulgated under the Exchange Act, or other applicable law or regulation, no amendment will be effective unless and until approved by
shareholders.
Generally Available Benefit Programs
We plan
to maintain a tax-qualified 401(k) Plan, which will provide for broad-based employee participation. Executive officers will be eligible to participate in the 401(k) Plan on the same basis as other employees. We do not currently intend to provide
defined benefit pension plans or defined contribution retirement plans to our executives or other employees other than the 401(k) Plan described herein.
During
fiscal 2007, our executive officers were eligible to receive the same health care coverage that is generally available to our other employees. We also offer a number of other benefits to the named executive officers pursuant to benefit programs
which have historically been provided through Gaiam and which provide for broad-based employee participation. We expect these benefits to continue to be provided under Gaiam benefit programs for the foreseeable future. These benefit programs include
the medical, dental and vision insurance, long-term and short-term disability insurance, life and accidental death and dismemberment insurance, health and dependent care flexible spending accounts, business travel insurance, wellness programs,
relocation and expatriate programs and services, educational assistance and certain other benefits.
We believe these plans and other generally available benefit
programs allow us to remain competitive for employee talent, and the availability of these benefit programs generally enhances employee productivity and loyalty to us. The main objectives of our benefit programs are to give our employees access to
quality healthcare, financial protection from unforeseen events, assistance in achieving retirement financial goals and enhanced health and productivity, in full compliance with applicable legal requirements. These generally available benefits
typically do not specifically factor into decisions regarding an individual executive officer’s total compensation or Incentive Plan awards.
59
Relationships with Gaiam
On or after the completion of
this offering, we will enter into the agreements with Gaiam described herein. Because these agreements were negotiated while we were a wholly owned subsidiary of Gaiam, they may not reflect terms as favorable as we might have obtained had these
agreements been made with an unaffiliated third party.
Repayment of Indebtedness to Gaiam
We expect to use approximately $19.8 million of the net proceeds of this offering to repay amounts advanced by Gaiam to acquire and expand our business. In January 2008, Gaiam
advanced us an additional $3.5 million to acquire Carlson Solar. As of December 31, 2007, Gaiam had advanced us approximately $16.3 million to finance such acquisitions and for other corporate purposes. We have no formal written loan agreement
with Gaiam regarding our intercompany payable, and it has no maturity date. Gaiam historically did not charge us interest on this intercompany payable.
Intercorporate Services Agreement
On or before the completion of this offering, we will enter into an Intercorporate Services Agreement with
Gaiam. Under the Intercorporate Services Agreement, Gaiam will agree to provide to us certain services that may include business and facilities management, human resources and employee benefits, payroll, internal audit and risk management, treasury
and cash management, tax, legal, accounts payable, telecommunications services, including call center support, and information technology services. Gaiam will agree to make each service available to us on an as-needed basis.
The initial term of this agreement is from January 1, through December 31, 2008, and thereafter this agreement automatically renews on a quarter-to-quarter basis. We may elect to
continue this agreement for eighteen months following the completion of this offering and, provided we are not in material default under this agreement, Gaiam may not terminate it during this time if it owns more than 20% of our outstanding common
equity. Any decision by us to terminate this agreement would be approved by disinterested members of our management and board of directors under our procedures regarding related party transactions. We will pay a service charge that will generally
reflect the same payment terms and be calculated using the same cost allocation methodologies for the particular service as those associated with our historical costs, and the recipient will reimburse the provider any out-of-pocket expenses,
including the cost of any third-party consents required. We and Gaiam will agree on the aggregate annual amount for a particular year that we will owe Gaiam for the services expected to be performed that year based upon the parties’ good faith
estimates of those required services and the fees for such services. We expect to estimate the first year’s fees under this agreement sometime after we complete our first quarter of independent operations. These fees will be paid on a quarterly
basis. The annual fee amount, as well as any quarterly changes, must be approved in writing by the disinterested members of each of our and Gaiam’s boards of directors.
Tax Sharing and Indemnification Agreement
On or before the completion of this offering, we will enter into a Tax Sharing and
Indemnification Agreement with Gaiam that generally will govern Gaiam’s and our rights, responsibilities, and obligations after this offering with respect to taxes, including ordinary course of business taxes and taxes, if any, incurred as a
result of this offering. Under the Tax Sharing and Indemnification Agreement, we expect, with certain exceptions, that we will generally be responsible for the payment of all income and non-income taxes attributable to our operations and the
operations of our direct and indirect subsidiaries, whether or not such tax liability is reflected on a consolidated or combined tax return filed by Gaiam. Under the Tax Sharing and Indemnification Agreement, after the
60
Relationships with Gaiam
date we cease to be a member of Gaiam’s consolidated group for federal income tax purposes, to the extent we become entitled to utilize any tax credit and loss
carryforwards created prior to the date of deconsolidation, we will be required to distribute to Gaiam the tax effect of such carryforwards. In addition, we generally will be responsible for a portion of any additional taxes that are required to be
paid for periods prior to this offering date as a result of a tax audit. The Tax Sharing and Indemnification Agreement will also set forth the respective rights, responsibilities, and obligations between Gaiam and us with respect to the filing of
tax returns, the administration of tax contests, assistance and cooperation and other tax matters. Under the Tax Sharing and Indemnification Agreement, we and Gaiam will each indemnify and hold harmless the other from and against any breach by a
party of any representation, covenant, statement, promise or obligation of that party under this agreement. These indemnity obligations continue indefinitely, subject to any applicable statutes of limitations.
Registration Rights Agreement
We will enter into a Registration Rights
Agreement with Gaiam, the current holder of our outstanding Class A and Class B common stock (or its permitted transferee), on or before the completion of this offering. For a description of the Registration Rights Agreement, see “Description
of our Capital Stock—Registration Rights” below.
Our Policies Regarding Related-Party Transactions
Any related-party transaction is reviewed by disinterested members of management and, if material, by disinterested members of the board of directors or a committee thereof to
ensure that the transaction reflects terms that are at least as favorable for us as we would expect in a similar transaction negotiated at arm’s length by unrelated parties. Our written policies regarding these related-party transactions are
contained in our bylaws.
61
Principal shareholders
Ownership of Our
Company
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of March 20, 2008 and as
adjusted to give effect to the sale of shares of our Class A common stock in this offering by:
|
|
Ø
|
|
each person (or group of affiliated persons) who beneficially owned more than 5% of the outstanding shares of our common stock,
|
|
|
Ø
|
|
each officer named in the Summary Compensation Table and
|
|
|
Ø
|
|
all current directors and executive officers as a group.
|
Except as
otherwise noted in the footnotes below, each person or entity identified below has sole voting and investment power with respect to such securities. The information shown in the table below is based on 7,846,707 shares of our Class A
common stock and 2,153,293 shares of our Class B common stock outstanding as of March 20, 2008 and shares of our Class A common stock and 2,153,293 shares of
our Class B common stock outstanding after this offering. The percentage ownership information shown assumes no exercise of the underwriters’ over-allotment option and that no person listed in the table below purchases shares of our
Class A common stock in this offering.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to this Offering
|
|
|
After this Offering
|
|
|
Title of Class
|
|
Beneficial Owner
|
|
Number of
Shares
(2)
|
|
Percent
of
Class
(2)
|
|
|
Number of
Shares
(3)
|
|
|
Percent
of
Class
(3)
|
|
|
Class A
|
|
Gaiam, Inc.
(1)(5)
|
|
7,846,707
|
|
100.0
|
%
|
|
7,846,707
|
|
|
|
|
|
|
|
Jirka Rysavy
|
|
|
|
*
|
|
|
|
|
|
*
|
|
|
|
|
John Schaeffer
|
|
|
|
*
|
|
|
135,000
|
(4)
|
|
*
|
|
|
|
|
Vilia Valentine
|
|
|
|
*
|
|
|
|
|
|
*
|
|
|
|
|
James Argyropoulos
|
|
|
|
*
|
|
|
|
|
|
*
|
|
|
|
|
Barbara Mowry
|
|
|
|
*
|
|
|
|
|
|
*
|
|
|
|
|
Ted Nark
|
|
|
|
*
|
|
|
|
|
|
*
|
|
|
|
|
All directors and officers as a group (six persons)
|
|
|
|
*
|
|
|
|
|
|
*
|
|
|
Class B
|
|
Gaiam, Inc.
(1)
(5)
|
|
2,153,293
|
|
100.0
|
%
|
|
2,153,293
|
|
|
100.0
|
%
|
|
(1)
|
The address of Gaiam, Inc. is 360 Interlocken Boulevard, Broomfield, Colorado, 80021.
|
|
(2)
|
The numbers and percentages related to the Class A common stock shown include the shares of Class A common stock
actually owned as of March 20, 2008 and the shares of Class A common stock that the identified person or group had the right to acquire within 60 days of such date. In calculating the percentage of ownership, all shares of Class A common stock
that the identified person or group had the right to acquire within 60 days of March , 2008 upon the exercise of options or warrants are deemed to be outstanding for the purpose of computing the percentage of the shares
of Class A common stock owned by that person or group, but are not deemed to be outstanding for the purpose of computing the percentage of the shares of Class A common stock owned by any other person or group.
|
|
(3)
|
The numbers and percentages related to the Class A common stock shown include the shares of Class A common stock actually owned as
of completion of this offering and the shares of Class A common stock that the identified person or group had the right to acquire within 60 days of such date. In calculating the percentage of ownership, all shares of Class A common stock that the
identified person or group had the right to acquire within 60 days of the completion of this offering upon the exercise of options or warrants are deemed to be outstanding for the purpose of computing the percentage of the shares of Class A common
stock owned by that person or group, but are not deemed to be outstanding for the purpose of computing the percentage of the shares of Class A common stock owned by any other person or group.
|
|
(4)
|
Includes 135,000 shares of Class A common stock issuable upon the exercise of stock options which can be exercised within 60 days
of the date of this offering.
|
|
(5)
|
The shares of Class B common stock are convertible one-for-one into shares of Class A common stock at the option of the holder of
shares of Class B common stock. Each holder of Class B common stock is entitled to ten votes on all matters submitted to a vote of shareholders. See “Description of Our Capital Stock.”
|
62
Principal shareholders
Ownership of Gaiam by Our Directors and Executive Officers
The following table sets forth certain information with
respect to the beneficial ownership of the common stock of Gaiam as of March 20, 2008 by (i) each director, (ii) each officer named in the Summary Compensation Table and (iii) all current directors and executive officers as a
group. The information shown in the table below is based on 19,677,864 shares of Gaiam’s Class A common stock and 5,400,000 shares of Gaiam’s Class B common stock outstanding as of March 20, 2008. Except as otherwise noted in the
footnotes below, each person identified below has sole voting and investment power with respect to such securities.
|
|
|
|
|
|
|
|
|
|
Title of Class
|
|
Beneficial Owner
(1)
|
|
Number of
Shares
(2)
|
|
Percent of
Class
|
|
|
Class A
|
|
Jirka Rysavy
(3)
(4)
|
|
6,268,682
|
|
25.0
|
%
|
|
|
|
John Schaeffer
(5)
|
|
15,500
|
|
*
|
|
|
|
|
Vilia Valentine
(5)
|
|
16,154
|
|
*
|
|
|
|
|
James Argyropoulos
(5)
(6)
|
|
322,701
|
|
1.7
|
|
|
|
|
Barbara Mowry
|
|
24,623
|
|
*
|
|
|
|
|
Ted Nark
(5)
|
|
21,787
|
|
*
|
|
|
|
|
All directors and officers as a group (six persons)
|
|
6,669,447
|
|
26.6
|
|
|
Class B
|
|
Jirka Rysavy
(4)
|
|
5,400,000
|
|
100.0
|
%
|
|
(1)
|
This table is based upon information supplied by officers, directors and principal shareholders or from Schedule 13Ds and 13Gs and
Forms 3, 4 and 5 filed with the SEC. All beneficial ownership is direct, except as otherwise noted.
|
|
(2)
|
The numbers and percentages shown include the shares of Class A common stock actually owned as of January 31, 2008
and the shares of Class A common stock that the identified person or group had the right to acquire within 60 days of such date. In calculating the percentage of ownership, all shares of Class A common stock that the identified person or
group had the right to acquire within 60 days of January 31, 2008 upon the exercise of options or warrants are deemed to be outstanding for the purpose of computing the percentage of the shares of Class A common stock owned by that person
or group, but are not deemed to be outstanding for the purpose of computing the percentage of the shares of Class A common stock owned by any other person or group.
|
|
(3)
|
Includes 5,400,000 shares of Class A common stock of Gaiam issuable upon conversion of Class B common stock of Gaiam.
|
|
(4)
|
The address of Mr. Rysavy is 360 Interlocken Boulevard, Broomfield, Colorado, 80021.
|
|
(5)
|
Includes the following shares issuable upon the exercise of stock options which can be exercised within 60 days of January 31,
2008: Mr. Schaeffer, 8,000; Ms. Valentine, 15,000; Mr. Argyropoulos, 10,000 and Mr. Nark, 10,000.
|
|
(6)
|
Includes 303,333 shares of Class A common stock of Gaiam held by Argyropoulos Investors, of which Mr. Argyropoulos is a
principal.
|
63
Description of our capital stock
General
Although we believe the following summary description of our capital stock, our articles of incorporation and our bylaws covers all material provisions affecting
the rights of holders of our capital stock, this summary is not intended to be complete and is qualified by reference to the provisions of applicable law and to our articles of incorporation and bylaws, both of which are included as exhibits to the
registration statement of which this prospectus is a part.
Our authorized capital stock is 250,000,000 shares and consists of 150,000,000 shares of Class A
common stock, $.0001 par value per share; 50,000,000 shares of Class B common stock, $.0001 par value per share; and 50,000,000 shares of preferred stock, par value $.0001 per share. Following this offering we expect to have outstanding
shares of Class A common stock, and 2,153,293 shares of Class B common stock. There will be no shares of preferred stock outstanding. Prior to this offering, the
shares of our Class B common stock were held by Gaiam, and Gaiam will continue to hold those shares following this offering. Following this offering, we expect to have 1,000,000 shares of Class A common stock reserved for issuance upon the
exercise of options, 70,000 shares of Class A common stock reserved for issuance upon the exercise of warrants and 280,000 shares of Class A common stock reserved for issuance upon the exercise of certain contractual rights. The warrants
entitle the warrant holder to acquire the specified number of shares of our Class A common stock at an exercise price of $3.20 per share, and expire seven years from their respective dates of grant. The warrants vest 50% upon the earlier to occur of
the completion of this offering or a transaction resulting in Gaiam’s ownership of less than 50% of our outstanding shares. Following such initial vesting, 2% of the warrants will vest each month thereafter.
Gaiam owns all of our Class B common stock. The Class B common stock may be transferred by the holder thereof except that we will not effect such transfer unless such
holder shall have elected in writing either (i) to transfer such shares as shares of Class B common stock or (ii) to convert such shares into shares of Class A common stock simultaneously with such transfer. No change in control,
merger, consolidation, reorganization or similar transaction affecting a holder of the Class B common stock that is a corporation or partnership shall be deemed to be a transfer of the shares of Class B common stock. The shares of
Class B common stock are convertible one-for-one into shares of Class A common stock, at the option of the holder of the shares of Class B common stock. Prior to the completion of this offering, Gaiam converted 7,846,707 shares of our
Class B common stock into an equal number of shares of Class A common stock.
Our board of directors is authorized, subject to any limitations
prescribed by Colorado law, to issue at any time up to 50,000,000 shares of preferred stock. The board may provide for the issuance of the preferred stock in one or more series or classes with designations, preferences, limitations and relative
rights determined by the board without any vote or action by the shareholders, although the board may not issue voting preferred stock without the consent or approval of a majority of the Class B common stock. As a result, the board has the
power to issue preferred stock with voting, conversion and other rights and preferences that could adversely affect the voting power or other rights of the holders of the common stock. Although we have no current plans to issue any preferred stock,
the issuance of preferred stock or of rights to purchase preferred stock could have the effect of making it more difficult for a third party to acquire us, or of discouraging a third party from attempting to acquire us. Such an issuance could also
dilute the voting power or other incidents of ownership of holders of our common stock.
Voting Rights
Each holder of shares of Class A common stock is entitled to one vote for each share held on all matters submitted to a vote of shareholders. Each share of Class B common
stock is entitled to ten votes on all matters submitted to a vote of shareholders. There are no cumulative voting rights. All holders of shares of Class A common stock and shares of Class B
64
Description of our capital stock
common stock vote as a single group on all matters that are submitted to the shareholders for a vote. Accordingly, holders of a majority of the shares of Class A
common stock and shares of Class B common stock entitled to vote in any election of directors may elect all of the directors who stand for election. A required number of shareholders having the minimum number of votes that would be necessary to
authorize or take action at a meeting at which all of the shares entitled to vote thereon were present and voted may consent to an action in writing and without a meeting under certain circumstances.
Dividends and Liquidation
Shares of Class A common stock and shares of
Class B common stock are entitled to receive dividends, if any, as may be declared by the board of directors out of legally available funds. In the event of a liquidation, dissolution or winding up of our company, the shares of Class A common
stock and shares of Class B common stock are entitled to share ratably in our assets remaining after the payment of all of our debts and other liabilities. Holders of shares of Class A common stock and shares of Class B common stock have no
preemptive, subscription or redemption rights, and there are no redemption or sinking fund provisions applicable to the shares of Class A common stock and Class B common stock.
Anti-Takeover Effects of Our Articles of Incorporation and Bylaws
The following provisions, which are contained in our
articles of incorporation or bylaws, could have the effect of delaying, deferring or preventing a change in control of our company.
Our articles of incorporation
and bylaws provide that our board may consist of any number of directors, which may be fixed from time to time by our board. Newly created directorships resulting from any increase in our authorized number of directors may be filled by the
affirmative vote of a majority of the directors then in office or by an election at an annual meeting or special meeting of shareholders called for that purpose, and any vacancies on our board resulting from death, resignation, retirement,
disqualification, removal from office or other cause may be filled a majority of our board then in office, even if less than a quorum is remaining in office.
Our articles of incorporation provide that shareholders holding the required number of shares may consent to an action in writing without the need to hold a meeting. More specifically, the articles of incorporation provide that any action
that is required or permitted under Articles 101 to 117 of the Colorado Business Corporation Act or under our articles of incorporation to be taken at a meeting of shareholders may be taken without a meeting if shareholders that sign the written
consent hold not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all of the shares entitled to vote thereon were present and voted. After this offering, because Gaiam will have
approximately % of the total voting power of our common stock voting as a single class, Gaiam will be able to consent to certain actions in writing, without the need for additional shareholder approval or actions.
Our bylaws require advance notice by a shareholder of any proposal to be brought before an annual meeting of shareholders by a shareholder, including any nomination for
election of directors by any shareholder entitled to vote for the election of directors at the meeting. Our bylaws also provide that no shareholder proposal may be considered at a meeting of our shareholders unless the proposal relates to a matter
on which a shareholder vote is required by our charter, bylaws or by applicable law.
Cumulative voting in the election of directors is not permitted under our
articles of incorporation or bylaws. Each holder of our Class A common stock has one vote on all matters submitted to shareholders for each share of Class A common stock standing in the name of such holder on our books. Each holder of our
Class B common stock has ten votes on all matters submitted to shareholders for each share of Class B common stock. Except as otherwise provided in our articles of incorporation or as otherwise provided by law, all shares of our common stock
entitled to vote will vote as a single class on all matters submitted to the shareholders. We may not issue any additional shares of Class B common stock (except in connection with stock splits and stock dividends) and the rights of the holders of
Class B common stock may not be amended
65
Description of our capital stock
except by the affirmative vote of the holders of a majority of the voting power of the shares of Class A common stock and of Class B common stock entitled to
vote, each voting separately as a class. After this offering, Gaiam will hold 100% of our Class B common stock and will beneficially own approximately % of our outstanding shares of common stock,
assuming Gaiam’s Class B common stock were converted into Class A common stock. In addition, immediately after this offering and assuming no conversion of any outstanding shares of Class B common stock, Gaiam will have approximately
% of the total voting power of our common stock voting as a single class. Consequently, Gaiam will be able to exert substantial influence over our company and control matters requiring approval by our
shareholders, including the election of directors, increasing our authorized capital stock, financing activities, a merger or sale of our assets and the number of shares available for issuance under our Incentive Plan. Our articles of incorporation
provide that our board of directors may authorize the issuance of preferred stock, subject only to the approval of holders of our Class B common stock. As a result of Gaiam’s control, no change of control of our company can occur without
Gaiam’s consent.
Subject to repeal or change by action of our shareholders, our board may amend, supplement or repeal our bylaws or adopt new bylaws.
Registration Rights
Under a Registration Rights Agreement that
we will enter into on or before the commencement of this offering, the holder of our Class B common stock (or its permitted transferee) will have the right to require us to register with the SEC all or any portion of the shares of Class B common
stock or the Class A common stock into which such Class B common stock may be converted so that those shares may be publicly resold, or to include such shares in any registration statement we file, subject to certain exceptions, conditions and
limitations, including a lock-up agreement with the underwriters. These rights include demand registration rights, Form S-3 registration rights and “piggyback” registration rights, in each case on and subject to the terms and conditions
identified in the Registration Rights Agreement. We will generally pay all expenses, other than underwriting discounts and commissions, relating to all demand registrations, Form S-3 registrations and piggyback registrations. These registration
rights terminate upon the earlier of either years following the completion of this offering or as to a given holder of registrable securities, when such holder of registrable securities can sell all of such holder’s
registrable securities during any 90-day period pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended, or the Securities Act, or pursuant to another similar exception. However, if a holder owns more than 10% of our
outstanding securities, such holder shall continue to have registration rights beyond the -year limitation until such time as all of the holder’s securities may be sold pursuant to Rule 144(k) or such holder owns less
than 10% of our outstanding securities. The resale of these shares in the public market upon exercise of those registration rights could adversely affect the market price of our common stock. The foregoing description of the Registration Rights
Agreement is qualified in its entirety by reference to the Registration Rights Agreement.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock will be Computershare Trust Company.
Listing
We intend to apply to have our Class A common stock included for quotation on the Nasdaq Global Market under the symbol
“RSOL.”
66
Shares eligible for future sale
Prior to this offering, no
public market existed for our Class A common stock. Market sales of shares of our Class A common stock after this offering and from time to time, and the availability of shares for future sale, may reduce the market price of our
Class A common stock. Sales of substantial amounts of our Class A common stock, or the perception that these sales could occur, could adversely affect prevailing market prices for our Class A common stock and could impair our future
ability to obtain capital, especially through an offering of equity securities. We are unable to estimate the number of shares that may be sold in the future or the effect, if any, that such sales of shares will have on the market price of our
Class A common stock.
Upon the completion of this offering, we will have shares of
Class A common stock outstanding (assuming no exercise of the underwriters’ over-allotment option), and 2,153,293 shares of Class B common stock outstanding that is held by Gaiam and that is convertible into 2,153,293 shares of
Class A common stock. All of the shares of Class A common stock sold in this offering will be freely tradable under the Securities Act, unless purchased by our “affiliates,” as defined in Rule 144, which would be subject to the
limitations and restrictions described below.
Our directors, executive officers and certain shareholders who hold either securities or who hold securities
under one or more of our stock plans have agreed with the underwriters not to directly or indirectly, offer to sell, contract to sell, sell or otherwise dispose of any Class A common stock or any securities convertible into or exercisable or
exchangeable for Class A common stock without the prior written consent of ThinkEquity Partners LLC for a period of 180 days after the date of this prospectus
( , 2008). Gaiam has agreed to the same lock-up agreement related to our Class A and Class B common stock for a period of 270
days after the date of this prospectus ( , 2008). Upon the expiration of these lock-up agreements, all of the shares of
Class A common stock owned by these shareholders, will become eligible for sale, subject to compliance with Rule 144 of the Securities Act as described below.
In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned restricted stock for at least six months, will be entitled to sell in any three-month period a number of shares
that does not exceed the greater of (i) 1% of the number of shares of Class A common stock then outstanding ( shares immediately after this offering or
if the underwriters’ over-allotment is exercised in full) or (ii) the average weekly trading volume of our Class A common stock on the Nasdaq Global Market
during the four calendar weeks immediately preceding the date on which the notice of sale is filed with the SEC. Sales pursuant to Rule 144 are subject to requirements relating to manner of sale, notice and availability of current public information
about us. A person (or persons whose shares are aggregated) who is not deemed to be an affiliate of ours for 90 days preceding a sale, and who has beneficially owned restricted stock for at least one year is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Rule 144 will not be available to any shareholders until we have been subject to the reporting requirements of the Exchange Act for 90 days.
In addition, employees of ours who hold outstanding shares of Class A common stock or options to acquire shares of Class A common stock are entitled to
rely on the resale provisions of Rule 701, which permits non-affiliates to sell their Rule 701 shares without having to comply with the public information, holding period, volume limitation or notice provisions of Rule 144 and permit affiliates to
sell Rule 701 shares without having to comply with Rule 144’s holding period restrictions, in each case commencing 90 days after the date of completion of this offering.
We intend to file with the SEC a registration statement on Form S-8 under the Securities Act covering the shares of Class A common stock subject to outstanding stock options granted under the Incentive Plan, as well as the
shares of Class A common stock reserved for issuance pursuant to the Incentive Plan. The registration statement is expected to be filed and become effective as soon as practicable after the completion of this offering. Accordingly, shares
registered under the registration statement will, subject to Rule 144 volume limitations applicable to affiliates and the lock-up agreements described above, be available for sale in the open market.
67
Shares eligible for future sale
Upon the completion of this offering, Gaiam, as the holder of our Class B common stock, or its transferee, will be entitled to rights with respect to the registration of its shares of common stock under the Securities Act, subject to the
terms of the lock-up agreement described above. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the
registration, subject to the lock-up agreements described above. See “Description of our Capital Stock—Registration Rights.”
68
Material U.S. federal income tax consequences to non-U.S.
shareholders
The following is a summary of the material U.S. federal income tax consequences of the purchase,
ownership and disposition of shares of our Class A common stock by a non-U.S. shareholder. For purposes of this discussion, a non-U.S. shareholder is a beneficial owner of our Class A common stock who is treated for U.S. federal tax purposes
as:
|
|
Ø
|
|
a non-resident alien individual,
|
|
|
Ø
|
|
a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized under the laws of a jurisdiction other than the U.S. or any
state or political subdivision thereof,
|
|
|
Ø
|
|
an estate, other than an estate the income of which is subject to U.S. federal income taxation regardless of its source or
|
|
|
Ø
|
|
a trust, other than a trust that (i) is subject to the primary supervision of a court within the United States and which has one or more U.S. fiduciaries who have the
authority to control all substantial decisions of the trust, or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
|
A beneficial owner who is a partner in a partnership or other flow-through entity that holds our Class A common stock should consult its own tax advisor regarding the U.S. federal
income tax consequences of the purchase, ownership and disposition of our Class A common stock.
This summary assumes that our Class A common stock is held as
a capital asset (generally, property held for investment). The discussion does not address all of the U.S. federal income tax considerations that may be relevant to a non-U.S. shareholder in light of its particular circumstances or to non-U.S.
shareholders that may be subject to special treatment under U.S. federal tax laws, such as persons subject to special tax rules (such as, financial institutions, insurance companies, broker-dealers, partnerships, and tax-exempt organizations) or
persons that will hold our Class A common stock as part of a straddle, hedge, conversion, constructive sale, or other integrated security transaction for U.S. federal income tax purposes, all of whom may be subject to tax rules that differ
significantly from those discussed below. In addition, this discussion does not address any (i) U.S. federal income tax consequences to a non-U.S. shareholder that (A) is a nonresident alien individual present in the United States for 183
or more days during the taxable year or (B) is subject to provisions of the Internal Revenue Code applicable to U.S. expatriates, and (ii) state, local, or foreign tax considerations. This summary is based on current provisions of the
Internal Revenue Code, Treasury regulations, judicial opinions, published positions of the Internal Revenue Service, or IRS, and other applicable authorities, all of which are subject to change, possibly with retroactive effect.
Each prospective
purchaser of our Class A common stock is advised to consult a tax advisor with respect to the U.S. federal, state, local or non-U.S. tax consequences of acquiring, holding and disposing of our Class A common stock.
Dividends
Although we do not expect to pay any cash dividends in the
foreseeable future on our Class A common stock, any dividend paid to a non-U.S. shareholder with respect to our Class A common stock generally will be subject to withholding tax at a 30% rate (or such lower rate specified by an applicable
income tax treaty). Generally, a non-U.S. shareholder must certify as to its status, and to any right to reduced withholding under an applicable income tax treaty, on a properly completed IRS Form W-8BEN in order to obtain the benefit of such right.
If, however, the non-U.S. shareholder provides an IRS Form W-8ECI,
69
Material U.S. federal income tax consequences to non-U.S. shareholders
certifying that the dividend is effectively connected with the non-U.S. shareholder’s conduct of a trade or business within the United States, the dividend will
not be subject to withholding. Instead, such dividends are subject to U.S. federal income tax at regular rates applicable to U.S. persons generally and, for corporate holders, may also be subject to “branch profits tax.”
Sale or Disposition of our Class A Common Stock
A non-U.S. shareholder
generally will not be subject to U.S. federal income tax on any gain realized upon the sale or other disposition of our Class A common stock unless (i) such gain is effectively connected with the non-U.S. shareholder’s conduct of a U.S.
trade or business or (ii) we are or become a U.S. real property holding corporation, or USRPHC, for U.S. federal income tax purposes. We do not believe that we are or will become a USRPHC.
Information Reporting and Backup Withholding
In general, backup withholding
will not apply to dividends on our Class A common stock paid by us or our paying agents, in their capacities as such, to a non-U.S. shareholder if the holder has provided the required certification that such holder is a non-U.S. shareholder and
neither we nor our paying agents have actual knowledge or reason to know otherwise. In addition, backup withholding will generally not apply to proceeds derived from the sale of our Class A common stock paid to a non-U.S. shareholder if the holder
has provided the required certification that such holder is a non-U.S. shareholder and the paying agent does not have actual knowledge or reason to know otherwise.
Generally, we must report to the IRS the amount of dividends paid, the name and the address of the recipient, and the amount, if any, of tax withheld. This information reporting requirement will apply even if no tax was required to be
withheld.
Any amounts withheld under the backup withholding rules from a payment to a non-U.S. shareholder may be refunded, or credited against the holder’s
U.S. federal income tax liability, provided that certain required information is provided to the IRS.
70
Underwriting
ThinkEquity Partners LLC is acting as
bookrunning lead manager of this offering and as representative of the underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated as of the date of this prospectus, each underwriter named below has
agreed to purchase, and we have agreed to sell to that underwriter, the number of the shares of our Class A common stock set forth opposite the underwriter’s name.
|
|
|
|
|
Underwriter
|
|
Number of
Shares
|
|
ThinkEquity Partners LLC
|
|
|
|
Canaccord Adams Inc.
|
|
|
|
Broadpoint Capital, Inc.
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
The underwriting agreement provides that the obligations of the underwriters to purchase shares of our
Class A common stock included in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all the shares, other than those covered by the over-allotment option
described below, if they purchase any of the shares. The obligation of the underwriters to purchase the shares is several and not joint meaning that, subject to the terms of the underwriting agreement, each underwriter is obligated to purchase only
the number of shares set forth opposite its name.
The underwriters have advised us that they propose to offer the shares of our Class A common stock initially
to the public at $ per share. The underwriters propose to offer the shares to certain dealers at the same price less a concession of not more than
$ per share. The underwriters may allow, and the dealers may reallow, a concession of not more than $ per
share. If all the shares are not sold at the initial offering price, the representatives may change the offering price and other selling terms.
We have granted to
the underwriters an over-allotment option to purchase up to an additional shares of our Class A common stock from us at the same price as to the public, and with the same
underwriting discount, as set forth on the front cover of this prospectus. The underwriters may exercise this option any time during the 30-day period after the date of this prospectus, but only to cover over-allotments, if any. To the extent the
underwriters exercise the option, each underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of the additional shares as it was obligated to purchase under the underwriting agreement.
We and each of our officers and directors have agreed not to offer to sell, sell, pledge or otherwise dispose of (or enter into any transaction or device that
is designed to, or could be expected to, result in the disposition by any person at any time in the future of), directly or indirectly, any shares of our Class A common stock or any securities convertible into or exchangeable for our
Class A common stock, or enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic consequences of ownership of our Class A common stock, whether any transaction is to be
settled by delivery of Class A common stock or other securities, in cash or otherwise, without the prior written consent of ThinkEquity Partners LLC for a period of 180 days after the date of this prospectus. The determination to release a
party from the restrictions described above will be based on the expected impact on the trading price of our Class A common stock. Gaiam has agreed to the same lock-up agreement related to our Class A or Class B common stock for a 270-day
period after the date of this prospectus. Notwithstanding the foregoing, for the purpose of allowing the underwriters to comply with FINRA Rule 2711(f)(4), if (1) during the last 17 days of the initial applicable lock-up period, we release
earnings results or material news or a material event relating to us occurs or (2) prior to the expiration of the initial applicable lock-up period, we announce
71
Underwriting
that we will release earnings results during the 16-day period beginning on the last day of the initial applicable lock-up period, then in each case the initial
applicable lock-up period will be extended until the expiration of the 18-day period beginning on the date of release of the earnings results or the occurrence of the material news or material event, as applicable.
The restrictions described in this paragraph do not apply to:
|
|
Ø
|
|
the sale of shares to the underwriters,
|
|
|
Ø
|
|
transactions by any person other than us relating to shares purchased in this offering,
|
|
|
Ø
|
|
the issuance by us of shares of our Class A common stock pursuant to our employee benefit plans and non-employee directors benefit plans described in this prospectus,
|
|
|
Ø
|
|
the issuance by us of shares of our Class A common stock upon the exercise of an option or the conversion of a security outstanding on the date of this prospectus of
which the underwriters have been advised in writing,
|
|
|
Ø
|
|
the issuance by us of stock options; provided that such options do not become exercisable or vest during such 180-day period, and the issuance of options (and our shares upon
the exercise of such options) under our employee benefit plans and non-employee directors benefit plans described in this prospectus,
|
|
|
Ø
|
|
transfers of shares of Class A common stock or any security convertible into Class A common stock as a bona fide gift or
|
|
|
Ø
|
|
the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of Class A common stock, provided that such plan does not
provide for the transfer of Class A common stock during the restricted period;
|
provided that in the case of any gift, (i) each donee or
distributee shall sign and deliver a lock-up letter containing substantially the same restrictions as described herein, and (ii) no filing under Section 16(a) of the Exchange Act, reporting a reduction in beneficial ownership of shares of
Class A common stock, shall be required or shall be voluntarily made during the restricted period referred to in the foregoing sentence.
We intend to apply to
have our Class A common stock included for quotation on the Nasdaq Global Market under the symbol “RSOL.”
The following table shows the underwriting
discounts and commissions that we are to pay to the underwriters in connection with this offering assuming both no exercise and full exercise of the underwriters’ over-allotment option.
|
|
|
|
|
|
|
|
|
|
|
No Exercise
|
|
Full
Exercise
|
|
Per Share
|
|
$
|
|
|
$
|
|
|
Total
|
|
$
|
|
|
$
|
|
In connection with this offering, the underwriters may purchase and sell shares of our Class A common stock in the open market. These transactions may include short sales,
syndicate covering transactions and stabilizing transactions. Short sales involve syndicate sales of shares of our Class A common stock in excess of the number of shares to be purchased by the underwriters in this offering, which creates a
syndicate short position. “Covered” short sales are sales of shares made in an amount up to the number of shares represented by the underwriters’ over-allotment option. In determining the source of shares to close out the covered
syndicate short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the
72
Underwriting
over-allotment option. Transactions to close out the covered syndicate short positions involve either purchases of the Class A common stock in the open market
after the distribution has been completed or the exercise of the over-allotment option. The underwriters may also make “naked” short sales of shares in excess of the over-allotment option. The underwriters must close out any naked short
position by purchasing shares of our Class A common stock in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open
market after pricing that could adversely affect investors who purchase in this offering. Stabilizing transactions consist of bids for or purchases of shares in the open market while this offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the underwriters repurchase
shares originally sold by that syndicate member in order to cover syndicate short positions or make stabilizing purchases.
Any of these activities may have the
effect of preventing or retarding a decline in the market price of our Class A common stock. They may also cause the price of our Class A common stock to be higher than the price that would otherwise exist in the open market in the absence
of these transactions. The underwriters may conduct these transactions on the Nasdaq Global Market or in the over-the-counter market, or otherwise. If the underwriters commence any of these transactions, they may discontinue them at any time.
We estimate that our portion of the total expenses of this offering, exclusive of underwriting discounts and commissions, will be approximately
$ .
A prospectus in electronic format may be made available by one or more of the
underwriters on a website maintained by a third-party vendor or by one or more of the underwriters. The representatives of the underwriters may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders.
The representatives will allocate shares to underwriters that may make Internet distributions on the same basis as other allocations. In addition, shares may be sold by the underwriters to securities dealers who resell shares to online brokerage
account holders.
Other than the prospectus in electronic format, the information on such website is not part of the prospectus.
We and the underwriters have each agreed to indemnify the other against certain liabilities, including liabilities under the Securities Act, or to contribute to payments an
indemnified party may be required to make because of any of those liabilities.
Pricing of the Offering
Prior to this offering, there has been no public trading market for the shares of our Class A common stock. The initial public offering price was determined by negotiations
between us and the representatives of the underwriters. Among the factors considered in determining the initial public offering price, in addition to prevailing market conditions, were our future prospects and those of our industry in general, our
sales, earnings and other financial operating information in recent periods, an assessment of our management, and the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies
engaged in activities similar to ours.
Certain of the underwriters and their respective affiliates may perform various financial advisory and investment banking
services for us or Gaiam, for which they may receive customary fees and expenses.
73
Underwriting
Notice to Prospective Investors in the European Economic Area
In relation to each member state of the European Economic Area
that has implemented the Prospectus Directive (each, a relevant member state), with effect from and including the date on which the Prospectus Directive is implemented in that relevant member state (the relevant implementation date), an offer of
shares of our Class A common stock described in this prospectus may not be made to the public in that relevant member state prior to the publication of a prospectus in relation to our Class A common stock that has been approved by the
competent authority in that relevant member state or, where appropriate, approved in another relevant member state and notified to the competent authority in that relevant member state, all in accordance with the Prospectus Directive, except that,
with effect from and including the relevant implementation date, an offer of securities may be made to the public in that relevant member state at any time
|
|
Ø
|
|
to any legal entity that is authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in
securities, or
|
|
|
Ø
|
|
to any legal entity that has two or more of (i) an average of at least 250 employees during the last financial year; (ii) a total balance sheet of more than
€
43,000,000 and (iii) an annual net turnover of more than
€
50,000,000, as shown
in its last annual or consolidated accounts or
|
|
|
Ø
|
|
in any other circumstances that do not require the publication of a prospectus pursuant to Article 3 of the Prospectus Directive.
|
For purposes of this provision, the expression an “offer to the public” in any relevant member state means the communication to 100 or more persons, other than qualified
investors, in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe to the securities, as the expression may be varied in that
member state by any measure implementing the Prospectus Directive in that member state, and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each relevant member state.
Each purchaser of shares of our Class A common stock described in this prospectus located within a relevant member state will be deemed to have represented,
acknowledged and agreed that it is a “qualified investor” within the meaning of Article 2(1)(e) of the Prospectus Directive.
The sellers of shares of our
Class A common stock have not authorized and do not authorize the making of any offer of shares of our Class A common stock through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the
final placement of shares of our Class A common stock as contemplated in this prospectus. Accordingly, no purchaser of shares of our Class A common stock, other than the underwriter, is authorized to make any further offer of shares of our
Class A common stock on behalf of the underwriter.
Notice to Prospective Investors in the United Kingdom
This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors (as defined above) that are also investment
professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, or Order, (ii) high net worth entities falling within Article 49(2) of the Order, or (iii) other persons to whom it
may lawfully be communicated (all such persons together being referred to as “relevant persons”). This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed
by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.
74
Legal matters
The validity of the shares of Class A
common stock being offered by this prospectus will be passed upon for us by Bartlit Beck Herman Palenchar & Scott LLP, Denver, Colorado. Certain legal matters will be passed upon for the underwriters by Greenberg Traurig, LLP, Phoenix,
Arizona.
Experts
Ehrhardt Keefe Steiner & Hottman PC, independent registered public accounting firm, has audited our consolidated
financial statements for the years ended December 31, 2005, December 31, 2006 and December 31, 2007, as set forth in their report, which is included in this prospectus. We have included our consolidated financial statements in
this prospectus and elsewhere in the registration statement in reliance on Ehrhardt Keefe Steiner & Hottman PC’s report, given on their authority as experts in accounting and auditing.
Ehrhardt Keefe Steiner & Hottman PC, independent registered public accounting firm, has audited the statements of operations and cash flows of Marin Solar, Inc. for the
ten months ended October 31, 2007 and the balance sheet as of December 31, 2006 and for the year then ended. Ehrhardt Keefe Steiner & Hottman PC has also audited the consolidated balance sheets and statements of operations and cash
flows of Carlson Solar as of and for the years ended December 31, 2006 and December 31, 2007, as set forth in their reports, which are included in this prospectus. We have included Marin Solar’s balance sheet, statements of operations
and cash flows and Carlson Solar’s balance sheets, statements of operations and cash flows in this prospectus and elsewhere in the registration statement in reliance on Ehrhardt Keefe Steiner & Hottman PC’s reports, given on their
authority as experts in accounting and auditing.
Where you can find more information
We have filed with the SEC a registration statement on Form S-1, of which this prospectus is a
part, under the Securities Act with respect to our Class A common stock being offered by this prospectus. This prospectus does not contain all of the information in the registration statement and the exhibits and financial statements included
with the registration statement. For further information with respect to us and the Class A common stock offered by this prospectus, we refer you to the registration statement and its exhibits. References in this prospectus to any of our
contracts, agreements or other documents are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contracts, agreements or documents. Each of these statements is qualified in
all respects by this reference. You may read and copy the registration statement, the related exhibits and other material we file with the SEC at the SEC’s public reference room in Washington, D.C. at 100 F Street, Room 1580, N.E., Washington,
D.C. 20549. You can also request copies of those documents, upon payment of a prescribed duplicating fee, by writing to the Public Reference Section of the SEC at 100 F Street NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the operation of the public reference rooms. The SEC also maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The
SEC’s website address is
www.sec.gov
. You may also request a copy of any of these filings, at no cost, by writing us at 360 Interlocken Boulevard, Broomfield, Colorado 80021 or by telephoning us at (303) 222-8400.
Upon the effectiveness of the registration statement, we will be subject to the information and reporting requirements of the Exchange Act, and we will file periodic reports,
proxy and information statements and other information with the SEC. Such periodic reports, proxy and information statements and other information can be inspected and copied at the locations set forth above. We intend to issue to our shareholders
annual reports, which will include audited financial statements and a report of our independent auditors with respect to the examination of such financial statements. In addition, we will issue such other interim reports as we deem appropriate. We
also maintain a website at
www.realgoodssolar.com
, at which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information contained in, or
that can be accessed through, our website is not part of this prospectus.
75
Index to consolidated financial statements
|
|
|
|
|
|
|
Page
|
|
Real Goods Solar, Inc. Financial Statements
|
|
|
|
Report of independent registered public accounting firm
|
|
F-2
|
|
Consolidated balance sheets as of December 31, 2006 and 2007
|
|
F-3
|
|
Consolidated statements of operations for the years ended December 31, 2005, 2006, and 2007
|
|
F-4
|
|
Consolidated statement of changes in shareholders’ equity for the years ended December 31, 2005, 2006, and 2007
|
|
F-5
|
|
Consolidated statements of cash flows for the years ended December 31, 2005, 2006, and 2007
|
|
F-6
|
|
Notes to consolidated financial statements
|
|
F-7
|
|
Financial Statement Schedule II – Consolidated valuation and qualifying accounts for the years ended December 31, 2005, 2006, and 2007
|
|
F-18
|
|
|
|
|
Marin Solar, Inc. Financial Statements
|
|
|
|
Independent auditors’ report
|
|
F-19
|
|
Balance sheet as of December 31, 2006
|
|
F-20
|
|
Statements of operations for the year ended December 31, 2006 and the ten months ended October 31, 2007
|
|
F-21
|
|
Statement of changes in shareholders’ deficit for the year ended December 31, 2006
|
|
F-22
|
|
Statements of cash flows for the year ended December 31, 2006 and the ten months ended October 31, 2007
|
|
F-23
|
|
Notes to financial statements
|
|
F-24
|
|
|
|
|
Carlson Solar Financial Statements
|
|
|
|
Independent auditors’ report
|
|
F-31
|
|
Balance sheets as of December 31, 2006 and 2007
|
|
F-32
|
|
Statements of operations for the years ended December 31, 2006 and 2007
|
|
F-33
|
|
Statement of changes in shareholders’ equity for the years ended December 31, 2006 and 2007
|
|
F-34
|
|
Statements of cash flows for the years ended December 31, 2006 and 2007
|
|
F-35
|
|
Notes to financial statements
|
|
F-36
|
F-1
Report of independent registered public accounting firm
The
Board of Directors and Shareholders
Real Goods Solar, Inc.
We have audited the
accompanying consolidated balance sheets of Real Goods Solar, Inc. as of December 31, 2006 and 2007, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended
December 31, 2007. Our audits also included the financial statement schedule II for each of the three years in the period ended December 31, 2007. These consolidated financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
The accompanying balance sheets as of December 31, 2006 and 2007 and the statements of operations, shareholders’
equity and cash flows for each of the three years in the period ended December 31, 2007 were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (for inclusion in the registration statement
on Form S-1 of Real Goods Solar, Inc.).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Real Goods Solar, Inc. as of December 31, 2006 and 2007, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with
accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule II for each of the three years in the period ended December 31, 2007, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Ehrhardt Keefe Steiner &
Hottman PC
February 1, 2008
Denver, Colorado
F-2
REAL GOODS SOLAR, INC.
Consolidated balance sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
(in thousands, except share and per share data)
|
|
2006
|
|
|
2007
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
248
|
|
|
$
|
542
|
|
|
Accounts receivable, net
|
|
|
2,876
|
|
|
|
3,632
|
|
|
Inventory
|
|
|
2,671
|
|
|
|
2,454
|
|
|
Deferred costs on uncompleted contracts
|
|
|
226
|
|
|
|
992
|
|
|
Deferred advertising costs
|
|
|
257
|
|
|
|
277
|
|
|
Deferred tax assets
|
|
|
12
|
|
|
|
154
|
|
|
Other current assets
|
|
|
77
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
6,367
|
|
|
|
8,070
|
|
|
Property and equipment, net
|
|
|
4,231
|
|
|
|
4,382
|
|
|
Goodwill and other intangibles, net
|
|
|
2,759
|
|
|
|
6,094
|
|
|
Deferred tax assets
|
|
|
2,684
|
|
|
|
2,324
|
|
|
Other assets
|
|
|
—
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
16,041
|
|
|
$
|
20,986
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
177
|
|
|
$
|
1,275
|
|
|
Accrued liabilities
|
|
|
21
|
|
|
|
421
|
|
|
Deferred revenue on uncompleted contracts
|
|
|
376
|
|
|
|
1,354
|
|
|
Payable to Gaiam
|
|
|
13,919
|
|
|
|
16,286
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
14,493
|
|
|
|
19,336
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, par value $.0001 per share; 50,000,000 shares authorized; no shares issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
|
Class A common stock, par value $.0001 per share; 150,000,000 shares authorized; no shares issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
|
Class B common stock, par value $.0001 per share; 50,000,000 shares authorized; no shares issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
|
Additional paid-in capital
|
|
|
2,150
|
|
|
|
2,150
|
|
|
Accumulated deficit
|
|
|
(602
|
)
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
1,548
|
|
|
|
1,650
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
16,041
|
|
|
$
|
20,986
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
REAL GOODS SOLAR, INC.
Consolidated statements of operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
(in thousands, except per share data)
|
|
2005
|
|
2006
|
|
2007
|
|
Net revenue
|
|
$
|
12,114
|
|
$
|
16,812
|
|
$
|
18,922
|
|
Cost of goods sold
|
|
|
7,763
|
|
|
10,862
|
|
|
12,426
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
4,351
|
|
|
5,950
|
|
|
6,496
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Selling and operating
|
|
|
3,464
|
|
|
4,964
|
|
|
5,728
|
|
General and administrative
|
|
|
492
|
|
|
567
|
|
|
582
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
3,956
|
|
|
5,531
|
|
|
6,310
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
395
|
|
|
419
|
|
|
186
|
|
Income tax expense
|
|
|
159
|
|
|
169
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
236
|
|
$
|
250
|
|
$
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.02
|
|
$
|
0.03
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
10,000
|
|
|
10,000
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
to consolidated financial statements.
F-4
REAL GOODS SOLAR, INC.
Consolidated statement of changes in shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
Class B
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Deficit
|
|
|
Total
|
|
(in thousands, except share data)
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
Balance at December 31, 2004
|
|
—
|
|
$
|
—
|
|
—
|
|
$
|
—
|
|
$
|
2,150
|
|
$
|
(1,088
|
)
|
|
$
|
1,062
|
|
Net income
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
236
|
|
|
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
2,150
|
|
|
(852
|
)
|
|
|
1,298
|
|
Net income
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
250
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
2,150
|
|
|
(602
|
)
|
|
|
1,548
|
|
Net income
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
102
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
—
|
|
$
|
—
|
|
—
|
|
$
|
—
|
|
$
|
2,150
|
|
$
|
(500
|
)
|
|
$
|
1,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
REAL GOODS SOLAR, INC.
Consolidated statements of cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
(in thousands)
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
236
|
|
|
$
|
250
|
|
|
$
|
102
|
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
83
|
|
|
|
81
|
|
|
|
94
|
|
|
Amortization
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
|
Deferred income tax expense
|
|
|
159
|
|
|
|
436
|
|
|
|
218
|
|
|
Changes in operating assets and liabilities, net of effects from acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(997
|
)
|
|
|
(1,000
|
)
|
|
|
(35
|
)
|
|
Inventory
|
|
|
(341
|
)
|
|
|
(1,558
|
)
|
|
|
243
|
|
|
Deferred costs on uncompleted contracts
|
|
|
—
|
|
|
|
(226
|
)
|
|
|
(481
|
)
|
|
Deferred advertising costs
|
|
|
(71
|
)
|
|
|
(17
|
)
|
|
|
(19
|
)
|
|
Other current assets
|
|
|
—
|
|
|
|
(46
|
)
|
|
|
(38
|
)
|
|
Accounts payable
|
|
|
300
|
|
|
|
(354
|
)
|
|
|
690
|
|
|
Accrued liabilities
|
|
|
11
|
|
|
|
9
|
|
|
|
(96
|
)
|
|
Deferred revenue on uncompleted contracts
|
|
|
—
|
|
|
|
376
|
|
|
|
621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(620
|
)
|
|
|
(2,049
|
)
|
|
|
1,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
—
|
|
|
|
(42
|
)
|
|
|
(7
|
)
|
|
Proceeds from sale of property and equipment
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
Purchase of business, net of cash acquired
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
—
|
|
|
|
(42
|
)
|
|
|
(3,378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings from Gaiam
|
|
|
719
|
|
|
|
2,125
|
|
|
|
2,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
719
|
|
|
|
2,125
|
|
|
|
2,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
99
|
|
|
|
34
|
|
|
|
294
|
|
|
Cash and cash equivalents at beginning of year
|
|
|
115
|
|
|
|
214
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
214
|
|
|
$
|
248
|
|
|
$
|
542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
Notes to consolidated financial statements
1. Principles of Consolidation, Organization and Nature of Operations
The accompanying financial statements represent the solar energy business (“we”, “us”, or “our”) of Gaiam, Inc. and its
subsidiaries (“Gaiam” or the “Parent”) as though the transfer of such business and the related net assets had been transferred to us on January 1, 2003. We are a leading residential solar energy integrator. We were
incorporated in Colorado on January 29, 2008 under the name Real Goods Solar, Inc. (“Real Goods”) and are currently a wholly owned subsidiary of Gaiam.
We were not operating as a separate business within Gaiam. Accordingly, the historical financial statements have been prepared on a “carve-out” basis. The historical statements have been prepared in accordance with Regulation S-X,
Article 3,
General instructions to financial statements
, and Staff Accounting Bulletin Topic 1-B1,
Costs reflected in historical financial statements
(“SAB 1-B1”). The accompanying historical statements include allocations of
certain Gaiam expenses, including costs of fulfillment, customer service, financial, and other administrative services. The expense allocations have been determined on bases that Gaiam and we consider to be reasonable reflections of the utilization
of services provided or the benefits received by us. The allocations and related estimates and assumptions are described more fully in Note 2, Significant Accounting Policies.
The consolidated financial statements include the accounts of Real Goods Solar and its majority-owned or otherwise controlled subsidiaries. We have eliminated all significant intercompany accounts and transactions. Minority
interests in operations of consolidated subsidiaries represents the minority holders’ percentage share of income or losses from the subsidiaries in which we hold a majority, but less than 100 percent, ownership interest and consolidate the
subsidiaries’ results in our financial statements. We have included the results of operations of acquired companies from the date of acquisition.
The
consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or GAAP, and include our accounts and those of our subsidiaries. Intercompany transactions and balances have been
eliminated.
2. Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents include demand deposit accounts with financial institutions and highly liquid investments, which
mature within three months of date of purchase. The fair value of the cash and cash equivalents approximates their carrying value because of their short maturities.
Concentration of Risk and Allowance for Doubtful Accounts
We have a potential concentration of credit risk in our accounts
receivable in that 2 customers accounted for 48.3% of accounts receivable as of December 31, 2007. These accounts receivable represent rebates receivable from a state governmental agency and a public utility company. We maintain allowances for
doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We make estimates of the collectibility of our accounts receivable by analyzing historical bad debts, specific customer creditworthiness
and current economic trends. The allowance for doubtful accounts was $183,000 and $151,000 as of December 31, 2006 and 2007, respectively. If the financial condition of our customers were to deteriorate such that their ability to make payments
to us was impaired, additional allowances could be required.
F-7
Notes to consolidated financial statements
Inventory
Inventory consists primarily of solar energy system components (such as solar panels and inverters) and
finished goods held for sale at our Solar Living Center located in Hopland, California. We state our inventory at the lower of cost (first-in, first-out method) or market. We identify the inventory items to be written down for obsolescence based on
the item’s current sales status and condition. We write down discontinued or slow moving inventories based on an estimate of the markdown to retail price needed to sell through our current stock level of the inventories. As of December 31,
2006 and 2007, we estimated obsolete or slow-moving inventory to be immaterial. Gaiam fulfills approximately 80% of our catalog and Internet sales through its central distribution center. We pay Gaiam, through our Intercorporate Services Agreement,
supplier product costs, order fulfillment fees, and freight charges to drop-ship these sales to our customers. We determine the selection of products to be offered and set the sales price. We are responsible for the selling, marketing, and providing
of these products to our customers and have our own customer service department to ensure the acceptability of our products. We bear the credit risk for the amount being billed to our customer. We leverage our multichannel distribution (catalog and
web promotions, and our retail outlet located at the Solar Living Center) to market slow-moving or obsolete products.
Deferred Advertising Costs
Deferred advertising costs relate to the preparation, printing, advertising and distribution of catalogs. We defer such costs for financial reporting purposes
until the catalogs are distributed, then amortize such costs over succeeding periods on the basis of estimated direct relationship sales. We amortize seasonal catalogs within seven months and our annual catalogs within one year. Forecasted sales
statistics are the principal factor used in estimating the amortization rate. We expense other advertising and promotional costs as incurred. Amounts recorded as advertising expense were $0.7 million, $1.2 million and $1.1 million for the years
ended December 31, 2005, 2006, and 2007, respectively, and are included in selling and operating expense in the consolidated statements of operations.
Property and Equipment
We state property and equipment at cost less accumulated depreciation and amortization. We compute depreciation of property
and equipment on the straight-line method over estimated useful lives, generally three to seven years. We amortize leasehold and building improvements over the shorter of the estimated useful lives of the assets or the remaining term of the lease or
remaining life of the building, respectively.
Goodwill and Other Intangibles
Goodwill represents the excess of the purchase consideration over the estimated fair value of assets acquired less liabilities assumed in a business acquisition. Goodwill is no longer amortized, but is reviewed for impairment
annually or more frequently if impairment indicators arise. We compare the estimated fair value of a reporting unit with its carrying amount, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill
of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its estimated fair value, the goodwill impairment test is performed to measure the amount of impairment loss. Since we operate in only one business
segment, we assess impairment at the enterprise level. The annual process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment at many points during the analysis. Historically, Gaiam has used a
market value method for purposes of testing its reporting units for potential goodwill impairment. Factors historically considered by Gaiam were comparable company market values and the ratio of enterprise value to revenue. In assessing our goodwill
for impairment, we plan to use a combination of factors, including comparable company market values and multiples of revenue to the extent the information is available. If comparable market information is insufficient, we expect to supplement our
assessment with other approaches, such as present value techniques, which will require us to make estimates and judgments about our future cash flows. These cash flow forecasts will be based on assumptions that are consistent with the plans and
estimates we use to manage our business. Application of alternative assumptions could yield significantly different results. We do not believe that an impairment existed as of December 31, 2007.
F-8
Notes to consolidated financial statements
Purchase Accounting
We account for the acquisition of a controlling interest in a business using the purchase method. In
determining the estimated fair value of certain acquired assets and liabilities, we make assumptions based upon historical and other relevant information and, in some cases, reports of independent experts. Assumptions may be incomplete, and
unanticipated events and circumstances may occur that could affect the validity of such assumptions, estimates, or actual results. The estimated fair value of assets and liabilities acquired in recent business combinations are preliminary as of
December 31, 2007. We expect to obtain information necessary to finalize the estimated values during 2008.
Revenue Recognition
Revenue consists of solar energy system installation contract fees and sales of renewable and sustainable energy products. We recognize revenue from fixed price contracts using
either the completed or percentage-of-completion method, based on the energy size of the solar energy system installation project. We recognize revenue from solar energy system installations of less than 250 kilowatts when the installation is
substantially complete, determined based on departure from the job site or passing of building inspection, while we recognize revenue from solar energy system installations equal to or greater than 250 kilowatts on a percentage-of-completion basis,
measured by the percentage of contract costs incurred to date to total estimated costs for each contract. We recognize revenue from the sale of renewable and sustainable energy products when the following four basic criteria are met:
(1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the seller’s price to the buyer is fixed and determinable; and (4) collectibility is reasonably assured. We recognize
amounts billed to customers for postage and handling as revenue at the same time that the revenues arising from the product sale are recognized. We include postage and handling costs, which were approximately $0.6 million for 2005 and $0.7 million
each year for 2006 and 2007, in selling and operating expense along with other fulfillment costs.
The current asset “Deferred costs on uncompleted
contracts” represents contract costs incurred but not recognizable until recognition of the related contract revenue and revenues in excess of amounts billed. The current liability “Deferred revenue on uncompleted contracts”
represents billings in excess of revenue recognized. We had no contracts accounted for under the percentage-of-completion method for 2006 and 2007.
Allocation of Costs
Gaiam provides for us executive, management, financial, audit, accounting, tax, treasury, human resources, payroll, technical,
fulfillment, inventory management, customer service and certain occupancy and related office services under an Intercorporate Services Agreement. Our accompanying financial statements include an allocation of these expenses. The allocation is based
on a combination of factors, including revenue, order counts, and operating expenses. We believe the allocation methodologies used are reasonable and result in an appropriate allocation of costs incurred by Gaiam and its subsidiaries on our behalf.
However, these allocations may not be indicative of the cost of future services.
Share-Based Compensation
As of January 1, 2006, we adopted the provisions of SFAS No. 123(R),
Accounting for Stock-Based Compensation
(“SFAS 123(R)”), which requires companies
to recognize compensation cost for stock-based awards based on the estimated fair value of the award on date of grant. We measure compensation cost at the grant date based on the fair value of the award and recognize compensation cost upon the
probable attainment of a specified performance condition or over a service period. We use the Black-Scholes option valuation model to calculate the fair value disclosures under SFAS 123(R). In calculating this fair value, there are certain
assumptions that we use, as disclosed in Note 6, Share-Based Compensation, consisting of the expected life of the option, risk-free interest rate, dividend yield, volatility and forfeiture rate. The use of a different estimate for any one of
these components could have a material impact on the amount of calculated compensation expense. We did not grant any stock-based awards until 2007. In determining the estimated fair value of our common stock at the date of grant of stock awards, we
set the market value based on the combination of two factors: an independent offer to purchase a portion of us in exchange for preferred stock and the value of recent acquisitions. See Note 6, Share-Based Compensation.
F-9
Notes to consolidated financial statements
Income Taxes
For financial reporting purposes, we calculated income tax expense and deferred income tax balances as if we
were a separate entity and had prepared our own separate tax return. We provide for income taxes pursuant to the liability method as prescribed in SFAS No. 109,
Accounting for Income Taxes
. The liability method requires recognition of
deferred income taxes based on temporary differences between financial reporting and income tax bases of assets and liabilities, using current enacted income tax rates and regulations. These differences will result in taxable income or deductions in
future years when the reported amount of the asset or liability is recovered or settled, respectively. Considerable judgment is required in determining when these events may occur and whether recovery of an asset is more likely than not. Our
effective tax rate remains fairly consistent. We have significant NOL carry forwards and expect our deferred tax assets to be fully recoverable through the reversal of taxable temporary differences in future years as a result of normal business
activities. We have agreed to enter into a tax sharing agreement with Gaiam on or before the completion of this offering providing payments to Gaiam as we utilize our NOL in the future. See Note 10, Transactions With Gaiam.
Effective January 1, 2007, we adopted the provisions of SFAS Interpretation No. 48,
Accounting of Uncertainty in Income Taxes—An Interpretation of FASB Statement
No. 109
(“FIN 48”). Under FIN 48, we must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the
technical merits of the position. We measure the tax benefits recognized in the consolidated financial statements from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.
The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous. As such, we are required to make many subjective assumptions and judgments regarding our income tax exposures.
Interpretations of and guidance surrounding income tax law and regulations change over time and may result in changes to our subjective assumptions and judgments which can materially affect amounts recognized in our Consolidated Balance Sheets and
Statements of Operations. The result of the reassessment of our tax positions in accordance with FIN 48 did not have a material impact on our consolidated financial statements.
Net Income Per Share
In accordance with SFAS No. 128,
Earnings Per Share
, we compute Basic Earnings Per Share
(“EPS”) by dividing the net income or loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if options or warrants to
issue shares of our Class A common stock were exercised. Common share equivalents of 340,000 shares have been omitted from net income per share for 2007, as they are anti-dilutive. Net income per share is calculated as if the 10,000,000 shares
of Class B common stock, which were issued by us to Gaiam on January 29, 2008, were issued on January 1, 2003.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the accompanying
financial statements and disclosures. Although these estimates are based on our best knowledge of current events and actions that we may undertake in the future, actual results may be different from the estimates.
Recently Issued Accounting Pronouncements
In December 2007, the Financial
Accounting Standards Board (“FASB”) issued FASB Statement No. 141 (Revised 2007),
Business Combinations
(“SFAS 141(R)”). This statement will significantly change the accounting for business combinations. Under SFAS
141(R), an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141(R) will change the accounting treatment for certain
specific items, including the following:
|
|
Ø
|
|
acquisition costs will be generally expensed as incurred;
|
F-10
Notes to consolidated financial statements
|
|
Ø
|
|
noncontrolling interests (formerly known as “minority interests”—see SFAS 160 discussion below) will be valued at fair value at the acquisition date;
|
|
|
Ø
|
|
acquired contingent liabilities will be recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined
under existing guidance for non-acquired contingencies;
|
|
|
Ø
|
|
in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date;
|
|
|
Ø
|
|
restructuring costs associated with a business combination will be generally expensed subsequent to the acquisition date and
|
|
|
Ø
|
|
changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense.
|
Also included in the statement are a substantial number of new disclosure requirements. SFAS 141(R) applies prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. Accordingly, a calendar year-end company is required to record and
disclose business combinations following existing GAAP until January 1, 2009. Consequently, we will adopt the provisions of SFAS 141(R) for our fiscal year beginning January 1, 2009. We believe that SFAS 141(R) is applicable to us, but
cannot yet reasonably estimate the impact of the statement.
In December 2007, FASB issued FASB Statement No. 160,
Noncontrolling Interests in Consolidated
Financial Statements—An Amendment of ARB No. 51
(“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.
Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the
noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity
transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair
value of the noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. We will adopt SFAS 160 at the beginning of our fiscal year commencing January 1, 2009. We believe SFAS 160 will be
applicable to us, but cannot yet reasonably estimate the impact to our consolidated financial statements.
In September 2006, FASB issued FASB Statement
No. 157,
Fair Value Measurements
(“SFAS 157”). This Statement defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS 157 applies under other
accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS 157 does not require any new
fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting
entity has not yet issued financial statements for that fiscal year, including financial statements for an interim period within that fiscal year. We will adopt the provisions of SFAS 157 in our fiscal year commencing January 1, 2008. We
currently believe that adoption of the provisions of SFAS 157 will not have a material impact on our consolidated financial statements.
F-11
Notes to consolidated financial statements
3. Property and Equipment
Property and equipment, stated at lower of cost or fair value, consists of the following as of
December 31:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2006
|
|
|
2007
|
|
|
Land
|
|
$
|
3,100
|
|
|
$
|
3,100
|
|
|
Buildings and leasehold improvements
|
|
|
1,591
|
|
|
|
1,598
|
|
|
Furniture, fixtures and equipment
|
|
|
119
|
|
|
|
166
|
|
|
Vehicles
|
|
|
—
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,810
|
|
|
|
5,055
|
|
|
|
|
|
|
Accumulated depreciation and amortization
|
|
|
(579
|
)
|
|
|
(673
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,231
|
|
|
$
|
4,382
|
|
|
|
|
|
|
|
|
|
|
|
4. Payable to Gaiam
Since 1999, our business has been funded by
intercompany borrowings from Gaiam and through our operating income. As of December 31, 2006 and 2007, we had $13.9 million and $16.3 million, respectively, of intercompany borrowings owed to Gaiam. Historically, Gaiam did not charge us
interest on the intercompany borrowings. The transactions that generated the intercompany borrowings consisted of virtually all activities conducted by Gaiam on our behalf, including allocation of product and sales fulfillment costs, allocation of
payroll costs, and funding used for and costs related to our business acquisitions, including the recent purchase of Marin Solar, Inc. (“Marin Solar”). The average balance due to Gaiam on the intercompany borrowings was $11,435, $12,857
and $15,103 for the years ended December 31, 2005, 2006 and 2007, respectively. We intend to repay the entire intercompany balance with proceeds from the proposed public offering of our Class A common stock.
5. Leases
We lease office and warehouse space through operating leases. Some
of the leases have renewal clauses, which range from three to five years. The following schedule represents the annual future minimum payments, as of December 31, 2007:
|
|
|
|
|
|
(in thousands)
|
|
Operating
|
|
2008
|
|
$
|
132
|
|
2009
|
|
|
108
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
240
|
|
|
|
|
|
We incurred rent expense of $73,000, $81,000, and $133,000 for the years ended December 31, 2005, 2006, and 2007, respectively.
6. Share-Based Compensation
Our share-based compensation program is a
long-term retention program that is intended to attract, retain and provide incentives for talented employees, officers, and directors and to align shareholder and employee interests. Our predecessor granted options in 2007 that we assumed on
January 31, 2008 as options granted under the Real Goods 2008 Long-Term Incentive Plan (the “Incentive Plan”), which provides for the granting of options to purchase up to 1,000,000 shares of our Class A common stock. Both incentive stock
options and nonqualified stock options may be issued under the provisions of the Incentive Plan. Employees, members of the board of directors, consultants, business partners, and certain key advisors are eligible to participate in the Incentive
Plan, which terminates upon the earlier of a board resolution terminating the Incentive Plan or ten years after the effective date of the Incentive Plan. Options under the Incentive Plan are generally granted with an exercise price equal to the
estimated market price of our stock at the date of the grant. Options vest based on performance or service conditions, or some combination thereof. Grants typically expire seven years from the date of grant.
F-12
Notes to consolidated financial statements
Expected volatilities are based on a value calculated using the historical volatility of comparable public companies in our industry. Expected life is based on the specific vesting terms of the option and anticipated changes to market value
and expected employee exercise behavior. The risk-free interest rate used in the option valuation model is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options. We do not anticipate paying any
cash dividends on our Class A common stock in the foreseeable future and, therefore, an expected dividend yield of zero is used in the option valuation model. In accordance with SFAS No. 123(R), we are required to estimate forfeitures at the
time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. Our predecessor granted stock options at $0.20 per share that we assumed on January 31, 2008 at an exercise price of $3.20 per share.
We do not currently have any forfeiture history and presently, due to the limited number of the grants, do not expect any of the options to be forfeited. The options assumed are for our Class A common stock and vest only upon an initial public
offering of our Class A common stock (50% vest upon an initial public offering and thereafter vest approximately 2.0% per month during the 25-month period subsequent to the completion of the initial public offering). The performance of this
condition has not been met; therefore, no compensation expense has been recognized. As of December 31, 2007, there was $0.5 million of unrecognized cost related to nonvested share-based compensation arrangements granted under the Incentive
Plan. That cost is expected to be recognized over the next 3.5 years.
|
|
|
|
|
|
|
|
2007
|
|
|
Expected volatility
|
|
67
|
%
|
|
Weighted-average volatility
|
|
67
|
%
|
|
Expected dividends
|
|
0
|
%
|
|
Expected term (in years)
|
|
4.0
|
|
|
Risk-free rate
|
|
4.875
|
%
|
The following is a summary of option activity under the Incentive Plan as of December 31, 2007, and changes during the year then ended, giving effect to the options assumed
from our predecessor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at January 1, 2007
|
|
—
|
|
$
|
—
|
|
|
|
|
|
Granted
|
|
300,000
|
|
|
3.20
|
|
|
|
|
|
Exercised
|
|
—
|
|
|
—
|
|
|
|
|
|
Forfeited or expired
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
300,000
|
|
$
|
3.20
|
|
3.5
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
|
—
|
|
$
|
—
|
|
3.5
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
7. Shareholders’ Equity and Warrants
As part of the contingent
consideration for the acquisition of Marin Solar, we issued, on November 1, 2007, seven-year warrants to purchase 40,000 shares of Class A common stock at an exercise price of $3.20 per share. See Note 9, Mergers and Acquisitions.
F-13
Notes to consolidated financial statements
As of December 31, 2007, giving effect to options assumed from our predecessor, we had the following Class A common shares reserved for future issuance:
|
|
|
|
|
Conversion of Class B common shares
|
|
10,000,000
|
|
Stock options under the Incentive Plan
|
|
300,000
|
|
Warrants outstanding
|
|
40,000
|
|
|
|
|
|
Total shares reserved for future issuance
|
|
10,340,000
|
|
|
|
|
Each holder of shares of Class A common stock is entitled to one vote for each share held on all matters submitted to a vote of shareholders. Each share of Class B common
stock is entitled to ten votes on all matters submitted to a vote of shareholders. There are no cumulative voting rights. All holders of shares of Class A common stock and shares of Class B common stock vote as a single class on all matters
that are submitted to the shareholders for a vote. Accordingly, holders of a majority of the shares of Class A common stock and shares of Class B common stock entitled to vote in any election of directors may elect all of the directors who
stand for election. A required number of shareholders having the minimum number of votes that would be necessary to authorize or take action at a meeting at which all of the shares entitled to vote thereon were present and voted may consent to an
action in writing and without a meeting under certain circumstances.
Shares of Class A common stock and shares of Class B common stock are entitled to receive
dividends, if any, as may be declared by the board of directors out of legally available funds. In the event of a liquidation, dissolution or winding up of our Company, the shares of Class A common stock and shares of Class B common stock are
entitled to share ratably in our assets remaining after the payment of all of our debts and other liabilities. Holders of shares of Class A common stock and shares of Class B common stock have no preemptive, subscription or redemption rights,
and there are no redemption or sinking fund provisions applicable to the shares of Class A common stock and Class B common stock.
8. Income Taxes
In accordance with SAB 1-B1, we calculated income tax expense and deferred income tax balances as if we were a separate entity from Gaiam and had prepared our
own separate tax returns. The resulting income taxes were settled through Payable to Gaiam.
Our provision for income taxes is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
(in thousands)
|
|
2005
|
|
2006
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
$
|
(228
|
)
|
|
$
|
(114
|
)
|
|
State
|
|
|
—
|
|
|
(39
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
(267
|
)
|
|
|
(134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
136
|
|
|
372
|
|
|
|
186
|
|
|
State
|
|
|
23
|
|
|
64
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159
|
|
|
436
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
159
|
|
$
|
169
|
|
|
$
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-14
Notes to consolidated financial statements
Variations from the federal statutory rate are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2005
|
|
2006
|
|
2007
|
|
Expected federal income tax expense at statutory rate of 34%
|
|
$
|
134
|
|
$
|
142
|
|
$
|
67
|
|
Effect of permanent differences
|
|
|
1
|
|
|
2
|
|
|
5
|
|
State income tax expense, net of federal benefit and utilization of net operating loss
|
|
|
24
|
|
|
25
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
159
|
|
$
|
169
|
|
$
|
84
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. The components of the net accumulated deferred income tax asset as of December 31, 2006 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2006
|
|
|
2007
|
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts
|
|
$
|
72
|
|
|
$
|
60
|
|
|
Inventory-related expense
|
|
|
15
|
|
|
|
4
|
|
|
Accrued liabilities
|
|
|
24
|
|
|
|
27
|
|
|
Prepaid and deferred catalog costs
|
|
|
(99
|
)
|
|
|
(108
|
)
|
|
Net operating loss carryforward
|
|
|
—
|
|
|
|
171
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current deferred tax assets
|
|
$
|
12
|
|
|
$
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
(36
|
)
|
|
$
|
16
|
|
|
Net operating loss carryforward
|
|
|
2,720
|
|
|
|
2,586
|
|
|
Other
|
|
|
—
|
|
|
|
(278
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current deferred tax assets
|
|
$
|
2,684
|
|
|
$
|
2,324
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets
|
|
$
|
2,696
|
|
|
$
|
2,478
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006 and 2007, we had NOL carry forwards of approximately $6.8 million and $6.9 million, respectively, which may be used to offset future taxable income.
These carryforwards expire beginning in 2020. The Internal Revenue Code contains provisions that limit the NOL available for use in any given year upon the occurrence of certain events, including significant changes in ownership interest. A change
in ownership of a company of greater than 50% within a three-year period results in an annual limitation on the utilization of NOL carryforwards from tax periods prior to the ownership changes. Our NOL carryforwards as of December 31, 2006 and
2007 are subject to annual limitations due to changes in ownership.
We expect the deferred tax assets at December 31, 2006 and 2007 to be fully recoverable
through the reversal of taxable temporary differences in future years as a result of normal business activities unless we make a public offering of more than 20% of our capital, in which case we will effectively lose one year of our carryforward
period and have to impair our deferred tax asset by approximately $0.2 million. Accordingly, no valuation allowances for deferred tax items were considered necessary as of December 31, 2006 or 2007.
We have entered into a tax sharing agreement with Gaiam providing for payments to Gaiam as we utilize our NOL in the future. See Note 10, Transactions With Gaiam.
F-15
Notes to consolidated financial statements
9. Mergers and Acquisitions
On November 1, 2007, we purchased 100% ownership of Marin Solar for $3.2 million in
cash, plus direct acquisition costs of approximately $0.2 million. We acquired Marin Solar in order to expand our penetration into the Northern California solar energy market and enter the large installations market. The purchase agreement provides
for additional consideration contingent upon the amount of revenue generated from certain potential customers and the collection of certain rebates. As additional consideration, we granted to the sellers warrants to purchase 40,000 shares of our
Class A common stock at an exercise price of $3.20 per share. The warrants have a seven year term and vest 50% upon the earlier to occur of the completion of this offering or a transaction resulting in Gaiam’s ownership of less than 50% of
our outstanding shares. Following such initial vesting, 2% of the warrants will vest each month thereafter. We have not yet recognized the contingent consideration because its amount is not determinable beyond a reasonable doubt. At the time any of
the contingent consideration becomes probable and can be estimated, we will recognize it as additional purchase price and allocate it to goodwill and other intangibles, as appropriate. Marin Solar’s results of operations for November and
December 2007 are included in our Consolidated Statement of Operations for the Year Ended December 31, 2007.
The following table summarizes the estimated fair
values of the assets acquired and liabilities assumed at the date of acquisition. We are in the process of preparing valuations of certain intangible assets; thus, the allocation of the purchase price is subject to refinement. Goodwill is not
expected to be deductible for tax purposes.
|
|
|
|
|
|
(in thousands)
|
|
November 1,
2007
|
|
Current assets
|
|
$
|
1,056
|
|
Property and equipment
|
|
|
243
|
|
Goodwill and intangible assets
|
|
|
3,342
|
|
Other assets
|
|
|
22
|
|
|
|
|
|
|
Total assets acquired
|
|
|
4,663
|
|
|
|
|
|
|
Current liabilities
|
|
|
1,261
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
3,402
|
|
|
|
|
|
The following is supplemental unaudited pro forma information for the Marin Solar acquisition as if we had acquired the business on January 1, 2006. The pro forma adjustments
are based on currently available information and upon assumptions that we believe are reasonable in order to reflect, on a pro forma basis, the impact of this acquisition on our historical financial information.
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
Year ended
December 31,
|
|
|
|
|
2006
|
|
2007
|
|
|
(in thousands, except per share data)
|
|
(unaudited)
|
|
|
Net revenue
|
|
$
|
21,051
|
|
$
|
26,776
|
|
|
Operating income (loss)
|
|
|
373
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
197
|
|
$
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.02
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
F-16
Notes to consolidated financial statements
10. Transactions With Gaiam
Tax Sharing Agreement
After the date we cease to be a member of Gaiam’s consolidated group for federal income tax purposes, to the extent we become entitled to utilize loss carryforwards from our
separate tax returns, we will distribute to Gaiam the tax effect (estimated to be 34% for federal income tax purposes) of the amount of such tax loss carryforwards so utilized. Accordingly, we expect to recognize a valuation allowance against
certain of our deferred tax assets as of the effective date of the tax sharing agreement. As of December 31, 2007, we had NOL carryforwards of approximately $6.9 million, meaning that such potential future payments to Gaiam, which would be
made over a period of several years, would therefore aggregate to approximately $2.6 million. These NOL carryforwards expire beginning in 2020 if not utilized. Due to Gaiam’s step acquisitions of our company, we experienced “ownership
changes” as defined in Section 382 of the Internal Revenue Code. Accordingly, our use of the NOL carryforwards is limited by annual limitations described in Sections 382 and 383 of the Internal Revenue Code. We expect our NOLs to be fully
recoverable unless we make a public offering of more than 20% of our capital, in which case we will effectively lose one year of our carryforward period and have to impair our deferred tax asset by approximately $0.2 million.
Services Agreement
We have and will have a need for certain management and
other services to be provided by Gaiam under an Intercorporate Services Agreement. These services may include, but are not limited to, executive, management, financial, audit, accounting, tax, treasury, human resources, payroll, technical,
fulfillment, inventory management, customer service and certain occupancy and related office services as required from time to time. We have determined that it is not cost effective to obtain and separately maintain the personnel and infrastructure
associated with these services, particularly the costs associated with attracting and maintaining on our payroll on a full time basis a full complement of skilled employees.
Services performed under this agreement will be provided under the direction of us, and Gaiam shall not have any power to act independently on our behalf other than as specifically authorized under the agreement or from time to time, by us.
Gaiam and we will agree on the aggregate annual amount for a particular year for the services based upon a good faith estimate of the services required for that year and the estimated fees for such services. Upon a change to the annual amounts for a
particular year, the parties will make appropriate payments to reflect such change. The annual amount and formulae for various services making up the annual amount, as well as any quarterly changes, must be approved in writing by each of
Gaiam’s and our board of directors.
11. Subsequent Events
On January 1, 2008, our 88.4% owned subsidiary acquired certain of the assets of and assumed certain liabilities from Carlson Solar for $3.2 million in cash, plus direct acquisition costs of approximately $0.2 million. As part of the
acquisition, as additional consideration, we granted warrants to purchase 30,000 shares of our Class A common stock at an exercise price of $3.20 per share, which will vest 50% upon the earlier to occur of the completion of this offering or a
transaction resulting in Gaiam’s ownership of less than 50% of our outstanding shares. Following such initial vesting, 2% of the warrants will vest each month thereafter. The warrants have a seven year term. The assets acquired were determined
to have all inputs and processes necessary for the transferred assets to continue to conduct normal operations after acquisition; accordingly, the purchase price was treated as a business combination pursuant to SFAS No. 141,
Business
Combinations
. Carlson Solar will be consolidated into our financial statements effective January 1, 2008.
F-17
REAL GOODS SOLAR, INC.
Financial Statement Schedule II
Consolidated valuation and qualifying accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Balance at
Beginning
of Year
|
|
Additions
Charged
(Credited) to
Costs and
Expenses
(1)
|
|
|
Deductions
|
|
|
Balance at
End of
Year
(1)
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
$
|
91
|
|
$
|
46
|
|
|
$
|
|
1
|
|
$
|
136
|
|
2006
|
|
$
|
136
|
|
$
|
61
|
|
|
$
|
|
14
|
|
$
|
183
|
|
2007
|
|
$
|
183
|
|
$
|
(10
|
)
|
|
$
|
|
22
|
|
$
|
151
|
|
(1)
|
Includes reserves associated with acquired Marin Solar, Inc. of $41 in 2007.
|
F-18
Independent auditors’ report
Board of Directors and
Shareholders
Marin Solar, Inc.
We have audited the accompanying balance sheet of
Marin Solar, Inc. as of December 31, 2006 and the related statements of operations, shareholders’ equity and cash flows for the year ended December 31, 2006 and the ten months ended October 31, 2007. These financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted
our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Marin Solar, Inc. as of December 31, 2006, and the results of its operations and its cash flows for the year ended December 31, 2006 and the ten months ended October 31, 2007 in conformity
with accounting principles generally accepted in the United States of America.
/s/ Ehrhardt Keefe Steiner & Hottman PC
February 1, 2008
Denver, Colorado
F-19
MARIN SOLAR, INC.
Balance sheet
|
|
|
|
|
|
|
|
|
As of
December 31,
2006
|
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash
|
|
$
|
3,394
|
|
|
Accounts receivable, net
|
|
|
477,117
|
|
|
Related party receivables
|
|
|
1,913
|
|
|
Inventory
|
|
|
126,374
|
|
|
Deferred costs on uncompleted contracts
|
|
|
1,247,343
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,856,141
|
|
|
Property and equipment, net
|
|
|
127,078
|
|
|
Deposits
|
|
|
4,079
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,987,298
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ DEFICIT
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Lines of credit, banks
|
|
$
|
185,000
|
|
|
Accounts payable
|
|
|
446,891
|
|
|
Accrued expenses
|
|
|
73,288
|
|
|
Current portion of secured loans payable
|
|
|
14,256
|
|
|
Customer rebates payable
|
|
|
33
|
|
|
Deferred revenue on uncompleted contracts
|
|
|
1,559,178
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,278,646
|
|
|
|
|
|
Secured loans payable, less current portion
|
|
|
72,832
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,351,478
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 14)
|
|
|
|
|
|
Shareholders’ deficit:
|
|
|
|
|
|
Preferred stock, par value $100 per share; 5,000 shares authorized: none issued or outstanding
|
|
|
—
|
|
|
Common stock, 1,000 shares authorized without par value; 100 shares issued and outstanding
|
|
|
10,000
|
|
|
Additional paid-in capital
|
|
|
78,644
|
|
|
Accumulated deficit
|
|
|
(452,824
|
)
|
|
|
|
|
|
|
|
Total shareholders’ deficit
|
|
|
(364,180
|
)
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ deficit
|
|
$
|
1,987,298
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-20
MARIN SOLAR, INC.
Statements of operations
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
ended
December 31,
2006
|
|
|
For the Ten
Months ended
October 31,
2007
|
|
|
Revenue
|
|
$
|
4,239,264
|
|
|
$
|
7,853,290
|
|
|
Cost of sales
|
|
|
3,330,157
|
|
|
|
6,292,594
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
909,107
|
|
|
|
1,560,696
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
909,472
|
|
|
|
1,726,171
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(365
|
)
|
|
|
(165,475
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(28,969
|
)
|
|
|
(41,303
|
)
|
|
Other income
|
|
|
4,730
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(24,239
|
)
|
|
|
(41,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before income taxes
|
|
|
(24,604
|
)
|
|
|
(206,670
|
)
|
|
Income tax expense
|
|
|
800
|
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(25,404
|
)
|
|
$
|
(207,470
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(254
|
)
|
|
$
|
(2,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net loss per share:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
100
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-21
MARIN SOLAR, INC.
Statement of changes in shareholders’ deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Deficit
|
|
|
Total
Shareholders’
Deficit
|
|
|
|
|
Shares
|
|
Amount
|
|
|
|
|
Balance at December 31, 2005
|
|
100
|
|
$
|
10,000
|
|
$
|
2,847
|
|
$
|
(427,420
|
)
|
|
$
|
(414,573
|
)
|
|
Contribution of capital
|
|
—
|
|
|
—
|
|
|
75,797
|
|
|
—
|
|
|
|
75,797
|
|
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25,404
|
)
|
|
|
(25,404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
100
|
|
$
|
10,000
|
|
$
|
78,644
|
|
$
|
(452,824
|
)
|
|
$
|
(364,180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-22
MARIN SOLAR, INC.
Statements of cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
ended
December 31,
2006
|
|
|
For the Ten
Months ended
October 31,
2007
|
|
|
Cash flows used in operating activities:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(25,404
|
)
|
|
$
|
(207,470
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
30,365
|
|
|
|
56,455
|
|
|
Provision for doubtful accounts
|
|
|
41,790
|
|
|
|
1,032
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in assets:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(397,391
|
)
|
|
|
(229,474
|
)
|
|
Related party receivables
|
|
|
(1,913
|
)
|
|
|
(13,504
|
)
|
|
Inventory
|
|
|
(126,374
|
)
|
|
|
101,317
|
|
|
Deferred costs on uncompleted contracts
|
|
|
(931,005
|
)
|
|
|
961,902
|
|
|
Deposits
|
|
|
(3,222
|
)
|
|
|
(18,000
|
)
|
|
|
|
|
|
Increase (decrease) in liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
121,983
|
|
|
|
(38,181
|
)
|
|
Accrued expenses
|
|
|
(7,054
|
)
|
|
|
74,551
|
|
|
Customer rebates payable
|
|
|
(7,407
|
)
|
|
|
260,033
|
|
|
Deferred revenue on uncompleted contracts
|
|
|
1,163,756
|
|
|
|
(1,202,378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
(116,472
|
)
|
|
|
(46,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(141,876
|
)
|
|
|
(253,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
Payments to acquire property and equipment
|
|
|
(91,469
|
)
|
|
|
(193,428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of preferred stock
|
|
|
—
|
|
|
|
350,000
|
|
|
Proceeds from secured loans
|
|
|
—
|
|
|
|
122,906
|
|
|
Payments on secured loans
|
|
|
(54,214
|
)
|
|
|
—
|
|
|
Net proceeds (payments) under lines of credit
|
|
|
158,110
|
|
|
|
(4,354
|
)
|
|
Capital contributions
|
|
|
75,797
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
179,693
|
|
|
|
468,552
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(53,652
|
)
|
|
|
21,407
|
|
|
Cash, beginning of period
|
|
|
57,046
|
|
|
|
3,394
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
3,394
|
|
|
$
|
24,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
800
|
|
|
$
|
800
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
28,969
|
|
|
$
|
30,104
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-23
Notes to financial statements
1. Summary of Significant Accounting Policies
Business Activity
Marin Solar, Inc. (the “Company”) was
incorporated in 2002 in California, and designs and installs solar systems for residential and commercial properties in Northern California.
Use of
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Fair Value
Unless otherwise indicated, the fair values of all reported assets and liabilities, which represent financial instruments, none of which are held for trading purposes, approximate
the carrying values of such accounts.
Concentration of Credit Risk
Cash consists principally of cash deposited in money market and checking accounts, which at times may exceed federally insured limits; however, the Company has not experienced any losses on such accounts.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is based
on the Company’s assessment of the collectibility of specific customer accounts and an assessment of economic risks, as well as the aging of the accounts receivable.
Inventory
Inventory is valued at the lower of cost (first-in, first-out) or market.
Property and Equipment
Property and equipment is valued at cost. Depreciation
is being provided by use of the straight-line method over the estimated useful lives of the assets.
Revenue Recognition
The Company recognizes revenue in accordance with the American Institute of Certified Public Accountants Statement of Position 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts, using either the completed contract method or the percentage of completion method.
F-24
Notes to financial statements
The Company recognizes revenue from residential solar energy system installations (less than 250 kilowatts) using the completed contract method. Revenue is deferred until the contract is considered substantially complete, which is when
remaining costs and potential risks are insignificant in amount, which typically occurs upon final departure from the worksite or passing of building inspection.
The Company recognizes revenue from commercial solar system installations (equal to or greater than 250 kilowatts) using the percentage of completion method. Revenue is recognized based on contract milestones achieved (output measure). We
had no contracts accounted for under the percentage of completion method for either of the periods ended December 31, 2006 or October 31, 2007.
Deferred Revenue on Uncompleted Contracts
The unearned portion of contracts is classified as deferred revenue. Related costs are also deferred until
the revenue is recognized.
Advertising
The Company expenses
advertising costs as incurred. Advertising expense totaled $16,411 and $65,128 for the year ended December 31, 2006 and for the ten months ended October 31, 2007, respectively.
Income Taxes
The Company accounts for income taxes in accordance with the liability method. Under this method, deferred tax
assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.
2. Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(“SFAS 157”),
which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in
various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. Earlier adoption is permitted, provided the Company has not yet issued financial statements, including for interim periods, for
that fiscal year. The Company is currently evaluating the impact of SFAS 157, but does not expect the adoption of SFAS 157 to have a material impact on its consolidated financial position, results of operations or cash flows.
In July 2006, the FASB issued FASB Interpretation 48,
Accounting for Uncertainty in Income Taxes
(“FIN 48”)—an interpretation of FASB No. 109,
“Accounting for Income Taxes.” FIN 48 prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision on
whether or not to file in a particular jurisdiction. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109,
Accounting for Income
Taxes
. The provisions of FIN 48 are to be applied to all tax positions upon initial adoption of this standard. Only tax positions that meet a “more-likely-than-not” recognition threshold at the effective date may be recognized or
continue to be recognized upon adoption of FIN 48. The cumulative effect of applying the provisions of FIN 48 is reported as an adjustment to the opening balance of retained earnings. FIN 48 is effective for years beginning after December 15,
2007. The Company expects the adoption of this accounting standard will increase the level of disclosure that the Company provides regarding its tax positions. The adoption of FIN 48 is not expected to have a material impact on the Company’s
consolidated financial position and results of operations.
F-25
Notes to financial statements
3. Related Party Receivables
Related party receivables consist of advances to the shareholders representing personal expenses
of $1,913 at December 31, 2006.
4. Inventory
Inventory
consists primarily of finished goods used in solar systems. The Company had finished goods inventory of $126,374 at December 31, 2006.
5. Property and
Equipment
Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed on the
straight-line method over estimated useful lives (generally three to seven years). A summary of property and equipment at December 31, 2006 is as follows:
|
|
|
|
|
|
|
Automobiles
|
|
$
|
161,333
|
|
|
Computer equipment
|
|
|
22,585
|
|
|
Furniture and machinery
|
|
|
32,448
|
|
|
|
|
|
|
|
|
|
|
|
216,366
|
|
|
Less: accumulated depreciation
|
|
|
(89,288
|
)
|
|
|
|
|
|
|
|
|
|
$
|
127,078
|
|
|
|
|
|
|
|
Depreciation expense was $30,365 and $56,455 for the year ended December 31, 2006 and for the ten months ended October 31, 2007, respectively.
6. Accounts Payable—Major Vendor
Purchases from two suppliers amounted
to approximately $3.3 million for year ended December 31, 2006 with $393,264 outstanding at year end. Purchases from one supplier amounted to approximately $3.8 million for the ten months ended October 31, 2007.
7. Accrued Liabilities
A summary of accrued expenses for the year ended
December 31, 2006 is as follows:
|
|
|
|
|
|
Payroll liabilities
|
|
$
|
20,323
|
|
Accrued warranty
|
|
|
25,000
|
|
Other liabilities
|
|
|
27,965
|
|
|
|
|
|
|
Total
|
|
$
|
73,288
|
|
|
|
|
|
The Company warranties the installation of its solar energy systems for 10 years, as required by California law, and the estimated warranty liability is based upon historical
claim experience.
F-26
Notes to financial statements
8. Lines of Credit, Banks
At December 31, 2006 the Company had two revolving lines of credit with two separate banks
providing for maximum borrowings of $35,000 and $150,000, with interest payable at 17.50% and 10.25%, respectively. Outstanding borrowings on all lines were $185,000 at December 31, 2006. These lines were secured by substantially all assets of
the Company. All outstanding balances were repaid on November 1, 2007. See Note 17, Subsequent Event.
9. Customer Rebates Payable
The Emerging Renewable Program from California Energy Commission (“CEC”) offers rebates to those who install solar energy systems. Upon execution of the contract, a
reservation application for the rebate is sent to CEC, and the rebate received by the Company is credited to the customer or credited as payment for the system cost.
10. Secured Loans Payable
The Company had secured vehicle loans payable of $87,088 at December 31, 2006. The loans were
repaid as of November 1, 2007. See Note 17, Subsequent Event.
11. Preferred Stock
In 2006, the Company authorized 5,000 shares of preferred stock with $100 par value. In 2007, the Company issued 3,500 shares of preferred stock for $350,000. The material terms
of the Company’s preferred stock are as follows:
Dividends
The preferred stock is entitled to receive, out of funds legally available, cumulative dividends at the annual rate of 10% per share (based on par value) for 18 months from the date of issuance, and at 11% per share thereafter.
The cumulative dividends are payable in cash on a quarterly basis on the first day of April, July, October, and January if declared by the Board of Directors. No dividends or other distributions shall be made with respect to the common stock until
the cumulative dividends on the preferred stock for all past dividend periods and for the then-current three-month dividend period shall have been declared and paid or set apart. As of the date the Company was acquired, the aggregate cumulative
dividends in arrears were approximately $22,000. See Note 17, Subsequent Event.
Voting rights
Except as otherwise provided by law, the preferred stock has no voting rights.
Liquidation Preference
Upon the voluntary or involuntary liquidation, winding up or dissolution of the Company, out of the assets available for
distribution to shareholders after payment of liabilities, the preferred stock is entitled to receive, in preference to any payment on the common stock, an amount equal to $100 per share plus cumulative dividends accrued and unpaid to the date
payment is made available to the preferred stock.
F-27
Notes to financial statements
Redemption
The Company at the option of the Board of Directors, may redeem the whole or from time to time redeem any part of
the preferred shares outstanding by paying in cash the sum of $100 per share, plus all dividends accrued, unpaid and accumulated to the date fixed for redemption.
12. Common Stock
The Company is authorized to issue 1,000 shares of common stock without par value. During the periods presented there were 100
shares of common stock issued and outstanding.
13. Income Taxes
Deferred income taxes are provided for the temporary differences in recognizing revenue and expenses for financial reporting and income tax purposes. The temporary differences are primarily due to differing methods for recording bad debts,
depreciation, inventory, accrued salaries and vacation pay, and net operating loss carryforwards.
The Company accounts for income taxes under the asset and
liability method in accordance with SFAS No. 109,
Accounting for Income Taxes
. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recorded for deferred tax assets where it appears more likely than not that the Company will not be able to
recover the deferred tax asset.
The provision for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2006
|
|
October 31,
2007
|
|
Current tax expense:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
$
|
—
|
|
State
|
|
|
800
|
|
|
800
|
|
|
|
|
|
|
|
|
|
Deferred income tax expenses
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total income taxes
|
|
$
|
800
|
|
$
|
800
|
|
|
|
|
|
|
|
|
Variations from the federal statutory rate are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2006
|
|
|
October 31,
2007
|
|
|
Expected federal income tax benefit at statutory rate of 34%
|
|
$
|
(8,365
|
)
|
|
$
|
(70,268
|
)
|
|
Effect of permanent differences
|
|
|
30
|
|
|
|
248
|
|
|
State income tax benefit, net of federal benefit
|
|
|
(1,434
|
)
|
|
|
(12,049
|
)
|
|
Change in valuation allowance
|
|
|
10,569
|
|
|
|
82,869
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
800
|
|
|
$
|
800
|
|
|
|
|
|
|
|
|
|
|
|
F-28
Notes to financial statements
Significant components of the Company’s deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
December 31,
2006
|
|
|
Deferred tax assets:
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
17,900
|
|
|
Net operating loss carryforwards
|
|
|
109,600
|
|
|
Property and equipment
|
|
|
30,600
|
|
|
Accrued warranty
|
|
|
10,700
|
|
|
Charitable contributions
|
|
|
2,300
|
|
|
State income taxes
|
|
|
300
|
|
|
Research and development credits
|
|
|
3,200
|
|
|
|
|
|
|
|
|
|
|
|
174,600
|
|
|
Less: valuation allowance
|
|
|
(174,600
|
)
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
—
|
|
|
|
|
|
|
|
Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Therefore, the net deferred tax asset has been offset
fully by a valuation allowance.
NOL carryforwards of approximately $540,000 for federal and $545,000 for state, are available as of October 31, 2007 to be
applied against future taxable income. The net operating loss carryforwards expire in tax years 2022 -2027 for federal purposes and in tax years 2012-2017 for state purposes. Utilization of the Company’s federal net operating loss
carryforwards may be subject to an annual limitation due to the “change of ownership” provisions of the Tax Reform Act of 1986. The annual limitation may result in the expiration of net operating loss carryforwards before utilization.
14. Commitments and Contingencies
The Company leases its
operating facility under a noncancellable operating lease expiring on December 31, 2009. The following is a schedule, by year of future minimum rental payments required under the operating lease are as follows:
|
|
|
|
|
|
Two months ending December 31, 2007
|
|
$
|
21,500
|
|
Year ending December 31,
|
|
|
|
|
2008
|
|
|
132,000
|
|
2009
|
|
|
108,000
|
|
|
|
|
|
|
Total
|
|
$
|
261,500
|
|
|
|
|
|
Rent expense amounted to $22,500 and $103,769 for the year ended December 31, 2006 and for the ten months ended October 31, 2007, respectively.
15. Segment and Geographic Information
The Company operates in a single
business segment, the design and installation of solar energy systems to residential and commercial markets in Northern California.
F-29
Notes to financial statements
16. Major Customers
No customer accounted for more than 10% of the revenue for the year ended December 31, 2006. Two
customers accounted for approximately $1,850,000, or 25%, of revenue for the ten months ended October 31, 2007.
Based on the Company’s assessment, an
allowance for doubtful accounts of $41,790 was maintained at December 31, 2006.
17. Subsequent Event
In November 2007, the Company entered into a stock purchase agreement with Real Goods Marin, Inc. The shareholders will receive cash consideration of $3.2 million for the common
stock held by the shareholders. The cash consideration was paid upon the closing date of November 15, 2007.
F-30
Independent auditors’ report
Board of Directors and
Shareholders
Carlson Solar
We have audited the accompanying balance sheets of
Carlson Solar as of December 31, 2006 and 2007 and the related statements of operations, shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of
the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of
Carlson Solar as of December 31, 2006 and 2007, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Ehrhardt Keefe Steiner & Hottman PC
February 1, 2008
Denver, Colorado
F-31
CARLSON SOLAR
Balance sheets
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2006
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
90,275
|
|
$
|
309,473
|
|
Accounts receivable, net
|
|
|
303,640
|
|
|
336,475
|
|
Inventory
|
|
|
1,063,160
|
|
|
1,261,523
|
|
Prepaid expenses and other current assets
|
|
|
24,131
|
|
|
900
|
|
Deferred costs on uncompleted contracts
|
|
|
1,091,478
|
|
|
193,190
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,572,684
|
|
|
2,101,561
|
|
Property and equipment, net
|
|
|
142,145
|
|
|
198,522
|
|
Deposits
|
|
|
1,564
|
|
|
1,366
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,716,393
|
|
$
|
2,301,449
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Line of credit, bank
|
|
$
|
159,948
|
|
$
|
—
|
|
Accounts payable
|
|
|
601,723
|
|
|
507,239
|
|
Accrued expenses
|
|
|
202,068
|
|
|
216,924
|
|
Deferred revenue on uncompleted contracts
|
|
|
883,249
|
|
|
251,420
|
|
Current portion of secured loans payable
|
|
|
1,521
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,848,509
|
|
|
975,583
|
|
Secured loans payable, less current portion
|
|
|
14,064
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,862,573
|
|
|
975,583
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 10)
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
Common stock; 100,000 authorized without par value; 75,000 shares issued and outstanding as of December 31, 2006 and 2007
|
|
|
2,000
|
|
|
2,000
|
|
Additional paid-in capital
|
|
|
2,000
|
|
|
2,000
|
|
Retained earnings
|
|
|
849,820
|
|
|
1,321,866
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
853,820
|
|
|
1,325,866
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
2,716,393
|
|
$
|
2,301,449
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-32
CARLSON SOLAR
Statements of operations
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year ended
December 31,
|
|
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,356,549
|
|
|
$
|
5,969,571
|
|
|
Cost of sales
|
|
|
2,333,058
|
|
|
|
4,216,468
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,023,491
|
|
|
|
1,753,103
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
659,817
|
|
|
|
664,429
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
363,674
|
|
|
|
1,088,674
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses/(income):
|
|
|
|
|
|
|
|
|
|
Interest expense/(income), net
|
|
|
14,522
|
|
|
|
(1,520
|
)
|
|
Other expenses/(income), net
|
|
|
(10,521
|
)
|
|
|
(8,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses/(income)
|
|
|
4,001
|
|
|
|
(9,520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income before income taxes
|
|
|
359,673
|
|
|
|
1,098,194
|
|
|
Income tax expense
|
|
|
11,923
|
|
|
|
25,995
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
347,750
|
|
|
$
|
1,072,199
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
4.64
|
|
|
$
|
14.30
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net income per share:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-33
CARLSON SOLAR
Statement of changes in shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
|
Total
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
|
|
|
Balance at December 31, 2005
|
|
75,000
|
|
$
|
2,000
|
|
$
|
2,000
|
|
$
|
511,688
|
|
|
$
|
515,688
|
|
|
Distribution to shareholders
|
|
|
|
|
|
|
|
|
|
|
(9,618
|
)
|
|
|
(9,618
|
)
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
347,750
|
|
|
|
347,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
75,000
|
|
|
2,000
|
|
|
2,000
|
|
|
849,820
|
|
|
|
853,820
|
|
|
Distribution to shareholders
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(600,153
|
)
|
|
|
(600,153
|
)
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,072,199
|
|
|
|
1,072,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
75,000
|
|
$
|
2,000
|
|
$
|
2,000
|
|
$
|
1,321,866
|
|
|
$
|
1,325,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-34
CARLSON SOLAR
Statements of cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year ended
December 31,
|
|
|
|
|
2006
|
|
|
2007
|
|
|
Cash flows provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
347,750
|
|
|
$
|
1,072,199
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
51,137
|
|
|
|
37,949
|
|
|
Provision for doubtful accounts
|
|
|
1,088
|
|
|
|
—
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in assets:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
19,881
|
|
|
|
(32,835
|
)
|
|
Inventory
|
|
|
(384,031
|
)
|
|
|
(198,363
|
)
|
|
Deferred costs on uncompleted contracts
|
|
|
(1,091,478
|
)
|
|
|
898,288
|
|
|
Prepaid expenses and other current assets
|
|
|
(935
|
)
|
|
|
23,231
|
|
|
Deposits
|
|
|
(1,564
|
)
|
|
|
198
|
|
|
|
|
|
|
Increase (decrease) in liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
271,312
|
|
|
|
(94,484
|
)
|
|
Accrued expenses
|
|
|
142,641
|
|
|
|
14,856
|
|
|
Deferred revenue on uncompleted contracts
|
|
|
677,683
|
|
|
|
(631,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
(314,266
|
)
|
|
|
17,011
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
33,484
|
|
|
|
1,089,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used for investing activity:
|
|
|
|
|
|
|
|
|
|
Payments to acquire property and equipment
|
|
|
(70,114
|
)
|
|
|
(94,326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used for financing activities:
|
|
|
|
|
|
|
|
|
|
Net proceeds (payments) under line of credit
|
|
|
(40,491
|
)
|
|
|
(159,948
|
)
|
|
Distribution to shareholders
|
|
|
(9,618
|
)
|
|
|
(600,153
|
)
|
|
Payments on long-term debt
|
|
|
(16,694
|
)
|
|
|
(15,585
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(66,803
|
)
|
|
|
(775,686
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(103,433
|
)
|
|
|
219,198
|
|
|
Cash, beginning of year
|
|
|
193,708
|
|
|
|
90,275
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of year
|
|
$
|
90,275
|
|
|
$
|
309,473
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
2,182
|
|
|
$
|
26,990
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
16,485
|
|
|
$
|
6,139
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-35
Notes to financial statements
1. Summary of Significant Accounting Policies
Business Activity
Carlson Solar (the “Company”) was incorporated in
2001 in California and designs and installs solar energy systems for residential and commercial properties in Southern California.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value
Unless otherwise indicated, the fair values of all reported assets and liabilities, which represent financial instruments, none of which are held for trading purposes, approximate the carrying values of such accounts.
Concentration of Credit Risk
Cash consists principally of cash deposited in
money market and checking accounts, which at times may exceed federally insured limits; however, the Company has not experienced any losses on such accounts.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is based on the Company’s assessment of the collectibility of specific
customer accounts and an assessment of economic risks, as well as the aging of the accounts receivable.
Inventory
Inventory is valued at the lower of cost (first-in, first-out) or market.
Property and Equipment
The Company values property and equipment at cost. Depreciation is being provided by use of the straight-line method over the
shorter of the estimated useful lives of the assets or the term of the lease for leasehold improvements.
Revenue Recognition
The Company recognizes revenue in accordance with the American Institute of Certified Public Accountants Statement of Position 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts, using either the completed contract method or the percentage of completion method.
F-36
Notes to financial statements
The Company recognizes revenue from residential solar energy system installations (less than 250 kilowatts) using the completed contract method. Revenue is deferred until the contract is considered substantially complete, which is when
remaining costs and potential risks are insignificant in amount, which typically occurs upon final departure from the worksite or passing of building inspection.
The Company recognizes revenue from commercial solar system installations (equal to or greater than 250,000 kilowatts) using the percentage of completion method. Revenue is recognized based on contract milestones achieved (output measure).
Deferred Revenue on Uncompleted Contracts
The unearned portion
of contracts is classified as deferred revenue. Related costs are also deferred until the revenue is recognized.
Advertising
The Company expenses advertising costs as incurred. Advertising expense totaled $28,469 and $26,971 for the years ended December 31, 2006 and 2007, respectively.
Income Taxes
The Company is an S corporation under the provisions of the
Internal Revenue Code of 1986, as amended. For federal and certain state income tax purposes, the Company is not subject to tax on its income. The Company’s income is allocated to its shareholders. The Company may be subject to state income
taxes in those states that do not recognize S corporations and to additional types of taxes including franchise and business taxes.
2. Recent
Accounting Pronouncements
In September 2006, FASB issued SFAS No. 157,
Fair Value Measurements
(“SFAS 157”), which defines fair value,
establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting
pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. Earlier adoption is permitted, provided the Company has not yet issued financial statements, including for interim periods, for that fiscal year. The
Company is currently evaluating the impact of SFAS 157, but does not expect the adoption of SFAS 157 to have a material impact on its consolidated financial position, results of operations or cash flows.
In July 2006, FASB issued FASB Interpretation 48,
Accounting for Uncertainty in Income Taxes
(“FIN 48”)—an interpretation of FASB No. 109,
“Accounting for Income Taxes.” FIN 48 prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a decision on
whether or not to file in a particular jurisdiction. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109,
Accounting for Income
Taxes
. The provisions of FIN 48 are to be applied to all tax positions upon initial adoption of this standard. Only tax positions that meet a “more-likely-than-not” recognition threshold at the effective date may be recognized or
continue to be recognized upon adoption of FIN 48. The cumulative effect of applying the provisions of FIN 48 is reported as an adjustment to the opening balance of retained earnings. FIN 48 is effective for years beginning after December 15,
2007. The Company expects the adoption of this accounting standard will increase the level of disclosure that the Company provides regarding its tax positions. The adoption of FIN 48 is not expected to have a material impact on the Company’s
consolidated financial position and results of operations.
F-37
Notes to financial statements
3. Inventory
Inventory consists primarily of finished goods used in solar systems. The Company had finished goods
inventory of $1,063,160 and $1,261,523 as of December 31, 2006 and 2007, respectively.
4. Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed on the straight-line method over estimated
useful lives (generally three to seven years). A summary of property and equipment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2006
|
|
|
2007
|
|
|
Automobiles
|
|
$
|
290,418
|
|
|
$
|
376,370
|
|
|
Computer equipment
|
|
|
23,470
|
|
|
|
18,056
|
|
|
Machine and equipment
|
|
|
10,534
|
|
|
|
22,587
|
|
|
Furniture and machinery
|
|
|
7,352
|
|
|
|
7,030
|
|
|
Leasehold improvements
|
|
|
—
|
|
|
|
2,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
331,774
|
|
|
|
426,100
|
|
|
Less: accumulated depreciation
|
|
|
(189,629
|
)
|
|
|
(227,578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
142,145
|
|
|
$
|
198,522
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $51,137 and $37,949 for the years ended December 31, 2006 and 2007, respectively.
5. Accounts Payable – Major Vendor
During the years ended December 31, 2006 and 2007, the Company purchased the majority
of its inventory from two vendors.
6. Accrued Liabilities
A
summary of accrued expenses is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
2007
|
|
Due to Real Goods
|
|
$
|
—
|
|
$
|
66,896
|
|
Sales tax payable
|
|
|
24,426
|
|
|
51,347
|
|
Credit card payable
|
|
|
10,120
|
|
|
32,171
|
|
Accrued warranty
|
|
|
25,000
|
|
|
25,000
|
|
Payroll liabilities
|
|
|
14,452
|
|
|
—
|
|
Accrued profit sharing
|
|
|
81,762
|
|
|
—
|
|
Customer deposits
|
|
|
29,000
|
|
|
—
|
|
Other liabilities
|
|
|
17,508
|
|
|
41,510
|
|
|
|
|
|
|
|
|
|
|
|
$
|
202,268
|
|
$
|
216,924
|
|
|
|
|
|
|
|
|
F-38
Notes to financial statements
The Company warranties the installation of its solar energy systems for 10 years as required by California law, and the estimated warranty liability is based upon historical claim experience.
7. Line of Credit, Bank
At December 31, 2006, the Company had a line of
credit with one bank providing for maximum borrowings of $250,000 with interest payable at 7.25%. The line was secured by substantially all assets of the Company. All outstanding balances were repaid during 2007.
8. Secured Loans Payable
The Company had one secured vehicle loan payable of
$15,585 at December 31, 2006 with interest rate of 7.99%. The loan was repaid during 2007.
9. Common Stock
The Company is authorized to issue 100,000 shares of common stock without par value. As of December 31, 2007 and 2006, 75,000 shares of common stock were issued and are
outstanding.
10. Commitments and Contingencies
The Company
leases its operating facility under a “month-to-month” operating lease. The Company can terminate the lease at any time with 30 days notice.
Rent expense
amounted to $29,209 and $25,622, for the years ended December 31, 2006 and 2007, respectively.
11. Segment and Geographic Information
The Company operates in a single business segment: the design and installation of solar power systems to the residential and commercial market in Southern
California.
12. Major Customers
One customer accounted for
approximately $858,000 or 14% of sales for the year ended December 31, 2007 with no amounts outstanding as of December 31, 2007.
13. Defined
Contribution Plan
The Company has adopted a defined contribution plan, which covers substantially all employees. Contributions to the plan are discretionary,
and were $0 and $81,762 for the years ended December 31, 2006 and 2007.
14. Subsequent Event
In January 2008, the Company entered into an asset purchase agreement with Real Goods Carlson, Inc. and certain individuals. The sellers will receive $2,550,000, plus the closing
inventory value of $1,235,260, subject to adjustment, in exchange for certain assets of the Company.
F-39
Part II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution
The following table lists various expenses, other than underwriting discounts and commissions, we expect to incur in connection with the sale of the Class A common stock being registered hereby. All the amounts shown are estimates,
except the SEC registration fee, the FINRA filing fee and the Nasdaq Global Market fee.
|
|
|
|
|
|
|
|
Amount to
be Paid
|
|
SEC registration fee
|
|
$
|
2,260
|
|
FINRA filing fee
|
|
|
6,250
|
|
Nasdaq Global Market fee
|
|
|
105,000
|
|
Printing and engraving costs
|
|
|
*
|
|
Legal fees and expenses
|
|
|
*
|
|
Accounting fees and expenses
|
|
|
*
|
|
Blue sky qualification fees and expenses
|
|
|
*
|
|
Transfer agent and registrar fees
|
|
|
*
|
|
Miscellaneous
|
|
|
*
|
|
|
|
|
|
|
Total
|
|
$
|
*
|
|
|
|
|
|
|
*
|
To be completed by amendment.
|
Item 14. Indemnification of Directors and Officers
Colorado law currently provides for indemnification of directors,
officers and other employees who are made party to a proceeding because of the person’s position as a director, officer or employee if: the person’s conduct was in good faith; the person reasonably believed that the person’s conduct
in an official capacity was in the corporation’s best interests and in all other cases that the conduct was not opposed to the corporation’s best interests, and that in the case of a criminal proceeding that the person’s conduct was
not unlawful. Colorado law prohibits such indemnification in a proceeding by or in the right of the corporation in which the person was adjudged liable to the corporation and in a proceeding in which the person was adjudged liable of having derived
an improper personal benefit (C.R.S. § 7-109-101 et. seq. (1994)). Colorado law also provides for the elimination or limitation of the personal liability for of directors monetary damages for any breach of fiduciary duty as a director
(except for breach of a director’s duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, unlawful distributions, or any transaction from which the director derived improper
personal benefit), or for any injury to persons or property arising from a tort committed by one of our employees, unless the director was either personally involved in the situation giving rise to the litigation or committed a criminal offense in
connection with such situation. (C.R.S. § 7-108-402 (1994)). Our articles of incorporation eliminate the personal liability for monetary damages of, and provide indemnification to, our directors and officers to the fullest extent permitted
by the Colorado Business Corporation Act. Among other things, these provisions provide indemnification for our officers and directors against liabilities for judgments in and settlements of lawsuits and other proceedings and for the advance and
payment of fees and expenses reasonably incurred by the director or officer in defense of the lawsuit or proceeding.
We expect to maintain a directors and
officers insurance policy providing insurance indemnifying our directors and executive officers for certain liabilities. This insurance policy insures our past, present and future directors and officers, with certain
II-1
exceptions, from claims arising out of any error, misstatement, misleading statement, act, omission, neglect or breach of duty by any of the directors or officers
while acting in their capacities as such. Claims include claims arising from sales and purchases of our securities and shareholder derivative actions.
Item 15. Recent Sales of Unregistered Securities
During November 2007, we granted to the former owners of Marin Solar,
Inc. warrants to purchase 40,000 shares of our Class A common stock at an exercise price of $3.20 per share, pursuant to the Stock Purchase Agreement by and among Marin Solar, Inc., Roy Phillips, Jan Phillips and Real Goods Marin, Inc. This
transaction was not subject to the registration requirements of the Securities Act pursuant to the exemption provided by Section 4(2) thereof, as a transaction by an issuer not involving a public offering.
During January 2008, Gaiam contributed to us our business assets and operations in exchange for 10,000,000 shares of our Class B common stock. This transaction was not subject to
the registration requirements of the Securities Act pursuant to the exemption provided by Section 4(2) thereof, as a transaction by an issuer not involving a public offering.
During January 2008, we granted to Carlson Solar warrants to purchase 30,000 shares of our Class A common stock at an exercise price of $3.20 per share, pursuant to the Asset Purchase Agreement among Carlson Solar, Mary
Carlson, Scott Carlson, Brittany Carlson, Brandon Carlson and Real Goods Carlson, Inc. This transaction was not subject to the registration requirements of the Securities Act pursuant to the exemption provided by Section 4(2) thereof, as a
transaction by an issuer not involving a public offering.
Effective July 30, 2007, Gaiam’s then wholly owned subsidiary Gaiam Energy Tech, Inc.
(“GETI”) made the following option grants, which were approved by Gaiam’s board of directors: to John Schaeffer an option to acquire 270,000 shares of GETI at an exercise price of $0.20 per share, and to Chris Maxwell an option to
acquire 30,000 shares of GETI, at an exercise price of $0.20 per share. The GETI option agreements provided that if Gaiam were to effect a reorganization by which a new entity became the parent of GETI, then upon approval of GETI’s board of
directors the options would be converted into options of such new parent entity. Following our incorporation GETI became our wholly owned subsidiary, and on January 31, 2008 we made the following option grants: to John Schaeffer an option to acquire
270,000 shares of our Class A common stock at an exercise price of $3.20 per share, and to Chris Maxwell an option to acquire 30,000 shares of our Class A common stock at an exercise price of $3.20 per share. These transactions were not
subject to the registration requirements of the Securities Act pursuant to the exemption provided by Section 4(2) thereof, as a transaction by an issuer not involving a public offering.
We did not pay or give, directly or indirectly, any commission or other remuneration, including underwriting discounts or commissions, in connection with any of the issuances of
securities listed above. In addition, each of the warrant and share certificates issued in the transactions listed above bears a restrictive legend permitting the transfer thereof only in compliance with applicable securities laws. The recipients of
securities in each of these transactions listed above represented to us their intention to acquire the securities for investment only and not with view to or for sale in connection with any distribution thereof. All recipients had adequate access,
through their relationship with us or through other access to information provided by us, to information about us.
II-2
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
|
|
|
|
|
Exhibit
No.
|
|
Description
|
|
1.1
|
|
Underwriting Agreement *
|
|
|
|
|
3.1
|
|
Articles of Incorporation of Real Goods
|
|
|
|
|
3.2
|
|
Bylaws of Real Goods
|
|
|
|
|
4.1
|
|
Form of Real Goods Class A Common Stock Certificate *
|
|
|
|
|
5.1
|
|
Opinion of Bartlit Beck Herman Palenchar & Scott LLP
|
|
|
|
|
10.1
|
|
Real Goods 2008 Long-Term Incentive Plan †
|
|
|
|
|
10.2
|
|
Form of Real Goods Solar, Inc. Employee Stock Option Agreement †
|
|
|
|
|
10.3
|
|
Stock Purchase Agreement by and among Marin Solar, Inc., Roy Phillips, Jan Phillips and Real Goods Marin, Inc.
¨
|
|
|
|
|
10.4
|
|
Asset Purchase Agreement among Carlson Solar, Mary Carlson, Scott Carlson, Brittany Carlson, Brandon Carlson and Real Goods Carlson, Inc.
¨
|
|
|
|
|
10.5
|
|
Registration Rights Agreement
|
|
|
|
|
10.6
|
|
Intercorporate Services Agreement *
|
|
|
|
|
10.7
|
|
Tax Sharing and Indemnification Agreement *
|
|
|
|
|
21.1
|
|
Subsidiaries of the Registrant **
|
|
|
|
|
23.1
|
|
Consent of Bartlit Beck Herman Palenchar & Scott LLP (included in Exhibit 5.1)
|
|
|
|
|
23.2
|
|
Consent of Ehrhardt Keefe Steiner & Hottman PC
|
|
|
|
|
24.1
|
|
Power of Attorney (included on the signature page to this Registration Statement)
|
|
*
|
To be filed by amendment.
|
|
†
|
Indicates management contract or compensatory plan or arrangement.
|
|
¨
|
Certain portions have been omitted pursuant to a request for confidential treatment and have been filed separately with the SEC.
|
II-3
(b) Financial Statement Schedules.
All schedules have been omitted because they are not required or are not applicable or the required
information is shown in the financial statements or notes thereto.
Item 17. Undertakings
|
|
(1)
|
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the
provisions described in Item 14 above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
|
|
|
(2)
|
The undersigned registrant hereby undertakes that:
|
(a) For purposes of
determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial
bona fide
offering thereof.
|
|
(3)
|
The undersigned hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as
required by the underwriters to permit prompt delivery to each purchaser.
|
II-4
Signatures
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Broomfield, State of Colorado, on March 28, 2008.
|
|
|
|
|
REAL GOODS SOLAR, INC.
|
|
|
|
|
By:
|
|
/s/ J
IRKA
R
YSAVY
|
|
|
|
Jirka Rysavy,
|
|
|
|
Chairman
|
Power of attorney
In accordance with the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates stated. Each person whose signature appears below
constitutes and appoints Jirka Rysavy and Vilia Valentine and each of them severally, as his or her true and lawful attorney-in-fact and agent, each acting along with full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) and exhibits to the registration statement on Form S-1, and to any registration statement filed under SEC Rule 462, and to file the
same, with all exhibits thereto, and all documents in connection therewith, with the SEC, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/
S
/ J
IRKA
R
YSAVY
|
|
Jirka Rysavy, Chairman
|
|
March 28, 2008
|
|
|
|
|
|
/
S
/ J
OHN
S
CHAEFFER
*
|
|
John Schaeffer, Chief Executive Officer and Director (Principal Executive Officer)
|
|
March 28, 2008
|
|
|
|
|
|
/
S
/ V
ILIA
V
ALENTINE
|
|
Vilia Valentine, Chief Financial Officer (Principal Financial and Accounting Officer)
|
|
March 28, 2008
|
|
|
|
|
|
/
S
/ J
AMES
A
RGYROPOULOS
*
|
|
James Argyropoulos, Director
|
|
March 28, 2008
|
|
|
|
|
|
/
S
/ B
ARBARA
M
OWRY
*
|
|
Barbara Mowry, Director
|
|
March 28, 2008
|
|
|
|
|
|
/
S
/ T
ED
N
ARK
*
|
|
Ted Nark, Director
|
|
March 28, 2008
|
|
|
|
|
|
*B
Y
: /
S
/ J
IRKA
R
YSAVY
Jirka Rysavy, Attorney-in-fact
|
|
|
|
|
II-5
Index to exhibits
|
|
|
|
|
Exhibit
No.
|
|
Description
|
|
1.1
|
|
Underwriting Agreement *
|
|
|
|
|
3.1
|
|
Articles of Incorporation of Real Goods
|
|
|
|
|
3.2
|
|
Bylaws of Real Goods
|
|
|
|
|
4.1
|
|
Form of Real Goods Class A Common Stock Certificate *
|
|
|
|
|
5.1
|
|
Opinion of Bartlit Beck Herman Palenchar & Scott LLP
|
|
|
|
|
10.1
|
|
Real Goods 2008 Long-Term Incentive Plan †
|
|
|
|
|
10.2
|
|
Form of Real Goods Solar, Inc. Employee Stock Option Agreement †
|
|
|
|
|
10.3
|
|
Stock Purchase Agreement by and among Marin Solar, Inc., Roy Phillips, Jan Phillips and Real Goods Marin, Inc.
¨
|
|
|
|
|
10.4
|
|
Asset Purchase Agreement among Carlson Solar, Mary Carlson, Scott Carlson, Brittany Carlson, Brandon Carlson and Real Goods Carlson, Inc.
¨
|
|
|
|
|
10.5
|
|
Registration Rights Agreement
|
|
|
|
|
10.6
|
|
Intercorporate Services Agreement *
|
|
|
|
|
10.7
|
|
Tax Sharing and Indemnification Agreement*
|
|
|
|
|
21.1
|
|
Subsidiaries of the Registrant**
|
|
|
|
|
23.1
|
|
Consent of Bartlit Beck Herman Palenchar & Scott LLP (included in Exhibit 5.1)
|
|
|
|
|
23.2
|
|
Consent of Ehrhardt Keefe Steiner & Hottman PC
|
|
|
|
|
24.1
|
|
Power of Attorney (included on the signature page to this Registration Statement)
|
|
*
|
To be filed by amendment.
|
|
†
|
Indicates management contract or compensatory plan or arrangement.
|
|
¨
|
Certain portions have been omitted pursuant to a request for confidential treatment and have been filed separately with the SEC.
|
II-6
Exhibit 3.1
A
RTICLES
OF
I
NCORPORATION
OF
R
EAL
G
OODS
S
OLAR
, I
NC
.
ARTICLE I
NAME
The name of the Corporation shall be Real Goods Solar, Inc.
ARTICLE II
CORPORATE PURPOSE
The nature of the business of the Corporation and the objects and purpose to be transacted, promoted, and carried on by it are to engage generally in any lawful business.
ARTICLE III
DURATION
The Corporation shall have perpetual existence.
ARTICLE IV
SHARES OF STOCK
A.
Authorized Capital Stock
. The aggregate number of shares that the Corporation shall have authority to issue is two hundred fifty million (250,000,000), consisting of one hundred fifty million (150,000,000) shares of
Class A Common Stock, par value $.0001 per share, fifty million (50,000,000) shares of Class B Common Stock, par value $.0001 per share, and fifty million (50,000,000) shares of Preferred Stock, par value $.0001 per share (the
“Preferred Stock”). The Class A Common Stock and Class B Common Stock are sometimes referred to in these Articles as the “Common Stock”. References to these “Articles” shall be understood to mean these Articles of
Incorporation as set forth herein and as amended from time to time hereafter in accordance with the provisions of these Articles and of applicable law.
B.
Preemptive Rights
. Unless subsequently granted by the Board of Directors, shareholders of the Common Stock of the Corporation shall not have the preemptive right to acquire unissued shares or securities
convertible into such shares or carrying a right to subscribe to or acquire shares. Such provisions shall apply to both shares outstanding and to newly issued shares.
C.
Dividends
. No dividends or any other distribution may be paid or declared or set aside for Class B Common Stock unless an equal amount is paid or declared or set aside for the Class A Common Stock, and
no dividends or any other distribution may be paid or declared or set aside for Class A Common Stock unless an equal amount is paid or declared or set aside for the Class B Common Stock. In the case
of dividends or other distributions payable in Common Stock of the Corporation or any of its subsidiaries, such distributions or dividends shall be in the
same proportion with respect to each class of Common Stock, but only shares of Class A Common Stock (or common stock of a subsidiary which shall be identical in all material respects to Class A Common Stock) shall be distributed with
respect to Class A Common Stock and only shares of Class B Common Stock (or common stock of a subsidiary which shall be identical in all material respects to Class B Common Stock) shall be distributed with respect to Class B Common Stock. In
the case of any combination or reclassification of Class A Common Stock, the shares of Class B Common Stock shall also be combined or reclassified so that the relationship between the number of shares of Class B Common Stock and Class A
Common Stock outstanding immediately following such combination or reclassification shall be the same as the relationship between the Class B Common Stock and the Class A Common Stock immediately prior to such combination or reclassification.
D.
Voting
. Each holder of Class A Common Stock shall have one (1) vote on all matters submitted to shareholders for each
share of Class A Common Stock standing in the name of such holder on the books of the Corporation. Each holder of Class B Common Stock shall have ten (10) votes on all matters submitted to shareholders for each share of Class B Common
Stock standing in the name of such holder on the books of the Corporation. Except as otherwise provided in these Articles or as otherwise provided by law, all shares of Common Stock of the Corporation entitled to vote shall vote as a single group on
all matters submitted to the shareholders. Following the initial issuance of shares of Class B Common Stock, the Corporation may not issue any additional shares of Class B Common Stock (except in connection with stock splits and stock dividends) and
the provisions of these Articles relating to the rights of the Class B Common Stock may not be amended unless and until such action is authorized by the holders of a majority of the voting power of the shares of Class A Common Stock and of
Class B Common Stock entitled to vote, each voting separately as a class. In the election of directors, cumulative voting shall not be allowed.
E.
Quorum and Voting Requirements
. At all meetings of the shareholders, the holders of a majority of the votes eligible to be cast shall constitute a quorum. If a quorum is present, the affirmative vote of a majority of the votes
eligible to be cast on the subject matter shall be the act of the shareholders unless the vote of a greater number or voting by groups is required by the Colorado Business Corporation Act or these Articles. Any action required or permitted by
Articles 101 to 117 of the Colorado Business Corporation Act to be taken at a shareholders’ meeting may be taken without a meeting if shareholders holding shares having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all of the shares entitled to vote thereon were present and voted consent to such action in writing.
F.
Liquidation
. In the event of either an involuntary or a voluntary liquidation or dissolution of the Corporation, the holders of Class A and Class B Common Stock shall share ratably all assets and
surplus funds of the Corporation available for distribution to the holders of Common Stock.
G.
Provisions Relating to Transfer of the
Class B Common Stock
.
1.
Permitted Transfers
. The holder of record of Class B Common Stock (a “Class B
Holder”) may transfer all or any part of the shares of Class B Common Stock held by it provided, that the Corporation shall not effect such transfer unless the Class B Holder shall have elected in writing either (i) to transfer such shares
as shares of Class B Common Stock or (ii) to convert such shares into shares of Class A Common Stock
2
simultaneously with such transfer in accordance with the terms of Section H of this Article IV. No change in control, merger, consolidation, reorganization
or similar transaction affecting a Class B Holder that is a corporation or partnership shall be deemed to be a transfer of the shares of Class B Common Stock.
2.
Pledge
. A Class B Holder may pledge such holder’s shares of Class B Common Stock to a pledgee pursuant to a bona fide
pledge of such shares as collateral security for indebtedness due to the pledgee, provided that such shares shall not be transferred to or registered in the name of the pledgee and shall remain subject to the provisions of this Section G. In the
event of foreclosure or other similar action by the pledgee, such pledged shares of Class B Common Stock may only be transferred pursuant to the terms of Section G(1) hereof.
3.
Record Holder
. Shares of Class B Common Stock shall not be registered in “street” or “nominee” name. The
Corporation shall note on the certificates for shares of Class B Common Stock the restrictions on transfer imposed by this Section G.
H.
Conversion Rights
. Subject to the terms and conditions of this Section H, each share of Class B Common Stock shall be convertible at any time or from time to time at the option of a Class B Holder into one (1) share of Class A
Common Stock. At any time when the holders of a majority of the outstanding shares of Class B Common Stock approve the conversion of all or part of the Class B Common Stock into Class A Common Stock, then each outstanding share of Class B
Common Stock designated for conversion shall be converted into one (1) share of Class A Common Stock as of the close of business on the date approved by the holders of a majority of the outstanding shares of Class B Common Stock.
1.
Conversion Procedure
. A Class B Holder desiring conversion shall (a) surrender the certificate or
certificates evidencing the Class B Common Stock being converted, duly endorsed by such Class B Holder to the Corporation or in blank or accompanied by proper instruments of transfer to the Corporation, and (b) give written notice to the
Corporation that such Class B Holder elects to convert such Class B Holder’s Class B Common Stock. As soon as practicable after receipt of such notice and deposit of such certificate, the Corporation shall issue and deliver to the converting
Class B Holder a certificate or certificates, or evidence of uncertificated shares, for the number of full shares of Class A Common Stock to which the Class B Holder shall be entitled pursuant to this Section H. Such conversion shall be deemed
to have been made as of the close of business on the date upon which the Corporation receives such notice and deposit, and the person or persons entitled to receive the Class A Common Stock issuable upon conversion of such Class B Common Stock
shall be treated for all purposes as the record holder or holders of such Class A Common Stock as of the close of business on such date.
2.
Reservation of Class A Common Stock
. The Corporation shall at all times reserve and keep available, solely for the purpose of issuing Class A Common Stock upon conversion of the outstanding shares
of Class B Common Stock, such number of shares of Class A Common Stock as shall be issuable upon the conversion of all such outstanding shares of Class B Common Stock. All shares of Class A Common Stock which shall be issued upon
conversion of the shares of Class B Common Stock, will, upon issuance, be fully paid and nonassessable. All shares of Class B Common Stock converted into Class A Common Stock shall be cancelled and restored to the status of authorized but
unissued shares of Class B Common Stock.
3
I.
Preferred Stock
. The Board of Directors is expressly authorized, at any time and from time to
time, to provide for the issuance of shares of Preferred Stock in one or more series or classes, with such designations, preferences, limitations and relative rights as shall be expressed in articles of amendment to these Articles, which shall be
adopted by the Board of Directors and shall be effective without shareholder action, as provided in Section 7-106-102 of the Colorado Business Corporation Act; provided, however, that the Board of Directors shall not issue or authorize any
voting Preferred Stock without the consent or approval of a majority of the Class B Common Stock.
ARTICLE V
DIRECTORS
The number of persons constituting
the Board of Directors of the Corporation shall be fixed by the Bylaws of the Corporation. Directors need not be residents of the State of Colorado or shareholders of the Corporation and shall exercise all the powers conferred on the Corporation by
these Articles and by the laws of the State of Colorado.
ARTICLE VI
INDEMNIFICATION
The Corporation shall indemnify its directors and officers to the
fullest extent authorized or permitted by law, as now or hereafter in effect, and such right to indemnification shall continue as to a person who has ceased to be a director or officer of the Corporation and shall inure to the benefit of his or her
heirs, executors and personal and legal representatives; provided, however, that except for proceedings to enforce rights to indemnification, the Corporation shall not be obligated to indemnify any director or officer (or his or her heirs, executors
or personal or legal representatives ) in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors or the shareholders representing a
majority of the Common Stock. The right to indemnification conferred by this Article VI shall include the right to be paid by the Corporation the expenses incurred in defending or otherwise participating in any proceeding in advance of its final
disposition.
The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification
and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article to the directors and officers of the Corporation.
The rights to indemnification and to the advance of expenses conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under these Articles, the Bylaws of the
Corporation, any statute, agreement, vote of shareholders or disinterested directors or otherwise.
Any repeal or modification of this
Article by the shareholders of the Corporation shall not adversely affect any rights to indemnification and to the advancement of expenses of a director or officer of the Corporation existing at the time of such repeal or modification with respect
to any acts or omissions occurring prior to such repeal or modification.
4
ARTICLE VII
LIMITATION ON DIRECTOR’S LIABILITY
A director’s personal liability to the Corporation or its
shareholders is limited to the fullest extent permitted by the Colorado Business Corporation Act, as amended from time to time. Any limitation on liability in effect prior to the date of these Articles shall remain in full force and effect. Any
repeal or modification of this Article VII shall not adversely affect any right or protection of a director hereunder existing at the time of such repeal or modification.
ARTICLE VIII
OFFICES
A.
Registered Agent
. The street address of the initial registered office of the Corporation is 1560 Broadway, Denver, Colorado 80202. The name of
its initial registered agent at such address is Corporation Service Company.
B.
Principal Office
. The address of the
Corporation’s initial principal office is 360 Interlocken Boulevard, Broomfield, Colorado 80021.
ARTICLE IX
INCORPORATOR
The name and mailing address of
the sole incorporator and the individual causing these Articles to be delivered for filing are Thomas R. Stephens, 1899 Wynkoop Street, Suite 800, Denver, Colorado 80202.
5
Exhibit 3.2
REAL GOODS SOLAR, INC.
BYLAWS
ARTICLE I
Offices and Agents
1.
Principal Office
. The principal office of the Corporation shall be located in Broomfield, Colorado, or elsewhere within or without the State of
Colorado, as may be subsequently designated by the Board of Directors. The Corporation may have other offices and places of business at such places within or without the State of Colorado as shall be determined by the directors or as the business of
the Corporation may require from time to time.
2.
Registered Office
. The registered office of the Corporation required by the
Colorado Business Corporation Act must be continually maintained in the State of Colorado, and it may be, but need not be, identical with the principal office, if located in the State of Colorado. The address of the registered office of the
Corporation may be changed from time to time as provided by the Colorado Business Corporation Act.
3.
Registered Agent
. The
Corporation shall maintain a registered agent in the State of Colorado as required by the Colorado Business Corporation Act. Such registered agent may be changed from time to time as provided by the Colorado Business Corporation Act.
ARTICLE II
Shareholders Meetings
1.
Annual Meetings
. The annual meeting of the shareholders shall be held for the purpose of electing directors and transacting
such other corporate business as may come before the meeting. The date, time and place of the annual meeting shall be determined by resolution of the Board of Directors. If the election of directors is not held as provided herein at any annual
meeting of the shareholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the shareholders as soon thereafter as it may conveniently be held.
2.
Special Meetings
. Unless otherwise prescribed by the Colorado Business Corporation Act, special meetings of the shareholders of the Corporation
may be called at any time by the chairman of the Board of Directors, by the chief executive officer, by the president, by resolution of the Board of Directors or upon receipt of one or more written demands for a meeting, stating the purpose or
purposes for which it is to be held, signed and dated by the holders of at least ten percent (10%) of all votes entitled to be cast on any issue proposed to be considered at the meeting. Notice of a special meeting shall include a description
of the purpose or purposes for which the meeting is called.
3.
Place of Meeting
. The annual meeting of the shareholders of the
Corporation may be held at any place, either within or without the State of Colorado, as may be designated by the
Board of Directors. Except as limited by the following sentence, the person or persons calling any special meeting of the shareholders may designate any
place, within or without the State of Colorado, as the place for the meeting. If no designation is made or if a special meeting shall be called other than by the Board of Directors, the chairman of the Board of Directors, the chief executive officer
or the president, the place of meeting shall be the principal office of the Corporation.
4.
Notice of Meeting
. Except as otherwise
provided in these Bylaws or by the Colorado Business Corporation Act, notice stating the date, time and place of the meeting shall be given no fewer than ten (10) and no more than sixty (60) days before the date of the meeting, except that
if the number of authorized shares is to be increased, at least thirty (30) days’ notice shall be given. Notice shall be given personally or by mail, private carrier, telephone (if reasonable under the circumstances), telegraph, teletype,
electronically transmitted facsimile or other form of wire or wireless communication by or at the direction of the chief executive officer, the president, the secretary, or the officer or other person calling the meeting to each shareholder of
record entitled to vote at such meeting. If mailed and if in a comprehensible form, such notice shall be deemed to be given and effective when deposited in the United States mail, addressed to the shareholder at his or her address as it appears in
the Corporation’s current record of shareholders, with postage prepaid. If notice is given other than by mail, and provided that the notice is in comprehensible form, the notice is given and effective on the date received by the shareholder. No
notice need be sent to any shareholder if three successive notices mailed to the last known address of such shareholder have been returned as undeliverable until such time as another address for such shareholder is made known to the Corporation by
such shareholder.
When a meeting is adjourned to a different date, time or place, notice need not be given of the new date, time or place
if the new date, time or place is announced at the meeting before adjournment. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 120
days, or if a new record date is fixed for the adjourned meeting, a new notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting as of the new record date.
5.
Fixing of Record Date
. The Board of Directors of the Corporation may provide that the stock transfer books shall be closed for a stated period,
but not to exceed, in any case, fifty (50) days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders such books shall be closed for at least ten
(10) days immediately preceding said meeting. The Board of Directors may fix in advance a date as the record date for the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment
thereof, or shareholders entitled to receive payment of any dividend or in order to make a determination of shareholders for any other proper purpose, such date in any case to be not more than seventy (70) days before the meeting or action
requiring a determination of shareholders. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders or shareholders entitled to receive payment of a dividend, the date on which
notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders.
2
When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section such determination shall apply
to any adjournment thereof.
Notwithstanding the foregoing, the record date for determining the shareholders entitled to take action
without a meeting or entitled to be given notice of action so taken shall be the date a writing upon which the action is taken is first received by the Corporation. The record date for determining shareholders entitled to demand a special meeting
shall be the date of the earliest of the demands pursuant to which the meeting is called.
6.
Shareholders List
. The officer or
agent having charge of the stock transfer books for share of the Corporation shall make, at least ten (10) days before each meeting of shareholders, or two business days after notice of the meeting is given and continuing through the meeting
and any adjournment thereof, a complete list of the shareholders entitled to vote at such meeting (or any adjournment thereof) arranged in alphabetical order by voting groups and within each voting group by class or series, with the address of and
the number of shares held by each, which list shall be kept on file at the principal office of the Corporation or at a place identified in the notice of the meeting in the city where the meeting will be held. A shareholder, his agent or attorney
shall be entitled upon written demand to inspect and copy the list during regular business hours, during the period it is available for inspection, provided, (i) the shareholder has been a shareholder for at least three (3) months
immediately preceding the demand or holds at least five percent (5%) of all outstanding shares of any class of shares as of the date of the demand, (ii) the demand is made in good faith and for a purpose reasonably related to the demanding
shareholder’s interest as a shareholder, (iii) the shareholder describes with reasonable particularity the purpose and records the shareholder desires to inspect, (iv) the records are directly connected with the described purpose and
(v) the shareholder pays a reasonable charge covering the costs of labor and material for such copies, not to exceed the cost of production and reproduction. Such list shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholder for any purpose germane to the meeting during the whole time of the meeting. The original stock transfer books shall be prima facie evidence as to who are the shareholders entitled to examine
such list or transfer books or to vote at any meeting of shareholders.
7.
Meeting Business and Notice of Business
. At any meeting
of the shareholders of the Corporation, only such proper business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the Board of Directors or (ii) by any shareholder of the Corporation
(A) who is a shareholder of record at the time of giving of the notice provided for in this Section 7, (B) who shall be entitled to vote at such meeting, (C) who complies with the requirements set forth in this Section 7,
including without limitation with respect to business subject matter and notices, (D) as to matters sought to be included in the proxy statement of the Corporation, who complies with Rule 14a-8 under the Securities Exchange Act of 1934, as
amended, and (E) who complies with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
Shareholders of the Corporation may only bring business before a meeting of the shareholders of the Corporation which involves a matter on which a shareholder vote is required by the Articles of Incorporation, these
Bylaws, the Colorado Business Corporation Act or by other applicable law.
For business to be brought before a meeting of shareholders by a
shareholder, the shareholder shall have given timely notice thereof in writing to the secretary of the Corporation containing the information set forth below. To be timely, a shareholder’s notice shall be delivered to or mailed and received at
the principal executive office of the Corporation (i) in the case of the second and subsequent annual meetings of the Corporation’s shareholders following the first annual meeting of shareholders for which the Corporation distributes proxy
materials (other than an annual meeting in which the date of the meeting has been changed by more than 30 days from the prior year), not less than 45 nor more than 70 days before the date on which the Corporation first distributed its proxy
materials for the prior year’s annual meeting of shareholders, or (ii) in the case of any other meeting of the Corporation’s
3
shareholders, not less than 50 nor more than 75 days prior to the meeting; provided, however, that in the event that less than 60 days’ notice or prior
public disclosure (which shall include disclosure included within any filing by the Corporation with the Securities and Exchange Commission) of the date of such other meeting is given or made to shareholders, notice by the shareholder to be timely
must be so received not later than the close of business on the tenth day following the day on which such notice of the date of such other meeting was distributed or such public disclosure was made, whichever first occurs. Such shareholder’s
notice to the secretary of the Corporation shall set forth as to each matter the shareholder proposes to bring before the meeting: (i) a brief description of the business desired to be brought before the meeting, (ii) the reasons for
conducting such business at the meeting, (iii) in the event that such business includes a proposal to amend any document, including these Bylaws, the language of the proposed amendment, (iv) the section of the Articles of Incorporation,
these Bylaws, the Colorado Business Corporation Act or other applicable law which requires a vote of shareholders on each business matter identified, (v) the name and address, as they appear on the Corporation’s books, of the shareholder
proposing such business, (vi) the class and number of shares of capital stock of the Corporation which are beneficially owned by such shareholder and (vii) any material interest of such shareholder in such business. Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted at a meeting of the shareholders except in accordance with the procedures set forth in this Section 7. The chairman of the meeting of shareholders shall, if the facts
warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of these Bylaws, and if he or she should so determine and declare any such business not properly brought
before the meeting shall not be transacted.
8.
Proxies
. At all meetings of shareholders, a shareholder may vote in person or by
proxy by signing an appointment form either personally or by his duly authorized attorney-in-fact. A shareholder may also appoint a proxy by transmitting or authorizing the transmission of an electronic transmission providing a written statement of
the appointment to the proxy, to a proxy solicitor, proxy support service organization or other person duly authorized by the proxy to receive appointments as agent for the proxy, or to the Corporation. The transmitted appointment shall set forth or
be transmitted with written evidence from which it can be determined that the shareholder transmitted or authorized the transmission of the appointment. The proxy appointment form shall be filed with the secretary of the Corporation by or at the
time of the meeting. The appointment of a proxy is effective when received by the Corporation and is valid for eleven (11) months unless a different period is expressly provided in the appointment form.
Any complete copy, including an electronically transmitted facsimile, of an appointment of a proxy may be substituted for or used in lieu of the original
appointment for any purpose for which the original appointment could be used.
An appointment of a proxy is revocable by the shareholder
unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest. Revocation of a proxy does not affect the right of the Corporation to accept the proxy’s appointment unless (i) the
Corporation had notice that the appointment was coupled with an interest and notice that the interest is extinguished is received by the secretary or other officer or
4
agent authorized to tabulate votes before the proxy exercises his authority under the appointment or (ii) other notice of the revocation of the
appointment is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises his authority under the appointment. Other notice of revocation may, in the discretion of the Corporation, be deemed to
include the appearance at a shareholders meeting of the shareholder who granted the proxy appointment and his voting in person on any matter subject to a vote at such meeting.
The death or incapacity of the shareholder appointing a proxy does not affect the right of the Corporation to accept the proxy’s authority unless
notice of the death or incapacity is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises his authority under the appointment.
The Corporation shall not be required to recognize an appointment made irrevocable if it has received a writing revoking the appointment signed by the
shareholder either personally or by the shareholder’s attorney-in-fact, notwithstanding that the revocation may be a breach of an obligation of the shareholder to another person not to revoke the appointment.
A transferee for value of shares subject to an irrevocable appointment may revoke the appointment as provided in the Colorado Business Corporation Act.
Subject to the provisions of this Article II, Section 10 below or any express limitation on the proxy’s authority appearing on
the appointment form, the Corporation is entitled to accept the proxy’s vote or other action as that of the shareholder making the appointment.
9.
Voting Rights
. Except as otherwise provided in the Articles of Incorporation, each outstanding share, regardless of class, shall be entitled to one vote and each fractional share is entitled to a
corresponding fractional vote on each matter submitted to a vote at a meeting of shareholders.
At each election for directors every
shareholder of record entitled to vote at such election shall have the right to vote in person or by proxy the number of votes to which such shareholder is entitled for as many persons as there are directors to be elected and for whose election he
has a right to vote. Cumulative voting shall not be permitted for any purpose.
Shares held by another corporation, if the majority of
shares entitled to vote for the election of directors of such other corporation are held by the Corporation, shall not be voted at any meeting or counted in determining the total number of outstanding shares entitled to vote at any given time.
Except as provided in the preceding sentence, shares standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the Bylaws of such corporation may prescribe or, in the absence of such provision,
as the Board of Directors of such corporation may determine, or in the absence of such determination, by the chief executive officer of such corporation.
If shares having voting power stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two or
more persons have the same fiduciary relationship respecting the same shares, voting with respect to the shares shall have the following effect: (i) if only one
5
person votes, his act binds all; (ii) if two or more persons vote, but the vote is evenly split on any particular matter, each faction may vote the
shares in question proportionately, or any person voting the shares of a beneficiary, if any, may apply to any court of competent jurisdiction in the State of Colorado to appoint an additional person to act with the persons voting the shares. The
shares shall then be voted as determined by a majority of such persons and the person appointed by the court. If a tenancy is held in unequal interests, a majority or even split for the purpose of this subsection shall be a majority or even split in
interest, except that the effects of voting stated above shall not be applicable if the secretary of the Corporation is given written notice of alternative voting provisions and is furnished with a copy of the instrument or order wherein the
alternate voting provisions are stated.
Shares held by an administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such
shares into his name.
Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of
a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed.
10.
Corporation’s Acceptance of Votes
. If the name signed on a vote, consent, waiver, proxy appointment, or proxy appointment revocation
corresponds to the name of a shareholder, the Corporation, if acting in good faith, is entitled to accept the vote, consent, waiver, proxy appointment, or proxy appointment revocation and to give it effect as the act of the shareholder. If the name
signed on a vote, consent, waiver, proxy appointment, or proxy appointment revocation does not correspond to the name of a shareholder, the Corporation, if acting in good faith, is nevertheless entitled to accept the vote, consent, waiver, proxy
appointment, or proxy appointment revocation and to give it effect as the act of the shareholder if:
(a) The shareholder is an entity and
the name signed purports to be that of an officer or agent of the entity;
(b) The name signed purports to be that of an administrator,
executor, guardian, or conservator representing the shareholder and, if the Corporation requests, evidence of fiduciary status acceptable to the Corporation has been presented with respect to the vote, consent, waiver, proxy appointment or proxy
appointment revocation;
(c) The name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the
Corporation requests, evidence of this status acceptable to the Corporation has been presented with respect to the vote, consent, waiver, proxy appointment or proxy appointment revocation;
(d) The name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the Corporation requests, evidence
acceptable to the Corporation of the signatory’s authority to sign for the shareholder has been presented with respect to the vote, consent, waiver, proxy appointment or proxy appointment revocation;
6
(e) Two or more persons are the shareholder as co-tenants or fiduciaries and the name signed purports to
be the name of at least one of the co-tenants or fiduciaries and the person signing appears to be acting on behalf of all the co-tenants or fiduciaries; or
(f) The acceptance of the vote, consent, waiver, proxy appointment or proxy appointment revocation is otherwise proper under rules established by the Corporation that are not inconsistent with the provisions of this
Section 10.
The Corporation is entitled to reject a vote, consent, waiver, proxy appointment, or proxy appointment revocation if the
secretary or other officer or agent authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory’s authority to sign for the shareholder.
The Corporation and its officer or agent who accepts or rejects a vote, consent, waiver, proxy appointment or proxy appointment revocation in good faith
and in accordance with the standards of this Section 10 are not liable in damages for the consequences of the acceptance or rejection.
11.
Quorum and Voting Requirements for Voting Groups
. The provisions of Section 7-107-206 of the Colorado Business Corporation Act shall govern quorums and other voting requirements for shareholders.
12.
Adjournments
. If less than a quorum of shares entitled to vote is represented at any meeting of the shareholders, a majority of the shares so
represented may adjourn the meeting from time to time without further notice, for a period not to exceed one hundred twenty (120) days at any one adjournment. At such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as originally notified. Any meeting of the shareholders may adjourn from time to time until its business is completed.
13.
Action by Shareholders Without Meeting
. Any action required or permitted by Articles 101 to 117 of the Colorado Business Corporation Act to be
taken at a shareholders’ meeting may be taken without a meeting if shareholders holding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all of the shares
entitled to vote thereon were present and voted consent to such action in writing. Notice of any such action taken by written consent shall be given to all shareholders who were entitled to vote thereon but who have not consented thereto.
14.
Meetings by Telecommunication
. Any or all of the shareholders may participate in an annual or special shareholders’
meeting by, or the meeting may be conducted through the use of, any means of communication by which all persons participating in the meeting may hear each other during the meeting. A shareholder participating in a meeting by this means is deemed to
be present in person at the meeting.
7
ARTICLE III
Board of Directors
1.
Number, Qualifications and Term of Office
. Except as otherwise
provided in the Articles of Incorporation or the Colorado Business Corporation Act, the business and affairs of the Corporation shall be managed by a Board of Directors, consisting of a number of directors set by the Board of Directors. Each
director shall be a natural person of the age of eighteen years or older, but does not need to be a resident of the State of Colorado or a shareholder of the Corporation. The Board of Directors, by resolution, may increase or decrease the number of
directors from time to time. Except as otherwise provided in these Bylaws, each director shall be elected at each annual meeting of shareholders and shall hold such office until the next annual meeting of shareholders and until his successor shall
be elected and shall qualify. No decrease in the number of directors shall have the effect of shortening the term of any incumbent director.
2.
Performance of Duties
. Pursuant to the provisions of the Colorado Business Corporation Act, a director shall perform his duties as a director, including his duties as a member of any committee of the Board of Directors upon which
he may serve, in good faith, in a manner he reasonably believes to be in the best interests of the Corporation, and with such care as an ordinarily prudent person in a like position would use under similar circumstances.
3.
Vacancies
. Any director may resign at any time by giving written notice to the chairman of the Board of Directors and to the chief executive
officer, president or secretary of the Corporation. A resignation of a director is effective when the notice is received by the Corporation unless the notice specifies a later effective date. Unless otherwise specified in the notice, the acceptance
of such resignation by the Corporation shall not be necessary to make it effective. Any vacancy on the Board of Directors may be filled by the affirmative vote of a majority of the remaining Board of Directors even if less than a quorum is remaining
in office. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Any directorship to be filled by reason of an increase in the number of directors shall be filled by the affirmative vote of a
majority of the directors then in office or by an election at an annual meeting or special meeting of shareholders called for that purpose. A director elected to fill a position resulting from an increase in the number of directors shall hold office
until the next annual meeting of shareholders and until his or her successor has been elected and qualified.
4.
Removal
. The entire
Board of Directors or any individual director may be removed from office without assignment of cause by the holders of a majority of the votes eligible to be cast in an election of directors.
5.
Removal of Directors by Judicial Proceeding
. A director may be removed by the district court of the county where the principal office is
located or, if the Corporation has no principal office in the State of Colorado, by the district court of the county in which its registered office is located, upon a finding by the district court that the director engaged in fraudulent or dishonest
conduct or gross abuse of authority or discretion with respect to the Corporation and that removal is in the best interests of the Corporation. The judicial proceeding may be commenced either by the Corporation or by shareholders holding at least
ten percent (10%) of the outstanding shares of any class.
8
6.
Election of Directors
. Except as provided in this Section 6 of this Article and subject to
the right to elect additional directors under specified circumstances which may be granted, pursuant to the provisions of Article IV of the Articles of Incorporation of the Corporation, to the holders of any class or series of preferred stock,
directors shall be elected by a plurality of the votes cast at annual meetings of shareholders, and each director so elected shall hold office until his successor is duly elected and qualified, or until his earlier resignation or removal. Directors
need not be shareholders.
7. Nominations of Directors
. The only individuals eligible for election as a director of the Corporation
shall be individuals nominated at a meeting of shareholders (i) by or at the direction of the Board of Directors, (ii) by any nominating committee or persons appointed by the Board of Directors or (iii) by any shareholder of the
Corporation (A) who is a shareholder of record at the time of giving of the notice provided for in this Section 7, (B) who shall be entitled to vote at such meeting, (C) who complies with this Section 7, including without limitation with respect to
notices, and (D) who complies with all applicable requirements of the Securities and Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
For a shareholder to nominate an individual for election as a director of the Corporation, the shareholder shall have given timely notice thereof in
writing to the secretary of the Corporation containing the information set forth below. To be timely, a shareholder’s notice shall be delivered to or mailed and received at the principal executive office of the Corporation (i) in the case
of the second and subsequent annual meetings of the Corporation’s shareholders following the first annual meeting of shareholders for which the Corporation distributes proxy materials (other than an annual meeting in which the date of the
meeting has been changed by more than 30 days from the prior year), not less than 45 nor more than 70 days before the date on which the Corporation first distributed its proxy materials for the prior year’s annual meeting of shareholders, or
(ii) in the case of any other meeting of the Corporation’s shareholders, not less than 50 nor more than 75 days prior to the meeting; provided, however, that in the event that less than 60 days’ notice or prior public disclosure
(which shall include disclosure included within any filing by the Corporation with the Securities and Exchange Commission) of the date of such other meeting is given or made to shareholders, notice by the shareholder to be timely must be so received
not later than the close of business on the tenth day following the day on which such notice of the date of such other meeting was distributed or such public disclosure was made, whichever first occurs. Such shareholder’s notice to the
secretary of the Corporation shall set forth: (i) as to each person whom the shareholder proposes to nominate for election or reelection as a director, (A) the name, age, business address and residence address of the person, (B) the
principal occupation or employment of the person, (C) the class and number of shares of capital stock of the corporation which are beneficially owned by the person and (D) any other information relating to the person that is required to be
disclosed in solicitations for proxies for election of directors pursuant to Rule 14a under the Securities Exchange Act of 1934, as now or hereafter amended; and (ii) as to the shareholder giving the notice (A) the name and record address
of such shareholder and (B) the class and number of shares of capital stock of the Corporation which are beneficially owned by such shareholder. The Corporation may require any proposed nominee to furnish such other information as may
reasonably be required by the Corporation to determine the qualifications of such proposed nominee to serve as a director of the Corporation. Notwithstanding anything in these Bylaws to the contrary, no person shall be eligible for election by the
shareholders as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 7. The chairman of the meeting of the shareholders shall, if the facts warrant, determine and declare to the meeting that
nomination was not made in accordance with these Bylaws, and if he or she should so determine and declare, the defective nomination shall be disregarded.
9
8.
Compensation
. By resolution of the Board of Directors, any director may be paid any one or more
of the following: his expenses, if any, of attendance at meetings; a fixed sum for attendance at each meeting; a stated salary as director; or such other compensation as the Corporation and the director may reasonably agree upon. No such payment
shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
Meetings of the Board
1.
Place of Meetings
. The regular or special meetings of the Board of Directors or of any committee designated by the Board of Directors shall be held at the principal office of the Corporation or at any other place within or without
the State of Colorado that a majority of the Board of Directors or of any such committee, as the case may be, may designate from time to time by resolution.
2.
Regular Meetings
. Unless otherwise agreed to by the Board of Directors, the Board of Directors shall meet each year immediately before or after and at the same place as the annual meeting of the shareholders
for the purpose of electing officers and transacting such other business as may come before the meeting. The Board of Directors or any committee designated by the Board of Directors may provide, by resolution, for the holding of additional regular
meetings without other notice than such resolution.
3.
Special Meetings
. Special meetings of the Board of Directors or of any
committee designated by the Board of Directors may be called at any time by the chairman of the Board, if any, by the chief executive officer, or by a majority of the members of the Board of Directors or of any such committee, as the case may be.
4.
Notice of Meetings
. Notice of the regular meetings of the Board of Directors or of any committee designated by the Board of
Directors need not be given. Except as otherwise provided by these Bylaws or the laws of the State of Colorado, written notice of each special meeting of the Board of Directors or of any such committee setting forth the time and the place of the
meeting shall be given to each director not less than one (1) day prior to the date and time fixed for the meeting. Notice of any special meeting may be either personally delivered or mailed to each director at his business address, by
telephone (if reasonable under the circumstances) or by notice transmitted by electronically transmitted facsimile or other form of wire or wireless communication. If mailed, such notice shall be deemed to be given and to be effective on the earlier
of (i) three (3) days after such notice is deposited in the United States mail properly addressed, with postage prepaid, or (ii) the date shown on the return receipt if mailed by registered or certified mail return receipt requested.
If notice be given by telephone (if reasonable under the circumstances), electronically transmitted facsimile or other similar form of wire or wireless communication, such notice shall be deemed to be given and to be effective when sent. If a
director has designated in writing one or more reasonable addresses or facsimile numbers for delivery of notice to him, notice sent by mail, electronically transmitted facsimile or other form of wire or wireless communication shall not be deemed to
have been given or to be effective unless sent to such addresses or facsimile numbers, as the case may be. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in
the notice or waiver of notice of such meeting.
10
5.
Waiver of Notice
. A director may waive notice of a meeting of the Board of Directors or of any
committee designated by the Board of Directors either before, at, or after the meeting. Such waiver shall be in writing and signed by the director and delivered to the Corporation for filing with the corporate records, but such delivery and filing
shall not be a condition to the effectiveness of the waiver. Attendance or participation of a director at a meeting waives any required notice of that meeting unless at the beginning of the meeting or promptly upon the director’s arrival, the
director objects to holding the meeting or transacting business at the meeting because of lack of notice or defective notice and does not thereafter vote for or assent to action taken at the meeting, or if special notice was required of a particular
purpose pursuant to this Section 5, the director objects to transacting business with respect to the purpose for which such special notice was required and does not thereafter vote for or assent to action taken at the meeting with respect to
such purpose.
6.
Quorum
. At meetings of the Board of Directors or of any committee designated by the Board of Directors a majority
of the number of directors fixed by these Bylaws, or a majority of the members of any such committee, as the case may be, shall be necessary to constitute a quorum for the transaction of business. If the number of directors is not fixed, then a
majority of the number in office immediately before the meeting begins, shall constitute a quorum. If a quorum is present, the act of the majority of directors present shall be the act of the Board of Directors or of any such committee, as the case
may be, unless the act of a greater number is required by these Bylaws, the Articles of Incorporation or the Colorado Business Corporation Act.
7.
Presumption of Assent
. A director who is present at a meeting of the Board of Directors or a committee thereof when action is taken is deemed to have assented to the action taken unless:
(a) the director objects at the beginning of such meeting or promptly upon his arrival, to the holding of the meeting or the transacting of business at
the meeting and does not thereafter vote for or assent to any action taken at the meeting;
(b) the director contemporaneously requests
that his dissent or abstention as to any specific action taken be entered in the minutes of such meeting; or
(c) the director causes
written notice of his dissent or abstention as to any specific action to be received by the chairman of the Board, if any, or the presiding officer of such meeting before adjournment of the meeting or by the Corporation promptly after adjournment of
the meeting.
The right of dissent or abstention pursuant to this Section 7 as to a specific action is not available to a director who
votes in favor of the action taken.
8.
Committees
. The Board of Directors may, by a majority of the full Board of Directors,
designate one (1) or more of its members to constitute an executive committee and one
11
or more other committees, each of which shall have and may exercise all of the authority of the Board of Directors or such lesser authority as may be set
forth in said resolution; except that no such committee shall have the authority of the Board of Directors to: (i) declare dividends or distributions; (ii) approve or recommend to shareholders actions or proposals required to be approved
by shareholders; (iii) fill vacancies on the Board of Directors or any committee thereof; (iv) amend these Bylaws or the Articles of Incorporation; (v) approve a plan of merger not requiring shareholder approval; (vi) authorize
or approve the reacquisition of shares unless pursuant to a general formula method specified by the Board of Directors; or (vii) authorize or approve the issuance or sale of, or any contract to issue or sell shares or designate the terms of a
series of a class of shares and except that the Board of Directors, having acted regarding general authorization for the issuance or sale of shares or any contract therefor, may pursuant to a general formula or method specified by the Board of
Directors by resolution or by adoption of a stock option or other plan, authorize a committee to fix the terms of any contract for the sale of the shares and to fix the terms upon which such shares may be issued or sold, including, without
limitation, the price, the dividend rate, provisions for redemption, sinking fund, conversion, or voting or preferential rights, and provisions for other features of a class of shares or a series of a class of shares, with full power in such
committee to adopt any final resolution setting forth all terms thereof and to authorize the statement of the terms of a series for filing with the Secretary of State of the State of Colorado under the Colorado Business Corporation Act. If any such
delegation of the authority of the Board of Directors is made as provided herein, all references to the Board of Directors contained in these Bylaws, the Articles of Incorporation, the Colorado Business Corporation Act or any other applicable law or
regulation relating to the authority so delegated shall be deemed to refer to such committee.
Neither the designation of any such
committee, the delegation of authority to such committee, nor any action by such committee pursuant to its authority shall alone constitute compliance by any member of the Board of Directors, not a member of the committee in question, with his
responsibility to act in good faith, in a manner he reasonably believes to be in the best interests of the Corporation, and with such care as an ordinarily prudent person in a like position would use under similar circumstances.
9.
Action by Directors without a Meeting
. Any action required or permitted be taken at a Board of Directors’ meeting or a meeting of any
committee thereof may be taken without a meeting if all members thereof consent to such action in writing. Action is taken under this Section 9 at the time the last director signs a writing describing the action taken, unless, before such time,
a director has revoked his consent by a writing signed by the director and received by the chief executive officer and secretary. Action taken pursuant to this Section 9 has the same effect as action taken at a meeting of the directors or
committee members and may be described as such in any document.
10.
Meetings
. One or more members of the Board of Directors or any
committee designated by the Board of Directors may participate in a regular or special meeting by or conduct the meeting through the use of any means of communication by which all directors participating may hear each other during the meeting. A
director participating in a meeting by this means is deemed to be present in person at the meeting.
12
ARTICLE V
Standards of Conduct
In discharging his duties, a director or officer is entitled to rely on
information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by (i) one or more officers or employees of the Corporation whom the director or officer reasonably believes to be
reliable and competent in the matters presented, (ii) legal counsel, a public accountant, or other person as to matters which the director or officer reasonably believes to be within such persons’ professional or expert competence, or
(iii) in the case of a director, a committee of the Board of Directors of which the director is not a member if the director reasonably believes the committee merits confidence.
A director or officer is not liable as such to the Corporation or its shareholders for any action he takes or omits to take as a director or officer, as
the case may be, if, in connection with such action or omission, he performed the duties of the position in compliance with this Article V.
ARTICLE VI
Officers and Agents
1.
General
. The officers of the Corporation shall consist of a chairman of the Board, a chief executive officer, a president and a secretary and, in the discretion of the Board, a treasurer; in addition, one or
more vice presidents, and such other officers, assistant officers, agents and employees that the Board of Directors may from time to time deem necessary may be elected by the Board of Directors or be appointed in a manner prescribed by the Board.
Two or more offices may be held by the same person. Officers shall hold office until their successors are chosen and have qualified, unless they are sooner removed from office as provided in these Bylaws. All officers of the Corporation shall be
natural persons of the age of eighteen years or older. Officers of the Corporation need not be residents of the State of Colorado or directors or shareholders of the Corporation.
2.
General Duties
. All officers and agents of the Corporation, as between themselves and the Corporation, shall have such authority and shall
perform such duties in the management of the Corporation as may be provided in these Bylaws or as may be determined by resolution of the Board of Directors not inconsistent with these Bylaws. In all cases where the duties of any officer, agent or
employee are not prescribed by the Bylaws or by the Board of Directors, such officer, agent or employee shall follow the orders and instructions of the chief executive officer.
3.
Vacancies
. When a vacancy occurs in one of the executive offices by reason of death, resignation or otherwise, it shall however be filled by a
resolution of the Board of Directors. The officer so selected shall hold office until his successor is chosen and qualified.
13
4.
Salaries
. The salaries of the officers, agents and employees of the Corporation may be fixed by
the Board of Directors, or by any committee designated by the Board or, in the absence of contrary resolution or action by the Board, by the chief executive officer.
5.
Resignation
. An officer may resign at any time by giving written notice of resignation to the Corporation. A resignation of an officer is effective when the notice is received by the Corporation unless the
notice specifies a later effective date. If a resignation is made effective at a later date, the Board of Directors may permit the officer to remain in office until the effective date and may fill the pending vacancy before the effective date if the
Board of Directors provides that the successor does not take office until the effective date, or the Board of Directors may remove the officer at any time before the effective date and may fill the resulting vacancy.
6.
Removal
. Any officer, agent or employee of this Corporation may be removed with or without cause by the Board of Directors or the chief
executive officer whenever in its judgment it is in the best interests of the Corporation, without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer, agent or employee shall not, of itself,
create contract rights.
7.
Chairman of the Board
. The chairman shall preside as chairman at meetings of the shareholders and the
Board of Directors. The chairman shall, subject to the direction and supervision of the Board of Directors, be the most senior officer of the Corporation and shall have primary, general and active control of its affairs and business and general
supervision of its officers, agents and employees. The chairman shall have authority to expend Corporation funds, to incur debt on behalf of the Corporation, and to acquire and dispose of property, real and personal, tangible and intangible. The
chairman shall attend in person or by substitute appointed by him, or shall execute on behalf of the Corporation written instruments appointing a proxy or proxies to represent the Corporation at all meetings of the shareholders of any other
corporation in which the Corporation shall hold any stock. He may, on behalf of the Corporation, in person or by substitute or by proxy, execute written waivers of notice and consents with respect to any such meetings. At all such meetings and
otherwise, the chairman, in person or by substitute or by proxy as aforesaid, may vote the stock so held by the Corporation and may execute written consents and other instruments with respect to such stock and may exercise any and all rights and
powers incident to the ownership of said stock.
8.
Chief Executive Officer
. The chief executive officer shall, subject to the
direction and supervision of the chairman, be the next most senior officer of the Corporation after the chairman and shall assist the chairman, and shall perform such duties as may be assigned to him from time to time by the chairman. In the case of
the chief executive officer’s absence or inability to act the president may exercise such powers and perform such duties.
9.
President
. The president shall assist the chief executive officer, as directed by the Board of Directors or the chief executive officer, and shall perform such duties as may be assigned to him from time to time by the Board of Directors or
the chief executive officer. If the office of chief executive officer is vacant, the president shall have the powers and perform the duties of chief executive officer until such vacancy is filled by the Board of Directors.
14
10.
Vice Presidents
. Each vice president shall have such powers and perform such duties as the
Board of Directors may from time to time prescribe or as the chief executive officer may from time to time delegate to him. At the request of the chief executive officer, in the case of the president’s absence or inability to act, any vice
president may temporarily act in the president’s place. In the case of the death of the president, or in the case of his absence or inability to act without having designated a vice president or vice presidents to act temporarily in his place,
the Board of Directors, by resolution, may designate a vice president or vice presidents, to perform the duties of the president.
11.
Secretary
. The secretary shall keep or cause to be kept in books, provided for that purpose, the minutes of the meetings of the shareholders, executive committee, if any, and any other committees, and of the Board of Directors; shall see that
all notices are duly given in accordance with the provisions of these Bylaws and as required by law; shall be custodian of the records and of the seal of the Corporation and see that the seal is affixed to all documents, the execution of which on
behalf of the Corporation under its seal is duly authorized and in accordance with the provisions of these Bylaws; and, in general, shall perform all duties incident to the office of secretary and such other duties as may, from time to time, be
assigned to him by the Board of Directors or by the president. In the absence of the secretary or his inability to act, the assistant secretaries, if any, shall act with the same powers and shall be subject to the same restrictions as are applicable
to the secretary.
12.
Treasurer
. The treasurer shall have custody of corporate funds and securities. He shall keep full and
accurate accounts of receipts and disbursements and shall deposit all corporate monies and other valuable effects in the name and to the credit of the Corporation in the depository or depositories of the Corporation, and shall render an account of
his transactions as treasurer and of the financial condition of the Corporation to the chief executive officer, president and/or the Board of Directors upon request. Such power given to the treasurer to deposit and disburse funds shall not, however,
preclude any other officer or employee of the Corporation from also depositing and disbursing funds when authorized to do so by the Board of Directors. The treasurer shall, if required by the Board of Directors, give the Corporation a bond in such
amount and with such surety or sureties as may be ordered by the Board of Directors for the faithful performance of the duties of his office. The treasurer shall have such other powers and perform such other duties as may be from time to time
prescribed by the Board of Directors or the chief executive officer or such other person appointed from time to time by the chief executive officer. In the absence of the treasurer or his inability to act, the assistant treasurers, if any, shall act
with the same authority and shall be subject to the same restrictions as are applicable to the treasurer.
13.
Delegation of Duties
.
Whenever an officer is absent, or whenever, for any reason, the Board of Directors may deem it desirable, the Board of Directors may delegate the powers and duties of an officer to any other officer or officers or to any director or directors.
15
ARTICLE VII
Conflicts of Interests
No contract or other transaction between the Corporation and one or more of
its directors, or any other corporation, partnership, association or other organization in which one or more of its directors or officers is a director or officer or is financially interested shall be either void or voidable solely for that reason
or solely because such director or officer is present at or participates in the meeting of the Board of Directors or a committee thereof that authorizes, approves, or ratifies such contract or transaction or solely because their votes are counted
for such purpose if:
(a) The material facts of such relationship, interest, contract or transaction are disclosed to or known by the Board
of Directors or a committee thereof, that in good faith authorizes, approves, or ratifies the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors are less than a
quorum;
(b) The material facts of such relationship, interest, contract or transaction are disclosed to or known by the shareholders
entitled to vote thereon, and the contract or transaction is specifically authorized, approved or ratified in good faith by vote of the shareholders; or
(c) The contract or transaction is fair as to the Corporation.
Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of Directors or a committee thereof which authorizes, approves or ratifies such contract or transaction.
The Board of Directors shall comply with any applicable provisions of Section 7-108-501 of the Colorado Business Corporation Act in connection with
any loan or guaranty by the Corporation.
ARTICLE VIII
Indemnification of Officers, Directors and Others
1.
Definitions
. Unless the context of this
Article VIII indicates otherwise, initially capitalized terms used herein shall have the meanings given in Section 7-109-101 of the Colorado Business Corporation Act.
2.
Standards for Indemnification
.
A.
General
. Except as provided in Subsection 2(D) below, the Corporation shall indemnify against Liability, to the fullest extent authorized by the Colorado Business Corporation Act, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), incurred in any Proceeding by an individual made a
16
Party to the Proceeding because he is or was a Director of the Corporation or any subsidiary of the Corporation (an “Indemnitee”) if: (a) he
conducted himself in good faith; (b) he reasonably believed: (i) in the case of conduct in his Official capacity with the Corporation, that his conduct was in the Corporation’s best interests; or (ii) that in all other cases,
that his conduct was at least not opposed to the Corporation’s best interests; and (c) in the case of any criminal Proceeding, he had no reasonable cause to believe his conduct was unlawful.
B.
Employee Benefit Plans
. An Indemnitee’s conduct with respect to an employee benefit plan for a purpose he reasonably
believed to be in the interests of the participants in or beneficiaries of the plan is conduct that satisfies the requirements of clause (b)(ii) of paragraph 2, subsection A above. An Indemnitee’s conduct with respect to an employee benefit
plan for a purpose that he did not reasonably believe to be in the interests of the participants in or beneficiaries of the plan shall be deemed not to satisfy the requirements of clause (b)(ii) of paragraph 2, subsection A above.
C.
Termination of a Proceeding
. The termination of any Proceeding by judgment, order, settlement, or conviction, or upon a plea of
nolo contendere or its equivalent, is not of itself determinative that the Indemnitee did not meet the standard of conduct set forth in paragraph 2, subsection A above.
D.
Cases in Which Indemnification is Prohibited
. The Corporation may not indemnify an Indemnitee under paragraph 2, subsection A
above, either (a) in connection with a Proceeding by or in the right of the Corporation in which the Indemnitee was adjudged liable to the Corporation; or (b) in connection with any Proceeding charging improper personal benefit to the
Indemnitee, whether or not involving action in his Official capacity, in which he was adjudged liable on the basis that personal benefit was improperly received by him.
E.
Reasonable Expenses Only
. Indemnification permitted under this Section B in connection with a Proceeding by or in the right of
the Corporation is limited to reasonable Expenses incurred in connection with the Proceeding.
F.
Application of
Indemnification Obligations
. The indemnity and prepayment obligations of the Corporation and the standards for indemnification set forth in this Article VIII shall apply in all cases, even if the conduct, act or omission in question occurred
prior to the date that such indemnity and prepayment obligations were adopted by the Corporation by amendment to these Bylaws.
3.
Mandatory Indemnification
. Unless limited by the Articles of Incorporation, the Corporation shall be required to indemnify an Indemnitee who was wholly successful, on the merits or otherwise, in the defense of any Proceeding to which he was a
Party because he is or was a Director, against reasonable Expenses incurred by him in connection with the Proceeding.
17
4.
Court-Ordered Indemnification
. Unless otherwise provided in the Articles of Incorporation, an
Indemnitee who is or was a Party to a Proceeding may apply for indemnification to the court conducting the Proceeding or to another court of competent jurisdiction. On receipt of an application, the court, after giving any notice the court considers
necessary, may order indemnification in the following manner:
A.
Mandatory Indemnification
. If it determines the
Indemnitee is entitled to mandatory indemnification under paragraph 3 above, the court shall order indemnification, in which case the court shall also order the Corporation to pay the Indemnitee’s reasonable Expenses incurred to obtain
court-ordered indemnification.
B.
Indemnification Where Regardless of Meeting Standard of Conduct
. If it determines
that the Indemnitee is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not he met the standard of conduct set forth in paragraph 2, subsection A of this Article VIII or was adjudged liable in
the circumstances described in paragraph 2, subsection D of this Article VIII, the court may order such indemnification as the court deems proper; except that the indemnification with respect to any Proceeding in which Liability shall have been
adjudged in the circumstances described in said paragraph 2, subsection D of this Article VIII is limited to reasonable Expenses incurred in connection with the Proceeding and reasonable Expenses incurred to obtain court-ordered indemnification.
5.
Indemnification Procedure
.
A.
Authorization of Indemnification Required
. The Corporation may not indemnify an Indemnitee under paragraph 2, subsection A of this Article VIII unless authorized in the specific case after a determination
has been made that indemnification of the Indemnitee is permissible in the circumstances because he has met the standard of conduct set forth in paragraph 2 of this Article VIII.
B.
Determination by the Board of Directors
. The determination required by paragraph 5, subsection A of this Article VIII, shall be
made: (a) by the Corporation’s Board of Directors by a majority vote of those present at a meeting at which a quorum is present, and only those directors who are not Parties to the Proceeding shall be counted in satisfying the quorum; or
(b) if a quorum cannot be obtained, by a majority vote of a committee of the Board of Directors designated by the Board, which committee shall consist of two or more directors who are not Parties to the Proceeding; except that directors who are
Parties to the Proceeding may participate in the designation of directors for the committee.
C.
Determination by Body
Other Than the Board of Directors
. If a quorum cannot be obtained by a majority vote of a committee of the Board of Directors designated by the Board of Directors under paragraph 5, subsection B or even if a quorum is obtained or a committee is
designated, if a majority of the
18
directors constituting such quorum or committee so directs, the determination required to be made by subparagraph B of this section 5 shall be made:
(a) by independent legal counsel selected by a vote of the Corporation’s Board of Directors or the committee in the manner specified in clauses (a) or (b) of subparagraph B of this section 5 or, if a quorum of the full Board of
Directors cannot be obtained and a committee cannot be established, by independent legal counsel selected by a majority vote of the full Board; or (b) by the shareholders.
D.
Standard for Authorizing Indemnification
. Authorization of indemnification and advance of reasonable Expenses shall be made in
the same manner as the determination that indemnification or advance of Expenses is permissible; except that, if the determination that indemnification or advance of Expenses is permissible is made by independent legal counsel, authorization of
indemnification and advance of Expenses shall be made by the body that selected such counsel.
6.
Pre-Payment or Reimbursement of
Expenses
.
A.
General
. The Corporation may pay for or reimburse the reasonable Expenses incurred by an Indemnitee
who is a Party to a Proceeding in advance of the final disposition of the Proceeding if: (a) the Indemnitee furnishes the Corporation a written affirmation of his good-faith belief that he has met the standard of conduct described in paragraph
2, subsection A of this Article; (b) the Indemnitee furnishes the Corporation a written undertaking, executed personally or on his behalf, to repay the advance if it is ultimately determined that he did not meet such standard of conduct; and
(c) a determination is made that the facts then known to those making the determination would not preclude indemnification under this Article.
B.
Undertaking
. The undertaking required by paragraph (b) of subsection A of this Section, shall be an unlimited general obligation of the Indemnitee but need not be secured and may be accepted without
reference to financial ability to make repayment.
C.
Authorization of Pre-Payments
. Determinations and
authorizations of payments under this Section 6 shall be made in the manner specified in paragraph 5, subsection C of this Article VIII.
7.
Expenses Incurred as a Witness
. The Corporation shall pay or reimburse Expenses incurred by an Indemnitee in connection with his appearance, or preparation for his appearance, as a witness in a Proceeding or at a deposition
related to a Proceeding, at a time when he has not been made a named defendant or respondent in the Proceeding. If the Indemnitee is not an officer or Director of the Corporation at the time his appearance is required at a Proceeding or deposition
related to a Proceeding, the Corporation shall pay the Indemnitee $500.00 for each day (or part thereof) that the Indemnitee is required to attend such Proceeding or deposition.
19
8.
Officers, Employees, Fiduciaries and Agents
. Unless otherwise provided in the Articles of
Incorporation:
A.
Officer Indemnification
. An officer of the Corporation is entitled to mandatory indemnification
under paragraph 3 of this Article VIII, and is entitled to apply for court-ordered indemnification under paragraph 4 of this Article VIII, in each case to the same extent as a Director;
B.
Indemnification and Advancement of Expenses
. The Corporation may indemnify and advance Expenses to an officer, employee,
fiduciary or agent of the Corporation to the same extent as an Indemnitee; and
C.
Greater Rights of Indemnification
Permitted
. The Corporation may also indemnify and advance Expenses to an officer, employee, fiduciary or agent of the Corporation who is not an Indemnitee to a greater extent, not inconsistent with public policy, and if provided for by these
Bylaws, general or specific action of its board or shareholders, or directors.
9.
Insurance
. The Corporation may purchase and
maintain insurance on behalf of a person who is or was a Director, officer, employee, fiduciary or agent of the Corporation, or who, while a Director, officer, employee, fiduciary or agent of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee, fiduciary or agent of another foreign or domestic corporation or other person or employee benefit plan against any Liability asserted against or incurred by him in any such capacity or
arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such Liability under the provisions of this Article VIII. Any such insurance may be procured from any insurance company designated by the
Board of Directors of the Corporation, whether such insurance company is formed under the laws of Colorado or any other jurisdiction of the United States or elsewhere, including any insurance company in which the Corporation has equity or any other
interest, through stock ownership or otherwise.
10.
Report to Shareholders
. Any indemnification of or advance of Expenses to a
Director in accordance with this Article VIII, if arising out of a Proceeding by or on behalf of the Corporation, shall be reported in writing to the shareholders with or before the notice of the next shareholders’ meeting. If the next
shareholder action is taken without a meeting at the instigation of the Board of Directors, such notice shall be given to the shareholders at or before the time the first shareholder signs a writing consenting to such action.
11.
Governing Law
. This Article VIII shall be governed by and construed in accordance with Article 109 of the Colorado Business Corporation
Act, as amended from time to time.
12.
Non-Exclusivity of Rights
. The rights to indemnification and to the advancement of Expenses
conferred in this Article VIII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporation’s Articles of Incorporation, agreement, vote of shareholders or disinterested directors
or otherwise. To the extent that the rights to indemnification granted by these Bylaws are inconsistent with those granted by the Corporation’s Articles of Incorporation, the provisions of the Articles of Incorporation shall govern.
20
ARTICLE IX
Share Certificates and the Transfer of Shares
1.
Certificates For Shares
. The shares of the
Corporation’s stock may be certificated or uncertificated, as provided under the Colorado Business Corporation Act, and shall be entered in the books of the Corporation and registered as they are issued. Any certificates representing shares of
the Corporation’s stock shall be in a form approved by the Board of Directors, consecutively numbered, and signed in the name of the Corporation by the chairman or vice chairman of the Board of Directors or by the chief executive officer, the
president or a vice president and by the treasurer or an assistant treasurer or by the secretary or an assistant secretary, and shall be sealed with the seal of the Corporation or a facsimile thereof. Any or all of the signatures upon a certificate
representing shares of the Corporation’s stock may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation itself or an employee of the Corporation. In case any officer who
has signed such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of its issue. Within a reasonable time after the
issuance or transfer of uncertificated stock, the Corporation shall send to the registered owner thereof a written notice that shall set forth the name of the Corporation, the name of the shareholder, the number and class (and the designation of the
series, if any) of the shares represented, and any other information as may be required by the Colorado Business Corporation Act or approved by the Board of Directors.
2.
Issuance of Shares
. Except as provided in the Articles of Incorporation, the Board of Directors may authorize the issuance of shares for consideration consisting of any tangible, intangible property or
benefit to the Corporation, including cash, promissory notes, services performed and other securities of the Corporation. The Board of Directors shall determine that the consideration received or to be received for the shares to be issued is
adequate. Such determination, in the absence of fraud, is conclusive insofar as the adequacy of such consideration relates to whether the shares are validly issued, fully paid and nonassessable. The promissory note of a subscriber or an affiliate of
a subscriber for shares shall not constitute consideration for the shares unless the note is negotiable and is secured by collateral other than the shares, having a fair market value at least equal to the principal amount of the note. For the
purposes of this Section 2, “promissory note” means a negotiable instrument on which there is an obligation to pay independent of collateral and does not include a nonrecourse note. Unless otherwise expressly provided in the Articles
of Incorporation, shares having a par value may be issued for less than the par value.
3.
Lost Certificates
. The Board of Directors
may direct a new certificate or equivalent uncertificated shares to be issued in place of a certificate alleged to have been destroyed or lost if the owner makes an affidavit or affirmation of that fact and produces such evidence of loss or
destruction as the Board of Directors may require. The Board, in its discretion, may as a condition precedent to the issuance of a new certificate or new uncertificated shares require the owner to give the Corporation a bond in such form and amount
and with such surety as it may determine as indemnity against any claim that may be made against the Corporation relating to the certificate allegedly destroyed or lost.
21
4.
Transfer of Shares
. Shares of the Corporation shall only be transferred on the stock transfer
books of the Corporation by the holder of record thereof, if such shares are certificated upon the surrender to the Corporation or its transfer agent of the share certificates duly endorsed or accompanied by proper evidence of succession, assignment
or authority to transfer and such documentary stamps as may be required by law, and if such shares are uncertificated upon the receipt by the Corporation or its transfer agent of proper transfer instructions from the holder of such uncertificated
shares, in each case with such proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require. In that event, the surrendered certificates or uncertificated shares shall be cancelled, new certificates issued
or evidence of the issuance of uncertificated shares shall be delivered to the persons entitled thereto, and the transaction shall be recorded on the books of the Corporation.
5.
Registered Shareholders
. The Corporation shall be entitled to treat the registered holder of any shares of the Corporation as the owner thereof
for all purposes, and the Corporation shall not be bound to recognize any equitable or other claim to, or interest in, such shares or rights deriving from such shares on the part of any person other than the registered holder, including without
limitation any purchaser, assignee or transferee of such shares or rights deriving from such shares, unless and until such other person becomes the registered holder of such shares, whether or not the Corporation shall have either actual or
constructive notice of the claimed interest of such other person.
6.
Transfer Agent, Registrar and Stock Ledger
. The Board of
Directors may appoint a transfer agent(s) and registrar(s) and may make or authorize such agents to make all such rules and regulations deemed expedient concerning the issue, transfer and registration of shares of stock of the Corporation. An
appropriate stock journal and ledger shall be kept by the secretary or such registrar(s) or transfer agent(s) as the Board of Directors by resolution may appoint in which all transactions in the shares of stock of the Corporation shall be recorded.
7.
Notice of Restriction on Transfer
. Notice of any restriction on the transfer of the stock of the Corporation shall be placed on
each certificate of stock issued. For any uncertificated shares of stock of the Corporation, the Board of Directors may authorize any reasonable means for designating any restrictions on the transfer of such stock applicable thereto.
ARTICLE X
Amendments
Subject to repeal or change by action of the shareholders, the Board of Directors may amend, supplement or repeal these Bylaws or
adopt new Bylaws, and all such changes shall affect and be binding upon the holders of all shares heretofore as well as hereafter authorized, subscribed for or offered.
22
ARTICLE XI
Miscellaneous
1.
Gender
. Whenever required by the context, the singular shall include the
plural, the plural the singular, and one gender shall include all genders.
2.
Invalid Provision
. The invalidity or unenforceability
of any particular provision of these Bylaws shall not affect the other provisions herein, and these Bylaws shall be construed in all respects as if such invalid or unenforceable provision was omitted.
23
Exhibit 5.1
Letterhead of
Bartlit Beck Herman Palenchar & Scott LLP
, 2008
Real Goods Solar, Inc.
360 Interlocken Boulevard
Broomfield, Colorado 80021
|
|
Re:
|
Registration Statement on Form S-1 (Registration No. 333-149092)
|
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection with the filing of the Registration Statement
on Form S-1, File No. 333-149092 (the “Registration Statement”) as amended, including any related prospectus or prospectus supplement filed with the Registration Statement (the “Prospectus”), of Real Goods Solar, Inc., a
Colorado corporation (the “Company”), with the Securities and Exchange Commission (the “Commission”) pursuant to the Securities Act of 1933, as amended (the “Securities Act”), and the rules and regulations promulgated
thereunder, covering an underwritten public offering of
shares (
shares if the
underwriters’ over-allotment option is exercised in full) of the Company’s Class A common stock, $.0001 par value per share (the “Shares”). All of the Shares are to be sold by the Company as described in the Registration
Statement and the Prospectus. This opinion is being furnished in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act.
In connection with this opinion, we have examined and relied upon originals or copies, certified or otherwise identified to our satisfaction, of: (i) the form of Underwriting Agreement (the “Underwriting
Agreement”) to be entered into by and among the Company, as issuer, and ThinkEquity Partners LLC, as representative of the several underwriters named therein (the “Underwriters”), filed as an exhibit to the Registration Statement;
(ii) the Certificate of Incorporation of the Company as currently amended and filed with the Secretary of State of Colorado; (iii) the Bylaws of the Company as currently in effect; and (iv) such records of the Company and such
agreements, certificates of public officials, certificates of officers or other representatives of the Company and others, and such other documents, certificates and records as we have deemed necessary or appropriate as a basis for the opinions set
forth herein.
In our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies, that the parties to all executed documents (other than the Company, its directors and officers) had all requisite power to enter
into and perform all obligations thereunder, the due authorization by all requisite action of such documents, the due execution and delivery by such
parties of such documents (where due execution and delivery are a prerequisite to the effectiveness thereof), and the validity and binding effect of such
documents on such parties. As to any facts material to the opinions expressed herein which we have not independently established or verified, we have relied upon the truth, accuracy and completeness of statements and representations of officers and
other representatives of the Company and others.
Based upon the foregoing, we are of the opinion that: when (i) the Registration Statement becomes
effective under the Securities Act and the Prospectus has been filed with the Commission, (ii) the Underwriting Agreement has been duly executed and delivered; (iii) the Shares have been duly registered by the transfer agent and registrar,
issued in the form and containing the terms described in the Registration Statement and the Prospectus and delivered to and paid for by the Underwriters at the price per share determined by the Board of Directors of the Company as described in the
Registration Statement and the Prospectus, the Shares will be duly authorized, validly issued, fully paid and nonassessable.
We express no opinion herein
as to the effect or applicability of the laws of any jurisdiction other than the federal laws of the United States of America and the laws of the State of Colorado. Our opinions are subject to the effects of, and we express no opinion with respect
to the application of or compliance with, state securities or “blue sky” laws, statutes, rules or regulations.
We hereby consent to the filing
of this opinion as an exhibit to the Registration Statement and to the reference to our firm under the caption “Legal Matters” in the Registration Statement and the Prospectus, and in any amendment or supplement thereto. In giving such
consents, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission issued thereunder.
|
|
|
Very truly yours,
|
|
|
|
/s/ Bartlit Beck Herman Palenchar & Scott LLP
|
Exhibit 10.1
R
EAL
G
OODS
S
OLAR
, I
NC
.
2008
L
ONG
-T
ERM
I
NCENTIVE
P
LAN
Section 1.
Purpose.
The purpose of this Plan is to advance the interests of Real Goods and its shareholders by providing incentives to certain Eligible Persons (as defined below) who contribute significantly to the
strategic and long-term performance objectives and growth of the Company.
Section 2.
Definitions
.
Certain capitalized terms applicable to this Plan are set forth in Appendix A.
Section 3.
Administration
.
The Committee shall administer this Plan and shall have all the powers vested in it by the terms of this Plan, such powers to include exclusive authority to select the
Eligible Persons to be granted Awards under this Plan, to determine the type, size, terms and conditions of the Award to be made to each Eligible Person selected, to modify or waive the terms and conditions of any Award that has been granted, to
determine the time when Awards will be granted, to establish performance objectives, to make any adjustments necessary or desirable as a result of the granting of Awards to Eligible Persons located outside the United States and to prescribe the form
of the agreements evidencing Awards made under this Plan. Awards may, in the discretion of the Committee, be made under this Plan in assumption of, or in substitution for, outstanding Awards previously granted by (i) the Company, (ii) any
predecessor of the Company, or (iii) a company acquired by the Company or with which the Company combines. The number of Class A Shares underlying such substitute Awards shall be counted against the aggregate number of Class A Shares
available for Awards under this Plan.
The Committee is authorized to interpret this Plan and the Awards granted under this Plan, to
establish, amend and rescind any rules and regulations relating to this Plan, and to make any other determinations that it deems necessary or desirable for the administration of this Plan. The Committee may correct any defect or supply any omission
or reconcile any inconsistency in this Plan or in any Award in the manner and to the extent the Committee deems necessary or desirable to carry it into effect. Any decision of the Committee in the interpretation and administration of this Plan, as
described in this Plan, shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned. The Committee may act only by a majority of its members in office,
except
that the Committee may
authorize any one or more of its members or any officer of the Company to execute and deliver documents or to take any other ministerial action on behalf of the Committee with respect to Awards made to Participants or to be made to Eligible Persons.
Notwithstanding the foregoing or any other provision of this Plan, the Committee shall not have the authority to accelerate the time or schedule of any payment in a manner which is not permitted under Code Section 409A, or to grant or amend any
Award in any manner which would result in an inclusion of any amount in gross income under Code Section 409A(a)(1).
No member of the
Committee and no officer of the Company shall be liable for anything done or omitted to be done by such member or officer, by any other member of the Committee or by any officer of the Company in connection with the performance of duties under this
Plan,
except
for such member’s or officer’s own willful misconduct or as expressly provided by law. In addition to all other rights of indemnification and reimbursement to which a member of the Committee and an officer of the
Company may be entitled, Real Goods shall indemnify and hold harmless each such member or officer who was or is a party or is threatened to be made a party to any threatened, pending or completed proceeding or suit in connection with the performance
of duties under this Plan against expenses (including reasonable attorneys’ fees), judgments, fines, liabilities, losses and amounts paid in settlement actually and reasonably incurred by him in connection with such proceeding or suit,
except
for his own willful misconduct or as expressly provided otherwise by law. Expenses (including reasonable attorneys’ fees) incurred by a such a member or officer in defending any such proceeding or suit shall be paid by Real Goods
in advance of the final disposition of such proceeding or suit upon receipt of a written affirmation by such member or officer of his good faith belief that he has met the standard of conduct necessary for indemnification and a written undertaking
by or on behalf of such member or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by Real Goods as authorized in this Section.
Section 4.
Participation
.
Consistent with the purposes of this
Plan, the Committee shall have exclusive power to select the Eligible Persons who may participate in this Plan and be granted Awards under this Plan. Eligible Persons may be selected individually or by groups or categories, as determined by the
Committee in its discretion.
Section 5.
Awards under this Plan
.
(a)
Types of Awards
. Awards under this Plan may include, but need not be limited to, one or more of the following
types, either alone or in any combination thereof: (i) Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv) Restricted Stock Units, (v) Performance Grants and (vi) any other type of Award deemed
by the Committee in its discretion to be consistent with the purposes of this Plan (including, but not limited to, Awards of or options or similar rights granted with respect to unbundled stock units or components thereof, and Awards to be made to
Participants who are foreign nationals or are employed or performing services outside the United States).
(b)
Maximum Number of Shares that May be Issued
. There may be issued under this Plan (as Restricted Stock, as Restricted Stock Units, in payment of Performance Grants, pursuant to the exercise of Stock Options or Stock Appreciation Rights or
in payment of or pursuant to the exercise of such other Awards as the Committee, in its discretion, may determine) an aggregate of not more than 1,000,000 Common Shares, subject to adjustment as provided in Section 15. No Eligible Person may
receive Awards under this Plan for more than 400,000 Class A Shares in any one fiscal year of the Company, subject to adjustment as provided in Section 15. Class A Shares issued pursuant to this Plan may be either authorized but
unissued shares, treasury shares, reacquired shares or any combination thereof. If any Class A Shares issued as Restricted Stock, Restricted Stock Units or otherwise subject to repurchase or forfeiture rights are reacquired by the Company
pursuant to such rights or, if any Award is canceled, terminates or expires unexercised, any Common Shares that would otherwise have been issuable pursuant thereto will be available for issuance under new Awards.
(c)
Rights with Respect to Class A Shares and Other Securities
. Except as provided in subsection 8(c) with respect to
Awards of Restricted Stock and unless otherwise determined by the Committee in its discretion, a Participant to whom an Award is made (and any person succeeding to such a Participant’s rights pursuant to this Plan) shall have no rights as a
shareholder with respect to any Class A Shares or as a holder with respect to other securities, if any, issuable pursuant to any such Award until the date of the issuance of a stock certificate to such Participant for such Class A Shares
or other instrument of ownership, if any. Except as provided in Section 15, no adjustment shall be made for dividends, distributions or other rights (whether ordinary or extraordinary, and whether in cash, securities, other property or other
forms of consideration, or any combination thereof) for which the record date is prior to the date such stock certificate or other instrument of ownership, if any, is required to be issued based upon the date any Award was exercised. In all events,
a Participant with whom an Award agreement is made to issue Class A Shares in the future shall have no rights as a shareholder with respect to such Class A Shares related to such agreement until issuance to such Participant of a stock
certificate representing such shares.
Section 6.
Stock Options
.
The Committee may sell Purchased
Options or grant other Stock Options either alone, or in conjunction with Associated Awards, either at the time of grant or by amendment thereafter;
provided
that an Incentive Stock Option may be granted only to Eligible Persons who are
employees of Real Goods (or any parent or subsidiary of Real Goods) and who have Associated Awards only to the extent that such Associated Awards do not disqualify the Incentive Stock Option’s status as such under the Code. Each Stock Option
granted or sold under this Plan shall be evidenced by an agreement in such form as the Committee shall prescribe from time to time in accordance with this Plan and shall comply with the applicable terms and conditions of this Plan, and with such
other terms and conditions, including, but not limited to, restrictions upon the Stock Option or the Class A Shares issuable upon exercise thereof, as the Committee, in its discretion, shall establish.
-2-
(a)
The exercise price of a Stock Option may be equal to or greater than the Fair
Market Value of the Class A Shares subject to such Stock Option at the time the Stock Option is granted, as determined by the Committee;
provided, however
, that in the case of an Incentive Stock Option granted to a Ten Percent Employee,
such exercise price shall not be less than 110% of such Fair Market Value at the time the Stock Option is granted.
(b)
The Committee shall determine the number of Class A Shares to be subject to each Stock Option. In the case of a Stock Option awarded in conjunction with an Associated Award, the number of Class A Shares subject to an
outstanding Stock Option may be reduced on an appropriate basis to the extent that the Associated Award has been exercised, paid to or otherwise received by the Participant, as determined by the Committee.
(c)
Any Stock Option may be exercised during its term only at such time or times and in such installments as the Committee may
establish.
(d)
A Stock Option shall not be exercisable:
(i)
in the case of any Incentive Stock Option granted to a Ten Percent Employee, after the expiration of five years from the date
it is granted, and, in the case of any other Stock Option, after the expiration of ten years from the date it is granted; and
(ii)
unless payment in full is made for the shares being acquired thereunder at the time of exercise as provided in subsection 6(i).
(e)
The Committee shall determine in its discretion and specify in each agreement evidencing a Stock Option the effect, if any, the termination of the Participant’s employment with or performance of
services for the Company shall have on the exercisability of the Stock Option;
provided, however
, that an Incentive Stock Option shall not be exercisable at a time that is beyond the time an Incentive Stock Option may be exercised in order to
qualify as such under the Code and
provided, further
, that if a Participant’s employment is terminated for a reason other than “cause” (as defined in such Participant’s Award agreement or employment agreement, if any),
then such Participant’s right to exercise his or her Stock Options (to the extent that the Participant is entitled to exercise on the date employment terminates) shall continue until the earlier of the option expiration date or (i) at
least six (6) months from the date of termination if termination was caused by death or disability and (ii) at least thirty (30) days from the date of termination if termination was caused by other than death or disability.
(f)
It is the intent of Real Goods that Nonqualified Stock Options granted under this Plan not be classified as
Incentive Stock Options, that the Incentive Stock Options granted under this Plan be consistent with and contain or be deemed to contain all provisions required under Section 422 and the other appropriate provisions of the Code and any
implementing regulations (and any successor provisions thereof), and that any ambiguities in construction shall be interpreted in order to effectuate such intent. If a Stock Option is intended to be an Incentive Stock Option, and if for any reason
such Stock Option (or portion thereof) shall not qualify as an Incentive Stock Option, then, to the extent of such nonqualification, such Stock Option (or portion thereof) shall be regarded as a Nonqualified Stock Option granted under this Plan;
provided, that, such Stock Option (or portion thereof) otherwise complies with this Plan’s requirements relating to Nonqualified Stock Options. In no event shall any member of the Committee or the Company (or its employees, officers or
directors) have any liability to any Participant (or any other person) due to the failure of a Stock Option to qualify for any reason as an Incentive Stock Option.
(g)
A Purchased Option may contain such additional terms not inconsistent with this Plan, including but not limited to the
circumstances under which the purchase price of such Purchased Option may be returned to the holder of the Purchased Option, as the Committee may determine in its sole discretion.
-3-
(h)
For purposes of payments made to exercise Stock Options, such payment shall be
made in such form (including, but not limited to, cash, Class A Shares, the surrender of another outstanding Award under this Plan or any combination thereof) as the Committee may determine in its discretion;
provided, however,
that,
unless the Committee determines otherwise, for purposes of making such payment in Class A Shares, such shares shall be valued at their Fair Market Value on the day of exercise and shall have been held by the Participant for a period of at least
six (6) months.
Section 7.
Stock Appreciation Rights
.
The Committee may grant Stock
Appreciation Rights either alone, or in conjunction with Associated Awards, either at the time of grant or by amendment thereafter. Each Award of Stock Appreciation Rights granted under this Plan shall be evidenced by an agreement in such form as
the Committee shall prescribe from time to time in accordance with this Plan and shall comply with the applicable terms and conditions of this Plan, and with such other terms and conditions, including, but not limited to, restrictions upon the Award
of Stock Appreciation Rights or the Class A Shares issuable upon exercise thereof, as the Committee, in its discretion, shall establish.
(a)
The Committee shall determine the number of Class A Shares to be subject to each Award of Stock Appreciation Rights. In the case of an Award of Stock Appreciation Rights awarded in conjunction with an
Associated Award, the number of Class A Shares subject to an outstanding Award of Stock Appreciation Rights may be reduced on an appropriate basis to the extent that the Associated Award has been exercised, paid to or otherwise received by the
Participant, as determined by the Committee.
(b)
The Award of Stock Appreciation Rights shall not be exercisable:
(i)
unless the Associated Award, if any, is at the time exercisable;
(ii)
if the Associated Award is a Stock Option and the Fair Market Value per share of the Class A Shares on the exercise date
does not exceed the exercise price per share of such Stock Option; and
(iii)
if the Associated Award is an Incentive
Stock Option and the exercise of the Award of Stock Appreciation Rights would disqualify the Incentive Stock Option as such under the Code.
(c)
The Committee shall determine in its discretion and specify in each agreement evidencing an Award of Stock Appreciation Rights the effect, if any, the termination of the Participant’s employment with
or performance of services for the Company shall have on the exercisability of the Award of Stock Appreciation Rights.
(d)
An Award of Stock Appreciation Rights shall entitle the holder to exercise such Award or to surrender unexercised an Associated Award (or any portion of such Associated Award) to Real Goods and to receive from Real Goods in
exchange thereof, without payment to Real Goods, that number of Class A Shares having an aggregate value equal to (or, in the discretion of the Committee, less than) the excess of the Fair Market Value of one share, at the time of such
exercise, over the exercise price, times the number of shares subject to the Award or the Associated Award, or portion thereof, that is so exercised or surrendered, as the case may be. The Committee shall be entitled in its discretion to elect to
settle the obligation arising out of the exercise of a Stock Appreciation Right by the payment of cash or Other Real Goods Securities or property, or other forms of payment or any combination thereof, as determined by the Committee, equal to the
aggregate value of the Class A Shares it would otherwise be obligated to deliver. Any such election by the Committee shall be made as soon as practicable after the receipt by the Committee of written notice of the exercise of the Stock
Appreciation Right.
-4-
(e)
A Stock Appreciation Right may provide that it shall be deemed to have been
exercised at the close of business on the business day preceding the expiration date of the Stock Appreciation Right or of the related Stock Option (or other Award), or such other date as specified by the Committee, if at such time such Stock
Appreciation Right has a positive value. Such deemed exercise shall be settled or paid in the same manner as a regular exercise thereof as provided in subsection 7(d) of this Agreement.
Section 8.
Restricted Stock and Restricted Stock Units.
The Committee may grant Awards of Restricted Stock and Restricted
Stock Units either alone, or in conjunction with Associated Awards, either at the time of grant or by amendment thereafter. Each Award of Restricted Stock or Restricted Stock Units under this Plan shall be evidenced by an agreement in such form as
the Committee shall prescribe from time to time in accordance with this Plan and shall comply with the applicable terms and conditions of this Section and this Plan, and with such other terms and conditions as the Committee, in its discretion, shall
establish.
(a)
The Committee shall determine the number of Class A Shares to be issued to a Participant
pursuant to the Award of Restricted Stock or Restricted Stock Units, and the extent, if any, to which they shall be issued in exchange for cash, other consideration, or both.
(b)
Until the expiration of such period as the Committee shall determine from the date on which the Award is granted and subject to
such other terms and conditions as the Committee in its discretion shall establish (the “
Restricted Period
”), a Participant to whom an Award of Restricted Stock is made shall be issued, but shall not be entitled to the
delivery of, a stock certificate representing the Class A Shares subject to such Award.
(c)
Unless otherwise
determined by the Committee in its discretion, a Participant to whom an Award of Restricted Stock has been made (and any person succeeding to such a participant’s rights pursuant to this Plan) shall have, after issuance of a certificate for the
number of Class A Shares awarded and prior to the expiration of the Restricted Period, ownership of such Class A Shares, including the right to vote such Class A Shares and to receive dividends or other distributions made or paid with
respect to such Class A Shares (
provided
that such Class A Shares, and any new, additional or different shares, or Other Real Goods Securities or property, or other forms of consideration that the Participant may be entitled to
receive with respect to such Class A Shares as a result of a stock split, stock dividend or any other change in the corporation or capital structure of Real Goods, shall be subject to the restrictions set forth in this Plan as determined by the
Committee in its discretion), subject, however, to the options, restrictions and limitations imposed thereon pursuant to this Plan.
(d)
The Committee shall determine in its discretion and specify in each agreement evidencing an Award of Restricted Stock or Restricted Stock Units the effect, if any, the termination of the Participant’s employment with or
performance of services for the Company during the Restricted Period shall have on such Award of Restricted Stock.
(e)
The Committee may grant Associated Awards of Dividend Equivalents to Participants in connection with Awards of Restricted Stock Units. The Committee may provide, at the date of grant or thereafter, that Dividend Equivalents shall be paid or
distributed when accrued or shall be deemed to have been reinvested in additional Common Shares, or other investment vehicles as the Committee may specify; provided that, unless otherwise determined by the Committee, Dividend Equivalents shall be
subject to all conditions and restrictions of the underlying Restricted Stock Units to which they relate.
-5-
Section 9.
Performance Grants
.
The Committee may grant Awards of
Performance Grants either alone, or in conjunction with Associated Awards, either at the time of grant or by amendment thereafter. The Award of a Performance Grant to a Participant will entitle him to receive a specified amount determined by the
Committee (the “
Actual Value
”), if the terms and conditions specified in this Plan and in the Award are satisfied. Each Award of a Performance Grant shall be subject to the applicable terms and conditions of this Section and
this Plan, and to such other terms and conditions, including but not limited to, restrictions upon any cash, Class A Shares, Other Real Goods Securities or property, or other forms of payment, or any combination thereof, issued with respect to
the Performance Grant, as the Committee, in its discretion, shall establish, and shall be embodied in an agreement in such form and substance as is determined by the Committee.
(a)
The Committee shall determine the value or range of values of a Performance Grant to be awarded to each Participant selected
for an Award and whether or not such a Performance Grant is granted in conjunction with an Associated Award. As determined by the Committee, the maximum value of each Performance Grant (the “
Maximum Value
”) shall be:
(i) an amount fixed by the Committee at the time the Award is made or amended thereafter, (ii) an amount that varies from time to time based in whole or in part on the then current value of the Class A Shares, Other Real Goods
Securities or property, or other securities or property, or any combination thereof or (iii) an amount that is determinable from criteria specified by the Committee. Performance Grants may be issued in different classes or series having
different names, terms and conditions. In the case of a Performance Grant awarded in conjunction with an Associated Award, the Performance Grant may be reduced on an appropriate basis to the extent that the Associated Award has been exercised, paid
to or otherwise received by the Participant, as determined by the Committee.
(b)
The award period (“
Award
Period
”) related to any Performance Grant shall be a period determined by the Committee. At the time each Award is made or within the first 90 days of any performance period, the Committee shall establish performance objectives to be
attained within the Award Period as the means of determining the Actual Value of such a Performance Grant. The performance objectives shall be based on such measure or measures of performance, which may include, but need not be limited to, the
performance of the Participant, the Company or one or more of its divisions or units, or any combination of the foregoing, as the Committee shall determine, and may be applied on an absolute basis or be relative to industry or other indices or any
combination thereof. The Actual Value of a Performance Grant shall be equal to its Maximum Value only if the performance objectives are attained in full, but the Committee shall specify the manner in which the Actual Value of Performance Grants
shall be determined if the performance objectives are met in part. Such performance measures, the Actual Value or the Maximum Value, or any combination thereof, may be adjusted in any manner by the Committee in its discretion at any time and from
time to time during or as soon as practicable after the Award Period, if it determines that such performance measures, the Actual Value or the Maximum Value, or any combination thereof, are not appropriate under the circumstances.
(c)
The Committee shall determine in its discretion and specify in each agreement evidencing a Performance Grant the effect, if
any, the termination of the Participant’s employment with or performance of services for the Company during the Award Period shall have on such Performance Grant.
(d)
The Committee shall determine whether the conditions of a Performance Grant have been met and, if so, shall ascertain the
Actual Value of the Performance Grant. If the Performance Grant has no Actual Value, the Award and such Performance Grant shall be deemed to have been canceled and the Associated Award, if any, may be canceled or permitted to continue in effect in
accordance with its terms. If the Performance Grant has any Actual Value and:
-6-
(i)
was not awarded in conjunction with an Associated Award, the Committee shall
cause an amount equal to the Actual Value of the Performance Grant earned by the Participant to be paid to him or his permitted assignee or Beneficiary; or
(ii)
was awarded in conjunction with an Associated Award, the Committee shall determine, in accordance with criteria specified by the Committee (A) to cancel the Performance Grant, in which event no amount
with respect thereto shall be paid to the Participant or his permitted assignee or Beneficiary, and the Associated Award may be permitted to continue in effect in accordance with its terms, (B) to pay the Actual Value of the Performance Grant
to the Participant or his permitted assignee or Beneficiary as provided below, in which event the Associated Award may be canceled or (C) to pay to the Participant or his Beneficiary, the Actual Value of only a portion of the Performance
Grants, in which event all or a portion of the Associated Award may be permitted to continue in effect in accordance with its terms or be canceled, as determined by the Committee.
Such determination by the Committee shall be made as promptly as practicable following the end of the Award Period or upon the earlier
termination of employment or performance of services, or at such other time or times as the Committee shall determine, and shall be made pursuant to criteria specified by the Committee.
(e)
Payment of any amount with respect to the Performance Grants that the Committee determines to pay as provided above shall be
made by Real Goods as promptly as practicable after the end of the Award Period or at such other time or times as the Committee shall determine, and may be made in cash, Class A Shares, Other Real Goods Securities or property, or other forms of
payment, or any combination thereof or in such other manner, as determined by the Committee in its discretion; provided, that no Participant may receive more than $
in
cash, Other Real Goods Securities or property, or other forms of payment other than Common Shares, with respect to Performance Grants in any one fiscal year of the Company. Notwithstanding anything in this Section to the contrary, the Committee may,
in its discretion, determine and pay out the Actual Value of the Performance Grants at any time during the Award Period.
Section 10.
Deferral of Compensation
.
The Committee shall determine whether or not an Award shall be made in conjunction with the deferral of the Participant’s salary, bonus or other compensation,
or any combination thereof, and whether or not such deferred amounts may be:
(a)
forfeited to Real Goods or to other
Participants or any combination thereof, under certain circumstances (which may include, but need not be limited to, certain types of termination of employment or performance of services for the Company);
(b)
subject to increase or decrease in value based upon the attainment of or failure to attain, respectively, certain performance
measures; and/or
(c)
credited with income equivalents (which may include, but need not be limited to, interest,
dividends or other rates of return) until the date or dates of payment of the Award, if any.
Notwithstanding the foregoing or any other provision of this
Plan, any deferral of compensation under this Section 10 must comply with the provisions of Code Section 409A, and no deferral of compensation under this Section 10 which would result in an inclusion of any amount in gross income
under Code Section 409A(a)(1) is permitted.
Section 11.
Deferred Payment of Awards
.
The
Committee may specify that the payment of all or any portion of cash, Class A Shares, Other Real Goods Securities or property, or any other form of payment, or any combination thereof, under an Award shall be deferred until a later date.
Deferrals shall be for such periods or until the occurrence of such events, and upon such terms, as the
-7-
Committee shall determine in its discretion, provided however, that any such deferral shall comply with the requirements of Code Section 409A. Deferred
payments of Awards may be made by undertaking to make payment in the future based upon the performance of certain investment equivalents (which may include, but need not be limited to, government securities, Class A Shares, other securities,
property or consideration, or any combination thereof), together with such additional amounts of income equivalents (which may be compounded and may include, but need not be limited to, interest, dividends or other rates of return or any combination
thereof) as may accrue thereon until the date or dates of payment, such investment equivalents and such additional amounts of income equivalents to be determined by the Committee in its discretion.
Section 12.
Transferability of Awards
.
A Participant’s rights and interest under this Plan or any Award may
not be assigned or transferred, hypothecated or encumbered in whole or in part either directly or by operation of law or otherwise, including, but not by way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy or in any other
manner;
provided, however,
the Committee may permit such transfer to a Permitted Transferee; and
provided, further
, that, unless otherwise permitted by the Code, any Incentive Stock Option granted pursuant to this Plan shall not be
transferable other than by will, by the laws of descent and distribution, and shall be exercisable during the Participant’s lifetime only by Participant or by such Permitted Transferee.
Section 13.
Amendment or Substitution of Awards under this Plan
.
The terms of any outstanding Award under this Plan
may be amended or modified from time to time by the Committee in its discretion in any manner that it deems appropriate (including, but not limited to, acceleration of the date of exercise of any Award and/or payments thereunder) if the Committee
could grant such amended or modified Award under the terms of this Plan at the time of such amendment or modification;
provided
that no such amendment or modification shall adversely affect in a material manner any right of a Participant
under the Award without such Participant’s written consent, unless the Committee determines in its discretion that there have occurred or are about to occur significant changes in the Participant’s position, duties or responsibilities, or
significant changes in economic, legislative, regulatory, tax, accounting or cost/benefit conditions that are determined by the Committee in its discretion to have or to be expected to have a substantial effect on the performance of the Company, or
any affiliate, division or department thereof, on this Plan or on any Award under this Plan and provided further that the Committee shall not have the authority to accelerate the time or schedule of any payment in a manner which is not permitted
under Code Section 409A, or to grant or amend any Award in any manner which would result in an inclusion of any amount in gross income under Code Section 409A(a)(1). The Committee may, in its discretion, permit holders of Awards under this
Plan to surrender outstanding Awards in order to exercise or realize the rights under other Awards, or in exchange for the grant of new Awards, or require holders of Awards to surrender outstanding Awards as a condition precedent to the grant of new
Awards under this Plan.
Section 14.
Termination of a Participant
.
For all purposes under this Plan,
the Committee shall determine whether a Participant has terminated employment with, or the performance of services for, the Company,
provided, however
, an absence or leave approved by the Company, to the extent permitted by applicable
provisions of the Code, shall not be considered an interruption of employment or performance of services for any purpose under this Plan.
Section 15.
Dilution and Other Adjustments
.
If any change in the outstanding Class A Shares of the Company occurs by reason of any stock split, reverse stock split, stock dividend,
recapitalization, combination, reclassification or other distribution of the Class A Shares without the receipt of consideration by Real Goods, then the number of Class A Shares underlying and the exercise price of any outstanding Awards
shall be proportionately adjusted. If any change in the outstanding Class A Shares occurs by reason of any split-up, split-off, spin-off, merger, rights offering, reorganization, sale by the Company of all of its assets, distribution to
shareholders (other than a stock split, stock dividend or a normal cash dividend on the Class A Shares), or other extraordinary or unusual event (other than a stock split or stock dividend on the Class A Shares as provided above), then,
unless otherwise set forth in the applicable Award agreement, the Committee shall make an equitable adjustment in the terms of any outstanding Award and/or the
-8-
number of Class A Shares available for Awards. Notwithstanding the foregoing, if immediately prior to such extraordinary or unusual event a Participant
is entitled to exercise a Stock Option or other Award at a per share exercise price that is greater than the per share price to be paid upon consummation of such event, then such Stock Option or other Award shall be terminated without any
consideration, unless otherwise set forth in the applicable Award agreement. Any such termination or adjustment made by the Committee shall be final, conclusive and binding for all purposes of this Plan. Unless otherwise provided by the Committee,
all outstanding Awards shall terminate immediately prior to the consummation of any dissolution or liquidation of the Company.
Section 16.
Designation of Beneficiary by Participant
.
A Participant may name a beneficiary to receive any payment to which such Participant may be entitled with respect to any Award under this Plan in
the event of death, on a written form to be provided by and filed with the Committee, and in a manner determined by the Committee in its discretion (a “
Beneficiary
”). The Committee reserves the right to review and approve
Beneficiary designations. A Participant may change his Beneficiary from time to time in the same manner, unless such Participant has made an irrevocable designation. Any designation of a Beneficiary under this Plan (to the extent it is valid and
enforceable under applicable law) shall be controlling over any other disposition, testamentary or otherwise, as determined by the Committee in its discretion. If no designated Beneficiary survives the Participant and is living on the date on which
any amount becomes payable to such a Participant’s Beneficiary, such payment will be made to the legal representatives of the Participant’s estate, and the term “
Beneficiary
” as used in this Plan shall be deemed to
include such person or persons. If there are any questions as to the legal right of any Beneficiary to receive a distribution under this Plan, the Committee in its discretion may determine that the amount in question be paid to the legal
representatives of the estate of the Participant, in which event the Company, the Board, the Committee, the Designated Administrator (if any), and the members thereof, will have no further liability to anyone with respect to such amount.
Section 17.
Financial Assistance
.
If the Committee determines that such action is advisable, the Company may
assist any Participant in obtaining financing from the Company (or under any program of the Company approved pursuant to applicable law), or from a bank or other third party, on such terms as are determined by the Committee, and in such amount as is
required to accomplish the purposes of this Plan, including, but not limited to, to permit the exercise of an Award, the participation therein, and/or the payment of any taxes with respect thereto. Such assistance may take any form that the
Committee deems appropriate, including, but not limited to, a direct loan from the Company, a guarantee of the obligation by the Company or the maintenance by the Company of deposits with such bank or third party.
Section 18.
Miscellaneous Provisions
.
(a)
Any proceeds from Awards shall constitute general funds of Real Goods.
(b)
Except as otherwise determined by the Committee, no fractional shares may be delivered under an Award, but in lieu thereof a
cash or other adjustment may be made as determined by the Committee in its discretion.
(c)
No Eligible Person or
other person shall have any claim or right to be granted an Award under this Plan. Determinations made by the Committee under this Plan need not be uniform and may be made selectively among Eligible Persons under this Plan, whether or not such
Eligible Persons are similarly situated. Neither this Plan nor any action taken hereunder shall be construed as giving any Eligible Person any right to continue to be employed by or perform services for the Company, and the right to terminate the
employment of or performance of services by Eligible Persons at any time and for any reason is specifically reserved.
(d)
No Participant or other person shall have any right with respect to this Plan, the Class A Shares reserved for issuance under this Plan or in any Award, contingent or otherwise, until written evidence of the Award shall have
been delivered to the recipient and all the terms, conditions and provisions of this Plan and the Award applicable to such recipient (and each person claiming under or through him) have been met.
-9-
(e)
No Class A Shares, Other Company Securities, other securities or property
or other forms of payment shall be issued hereunder with respect to any Award unless counsel for Real Goods shall be satisfied that such issuance will be in compliance with applicable law and any applicable rules of any stock exchange or other
market quotation system on which Class A Shares are listed.
(f)
It is the intent of Real Goods that this Plan
comply in all respects with any applicable provisions of Rule 16b-3 and Section 162(m) with respect to Awards granted to executive officers of Real Goods, that any ambiguities or inconsistencies in construction of this Plan be interpreted to
give effect to such intention and that if any provision of this Plan is found not to be in compliance with any applicable provisions of Rule 16b-3 or Section 162(m), such provision shall be deemed null and void with respect to Awards granted to
executive officers of the Company to the extent required to permit such Awards to comply with Rule 16b-3 and Section 162(m). It is also the intent of Real Goods that this Plan comply in all respects with the provisions of the Code providing
favorable treatment to Incentive Stock Options, that any ambiguities or inconsistencies in construction of this Plan be interpreted to give effect to such intention and that if any provision of this Plan is found not to be in compliance with the
Incentive Stock Option provisions of the Code, such provision shall be deemed null and void with respect to Incentive Stock Options granted to employees of Real Goods (or any parent or subsidiary of Real Goods) to the extent required to permit such
Incentive Stock Options to receive favorable treatment under the Code.
It is the intent of Real Goods that this Plan comply
in all respects with any applicable provisions of Code Section 409A with respect to Awards granted under this plan and any amendment or revision of such Awards, that any ambiguities or inconsistencies in construction of this Plan be interpreted
to give effect to such intention and that if any provision of this Plan is found not to be in compliance with any applicable provisions of Code Section 409A such Plan provision shall be deemed null and void to the extent required to permit such
Awards to comply with any applicable provisions of Code Section 409A. Specifically, the Committee shall not have the authority to accelerate the time or schedule of any payment in a manner which is not permitted under Code Section 409A or
the regulations issued thereunder, or to grant or amend any Award in any manner which would result in an inclusion of any amount in gross income under Code Section 409A(a)(1).
(g)
The Company shall have the right to deduct from any payment made under this Plan any federal, state, local or foreign income or
other taxes required by law to be withheld with respect to such payment. It shall be a condition to any obligation of Real Goods to issue Class A Shares, Other Real Goods Securities or property, other securities or property, or other forms of
payment, or any combination thereof, upon exercise, settlement or payment of any Award under this Plan, that the Participant (or any Beneficiary or person entitled to act) pay to Real Goods, upon its demand, such amount as may be required by the
Company for the purpose of satisfying any liability to withhold federal, state, local or foreign income or other taxes. If the amount requested is not paid, Real Goods may refuse to issue Class A Shares, Other Real Goods Securities or property,
other securities or property, or other forms of payment, or any combination thereof. Notwithstanding anything in this Plan to the contrary, the Committee may, in its discretion, permit a Participant (or any Beneficiary or person entitled to act) to
elect to pay a portion or all of the amount requested by the Company for such taxes with respect to such Award, at such time and in such manner as the Committee shall deem to be appropriate (including, but not limited to, by authorizing Real Goods
to withhold, or agreeing to surrender to Real Goods on or about the date such tax liability is determinable, Class A Shares, Other Real Goods Securities or property, other securities or property, or other forms of payment, or any combination
thereof, owned by such person or a portion of such forms of payment that would otherwise be distributed, or have been distributed, as the case may be, pursuant to such Award to such person, having a Fair Market Value equal to the amount of such
taxes).
-10-
(h)
The expenses of this Plan shall be borne by Real Goods;
provided,
however
, Real Goods may recover from a Participant or his Beneficiary, heirs or assigns any and all damages, fees, expenses and costs incurred by the Company arising out of any actions taken by a Participant in breach of this Plan or any
agreement evidencing such Participant’s Award.
(i)
This Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Award under this Plan, and rights to the payment of Awards shall be no greater than the rights of the Company’s general
creditors.
(j)
By accepting any Award or other benefit under this Plan, each Participant and each person claiming
under or through such Participant shall be conclusively deemed to have indicated his acceptance and ratification of, and consent to, any action taken under this Plan by the Company, the Board, the Committee or the Designated Administrator (if
applicable).
(k)
The appropriate officers of the Company shall cause to be filed any reports, returns or other
information regarding Awards hereunder of any Class A Shares issued pursuant hereto as may be required by applicable law and any applicable rules of any stock exchange or other market quotation system on which Class A Shares are listed.
(l)
The validity, construction, interpretation, administration and effect of this Plan, and of its rules and
regulations, and rights relating to this Plan and to Awards granted under this Plan, shall be governed by the substantive laws, but not the choice of law rules, of the State of Colorado.
(m)
Records of the Company shall be conclusive for all purposes under this Plan or any Award, unless determined by the Committee to
be incorrect.
(n)
If any provision of this Plan or any Award is held to be illegal or invalid for any reason, the
illegality or invalidity shall not affect the remaining provisions of this Plan or any Award, but such provision shall be fully severable, and this Plan or Award, as applicable, shall be construed and enforced as if the illegal or invalid provision
had never been included in this Plan or Award, as applicable.
(o)
The terms of this Plan shall govern all Awards
under this Plan and in no event shall the Committee have the power to grant any Award under this Plan that is contrary to any of the provisions of this Plan.
(p)
For purposes of interpretation of this Plan, the masculine pronoun includes the feminine and the singular includes the plural
wherever appropriate.
Section 19.
Plan Amendment or Suspension
.
This Plan may be amended or
suspended in whole or in part at any time from time to time by the Board. No amendment of this Plan shall adversely affect in a material manner any right of any Participant with respect to any Award previously granted without such Participant’s
written consent, except as permitted under Section 13.
Section 20.
Plan Termination
.
This Plan
shall terminate upon the earlier of the following dates or events to occur:
(a)
the adoption of a resolution of the
Board terminating this Plan; or
-11-
(b)
the close of business on the tenth anniversary of the Effective Date;
provided, however
, that the Board may, prior to such date, extend the term of this Plan for an additional period of up to five years for the grant of Awards other than Incentive Stock Options. No termination of this Plan shall materially
alter or impair any of the rights or obligations of any Participant, without such Participant’s consent, under any Award previously granted under this Plan,
except
that subsequent to termination of this Plan, the Committee may make
amendments or modifications permitted under Section 13. Notwithstanding anything in this Plan to the contrary, the Committee shall not grant any Award pursuant to this Plan after the tenth anniversary of the earlier to occur of (i) the
date this Plan is adopted and (ii) date this Plan is approved by Real Goods’ shareholders.
Section 21.
Effective Date
.
This Plan shall be effective, and Awards may be granted under this Plan, on or after the Effective Date.
-12-
APPENDIX A
The following terms shall have the meaning indicated:
“
Actual Value
” has the meaning set forth in
Section 9.
“
Associated Award
” shall mean an Award granted concurrently or subsequently in conjunction with
another Award.
“
Award
” shall mean an award of rights to an Eligible Person under this Plan.
“
Award Period
” has the meaning set forth in subsection 9(b).
“
Beneficiary
” has the meaning set forth in Section 16.
“
Board
” shall mean the board of directors of Real Goods.
“
Class A Shares
” shall mean shares of Class A Common Stock, par value $.0001 per share, of Real Goods and stock of any other
class into which such shares may thereafter be changed.
“
Code
” shall mean the Internal
Revenue Code of 1986, as it now exists or may be amended from time to time, and the rules and regulations promulgated thereunder, as they may exist or may be amended from time to time.
“
Code Section 409A
” shall mean Section 409A of the Code, any rules or regulations promulgated
thereunder, as they may exist or may be amended from time to time, and any successor to such section.
“
Committee
” shall mean the person or persons responsible for administering this Plan. The Board shall constitute the Committee until the Board appoints a Board Committee, after which time the Board Committee shall
constitute the Committee, provided, however, that at any time the Board may designate itself as the Committee or designate itself to administer certain of the Committee’s authority under this Plan, including administering certain Awards under
this Plan, subject to satisfying the requirements of Rule 16b-3 and Section 162(m), if applicable. The Board or the Board Committee may designate a Designated Administrator to constitute the Committee or to administer certain of the
Committee’s authority under this Plan, including administering certain Awards under this Plan, subject to the right of the Board or the Board Committee, as applicable, to revoke such designation at any time and to make such designation on such
terms and conditions as it may determine in its discretion. For purposes of this definition, the
“
Board Committee
”
shall mean a committee of the Board designated by the Board to administer this Plan. Except as
otherwise determined by the Board, the Board Committee (i) shall be comprised of not fewer than two directors, (ii) following any Initial Public Offering, shall meet any applicable requirements under Rule 16b-3, including any requirement
that the Board Committee consist of “nonemployee directors” (as defined in Rule 16b-3), (iii) shall meet any applicable requirements under Section 162(m), including any requirement that the Board Committee consist of
“outside directors” (as defined in Treasury Regulation §1.162-27(e)(3)(i) or any successor regulation), and (iv) shall meet any applicable requirements of any stock exchange or other market quotation system on which Class A
Shares are listed. For purposes of this definition, the
“
Designated Administrator
”
shall mean one or more persons designated by the Board or a Board Committee to act as a Designated Administrator pursuant to
this Plan. Except as otherwise determined by the Board, a Designated Administrator shall only be appointed if Rule 16b-3 and Section 162(m) permits such appointment and the exercise of any authority without adversely affecting the ability of
Awards to officers of Real Goods to comply with the conditions for Rule 16b-3 or Section 162(m). The resolutions of the Board or Board Committee designating the authority of the Designated
-13-
Administrator shall (i) specify the total number of Class A Shares subject to Awards that may be granted pursuant to this Plan by the Designated
Administrator, (ii) may not authorize the Designated Administrator to designate him or herself as the recipient of any Awards pursuant to this Plan and (iii) shall otherwise comply with the requirements of applicable law.
“
Company
” shall mean Real Goods and any parent, subsidiary or affiliate of Real Goods.
“
Dividend Equivalents
” shall mean an Associated Award of cash or other Awards with a Fair Market Value equal to the dividends
which would have been paid on the Class A Shares underlying an outstanding Award or Restricted Stock Units had such Class A Shares been outstanding.
“
Effective Date
” shall mean the date this plan is adopted by shareholders of the Company.
“
Eligible Person(s)
” shall mean those persons who are full or part-time employees of the Company or other individuals who perform services for the Company, including, without limitation, directors who are not
employees of the Company and consultants and advisors who perform services for the Company.
“
Exchange Act
” shall
mean the Securities Exchange Act of 1934, as it now exists or may be amended from time to time, and the rules promulgated thereunder, as they may exist or may be amended from time to time.
“
Fair Market Value
” shall mean such value rounded up to the nearest cent as determined by the Committee by reasonable application
of a reasonable valuation method in accordance with applicable law, including Code Section 409A.
“
Incentive Stock
Option
” shall mean a Stock Option that is an incentive stock option as defined in Section 422 of the Code. Incentive Stock Options are subject, in part, to the terms, conditions and restrictions described in Section 6.
“
Initial Public Offering
” shall mean a public offering by Real Goods of its equity securities in a transaction
registered under the Securities Act of 1933, as amended, or any other transaction which results in Real Goods and its officers, directors and shareholders being subject to Section 16(b) of the Securities Exchange Act of 1934, as it now exists
or may be amended from time to time.
“
Maximum Value
” has the meaning set forth in subsection 9(a).
“
Nonqualified Stock Option
” shall mean a Stock Option that is not an incentive stock option as defined in Section 422 of the
Code. Nonqualified Stock Options are subject, in part, to the terms, conditions and restrictions described in Section 6.
“
Other Real Goods Securities
” shall mean Real Goods securities (which may include, but need not be limited to, unbundled stock units or components thereof, debentures, preferred stock, warrants, securities
convertible into Class A Shares or other property) other than Class A Shares.
“
Participant
” shall mean
an Eligible Person to whom an Award has been granted under this Plan.
“
Performance Grant
” shall mean an Award
subject, in part, to the terms, conditions and restrictions described in Section 9, pursuant to which the recipient may become entitled to receive cash, Class A Shares, Other Real Goods Securities or property, or other forms of payment, or
any combination thereof, as determined by the Committee.
-14-
“
Permitted Transferee
”
means, except as otherwise determined by the
Committee:
(i) prior to the Initial Public Offering, (A) any person who acquires an Award pursuant to applicable laws of descent and
distribution, (B) Participant’s family members who acquire Awards from the Participant other than for value, through a gift or a domestic relations order and (C) any person approved by the Committee in connection with transfers by a
Participant for estate planning purposes or otherwise; and
(ii) following the Initial Public Offering, (A) any person defined as an
employee in the Instructions to Registration Statement Form S-8 promulgated by the Securities and Exchange Commission, as such Form may be amended from time to time, which persons include, as of the date of adoption of this Plan, executors,
administrators or beneficiaries of the estates of deceased Participants, guardians or members of a committee for incompetent former Participants, or similar persons duly authorized by law to administer the estate or assets of former Participants,
(B) Participants’ family members who acquire Awards from the Participant other than for value, through a gift or a domestic relations order, and (C) any trust established for the benefit of any person described in clause (A). For
purposes of this definition, “
family member
” includes any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Participant’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent of the beneficial
interest, a foundation in which these persons (or the Participant) control the management of assets, and any other entity in which these persons (or the Participant) own more than fifty percent of the voting interests. For purposes of this
definition, neither (i) a transfer under a domestic relations order in settlement of marital property rights; nor (ii) a transfer to an entity in which more than fifty percent of the voting interests are owned by family members (or the
Participant) in exchange for an interest in that entity is considered a transfer for “
value
”.
“
Plan
” shall mean this Real Goods Solar, Inc. 2008 Long-Term Incentive Plan.
“
Purchased
Option
” shall mean a Stock Option that is sold to an Eligible Person at a price determined by the Committee. Purchased Options are subject, in part, to the terms, conditions and restrictions described in Section 6.
“
Real Goods
” shall mean Real Goods Solar, Inc., a Colorado corporation.
“
Restricted Period
” has the meaning set forth in subsection 8(b).
“
Restricted Stock
” shall mean an Award of Class A Shares that are issued subject, in part, to the terms, conditions and
restrictions described in Section 8.
“
Rule 16b-3
” shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Exchange Act and any successor rule.
“
Section 162(m)
” shall mean §162(m) of the
Code, any rules or regulations promulgated thereunder, as they may exist or may be amended from time to time, or any successor to such section.
“
Stock Appreciation Right
” shall mean an Award of a right to receive (without payment to Real Goods) cash, Class A Shares, Other Real Goods Securities or property, or other forms of payment, or any combination
thereof, as determined by the Committee, based on the increase in the value of the number of Class A Shares specified in the Stock Appreciation Right. Stock Appreciation Rights are subject, in part, to the terms, conditions and restrictions
described in Section 7.
-15-
“
Stock Option
” shall mean an Award of a right to purchase
Class A Shares. The term Stock Option shall include Nonqualified Stock Options, Incentive Stock Options and Purchased Options.
“
Ten Percent Employee
” shall mean an employee of the Company who owns stock representing more than ten percent of the voting power of all classes of stock of Real Goods or any parent or subsidiary of Real Goods.
“
Treasury Regulation
” shall mean a final, proposed or temporary regulation of the Department of Treasury under the
Code and any successor regulation.
-16-
Exhibit 10.2
R
EAL
G
OODS
S
OLAR
, I
NC
.
E
MPLOYEE
S
TOCK
O
PTION
A
GREEMENT
This Stock Option Agreement
set forth below (this “
Agreement
”) is dated as of the date of grant set forth below and is between Real Goods Solar, Inc., a Colorado corporation (“
Real Goods
”), and the individual named below (the
“
Grantee
”).
Real Goods has established its 2008 Long-Term Incentive Plan (the “Plan”) to advance the
interests of Real Goods and its shareholders by providing incentives to certain eligible persons who contribute significantly to the strategic and long-term performance objectives and growth of Real Goods and any parent or subsidiary of Real Goods.
This Agreement evidences an option grant as follows:
|
|
|
|
|
|
|
Granted to:
|
|
|
|
|
|
Number of Shares:
|
|
|
|
|
|
Effective Date of Grant:
|
|
|
|
|
|
Expiration Date:
|
|
|
|
|
|
Exercise Price Per Share:
|
|
|
|
|
|
Vesting Dates:
|
|
|
|
|
Pursuant to the provisions of the Plan, the Board of Directors of Real Goods (the “Board”) or a
Committee designated by the Board (the “Committee”) has full power and authority to direct the execution and delivery of this Agreement in the name and on behalf of Real Goods. The Board or the Committee authorized the execution and
delivery of this Agreement. All capitalized terms not otherwise defined in this Agreement have the same meaning given such capitalized terms in the Plan.
The parties agree as follows:
Section 1.
Grant of Stock Option;
Term
. Subject and pursuant to all terms and conditions stated in this Agreement and in the Plan, Real Goods hereby grants to Grantee an option (the “
Option
”) to purchase the number of shares (the
“
Option Shares
”) of Real Goods’ Class A Common Stock, par value $.0001 per share (the “
Common Shares
”), set forth above, at the exercise price set forth above. Except as otherwise provided in
this Agreement or the Plan, the Option may not be exercised after the close of business on the expiration date set forth above. Grantee hereby accepts the Option on such terms and conditions, including, without limitation, the confidentiality and
noncompete provisions set forth in Section 8 of this Agreement. The Option is a Nonqualified Stock Option (as such term is defined in the Plan). Grantee shall, subject to the limitations of this Agreement and the Plan, have the right to
exercise the Option by purchasing all or any part of the vested Option Shares then available for purchase under the vesting schedule set forth above (less any Option Shares previously purchased upon exercise of this Option).
Section 2.
Procedures for Exercise
. Grantee shall exercise all or any
part of the Option by delivering to Real Goods: (i) written notice of the number of vested Option Shares to be purchased, (ii) a duly executed Stock Restriction Agreement substantially in the form of Appendix A (unless such agreement would
have expired according to its terms), (iii) payment of the exercise price of such Option Shares in the form of cash or, if permitted by the Committee, qualified Common Shares, the surrender of another outstanding Award under the Plan or any
combination thereof, and (iv) payment of any required withholding pursuant to Section 10. The Option shall be deemed to have been exercised as of the close of business on the date the required documents and required consideration are
received by Real Goods. For purposes of this Section 2, Common Shares shall be deemed to be “qualified” Common Shares if they have been held by Grantee for six months or such other period as set from time to time by the Board or the
Committee.
Section 3.
Termination of Employment, Retirement, Disability or Death
.
(a) Vesting shall cease on the date Grantee ceases to be employed by the Company. Following Grantee’s last day of employment with the Company, this
Option shall only be exercisable for the number of Option Shares that are vested as of Grantee’s last day of employment with by the Company (less any Option Shares previously acquired upon exercise of this Option).
(b) Except as provided in Section 3(c) or 3(d), following Grantee’s last day of employment with the Company, this Option may be exercised at
any time and from time to time within the lesser of (i) the 30 day period commencing on the first day after Grantee’s last day of employment with the Company or (ii) the remaining term of the Option.
(c) If termination of employment occurs due to death or disability while Grantee is an employee of the Company, then this Option may be exercised at any
time and from time to time within the lesser of (i) the one year period commencing on the first day after Grantee’s last day of employment with the Company or (ii) the remaining term of the Option.
(d) If termination of employment occurs due to retirement at or after normal retirement age, as prescribed from time to time by the Company’s
retirement policy, or retirement under circumstances approved by the Committee (either before or after retirement), then this Option may be exercised at any time within the lesser of (i) the three month period commencing on the first day after
Grantee’s last day of employment with the Company, or, if Grantee dies during the three month period commencing on the first day after Grantee’s last day of employment with the Company, then the one year period commencing on the first day
after Grantee’s last day of employment with the Company, or (ii) the remaining term of the Option.
Section 4.
Issuance and Delivery of Option Shares
. The stock certificate(s) representing Option Shares shall be issued to Grantee subject to satisfaction of the applicable tax withholding requirements set
forth in Section 10. The issuance of Option Shares shall be in accordance with the provisions of Section 5.
Section 5.
No Issuance of Option Shares if Violation
. Real Goods shall not issue stock certificate(s) representing Option Shares if the administrator of the Plan or its authorized agent determines, in its
sole discretion, that the issuance of such certificate(s) would violate the terms of the Plan, this Agreement or applicable law.
Section 6.
Rights as an Employee or Shareholder
. Except as otherwise provided in the Plan, no person shall be, or have any of the rights or privileges of, a shareholder of Real Goods with respect to any
of the Option Shares unless and until certificates representing such shares shall have been issued and delivered to such person. Neither the Plan nor this Agreement shall be deemed to give Grantee any right with respect to continued employment with
the Company, nor shall the Plan or the Agreement be deemed to limit in any way the Company’s right to terminate Grantee’s employment at any time.
-2-
Section 7.
Nondisparagement and Further Assistance
.
During Grantee’s employment and thereafter, Grantee will not make any disclosure, issue any public statements or otherwise cause to be disclosed any information which is designed, intended or might reasonably be anticipated to discourage
suppliers, customers or employees of the Company or otherwise have a negative impact or adverse effect on the Company. Grantee will provide assistance reasonably requested by the Company in connection with actions taken by Grantee while employed by
the Company, including but not limited to assistance in connection with any lawsuits or other claims against the Company arising from events during the period in which Grantee was employed.
Section 8.
Nondisclosure of Confidential Information; Covenants
.
(a) In consideration of the receipt of the Option, Grantee agrees (i) not to disclose to any third party any trade secrets or any other confidential
information of the Company (including but not limited to cost or pricing information, customer lists, commission plans, supply information, internal business procedures, market studies, expansion plans, potential acquisitions, terms of any
acquisition or potential acquisition or the existence of any negotiations concerning the same or any similar non-public information relating to the Company’s internal operations, business policies or practices) acquired during Grantee’s
employment by the Company or after the termination of such employment, or (ii) use or permit the use of any of the Company’s trade secrets or confidential information in any way to compete (directly or indirectly) with the Company or in
any other manner adverse to the Company.
(b) Grantee agrees that, without the prior written consent of the Company, signed by the
Company’s President, Grantee will not, during the term of Grantee’s employment by the Company or for a period of two years thereafter (i) accept employment with, serve as a consultant to, or accept compensation from any person, firm
or corporation (including any new business started by Grantee, either alone or with others) whose products and/or services compete with those offered by the Company, in any geographic market in which the Company is then doing business or, to
Grantee’s knowledge, plans to do business, (ii) contact or solicit any customers of the Company for the purposes of diverting any existing or future business of such customers to a competing source, (iii) contact or solicit any
vendors to the Company (directly or indirectly) for the purpose of causing, inviting or encouraging any such vendor to alter or terminate his, her or its business relationship with the Company, or (iv) contact or solicit any employees of the
Company (directly or indirectly) for the purpose of causing, inviting or encouraging any such employee to alter or terminate his, her or its employment relationship with the Company.
(c) The Company will be entitled to enforce its rights under this Agreement to the extent permitted by applicable law, specifically to recover damages
permitted by applicable law by reason of any breach of any provision of this Agreement and to exercise all other rights to which it may be entitled. Grantee agrees and acknowledges that money damages may not be an adequate remedy for breach of the
provisions of this Agreement and that the Company may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive relief in order to enforce or prevent any violations of the
provisions of this Agreement to the extent permitted by applicable law.
(d) Grantee agrees that this covenant is reasonable with respect
to its duration, geographic area and scope. It is the desire and intent of the parties that the provisions of this Section 8 shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular portion of this Section 8 shall be adjudicated to be invalid or unenforceable, this Section 8 shall be deemed amended to delete therefrom the portion thus adjudicated to be
invalid or unenforceable, such deletion to apply only with respect to the operation of this Section 8 in the particular jurisdiction in which such adjudication is made.
-3-
Section 9.
Securities Laws
. Grantee acknowledges that applicable
securities laws may restrict the right and govern the manner in which Grantee may dispose of the Option Shares obtained upon exercise of the Option and Grantee agrees not to offer, sell or otherwise dispose of any such shares in a manner that would
violate the Securities Act of 1933, as amended, or any other federal or state law.
Section 10.
Income
Taxes
. Grantee acknowledges that when Grantee is required to recognize income for federal, state or local income tax purposes on account of the grant, vesting and/or exercise of the Option, pursuant to this Agreement, that such income
shall be subject to withholding of tax by the Company. Grantee agrees that the Company may either withhold an appropriate amount from any compensation or any other payment of any kind then payable or that may become payable to Grantee or, require
Grantee to make a cash payment to the Company equal to the amount of withholding required in the opinion of the Company. In the event Grantee does not make such payment when requested, the Company may refuse to issue or cause to be delivered any
shares under this Agreement or any other incentive plan agreement entered into by Grantee and the Company until such payment has been made or arrangements for such payment satisfactory to the Company have been made. Grantee agrees further to notify
the Company promptly if Grantee files an election pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, with respect to any Option Shares.
Section 11.
Prohibition on Transfer or Assignment
. Except as provided in the Plan, neither this Agreement nor the Option may be transferred or assigned, other than an assignment by
will or by laws of descent and distribution, and this Option shall be exercisable during the Grantee’s lifetime only by Grantee or by such permitted assignee.
Section 12.
Binding Effect; No Third Party Beneficiaries
. This Agreement shall be binding upon and inure to the benefit of the Company and Grantee and their respective heirs,
representatives, successors and permitted assigns. This Agreement shall not confer any rights or remedies upon any person other than Real Goods and the Grantee and their respective heirs, representatives, successors and permitted assigns. The
parties agree that this Agreement shall survive the exercise or termination of the Option.
Section 13.
Agreement to
Abide by Plan; Conflict between Plan and Agreement
. The Plan is hereby incorporated by reference into this Agreement and made a part hereof as though fully set forth in this Agreement. Grantee, by execution of this Agreement,
(i) represents that he is familiar with the terms and provisions of the Plan and (ii) agrees to abide by all of the terms and conditions of this Agreement and the Plan. Grantee accepts as binding, conclusive and final all decisions or
interpretations of the administrator of the Plan upon any question arising under the Plan and this Agreement (including, without limitation, the cause of any termination of Grantee’s employment with the Company). In the event of any conflict
between the Plan and this Agreement, the Plan shall control and this Agreement shall be deemed to be modified accordingly.
Section 14.
Entire Agreement
. This Agreement constitutes the entire agreement between the parties and supersedes any prior understandings, agreements, or representations by or between the parties, written
or oral, to the extent they related in any way to the subject matter hereof. Grantee agrees and acknowledges that this Agreement satisfies in full any obligations of the Company and its subsidiaries and predecessors in connection with the grant of
any stock options or other equity incentives.
-4-
Section 15.
Choice of Law
. To the extent not superseded by federal
law, the laws of the State of Colorado shall control in all matters relating to this Agreement and any action relating to this Agreement must be brought in Denver, Colorado.
Section 16.
Notice
. All notices, requests, demands, claims, and other communications under this Agreement shall be in
writing. Any notice, request, demand, claim, or other communication under this Agreement shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and
addressed to the intended recipient at the address set forth below the recipient’s signature to this Agreement. Either party to this Agreement may send any notice, request, demand, claim, or other communication under this Agreement to the
intended recipient at such address using any other means (including personal delivery, expedited courier, messenger service, telecopy, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be
deemed to have been duly given unless and until it actually is received by the intended recipient. Either party to this Agreement may change the address to which notices, requests, demands, claims, and other communications hereunder are to be
delivered by giving the other party notice in the manner set forth in this section.
Section 17.
Counterparts
. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
EXECUTED
as of the date of grant set forth above.
|
|
|
|
|
|
|
|
|
|
|
REAL GOODS SOLAR, INC.
|
|
GRANTEE
|
|
|
|
|
|
|
By
|
|
|
|
|
|
|
|
Name/Title:
|
|
|
|
Name:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Address:
|
|
360 Interlocken Blvd.
|
|
|
|
|
|
Address:
|
|
|
|
|
|
Broomfield, Colorado 80021
|
|
|
|
|
|
|
|
|
|
|
|
Attn.: Stock Option Administration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Social Security No.
|
-5-
Exhibit 10.3
Execution Version
* AN ASTERISK INDICATES WHERE PORTIONS OF THIS AGREEMENT HAVE
BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
MADE TO THE SECURITIES AND EXCHANGE COMMISSION. THESE NON-PUBLIC
PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.
STOCK PURCHASE AGREEMENT
by and among
MARIN SOLAR, INC.,
a California
corporation,
ROY PHILLIPS,
An Individual Resident of the State of California
JAN PHILLIPS,
An Individual Resident of the State of California
and
REAL GOODS MARIN, INC.,
a California corporation
Dated as of November 15, 2007
|
|
|
|
|
|
|
ARTICLE I
|
|
DEFINITIONS
|
|
1
|
|
|
|
|
|
1.1
|
|
Definitions
|
|
1
|
|
|
|
|
|
ARTICLE II
|
|
PURCHASE AND SALE
|
|
9
|
|
|
|
|
|
2.1
|
|
Purchase and Sale
|
|
9
|
|
2.2
|
|
Excluded Liabilities
|
|
9
|
|
2.3
|
|
Excluded Assets
|
|
9
|
|
2.4
|
|
Lien Termination
|
|
9
|
|
|
|
|
|
ARTICLE III
|
|
PURCHASE PRICE
|
|
9
|
|
|
|
|
|
3.1
|
|
Purchase Price
|
|
9
|
|
|
|
|
|
ARTICLE IV
|
|
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS
|
|
11
|
|
|
|
|
|
4.1
|
|
Organization and Qualification
|
|
11
|
|
4.2
|
|
Corporate Power
|
|
11
|
|
4.3
|
|
Authorization; Binding Obligations
|
|
11
|
|
4.4
|
|
Subsidiaries
|
|
11
|
|
4.5
|
|
Conflict with Other Instruments; Existing Defaults
|
|
12
|
|
4.6
|
|
Governmental and Other Third Party Consents
|
|
12
|
|
4.7
|
|
Capitalization; Title to Stock
|
|
12
|
|
4.8
|
|
Financial Statements; Undisclosed Liabilities
|
|
13
|
|
4.9
|
|
Existing Indebtedness and Liens; Investments
|
|
14
|
|
4.10
|
|
Contracts
|
|
14
|
|
4.11
|
|
Accounts Receivable
|
|
16
|
|
4.12
|
|
Labor Relations; Employees
|
|
16
|
|
4.13
|
|
Employee Benefit Plans; ERISA
|
|
17
|
|
4.14
|
|
Taxes
|
|
19
|
|
4.15
|
|
Litigation
|
|
21
|
|
4.16
|
|
Transactions with Affiliates
|
|
21
|
|
4.17
|
|
Licenses and Permits
|
|
22
|
|
4.18
|
|
Personal Property
|
|
22
|
|
4.19
|
|
Real Property
|
|
23
|
|
4.20
|
|
Environmental Matters
|
|
23
|
|
4.21
|
|
Intellectual Property
|
|
23
|
|
4.22
|
|
Nature of Business
|
|
26
|
|
4.23
|
|
Powers of Attorney
|
|
26
|
|
4.24
|
|
Insurance
|
|
26
|
|
4.25
|
|
Business Relationships
|
|
27
|
|
4.26
|
|
Personal Property Leases
|
|
27
|
|
4.27
|
|
Inventories
|
|
27
|
|
4.28
|
|
Depository and Other Accounts
|
|
27
|
|
4.29
|
|
Books and Records
|
|
27
|
|
4.30
|
|
Brokers; Certain Expenses
|
|
28
|
i
|
|
|
|
|
|
|
4.31
|
|
Compliance with Laws
|
|
28
|
|
4.32
|
|
Interim Changes
|
|
28
|
|
4.33
|
|
Outstanding Bids, Bid Bonds and Performance Bonds
|
|
29
|
|
4.34
|
|
Product and Service Warranties; Defects; Liability
|
|
30
|
|
4.35
|
|
Motor Vehicles
|
|
30
|
|
4.36
|
|
No Omissions or Misstatements
|
|
30
|
|
|
|
|
|
ARTICLE V
|
|
REPRESENTATIONS AND WARRANTIES OF SELLERS
|
|
30
|
|
|
|
|
|
5.1
|
|
Ownership of Capital Stock
|
|
30
|
|
5.2
|
|
Authorization of Transaction
|
|
30
|
|
5.3
|
|
Brokers’ Fees
|
|
31
|
|
5.4
|
|
No Conflict or Violation
|
|
31
|
|
5.5
|
|
Consents and Approvals
|
|
31
|
|
5.6
|
|
Litigation
|
|
31
|
|
5.7
|
|
Powers of Attorney
|
|
32
|
|
5.8
|
|
Sellers Guaranties
|
|
32
|
|
|
|
|
|
ARTICLE VI
|
|
REPRESENTATIONS AND WARRANTIES OF BUYER
|
|
32
|
|
|
|
|
|
6.1
|
|
Organization
|
|
32
|
|
6.2
|
|
Authorization
|
|
32
|
|
6.3
|
|
Due Execution and Delivery; Binding Obligations
|
|
32
|
|
6.4
|
|
No Violation
|
|
32
|
|
6.5
|
|
Brokers; Certain Expenses
|
|
32
|
|
6.6
|
|
Litigation
|
|
33
|
|
6.7
|
|
Company’s Financial Records
|
|
33
|
|
6.8
|
|
No Omissions or Misstatements
|
|
33
|
|
|
|
|
|
ARTICLE VII
|
|
COVENANTS OF THE PARTIES
|
|
33
|
|
|
|
|
|
7.1
|
|
Tax Matters
|
|
33
|
|
7.2
|
|
Noncompete
|
|
35
|
|
7.3
|
|
Certain Taxes
|
|
36
|
|
7.4
|
|
Securities Matters
|
|
36
|
|
7.5
|
|
Employees
|
|
37
|
|
7.6
|
|
Seller Guaranties and Obligations
|
|
37
|
|
7.7
|
|
*
|
|
37
|
|
7.8
|
|
Consents
|
|
37
|
|
|
|
|
|
ARTICLE VIII
|
|
CLOSING DELIVERIES
|
|
37
|
|
|
|
|
|
8.1
|
|
Deliveries by the Sellers and the Company
|
|
37
|
|
8.2
|
|
Deliveries by Buyer
|
|
38
|
ii
|
|
|
|
|
|
|
ARTICLE IX
|
|
INDEMNIFICATION
|
|
39
|
|
|
|
|
|
9.1
|
|
Indemnification
|
|
39
|
|
9.2
|
|
Limitations of Indemnity
|
|
39
|
|
9.3
|
|
Indemnification Procedures - Third Party Claims
|
|
40
|
|
9.4
|
|
Indemnification Procedures - Other Claims, Indemnification Generally
|
|
41
|
|
9.5
|
|
Exclusive Remedy
|
|
42
|
|
|
|
|
|
ARTICLE X
|
|
MISCELLANEOUS
|
|
42
|
|
|
|
|
|
10.1
|
|
Publicity
|
|
42
|
|
10.2
|
|
Expenses
|
|
42
|
|
10.3
|
|
Entire Agreement; Amendments and Waivers
|
|
42
|
|
10.4
|
|
Notices
|
|
42
|
|
10.5
|
|
Waivers and Amendments
|
|
44
|
|
10.6
|
|
Governing Law
|
|
44
|
|
10.7
|
|
Consent to Jurisdiction and Venue
|
|
44
|
|
10.8
|
|
Waiver of Trial by Jury
|
|
45
|
|
10.9
|
|
Counterparts
|
|
46
|
|
10.10
|
|
Invalidity
|
|
46
|
|
10.11
|
|
Negotiated Agreement
|
|
46
|
|
10.12
|
|
Assignment
|
|
46
|
|
10.13
|
|
Severability
|
|
46
|
|
10.14
|
|
Further Assurances
|
|
47
|
|
10.15
|
|
Mutual Releases
|
|
47
|
iii
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of November 15, 2007 by and among MARIN SOLAR, INC., a California corporation (the “
Company
”),
ROY PHILLIPS, an individual resident of the State of California (“
R. Phillips
”), JAN PHILLIPS, an individual resident of the State of California (“
J. Phillips
”) (J. Phillips and R. Phillips collectively referred to
as “
Sellers
”), and REAL GOODS MARIN, INC., a California corporation (“
Buyer
”).
R E C I T A L S:
WHEREAS, the Company is engaged in the business of providing and installing photovoltaic modules (the “
Business
”) in the
State of California;
WHEREAS, Sellers own all of the issued and outstanding voting stock of the Company as set forth on
Schedule
A
(collectively, the “
Stock
”) which consists solely of shares of Common Stock, the Preferred Stock being redeemed by the Company as provided in this Agreement; and
WHEREAS, each of Sellers desires to sell to Buyer all of the Stock owned by such Seller, and Buyer desires to purchase the Stock from Sellers, subject to
the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants contained in
this Agreement and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound hereby, agree as follows:
Article I
Definitions
1.1
Definitions
. For purposes of this Agreement, the following terms shall have the respective meanings set forth below:
“
Affiliate
” of any specified Person means (i) any other Person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified Person and (ii) any five percent stockholder of such Person. For purposes of this definition, “control” when used with respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by Contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the
foregoing.
“
Agreement
” means this Agreement and includes all of the schedules and exhibits annexed hereto.
“
Bankruptcy Laws
” means the United States Bankruptcy Code (Title 11, United States Code) and any state or federal laws pertaining to
insolvency, as the same may be amended from time to time.
1
“
Benefit Plan
” or “
Benefit Plans
” means all profit sharing, bonus,
stock option, stock purchase, stock bonus, restricted stock, stock appreciation right, phantom stock or other equity-based compensation arrangement, vacation pay, holiday pay, tuition reimbursement, scholarship, severance, dependent care assistance,
excess benefit, bonus, incentive compensation, salary continuation, supplemental retirement, deferred compensation, employee loan or loan guarantee program, split dollar, cafeteria plan, and other compensation arrangements and other material
agreement, arrangement, plan, policy, practice or program related to employment, compensation or employee benefits whether written or unwritten, funded or unfunded, formal or informal, and whether or not subject to ERISA that are maintained or
contributed to by the Company.
“
Bids
” means all rights of the Company to enter into contracts and perform services under
the terms of outstanding bids or responses for requests for proposals for product sales or services provided to customers and other potential customers using a bidding system for the procurement of such products or services.
“
Business
” has the meaning set forth in the Recitals to this Agreement.
“
Business Day
” means any weekday, except for any weekday on which banks are to close in California.
“
Buyer Indemnified Parties
” has the meaning set forth in Section 9.1(a).
“
Circle Bank Line of Credit Loan
” means the line of credit loan from Circle Bank to the Company.
“
Closing
” means the closing of the purchase and sale of the Stock contemplated by this Agreement. Notwithstanding the date on which the
Closing occurs, all of the incidents of economic ownership attributable to the Company shall be deemed transferred to Buyer on the Effective Date, and all prorations and allocations required by this Agreement shall be determined as of the Effective
Date.
“
Closing Date
” means, subject to the satisfaction of the conditions set forth herein, the later of
(i) November 15, 2007, or (ii) ten Business Days following the satisfaction or waiver of the conditions set forth in
Article VIII
.
“
Closing Statement
” has the meaning set forth in Section 3.1(b).
“
COBRA
” means the Consolidated Omnibus Budget Reconciliation Act, as amended from time to time.
“
Code
” means the Internal Revenue Code of 1986, as amended from time to time.
“
Common Stock
”
has the meaning set forth in Section 4.7(a).
“
Company
” has the meaning set forth in the introduction to this
Agreement.
“
Company Intellectual Property
” has the meaning set forth in Section 4.21(a).
2
“
Company Properties
” has the meaning set forth in Section 4.19(a).
“
Competing Transaction
” means any business combination or recapitalization involving the Company or any acquisition or purchase of all
or a significant portion of the assets of, or any equity interest in, the Company or any other similar transaction with respect to the Company involving any Person or entity other than Buyer or its Affiliates.
“
Contract
” means any contract, lease, license, purchase order, sales order, obligation or other agreement or binding commitment, whether
or not in written form.
“
Court Order
” means any judgment, decree, injunction, order or ruling of any Governmental
Authority or authority that is binding on any Person or its property under applicable Law.
“
Customer Rebates Payable
”
means rebates from the state of California under the California Solar Initiative program.
* has the meaning set forth in
Section 9.2(a).
“
Deposit
” has the meaning set forth in Section 3.1(a).
“
Disputed Items
” has the meaning set forth in Section 3.1(b).
“
Earn-Out
” has the meaning set forth in Section 3.1(c).
“
Effective Date
” means (i) 12:01 a.m. on the first day of the month in which
the Closing Date occurs if the Closing occurs on or before the 15
th
day of the such month, or (ii) 12:01 a.m. of the first day of the month
immediately following the month in which the Closing occurs if the Closing occurs after the 15
th
day of such month.
“
Employee Plans
” means Benefit Plans and all employee benefit plans (as defined in Section 3(3) of ERISA) to which the Company or
its ERISA Affiliates is a party or by which the Company or its ERISA Affiliates are bound, with respect to which payments or contributions are required to be made by the Company or its ERISA Affiliates, or in respect of which the Company or its
ERISA Affiliates may otherwise have any liability.
“
Employment Agreement
” means the Employment Agreements substantially
in the form of
Exhibit A
hereto.
“
Environmental Laws
” means any foreign, federal, state or local statute,
regulation, ordinance, rule of common law, order or other legal requirement relating to the protection of human health and safety, the environment or natural resources, including the Comprehensive Environmental Response, Compensation and Liability
Act (42 U.S.C. § 9601
et
seq.
), the Hazardous Materials Transportation Act (49 U.S.C. App. § 1801
et
seq.
), the Resource Conservation and Recovery Act (42 U.S.C. § 6901
et
seq.
), the Clean Water Act (33 U.S.C. § 1251
et
seq.
), the Clean Air Act (42 U.S.C. § 7401
et
seq.
) the Toxic Substances Control Act (15 U.S.C. § 2601
et
seq.
), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. § 136
et
seq.
), and the Occupational Safety and Health Act (29 U.S.C. § 651
et
seq.
), as
each has been or may be amended and the regulations promulgated pursuant thereto.
3
“
ERISA
” means the Employee Retirement Income Security Act of 1974, as amended from time
to time.
“
ERISA Affiliate
” means each persons which, pursuant to ERISA § 4001(b), is required to be treated as
a single employer with the Company pursuant to Code § 414(b), (c), (m) or (o).
“
Escrow Agreement
” means
the Escrow Agreement substantially in the form of
Exhibit B
hereto.
“
Escrow Fund
” has the meaning set forth in
Section 3.1.
“
Excluded Assets
” means abstract paintings and the assets of the Company set forth on
Schedule
1.1
.
“
Excluded Liabilities
” means any liabilities or obligations of any nature (absolute, accrued, contingent or
otherwise) of the Company or Sellers relating to *.
“
Final Closing Inventory
” means the value, at Company’s cost, of
the Inventory, on the Closing Statement.
“
Final Closing Inventory Shortfall
” means *.
“
GAAP
” means generally accepted accounting principles in effect in the United States, consistently applied, as in effect on the date of
this Agreement.
“
Governmental Authority
” means any (a) nation, state, commonwealth, province, territory, county,
municipality, district or other jurisdiction of any nature, or any political subdivision thereof, (b) federal, state, local, municipal, foreign or other government, or (c) governmental or quasi-governmental authority of any nature
(including any governmental division, department, agency, commission, instrumentality, official, organization, body or other entity and any court, arbitrator or other tribunal).
“
Gross Sales
” means solar installation sales and services as invoiced on a sales or service contract.
“
Gross Profit
” means Gross Sales less all of the following costs directly expended by the Company for the installations and services on
the applicable job: permits and fees, bonding, site construction and excavation, utility connections, utility service upgrades, solar equipment, solar system components, installation labor and supervision, returns, sales tax, freight costs,
engineering and design costs, subcontractor services, charge backs and per diem travel expenses for engineering, design and installation personnel.
* means the * substantially in the form of
Exhibit E
hereto.
4
“
Hazardous Material
” means any substance, material, liquid or waste that is regulated,
classified, or otherwise characterized under or pursuant to any Environmental Law as “hazardous,” “toxic,” “pollutant,” “contaminant,” “radioactive,” or words of similar meaning or effect, including,
without limitation, petroleum and its by-products, asbestos, polychlorinated biphenyls, radon, mold, and urea formaldehyde insulation.
“
Historical Financials
” has the meaning set forth in Section 4.8(a).
“
Indemnification
Acknowledgment
” has the meaning set forth in Section 9.3(a)(ii).
“
Indemnitee
” has the meaning set forth in
Section 9.3(a).
“
Indemnitor
” has the meaning set forth in Section 9.3(a).
“
Investments
” mean, as applied to any Person, (i) any direct or indirect acquisition by such Person of capital stock, other
securities or other interests of, or investments in, any other Person, or all or any substantial part of the business or assets of any other Person, and (ii) any direct or indirect loan, gift, advance (other than trade accounts receivables for
goods or services from customers incurred in the ordinary course of business (including such receivables evidenced by a promissory note)) or capital contribution by such Person to any other Person.
“
Inventory
” means normal items of inventory, which are current, suitable and merchantable at customary prices for the filing of orders
in the normal course of business, and are not obsolete, damaged, defective or slow-moving.
“
Knowledge
” and
“
Knowledge of the Company
” means, the actual knowledge or awareness of each Seller, and the knowledge or awareness that each such Person would have obtained after reasonable due diligence or inquiry in light of the circumstances.
“
Latest Balance Sheet
” means the unaudited balance sheet of the Company for the nine-month period ended
September 30, 2007 included in the Historical Financials and not prepared in accordance with GAAP.
“
Laws
” means any
statute, law, ordinance, regulation, order or rule of any governmental authority, including without limitation those covering environmental, energy, safety, health, transportation, bribery, record keeping, zoning, antidiscrimination, antitrust, wage
and hour, and price and wage control matters, as well as any applicable principle of common law.
“
Licenses and Permits
”
means all foreign, local, state and federal licenses, permits, registrations, certificates, Contracts, consents, accreditations and approvals necessary for the operation of the Business.
“
Lien
” means any lien (statutory or other), pledge, mortgage, deed of trust, assignment, deposit arrangement, priority, security
interest, or other charge or encumbrance or other preferential arrangement of any kind or nature whatsoever (including the interest of a lessor under a capitalized lease having substantially the same economic effect), any conditional sale or other
title
5
retention agreement, any lease in the nature thereof and the filing or existence of any financing statement or other similar form of notice under the laws of
any jurisdiction or any security agreement authorizing any Person to file such a financing statement, whether arising by contract, operation of law, or otherwise.
“
Losses
” means any and all damages, costs, liabilities, losses, judgments, settlements, awards, penalties, fines, expenses or other costs, including reasonable attorneys’ fees, expert fees and
costs of investigation, enforcement and collection suffered or incurred by an Indemnified Party.
“
Material Adverse
Effect
” means a material adverse effect on either (i) the assets, operations, personnel, condition (financial or otherwise) or prospects of the Company, or (ii) the ability of either of Seller to consummate the transactions
contemplated hereby.
“
Most Recent Fiscal Month End
” has the meaning set forth in Section 4.8(a)(ii).
“
Noncompete Period
” has the meaning set forth in Section 7.2(a).
“
Notice of Claim
” has the meaning set forth in Section 9.3(a)(i).
“
Party
” and “
Parties
” means, individually and collectively, the Company, Sellers and Buyer.
“
Permitted Liens
” means (i) Liens and other exceptions to title that are disclosed on
Schedule 4.9
; (ii) liens for
Taxes, fees, levies, duties or other governmental charges of any kind which are not yet delinquent or are being contested in good faith by appropriate proceedings which suspend the collection thereof and for which appropriate reserves have been
established in accordance with GAAP; (iii) liens for mechanics, materialmen, laborers, employees, suppliers or similar liens arising by operation of law for sums which are not yet delinquent or which are being contested in good faith by
appropriate proceedings or with respect to which arrangements for payment or release have been made and for which appropriate reserves have been established in accordance with GAAP; and (iv) Liens arising under purchase money security interest
contracts and operating leases with third parties entered into in the ordinary course of business set forth on
Schedule B
hereto, the payments under which leases are current and are not past due.
“
Person
” means any individual, partnership, limited liability company, limited liability partnership, corporation, association, joint
stock company, trust, joint venture, unincorporated organization or governmental entity (or any department, agency or political subdivision thereof).
“
Pre-Effective Tax Period
” has the meaning set forth in Section 7.1(a).
“
Preferred Stock
” has the meaning set forth in Section 4.7(a).
“
Products
” means all past,
current and proposed products and services manufactured, sold, leased, installed, maintained or otherwise provided by the Company, any subsequent versions of such products and services currently being developed, any products and services currently
being developed which are designed to supersede, replace or function as a component of the foregoing, and any upgrades, enhancements, improvements and modifications to the foregoing.
6
“
Pro Rata Share
” means the pro rata share of each of Sellers based on their relative
ownership of the Company as set forth on
Schedule A
hereto.
“
Purchase Price
” has the meaning set forth in
Section 3.1(a).
“
Purchase Price Adjustment
” has the meaning set forth in Section 3.1(b).
“
Release
” means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching into the
indoor or outdoor environment, and includes any migration of any Hazardous Material from or onto the properties owned or leased by the Company.
“
Released Claims
” has the meaning set forth in Section 10.15.
“
Released Parties
” has the
meaning set forth in Section 10.15.
“
Releasors
” has the meaning set forth in Section 10.15.
“
Remedial Action
” means all actions to (i) clean up, remove, treat or in any other way address any Hazardous Material,
(ii) prevent the Release of any Hazardous Material so it does not endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, (iii) perform pre-remedial studies and investigations or post-remedial
monitoring and care or (iv) to otherwise correct a condition of noncompliance with Environmental Laws.
“
Section
409A
” has the meaning set forth in Section 4.13(o).
“
Seller Guaranties
” has the meaning set forth in
Section 5.8.
“
Sellers’ Liabilities Paid at Closing
” means, the amounts set forth on
Schedule C
hereto
necessary to *.
“
Sellers’ Trade Payables
” means, the amounts set forth on
Schedule C
hereto necessary to pay
all current liabilities of the Company, *, as of the Closing Date (determined in accordance with GAAP), which liabilities shall exclude *.
“
Stock
” has the meaning set forth in the Recitals to this Agreement.
“
Straddle Period
” has the
meaning set forth in Section 7.1(c).
“
Subsidiary
” and “
Subsidiaries
” means, with respect to any
Person, any other Person of which more than 50% of the total voting power of capital stock entitled to vote (without regard to the occurrence of any contingency) in the election of directors (or other Persons performing similar functions) are at the
time directly or indirectly owned by such specified Person.
* has the meaning set forth in Section 3.1(d).
7
“
Tax
” or “
Taxes
” means any federal, state, local or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, capital gain, intangible, environmental (including taxes under Section 59A of the Code or otherwise), custom duties, capital stock,
profits, franchise, employee’s income withholding, foreign withholding, social security (or its equivalent), unemployment, disability, real property, personal property, sales, use, transfer, value added, registration, alternative or add-on
minimum, estimated or other tax of any kind, including any interest, penalties or additions to tax in respect of the foregoing, whether disputed or not, and any obligation to indemnify, assume or succeed to the liability of any other Person in
respect of the foregoing; and the term “
Tax Liability
” shall mean any liability (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated, and whether due or to become due) with respect to Taxes.
“
Tax Determination
” has the meaning set forth in Section 7.1(f).
“
Tax Return
” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including
any schedule or attachment thereto, and including any amendment thereof.
“
Technolog
y” means all inventions, copyrightable
works, discoveries, innovations, know-how, information (including ideas, research and development, know-how, formulas, compositions, processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information, business and marketing plans and proposals, documentation and manuals), computer software, computer hardware, integrated circuits and integrated circuit masks, electronic, electrical and mechanical equipment and all other forms
of technology, including improvements, modifications, derivatives or changes, whether tangible or intangible, embodied in any form, whether or not protectible or protected by patent, copyright, mask work right, trade secret law or otherwise.
“
Third Party Claim
” means a claim or demand made by any Person, other than Buyer, Sellers or the Company, against an
Indemnified Party.
“
Third Party Intellectual Property Rights
” has the meaning set forth in Section 4.21(b).
“
Transaction Documents
” means this Agreement, the Escrow Agreement, the Employment Agreement, the Landlord’s Consent
to Assignment and any document or instrument which shall be executed and delivered at the Closing by the Company or Sellers, as the case may be.
“
Transactions with Affiliates
” means those transactions described in Section 4.16.
“
Vehicle
Loans
” means the Company’s loans for various vehicles as listed on
Schedule 4.9
hereto.
“
WARN
” has
the meaning set forth in Section 4.12(b).
8
Article II
Purchase and Sale
2.1
Purchase and Sale
. Subject to the terms hereof, Sellers agree to sell,
transfer, assign, convey and deliver to Buyer, and Buyer agrees to purchase from Sellers, all of the Stock, free and clear of all Liens.
2.2
Excluded Liabilities
. Notwithstanding the purchase of the Stock by Buyer, Buyer and Sellers acknowledge and agree that: (a) it is the intent of the Parties that Sellers shall be responsible for all Excluded Liabilities; and
(b) Sellers agree to fully and timely pay all Excluded Liabilities.
2.3
Excluded Assets
. Buyer, the Company and Sellers
acknowledge and agree that the Excluded Assets shall be distributed by the Company to Sellers immediately prior to the Closing Date.
2.4
Lien Termination
. On or prior to the Closing Date, all Liens (other than Permitted Liens) on the Company’s assets shall have been terminated.
Article III
Purchase Price
3.1
Purchase Price
.
(a)
Cash
Purchase Price
.
(i) The cash purchase price for the Stock shall be $* (the “
Purchase Price
”), paid as follows:
(A) $* paid on October 17, 2007 into Seller’s attorney’s trust account to be released at Closing (the
“
Deposit
”);
(B) the Sellers’ Liabilities Paid at Closing shall be paid directly by the Company and/or Buyer on the
Closing Date;
(C) the Sellers’ Trade Payables shall be paid directly by the Company and/or Buyer in the ordinary course;
(D) $* necessary for the Company to redeem the outstanding shares of Preferred Stock in accordance with the Company’s Amended and Restated
Articles of Incorporation shall be paid directly to Harold and Linda Kramer by wire transfer in immediately available funds on the Closing Date;
(E)* of the Purchase Price after deduction of the amounts set forth in Section 3.1(a)(i)(A)-(D) (the “
Escrow Fund
”) shall be delivered to the Escrow Agent pursuant to the Escrow Agreement; and
9
(F) the remainder shall be paid in cash at Closing by wire transfer in immediately available funds to
each Seller in accordance with his or her respective Pro Rata Share.
(b)
Adjustments to Purchase Price
.
(i) The Purchase Price shall be reduced, * (the “
Purchase Price Adjustment
”).
(ii) Within 30 days after the Closing Date, Buyer shall conduct a physical count of the Company’s Inventory on-hand and Buyer shall provide a
calculation in reasonable detail of the *, if any, and, if applicable, the Purchase Price Adjustment (the “
Closing Statement
”). Sellers will cooperate with Buyer in connection with the preparation of the Closing Statement.
(iii) At any time within 5 days following the delivery of the Closing Statement pursuant to Section 3.1(b)(ii) hereof, Sellers may
deliver a written objection specifying those items on the Closing Statement which it disputes (such items, the “
Disputed Items
”). If Sellers do not so object in writing, the Closing Statement shall be final and binding on the
parties. If Sellers object to the Closing Statement, the parties shall agree on the amount, if any, which is not in dispute, and attempt to resolve the Disputed Items by negotiation. If the parties are unable to resolve the Disputed Items within 10
days of the objection by Sellers, the parties shall appoint a firm of certified public accountants of national recognition mutually satisfactory to Sellers and Buyer to review the Disputed Items and determine the amount thereof in accordance with
GAAP. Buyer and Sellers shall use commercially reasonable efforts to cause such accounting firm to determine such amount as soon as is reasonably practicable. The fees and expenses of such accounting firm shall be borne in equal portions by Sellers
and Buyer and the determination of such accounting firm shall be final and binding on the parties.
(iv) If the aggregate amount of the
Purchase Price Adjustment is less than the Escrow Amount, Buyer and Sellers will deliver mutual instructions to the Escrow Agent in accordance with the terms of the Escrow Agreement to deliver that portion of the Escrow Amount equal to the Purchase
Price Adjustment to Buyer and the balance of the Escrow Amount shall remain in escrow to be distributed in accordance with the terms of the Escrow Agreement.
(c)
Additional Purchase Price – Earn-Out
. The Purchase Price shall be increased by the earn-out payment, if any, described in this Section 3.1(c), which shall be calculated as provided herein (the
“
Earn-Out
”). Sellers shall be entitled to additional Purchase Price in an amount equal to *. If earned, the Earn-Out shall be paid by Buyer as follows: (i) within 30 days following June 30, 2008 for * and (ii) within
30 days following February 28, 2009 for *. Sellers shall be entitled to payment of the Earn-Out, if earned as provided in this Section 3.1(c), without regard to whether the Sellers are employed by Buyer.
(d)* Sellers shall be entitled to additional payments in an amount equal to*. Payments due to Sellers under this Section 3.1(d) will be made within
30 days after the Company receives a *. Sellers shall be entitled to the payments provided in this Section 3.1(d) without regard to whether the Sellers are employed by Buyer.
10
(e) For federal income tax purposes, any payment made pursuant to this Agreement and after the Closing
Date to Sellers with respect to their Stock shall be treated as deferred Purchase Price and shall be subject to imputation of interest under Section 483 or Section 1274 of the Code and therefore treated as an installment sale by Sellers.
Article IV
Representations and Warranties of the Company and Sellers
As a material inducement to Buyer to enter into this Agreement
and to consummate the transactions contemplated herein, the Company and Sellers hereby, jointly and severally, make the following representations and warranties to Buyer, subject to qualification by the disclosure schedules. The Company has also
delivered to Buyer (or has caused the delivery to Buyer of) disclosure schedules arranged in numbered parts corresponding to the section numbers in this Agreement of the following representations and warranties. The information disclosed in any
particular disclosure schedule shall be deemed to relate to and to qualify only the particular representation or warranty set forth in the corresponding numbered section in this Agreement and shall not be deemed to relate to or to qualify any other
representation or warranty.
4.1
Organization and Qualification
. The Company is a corporation duly organized, validly existing and
in good standing under the laws of its state of incorporation or organization. The Company has all requisite power and authority, and all material Licenses and Permits, necessary to own and/or lease and operate its properties and assets and to carry
on its business as now conducted, and is duly qualified or licensed to do business in each jurisdiction in which the character of the properties or assets owned, leased or operated by it or the nature of the activities conducted makes such
qualification or licensing necessary.
4.2
Corporate Power
. The Company has the requisite corporate power and authority to execute,
deliver, carry out and perform its obligations under this Agreement and each other agreement to which it is a party.
4.3
Authorization;
Binding Obligations
. The execution, delivery and performance of this Agreement and each other Transaction Document to which the Company is a party, the sale of the Stock by Sellers and the consummation of the other transactions contemplated
hereby and thereby, have been duly authorized by all requisite action on the part of the Company and Sellers. This Agreement has been duly executed and delivered by the Company and, at the Closing, each of the other Transaction Documents to which
the Company is a party will be duly executed and delivered by the Company. This Agreement is, and at the Closing each of the other Transaction Documents to which the Company is a party will be, a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or conveyance or similar laws relating to or limiting creditors’
rights generally or by equitable principles relating to enforceability, and except as rights of indemnity or contribution may be limited by federal or state securities laws or the public policy underlying such laws.
4.4
Subsidiaries
. The Company has no Subsidiaries. The Company does not own, directly or indirectly, any capital stock of any other Person.
11
4.5
Conflict with Other Instruments; Existing Defaults
.
(a) Except as set forth on
Schedule 4.5
, the execution, delivery and performance by the Company of this Agreement and each other agreement, the
sale and delivery of the Stock by Sellers and the consummation of the other transactions contemplated hereby and thereby do not and will not violate, or cause a default under, or give rise to a right of termination under, (i) the organizational
documents of the Company, (ii) any Contract to which the Company is a party, or (iii) any applicable Laws.
(b) The Company is
not (i) in default, breach or violation of its organizational documents, as in effect as of the date hereof, as applicable, or (ii) in default, breach or violation of (A) any Contract required to be disclosed on
Schedule
4.10(a)
to which it is a party or by which it or its assets is or may be bound, or (B) any applicable Laws. Without limiting the generality of the foregoing, there does not exist any ‘default’ or ‘event of default’ (in
each case as defined in any such agreement) or any default under any other credit or financing agreement to which the Company is a party or by which any of its properties or assets are bound.
(c) Except as set forth in
Schedule 4.5
, there are no contractual restrictions or limitations which prohibit the sale by any Seller of the Stock
to be sold hereunder, prohibit or restrict any merger, sale of assets or other event which could cause a change in control of the Company, or otherwise prohibit any other financings by the Company, including any public or private debt or equity
financings.
4.6
Governmental and Other Third Party Consents
. Except as provided on
Schedule 4.6
, none of the Company or
Sellers is required to obtain any consent from, provide any notice to, or is required to make any declaration or filing with, any Governmental Authority or any other Person in connection with the execution, delivery and performance of this Agreement
or any other agreement, including the sale of the Stock to Buyer, or for the purpose of maintaining in full force and effect any Licenses and Permits. Except as provided on
Schedule 4.6
, all consents required to be obtained or made in
connection with the execution, delivery and performance of this Agreement or any other Transaction Document will at the Closing be in full force and effect. The time within which any administrative or judicial appeal, reconsideration, rehearing or
other review of any such consent of any Governmental Authority may be taken or instituted has lapsed, and no such appeal, reconsideration or rehearing or other review has been taken or instituted.
4.7
Capitalization; Title to Stock
.
(a) The Company’s authorized capital stock consists of: (i) 1,000 shares of common stock, no par value (“
Common Stock
”); and (ii) 5,000 shares of Preferred Stock, $100 per value per share (“
Preferred
Stock
”), all 3,500 of the outstanding shares of which shall be redeemed by the Company on or before the Closing Date in accordance with Section 8.1(a).
The issued and outstanding shares of Stock are owned as set forth on
Schedule A
. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable and were not issued in violation of any preemptive rights or Contract binding upon the Company. Except as set forth on
Schedule A
or
Schedule 4.7
, there are no outstanding (i) shares of capital stock or other voting securities of the Company, (ii) securities convertible into or exchangeable for shares of capital stock or voting securities of
the
12
Company, (iii) options, warrants or other rights to acquire from the Company or obligations of the Company to issue any capital stock, voting securities
or securities convertible into or exchangeable for capital stock or voting securities of the Company, or (iv) equity equivalent interests in the ownership or earnings of the Company or stock appreciation, phantom stock, right of first refusal,
commitment or other similar rights. Except as set forth on
Schedule 4.7
, there are no voting trusts, proxies or other agreements or understandings with respect to the voting, registration or transfer of ownership of the Company’s capital
stock. The Company is not subject to any obligations (contingent or otherwise) to repurchase, redeem or otherwise acquire or retire any shares of its capital stock. All dividends or distributions on securities of the Company that have been declared
or authorized prior to the date of this Agreement have been paid in full or accrued for in the Historical Financials.
(b) Sellers own the
Stock free and clear of any Liens or other restrictions (including any restrictions on the right to vote, sell or otherwise dispose of such capital stock) and of any preemptive or other similar rights to subscribe for or to purchase any such capital
stock. All of the issued and outstanding shares of Common Stock as set forth in
Schedule A
have been duly authorized and are validly issued, fully paid and non-assessable. Immediately following the Closing, Buyer will own directly 100%
of the Stock of the Company.
4.8
Financial Statements; Undisclosed Liabilities
.
(a) Attached hereto as
Schedule 4.8
are the following (the financial statements referred to in clauses (i) and (ii) below being
collectively referred to as the “
Historical Financials
”):
(i) unaudited balance sheet of the Company as of
December 31, 2006, December 31, 2005, and December 31, 2004, and statements of income and retained earnings for each of the three years then ended, which have not been reviewed by the outside accounting firm of the Company; and
(ii) unaudited, management prepared financial statements of the Company consisting of a balance sheet as of the close of business of the
day immediately prior to the Effective Date (the “
Most Recent Fiscal Month End
”), and a statement of operations for the appropriate period then ended.
The Historical Financials (including, in each case, the related schedules and notes, if any) fairly present the financial position of the Company as of the respective dates of such balance sheets and the results of
operations of the Company for the respective periods covered by such statements of income, and have not been prepared in accordance with GAAP.
(b) Except as set forth on
Schedule 4.8(b)
hereto, the Company does not have any liabilities (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due, including any liability for Taxes), except for (i) liabilities set forth on the Latest Balance Sheet (rather than in any notes thereto), and (ii) liabilities that have arisen after the
Most Recent Fiscal Month End in the ordinary course of business.
13
(c) None of the Company nor any of its officers, directors or, to the Knowledge of the Company, any of
their respective Affiliates (i) is contemplating the filing of a petition under the Bankruptcy Laws with respect to the Company, or the liquidation of all or any major portion of its or their assets or properties, or (ii) is aware of any
Person contemplating the filing of any petition against the Company under the Bankruptcy Laws. The Company is not contemplating materially changing its Business, as such Business is being conducted on the date hereof.
4.9
Existing Indebtedness and Liens; Investments
.
(a)
Schedule 4.9(a)
sets forth a true, correct and complete list, and describes, as of the date or dates indicated therein, as applicable: (i) all indebtedness for borrowed money and capital lease
obligations of the Company, showing, as to each indebtedness, the payee thereof, the total amount outstanding (by principal, interest and other amounts, if applicable) and the maturity date; (ii) all Liens (other than Permitted Liens) in
respect of any property or assets of the Company, showing, as to each Lien, the name of the grantor and secured party, the indebtedness secured thereby, the name of the debtor (if different from the grantor) and the assets or other property covered
by such Lien; (iii) all Permitted Liens; (iv) all Investments of the Company; (v) all UCC financing statements on file, naming the Company as a debtor, showing, as to each financing statement, the basis for the filing; and (vi) a
trade payables aging schedule for the Company.
(b) The Company does not have on the date hereof, or will not have on the Closing Date,
(i) liabilities for Taxes, or (ii) forward or long-term commitments outside the Company’s ordinary course of business or inconsistent with the Company’s historical practices.
4.10
Contracts
.
(a)
Schedule
4.10(a)
sets forth a true, correct and complete list of all Contracts, commitments, licenses, agreements, obligations or binding arrangements, whether oral or written, to which the Company is a party or by which any of its assets or properties
are bound:
(i) under which the Company is indemnified for or against any liability, or under which the Company is or could be obligated to
indemnify any Person and which involves a potential liability in excess of $10,000 or has a term of more than six months;
(ii) under
which the Company leases personal property from or to third parties under capitalized leases or under operating leases if the term of such lease is more than six months or the financial obligation is in excess of $10,000 per year;
(iii) for the purchase or sale of products or other personal property or for the furnishing or receipt of services (A) that calls for performance
over a period of more than six months or (B) in which the Company has agreed to purchase a minimum quantity of goods or services or has agreed to purchase goods or services exclusively from any Person (in each case, with a value in excess of
$10,000 in the aggregate);
14
(iv) (A) granting representation, marketing or distribution rights or (B) relating to Company
Intellectual Property (including license, development or similar agreements);
(v) under which the Company has created, incurred, assumed
or guaranteed (or may create, incur, assume or guarantee) indebtedness for borrowed money in excess of $10,000, or under which there is or may be imposed a security interest or other Lien on any of its assets, whether tangible or intangible (other
than security interests or Liens granted in favor of Buyer);
(vi) establishing or maintaining any partnership, joint venture or strategic
alliance;
(vii) concerning any confidentiality or non-solicitation obligations of the Company;
(viii) under which the Company is restricted from carrying on its business or any part thereof, or from competing in any line of business or with any
Person;
(ix) with officers, directors, employees or consultants of the Company, in each case involving payments by the Company in excess
of $10,000 per annum;
(x) involving any Affiliates of the Company;
(xi) under which the consequences of a default or termination would reasonably be expected to have, a Material Adverse Effect;
(xii) under which the Company will (A) receive aggregate payments from customers, (B) make aggregate payments to vendors or other suppliers or
(C) make or receive aggregate payments to or from any other Persons, in each case in excess of $10,000 per annum;
(xiii) which is
not terminable on sixty (60) or fewer days’ notice without cost or penalty; and
(xiv) not entered into in the ordinary course
of business and not otherwise disclosed on
Schedule 4.10(a)
in response to any of the foregoing clauses; and
The Company has
delivered to Buyer true, correct and complete copies of each Contract in existence as of the date hereof. To the extent that written Contracts do not exist, the Company has delivered to Buyer accurate summaries of the material terms and conditions
of such oral Contracts.
(b) Except as disclosed on
Schedule 4.10(b)
, (i) each Contract existing as of the date hereof is a
legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or conveyance or
similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability), and (ii) to the Knowledge of the Company, each
15
Contract existing as of the date hereof is a legal, valid and binding obligation of the other parties thereto, enforceable against the other parties in
accordance with its terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or conveyance or similar laws relating to or limiting creditors’ rights generally or by equitable
principles relating to enforceability) and is in full force and effect. The Company is and, to the Knowledge of the Company each other party to each Contract existing as of the date hereof are, in compliance with the terms thereof, and no default or
event of default by the Company or any other party thereto exists thereunder.
4.11
Accounts Receivable
. All accounts receivable of
the Company (a) are legal, valid and binding obligations of the Persons shown in the accounting records of the Company as the obligor with respect thereto, (b) arose out of bona fide sales actually made or services actually performed on or
prior to such date in the ordinary course of business, (c) are not subject to discount, rebate, off-set, return privilege (other than return privileges granted in the ordinary course of business consistent with past practice) or claim, and
(d) are valid and collectible in the ordinary course of business.
4.12
Labor Relations; Employees
.
(a)
Labor Matters
. The Company is not a party to any labor contract, collective bargaining agreement, Contract, letter of understanding, or any
other arrangement, formal or informal, with any labor union or organization which obligates the Company to compensate the Company’s employees at prevailing rates or union scale, nor are any of its employees represented by any labor union or
organization. There is no pending or, to the Knowledge of the Company, threatened labor dispute, work stoppage, unfair labor practice complaint, strike, administrative or court proceeding or order between the Company and any present or former
employee(s) of the Company. There is no pending or, to the Knowledge of the Company, threatened suit, action, investigation or claim between the Company and any present or former employee(s) of the Company. To the Knowledge of the Company, there has
not been any labor union organizing activity at any location of the Company, or elsewhere, with respect to the Company’s employees within the last three years. The Company has complied in all respects with immigration and naturalization laws in
connection with the employment of its work force. Except as set forth on
Schedule 4.12(a)
, no person or party (including, without limitation, any Governmental Authority) has asserted, or, to the Knowledge of the Company, has threatened to
assert, any claim or any action or proceeding, against the Company (or to the Knowledge of the Company has asserted or threatened to assert any claim or any action or proceeding against any officer, director, employee, agent or shareholders of the
Company) relating to the Company’s employees or former employees and arising out of any statute, ordinance or regulation relating to wages, collective bargaining, discrimination in employment or employment practices or occupational safety and
health standards (including, without limitation, the Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, as amended, the Occupational Safety and Health Act, the Age Discrimination in Employment Act of 1967, the Americans with
Disabilities Act or the Family and Medical Leave Act).
(b)
Schedule 4.12(b)
hereto sets forth: (i) a complete list of all of
the Company’s employees, and rates of pay, (ii) a description of any and all fringe benefits and personnel policies, (iii) the employment dates and job titles of each such person,
16
(iv) categorization of each such person as a full-time or part-time employee of the Company, and (v) whether any such person has an employment
agreement, and (vi) the date of the last increase, if any, in such employees’ rates of pay. For purposes of this Section, “part-time employee” means an employee who is employed for an average of fewer than 20 hours per week or
who has been employed for fewer than six of the 12 months preceding the date on which notice is required pursuant to the Worker Adjustment and Retraining Notification Act (“
WARN
”), 29 U.S.C. Section 2102,
et
seq.
Except as set forth on
Schedule 4.12(b)
, the Company has no employment agreements with its employees and all such employees are employed on an at “at will” basis.
Schedule 4.12(b)
sets forth all ex-employees of the Company
utilizing or eligible to utilize COBRA (health insurance). All Persons with whom the Company has engaged as independent contractors are properly classified as independent contractors for Tax purposes.
(c)
Schedule 4.12(c)
sets forth a true, correct and complete list of all written employment agreements, independent contractor or consulting
agreements and sales representative (or similar) agreements, golden parachute agreements, change of control agreements and employee-related non-competition and non-solicitation agreements to which the Company is a party and which are in effect. The
Company has previously delivered to Buyer true, correct and complete copies of all such agreements, including all amendments thereto. Neither the Company nor, any other Person that is a party to any such agreement, is in breach of, or in default
with respect to, any of its material obligations thereunder, nor is the Company aware of any facts or circumstances which give rise to any breach or default thereunder.
4.13
Employee Benefit Plans; ERISA
. For purposes of this Section 4.13, the term ‘Company’ shall also refer to any ERISA Affiliate.
(a)
Schedule 4.13
contains an accurate and complete list of all Employee Plans, accurate and complete copies of which have been delivered to Buyer.
(b) Neither the Company nor any ERISA Affiliate has maintained or contributed to a (i) “defined benefit plan” (within the
meaning of Section 3(35) of ERISA), (ii) “multiemployer plan” (within the meaning of Section 3(37) or Section 4001(a)(3) of ERISA) or (iii) any Employee Plan of the type described in Sections 4063 and 4064 of ERISA
or in Section 413(c) of the Code (and the regulations promulgated thereunder) at any time, nor has the Company nor any ERISA Affiliate had any actual or potential liability with respect to any of these types of plans at any time.
(c) The Company has not maintained any Employee Plan outside of the United States.
(d) Except as set forth on
Schedule 4.13
, the Company has never maintained any Employee Plan (other than an Employee Plan which is intended to be
“qualified” within the meaning of Section 401(a) of the Code) which provides benefits with respect to employees or former employees following their termination of service with the Company (other than as required pursuant to
Section 601 of ERISA or pursuant to COBRA). Each Employee Plan that is subject to the requirements of Section 601 of ERISA has been operated in accordance therewith.
17
(e) Except as set forth on
Schedule 4.13
, no individual will accrue or receive additional
benefits, credit for service or accelerated rights to payments of benefits as a direct result of the transactions contemplated by this Agreement.
(f) No liability, claim, investigation, audit, action or litigation incurred, made, commenced or threatened by or against any Employee Plan or the Company with respect to any Employee Plan (other than for benefits payable in the ordinary
course).
(g) No Employee Plan-related trust owns any securities in violation of Section 407 of ERISA.
(h) No Employee Plan that is a “welfare plan” (within the meaning of Section 3(1) of ERISA) provides any benefit to retired or former
employees of the Company, other than as required by COBRA.
(i) Each Employee Plan that is a group health plan is subject to COBRA and the
requirements of COBRA have been met with respect to each such Employee Plan.
(j) Except as set forth on
Schedule 4.13
, full payment
has been made of all amounts which the Company was required under the terms of each Employee Plan to have paid as contributions to such Employee Plan on or prior to the date hereof (excluding any amounts not yet due), and no Employee Plan which is
subject to Part 3 of Subtitle B of Title I of ERISA has incurred any “accumulated funding deficiency” (within the meaning of Section 302 of ERISA or Section 412 of the Code), whether or not waived.
(k) Each Employee Plan and all related trusts, insurance contracts and funds (as applicable) have been maintained, funded, operated and administered in
compliance in all respects in accordance with its terms and with all applicable laws and regulations, including, but not limited to, ERISA and the Code.
(l) Each Employee Plan that is intended to be qualified under Section 401(a) of the Code, and each trust forming a part thereof, has received a favorable determination letter from the Internal Revenue Service as
to the qualification under the Code of such Employee Plan and the Tax-exempt status of such related trust, and no event has occurred, and no condition exists, since the date of such determination letter that has adversely affected, or would be
reasonably expected to adversely affect, the qualification of such Employee Plan or the Tax-exempt status of such related trust.
(m)
Neither the Company nor any other “disqualified person” or “party in interest” (as defined in Section 4975(e) (2) of the Code and Section 3(14) of ERISA, respectively) has engaged in any transaction in connection
with any Employee Plan that could reasonably be expected to result in the imposition of a penalty pursuant to Section 502(i) of ERISA, damages pursuant to Section 409 of ERISA or a Tax pursuant to Section 4975(a) of the Code.
(n) With, respect to each Employee Plan, the Company has delivered or caused to be delivered to Buyer and its counsel true and complete
copies of the following documents, as applicable to each respective Employee Plan: (i) all Employee Plan documents, with all amendments thereto; (ii) the current summary plan description, with any applicable summaries of material
18
modifications thereto, as well as any other material employee communications; (iii) all current trust agreements and/or other documents establishing the
Employee Plan’s funding arrangements; (iv) the most recent IRS determination letter and, if a request for such a letter has been filed and is currently pending with the IRS, a copy of such filing; (v) the three most recently prepared
IRS Forms 5500; (vi) the most recently prepared financial statements; and (vii) all material related contracts, including, without limitation, insurance contracts, service provider agreements and investment management and investment
advisory agreements.
(o) All Benefit Plans have been disclosed to Buyer. All of such Benefit Plans that are pursuant to written agreements
are set forth on
Schedule 4.13
. Each Benefit Plan that is a ‘nonqualified deferred compensation plan’ (as defined in Section 409A(d)(1) of the Code) has been operated since January 1, 2005 in good faith compliance with
Section 409A of the Code and Internal Revenue Service Notice 2005-1 (collectively “
Section 409A
”). No Benefit Plan that is a ‘nonqualified deferred compensation plan’ has been materially modified within the meaning of
Section 409A. No event has occurred that would be treated under Section 409A as a transfer of property for purposes of Section 83 of the Code. No equity-based compensation arrangement or award granted under any Benefit Plan is
considered ‘deferred compensation’ within the meaning of Section 409A.
4.14
Taxes
.
(a) Except as set forth on
Schedule 4.14(a)
, the Company has filed all Tax Returns that they were required to file under applicable laws and
regulations. All such Tax Returns were correct and complete in all respects and were prepared in substantial compliance with all applicable laws and regulations. All Taxes due and owing by the Company (whether or not shown on any Tax Return) have
been paid. The Company is not currently the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been made by an authority in a jurisdiction where the Company does not file Tax Returns that the Company is or
may be subject to taxation by that jurisdiction. There are no Liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of the Company.
(b) The Company has withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, stockholder, or other third party.
(c) The Company has not received any notice, nor expects to receive any notice, from any authority indicating an intent to assess any additional Taxes
for any period for which Tax Returns have been filed. No foreign, federal, state, or local tax audits or administrative or judicial Tax proceedings are pending or being conducted with respect to the Company. The Company has not received from any
foreign, federal, state, or local taxing authority (including jurisdictions where the Company has not filed Tax Returns) any (i) notice indicating an intent to open an audit or other review, (ii) request for information related to Tax
matters, or (iii) notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted, or assessed by any taxing authority against the Company.
Schedule 4.14(c)
sets forth a list of all federal, state, local, and foreign
Tax Returns filed with respect to the Company for taxable periods ended on or after December 31, 2001, indicates whether those Tax Returns that have been audited,
19
indicates those Tax Returns that are currently are the subject of audit, and indicates whether the Company has received notice that any of those Tax Returns
will be the subject of an audit. Sellers have delivered to Buyer correct and complete copies of all Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by the Company filed or received since
December 31, 2001.
(d) The Company has not waived any statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
(e) The Company is not a party to any agreement, contract, arrangement or plan that has
resulted or could result, separately or in the aggregate, in the payment of (i) any “excess parachute payment” within the meaning of Code § 280G (or any corresponding provision of state, local or foreign Tax law) and
(ii) any amount that will not be fully deductible as a result of Code § 162(m) (or any corresponding provision of state, local or foreign Tax law). The Company has not been a United States real property holding corporation within the
meaning of Code § 897(c)(2) during the applicable period specified in Code § 897(c)(1)(A)(ii). The Company has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code § 6662. The Company is not a party to or bound by any Tax allocation or sharing agreement. The Company (A) has not been a member of an Affiliated Group filing a
consolidated federal income Tax Return and (B) has no Liability for the Taxes of any Person (other than the Company) under Reg. § 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by
contract, or otherwise.
(f)
Schedule 4.14(f)
sets forth the following information with respect to the Company as of the most recent
practicable date: (A) the Tax basis of the Company in its assets, including depreciation schedules related to such Tax basis; (B) the amount of any net operating loss, net capital loss, unused investment or other credit, unused foreign
tax, or excess charitable contribution allocable to the Company; and (C) the amount of an deferred gain or loss allocable to the Company arising out of any intercompany transaction.
(g) Since the date of the Latest Balance Sheet, the Company has not incurred any liability for Taxes arising from extraordinary gains or losses, as that
term is used in GAAP, outside the ordinary course of business consistent with past custom and practice.
(h) The Company will not be
required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Effective Date as a result of any: (i) change in method of accounting for a taxable
period ending on or prior to the Effective Date; (ii) “closing agreement” as described in Code § 7121 (or any corresponding or similar provision of state, local or foreign income Tax law) executed on or prior to the
Effective Date; (iii) intercompany transaction or excess loss account described in Treasury Regulations under Code § 1502 (or any corresponding or similar provision of state, local or foreign income Tax law); (iv) installment
sale or open transaction disposition made on or prior to the Effective Date; or (v) prepaid amount received on or prior to the Effective Date.
20
(i) The Company has not distributed stock of another Person, or has had its stock distributed by another
Person, in a transaction that was purported or intended to be governed in whole or in part by Code § 355 or Code § 361.
(j) The Company has not engaged in or otherwise participated in any reportable transaction or “listed transaction” as defined in Code § 6707.
4.15
Litigation
.
Schedule 4.15
sets forth a true, complete and correct list of all actions, suits, arbitration proceedings, investigations, inquiries or other proceedings, whether governmental or
non-governmental, before any Governmental Authority for any period since September 1, 2002 that existed (regardless of whether settled), or that is pending or, to the Knowledge of the Company, threatened, against, relating to or affecting the
Company, or any officer, director or employee thereof in his or her capacity as such, or any of its or their respective assets, properties or businesses, and which involve a monetary claim or claims in excess of $10,000 or injunctive or other
equitable relief.
Schedule 4.15
sets forth, as to each matter identified therein, the names of the parties thereto, the forum for such matter, a summary of the details of the matter, the settlement or other disposition of the matter
(including the monetary value of such settlement or other disposition) or, if such matter is still pending, a statement to that effect. Except as set forth on
Schedule 4.15
:
(a) There is not in effect any order, judgment, decree, injunction or ruling of any Governmental Authority against, relating to or affecting the Company,
or any officer, director or employee thereof in his or her capacity as such, enjoining, barring, suspending, prohibiting or otherwise limiting the same from conducting or engaging in any aspect of the business of the Company, or requiring the
Company or any such officer, director or employee to take certain action with respect to any aspect of its or their business;
(b) The
Company is not in default under any order, judgment, decree, injunction or ruling of any Governmental Authority respecting the Company, and the Company is not subject to or a party to any order, judgment, decree or ruling arising out of any action,
suit or proceeding under any applicable Laws respecting antitrust, monopoly, restraint of trade, unfair competition or similar matters; and
(c) There is no action, suit, arbitration or other proceeding, investigation or inquiry pending or, to the Knowledge of the Company, threatened, before any Governmental Authority which questions the validity of this Agreement or any other
Transaction Document, or any actions taken or to be taken pursuant hereto or thereto, or which could, individually or in the aggregate, have a Material Adverse Effect.
4.16
Transactions with Affiliates
.
(a) Except as set forth on
Schedule 4.16
, there is no
indebtedness owing by the Company to any of its Affiliates or by any Affiliate of the Company to the Company.
(b) Other than as
contemplated in this Agreement, immediately following the Closing Date:
21
(i) the Company will not be indebted, directly or indirectly, to any of its own officers, directors,
stockholders or employees, or the officers, directors, managers, members, partners, stockholders or employees of its Affiliates, or to any members of the immediate families of such officers, directors, managers, members, partners, stockholders or
employees except for, in the case of officers, directors or employees, compensation payable in the ordinary course of business and reasonable travel expenses accrued in the ordinary course of business consistent with past practices;
(ii) no officer, director, stockholder or employee of the Company, and no members of their immediate families, will (A) be indebted to the Company
in any amount whatsoever or (B) to the Knowledge of the Company, and except as may be permitted by Section 7.2(a) of this Agreement, have any direct or indirect ownership interests exceeding five percent in any Person which competes,
directly or indirectly, with the Company; and
(iii) there are no voting or similar agreements between or among the stockholders of the
Company.
(c) Except for the matters set forth on
Schedule 4.13
or
Schedule 4.12(c)
, no officer, director, stockholder or
employee of the Company, and no member, or Affiliate of a member, or the immediate families of any of the foregoing, has any direct or indirect interest in any Contract to which the Company is a party.
(d) The Company is not a party to any agreement relating to the voting or disposition of the capital stock of any other company.
(e) The Company does not have any outstanding loan or advance of funds to any of its Affiliates’ officers, directors, employees, members, managers,
partners or stockholders, or to any member of the immediate families of any of the foregoing.
4.17
Licenses and Permits
.
(a)
Schedule 4.17(a)
lists all Licenses and Permits. No other governmental authorizations are necessary or required for the Company
to lawfully conduct its Business as currently conducted or for the Company to own, lease or use its assets.
(b) Each of the Licenses and
Permits is valid and in full force and effect. The Company has not received any written notice that remains outstanding from any Governmental Authority regarding any actual or proposed revocation, withdrawal, suspension, cancellation or termination
(other than by expiration) of any material Licenses and Permits. Except as set forth on
Schedule 4.17(b)
, the transactions contemplated by this Agreement will not adversely affect the Company’s right to utilize the Licenses and Permits.
4.18
Personal Property
. Except as set forth on
Schedule 4.18
, the Company has good and marketable title to its assets (other
than real property, which is covered in Section 4.19 and other than personal property which is leased) free and clear of all Liens other than Permitted Liens. The Company’s machinery, equipment, vehicles and other tangible assets have been
maintained in good working condition (normal wear and tear excepted) and are sufficient for the conduct of the Business as presently conducted. Except as set forth on
Schedule 4.18
, the Company owns or properly leases all the assets necessary
to and currently utilized in the operation of the Business. Except as set forth on
Schedule 4.18
, no Seller owns any of the assets currently utilized in the Business.
22
4.19
Real Property
.
(a)
Schedule 4.19
sets forth a true, correct and complete list of all real property leases, subleases or licenses pursuant to which the Company is a lessor, lessee, sublessor, sublessee, licensor or licensee,
in each case as amended through the date hereof, which list includes the effective date of such lease, the street address, the identity of the lessors, lessees, sublessors, sublessees, licensors or licensees, or with respect to which a Company has
guarantied the obligations of any other Person, the term thereof (referencing applicable extension or renewal periods, the rent payment terms, maximum potential exposure and the current use). The Company has delivered to Buyer true, correct and
complete copies of each such lease, sublease or license. The real property interests described or listed on
Schedule 4.19
(the “
Company Properties
”) constitutes all of the interests in real property owned, leased or otherwise
held for use by the Company. The Company does not own any real property.
(b) Each lease of premises utilized by the Company or in
connection with the Business is legal, valid and binding in all material respects on the Company and, to the Knowledge of the Company, legal, valid and binding in all material respects on the other party or parties thereto. The Company is a tenant
or possessor in good standing thereunder, free of any material default or breach on the part of the Company and, to the Knowledge of the Company, free of any material default or breach on the part of the lessors thereunder, and the Company quietly
enjoys the premises provided for therein.
(c) Except as set forth on
Schedule 4.19
, no consent of any Person to any lease,
sublease, license or mortgage is required in connection with the consummation of the transactions contemplated by this Agreement, the other Transaction Documents or the sale of the Stock, and the consummation of the transactions contemplated by this
Agreement, the other Transaction Documents, or the sale of the Stock is not prohibited by, or does not constitute a default under, any such lease, sublease, license or mortgage.
(d) Except as set forth in
Schedule 4.19
, there are no eminent domain proceedings pending or, to the Knowledge of the Company, threatened against
any Company Property. There are no pending or, to the Knowledge of the Company, contemplated, zoning changes, “floor area ratio” changes, variances, special zoning exceptions, conditions or agreements which have or would reasonably be
expected to have a Material Adverse Effect. Public utilities currently serve all utility requirements necessary for the current use of all Company Property. All of the Company Properties are currently zoned in the zoning category which permits
operation of such properties as now used, operated and maintained for the operation of the Business, and none of such Company Properties nor its respective use is in violation of any local governmental rule, ordinance, regulation or building code.
23
4.20
Environmental Matters
. Except as set forth in
Schedule 4.20
:
(a) the operations of the Company is in compliance with all applicable Environmental Laws and all Licenses and Permits issued pursuant to the
Environmental Laws or otherwise;
(b) the Company has obtained all Licenses and Permits required to operate its business in compliance with
all applicable Environmental Laws;
(c) the operations of the Company have not resulted in Releases of Hazardous Material into the
environment;
(d) the Company is not the subject of any outstanding order or Contract, nor, to the Knowledge of the Company, is it
threatened to be the subject of any order or Contract, with any Governmental Authority respecting (i) compliance with Environmental Laws, (ii) Remedial Action, or (iii) any Release or threatened Release of a Hazardous Material;
(e) the Company has not received any written communication alleging that the Company may be in violation of any Environmental Law or any
License or Permit issued pursuant to Environmental Law, or may have any liability under any Environmental Law;
(f) there are no
investigations of the Business, or currently or previously owned, operated or leased property of the Company pending or, to the Knowledge of the Company, threatened which alleges any liability or other obligation pursuant to any Environmental Law;
(g) to the Knowledge of the Company, there is not located at any property owned, operated or leased by the Company any (i) current or
former underground storage tanks, (ii) asbestos-containing material, (iii) equipment containing polychlorinated biphenyls, (iv) asbestos-containing materials or structural asbestos, which is damaged and, in its present condition,
poses an unreasonable risk of harm to employees or the general public, or (v) equipment which, contains ozone depleting substances; and
(h) the Company has timely filed, and delivered copies of such filings to Buyer, all reports and filings required to be made pursuant to applicable Environmental Laws, or any Licenses or Permits issued pursuant to Environmental Laws, by the
Company.
4.21
Intellectual Property
.
(a) The Company owns, licenses or otherwise possesses legally enforceable rights to use all patents, trademarks, trade names, service marks, copyrights, and any applications therefor, maskworks, net lists, schematics,
technology, know-how, trade secrets, recipes, formulas, mixtures, inventory, ideas, algorithms, processes, computer software programs or applications (in both source code and object code form), tangible or intangible proprietary information or
material and other intellectual property that are currently used in, or material to, the Business, subsisting in, covering, reading on, directly applicable to or existing in the Products or the Technology, or that are used in the development,
manufacture, sales, marketing, testing or maintenance of the Products (the “
Company Intellectual Property
”).
24
(b) The Company has provided to Buyer true, correct and complete copies of (i) all documents, if
any, relative to patents, patent applications and inventions and discoveries that may be patentable, and all registered and unregistered trademarks, trade names and service marks, registered and unregistered copyrights, and maskworks owned by the
Company and included in the Company Intellectual Property, including the jurisdictions in which each such intellectual property right has been issued or registered or in which any application for such issuance and registration has been filed,
(ii) all licenses, sublicenses and other agreements as to which the Company is a party and pursuant to which any person is authorized to use any Company Intellectual Property (“
Licensed Company Intellectual Property
”), and
(iii) of all licenses, sublicenses and other agreements as to which the Company is a party and pursuant to which the Company is authorized to use any third party patents, trademarks or copyrights, including software (other than off-the-shelf
software subject to a click-through or shrinkwrap license), or any other third party intellectual property (“
Third Party Intellectual Property Rights
”) which are or are presently expected to be incorporated in, or are or expected to
form a part of any existing or proposed Company product, or which are or are presently expected to be utilized in the development, modification or support of any existing or proposed Company product.
(c)
Schedule 4.21(c)
contains a true, correct and complete list of (i) all registered patents, patent applications, trademarks, trade names,
service marks, and copyrights owned, used or licensed by the Company, (ii) the registration number, date of registration and jurisdiction of registration thereof, (iii) the name of the registered owner and, if different, the user or users
thereof, (iv) any applications for any of the foregoing, (v) any common law trade names or services marks owned by the Company (vi) any Licensed Company Intellectual Property and (vii) and Third Party Intellectual Property
Rights.
(d) The Company is the owner or licensee of all right, title and interest in and to each of the Company Intellectual Property,
free and clear of all Liens, and has the right to use without payment to a third party all of the Intellectual Property Rights, other than in respect of licenses listed in
Schedule 4.21(c)(vii)
.
(e)
Schedule 4.21(e)
contains a complete and accurate list and summary description, including any royalties paid or received by the Company, of
all contracts relating to the Company Intellectual Property, including Licensed Company Intellectual Property and Third Party Intellectual Property Rights. There are no outstanding or, to the Company’s or any Seller’s Knowledge, threatened
disputes or disagreements with respect to any such Contract.
(f) Except as set forth in
Schedule 4.21
, there is no unauthorized
use, disclosure, infringement or misappropriation of any Company Intellectual Property, any trade secret material of the Company, or any Third Party Intellectual Property Right to the extent licensed by or through the Company, by any third party.
The Company has not entered into any agreement to indemnify any other person against any charge of infringement of any Company Intellectual Property, other than indemnification provisions arising in the ordinary course of business, such as those in
purchase orders, invoices or similar sales-related documents.
(g) All patents, registered trademarks, service marks and registered
copyrights held by the Company are validly issued and presently subsisting. Except as set forth on
Schedule 4.21
, since September 1, 2002, the Company (i) has not been sued in any suit, action or proceeding which involves a claim of
infringement of any patents, trademarks, service marks, copyrights or violation of any
25
trade secret or other proprietary or intellectual property right of any third party and (ii) has not brought any action, suit or proceeding for
infringement of Company Intellectual Property or breach of any license or agreement involving Company Intellectual Property against any third party. To the Knowledge of the Company, the provision of services by the Company as currently conducted and
proposed to be conducted do not infringe any patent, trademark, service mark, copyright, trade secret or other proprietary right of any third party.
(h) The Company has taken commercially reasonable steps which it believes to be sufficient to protect and preserve the confidentiality of all Company Intellectual Property. All use, disclosure or appropriation by the
Company of such intellectual property owned by the Company or by a third party has been pursuant to written agreements between the Company and such third party, except where the failure to do so has not had, and would not reasonably be expected to
have, a Material Adverse Effect. All use, disclosure or appropriation of such intellectual property not owned by the Company has been pursuant to written agreements between the Company and the owner of such intellectual property, or is otherwise
lawful.
4.22
Nature of Business
. The Company is engaged only in the Business described in the first Recital of this Agreement and
activities reasonably incidental thereto.
4.23
Powers of Attorney
. There are no outstanding powers of attorney in effect with
respect to the Company.
4.24
Insurance
.
(a) There is in full force and effect one or more policies of insurance issued by insurers of recognized national standing insuring the properties and business of the Company against such losses and risks, and in such
amounts, as are usual and customary in the industry in which the Company operates or conducts business, including the losses and risks associated with pending litigation and any future litigation based on similar activities of the Company.
(b)
Schedule 4.24
identifies each of the policies of insurance currently maintained by, or on behalf of, the Company, its business
and properties (including workers’ compensation insurance), setting forth the name of the insurer, the holder of each such policy, the nature of coverage, the amount of such coverage, whether such policy is a “claims made” or
“occurrence-based” policy and the expiration dates thereof. The Company is not in default with respect to its obligations under any of such outstanding insurance policies and all premiums with respect thereto are current. The Company and,
to the Knowledge of the Company, the Company’s officers, directors, stockholders, employees, insurance managers and risk managers, have not failed to give any notice or to present any material claim under any such policy in a due and timely
fashion. Such policies are in full force and effect on the date hereof and will continue to be kept in full force and effect on substantially equivalent terms, except to the extent policies expire and are replaced in the ordinary course of business
with policies on substantially equivalent terms. All premiums due under the policies identified on
Schedule 4.24
have been paid and the Company has not been issued or has received any notice of cancellation, material modification or
termination in respect of any such policy or is in default thereunder.
26
(c) Except as set forth on
Schedule 4.24
, the Company has not been issued or has not received any
notice that any insurer under any policy referred to on
Schedule 4.24
is denying liability with respect to a claim in excess of $5,000 thereunder or defending under a reservation of rights clause.
Schedule 4.24
also sets forth all
claims made by the Company under such policies during the past three years.
4.25
Business Relationships
. The Company has not
received any notice with respect to any actual or threatened termination or cancellation of, or any adverse modification or material change (i.e., with a value in excess of $10,000) in, the business relationship between the Company, on the one hand,
and any vendor, distributor, supplier, or customer, on the other hand, and to the Knowledge of the Company, there is no basis for such termination or cancellation of any such business relationships, other than the termination of any such
relationships upon expiration of the agreement related thereto.
Schedule 4.25
contains a list of the 10 largest suppliers of the Company for each of the two most recent fiscal years (determined on the basis of the total dollar amount of gross
sales) showing the total amount of purchases made to each such supplier and the percentage of all purchases made during each such year.
4.26
Personal Property Leases
.
Schedule 4.26
sets forth a true, correct and complete list and description of all agreements (or group of related agreements) to which the Company is a party for the lease of personal property
which involve rental payments of at least $5,000 per annum, including, with respect to each such lease, the name of the lessor and the lessee, the type of lease (whether operating, capital or otherwise), a description of the leased property, the
monthly rental payments due and the expiration date. The Company has not materially breached any agreement pertaining to, and is not in default with respect to, or is overdue in payment of, any amounts owing under any lease agreement disclosed on
Schedule 4.26
. True and complete copies of all agreements set forth on
Schedule 4.26
have been delivered to Buyer.
4.27
Inventories
. All inventories carried by the Company reflected in the Historical Financials or the Latest Balance Sheet are, and, as of the Closing Date, will be, to the Knowledge of the Company, normal items of inventory carried by the
Company, and are current, suitable and merchantable at customary prices for the filling of orders in the normal course of business, and are not obsolete, damaged, slow-moving, or defective. The Company has all right, title and interest in the
inventories reflected in the Financial Statements (except to the extent they have been sold in the ordinary course of business since the date thereof).
4.28
Depository and Other Accounts
.
Schedule 4.28
sets forth a true, correct and complete list of all banks and other financial institutions and depositories at which the Company maintains (or has caused
to be maintained) deposit accounts, lockbox accounts, spread accounts, yield supplement reserve accounts, operating accounts, trust accounts, trust receivable accounts or other accounts of any kind or nature into which funds of the Company are
deposited from time to time. Such
Schedule 4.29
correctly identifies the name and address of each depository, the name in which each account is held, the type of account and the account number.
4.29
Books and Records
. The minute books and similar records of the Company contain true and complete records of all actions taken at any meeting
of the Company’s stockholders, directors, or any committees thereof, as the case may be, and of all written consents executed in lieu of the holding of any such meeting, and have been maintained in accordance with good business accounting and
bookkeeping practices.
27
4.30
Brokers; Certain Expenses
. Except as set forth on
Schedule 4.30
, none of the Company
nor any of its Affiliates has paid or is obligated to pay any fee or commission to any broker, finder, investment banker or other intermediary, in connection with this Agreement, any other agreement, or any of the transactions contemplated hereby or
thereby for which Buyer (or the Company after the Closing Date) will have any liability. The Company is not bound by any agreement or commitment for the provision of investment banking or financial advisory services with respect to any
recapitalization, issuance of debt or equity securities or other capital or financing transactions involving the Company that would operate to restrict or prevent the Closing. Any fees or commissions due to any broker, finder, investment banker or
other intermediary retained by the Company shall be for the sole account of the Company or Affiliate, as the case may be, and Buyer shall not have any liability with respect thereto.
4.31
Compliance with Laws
. Except as set forth on
Schedule 4.31
, the Company is and has been since September 1, 2002 in compliance in
all material respects with and has conducted the Business (i) in accordance with all applicable Laws, and (ii) in all material respects in accordance with all injunctions, judgments, orders, decrees, writs and rulings of all Governmental
Authorities (and all bodies, agencies and authorities thereof) to which the Company is a party. Except as set forth on
Schedule 4.31
, no investigation or review by any Governmental Authority with respect to the Company is pending or filed or,
to the Knowledge of the Company, threatened nor, to the Knowledge of the Company, has any Governmental Authority indicated an intention to conduct the same.
4.32
Interim Changes
. Except as set forth on
Schedule 4.32
, since the financials for the fiscal year ended December 31, 2006, there has been no:
(a) change in the condition, financial or otherwise, of the Company, which had, or would reasonably be expected to have, a Material Adverse Effect;
(b) material loss, damage or destruction of or to any of the Company’s assets, individual or in the aggregate, whether or not covered
by insurance;
(c) sale, lease, transfer or other disposition by the Company of, or the imposition of any Lien (other than Permitted Liens)
on, any portion of the Company’s assets, other than the sale of assets in the ordinary course of the Company’s business;
(d)
increase in the compensation payable by the Company to employees, directors, independent contractors or consultants, or any change to any of the Benefit Plans set forth on
Schedule 4.13
, or institution of any new Benefit Plan;
(e) adjustment or write-off of accounts receivable not reflected in the Historical Financials or any change in the collection, payment or credit
experience or practices of the Company;
(f) change in the Tax or cash basis accounting methods or practices employed by the Company or
change in depreciation or amortization policies;
28
(g) issuance or sale by the Company, or any Contract entered into by the Company for the issuance or
sale, of any shares of Stock or securities convertible into or exchangeable for Stock of the Company;
(h) merger, consolidation or similar
transaction involving the Company;
(i) strike, work stoppage or other labor dispute adversely affecting the Business;
(j) termination, waiver or cancellation of any material rights or claims of the Company, under any Contract or otherwise;
(k) incurrence of indebtedness outside of the ordinary course of business;
(l) new Contract (or amendment to any existing Contract) obligating the Company to purchase or provide goods or services, any amendment or termination of any Contract or license relating to the Business or any waiver
of material claims or rights of the Company against third parties in each case outside the ordinary course of business;
(m) agreement,
arrangement or transaction between the Company and any Affiliate of the Company;
(n) creation of any new employment or consulting
positions and the hiring of any personnel for such positions with an annual salary in excess of $*.
(o) other transaction not in the
ordinary course of the Business and consistent with past practice of the Business that, individually or in the aggregate, could have a Material Adverse Effect; or
(p) binding commitment with respect to any of the foregoing.
4.33
Outstanding Bids, Bid Bonds and
Performance Bonds
.
(a)
Schedule 4.33(a)
sets forth (i) a true, correct and complete list of each outstanding Bid which
would require the execution of a contract containing terms (including pricing terms) materially less favorable to the Business than the terms contained in the standard form contracts or standard end-user price lists (ii) a true, correct and
complete list of such Bids with respect to which (i) the Company has outstanding bid bonds or similar sureties or (ii) the Company is required to obtain such bonds or sureties, and sets forth a brief description of such bonds, sureties or
requirements for bonds or sureties. The outstanding Bids set forth in
Schedule 4.33(a)
have not been awarded or performed in any respect by the Company and no payments have been received by the Company in respect of such outstanding Bids.
(b)
Schedule 4.33(b)
sets forth (i) a true, correct and complete list of all outstanding performance bonds or similar sureties
currently in effect for the benefit of any of the Company’s customers, (ii) all performance bonds or similar sureties required, to the Knowledge of the Company, to be obtained, but not yet obtained, by the Company for the benefit of any of
the Company’s current customers and (iii) all performance bonds or similar sureties that will be required to be obtained by the Company for the benefit of any of the Company’s potential customers pursuant to the terms of any
outstanding Bid set forth in
Schedule 4.33(a)
if such Bid is awarded to the Company.
29
4.34
Product and Service Warranties; Defects; Liability
. Except as disclosed in
Schedule
4.34
(which matters have not had and could not reasonably be expected to have a Material Adverse Effect), each Product manufactured, sold, leased, delivered, installed or maintained by the Company has been in conformity in all material respects
with all applicable Laws, contractual commitments and express and implied warranties and the Company has no liability (and, to the Knowledge of the Company, there is no basis for any present or future Action giving rise to any liability) for
replacement or repair thereof or other damages in connection therewith. Except as set forth in
Schedule 4.34
, no claims have been asserted against the Company during the past six years relating to, and, to the Knowledge of the Company, there
have been no actions with respect to, any injury to individuals or property as a result of the manufacture, sale, lease, ownership, possession, installations, maintenance or use of any Product.
4.35
Motor Vehicles
.
Schedule 4.35
sets forth a complete and accurate list of all vehicles utilized in the Business, whether owned or
leased, the type of vehicle and vehicle identification number. All such vehicles are properly titled, licensed and registered in accordance with applicable law.
4.36
No Omissions or Misstatements
. None of the representations or warranties of the Company included in this Agreement as qualified by the disclosure schedules hereto, or other Transaction Documents furnished
or to be furnished by the Company contains any untrue statement of a material fact or is misleading in any material respect or omits to state any material fact necessary in order to make any of the statements herein or therein not misleading in
light of the circumstances in which they were made.
Article V
Representations and Warranties of Sellers
As a material inducement to Buyer to
enter into this Agreement and to consummate the transactions contemplated herein, each Seller, severally and not jointly, hereby represents and warrants to Buyer, with respect to such Seller only, as follows:
5.1
Ownership of Capital Stock
. Such Seller is the beneficial and record owner of the Stock identified next to such Seller’s name on
Schedule A
hereto, free and clear of any Liens. Such Seller has the requisite right, power and authority to transfer the Stock owned by such Seller, and there are no agreements restricting the transfer by such Seller of, or affecting the
rights of, such Seller’s Stock other than as set forth in the Stockholders Agreement and under applicable securities laws. Simultaneous with the Closing, all of the issued and outstanding Preferred Stock will be redeemed as provided in
Section 8.1(a) and the only issued and outstanding capital stock of the Company are those shares of Common Stock owned by Seller and listed on
Schedule A
.
5.2
Authorization of Transaction
. Such Seller has the legal capacity to execute and deliver this Agreement and the other Transaction Documents to
which such Seller is a party and all documents and agreements necessary to give effect to the provisions
30
of this Agreement and to perform its obligations hereunder and thereunder. No action, consent or approval on the part of such Seller is necessary to
authorize such Seller’s due and valid execution, delivery and consummation of this Agreement, the Transaction Documents to which it is a party and all other agreements and documents executed in connection herewith and therewith. This Agreement
and the other Transaction Documents to which it is a party and all other agreements and documents executed by such Seller in connection herewith and therewith constitute the valid and legally binding obligations of such Seller, enforceable in
accordance with their respective terms and conditions; provided that (i) enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws of general application affecting the
rights and remedies of creditors, and (ii) enforcement may be subject to general principles of equity, and the availability of remedies of specific performance and injunctive relief may be subject to the discretion of the court before which any
proceeding for such remedies may be brought.
5.3
Brokers’ Fees
. Except as set forth on
Schedule 4.30
, such Seller has
no liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which Buyer or the Company could become liable or obligated.
5.4
No Conflict or Violation
. Except as set forth in
Schedule 5.4
, neither the execution and delivery of this Agreement or the other
Transaction Documents to which such Seller is a party nor the consummation of the transactions contemplated hereby or thereby, will conflict with or result in:
(a) a breach of, or a default under, any term or provision of, any Contract to which such Seller is a party or by which its assets are bound, which breach or default could reasonably be expected to adversely impact
such Seller’s obligations under this Agreement; or
(b) a violation by such Seller of any statute, rule, regulation, ordinance, code,
order, judgment, writ, injunction, decree or award, which violation could reasonably be expected to adversely impact such Seller’s obligations under this Agreement.
5.5
Consents and Approvals
. Except as set forth in
Schedule 5.5
, no consent, approval or authorization of, or declaration, filing or registration with, any court or tribunal, or administrative,
governmental or regulatory authority, or any other Person or entity, is required to be made or obtained by such Seller in connection with the execution, delivery and performance of this Agreement or the Transaction Documents to which such Seller is
a party and the consummation of the transactions contemplated hereby and thereby.
5.6
Litigation
. There is no action, proceeding or
investigation pending, to which such Seller is a party or, to such Seller’s actual knowledge, threatened, against such Seller, which questions the validity of this Agreement or impairs the ability of such Seller to consummate the transactions
contemplated hereby or the transactions contemplated by the other Transaction Documents to which such Seller is a party.
31
5.7
Powers of Attorney
. There are no outstanding powers of attorney in effect with respect to any
Seller that could affect the Business.
5.8
Sellers Guaranties
.
Schedule 5.8
sets forth a complete and accurate list of all
of the Company’s obligations that Sellers have guarantied or for which Sellers are otherwise personally liable (the “
Seller Guaranties
”).
Article VI
Representations and Warranties of Buyer
As a material inducement to the Company and Sellers to enter into this Agreement and to consummate the transactions contemplated hereunder, Buyer hereby
represents and warrants to Sellers, as follows:
6.1
Organization
. Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of California and has all requisite power and authority to execute, deliver, carry out and perform its obligations under this Agreement and each other agreement to which it is a party and to consummate the
transactions contemplated hereby and thereby.
6.2
Authorization
. The execution, delivery and performance by Buyer of this Agreement
and of each of the other Transaction Documents to which Buyer is a party, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary action taken on the part of Buyer.
6.3
Due Execution and Delivery; Binding Obligations
. This Agreement has been duly executed and delivered by Buyer, and, at the Closing, each of
the other Transaction Documents to which Buyer is a party will be duly executed and delivered by Buyer. This Agreement is, and at the time of the Closing each of the other Transaction Documents to which Buyer is a party will be, a legal, valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or conveyance or similar laws relating to or
limiting creditors’ rights generally or by equitable principles relating to enforceability, and except as rights of indemnity or contribution may be limited by federal or state securities laws or the public policy underlying such laws.
6.4
No Violation
. The execution, delivery and performance by Buyer of this Agreement and each of the other agreements to which
Buyer is a party, and the consummation of the transactions contemplated hereby and thereby, do not violate and will not cause a default under (a) the organizational documents of Buyer as in effect on the date hereof, (b) any material
applicable Laws, or (c) any material indenture, mortgage, lease, agreement or instrument to which Buyer is a party.
6.5
Brokers;
Certain Expenses
. Buyer has not paid and is not obligated to pay any fee or commission to any broker, finder, investment banker or other intermediary in connection with this Agreement, any other agreement or any of the transactions contemplated
hereby or thereby.
32
6.6
Litigation
. There is no action or proceeding pending, or to Buyer’s actual knowledge
investigation pending, to which such Buyer is a party or, to Buyer’s actual knowledge, threatened, against Buyer, which questions the validity of this Agreement or impairs the ability of Buyer to consummate the transactions contemplated hereby
or the transactions contemplated by the other Transaction Documents to which it is a party.
6.7
Company’s Financial Records
.
Notwithstanding anything stated to the contrary in this Agreement, Buyer acknowledges that: (a) the Company does not keep its books, prepare its financial statements and tax returns, establish reserves in accordance with GAAP; (b) the
Company does not have its financials reviewed or audited; and (c) the Company has historically used the tax method of depreciation, calculated its income taxes and prepared its tax returns on a cash basis, and prepared its financials on the
accrual basis.
6.8
No Omissions or Misstatements
. None of the representations of Buyer included in this Agreement or other
Transaction Documents furnished or to be furnished by Buyer, or any of its representatives, contains any untrue statement of a material fact or is misleading in any material respect or omits to state any material fact necessary in order to make any
of the statements herein or therein not misleading in light of the circumstances in which they were made.
Article VII
Covenants of the Parties
7.1
Tax
Matters
.
(a) Sellers will be responsible for and shall cause the Company to timely file any income Tax Returns with a filing due date
that is after the Effective Date for Tax periods of the Company that end on or before the Effective Date. Sellers shall permit Buyer to review and comment on each such Tax Return described in the preceding sentence prior to filing, and Sellers shall
make any revisions to such Tax Returns as may be reasonably requested by Buyer and to which Sellers reasonably agree in order to comply with applicable Laws. Buyer will be responsible for and shall cause the Company to timely file any income Tax
Returns with a filing due date that is after the Effective Date for Tax periods of the Company that begin after the Effective Date.
(b)
Each Seller shall jointly and severally indemnify the Company, Buyer, and each Buyer Affiliate and Buyer Indemnified Parties and hold them harmless from and against without duplication, any loss, claim, liability, expense, or other damage
attributable to (i) all Taxes (or the non-payment thereof) of the Company for all taxable periods ending on or before the Effective Date and the portion through the end of the Effective Date for any taxable period that includes (but does not
end on) the Effective Date (“
Pre-Effective Tax Period
”), (ii) all Taxes of any member of an affiliated, consolidated, combined or unitary group of which the Company (or any predecessor of any of the foregoing) is or was a
member on or prior to the Effective Date, including pursuant to Treasury Regulation § 1.1502-6 or any analogous or similar state, local or foreign law or regulation, and (iii) any and all Taxes of any person (other than the Company)
imposed on the Company as a transferee or successor, by contract or pursuant to any law, rule or regulation, which Taxes relate to an event or transaction occurring before the Closing. Sellers shall reimburse Buyer for any Taxes of the Company that
are the responsibility of Sellers pursuant to this Section 7.1(a) within 15 business days after payment of such Taxes by Buyer or the Company.
33
(c) Buyer and the Company agree that, in the case of any taxable period that includes (but does not end
on) the Effective Date (a “
Straddle Period
”), the amount of any Taxes based on or measured by income or receipts of the Company for the Pre-Effective Tax Period shall be determined based on an interim closing of the books as of the
close of business on the Effective Date (and for such purpose, the taxable period of any partnership or other pass-through entity in which the Company holds a beneficial interest shall be deemed to terminate at such time) and the amount of other
Taxes of the Company for a Straddle Period that relates to the Pre- Effective Tax Period shall be deemed to be the amount of such Tax for the entire taxable period multiplied by a fraction the numerator of which is the number of days in the taxable
period ending on the Effective Date and the denominator of which is the number of days in such Straddle Period.
(d) Except to the extent
required by law, Buyer shall not amend, and shall not permit the Company to amend, any income Tax Return or election made in connection with such income Tax Return for any Tax period ending on or prior to Closing without the prior written consent of
Sellers if such amendment would have the effect of increasing the amount of Tax payable by Sellers with respect to such period.
(e) Buyer
and Sellers covenant and agree to cooperate with each other regarding Tax matters as follows:
(i) Buyer, the Company and Sellers shall
cooperate fully, as and to the extent reasonably requested by the other Party, in connection with the filing of Tax Returns pursuant to this Section 7.1(e) and any audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other Party’s request) the provision of records and information that are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient
basis to provide additional information and explanation of any material provided hereunder. Buyer, the Company and Sellers agree (A) to retain all books and records with respect to Tax matters pertinent to the Company relating to any taxable
period beginning before the Effective Date until the expiration of the statute of limitations (and, to the extent notified by Buyer or Sellers, any extensions thereof) of the respective taxable periods, and to abide by all record retention
agreements entered into with any taxing authority, and (B) to give the other Party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other Party so request, the Company or Sellers,
as the case may be, shall allow the other Party to take possession of such books and records.
(ii) Buyer and Sellers further agree, upon
request, to use their best efforts to obtain any certificate or other document from any governmental authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to,
with respect to the transactions contemplated hereby).
34
(iii) Buyer and Sellers further agree, upon request, to provide the other Party with all information
that either Party may be required to report pursuant to Code § 6043, or Code § 6043A, or Treasury Regulations promulgated thereunder.
(f) Buyer shall notify Sellers in writing within five Business Days after receipt by Buyer or the Company of any notice of audit or request for information regarding any Taxes and upon notice of any determination of
liability for Taxes from an official inquiry, examination, audit or proceeding (each, a “
Tax Determination
”) regarding any Tax Return related to a period that ends on or prior to the Effective Date. Sellers shall have the right to
exercise control, on behalf of the Company for any such Tax Return, and at its own expense, at any time over the handling, disposition or settlement of any issue raised in any such Tax Determination, if and to the extent the disposition or
settlement would be reasonably expected to result in a liability to the Company or Sellers. Buyer and the Company shall cooperate with Sellers, as reasonably requested by Sellers, in connection with any such Tax Determination.
(g) Sellers shall notify Buyer in writing within five Business Days after receipt by Sellers of any Tax Determination regarding any Tax Return for the
Straddle Period or any period thereafter. Sellers, on behalf of the Company, for any pre-Closing period, and Buyer, on behalf of the Company, with respect to any post-Closing period, in each case, at its own respective expense, shall have the right
to exercise control at any time over the handling, disposition or settlement of any issue raised in any such Tax Determination regarding any Straddle Period, if and to the extent the disposition or settlement would be reasonably expected to result
in a liability to the Company for such period. Buyer and the Company shall cooperate with Sellers, as reasonably requested by Sellers, in connection with any such Tax Determination.
(h) All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement assessed against Sellers shall be paid by Sellers when due, and Sellers shall, at their own expense, file all necessary Tax Returns and other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration and other Taxes and fees, and, if required by applicable law, Buyer shall, and shall cause its affiliates to, join in the execution of any such Tax Returns and other documentation.
7.2
Noncompete
.
(a) Each of Sellers
agrees that during the * period following the Closing Date (the “
Noncompete Period
”), he or she shall not, directly or indirectly, either for himself or herself, or for any other Person (other than the Company) participate in the
Business anywhere within*
,
other than on behalf of the Company. For purposes of this Agreement, the term ‘participate’ includes any direct or indirect interest in any enterprise, whether as an officer, director, employee, partner,
member, sole proprietor, agent, representative, independent contractor, consultant, franchisor, franchisee, creditor, lender, owner or otherwise; provided that the term ‘participate’ shall not include ownership of stock of Buyer and of
less than 2% of the stock of a publicly-held corporation whose stock is traded on a national securities exchange or in the over-the-counter market.
35
(b)
Non-Solicitation
. During the * period following the Closing Date, no Seller shall, directly or
indirectly, (i) induce or attempt to induce any employee of Company to leave the employ of Company or in any way interfere with the relationship between Company and any employee thereof, (ii) induce or attempt to induce any customer or
supplier of Company to cease doing business with Company, (iii) knowingly induce or attempt to induce any employee of Buyer or any of its Affiliates to leave the employ of Buyer or any of its Affiliates or in any way interfere with the
relationship between Buyer or any of its Affiliates and any employee thereof, or (ii) knowingly induce or attempt to induce any customer or supplier of Buyer or any of its Affiliates to cease doing business with Buyer or any of its Affiliates.
Each Seller agrees that this covenant is reasonable with respect to its duration, geographical area and scope.
(c)
Specific
Performance
. Each Seller agrees that Buyer would suffer irreparable harm from a breach by such Seller of any of the covenants or agreements contained in this Section 7.2 In the event of an alleged or threatened breach by a Seller of any of
the provisions of this Section 7.2, Buyer or its successors or assigns may, in addition to all other rights and remedies existing in its favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the provisions hereof. To the extent of any breach of this Section 7.2 by any Seller, the Noncompete Period (with respect to such breaching Seller) shall automatically be extended by the
length of such breach.
(d)
Scope, etc.
If, at the time of enforcement of any of the provisions of this Section 7.2, a court
holds that the restrictions stated therein are unreasonable under the circumstances then existing, the parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated
period, scope or area. Each Seller acknowledges that, without provisions contained in this Section 7.2, Buyer would have not entered into this Agreement.
7.3
Certain Taxes
. All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement (including any
corporate-level gains tax triggered by the sale of Stock), shall be paid by * when due, and * will, at their own expense, file all necessary Tax Returns and other documentation with respect to all such transfer, documentary, sales, use, stamp,
registration and other Taxes and fees and, if required by applicable law, * will, and will cause its Affiliates to, join in the execution of any such Tax Returns and other documentation.
7.4
Securities Matters
. Each Seller acknowledges that Buyer will require (at Buyer’s sole cost and expense) audited financial statements for
the fiscal years ended December 31, 2005 and December 31, 2006, and reviewed financial statements for the period from January 1, 2007 through the Effective Date. Each Seller shall, at Buyer’s request, and to the extent necessary
in connection with a public offering or private placement of any securities of Buyer or any Affiliate of Buyer, cooperate with the Buyer in connection with the audit and review of such financial statements to the extent necessary to enable Buyer to
present the financial statements required by Form S-1 of the Securities and Exchange Commission or other securities laws. Each Seller shall render such assistance as may be reasonably necessary in connection with the audit and review of such
financial statements and shall provide or make available such records or information relevant thereto as are in its possession or under its control. In addition, each Seller shall use its
36
reasonable best efforts to assist Buyer in connection with any offering or placement of securities of Buyer, or any Affiliate who is a direct or indirect
parent of Buyer or the Company, including, without limitation, participation in underwriter due diligence sessions and ‘road shows’ at such times as required by Buyer (solely with respect to the business of the Company) or any underwriter
and by providing all information necessary concerning the Company as required by Buyer and its underwriter.
7.5
Employees
. *
7.6
Seller Guaranties and Obligations
. Buyer and Seller will use reasonable efforts after the Closing to obtain the release of
Sellers from any of the Seller Guaranties.
7.7* Buyer will cause * to enter into the * in substantially the form of
Exhibit E
hereto
7.8
Consents
. If not delivered on the Closing Date, Sellers shall use their best efforts to deliver the Landlord’s
Consent to Assignment, and the consent required under the SunPower Contract listed on
Schedule 4.6
hereto within 30 day following the Closing Date.
Article VIII
Closing Deliveries
8.1
Deliveries by the Sellers and the Company
. The Sellers and the Company shall deliver the following to the Buyer at Closing:
(a)
Redemption of Preferred Stock
. Evidence that Sellers have caused the redemption of the outstanding 3,500 shares of the Preferred Stock in a
manner cost neutral and acceptable to Buyer.
(b)
Compliance Certificate
. A certificate signed by an officer of the Company that
each of the representations and warranties made by the Company in this Agreement is true and correct in all material respects (provided that any representations and warranties qualified by materiality shall be true and correct in all respects) as of
the Closing Date.
(c)
Certified Resolutions
. Certified copies of the resolutions of the Board of Directors and the stockholders of
the Company authorizing and approving this Agreement and the consummation of the transactions contemplated hereby.
(d)
Incumbency
Certificate
. An incumbency certificate relating to each person executing for the Company any document executed and delivered to Buyer pursuant to the terms hereof.
(e)
Good Standing
. Good standing certificate issued by the Secretary of State of California with respect to the Company.
(f)
Legal Opinion
. The legal opinion of Ackeret-Sheron LLP, counsel to Sellers and the Company, substantially in the form of
Exhibit C
hereto.
37
(g)
Liens
. Buyer shall have received evidence that all Liens (other than Permitted Liens) on the
assets of the Company shall have been released in a manner satisfactory to Buyer.
(h)
Landlord’s Consent to Assignment
.
Sellers shall use their best efforts to deliver the Landlord’s Consent to Assignment from the Company’s landlords for the leased premises at 1163 E. Francisco Blvd., San Rafael, California 94901, substantially in the form of
Exhibit D
hereto.
(i)
Employment Agreement
. The Employment Agreement between R. Phillips and the Company in
substantially the form of
Exhibit A
hereto.
(j)
FIRPTA
. An affidavit from each Seller complying with the Foreign Investment
in Real Property Tax Act.
(k)
Stock Certificates
. The stock certificates representing the Stock duly endorsed for transfer and
accompanied by any applicable documentary stamp tax.
(l)
Resignations
. The resignations, effective as of the Closing Date, of all
the directors and officers of the Company.
(m)
Other Deliveries
. Such other documents as Buyer or its counsel may reasonably
request to evidence the transactions contemplated hereby.
8.2
Deliveries by Buyer
. The Buyer shall deliver the following to the
Sellers at the Closing:
(a)
Compliance Certificate
. A certificate signed by an officer of Buyer that each of the representations and
warranties made by Buyer in this Agreement is true and correct in all material respects (provided that any representations and warranties qualified by materiality shall be true and correct in all respects) as of the Closing Date.
(b)
Certified Resolutions
. Certified copies of the resolutions of the Board of Directors of Buyer authorizing and approving this Agreement and the
consummation of the transactions contemplated hereby.
(c)
Incumbency Certificate
. An incumbency certificates relating to each
person executing for Buyer any document executed and delivered to Sellers pursuant to the terms hereof.
(d)
Employment Agreement
.
The Employment Agreement with R. Phillips substantially in the form of
Exhibit A
hereto.
(e)* The * executed by * substantially in
the form of
Exhibit E
hereto.
(f)
Other Deliveries
. Such other documents as Sellers or their counsel may reasonably
request to evidence the transactions contemplated hereby.
38
Article IX
Indemnification
9.1
Indemnification
.
(a)
By Sellers
. Each Seller, jointly and severally, hereby agrees to indemnify and hold Buyer, the Company, and their respective directors,
officers, employees, stockholders, agents, attorneys, representatives, successors and permitted assigns (collectively, the “
Buyer Indemnified Parties
”) harmless from and against any Losses arising from: (i) any breach of the
representations and warranties (without regard to any knowledge, materiality or Material Adverse Effect qualifiers contained in any such representation or warranty) made by the Company in this Agreement; (ii) any breach of the covenants or
agreements (without regard to any knowledge, materiality or Material Adverse Effect qualifiers contained in any such covenant or agreement) made by Sellers or the Company in this Agreement; or (iii) any Excluded Liabilities. In addition, each
Seller, severally and not jointly, hereby agrees to indemnify and hold Buyer Indemnified Parties harmless from and against any Losses based upon or arising from any breach of the representations and warranties (without regard to any knowledge,
materiality or Material Adverse Effect qualifiers contained in any such representation or warranty) of such Seller contained in Article V.
(b)
By Buyer
. Following the Closing, Buyer shall indemnify and hold harmless Sellers at all times from and after the Closing Date against and in respect of Losses arising from or relating to: (i) any breach of any representation
or warranty (without regard to any knowledge, materiality or Material Adverse Effect qualifiers contained in any such representation or warranty) made by Buyer in this Agreement; (ii) any breach of any covenant and agreement (without regard to
any knowledge, materiality or Material Adverse Effect qualifiers contained in any such covenant or agreement) made by Buyer in this Agreement; and (iii) any Losses arising based upon or due to the operations of the Company after the Closing
Date.
9.2
Limitations of Indemnity
.
(a) Notwithstanding the foregoing, (i) no amounts shall be payable under Section 9.1(a)(i) unless and until *; and (ii) no claim for indemnification under Section 9.1(a)(i) shall first be asserted
after the * anniversary of the Closing Date; provided, however, that a claim for indemnification under Sections 4.3 (Authorization; Binding Obligations), 4.7(b) (Title to Stock) and 5.1 (Ownership of Capital Stock), 4.13 (Employee Benefit Plans;
ERISA), 4.14 (Taxes), 4.20 (Environmental Matters) and 4.31 (Compliance with Laws) may be asserted at any time prior to the expiration of the statute of limitations applicable thereto. * Notwithstanding anything herein to the contrary, the * shall
not apply to a claim for breach of any representation and warranty set forth in Section 4.3 (Authorization; Binding Obligations), Section 4.13 (Employee Benefit Plans; ERISA), Section 4.14 (Taxes), Section 4.20 (Environmental
Matters) or Section 4.30 (Brokers; Certain Expenses) and * shall apply to a claim for fraud.
(b) The liability of Sellers under the
indemnification provisions of this Article IX shall be recovered first from the Escrow Fund other than for claims for breach of any representations and warranties set forth in Article V and Section 7.2.
39
9.3
Indemnification Procedures - Third Party Claims
.
(a) The rights and obligations of a party claiming a right of indemnification hereunder (each an “
Indemnitee
”) from a Party to this
Agreement (each an “
Indemnitor
”) in any way relating to a Third Party Claim shall be governed by the following provisions of this Section 9.3:
(i) The Indemnitee shall give prompt written notice to the Indemnitor of the commencement of any claim, action suit or proceeding, or any threat thereof, or any state of facts which Indemnitee determines will give
rise to a claim by the Indemnitee against the Indemnitor based on the indemnity provisions contained in this Agreement setting forth, in reasonable detail, the nature and basis of the claim and the amount thereof, to the extent known, and any other
relevant information in the possession of the Indemnitee (a “
Notice of Claim
”). The Notice of Claim shall be accompanied by any relevant documents in the possession of the Indemnitee relating to the claim (such as copies of any
summons, complaint or pleading which may have been served and, or any written demand or document evidencing the same). No failure to give a Notice of Claim shall affect, limit or reduce the indemnification obligations of an Indemnitor hereunder,
except to the extent such failure actually prejudices such Indemnitor’s ability successfully to defend the claim, action, suit or proceeding giving rise to the indemnification claim.
(ii) In the event that an Indemnitee furnishes an Indemnitor with a Notice of Claim, then, upon the written acknowledgment by the Indemnitor given to
the Indemnitee within 30 days after receipt of the Notice of Claim, stating that the Indemnitor is undertaking and will prosecute the defense of the claim under such indemnity provisions and confirming that based on the information available as
between the Indemnitor and the Indemnitee, the claim covered by the Notice of Claim is subject to this Article IX and that the Indemnitor will be able to pay the full amount of potential liability in connection with any such claim (including,
without limitation, any action, suit or proceeding and all proceedings on appeal or other review which counsel for the Indemnitee may reasonably consider appropriate) (an “
Indemnification Acknowledgment
”), then the claim covered by
the Notice of Claim may be defended by the Indemnitor, at the sole cost and expense of the Indemnitor; provided, however, that the Indemnitee is authorized to file any motion, answer or other pleading that may be reasonably necessary or appropriate
to protect its interests during such 30-day period. The delivery of an Indemnification Acknowledgment shall not preclude Indemnitor’s subsequent right to deny indemnification and Indemnitor’s right to reimbursement of all costs of any
nature incurred, if it is ultimately determined that such claim was not indemnifiable by Indemnitor. However, in the event the Indemnitor does not furnish an Indemnification Acknowledgment to the Indemnitee or does not offer reasonable assurances to
the Indemnitee as to Indemnitor’s financial capacity to satisfy any final judgment or settlement, the Indemnitee may, upon written notice to the Indemnitor, assume the defense (with legal counsel chosen by the Indemnitee) and dispose of the
claim, and the Indemnitor shall be responsible for Indemnitee’s reasonable costs and expenses. Notwithstanding receipt of an Indemnification Acknowledgment, the Indemnitee shall have the right to employ its own counsel in respect of any such
claim, action, suit or proceeding, but the fees and expenses of such counsel shall be at the Indemnitee’s own cost and expense, unless (A) the employment of such counsel and the payment of such fees and expenses shall have been
specifically authorized by the Indemnitor in connection with the defense of such claim, action, suit or proceeding, or (B) the
40
Indemnitee shall have reasonably concluded based upon a written opinion of counsel that there may be specific material defenses available to the Indemnitee
which are different from or in addition to those available to the Indemnitor, in which case the costs and expenses incurred by the Indemnitee for such counsel shall be borne by the Indemnitor, provided that Indemnitor shall not be obligated to pay
for the costs and expenses of more than one counsel to the Indemnitee.
(iii) The Indemnitee or the Indemnitor, as the case may be, who is
controlling the defense of the claim, action, suit or proceeding, shall keep the other party fully informed of such claim, action, suit or proceeding at all stages thereof, whether or not such party is represented by counsel. The Parties hereto
agree to render to each other such assistance as they may reasonably require of each other in order to ensure the proper and adequate defense of any such claim, action, suit or proceeding. Subject to the Indemnitor furnishing the Indemnitee with an
Indemnification Acknowledgment in accordance with Section 9.3(a)(ii), the Indemnitee shall cooperate with the Indemnitor and provide such assistance, at the sole cost and expense of the Indemnitor, as the Indemnitor may reasonably request in
connection with the defense of any such claim, action, suit or proceeding, including, but not limited to, providing the Indemnitor with access to and use of all relevant corporate records and making available its officers and employees for
depositions, pre-trial discovery and as witnesses at trial, if required. In requesting any such cooperation, the Indemnitor shall have due regard for, and attempt not to be disruptive of, the business and day-to-day operations of the Indemnitee and
shall follow the requests of the Indemnitee regarding any documents or instruments which the Indemnitee believes should be given confidential treatment.
(b) Neither Party shall make or enter into any settlement of any claim, action, suit or proceeding which one Party has undertaken to defend, without the other Party’s prior written consent (which consent shall
not be unreasonably withheld, delayed or conditioned), unless there is no obligation, directly or indirectly, on the part of such other Party to contribute to any portion of the payment for any of the Losses, such other Party receives a general and
unconditional release with respect to the claim (in form, substance and scope reasonably acceptable to such other Party), there is no finding or admission of any violation of law by, or effect on any other claim that may be made against such other
Party and, in the reasonable judgment of such other Party, the relief granted in connection therewith is not likely to have a Material Adverse Effect on such other Party or its reputation or prospects.
(c) Any claim for indemnification that may be made under more than one subsection under Section 9.1 may be made under the subsection that the
claiming party may elect in its sole discretion, notwithstanding that such claim may be made under more than one subsection.
9.4
Indemnification Procedures - Other Claims, Indemnification Generally
.
(a) A claim for indemnification for any matter not relating to
a Third Party Claim may be asserted by giving reasonable notice directly by the Indemnitee to the Indemnitor. The Indemnitee shall afford the Indemnitor reasonable access to all relevant corporate records and other information in its possession
relating thereto.
41
(b) If any party becomes obligated to indemnify another party with respect to any claim for
indemnification hereunder and the amount of liability with respect thereto shall have been finally determined in accordance with this Article IX, the Indemnifying Party shall pay such amount to the Indemnified Party in immediately available funds
within ten days following written demand therefor by the Indemnified Party. The indemnifying party shall not be obligated to pay any amount under this Article IX until such final determination.
9.5
Exclusive Remedy
. The provisions for indemnification set forth in this Article IX are the exclusive remedies of Sellers, Buyer and the Company
arising out of or in connection with this Agreement, and shall be in lieu of any rights under contract, tort, equity or otherwise (other than claims based on actual fraud or intentional breach of this Agreement).
Article X
Miscellaneous
10.1
Publicity
. Except as required by law, neither the Company nor the Sellers shall make any press release or other public
announcement concerning this Agreement or the transactions contemplated hereby without advance written approval thereof by the Buyer.
10.2
Expenses
. Except as provided in Article IX, the Company on the one hand, and Buyer, on the other hand, shall bear all of their own expenses in connection with the execution, delivery and performance of this Agreement and the transactions
contemplated hereby, including without limitation all fees and expenses of its agents, representatives, counsel and accountants.
10.3
Entire Agreement; Amendments and Waivers
. This Agreement, together with all Exhibits and Disclosure Schedules hereto and the other Transaction Documents, constitutes the entire agreement among the Parties pertaining to the subject matter
hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties, including, without limitation, the Term Sheet dated as of October 14, 2007. This Agreement may not be amended or
modified except by an instrument in writing signed by Buyer and Sellers. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided. Neither the failure nor the delay by any Party in exercising any right, power or privilege hereunder shall operate as a waiver of such right, power or privilege, and no single or
partial exercise of any such right, power or privilege shall preclude any other or further exercise of any such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable Law,
(a) no waiver that may be given by a Party shall be applicable except in the specific instance for which it was given and (b) no notice to or demand on one Party shall be deemed to be a waiver of any obligation of such Party or the right
of the Party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the other Transaction Documents.
10.4
Notices
. All notices, demands and other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given (i) when
delivered if personally delivered by hand (with written confirmation of receipt), (ii) when received if sent by a nationally recognized overnight courier service (receipt requested),
42
or (iii) when receipt is acknowledged by an affirmative act of the Party receiving notice, if sent by facsimile, telecopy or other electronic
transmission device (provided that such an acknowledgement does not include an acknowledgment generated automatically by a facsimile or telecopy machine or other electronic transmission device). Notices, demands and communications to Buyer, Seller
and the Company will, unless another address is specified in writing, be sent to the address indicated below:
If to Buyer, to
:
Real Goods Marin, Inc.
PO
Box 593
13771 So. Highway 101
Hopland, CA 95449
Attention: John Schaeffer
Telephone: (707) 744-2010
Facsimile: (707) 744-2104
E-Mail: john@realgoods.com
with a copy
(which shall not serve as notice) to:
Brownstein Hyatt Farber Schreck, P.C.
410 17th Street, Suite 2200
Denver,
Colorado 80202
Attention: Jacquelyn Kilmer
Telephone: (303) 223-1100
Facsimile: (303) 223-1111
E-Mail: JKilmer@bhfs.com
and
Gaiam, Inc.
360 Interlocken Blvd.
Broomfield, CO 80021
Attention: John Jackson
Telephone: (303) 222-3809
Facsimile: 303-222-3700
E-Mail:
john.jackson@gaiam.com
If to the Company to
:
Marin Solar, Inc.
1163 Francisco Blvd. East
San Rafael, CA 94901
Attention: Roy
Phillips
Telephone: 415.456.2800
Facsimile: 4154.56.2855
E-Mail: roy@marinsolar.com
43
with a copy (which shall not serve as notice) to:
Ackeret-Sheron LLP
890 Lamont Ave., Ste.
202
Novato, CA 94945
Attention: Christopher Sheron
Telephone: (415) 898-3200
Facsimile: (415) 897-6526
E-Mail:
chris@sheronlaw.com
If to the Sellers to
:
Roy Phillips
c/o Marin Solar, Inc.
1163 Francisco Blvd. East
San Rafael, CA
94901
Attention: Roy Phillips
Telephone: 415.456.2800, ext. 109;
Facsimile: 4154.56.2855
E-Mail: roy@marinsolar.com
and
Jan Phillips
497 Scenic Avenue
San Anselmo, CA 94960
Telephone: 415.459.8697; 415-385-1147 (cell)
Facsimile: 415.482.8838
E-Mail: janphillips@jps.net
or at such other address or
addresses as Buyer, the Company or Sellers, as the case may be, may specify by written notice given in accordance with this Section 10.4.
10.5
Waivers and Amendments
. This Agreement may be amended, superseded, canceled, renewed or extended and the terms hereof may be waived only by a written instrument signed by the Parties or, in the case of a waiver, by the Party
waiving compliance.
10.6
Governing Law
. IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE (WITHOUT REGARD TO THE CHOICE OF LAW OR CONFLICTS OF LAW PROVISIONS
THEREOF) AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
10.7
Consent to Jurisdiction and Venue
. THE PARTIES HEREBY
IRREVOCABLY AND UNCONDITIONALLY CONSENT AND AGREE THAT ALL ACTIONS, SUITS OR OTHER PROCEEDINGS ARISING UNDER OR IN CONNECTION WITH
44
THIS AGREEMENT SHALL BE TRIED AND LITIGATED IN STATE OR FEDERAL COURTS LOCATED IN *, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
AND ALL CLAIMS, CONTROVERSIES AND DISPUTES ARISING OUT OF OR RELATED TO THIS AGREEMENT. NOTWITHSTANDING THE FOREGOING, NOTHING CONTAINED IN THIS SECTION 10.7 SHALL PRECLUDE BUYER FROM BRINGING ANY ACTION, SUIT OR OTHER PROCEEDING IN THE COURTS OF
ANY OTHER LOCATION WHERE THE COMPANY OR SELLERS OR ANY ONE OF THEM OR ANY OF ITS OR THEIR ASSETS OR THE COLLATERAL MAY BE FOUND OR LOCATED OR TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER IN FAVOR OF BUYER.
EACH OF THE COMPANY AND EACH SELLER, FOR ITSELF AND ITS PROPERTY, (A) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION, SUIT OR OTHER PROCEEDING COMMENCED IN ANY SUCH COURT, (B) WAIVES ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR ANY OBJECTION THAT SUCH PERSON MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION OR IMPROPER VENUE AND (C) CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.
TO THE EXTENT PERMITTED UNDER THE APPLICABLE LAWS OF ANY SUCH JURISDICTION, EACH OF THE COMPANY AND EACH SELLER HEREBY WAIVES, IN RESPECT OF ANY SUCH ACTION, SUIT OR OTHER PROCEEDING, THE JURISDICTION OF ANY OTHER
COURT OR COURTS THAT NOW OR HEREAFTER, BY REASON OF SUCH PARTY’S PRESENT OR FUTURE DOMICILE, OR OTHERWISE, MAY BE AVAILABLE TO IT.
10.8
Waiver of Trial by Jury
. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, AND
UNDERSTANDING THEY ARE WAIVING A CONSTITUTIONAL RIGHT, EACH OF THE PARTIES HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVES, RELINQUISHES AND FOREVER FORGOES THE RIGHT TO A TRIAL BY JURY IN ANY
ACTION, SUIT OR OTHER PROCEEDING BASED UPON, ARISING OUT OF OR IN ANY WAY RELATING TO (a) THIS AGREEMENT, INCLUDING ANY PRESENT OR FUTURE AMENDMENT HEREOF, OR ANY OF THE TRANSACTIONS CONTEMPLATED BY OR RELATED TO THIS AGREEMENT, OR (b) ANY
CONDUCT, ACT OR OMISSION OF THE PARTIES OR THEIR AFFILIATES (OR ANY OF THEM) WITH RESPECT TO THIS AGREEMENT, INCLUDING ANY PRESENT OR FUTURE AMENDMENT HEREOF, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE,
45
REGARDLESS OF WHICH PARTY INITIATES SUCH ACTION, SUIT OR OTHER PROCEEDING; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH ACTION, SUIT OR OTHER
PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES TO THE WAIVER OF ANY RIGHT THEY MIGHT
OTHERWISE HAVE TO TRIAL BY JURY.
10.9
Counterparts
. This Agreement may be executed in two or more counterparts (delivery of which
may occur via facsimile), each of which shall be binding as of the date first written above, and, when delivered, all of which shall constitute one and the same instrument. A facsimile signature or electronically scanned copy of a signature shall
constitute and shall be deemed to be sufficient evidence of a Party’s execution of this Agreement, without necessity of further proof. Each such copy shall be deemed an original, and it shall not be necessary in making proof of this Agreement
to produce or account for more than one such counterpart.
10.10
Invalidity
. If any term or other provision of this Agreement is
held by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced under any applicable Law in any particular respect or under any particular circumstances, then, so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially adverse to any Party, (a) such term or provision shall nevertheless remain in full force and effect in all other respects and under all other circumstances, and
(b) all other terms, conditions and provisions of this Agreement shall remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner so that the transactions contemplated hereby are fulfilled to the fullest extent possible.
10.11
Negotiated Agreement
. The Parties hereby acknowledge that the terms and language of this Agreement were the result of negotiations among the
Parties and, as a result, there shall be no presumption that any ambiguities in this Agreement shall be resolved against any particular Party. Any controversy over construction of this Agreement shall be decided without regard to events of
authorship or negotiation.
10.12
Assignment
. This Agreement shall inure to the benefit of, and be binding upon, the parties and
their respective successors and permitted assigns. In addition, it is the intent of the parties that the Indemnitees that are not a party hereto be third party beneficiaries of Article IX of this Agreement. Buyer, the Company or any Seller may not
assign, transfer or delegate any of their rights or obligations hereunder or any interest herein, by operation of law or otherwise, without the prior written consent of the other Parties; provided, that Buyer may assign its rights and obligations
under this Agreement to any wholly owned affiliate of Gaiam, Inc.
10.13
Severability
. If any provision of this Agreement is held to
be illegal, invalid, or unenforceable under present or future applicable Laws during the term thereof, such provision shall be fully severable, this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision
had never comprised a part thereof, and the remaining provisions thereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance therefrom.
46
Furthermore, in lieu of such illegal, invalid, or unenforceable provision there shall be added automatically as a part of this Agreement a legal, valid, and
enforceable provision as similar in terms to the illegal, invalid, or unenforceable provision as may be possible, which shall to the greatest extent possible effect the original intent of the parties.
10.14
Further Assurances
. From time to time after the Closing, each Party will timely execute and deliver to the other such instruments of sale,
transfer, conveyance, assignment and delivery, and such consents, assurances, powers of attorney and other instruments, as may be reasonably requested by such Party or its counsel in order to vest in Buyer all right, title and interest of Sellers in
and to the Stock and otherwise in order to carry out the purpose and intent of this Agreement.
10.15
Mutual Releases
. Each Seller,
for himself or herself and his or her Affiliates, heirs, personal representatives, successors and assigns on the one hand, and the Company, for itself and Buyer and their Affiliates, agents, successors and assigns on the other hand (collectively,
the “
Releasors
”), hereby forever fully and irrevocably releases and discharges each other and each others’ subsidiaries, parent and their respective successors, directors, officers, employees, agents, and representatives
(collectively, the “
Released Parties
”) from any and all actions, suits, claims, demands, debts, sums of money, accounts, reckonings, bonds, bills, covenants, Contracts, controversies, promises, judgments, Liabilities or obligations
of any kind whatsoever in law or equity and causes of action of every kind and nature, or otherwise (including, claims for damages, costs, expenses, and attorneys’, brokers’ and accountants’ fees and expenses) which the Releasors can,
shall or may have against the Released Parties, whether known or unknown, suspected or unsuspected, unanticipated as well as anticipated and that now exist or may hereafter accrue based on matters now unknown as well as known (collectively, the
“
Released Claims
”), provided that Released Claims shall not include claims arising out of the breach or alleged breach of this Agreement or any other Transaction Documents or claims resulting from the fraud of any of the Released
Parties. The Releasors hereby irrevocably agree to refrain from directly or indirectly asserting any claim or demand or commencing (or causing to be commenced) any suit, action, or proceeding of any kind, in any court or before any tribunal, against
any Released Party based upon any Released Claim. This release shall be effective as of the consummation of the Closing.
[Remainder of
Page Intentionally Left Blank]
47
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.
|
|
|
|
|
BUYER:
|
|
|
|
REAL GOODS MARIN, INC., a California corporation
|
|
|
|
|
By:
|
|
|
|
Name:
|
|
John Schaeffer
|
|
Title:
|
|
President
|
|
|
|
THE COMPANY:
|
|
|
|
MARIN SOLAR, INC., a California corporation,
|
|
|
|
|
By:
|
|
|
|
Name:
|
|
Roy Phillips
|
|
Title:
|
|
President
|
|
|
|
SELLERS:
|
|
|
|
|
|
ROY PHILLIPS
|
|
|
|
|
|
JAN PHILLIPS
|
Exhibit 10.4
Execution Version
* AN ASTERISK INDICATES WHERE PORTIONS OF THIS AGREEMENT
HAVE
BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT
MADE TO THE SECURITIES AND EXCHANGE COMMISSION. THESE NON-PUBLIC
PORTIONS
HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.
ASSET PURCHASE AGREEMENT
among
CARLSON SOLAR,
a California
corporation
MARY CARLSON,
an individual Resident of the State of California,
SCOTT CARLSON,
an individual Resident of the State of California,
BRITTANY CARLSON,
an individual Resident of the State of California,
BRANDON CARLSON,
an individual
Resident of the State of California,
and
REAL GOODS CARLSON, INC.,
a California corporation
Dated as of January 1, 2008
TABLE OF CONTENTS
|
|
|
|
|
|
|
ARTICLE I
|
|
DEFINITIONS
|
|
1
|
|
|
|
|
|
1.1
|
|
Definitions
|
|
1
|
|
|
|
|
|
ARTICLE II
|
|
PURCHASE AND SALE
|
|
8
|
|
|
|
|
|
2.1
|
|
Transferred Assets
|
|
8
|
|
2.2
|
|
Excluded Assets
|
|
8
|
|
2.3
|
|
Assumed Liabilities
|
|
8
|
|
2.4
|
|
Excluded Liabilities
|
|
8
|
|
2.5
|
|
* Contract
|
|
8
|
|
|
|
|
|
ARTICLE III
|
|
PURCHASE PRICE
|
|
8
|
|
|
|
|
|
3.1
|
|
Purchase Price
|
|
8
|
|
3.2
|
|
Adjustments to Purchase Price
|
|
9
|
|
3.3
|
|
Allocation of Purchase Price
|
|
10
|
|
|
|
|
|
ARTICLE IV
|
|
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS
|
|
10
|
|
|
|
|
|
4.1
|
|
Organization, Qualification and Authority
|
|
10
|
|
4.2
|
|
No Violations
|
|
11
|
|
4.3
|
|
Financial Statements
|
|
11
|
|
4.4
|
|
Interim Changes
|
|
12
|
|
4.5
|
|
Licenses and Permits
|
|
13
|
|
4.6
|
|
Real Property
|
|
13
|
|
4.7
|
|
Transferred Assets
|
|
14
|
|
4.8
|
|
Seller Contracts
|
|
14
|
|
4.9
|
|
Environmental and Safety Matters
|
|
14
|
|
4.10
|
|
Litigation
|
|
15
|
|
4.11
|
|
Seller’s Employees
|
|
15
|
|
4.12
|
|
Seller’s Employee Benefits
|
|
16
|
|
4.13
|
|
Insurance
|
|
17
|
|
4.14
|
|
Broker’s or Finder’s Fee
|
|
17
|
|
4.15
|
|
Intellectual Property
|
|
17
|
|
4.16
|
|
Motor Vehicles
|
|
18
|
|
4.17
|
|
Tax Returns; Taxes
|
|
18
|
i
|
|
|
|
|
|
|
4.18
|
|
Affiliate Interests
|
|
18
|
|
4.19
|
|
Governmental and Other Third Party Consents
|
|
18
|
|
4.20
|
|
Customers and Vendors
|
|
18
|
|
4.21
|
|
Legal and Other Compliance
|
|
18
|
|
4.22
|
|
Inventories
|
|
19
|
|
4.23
|
|
Notes, Accounts Receivable and Accounts Payable
|
|
19
|
|
4.24
|
|
Outstanding Bids, Bid Bonds and Performance Bonds
|
|
19
|
|
4.25
|
|
Product and Service Warranties; Defects; Liability
|
|
20
|
|
4.26
|
|
Powers of Attorney
|
|
20
|
|
4.27
|
|
Booked Jobs and Work in Process
|
|
20
|
|
4.28
|
|
No Omissions or Misstatements
|
|
20
|
|
|
|
|
|
ARTICLE V
|
|
REPRESENTATIONS AND WARRANTIES OF BUYER
|
|
20
|
|
|
|
|
|
5.1
|
|
Power and Authority
|
|
20
|
|
5.2
|
|
Consents and Approvals
|
|
21
|
|
5.3
|
|
Broker’s Finder’s Fee
|
|
21
|
|
|
|
|
|
ARTICLE VI
|
|
COVENANTS OF PARTIES
|
|
21
|
|
|
|
|
|
6.1
|
|
Confidentiality
|
|
21
|
|
6.2
|
|
Required Consents
|
|
21
|
|
6.3
|
|
Noncompete
|
|
21
|
|
6.4
|
|
Employee Matters
|
|
23
|
|
6.5
|
|
Cooperation and Information Sharing
|
|
23
|
|
6.6
|
|
Collection of Accounts Receivables
|
|
24
|
|
6.7
|
|
Use of Name
|
|
24
|
|
6.8
|
|
Transferred Vehicles
|
|
24
|
|
6.9
|
|
Financial Statements
|
|
24
|
|
6.10
|
|
Taxes
|
|
25
|
|
6.11
|
|
Waiver of Bulk Sale Law
|
|
25
|
|
6.12
|
|
Securities Matters
|
|
25
|
|
6.13
|
|
Further Assurances
|
|
26
|
|
|
|
|
|
ARTICLE VII
|
|
CLOSING DELIVERIES
|
|
26
|
|
|
|
|
|
7.1
|
|
Deliveries by Seller and the Shareholders
|
|
26
|
|
7.2
|
|
Deliveries by Buyer
|
|
27
|
ii
|
|
|
|
|
|
|
ARTICLE VIII
|
|
INDEMNIFICATION
|
|
28
|
|
|
|
|
|
8.1
|
|
Indemnification
|
|
28
|
|
8.2
|
|
Limitations of Indemnity
|
|
28
|
|
8.3
|
|
Indemnification Procedures — Third Party Claims
|
|
29
|
|
8.4
|
|
Indemnification Procedures — Other Claims, Indemnification Generally
|
|
30
|
|
8.5
|
|
Exclusive Remedy
|
|
30
|
|
8.6
|
|
Escrow
|
|
31
|
|
|
|
|
|
ARTICLE IX
|
|
MISCELLANEOUS
|
|
31
|
|
|
|
|
|
9.1
|
|
Publicity
|
|
31
|
|
9.2
|
|
Expenses
|
|
31
|
|
9.3
|
|
Entire Agreement; Amendments and Waivers
|
|
31
|
|
9.4
|
|
Notices
|
|
31
|
|
9.5
|
|
Waivers and Amendments
|
|
33
|
|
9.6
|
|
Governing Law
|
|
33
|
|
9.7
|
|
Consent to Jurisdiction and Venue
|
|
33
|
|
9.8
|
|
Attorneys’ Fees and Costs
|
|
34
|
|
9.9
|
|
Counterparts
|
|
34
|
|
9.10
|
|
Invalidity
|
|
34
|
|
9.11
|
|
Negotiated Agreement
|
|
35
|
|
9.12
|
|
Assignment
|
|
35
|
|
9.13
|
|
Severability
|
|
35
|
iii
Execution Version
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (the
“
Agreement
”) dated as of January 1, 2008, among CARLSON SOLAR, a California corporation (“
Seller
”), MARY CARLSON, an individual resident of the state of California, BRANDON CARLSON, an individual resident of
the state of California, BRITTANY CARLSON, an individual resident of the state of California and SCOTT CARLSON, an individual resident of the state of California, (each, a “
Shareholder
” and collectively, the
“
Shareholders
”), and REAL GOODS CARLSON, INC., a California corporation (“
Buyer
”).
R E C I T A L S:
WHEREAS, Seller owns, operates and conducts a business which provides and installs photovoltaic modules in the State of California
(the “
Business
”);
WHEREAS, the Shareholders own 100% of the issued and outstanding capital stock of Seller;
WHEREAS, except for the Excluded Assets (as defined below), Seller and the Shareholders desire to sell and transfer the Transferred Assets (as defined
below) to Buyer, and Buyer desires to purchase the Transferred Assets from Seller, subject to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants contained in this Agreement and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound hereby, agree as follows:
Article I
Definitions
1.1
Definitions
. For purposes of this Agreement, the following terms shall have
the respective meanings set forth below:
“
Action
” means any judicial or administrative action, claim, suit, investigation,
hearing, demand or proceeding by or before any Governmental Authority.
“
Accounts Payable
” means Seller’s ordinary
course current liabilities determined in accordance with Seller’s ordinary and customary accounting practices, consistently applied.
“
Affiliate
” of any specified Person means (i) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person and (ii) any 5% shareholder
or member of such Person. For purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
1
“
Agreement
” means this Agreement and includes all of the schedules and exhibits annexed
hereto.
“
Allocation
” has the meaning set forth in Section 3.3.
“
Assignment and Assumption Agreement
” means the Assignment Agreement from Seller in the form of
Exhibit A
hereto.
“
Assumed Liabilities
” means *.
“
Assumed Warranty Work
” means *.
“
Booked Jobs
” means jobs for which the sales and services
contract has been executed but work on the job has yet to begin.
“
Bankruptcy Laws
” means the United States Bankruptcy
Code (Title 11, United States Code) and any state or federal laws pertaining to insolvency, as the same may be amended from time to time.
“
Bill of Sale
” means a Bill of Sale from Seller in the form of
Exhibit C
hereto.
“
Business
” has the meaning set forth in the recitals to this Agreement.
“
Business Day
” means
any weekday, except for any weekday on which banks are to close in California.
* has the meaning set forth in Section 8.2(a).
“
Closing
” means the closing of the purchase and sale of the Transferred Assets contemplated by this Agreement.
“
Closing Date
” means, subject to the satisfaction of the conditions set forth herein, the earlier of (i) January 1,
2008, or (ii) such other date as is mutually acceptable to Buyer and Seller following satisfaction or waiver of the conditions contained in Article VII.
“
Closing Inventory Value
” means $1,235,260.28 which is the value of the Inventory owned by Seller and related to the Business, excluding Obsolete Inventory, at Seller’s cost, as of the
Closing Date, as set forth on
Schedule C
hereto.
“
Closing Statement
” has the meaning set forth in
Section 3.2(b).
“
COBRA
” means the Consolidated Omnibus Budget Reconciliation Act, as amended from time to time.
“
Code
” means the Internal Revenue Code of 1986, as amended.
“
Completed Jobs
” means (i) solar installation with respect to which all work has been performed and the building has passed a final
inspection, or (ii) solar installation with respect to which all work has been performed and for which a final inspection is not required.
2
“
Competing Transaction
” means any business combination or recapitalization
involving Seller or any acquisition or purchase of all or a significant portion of the Transferred Assets of, or any material equity interest in, either Seller or any other similar transaction with respect to Seller involving any Person or entity
other than Buyer or its Affiliates.
“
Contract
” means any contract, lease, license, instrument, purchase order,
sales order or other agreement or binding commitment, whether or not in written form.
“
Court Order
” means any judgment,
decree, injunction, order or ruling of any Governmental Authority or authority that is binding on any Person or its property under applicable Law.
“
Customer Rebates Receivable
” means rebates from the state of California under the California Solar Initiative program and the California Energy Commission program.
* has the meaning set forth in Section 8.2.
“
Disputed Items
” has the meaning set forth in Section 3.2(c).
“
Employee Benefit Plan
”
means any employee benefit plan or compensation plan, agreement or arrangement covering present or former employees of Seller (including those within the meaning of ERISA Section 3(3)), stock purchase plan, stock option plan, fringe benefit
plan, change in control plan, severance plan, bonus plan, pension plan and any other deferred compensation agreement or plan or funding arrangement.
“
Employee Pension Benefit Plan
” has the meaning set forth in ERISA Section 3(2).
“
Employee Welfare Benefit Plan
” has the meaning set forth in ERISA Section 3(1).
“
Employment
Agreement
” has the meaning set forth in Section 7.1(e).
“
Encumbrance
” means any lien, charge, claim,
security interest, mortgage, pledge or other encumbrance of any nature whatsoever.
“
Environmental Laws
” means all
federal, state and municipal statutes, regulations, common law and similar provisions having the force or effect of law, all orders, permits, licenses and approvals with respect to the environment, public health and safety, occupational health and
safety, product liability and transportation including without limitation all such standards of conduct or bases of obligations relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, control or cleanup of any contaminant, waste, hazardous materials, substances, chemical substances or mixtures, pesticides, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation.
“
ERISA
” means the Employee Retirement Income Security Act of 1974, as
amended.
“
Escrow Agreement
” means the escrow agreement in the form of
Exhibit D
hereto.
“
Escrow Amount
” means the amount held in escrow pursuant to the Escrow Agreement.
3
“
Escrow Agent
” means the Escrow Agent as defined in the Escrow Agreement.
“
Excluded Assets
” means *.
“
Excluded Liabilities
” means *.
“
Excluded Warranty Work
” means installation and service work
directly related to the replacement or repair of solar systems covered by warranty which is not Assumed Warranty Work.
“
Final
Closing Inventory
” means all Inventory owned by Seller and related to the business, excluding Obsolete Inventory, as of the Closing Date as determined in accordance with Section 3.2.
“
Final Closing Inventory Value
” means the value of the Final Closing Inventory, at Seller’s cost, of the Inventory, on the Closing
Statement.
“
Final Closing Inventory Adjustment
“ means the amount by which the Final Closing Inventory Value is more or
less than the Closing Inventory Value.
“
GAAP
” means generally accepted accounting principles in effect in the United
States consistently applied as in effect on the date of the Agreement.
“
Governmental Authority
” means any
(a) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature, or any political subdivision thereof, (b) federal, state, local, municipal, foreign or other government, or
(c) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, official, organization, body or other entity and any court, arbitrator or other tribunal).
“
Governmental Permits
” has the meaning set forth in Section 4.5.
“
Grantor
” means Gaiam Energy Tech, Inc., or an Affiliate thereof,
provided
that such Affiliate shall not include Gaiam, Inc.
“
Gross Sales
” means solar installation sales and services as invoiced on a sales or service contract.
“
Gross Profit
” means Gross Sales less all of the following costs directly expended by Buyer for the installations and services on the
applicable job: permits and fees, bonding, site construction and excavation, utility connections, utility service upgrades, solar equipment, solar system components, installation, labor supervision, returns, sales tax, freight costs, engineering and
design costs, subcontractor services, charge backs and per diem travel expenses for engineering, design and installation personnel.
“
Historical Financials
” means the unaudited balance sheets and statements of income of Seller as of and for the fiscal years ended December 31, 2006, December 31, 2005 and December 31, 2004 (including
the footnotes thereto if any), and the unaudited balance sheet and statements of income and cash flows for the 10-month period ended October 31, 2007, attached hereto as
Schedule 4.3
.
4
“
Indemnification Acknowledgement
” has the meaning set forth in Section 8.2(a)(ii).
“
Indemnitee
” has the meaning set forth in Section 8.2(a).
“
Indemnitor
” has the meaning set forth in Section 8.2(a).
“
Incentive Plan
” means the Grantor’s 2007 Long-Term Incentive Plan.
“
Intellectual Property
” means all patents, trademarks, service marks, copyrights, trade names, maskworks, net lists, schematics,
know-how, trade secrets, recipes, formulas, mixtures, inventory, ideas, algorithms, processes, computer software programs, or applications (in both source code and object code form), tangible or intangible proprietary information or material, other
intellectual property, and all registrations and applications and renewals for any of the foregoing and all goodwill associated therewith.
“
Inventory
” means normal items of inventory, which, in Buyer’s reasonable determination, are current, suitable and merchantable at customary prices for the filing of orders in the normal course of business, and are not
Obsolete Inventory, damaged or defective.
“
Job Accounts Payable
” means Accounts Payable incurred in connection with, or
arising out of, a specific job, whether recorded or not recorded, asserted or not asserted as of the date of the Closing.
“
Knowledge
” and “
Knowledge of Seller
” means, the actual knowledge or awareness of each Shareholder that each Shareholder would have obtained after reasonable due diligence or inquiry in light of the
circumstances.
“
Latest Balance Sheet
” means the unaudited balance sheet of Seller for the ten-month period ended
October 31, 2007 included in the Historical Financials and prepared in accordance with Seller’s customary and ordinary accounting practices.
“
Laws
” means any statute, law, ordinance, regulation, order or rule of any governmental authority, including without limitation those covering environmental, energy, safety, health, transportation,
bribery, record keeping, zoning, antidiscrimination, antitrust, wage and hour, and price and wage control matters, as well as any applicable principle of common law.
“
Liability
” means any liability or obligation (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, whether incurred directly or consequential and whether due or to become due), including any Tax or other liability arising out of applicable statutory, regulatory or common law, any contractual obligation and any obligation arising out
of tort.
“
Losses
” means any and all damages, costs, liabilities, losses (including consequential losses), judgments,
penalties, fines, expenses or other costs, including reasonable attorney’s fees, expert fees and costs of investigation, enforcement and collection suffered or incurred by an Indemnitee.
5
“
Material Adverse Effect
” means a material adverse effect on (i) the Transferred
Assets, operations, personnel, condition (financial or otherwise) or prospects of Seller, considered as a whole, or (ii) the ability of any Shareholder, Seller or Buyer (as applicable) to consummate the transactions contemplated hereby, or
(iii) the Historical Financials as audited following the Closing Date.
“
Noncompete Period
” has the meaning set forth
in Section 6.2.
“
Notice of Claim
” has the meaning set forth in Section 8.2(a)(i).
“
Obsolete Inventory
” means inventory that is obsolete, slow-moving or not currently saleable.
“
Operating Accounts Payable
” means Accounts Payable not incurred in connection with, or arising out of, a specific job.
“
Option
” has the meaning set forth in Section 3.1(b).
“
Option Agreement
” means the stock option agreement by and between the Grantor and the Seller to be entered into within 30 days
following the Closing Date.
“
Option Shares
” has the meaning set forth in Section 3.1(b).
“
Ordinary Course of the Business
” means a manner generally consistent with past business practices as evidenced by historical events,
trends and customary approach.
“
Out-of-Pocket Cost
” means expenses paid by Seller for materials and labor which were
incurred in connection with, or arising out of, a specific job.
“
Periodic Taxes
” has the meaning set forth in
Section 6.10(a).
“
Permitted Liens
” means the following liens which are set forth on
Schedule D
(i) liens
for Taxes, fees, levies, duties or other governmental charges of any kind which are not yet delinquent or are being contested in good faith by appropriate proceedings which suspend the collection thereof and for which appropriate reserves have been
established in accordance with GAAP; and (ii) liens for mechanics, material, laborers, employees, suppliers or similar liens arising by operation of law for sums which are not yet delinquent or which are being contested in good faith by
appropriate proceedings or with respect to which arrangements for payment and/or release have been made and for which appropriate reserves have been established in accordance with Seller’s customary and ordinary accounting practices
consistently applied.
“
Person
” means any individual, partnership, limited liability company, limited liability
partnership corporation, association, joint stock company, trust, joint venture, unincorporated organization or governmental entity (or any department, agency or political subdivision thereof).
6
“
Product
” has the meaning set forth in Section 4.25.
“
Purchase Price
” has the meaning set forth in Section 3.1.
“
Purchase Price Adjustment
” has the meaning set forth in Section 3.2(a).
“
Required Consents
” has the meaning set forth in Section 4.2.
“
Seller Contract
” has the meaning set forth in Section 4.8.
“
Seller’s Real Property
” means all real property owned by Seller.
“
Tax
” means any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, capital gain, intangible, environmental (pursuant to Section 59A of the Code or otherwise), custom duties, capital stock, franchise, employee’s income withholding, foreign withholding, social security
(or its equivalent), unemployment, disability, real property, personal property, sales, use, transfer, value added, registration, alternative or add on minimum, estimated or other tax, including any interest, penalties or additions to tax in respect
of the foregoing, whether disputed or not, and any obligation to indemnify, assume or succeed to the liability of any other Person in respect of the foregoing, and the term “
Tax Liability
” shall mean any liability (whether known or
unknown, whether absolute or contingent, whether liquidated or unliquidated, and whether due or to become due) with respect to Taxes.
“
Tax Period
” has the meaning set forth in Section 6.10(a).
“
Tax Return
” means any return,
declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
“
Third Party Claim
” means a claim or demand made by any Person who is not a party hereto against an Indemnitee.
“
Transaction Documents
” means, collectively, this Agreement, the Bill of Sale, the Assignment and Assumption Agreement, the Employment
Agreement and the Escrow Agreement.
“
Transferred Assets
” means *, but excluding any Excluded Assets.
“
Transferred Vehicles
” has the meaning set forth in Section 7.1(b).
* has the meaning set forth in Section 2.5.
“
WARN
” has the meaning set forth in Section 4.11.
“
Work in Process
” means solar
installation jobs that are not Completed Jobs or Booked Jobs.
7
Article II
Purchase and Sale
2.1
Transferred Assets
. Subject to the terms and conditions set forth in
this Agreement, Seller shall sell, transfer, convey, assign and deliver to Buyer, and Buyer shall purchase and acquire from Seller, on the Closing Date, all of Seller’s right, title and interest in, to and under the Transferred Assets, free and
clear of all Encumbrances, other than Permitted Liens.
All of the Transferred Assets are intended to be transferred to Buyer, whether or not described in the Schedules hereto.
2.2
Excluded Assets
.
Seller is not selling and Buyer is not purchasing or assuming obligations with respect to the Excluded Assets, and
following Closing, Buyer will not have any right, title, interest or obligation with respect to the Excluded Assets.
2.3
Assumed
Liabilities
. At the Closing, Buyer will assume and agree to pay or perform, as the case may be, the Assumed Liabilities.
2.4
Excluded Liabilities
. Buyer shall assume no liabilities of Seller of any nature other than the Assumed Liabilities. Concurrently with the Closing, Seller will pay, or cause to be paid, and discharge any Excluded Liability over $* as set forth
on
Schedule 2.4
hereto. Buyer shall have no liability for or obligation with respect to any Excluded Liability, whether recorded or not recorded, asserted or not asserted as of the date of the Closing; provided, however that to the extent
that Buyer will pay any Excluded Liability set forth on
Schedule 2.4
following the Closing Date, Buyer will pay such Excluded Liability promptly upon receipt of the wire payment instructions.
2.5*. Notwithstanding the foregoing provisions of Article II, in the case of the contract by and between *, Buyer and Seller agree that Buyer shall
receive the accounts receivable and the customer deposits and shall assume the Accounts Payable directly related to the * subject to the adjustment set forth on
Schedule 2.5
hereto. The * will be adjusted and reimbursement made to Seller or
Buyer, if necessary, by calculation of the following categories as set forth on
Schedule 2.5
: (i) total revenue paid to Seller, (ii) total costs paid by Seller, (iii) percentage completion of installation, (iv) payment
received by Seller, (v) payment of costs made by Seller, (vi) accounts receivable for * as of the Closing Date, and (vii) Accounts Payable for the * as of the Closing Date.
Article III
Purchase Price
3.1
Purchase Price
.
(a) At Closing,
in consideration of the sale and transfer of the Transferred Assets, Buyer shall pay the purchase price of $2,550,000 plus the Closing Inventory Value (the “
Purchase Price
”) as follows:
(i)* of the Purchase Price will be placed in an escrow pursuant to an Escrow Agreement in the form of
Exhibit D
hereto to provide a
fund for (i) the payment of any post-closing adjustment to the Purchase Price pursuant to Section 3.2; and (ii) the payment of any post-closing indemnification claims pursuant to Section 8.6 (the “Escrow Amount”);
8
(ii) any amount necessary for the payment and discharge of any Excluded Liability
pursuant to
Section 2.4
shall be paid in accordance with
Section 2.4
;
(iii) $* shall be retained by
Buyer in consideration of payments received by the Seller for the *;
(iv) $* shall be retained by Buyer in consideration of
the transfer of all customer deposits for Booked Jobs to Buyer; and
(v) the remainder of the Purchase Price will be
delivered to Seller at Closing by wire transfer of immediately available funds pursuant to wire instructions delivered by Seller to Buyer not later than two Business Days prior to the Closing Date.
(b) As additional consideration of the sale and transfer of the Transferred Assets, effective as of the Closing Date, Buyer shall grant, or cause to be
granted, to Seller an option (the “
Option
”) to purchase 30,000 shares (the “
Option Shares
”) of the Grantor’s Class A Common Stock, par value $.0001 per share at the exercise price of $*, subject and
pursuant to all terms and conditions stated in the Option Agreement and in the Incentive Plan. Except as otherwise provided in the Option Agreement or the Incentive Plan, the Option may not be exercised after the close of business on January 1,
2015. Grantee shall, subject to the limitations of the Option Agreement and the Incentive Plan, have the right to exercise the Option by purchasing all or any part of the vested Option Shares then available for purchase (less any Option Shares
previously purchased upon exercise of this Option) pursuant to the following vesting schedule: (i) Fifty percent (50%) of the Option Shares shall vest upon the earlier to occur of the consummation of a Qualified Public Offering, as defined
in the Option Agreement, or the Sale of the Company, as defined in the Option Agreement, and (ii) only after the occurrence of a Qualified Public Offering or the Sale of the Company, the remaining fifty percent (50%) of the Option Shares
shall vest over time pursuant to the Option Agreement. Buyer and Seller acknowledge that, immediately following the Closing, Seller will transfer or assign the Option Shares to each Shareholder according to their percentage ownership interest in the
Seller.
3.2 Adjustments to Purchase Price.
(a) The Purchase Price shall be increased or decreased, as the case may be, * (the “
Purchase Price Adjustment
”).
(b) Within 10 days after the Closing Date, Buyer shall conduct a physical count of Seller’s Inventory on-hand and Buyer shall provide a calculation in reasonable detail of the *, if any, and, if applicable, the
Purchase Price Adjustment (the “
Closing Statement
”). Seller will cooperate with Buyer in connection with the preparation of the Closing Statement.
(c) At any time within 10 days following the delivery of the Closing Statement pursuant to Section 3.2(b) hereof, Seller may deliver a written objection specifying those items on the Closing Statement which it
disputes (such items, the “
Disputed Items
”). If Seller does not so object in writing, the Closing Statement shall be final and binding on the parties. If Seller objects to the Closing Statement, the parties shall agree on the
amount, if any, which is not in dispute, and attempt to resolve the Disputed Items by negotiation. If the parties are unable to resolve the Disputed Items within 10 days of the objection by Seller, the parties shall
9
appoint a firm of certified public accountants of national recognition mutually satisfactory to Seller and Buyer to review the Disputed Items and determine
the amount thereof in accordance with GAAP. Buyer and Seller shall use commercially reasonable efforts to cause such accounting firm to determine such amount as soon as is reasonably practicable. The fees and expenses of such accounting firm shall
be borne in equal portions by Seller and Buyer and the determination of such accounting firm shall be final and binding on the parties
(d)
If the Purchase Price Adjustment results in a decreased in the Purchase Price, if the aggregate amount of the Purchase Price Adjustment is less than the Escrow Amount, Buyer and Seller will deliver mutual instructions to the Escrow Agent in
accordance with the terms of the Escrow Agreement to deliver that portion of the Escrow Amount equal to the Purchase Price Adjustment to Buyer and the balance of the Escrow Amount shall remain in escrow to be distributed in accordance with the terms
of the Escrow Agreement.
(e) If the Purchase Price Adjustment results in an increase in the Purchase Price, Buyer will deliver that
portion of Purchase Price equal to the Purchase Price Adjustment to Seller by wire transfer of immediately available funds pursuant to wire instructions delivered by Seller to Buyer.
3.3
Allocation of Purchase Price
. The Purchase Price shall be allocated among the Transferred Assets in the manner agreed upon by the parties
after the Closing (the “
Allocation
”). The parties to this Agreement expressly agree that the Allocation shall be used by them for all purposes including Tax, reimbursement and other purposes. Each party to this Agreement agrees that
it will report the transaction completed pursuant to this Agreement in accordance with the Allocation, including any report made under Section 1060 of the Code, and that no such party will take a position inconsistent with the Allocation except
with the prior written consent of the other parties hereto.
Article IV
Representations and Warranties of Seller and the Shareholders
As a material
inducement to Buyer to enter into this Agreement and to consummate the transactions contemplated herein, Seller and the Shareholders hereby, jointly and severally, represent and warrant to Buyer as follows:
4.1
Organization, Qualification and Authority
.
Seller is a corporation duly organized and validly existing under the laws of the State of
California and is in good standing and duly qualified to do business as a foreign corporation in all jurisdictions where the operation of its business or the ownership of its properties make such qualification necessary. Seller has full corporate
power and authority to own, lease and operate its facilities and the Transferred Assets as presently owned, leased and operated, and to carry on its respective business as it is now being conducted. The Shareholders own, at Closing, 100% of the
issued and outstanding stock of Seller, no other person or entity owns or holds, has any interest in, whether legal, equitable or beneficial, or has the right to purchase, any capital stock, membership interest or other security of Seller and Seller
does not own any capital stock, security, interest or other right, or any option or warrant convertible into the same, of any Person. Seller has the requisite corporate right, power and authority to execute, deliver and carry out the terms of this
Agreement, the other Transaction Documents and all other documents and agreements
10
necessary to give effect to the provisions of this Agreement and to consummate the transactions contemplated on the part of Seller hereunder. Each
Shareholder has the full right, power and authority to execute, deliver and carry out the terms of this Agreement, the other Transaction Documents (to the extent a party thereto) and all other documents and agreements necessary to give effect to the
provisions of this Agreement, to consummate the transactions contemplated on the part of such Shareholder hereunder, and to take all actions necessary, in their capacity as the shareholders of Seller, to permit or approve the actions of Seller taken
in connection with this Agreement. The execution, delivery and consummation of this Agreement, the other Transaction Documents and all other agreements and documents executed in connection herewith and therewith by Seller, have been duly authorized
by all necessary action on the part of Seller. No other action, consent or approval on the part of Seller, the Shareholders or any other person or entity, is necessary to authorize Seller’s due and valid execution, delivery and consummation of
this Agreement, the other Transaction Documents and all other agreements and documents executed in connection herewith. This Agreement, the other Transaction Documents and all other agreements and documents executed in connection herewith by Seller
and/or the Shareholders, upon due execution and delivery thereof, shall constitute the valid and binding obligations of Seller and each Shareholder, enforceable in accordance with their respective terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally and by general principles of equity.
4.2
No Violations
. The execution and delivery of this Agreement and the other Transaction Documents and the performance by Seller and the Shareholders of their respective obligations hereunder and thereunder (a) do not and will not conflict
with or violate any provision of the articles of incorporation, bylaws, operating agreement or similar organizational documents of Seller, and (b) subject to obtaining all consents and approvals set forth on
Schedule 4.2
hereto (the
“
Required Consents
”), do not and will not (i) conflict with or result in a breach of the terms, conditions or provisions of, (ii) constitute a default under, (ii) result in the creation of any Encumbrance upon the
capital stock, membership interests or assets of Seller pursuant to, (iv) give any third party the right to modify, terminate or accelerate any obligation under, (v) result in a violation of, or (vi) require any authorization,
consent, approval, exemption or other action by or notice to any court or administrative, arbitration or governmental body or other third party pursuant to, any law, statute, rule or regulation or any Seller Contract, judgment or decree to which
Seller is subject or by which any of its assets are bound.
4.3
Financial Statements
.
(a) Except as set forth on
Schedule 4.3
, the Historical Financials have been prepared in accordance with Seller’s ordinary and customary
accounting, consistent with past practices. The Historical Financials fairly present the financial position of Seller as of the dates specified and the results of operations in all material respects of Seller for the periods covered thereby, and
Seller does not have any material liabilities or obligations of any nature (absolute, accrued, contingent or otherwise) that are not either (i) reflected or fully reserved against on the Historical Financials or incurred in the Ordinary Course
of the Business subsequent to the date of the Historical Financials or (ii) set forth on the disclosure schedules hereto.
(b) None of
Seller nor any of its officers, directors or, to the Knowledge of Seller, any of their respective Affiliates (i) is contemplating the filing of a petition under the Bankruptcy Laws with respect to Seller, or the liquidation of all or any major
portion
11
of its or their assets or properties, or (ii) is aware of any Person contemplating the filing of any petition against Seller under the Bankruptcy Laws.
Seller is not contemplating materially changing its Business, as such Business is being conducted on the date hereof.
4.4
Interim
Changes
. Except as set forth on
Schedule 4.4
, since December 31, 2006, there has been no:
(a) change in the condition,
financial or otherwise, of Seller, which has, or would reasonably be expected to have a Material Adverse Effect;
(b) loss, damage or
destruction of or to any of the material Transferred Assets, whether or not covered by insurance;
(c) sale, lease, transfer or other
disposition by Seller of, or mortgages or pledges of or the imposition of any Encumbrance on, any portion of the Transferred Assets other than in the Ordinary Course of Business consistent with past practice;
(d) increase in the compensation payable by Seller to any of the Shareholders, employees, directors, managers, independent contractors or agents, or any
increase in, or institution of, any bonus, insurance, pension, profit sharing or other employee benefit plan or arrangements made to, for or with the employees, directors, managers, shareholders or independent contractors of Seller, other than
increases in salaries of employees of the Business (other than the Shareholders) in the Ordinary Course of the Business consistent with past practice;
(e) adjustment or write off of accounts receivables or reduction in reserves for account receivables outside of the Ordinary Course of the Business or any change in the collection, payment or credit experience or
practices of Seller;
(f) change in the Tax or cash basis accounting methods or practices employed by Seller or change in depreciation or
amortization policies;
(g) issuance or sale by Seller or the Shareholders, or any Contract entered into by Seller or the Shareholders for
the issuance or sale, of any shares of capital stock or securities convertible into or exchangeable for capital stock of Seller;
(h)
payment by Seller of any dividend, distribution or extraordinary or unusual disbursement or expenditure;
(i) merger, consolidation or
similar transaction involving Seller;
(j) strike, work stoppage or other labor dispute adversely affecting the Business;
(k) termination, waiver or cancellation of any material rights or claims of Seller, under any Contract or otherwise;
12
(l) incurrence of indebtedness for borrowed money other than in the Ordinary Course of the Business
consistent with past practice;
(m) new Contract (or amendment to any existing Contract) obligating Seller to purchase goods or services
for a period of ninety (90) days or more, any amendment or termination of any Seller Contract or license relating to the Business or any waiver of material claims or rights of Seller against third parties other than in the Ordinary Course of
the Business consistent with past practice;
(n) agreement, arrangement or transaction between Seller and any Affiliate of Seller;
(o) other transaction not in the Ordinary Course of the Business and consistent with past practice of the Business that, individually or
in the aggregate, could have a Material Adverse Effect; or
(p) binding commitment with respect to any of the foregoing.
4.5
Licenses and Permits
.
(a) Seller
has all local, state and federal licenses, permits, registrations, certificates, contracts, consents, accreditations and approvals material to the Business (collectively, the “
Governmental Permits
”) necessary for Seller to occupy,
operate and conduct the Business as now conducted, and there do not exist any waivers or exemptions relating thereto. All such Governmental Permits are set forth on
Schedule 4.5
. There is no material default on the part of Seller or any other
party under any of the Governmental Permits. To Seller’s Knowledge, there exist no grounds for revocation, suspension or limitation of any of the Licenses or Permits. No notices have been received by Seller or the Shareholders with respect to
any threatened, pending, or possible revocation, termination, suspension or limitation of the Governmental Permits. Except as set forth on
Schedule 4.5
, the Governmental Permits may be assigned and transferred to Buyer pursuant to this
Agreement.
(b) To Seller’s Knowledge, each employee of Seller has all Governmental Permits required for each such employee to perform
such employee’s designated functions and duties for Seller in connection with conducting the Business. There is no default under, nor does there exist any grounds for revocation, suspension or limitation of, any such Governmental Permits.
4.6
Real Property
.
(a)
Schedule 4.6
sets forth a complete and correct list of all real properties or premises that are leased or utilized in whole or in part by Seller. The properties listed on
Schedule 4.6
constitute all the real properties
utilized in connection with the Business. As to each leased property,
Schedule 4.6
sets forth the (i) lease term, (ii) annual rent and (iii) renewal option, if any. Complete and correct copies of all leases and guarantees of
leases have been made available to Buyer.
13
(b) Seller is a tenant or possessor in good standing of each lease of premises utilized by Seller in
connection with the Business, free of any material default or breach on the part of Seller and, to Seller’s Knowledge, free of any material default or breach on the part of the lessors thereunder, and has use and occupancy of the premises
provided for in the leases therefor.
4.7
Transferred Assets
. Except as set forth on
Schedule 4.7
, Seller has good and
marketable title to the Transferred Assets (other than real property, which is covered in Section 4.6) free and clear of all Encumbrances other than Permitted Liens. Seller’s machinery, equipment, vehicles and other tangible assets
constituting any part of the Transferred Assets have been maintained in good working condition (normal wear and tear excepted) and are sufficient for the conduct of the Business as presently conducted, except for obsolete items not presently in
service which are retained for parts. The assets reflected on the Latest Balance Sheet constitute all of the assets, properties and other rights used in the conduct of the Business except for those assets acquired or disposed of in the Ordinary
Course of the Business subsequent to the date of the Latest Balance Sheet, racking materials and miscellaneous parts which are not reflected in the Latest Balance Sheet and the Excluded Assets. Seller owns all the material assets necessary to, and
currently utilized in the operation of, the Business as presently conducted. Except as set forth on
Schedule 4.7
, no Shareholder or any of their affiliates (other than Seller) owns any of the assets currently utilized in the Business.
4.8
Seller Contracts
.
Schedule 4.8
sets forth a list of all of Seller’s Contracts (the “
Seller
Contracts
”). True and correct copies of all Seller Contracts (and with respect to any oral Seller Contract, a summary of the principal terms thereof) have been provided to Buyer. Each Seller Contract is in full force and effect and
constitutes the valid, legal, binding and enforceable obligation of Seller and Seller is (and, except as set forth on
Schedule 4.8
, to Seller’s and each Shareholder’s Knowledge each other party thereto is not) in breach or default
of any terms or conditions thereunder.
4.9
Environmental and Safety Matters
.
(a) Except as set forth on
Schedule 4.9
:
(i) Seller is and has been in material compliance at all times with all applicable Environmental Laws and has received no notice, report or information regarding any liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise), or any corrective, investigatory or remedial obligations, arising under applicable Environmental Laws with respect to the past or present operations or properties of the Business;
(ii) Seller has obtained, and is and has been in material compliance at all times with all terms and conditions of, all Governmental Permits pursuant to
Environmental Laws for the occupation of its premises and the conduct of its operations;
(iii) Seller has filed, and is and has been in
material compliance at all times with, all disclosures, reporting and notifications required pursuant to Environmental Laws for the occupation of its premises and the conduct of its Business;
(iv) Seller has not received notice that any of the following exists at Seller’s properties (other than de minimis amounts of cleaning supplies) in
violation of applicable Environmental Laws: hazardous or toxic materials, substances, pollutants, contaminants or waste, polychlorinated biphenyl containing materials or equipment;
14
(v) The transactions contemplated by this Agreement do not impose any obligations under Environmental
Laws for site investigation or cleanup or notification to or consent of any government agencies or third parties that have the right to enforce Environmental Laws;
(vi) Seller has not received any notice from any Person that there are facts, events or conditions relating to the past or present properties or operations of the Business which will (x) prevent, hinder or limit
continued compliance with applicable Environmental Laws, (y) give rise to any corrective, investigatory or remedial obligations on the part of Buyer pursuant to applicable Environmental Laws, or (z) give rise to any liabilities on the part
of Buyer (whether accrued, absolute, contingent, unliquidated or otherwise) pursuant to applicable Environmental Laws, including without limitation those liabilities relating to onsite or offsite hazardous substance releases, personal injury,
property damage or natural resources damage; and
(vii) Seller has not assumed or, to Seller’s Knowledge, succeeded (by operation of
law or otherwise), to any liabilities or obligations of any third party under Environmental Laws for which Buyer will have any liability following the Closing Date.
(b) Seller has delivered to Buyer true and correct copies of all environmental studies conducted by Seller.
4.10
Litigation
. Neither Seller nor any of the Shareholders have received notice of any violation of any law, rule, regulation, ordinance or order of any court or federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality (including, without limitation, legislation and regulations applicable to environmental protection, civil rights, public health and safety and occupational health) since November 1, 2002.
Except as set forth on
Schedule 4.10
(for which Buyer assumes no liability), there are no lawsuits, proceedings, actions, arbitrations, governmental investigations, claims, inquiries or proceedings pending or, to Seller’s Knowledge,
threatened involving Seller, any Shareholder, any of the Transferred Assets or the Business, and no reasonable basis exists for the bringing of any such claim.
4.11
Seller’s Employees
.
Schedule 4.11
hereto sets forth: (i) a complete list of all of Seller’s employees and rates of pay, (ii) true and correct copies of any and all fringe
benefits and personnel policies, (iii) the employment dates and job titles of each such person, (iv) categorization of each such person as a full time or part time employee of Seller, and (v) whether any such person has an employment
agreement. Seller has not altered the compensation of any employee within the past thirty (30) days. For purposes of this Section, “
part time employee
” means an employee who is employed for an average of fewer than twenty
(20) hours per week or who has been employed for fewer than six (6) of the twelve (12) months preceding the date on which notice is required pursuant to the federal “Worker Adjustment and Retraining Notification Act”
(“
WARN
”), 29 U.S.C. Section 2102 et seq. Except as set forth on
Schedule 4.11
, Seller has no employment agreements with its employees and all such employees are employed on an “at will” basis.
Schedule
4.11
sets forth all former employees of Seller utilizing or eligible to utilize COBRA health insurance. All Persons with whom Seller has engaged as independent contractors are properly classified as independent contractors for Tax purposes.
15
4.12
Seller’s Employee Benefits
.
(a)
Schedule 4.12
lists each Employee Benefit Plan that Seller maintains or to which Seller contributes and each such Employee Benefit Plan (and
each related trust, insurance contract, or fund) has been maintained, funded and administered in accordance with the terms of such Employee Benefit Plan and complies in form and in operation in all material respects with the applicable requirements
of ERISA and the Code. No Action or investigation with respect to the administration or the investment of the assets of any such Employee Benefit Plan (other than routine claims for benefits) is pending.
(b) Except as set forth in
Schedule 4.12
, each of the following is true:
(i) Seller is not a party to any collective bargaining agreements. Seller is in compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours and occupational safety and health, and is not engaged in any unfair labor practice within the meaning of Section 8 of the National Labor Relations Act in all cases, except where
the failure to comply could not reasonably be expected to have a Material Adverse Effect and, there is no Action, grievance or other proceeding pending or, to Seller’s Knowledge, threatened in writing, or any investigation pending or threatened
against Seller relating to any thereof, and no basis exists for any such action, suit or legal, administrative, arbitration, grievance or other proceeding or governmental investigation;
(ii) there is no labor strike, dispute, slowdown or stoppage actually pending or, to Seller’s Knowledge, threatened against Seller;
(iii) none of the employees of Seller is represented by any labor union and, there are no attempts being made to organize any of such employees;
(iv) no agreement (including any collective bargaining agreement), arbitration or court decision, decree or order or governmental order
which is binding on Seller in any way limits or restricts Seller from relocating or closing any of its operations;
(v) Seller has not
experienced any organized work stoppage in the last five years;
(vi) there are no charges, administrative proceedings or formal
employee-related complaints (including without limitation wage-based allegations or discrimination allegations based upon sex, age, marital status, race, national origin, sexual preference, handicap or veteran status) pending or, threatened, or any
investigation pending or threatened before a court or the Equal Employment Opportunity Commission or the Department of Labor or any other federal, state or local agency. There have been no audits of the equal employment opportunity practices of
Seller, and no basis for any such claim exists; and
16
(vii) except for the transactions contemplated by this Agreement, within the period 90 days prior to the
Closing Date, Seller has not temporarily or permanently closed or shut down any single site of employment or any facility or any operating unit, department or service within a single site of employment, as such terms are used in WARN. During such
period, Seller has not terminated or laid off more than 125 employees in the aggregate.
4.13
Insurance
. Seller has in effect and
has continuously maintained insurance coverage for all of its operations, personnel and assets, and for the Transferred Assets and the Business. A complete and accurate list of all such insurance policies is set forth in
Schedule 4.13
hereto,
which policies have previously been provided to Buyer.
Schedule 4.13
also sets forth a summary of Seller’s current insurance coverage (listing the nature of coverage, carrier, limits, expiration dates, and whether such policies are
“claims made” or “occurrence based”), and includes a list of any pending insurance claims relating to Seller. Seller is not in default or breach with respect to any provision contained in any such insurance policies, nor has
Seller failed to give any notice or to present any claim thereunder in due and timely fashion.
4.14
Broker’s or Finder’s
Fee
. Except as set forth on
Schedule 4.14
, neither Seller nor the Shareholders has employed, or is liable for the payment of any fee to, any finder, broker, consultant or similar person in connection with the transactions contemplated
under this Agreement.
4.15
Intellectual Property
.
(a) Seller owns or licenses all Intellectual Property used in connection with, or material to, the Business. All Intellectual Property used in connection with, or material to, the Business is listed and described in
Schedule 4.15
. No proceedings have been instituted or are pending or, to Seller’s Knowledge, threatened which challenge the validity of the ownership by Seller of any of the Intellectual Property set forth on
Schedule 4.15
. Seller
has not licensed anyone to use any of Intellectual Property set forth on
Schedule 4.15
and to Seller’s Knowledge there has been no use or infringement of any the Intellectual Property set forth on
Schedule 4.15
by any other
person.
(b) Seller has provided to Buyer true, correct and complete copies of (i) all documents, if any, relative to patents, patent
applications and inventions and discoveries that may be patentable, and all registered and unregistered trademarks, trade names and service marks, registered and unregistered copyrights, and maskworks owned by Seller and included in the Intellectual
Property set forth on
Schedule 4.15
, including the jurisdictions in which each such intellectual property right has been issued or registered or in which any application for such issuance and registration has been filed, and (ii) of all
licenses, sublicenses and other agreements as to which Seller is a party and pursuant to which Seller is authorized to use any third party patents, trademarks or copyrights, including software (other than off-the-shelf software subject to a
click-through or shrink-wrap license), or any other third party intellectual property which are or are presently expected to be incorporated in, or are or expected to form a part of any existing Seller product, or which are or are presently expected
to be utilized in the development, modification or support of any existing Seller product.
(c) All patents, registered trademarks, service
marks and registered copyrights held by Seller and related to the Business are validly issued and presently subsisting.
17
(d) Seller is the owner or licensee of all right, title and interest in and to all of the Intellectual
Property set forth on
Schedule 4.15
, free and clear of all Encumbrances, and has the right to use without payment to a third party all of the Intellectual Property set forth on
Schedule 4.15
, other than in respect of licenses listed in
Schedule 4.15(d)
.
4.16
Motor Vehicles
.
Schedule 4.16
sets forth a complete and accurate list of all vehicles utilized
in the Business, whether owned or leased, the type of vehicle and vehicle identification number. All such vehicles are properly titled, licensed and registered in accordance with applicable law.
4.17
Tax Returns; Taxes
. Seller has filed or will timely file all federal, state and local Tax Returns and Tax reports required by such
authorities to be filed. Seller has paid all Taxes, assessments, governmental charges, penalties, interest and fines due or claimed to be due by any federal, state or local authority. There is no pending Tax examination or audit of, nor any action,
suit, investigation or claim asserted or, to Seller’s Knowledge, threatened against Seller by any federal, state or local authority; and Seller has not been granted any extension of the limitation period applicable to any Tax claims.
4.18
Affiliate Interests
. Except as provided in
Schedule 4.18
, Seller is not a party to any transaction with: (a) any
of the Shareholders, or any employee, officer, or director of Seller, (b) any relative of any of the Shareholders or (c) any Person that, directly or indirectly, is controlled by or under common control with Seller or with any such
employee, officer, director, manager or relative, including without limitation any contract, agreement or other arrangement (i) providing for the furnishing of services by such person, (ii) providing for the rental or use of real or
personal property from or to such person, (iii) providing for the guaranty of any obligation of such person, (iv) requiring any payment to such person which will continue beyond the Closing Date or (v) establishing any right or
interest of such person in any of the Transferred Assets.
4.19
Governmental and Other Third Party Consents
. Other than the Required
Consents, neither Seller nor Shareholders are required to obtain any consent from, provide any notice to, or is required to make any declaration or filing with, any Governmental Authority or any other Person in connection with the execution,
delivery and performance of this Agreement or any other agreement. All consents required to be obtained or made in connection with the execution, delivery and performance of this Agreement or any other Transaction Document will at the Closing be in
full force and effect. The time within which any administrative or judicial appeal, reconsideration, rehearing or other review of any such consent of any Governmental Authority may be taken or instituted has lapsed, and no such appeal,
reconsideration or rehearing or other review has been taken or instituted.
4.20
Customers and Vendors
. No customer accounting for
more than 5% of the sales of the Business as of December 31, 2006 has canceled any contract reflected on the Latest Balance Sheet or notified Seller or either Shareholder that it intends to cancel any such contract with Seller. No vendor of the
Business as of December 31, 2006 has stopped doing business with Seller or notified Seller or either Shareholder that it intends to stop doing business with Seller
4.21
Legal and Other Compliance
. Except as set forth on
Schedule 4.21
, Seller has operated the Business in compliance with all applicable Laws and no Action, charge, complaint or notice has been filed or
commenced against Seller alleging any failure so to
18
comply. Neither the ownership or use of the Transferred Assets or any other assets or properties of Seller nor the conduct of the Business conflicts with the
rights of any other Person or violates, or with the giving of notice or the passage of time or both will violate, conflict with or result in a default, right to accelerate or loss of rights under, any terms or provisions of its certificate of
incorporation or by-laws or any Encumbrance, lease, license, agreement, understanding, Law or any order, judgment or decree to which either Seller is a party or by which it may be bound or affected. Neither Shareholder nor Seller has any Knowledge
of any proposed Laws, governmental takings, condemnations or other proceedings which would be applicable to the Business, or their assets, operations or properties and which could reasonably be expected to have a Material Adverse Effect.
4.22
Inventories
. Since the date of the Latest Balance Sheet, no inventory has been sold or disposed of except through sales in the Ordinary
Course of the Business and there has been no material write-up or write-down in the value of inventory.
4.23
Notes, Accounts Receivable
and Accounts Payable
.
(a) All notes, accounts receivable (billed and unbilled) and retainage accounts of Seller with respect to the
Business are reflected properly on Seller’s books and records in accordance with Seller’s ordinary and customary accounting practice, consistently applied, are valid receivables, arose from bona fide transactions in the Ordinary Course of
the Business subject to no setoffs or counterclaims (except as and to the extent recorded as accounts payable), to the Knowledge of Seller are collectible, except as reflected in the reserve or allowance for bad debts in the Latest Balance Sheet, as
adjusted for the passage of time in accordance with Seller’s ordinary and customary accounting practice, consistently applied.
(b)
All Accounts Payable, billings in excess of costs and estimated earnings on uncompleted contracts and accrued expenses of Seller are reflected properly on Seller’s books and records in accordance with Seller’s ordinary and customary
accounting practice, consistently applied. Except as set forth on
Schedule 4.23(b)
, all Accounts Payable of Seller are current and, in the period from the date hereof through the Closing, will be paid in the Ordinary Course of the
Business.
4.24
Outstanding Bids, Bid Bonds and Performance Bonds
.
(a)
Schedule 4.24(a)(i)
sets forth a true, correct and complete list of each outstanding Bid in connection with the Business which would
require the execution of a contract containing terms (including pricing terms) materially less favorable to the Business than the terms contained in the standard form contracts or standard end-user price lists.
Schedule 4.24(a)(ii)
sets
forth a true, correct and complete list of such Bids with respect to which (i) Seller has outstanding bid bonds or similar sureties or (ii) Seller is required to obtain such bonds or sureties, and sets forth a brief description of such
bonds, sureties or requirements for bonds or sureties. The outstanding Bids set forth in
Schedule 4.24(a)(i)
have not been awarded or performed in any respect by Seller and no payments have been received by Seller in respect of such
outstanding Bids.
19
(b)
Schedule 4.24(b)
sets forth a true, correct and complete list of (i) all outstanding
performance bonds or similar sureties currently in effect for the benefit of Seller’s customers, (ii) all performance bonds or similar sureties required, to the Knowledge of Seller or either Shareholder, to be obtained, but not yet
obtained, by Seller for the benefit of any of Seller’s current customers and (iii) all performance bonds or similar sureties that will be required to be obtained by Seller for the benefit of any of Seller’s potential customers
pursuant to the terms of any outstanding Bid set forth in
Schedule 4.24(a)(i)
if such Bid is awarded to Seller.
4.25
Product and Service Warranties; Defects; Liability
. Except as disclosed on
Schedule 4.25
(which matters have not had and could not reasonably be expected to have a Material Adverse Effect), each product manufactured, sold, leased,
delivered, installed or maintained by Seller in connection with the Business (“
Product
”) has been in conformity in all material respects with all applicable Laws, contractual commitments and express and implied warranties and Seller
does not have any Liability (and, to the Knowledge of Seller or either Shareholder, there is no basis for any present or future Action giving rise to any Liability) for replacement or repair thereof or other damages in connection therewith. Except
as set forth in
Schedule 4.25
, no claims have been asserted against Seller during the past six years relating to, and, to the Knowledge of Seller or either Shareholder, there have been no Actions with respect to, any injury to individuals or
property as a result of the manufacture, sale, lease, ownership, possession, installations, maintenance or use of any Product.
4.26
Powers of Attorney
. There are no outstanding powers of attorney executed on behalf of Seller in respect of Seller’s assets or Liabilities or the Business.
4.27
Booked Jobs and Work in Process
.
Schedule 4.27
sets forth a true, correct and complete list of Seller’s Booked Jobs and Work in Process as of the Closing Date.
4.28
No Omissions or Misstatements
. None of the information included in this Agreement and Schedules hereto, or other documents furnished or to be
furnished by the Shareholders or Seller, or any of its representatives, contains any untrue statement of a material fact or is misleading in any material respect or omits to state any material fact necessary in order to make any of the statements
herein or therein not misleading in light of the circumstances in which they were made. Copies of all documents referred to in any Schedule hereto have been delivered or made available to Buyer and constitute true, correct and complete copies
thereof and include all amendments, schedules, appendices, supplements or modifications thereto or waivers thereunder.
Article V
Representations and Warranties of Buyer
As an inducement to Seller and the Shareholders to enter into this Agreement and to consummate the transactions contemplated hereunder, Buyer hereby represents and warrants to Seller and the Shareholders, as follows:
5.1
Power and Authority
. Buyer is a corporation duly organized and existing in good standing under the laws of the state of
California. Buyer has all requisite corporate power and authority to enter into this Agreement and to assume and perform fully its obligations hereunder. The execution and delivery of this Agreement and the performance by Buyer of its obligations
hereunder have been duly and validly authorized by all necessary corporate action. This Agreement is a valid and binding obligation of Buyer enforceable in accordance with its terms.
20
5.2
Consents and Approvals
. No filings with, notices to, or approvals of any governmental or
regulatory body are required to be obtained or made by Buyer for the consummation by Buyer of the transactions contemplated hereby.
5.3
Broker’s Finder’s Fee
. Buyer has not employed, or is liable for the payment of any fee to, any finder, broker, consultant or similar person in connection with the transactions contemplated under this Agreement for which Seller could
have any responsibility.
Article VI
Covenants of Parties
6.1
Confidentiality
. Each party will hold, and will cause its
employees, consultants, advisors and agents to hold, in confidence the terms of this Agreement and any non-public information concerning the other parties obtained pursuant to this Agreement. Notwithstanding the preceding provisions, a party may
disclose such information to the extent required by any applicable Law (including disclosure requirements under federal and state securities laws and disclosure required in connection with any judicial or administrative proceeding of any
Governmental Authority), but the party proposing to disclose such information will first notify and consult with the other parties concerning the proposed disclosure, to the extent reasonably feasible. Each party also may disclose such information
to employees, consultants, advisors, agents and actual or potential lenders whose knowledge is necessary to facilitate the consummation of the transactions contemplated by this Agreement. Each party’s obligation to hold information in
confidence will be satisfied if it exercises the same care with respect to such information as it would exercise to preserve the confidentiality of its own similar information.
6.2
Required Consents
. Seller will use its commercially reasonable efforts to obtain, as soon as possible and at its expense, all Required
Consents in accordance with applicable Law and in form and substance reasonably satisfactory to Buyer unless specifically waived in writing by Buyer at or prior to the Closing. Buyer will cooperate with Seller to obtain all Required Consents, but
Buyer will not be required to agree to any unreasonable changes in, or the imposition of any unreasonable condition to the transfer to Buyer of any lease, contract (including Seller Contracts), agreement or Governmental Permit as a condition to
obtaining any Required Consent. Seller will also use its commercially reasonable efforts to obtain, at its expense, such estoppel certificates or similar documents from lessors of the real property and Persons who are parties to Seller Contracts as
Buyer may reasonably request.
6.3
Noncompete
.
(a) Seller and each Shareholder agrees that during the * period following the Closing Date (the “
Noncompete Period
”), that it, he or she shall not, directly or indirectly, either for itself, himself
or herself, or for any other Person participate in the Business in * (to the extent Seller was engaged in the Business in * on or prior to the Closing Date)
.
For purposes of this Agreement, the term “
participate
” includes any
direct or indirect interest in any enterprise, whether as an officer, director, manager, employee, partner, member, sole proprietor, agent, representative, independent contractor, consultant, franchisor, franchisee, creditor, owner or
21
otherwise; provided that the term “
participate
” shall not include (i) ownership of less than 2% of the stock of a publicly held
corporation whose stock is traded on a national securities exchange or in the over the counter market, (ii) Scott Carlson’s presentation of seminars or teaching the principles of solar technology or (iii)*;
provided
, however, that
in the case of subsection (iii) hereto, (a) Scott Carlson shall not engage in such business in excess of * per year, or such additional time reasonably permitted by Buyer, (b) Scott Carlson shall not engage in such business during the
normal business hours of Buyer, (c) Buyer shall have no liability to any Shareholder or any third party related to or arising from Scott Carlson’s activities under subsection (iii) hereof and (d) Scott Carlson shall indemnify and
hold Buyer harmless from and against any such liability.
(b)
Non-Solicitation
. During the * period following the Closing Date,
Seller and each Shareholder shall not, directly or indirectly, (i) induce or attempt to induce any employee of the Business who was an employee of Seller on the Closing Date (a “
Seller
Employee”) to leave the employ of the
Business or in any way interfere with the relationship between the Business and any Seller Employee, (ii) induce or attempt to induce any customer or supplier of the Business that was a customer or supplier of Seller on the Closing Date (a
“
Seller Customer/Supplier
”) to cease doing business with the Business, (iii) knowingly induce or attempt to induce any Seller Employee to leave the employ of Buyer or any of its Affiliates or in any way interfere with the
relationship between Buyer or any of its Affiliates and any Seller Employee , or (ii) knowingly induce or attempt to induce any Seller Customer/Supplier to cease doing business with Buyer or any of its Affiliates. Seller and each Shareholder
agrees that this covenant is reasonable with respect to its duration, geographical area and scope.
(c)
Specific Performance
. Seller
and each Shareholder agrees that Buyer may suffer irreparable harm from a breach by Seller or any Shareholder of any of the covenants or agreements contained in this Section 6.3. In the event of an alleged or threatened breach by Seller or any
Shareholder of any of the provisions of this Section 6.3, Buyer or its successors or assigns may, in addition to all other rights and remedies existing in its favor, apply to any court of competent jurisdiction for specific performance and/or
injunctive or other relief in order to enforce or prevent any violations of the provisions hereof. To the extent of any breach of this Section 6.2 by Seller or any Shareholder, as established by a final, nonappealable order of a court of
competent jurisdiction, the Noncompete Period with respect to such breaching Seller or Shareholder shall automatically be extended by the length of such breach.
(d)
Scope, etc
. If at the time of enforcement of any of the provisions of this Section 6.3, a court holds that the restrictions stated therein are unreasonable under the circumstances then existing, the
parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area. Seller and each Shareholder acknowledge that, without provisions contained in
this Section 6.3, Buyer would not have entered into this Agreement.
22
6.4
Employee Matters
.
(a)* Seller will not, without the prior written consent of Buyer, materially change the compensation or benefits of any employees of the Business after
the date of this Agreement.
(b)* will be responsible for maintenance and distribution of benefits accrued under any Employee Benefit Plan
maintained by Seller pursuant to and if required by the provisions of such plans to employees employed in the Business for the time period ending on or before the Closing Date. *
(c) All claims and obligations under, pursuant to or in connection with any welfare, medical, insurance, disability or other Employee Benefit Plans of
Seller, or arising under any Law affecting employees of Seller incurred on or before the Closing Date or resulting or arising from events or occurrences occurring on or before the Closing Date (including, without limitation, any liability for
(i) employees who have incurred a disability on or before the Closing Date, (ii) employees on or eligible for COBRA continuation, (iii) employees or dependents hospitalized on or before the Closing Date, and (iv) any retroactive
assessment resulting from under funding of any Employee Benefit Plan by any employer sponsors thereof prior to the Closing Date) will *
(d) All claims and obligations under, pursuant to or in connection with any compensation or bonus plan of Seller (including, without limitation, any phantom stock plan, stock plan, option plan, or other similar plan or arrangement) pursuant
to which any employee, director or officer of Seller receives or is entitled to receive compensation, in any form, solely as a result of the consummation of the transactions contemplated by this Agreement will *
(e) Seller understands that Buyer may hire some or all of Seller’s employees, and will give Seller reasonable notice prior to the Closing Date with
respect to employees it intends to hire. Notwithstanding the foregoing, Buyer shall have no obligation to hire any of the employees *. Any employees hired by Buyer shall enter into a new employment relationship with Buyer subject to terms and
conditions established by Buyer *. On the Closing Date, Seller shall terminate all employees. Any notification required by any federal, state or local law governing layoffs or terminations, including, without limitation, WARN, shall be given by
Seller. Compliance with all such laws shall be Seller’s sole responsibility and liability.
6.5
Cooperation and Information
Sharing
.
(a) Buyer and Seller will cooperate with each other in defending or prosecuting any action, suit, proceeding, investigation or
audit of the other relating to Buyer’s Tax returns for all periods up and including the Closing date and any audit of Buyer or Seller with respect to the sales, transfer and similar transactions contemplated by this Agreement. Buyer and Seller
shall respond to all reasonable inquiries related to such matters and to provide, to the extent possible, substantiation of transactions and make available and furnish appropriate documents and personnel in connection therewith.
(b) For a period of seven years after the Closing Date (or such longer period as may be required by any governmental agency or ongoing legal proceeding),
neither Seller nor Buyer shall dispose of or destroy any of the business records and files of the Business, without first giving the other thirty days’ written notice, who then shall have the right, at its option and expense, to take
23
possession of the records and files. Each party shall allow the other and its representatives access to all business records and files of the Business,
during regular business hours and upon reasonable notice at such other party’s principal place of business or at any location where such records are stored, and the parties shall have the right, each at its own expense, to make copies of any
such records and files.
(c) Buyer shall make available to Seller, at Seller’s expense, personnel to assist in locating and obtaining
records and files maintained by Buyer and any of Buyer’s personnel previously in Seller’s employ whose assistance or participation of or preparation for existing or future litigation, arbitration, tax return preparation or other similar
matters in which Seller or the Shareholders is involved and which is related to the Business.
6.6
Collection of Accounts
Receivables
. Seller agrees to use reasonable collection methods to collect its accounts receivables consistent with its historical practice and agrees to not use any collection methods that will unduly disrupt Buyer’s ongoing relationship
with its customers. Nothing in this Section shall preclude Seller, upon 10 days prior notice to Buyer, which shall not be unreasonably with held, from utilizing courts of competent jurisdiction to collect its accounts receivables.
6.7
Use of Name
. On the Closing Date, Seller shall change its name to exclude the words “Carlson Solar” or any name confusingly similar
thereto and following the Closing Date, Seller shall refrain from using the name “Carlson Solar” or any name confusingly similar thereto, provided however Seller is authorized to endorse any checks, money orders or negotiable instruments
received by it in payment of its accounts receivable in the name of Carlson Solar.
6.8
Transferred Vehicles
. To the extent that
Buyer has not received all of the titles for the Transferred Vehicles on the Closing Date, Seller agrees to take all action necessary at Seller’s sole expense, to promptly deliver such undelivered vehicle titles to Buyer following the Closing
Date.
6.9
Financial Statements
. At least three business days prior to the Closing Date, Seller will cause to be delivered to Buyer
complete copies of all monthly and quarterly financial statements and operating reports for the Business for periods ending after the date of the Latest Balance Sheet. Such financial statements shall be prepared in accordance with Seller’s
ordinary and customary accounting practices consistently applied, subject to normal year-end adjustments and the absence of footnote disclosures.
24
6.10
Taxes
.
(a)* any expense related to any state or local sales, use, transfer, excise, documentary or license taxes or fees or any other charge (including filing fees) imposed by any Governmental Authority with respect to the
transfer of any of the Transferred Assets pursuant to this Agreement; *.
(b) Notwithstanding anything herein to the contrary, all Taxes
imposed on a periodic basis, including such taxes as real property, personal property (tangible and intangible), lease, motor vehicle and ad valorem taxes (“
Periodic Taxes
”) with respect to the Transferred Assets (other than Taxes
discussed in (a) above) for the taxable period including (but not ending on) the Closing Date (the “
Tax Period
”) shall be apportioned between Seller and Buyer as of the Closing Date based on the number of days in the Tax Period
prior to and including the Closing Date and the number of days in the Tax Period after the Closing Date. Seller shall be liable for the amount of such Taxes attributable to that portion of the Tax Period that ends on the Closing Date and Buyer shall
be liable for the amount of such Taxes attributable to that portion of the Tax Period after the Closing Date. Each party shall deliver to the other parties copies of any Periodic Tax notices received by the first party with respect to any Tax
Periods within ten (10) Business Days of the first party’s receipt thereof. The parties shall consult with each other regarding the accuracy of such Periodic Tax notice and shall fully cooperate with, and assist, each other in the contest
of any erroneous Periodic Taxes; provided, however, that (i) nothing herein shall relieve any party of its obligation to pay its share of such Periodic Taxes and (ii) upon request of the party receiving such Periodic Tax notice, the other
parties shall make financial arrangements to pay their share of such Periodic Taxes on terms and conditions reasonably acceptable to the other party.
6.11
Waiver of Bulk Sale Law
. Buyer and Seller waive any requirement that this purchase and sale be subjected to the provisions of the Bulk Sale Law of California. Notwithstanding the foregoing, nothing
in this Section 6.11 shall relieve Seller of its indemnification of Buyer pursuant to Section 8.1. Nothing in this paragraph will stop or prevent either Buyer or Seller from asserting as a bar or defense to any proceeding brought under the
bulk sale law that such law does not apply to the sale contemplated under this agreement.
6.12
Securities Matters
. Seller
and each Shareholder acknowledge that Buyer will require (at Buyer’s sole cost and expense) audited financial statements for the fiscal years ended December 31, 2005 and December 31, 2006, and reviewed financial statements for the
period from January 1, 2007 through the Closing Date. Seller and each Shareholder shall, at Buyer’s request, and to the extent necessary in connection with a public offering or private placement of any securities of Buyer or any Affiliate
of Buyer, cooperate with Buyer in connection with the audit and review of such financial statements to the extent necessary to enable Buyer to present the financial statements required by Form S-1 of the Securities and Exchange Commission or other
securities laws. Seller and each Shareholder shall render such assistance as may be reasonably necessary in connection with the audit and review of such financial statements and shall provide or make available such records or information relevant
thereto as are in its possession or under its control. In addition, Seller and each Shareholder shall use its reasonable best efforts to assist Buyer in connection with any offering or placement of securities of Buyer, or any Affiliate who is a
direct or indirect parent of Buyer, including, without limitation,
25
participation in underwriter due diligence sessions, at such times as required by Buyer (solely with respect to the Business) or any underwriter and by
providing all information necessary concerning the Business as required by Buyer and its underwriter. In addition, in connection with any offering or placement of securities of Buyer, or any Affiliate who is a direct or indirect parent of Buyer,
Scott Carlson shall use his reasonable best efforts to assist with participation in ‘road shows’ in his capacity as an employee of Buyer.
6.13
Further Assurances
. On and after the Closing Date, each party will take all appropriate action, execute (or cause to be executed) and deliver, all documents, instruments of sale, transfer, conveyance, assignment and delivery,
and such consents, assurances, powers of attorney and other instruments, including, without limitation, evidence of the termination of any Encumbrances on the Transferred Assets, as may be reasonably requested by such party or its counsel in order
to vest in Buyer all right, title and interest of Seller in and to the Transferred Assets and otherwise in order to carry out the purpose and intent of this Agreement. Following the Closing Date, the parties shall cooperate with one another with
respect to completing all necessary reconciliations and reports of all of the accounting and financial activities and operations of and pertaining to Seller and the Business and the other transactions identified in or arising out of this Agreement.
The parties shall provide each other with access to and copies of all appropriate records and reports in furtherance hereof. Without limiting the foregoing, it is understood that any checks or other items of income, and all invoices and statements
relating to any expenses, liabilities or payables physically received by Seller but which belong to Buyer pursuant to the terms hereof, shall be delivered to Buyer and all invoices and statements relating to any expenses, liabilities or payables
physically received by Buyer but which belong to Seller pursuant to the terms hereof, shall be delivered to Seller. Buyer and Seller agree to reconcile all liabilities and expenses (including, without limitation, any Excluded Liabilities) to ensure
that the appropriate adjustments or payments are made between Seller and Buyer to reflect and carry out the terms and agreements set forth in this Agreement.
Article VII
Closing Deliveries
7.1
Deliveries by Seller and the Shareholders
. Seller and the Shareholders shall deliver the following to Buyer at Closing:
(a)
Lease Agreement
. The Lease Agreement substantially in the form of
Exhibit E
hereto.
(b)
Motor Vehicles
. Titles for the vehicles set forth on
Schedule 4.16
(the “
Transferred Vehicles
”); provided, that to the
extent that the titles for any of the Transferred Vehicles are held by a lender to Seller, such titles may be delivered by Seller promptly following the Closing Date in accordance with Section 6.7.
(c)
Legal Opinion
. The legal opinion of Swan Carpenter Wallis & McKenzie LLP, counsel to Seller in the form of
Exhibit F
hereto.
26
(d)
Encumbrances
. Evidence that all Encumbrances (other than Permitted Liens) on the Transferred
Assets of Seller shall have been released.
(e)
Employment Agreement
. The Employment Agreement with Scott Carlson, in the form of
Exhibit G
hereto (the “
Employment Agreement
”).
(f)
Compliance Certificate
. A certificate signed by an
officer of Seller that each of the representations and warranties made by Seller in this Agreement is true and correct in all material respects (provided that any representations and warranties qualified by materiality shall be true and correct in
all respects) as of the Closing Date.
(g)
Certified Resolutions
. Certified copies of the resolutions of the Board of Directors and
the stockholders of Seller authorizing and approving this Agreement and the consummation of the transactions contemplated hereby.
(h)
Incumbency Certificate
. An incumbency certificate relating to each person executing for Seller any document executed and delivered to Buyer pursuant to the terms hereof.
(i)
Good Standing
. Good standing certificates issued by the Secretary of State of California with respect to Seller.
(j)
FIRPTA
. An affidavit from Seller and each Shareholder complying with the Foreign Investment in Real Property Tax Act.
(k)
Required Consents
. Evidence that all of the Required Consents have been obtained in form and substance reasonably satisfactory to Buyer.
(l)
Delivery of Transaction Documents
. The Bill of Sale, Assignment and Assumption Agreement, Escrow Agreement and such other
documents as Buyer or its counsel may reasonably request to evidence the transactions contemplated hereby.
7.2
Deliveries by Buyer
.
Buyer shall deliver the following to Sellers at the Closing:
(a)
Compliance Certificate
. A certificate signed by an officer of Buyer
that each of the representations and warranties made by Buyer in this Agreement is true and correct in all material respects (provided that any representations and warranties qualified by materiality shall be true and correct in all respects) as of
the Closing Date.
(b)
Certified Resolutions
. Certified copies of the resolutions of the Board of Directors of Buyer authorizing and
approving this Agreement and the consummation of the transactions contemplated hereby.
(c)
Incumbency Certificate
. An incumbency
certificates relating to each person executing for Buyer any document executed and delivered to Seller pursuant to the terms hereof.
27
(d)
Deliveries
. The Assignment and Assumption Agreement, the Escrow Agreement and such other
documents as Seller or their counsel may reasonably request to evidence the transactions contemplated hereby.
Article VIII
Indemnification
8.1
Indemnification
.
(a)
By Seller
. Seller and each Shareholder, jointly and severally, shall indemnify and hold
harmless Buyer, and its managers, members, officers, employees, Affiliates and agents, at all times from and after the Closing Date, against and in respect of Losses arising from: (i) any breach of any of the representations or warranties made
by Seller or the Shareholders in this Agreement or the Transaction Documents (without regard to any knowledge, materiality or Material Adverse Effect qualification contained therein); (ii) any breach of the covenants and agreements made by
Seller or the Shareholders in this Agreement or the Transaction Document (without regard to any knowledge, materiality or Material Adverse Effect qualification contained in such covenant or agreement); (iii) any Excluded Liabilities; and
(iv) any failure of Seller to provide notice pursuant to the bulk sales act or similar laws regarding the sale of the Transferred Assets.
(b)
By Buyer
. Buyer shall indemnify and hold harmless Seller and each Shareholder and their respective managers, members, directors, officers, employees, Affiliates and agents at all times from and after the Closing Date against and
in respect of Losses arising from or relating to: (i) any breach of any of the representations or warranties made by Buyer in this Agreement or the Transaction Documents (without regard to any knowledge, materiality or Material Adverse Effect
qualification contained therein); (ii) any breach of the covenants and agreements made by Buyer in this Agreement or the Transaction Documents (without regard to any knowledge, materiality or Material Adverse Effect qualification contained in
such covenant or agreement); (iii) the Assumed Liabilities; and (iv) the operation of the Business after the Closing Date.
8.2
Limitations of Indemnity
.
(a) Notwithstanding the foregoing, (i) no amounts shall be payable under Section 8.1(a)(i)
unless and until *; and (a) no claim for indemnification under Section 8.1(a)(i) shall first be asserted after the * anniversary of the Closing Date;
provided
, however, that a claim for indemnification under Sections 4.1
(Organization, Qualification and Authority), 4.7 (Transferred Assets), 4.9 (Environmental and Safety Matters), 4.12 (Seller’s Employee Benefits), 4.17 (Tax Returns; Taxes), or 4.21 (Legal and Other Compliance) may be asserted at any time prior
to the expiration of the statute of limitations applicable thereto. * Notwithstanding anything herein to the contrary, the * shall not apply to a claim for (i) breach of any representation and warranty set forth in Sections 4.1 (Organization,
Qualification and Authority), 4.9 (Environmental and Safety Matters), 4.12 (Seller’s Employee Benefits), 4.14 (Brokers; Certain Expenses), 4.17 (Tax Returns; Taxes), or 4.21 (Legal and Other Compliance) and (ii) Losses arising from or
relating to Excluded Warranty Work. * shall apply to a claim for fraud.
28
8.3
Indemnification Procedures — Third Party Claims
.
(a) The rights and obligations of a party claiming a right of indemnification hereunder (each, an “
Indemnitee
”) from a party to this
Agreement (each, an “
Indemnitor
”) in any way relating to a Third Party Claim shall be governed by the following provisions of this Section 8.2:
(i) The Indemnitee shall give prompt written notice to the Indemnitor of the commencement of any claim, action suit or proceeding, or any threat thereof, or any state of facts which Indemnitee determines will give
rise to a claim by the Indemnitee against the Indemnitor based on the indemnity agreements contained in this Agreement setting forth, in reasonable detail, the nature and basis of the claim and the amount thereof, to the extent known, and any other
relevant information in the possession of the Indemnitee (a “
Notice of Claim
”). The Notice of Claim shall be accompanied by any relevant documents in the possession of the Indemnitee relating to the claim (such as copies of any
summons, complaint or pleading which may have been served and, or any written demand or document evidencing the same). No failure to give a Notice of Claim shall affect, limit or reduce the indemnification obligations of an Indemnitor hereunder,
except to the extent such failure actually prejudices such Indemnitor’s ability successfully to defend the claim, action, suit or proceeding giving rise to the indemnification claim.
(ii) In the event that an Indemnitee furnishes an Indemnitor with a Notice of Claim, then upon the written acknowledgment by the Indemnitor given to the
Indemnitee within thirty (30) days of receipt of the Notice of Claim, stating that the Indemnitor is undertaking and will prosecute the defense of the claim under such indemnity agreements and confirming that as between the Indemnitor and the
Indemnitee, and that the claim covered by the Notice of Claim is subject to this Article VIII (an “
Indemnification Acknowledgment
”), then the claim covered by the Notice of Claim may be defended by the Indemnitor, at the sole cost
and expense of the Indemnitor; provided, however, that the Indemnitee is authorized to file any motion, answer or other pleading that may be reasonably necessary or appropriate to protect its interests during such thirty (30) day period.
However, in the event the Indemnitor does not furnish an Indemnification Acknowledgment to the Indemnitee or does not offer reasonable assurances to the Indemnitee as to Indemnitor’s financial capacity to satisfy any final judgment or
settlement, the Indemnitee may, upon written notice to the Indemnitor, assume the defense (with legal counsel chosen by the Indemnitee) and dispose of the claim, at the sole cost and expense of the Indemnitor. Notwithstanding receipt of an
Indemnification Acknowledgment, the Indemnitee shall have the right to employ its own counsel in respect of any such claim, action, suit or proceeding, but the fees and expenses of such counsel shall be at the Indemnitee’s own cost and expense,
unless (A) the employment of such counsel and the payment of such fees and expenses shall have been specifically authorized by the Indemnitor in connection with the defense of such claim, action, suit or proceeding or (B) the Indemnitee
shall have reasonably concluded based upon a written opinion of counsel that there may be specific defenses available to the Indemnitee which are different from or in addition to those available to the Indemnitor, in which case the costs and
expenses incurred by the Indemnitee shall be borne by the Indemnitor.
(iii) The Indemnitee or the Indemnitor, as the case may be, who is
controlling the defense of the claim, action, suit or proceeding, shall keep the other fully informed of such claim, action, suit or proceeding at all stages thereof, whether or not such
29
party is represented by counsel. The parties hereto agree to render to each other such assistance as they may reasonably require of each other in order to
ensure the proper and adequate defense of any such claim, action, suit or proceeding. Subject to the Indemnitor furnishing the Indemnitee with an Indemnification Acknowledgment in accordance with Section 8.2(a)(ii), the Indemnitee shall
cooperate with the Indemnitor and provide such assistance, at the sole cost and expense of the Indemnitor, as the Indemnitor may reasonably request in connection with the defense of any such claim, action, suit or proceeding, including, but not
limited to, providing the Indemnitor with access to and use of all relevant corporate records and making available its officers and employees for depositions, pre trial discovery and as witnesses at trial, if required. In requesting any such
cooperation, the Indemnitor shall have due regard for, and attempt to not be disruptive of, the business and day to day operations of the Indemnitee and shall follow the requests of the Indemnitee regarding any documents or instruments which the
Indemnitee believes should be given confidential treatment.
(b) The Indemnitor shall not make or enter into any settlement of any claim,
action, suit or proceeding which Indemnitor has undertaken to defend, without the Indemnitee’s prior written consent (which consent shall not be unreasonably withheld or delayed), unless there is no obligation, directly or indirectly, on the
part of the Indemnitee to contribute to any portion of the payment for any of the Losses, the Indemnitee receives a general and unconditional release with respect to the claim (in form, substance and scope reasonably acceptable to the Indemnitee),
there is no finding or admission of any violation of law by, or effect on any other claim that may be made against the Indemnitee and, in the reasonable judgment of the Indemnitee, the relief granted in connection therewith is not likely to have a
Material Adverse Effect on the Indemnitee or the Indemnitee’s reputation or prospects.
(c) Any claim for indemnification that may be
made under more than one subsection under Section 8.1 may be made under the subsection that the claiming party may elect in its sole discretion, notwithstanding that such claim may be made under more than one subsection.
8.4
Indemnification Procedures — Other Claims, Indemnification Generally
.
(a) A claim for indemnification for any matter not relating to a Third Party Claim under Section 8.2 may be asserted by giving reasonable notice
directly by the Indemnitee to the Indemnitor. The Indemnitee shall afford the Indemnitor access to all relevant corporate records and other information in its possession relating thereto.
(b) If any party becomes obligated to indemnify another party with respect to any claim for indemnification hereunder and the amount of liability with
respect thereto shall have been finally determined, the Indemnitor shall pay such amount to the Indemnitee in immediately available funds within ten (10) days following written demand by the Indemnitee.
8.5
Exclusive Remedy
. The provisions for indemnification set forth in this Article VIII are the exclusive remedies of Buyer, Seller and the
Shareholders arising out of or in connection with this Agreement, and shall be in lieu of any rights under contract, tort, equity or otherwise (other than claims based on actual fraud or intentional breach of this Agreement).
30
8.6
Escrow
. Any amount owing under this Article VIII shall be first paid from the Escrow Amount
(to the extent such amounts have not been released) with Seller or Buyer, as applicable, remaining liable for any deficiency.
Article IX
Miscellaneous
9.1
Publicity
. Except as required by law, neither Seller nor the Shareholders shall make any press release or other public announcement concerning this Agreement or the transactions contemplated hereby without advance written approval thereof by
Buyer.
9.2
Expenses
. Except as provided in Article VIII, Seller and Buyer shall bear all of their own expenses in connection with
the execution, delivery and performance of this Agreement and the transactions contemplated hereby, including without limitation all fees and expenses of its agents, representatives, counsel and accountants.
9.3
Entire Agreement; Amendments and Waivers
. This Agreement, together with all Exhibits and Disclosure Schedules hereto and the other Transaction
Documents, constitutes the entire agreement among the Parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties. This Agreement may not
be amended or modified except by an instrument in writing signed by Buyer, Seller and the Shareholders. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. Neither the failure nor the delay by any Party in exercising any right, power or privilege hereunder shall operate as a waiver of such right, power
or privilege, and no single or partial exercise of any such right, power or privilege shall preclude any other or further exercise of any such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent
permitted by applicable Law, (a) no waiver that may be given by a party shall be applicable except in the specific instance for which it was given and (b) no notice to or demand on one party shall be deemed to be a waiver of any obligation
of such Party or the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the other Transaction Documents.
9.4
Notices
. All notices, demands and other communications to be given or delivered under or by reason of the provisions of this Agreement will be
in writing and will be deemed to have been given (i) when delivered if personally delivered by hand (with written confirmation of receipt), (ii) when received if sent by a nationally recognized overnight courier service (receipt
requested), or (iii) when receipt is acknowledged by an affirmative act of the party receiving notice, if sent by facsimile, telecopy or other electronic transmission device (provided that such an acknowledgement does not include an
acknowledgment generated automatically by a facsimile or telecopy machine or other electronic transmission device). Notices, demands and communications to Buyer, Seller and the Shareholders will, unless another address is specified in writing, be
sent to the address indicated below:
31
If to Buyer, to
:
Real Goods Carlson, Inc.
P.O. Box 593
13771 So. Highway 101
Hopland, CA 95449
Attention: John Schaeffer
Telephone: (707) 744-2010
Facsimile: (707) 744-2104
E-Mail: john@realgoods.com
with a copy
(which shall not serve as notice) to:
Brownstein Hyatt Farber Schreck, LLP
410 Seventeenth Street, Suite 2200
Denver,
CO 80202
Attention: Jacquelyn Kilmer
Telephone: (303) 223-1100
Facsimile: (303) 223-1111
E-Mail: jkilmer@bhfs.com
and
Gaiam, Inc.
360 Interlocken Blvd.
Broomfield, CO 80021
Attention: John Jackson
Telephone: (303) 222-3809
Facsimile: (303) 222-3700
E-Mail:
john.jackson@gaiam.com
If to Seller to
:
Carlson Solar, Inc.
44142 Merced Road
Hemet, CA 92544
Attention: Scott Carlson
Telephone: (909) 732-0782
Facsimile: (951) 927-4433
E-Mail: scottsolar@hotmail.com
32
with a copy (which shall not serve as notice) to:
Swan Carpenter Wallis & McKenzie LLP
1600 E. Florida Ave Suite 211
Hemet, CA 92544
Attention: Bruce Wallis
Telephone: (951) 658-7162
Facsimile: (951) 658-2231
E-Mail:
bwallis@scwm-hemet.com
If to the Shareholders to
:
Scott and Mary Carlson
44142 Merced Road
Hemet, CA 92544
Attention: Scott Carlson
Telephone: (909) 732-0782
Facsimile: (951) 927-4433
E-Mail: scottsolar@hotmail.com
or at such other address or addresses as Buyer, Seller or the Shareholders, as the case may be, may specify by written notice given in accordance with this Section 9.4.
9.5
Waivers and Amendments
. This Agreement may be amended, superseded, canceled, renewed or extended and the terms hereof may be waived only by a
written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance.
9.6
Governing Law
. IN ALL
RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN
THAT STATE (WITHOUT REGARD TO THE CHOICE OF LAW OR CONFLICTS OF LAW PROVISIONS THEREOF) AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
9.7
Consent to Jurisdiction and Venue
. THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENT AND AGREE THAT ALL ACTIONS, SUITS OR OTHER PROCEEDINGS ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED
IN STATE OR FEDERAL COURTS LOCATED IN *, WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY AND ALL CLAIMS, CONTROVERSIES AND DISPUTES ARISING OUT OF OR RELATED TO THIS AGREEMENT. NOTWITHSTANDING THE FOREGOING, NOTHING
CONTAINED IN THIS SECTION 9.7 SHALL PRECLUDE ANY PARTY FROM BRINGING ANY ACTION, SUIT OR OTHER PROCEEDING IN THE COURTS OF ANY OTHER LOCATION WHERE BUYER, SELLER OR SHAREHOLDERS OR ANY ONE OF THEM OR ANY OF ITS OR THEIR ASSETS OR THE COLLATERAL MAY
BE FOUND OR LOCATED OR TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PARTY.
33
EACH OF SELLER AND EACH SHAREHOLDER, FOR ITSELF AND ITS PROPERTY, (A) IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY SUCH COURT AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION, SUIT OR OTHER PROCEEDING COMMENCED IN ANY SUCH COURT, (B) WAIVES ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR ANY OBJECTION
THAT SUCH PERSON MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION OR IMPROPER VENUE AND (C) CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.
TO THE EXTENT PERMITTED UNDER THE APPLICABLE LAWS OF ANY SUCH JURISDICTION, EACH OF SELLER ANY AND EACH SHAREHOLDER HEREBY WAIVES, IN RESPECT OF ANY SUCH
ACTION, SUIT OR OTHER PROCEEDING, THE JURISDICTION OF ANY OTHER COURT OR COURTS THAT NOW OR HEREAFTER, BY REASON OF SUCH PARTY’S PRESENT OR FUTURE DOMICILE, OR OTHERWISE, MAY BE AVAILABLE TO IT.
9.8
Attorneys’ Fees and Costs.
If any litigation or arbitration shall occur between the Parties, which litigation arises out of or as
a result of this Agreement or the acts of the Parties, or which seeks an interpretation or enforcement of this Agreement, the prevailing party shall be entitled to recover all costs and expenses of such litigation, including reasonable
attorney’s fees and costs.
9.9
Counterparts
. This Agreement may be executed in two or more counterparts (delivery of which may
occur via facsimile), each of which shall be binding as of the date first written above, and, when delivered, all of which shall constitute one and the same instrument. A facsimile signature or electronically scanned copy of a signature shall
constitute and shall be deemed to be sufficient evidence of a party’s execution of this Agreement, without necessity of further proof. Each such copy shall be deemed an original, and it shall not be necessary in making proof of this Agreement
to produce or account for more than one such counterpart.
9.10
Invalidity
. If any term or other provision of this Agreement is held
by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced under any applicable Law in any particular respect or under any particular circumstances, then, so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any Party, (a) such term or provision shall nevertheless remain in full force and effect in all other respects and under all other circumstances, and (b) all other
terms, conditions and provisions of this Agreement shall remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner so that the transactions contemplated hereby are fulfilled to the fullest extent possible.
34
9.11
Negotiated Agreement
. The parties hereby acknowledge that the terms and language of this
Agreement were the result of negotiations among the Parties and, as a result, there shall be no presumption that any ambiguities in this Agreement shall be resolved against any particular party. Any controversy over construction of this Agreement
shall be decided without regard to events of authorship or negotiation.
9.12
Assignment
. This Agreement shall inure to the benefit
of, and be binding upon, the parties and their respective successors and permitted assigns. In addition, it is the intent of the parties that the Indemnitees that are not a party hereto be third party beneficiaries of Article VIII of this Agreement.
Buyer, Seller or any Shareholder may not assign, transfer or delegate any of their rights or obligations hereunder or any interest herein, by operation of law or otherwise, without the prior written consent of the other Parties; provided, that Buyer
may assign its rights and obligations under this Agreement to any wholly owned affiliate of Gaiam, Inc.
9.13
Severability
. If any
provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future applicable Laws during the term thereof, such provision shall be fully severable, this Agreement shall be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part thereof, and the remaining provisions thereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable provision there shall be added automatically as a part of this Agreement a legal, valid, and enforceable provision as similar in terms to the illegal, invalid, or
unenforceable provision as may be possible, which shall to the greatest extent possible effect the original intent of the parties.
35
Execution Version
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
|
|
|
|
|
BUYER:
|
|
|
|
REAL GOODS CARLSON, INC.
|
|
|
|
|
By:
|
|
|
|
Name:
|
|
John Schaeffer
|
|
Title:
|
|
President
|
|
|
|
SELLER:
|
|
|
|
CARLSON SOLAR
|
|
|
|
|
By:
|
|
|
|
Name:
|
|
|
|
Title:
|
|
|
|
|
|
SHAREHOLDERS:
|
|
|
|
|
|
Robert Scott Carlson
|
|
|
|
|
|
Mary Carlson
|
|
|
|
|
|
Brandon Carlson
|
|
|
|
|
|
Brittany Carlson
|
Exhibit 10.5
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this “Agreement”),
dated as of
, 2008, is made by and among Real Goods Solar, Inc., a Colorado corporation (the “Company”), and
Gaiam, Inc., a Colorado corporation (“Gaiam”).
WHEREAS, Gaiam beneficially owns shares of the Company’s Class B common
stock, par value $.0001 per share (the “Class B Common”), which are convertible at any time into shares of the Company’s Class A common stock, par value $.0001 per share (the “Class A Common”); and
WHEREAS, the Company has agreed to grant to Gaiam certain rights with respect to the Registrable Securities, as defined herein.
NOW, THEREFORE, in consideration of their mutual promises, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS, CONSTRUCTION AND CONSENTS
Section 1.1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings:
“Commission” means the Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act.
“Demand Registration” shall have the meaning ascribed to such term in Section 2.1(a).
“Piggyback Registration” shall have the meaning ascribed to such term in Section 2.2(a).
“Registrable Securities” means the Class A Common received or receivable by Gaiam or its transferee in connection with conversion of Class
B Common, and any other securities received on account of the Class A Common in any stock split, stock dividend, recapitalization or similar event; provided, however, that such securities will cease to be Registrable Securities when any of the
following shall have occurred: (i) they have been distributed to the public pursuant to an offering registered under the Securities Act; (ii) they are eligible for resale during any 90-day period pursuant to Rule 144 under the Securities
Act (or any similar rule then in force); or (iii) they are eligible for resale under the provisions of Rule 144(k) under the Securities Act (or any similar rule then in force). For purposes of this Agreement, a person will be deemed to be a
holder of Registrable Securities whenever such person has the right to acquire directly or indirectly such Registrable Securities from the Company (upon conversion or exercise in connection with a transfer of securities or otherwise, but
disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected.
“Securities Act” means the Securities Act of 1933, as amended.
Section 1.2. INTERPRETATION AND CONSTRUCTION OF
THIS AGREEMENT. The definitions in Section 1.1 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine or neuter form. The
words “include,” “includes” and “including” when used in this Agreement shall be deemed to be followed by the phrase “without limitation.” The headings contained in this Agreement are inserted for convenience
only and shall not constitute a part hereof. This Agreement shall be construed in accordance with its fair meaning and shall not be construed strictly against the drafter.
ARTICLE II
REGISTRATION RIGHTS
Section 2.1. DEMAND REGISTRATIONS.
(a)
Requests for Registration
. Subject to the limitations contained in this Agreement, at any time after
days following the consummation of the Company’s initial public offering of Class A Common, and from time to time thereafter until the termination of this Agreement, the holders of a
majority of the Registrable Securities may request registration under the Securities Act of all or part of their Registrable Securities. All registrations requested pursuant to this Section 2.1(a) are referred to in this Agreement as
“Demand Registrations.” Each request for a Demand Registration shall specify the approximate number of Registrable Securities requested to be registered. Within 10 business days after receipt of any such request, the Company will give
written notice of such requested registration to all other holders of Registrable Securities and, except as provided in Section 2.1(c) below, will include in such registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within 10 business days after the receipt of the Company’s notice.
(b)
Number and Size of Requests
. The holders of Registrable Securities will be entitled to request an aggregate of [two (2)] Demand Registrations on Form S-1 or any similar long form registration statement and unlimited Demand Registrations on
Form S-3 or any similar short form registration statement. No underwritten Demand Registration shall be requested for an offering, net of underwriting discounts and commissions, of less than
$
million of Registrable Securities.
(c)
Priority on Demand Registrations
. If a Demand Registration is an underwritten offering and the managing underwriters advise the Company and the holders of Registrable Securities participating in such registration that in their opinion the
aggregate number of securities requested to be included in such offering exceeds the number of securities which can be sold in an orderly manner in such offering within a price range acceptable to the holders of a majority of the Registrable
Securities requesting registration, the Company will include in such registration, prior to the inclusion of any other securities, the maximum number of Registrable Securities requested to be included by the holders requesting such Demand
Registration, which in the opinion of such underwriters can be sold in an orderly manner within such price range, pro rata among the respective holders thereof on the basis of the amount of Registrable Securities owned by each such holder.
(d)
Restrictions on Demand Registrations
. The Company will not be obligated to effect any Demand Registration within
six months after the effective date of a previous registration statement. The Company may postpone for up to 90 days the filing or the effectiveness of a registration statement for a Demand Registration if such Demand Registration would reasonably
be expected to have a material adverse effect on any plan by the Company or any of its subsidiaries to engage in any material acquisition of assets outside the ordinary course of business, any material merger, consolidation, or tender offer or any
other transaction; provided that in such event, the holders of Registrable Securities requesting such Demand Registration will be entitled to withdraw such request and, if such request is withdrawn, such Demand Registration will not count as one of
the permitted Demand Registrations and the Company will pay all registration expenses in connection with such registration.
(e)
Effective Registration Statement
. A Demand Registration shall not be deemed to have been requested if a registration statement with respect thereto shall not have become effective (unless such Demand Registration has not become
effective due solely to the refusal of the holders requesting registration to proceed; provided, such refusal is not due to the advice of their counsel that the registration statement, or the prospectus contained therein, or other documents
incorporated by reference
2
therein, contain or contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then existing).
Section 2.2. PIGGYBACK REGISTRATIONS.
(a)
Right to Piggyback
. Whenever the Company proposes to register any of its securities under the Securities Act (whether such
registration is a primary registration on behalf of the Company or a secondary registration on behalf of other holders of the Company’s securities) and the registration form to be used may be used for the registration of Registrable Securities
(a “Piggyback Registration”), the Company will give prompt written notice to all holders of Registrable Securities of its intention to effect such a registration and the estimated price range of such offering and, except as provided in
Section 2.2(b) below, will include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 5 business days after the receipt of the Company’s notice.
(b)
Priority on Piggyback Registrations
. If a Piggyback Registration is an underwritten registration and the
managing underwriters advise the Company that in their opinion the number of securities requested to be included in any Piggyback Registration exceeds the aggregate number which can be sold in an orderly manner in such offering within a price range
acceptable to the Company, the Company will include in such registration, first, the securities the Company proposes to sell which, in the opinion of such underwriters, can be sold in an orderly manner within such price range, second, the maximum
number of securities requested to be included in such registration by any person pursuant to any demand registration which in the opinion of such underwriters can be sold in an orderly manner within such price range, pro rata among the holders of
such securities on the basis of the number of shares owned by each such holder, third, the Registrable Securities and any other securities requested to be included pursuant to other registration rights in such registration which in the opinion of
such underwriters can be sold in an orderly manner within such price range, pro rata among the holders of such securities on the basis of the number of shares owned by each such holder, and fourth, any other securities requested to be included in
such registration which in the opinion of such underwriters can be sold in an orderly manner within such price range, pro rata among the holders of such securities on the basis of the number of shares owned by each such holder; [provided, however,
that no Piggyback Registration may be effected unless at least
% of the shares registered thereunder are Registrable Securities.]
Section 2.3 HOLDBACK AGREEMENT AND OTHER REGISTRATIONS.
(a)
Holders of Registrable
Securities
. Each holder of Registrable Securities agrees not to effect any public sale or distribution (including sales pursuant to Rule 144) of equity securities of the Company, or any securities convertible into or exchangeable or exercisable
for such securities, during the seven days prior to and the 180-day period beginning on the effective date of any underwritten registration, unless the underwriters managing the registered public offering otherwise agree.
(b)
The Company
. The Company agrees not to effect any public sale or distribution of its equity securities, or any securities
convertible into or exchangeable or exercisable for such securities, during the seven days prior to and during the 180-day period beginning on the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration
(except as part of such underwritten registration or pursuant to registrations on Forms S-8, S-4 or any successor forms), unless the underwriters managing the registered public offering otherwise agree; provided, that, the provisions of this
Section 2.3(b) shall not prevent the conversion or exchange of any securities pursuant to their terms into or for other securities.
3
Section 2.4. REGISTRATION PROCEDURES. Whenever the holders of Registrable Securities have requested
that any Registrable Securities be registered pursuant to this Agreement, the Company will use reasonable efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof.
Pursuant to such registration, the Company will as expeditiously as possible:
(a) as soon as practicable but in any event
within 60 days of a request for registration of Registrable Securities, prepare and file with the Commission a registration statement with respect to such Registrable Securities and use its reasonable efforts to cause such registration statement to
become effective (provided that, before filing a registration statement or prospectus or any amendments or supplements thereto, if requested the Company will furnish, to the counsel selected by the holders of a majority of the Registrable Securities
covered by such registration statement, copies of all such documents proposed to be filed, which documents will be subject to the review of such counsel);
(b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective
for a period of either (i) 90 days (subject to extension pursuant to the last paragraph of this Section 2.4) or, if such registration statement relates to an underwritten offering, such period as in the opinion of counsel for the
underwriters a prospectus is required by law to be delivered in connection with sales of Registrable Securities by an underwriter or dealer, or (ii) such shorter period as will terminate when all of the securities covered by such registration
statement have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement (but in any event not before the expiration of any longer period required under the
Securities Act), and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers
thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits), the prospectus included in such registration statement (including each preliminary prospectus) and any other prospectus filed under
Rule 424 under the Securities Act and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller;
(d) if required, use its reasonable efforts to register or qualify such Registrable Securities under such other securities or blue sky
laws of such jurisdictions as any seller or underwriter reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller (provided that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph,
(ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction);
(e) furnish to each seller of Registrable Securities a signed counterpart, addressed to such seller (and the underwriters, if any) of:
(i) an opinion of counsel for the Company, dated the effective date of such registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the underwriting agreement), reasonably satisfactory in form and substance to such seller and
4
(ii) a “cold comfort” letter, dated the effective date of such registration
statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), signed by the independent public accountants who have certified the Company’s financial statements
included in such registration statement,
covering substantially the same matters with respect to such registration statement (and the
prospectus included therein) and, in the case of the accountants’ letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer’s counsel and in accountants’
letters delivered to the underwriters in underwritten public offerings of securities and, in the case of accountants’ letter, such other financial matters, and, in the case of the legal opinion, such other legal matters, as such seller (or the
underwriters, if any) may reasonably request;
(f) notify each seller of such Registrable Securities (at any time when a
prospectus relating thereto is required to be delivered under the Securities Act) of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any
fact necessary to make the statements therein not misleading, and, at the request of any underwriter or any such seller, prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading;
(g) cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are
then listed;
(h) enter into such customary agreements (including underwriting agreements in customary form) and take all
such other actions as the holders of a majority of the Registrable Securities being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities;
(i) make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to
such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter, all relevant financial and other records, corporate documents and properties of the Company, and use reasonable efforts to cause the
Company’s officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement;
(j) otherwise use its reasonable efforts to comply with all applicable rules and regulations of the Commission.
Each holder of Registrable Securities agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in
Section 2.4(f) above, such holder will forthwith discontinue such holder’s distribution of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until such holder’s receipt of the copies
of the supplemented or amended prospectus contemplated by Section 2.4(f) above. In the event the Company shall give any such notice, the applicable time period mentioned in Section 2.4(b) above during which a Registration Statement is to
remain effective shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 2.4(f) above, to and including the date when each seller of a Registrable Security covered
by such registration statement shall have received the copies of the supplemented or amended prospectus contemplated by Section 2.4(f) above.
5
ARTICLE III
REGISTRATION EXPENSES
Section 3.1.
Expenses Paid by the Company
. Subject to the
requirements of Section 3.2, all expenses incident to any Demand Registration or Piggyback Registration effected pursuant to this Agreement and the Company’s performance of or compliance with this Agreement will be borne by the Company,
including without limitation all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, duplicating and printing expenses, messenger and delivery expenses, and fees and disbursements of counsel for the
Company and all independent certified public accountants, underwriters (excluding discounts and commissions) and other persons retained by the Company. In addition, in connection with any Demand Registration or Piggyback Registration, the Company
will bear the Company’s internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review, the expense of any
liability insurance and the expenses and fees for listing the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed. In connection with each Demand Registration, the Company will
reimburse the holders of Registrable Securities covered by such registration for the reasonable fees and disbursements of one counsel chosen by the holders of a majority of the Registrable Securities included in such registration.
Section 3.2.
Expenses Paid by the Holders of Registrable Securities
. Each holder of securities included in any registration pursuant to this
Agreement will pay any underwriters’ discount or commission, and any other expenses incurred by such holder which are not borne by the Company as provided above, including any fees and expenses of counsel retained by such holder. Provided,
however, that the holders of securities who request any Demand Registration or Piggyback Registration pursuant to this Agreement who subsequently withdraw such request shall reimburse the Company for all costs incurred by the Company as described in
Section 3.1, unless such withdrawal is made for the reasons and in the manner described in Sections 2.1(d) or (e) above.
ARTICLE IV
INDEMNIFICATION
Section 4.1.
Indemnification by the Company
. The Company agrees to indemnify, to the extent permitted by law, each person selling Registrable Securities pursuant to any registration statement, such
person’s officers and directors, each other person who participates as an underwriter in the offering or sale of such Registrable Securities, and each person who controls such person or underwriter (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by any untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any
omission of a material fact required to be stated therein or necessary to make the statements therein not misleading. The Company will reimburse such seller, and each such officer, director, underwriter and controlling person for reasonable legal or
any other expenses incurred by them in connection with defending any such loss, claim, liability, action or proceeding, except insofar as the same arises out of or is based upon an untrue statement, or omission, made in such registration statement,
any such preliminary prospectus, final prospectus, summary prospectus, or amendment or supplement thereof, in reliance upon and in conformity with written information prepared and furnished to the Company by such seller (or on its behalf)
specifically for use in the preparation thereof which information contained any untrue statement of any material fact or omitted to state therein a material fact required to be stated therein or necessary to make the statements therein not
misleading. Provided, however, that the Company shall not be liable to any person who participates as an underwriter in any such registration or any other person who controls such underwriter within the meaning of the Securities Act, in any such
case to the extent that any such loss, claim, damage,
6
liability (or action or proceeding in respect thereof) or expense arises out of such person’s failure to send or give a copy of the final prospectus, as
the same may be then supplemented or amended, to the person asserting an untrue statement or omission at or prior to the written confirmation of the sale of the securities to such person if such statement or omission was corrected in such final
prospectus.
Section 4.2
Indemnification by the Holders of Registrable Securities
. In connection with any registration
statement in which a holder of Registrable Securities is participating, each such participating holder of Registrable Securities will furnish to the Company in writing such information regarding such holder and, if such registration is not an
underwritten registration, such information regarding the distribution of such securities, as the Company reasonably requests for use in connection with any such registration statement or prospectus. If such registration statement or prospectus or
any preliminary prospectus or any amendment thereof or supplement thereto contains any untrue statement of material fact contained in any information or affidavit so furnished in writing by such participating holder, or if such information or
affidavit omits a material fact required to be stated therein or necessary to make the statements therein not misleading, such holder, to the extent permitted by law, will indemnify the Company, its directors and officers and each person who
controls the Company (within the meaning of the Securities Act) and all other holders of Registrable Securities against any losses, claims, damages, liabilities and expenses resulting from such untrue statement of material fact or omission; provided
that the obligation to indemnify will be individual and several (and not joint or joint and several) with any other seller or prospective seller of securities to each participating holder and will be limited to the net amount of proceeds received by
such participating holder from the sale of Registrable Securities pursuant to such registration statement.
Section 4.3
Defense of
Claims
. Any person entitled to indemnification hereunder will (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified party’s
reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party; provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding provisions of this Article IV, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice. If such defense is assumed, the indemnifying party will not be subject to any liability for any settlement made by the indemnified party without the indemnifying party’s
consent (but such consent will not be unreasonably withheld).
Section 4.4
Survival; Contribution
. The indemnification provided
for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling person of such indemnified party and will survive the transfer of
securities and the termination of this Agreement. The Company also agrees to make such provisions, as are reasonably requested by any indemnified party, for contribution to such party in the event the Company’s indemnification is unavailable
for any reason.
Section 4.5
Registration and Qualification under Other Securities Laws
. Indemnification similar to that
specified above in this Article IV (with appropriate modifications) shall be given by the Company and each seller of Registrable Securities with respect to any required registration or other qualification of securities under any federal or state law
or regulation of any governmental authority, other than the Securities Act.
Section 4.6
Advancement of Expenses
. The
indemnification required by this Article IV shall be made by periodic payments of the amount thereof during the course of the defense, as and when bills are received or expense, loss, damage or liability is incurred, subject to refund if it is
determined the party incurring such expenses is not entitled to be indemnified under this Agreement.
7
ARTICLE V
UNDERWRITTEN REGISTRATIONS
Section 5.1
Demand Underwritten Registrations
. If requested
by the underwriters for any underwritten offering of Registrable Securities pursuant to a Demand Registration, the Company will enter into an underwriting agreement with such underwriters for such offering. Such agreement shall be reasonably
satisfactory in substance and form to each holder of Registrable Securities being registered and the underwriters and shall contain such representations and warranties by the Company and such other terms as are generally prevailing in agreements of
this type, including, without limitation, indemnities substantially as provided in Article IV.
Section 5.2
Demand or Piggyback
Underwritten Registrations
. The holders of Registrable Securities to be distributed by underwriters of any underwritten offering of Registrable Securities pursuant to Sections 2.1 or 2.2 shall be parties to the Company’s underwriting
agreement. No underwriting agreement (or other agreement in connection with such offering) shall require any holder of Registrable Securities to make any representations or warranties to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such holder, such holder’s Registrable Securities, such holder’s intended method of distribution and any other representation required by law.
Section 5.3
Participation in Underwritten Registrations
. No person may participate in any registration hereunder which is underwritten unless
such person agrees to sell such person’s securities on the basis provided in any underwriting arrangements approved by the person or persons entitled hereunder to approve such arrangements.
ARTICLE VI
PREPARATION; REASONABLE
INVESTIGATION
In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this
Agreement, the Company will give the holders of Registrable Securities registered under such registration statement, their underwriters, if any, and their respective counsel the reasonable opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and will give each of them such access to its books and records and such opportunities to discuss the business
of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of such holders’ and such underwriters’ respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
ARTICLE VII
TERMINATION
This Agreement, other than the provisions of Article IV insofar as
they relate to completed offerings, shall terminate as to any holder of Registrable Securities that is a party hereto, except with respect to registrations previously requested or in process, on the earlier to occur of:
(i)
years from the date of this Agreement and (ii) the date on which such holder is eligible to sell such Registrable Securities during any 90-day period pursuant to Rule 144
promulgated under the Securities Act (or pursuant to another similar exception); provided, however, that this Agreement shall not terminate with respect to a holder of Registrable Securities that holds, in the aggregate, 10% or more of the
Company’s securities until the last to occur of (x)
years from the date of this Agreement, (y) the date on which such holder owns less than 10% of the Company’s securities
or (z) the date on which all of such holder’s securities may be sold pursuant to Rule 144(k) under the Securities Act (or any similar rule then in force).
8
ARTICLE VIII
MISCELLANEOUS
Section 8.1
Current Public Information
. The Company shall file all
reports required to be filed by it under the Securities Act and the Securities Exchange Act of 1934, as amended, and the rules and regulations adopted by the Commission thereunder and shall take such further action as any holder or holders of
Restricted Securities may reasonably request, all to the extent required to enable such holders to sell Restricted Securities pursuant to (i) Rule 144 adopted by the Commission under the Securities Act (as such rule may be amended from time to
time) or any similar rule or regulation hereafter adopted by the Commission or (ii) short-form registrations. Upon request, the Company shall deliver to any holder of Restricted Securities a written statement as to whether it has complied with
such requirements.
Section 8.2
Selection of Underwriters
. The Company will select the investment banker(s) and manager(s) to
administer any offering effected pursuant to a Demand Registration or Piggyback Registration, provided, however, that in the case of a Demand Registration such selection shall be subject to approval of the holders of a majority of the Registrable
Securities, which approval shall not be unreasonably withheld or delayed.
Section 8.3
Remedies
. Any person having rights under
any provision of this Agreement will be entitled to enforce such rights specifically to recover damages caused by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or
other security) for specific performance and for other injunctive relief in order to enforce or prevent violation of the provisions of this Agreement.
Section 8.4
Amendments and Waivers
. Except as otherwise provided herein, the provisions of this Agreement may be amended or waived only upon the prior written consent of the Company and the holders of
two-thirds (2/3) of the Registrable Securities.
Section 8.5
Successors and Assigns
. Except as otherwise provided, all
covenants and agreements in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. Except as otherwise provided in
any express assignment of this Agreement by a holder of Registrable Securities, the provisions of this Agreement which are for the benefit of holders of Registrable Securities are also for the benefit of, and enforceable by, any subsequent holder of
Registrable Securities.
Section 8.6
Additional Holders
. The parties agree than any person acquiring shares of Class B Common
may become a party to this Agreement, and, upon acquisition of Class B Common and execution of a counterpart signature page to this Agreement, such person shall be deemed to be a party for all purposes under this Agreement.
Section 8.7
Severability
. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
Section 8.8
Counterparts
. This Agreement may be signed in any number of counterparts, each of which shall be
an original, and all of which when taken together shall constitute one and the same instrument.
9
Section 8.9
Governing Law
. This Agreement shall be governed by, and construed in accordance
with, the laws of the state of Colorado, without regard to the applicable principles of conflicts of laws thereunder.
Section 8.10
Notices
. Any notice, demand, claim or other communication under this Agreement shall be in writing and shall be deemed given upon delivery if delivered personally, upon mailing if sent by certified mail, return receipt requested, postage
prepaid, or upon completion of transmission and confirmation of receipt if sent by email, telecopy or facsimile, to the parties at the following address (or such other address as may be provided in writing from time to time by one party to the other
party after the date hereof):
To Gaiam:
Gaiam, Inc.
360 Interlocken Boulevard
Broomfield, Colorado 80021
Attention: Chief
Financial Officer
Facsimile:
To Real Goods:
Real Goods Solar, Inc.
360 Interlocken Boulevard
Broomfield, Colorado 80021
Attention: Chief Financial Officer
Facsimile:
Section 8.11
Entire Agreement
. This Agreement constitutes the entire agreement of the parties concerning the subject matter hereof, and
supersedes all other agreements, whether or not written, in respect of its subject matter.
Section 8.12
No Third-Party
Beneficiaries
. This Agreement is solely for the benefit of the parties and shall not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without this
Agreement.
[
Remainder of this page intentionally left blank
]
10
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year
first above written.
|
|
|
|
|
Gaiam, Inc.
|
|
|
|
|
By:
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
|
Title:
|
|
|
|
|
|
Real Goods Solar, Inc.
|
|
|
|
|
By:
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
|
Title:
|
|
|
11
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration
Statement (Registration No. 333-149092) on Form S-1/A of our reports all dated February 1, 2008 relating to the consolidated financial statements of Real Goods Solar, Inc., the financial statements of Marin Solar, Inc. and the financial
statements of Carlson Solar, which appear in such Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.
/s/ Ehrhardt Keefe Steiner & Hottman PC
March 28, 2008
Denver, Colorado