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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

 

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 001-34044

 

 

REAL GOODS SOLAR, INC.

(Exact name of registrant as specified in its charter)

 

 

 

COLORADO   26-1851813

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

833 WEST SOUTH BOULDER ROAD,

LOUISVILLE, CO 80027

(Address of principal executive offices)

(303) 222-8400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Title of Each Class

 

Name of Each Exchange on Which Registered

Class A Common Stock, $.0001 par value   NASDAQ Stock Market LLC

Securities registered pursuant to section 12(g) of the Act:

None

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES   ¨     NO   x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES   ¨     NO   x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES   x     NO   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in

Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨   (Do not check if a smaller reporting company)    Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.)    YES   ¨     NO   x

The aggregate market value of the voting common equity held by non-affiliates of the registrant was approximately $9,927,874 as of June 30, 2012, based upon the closing price on the NASDAQ Global Market on that date. The registrant does not have non-voting common equity.

As of March 22, 2013, 26,707,736 shares of the registrant’s Class A common stock and no shares of the registrant’s Class B common stock were outstanding.

 

 

DOCUMENTS INCORPORATED BY REFERENCE

The following documents (or portions thereof) are incorporated by reference into the Parts of this Form 10-K noted:

Part III incorporates by reference from the definitive proxy statement for the registrant’s 2013 Annual Meeting of Shareholders to be filed with the Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form.

 

 

 


Table of Contents

REAL GOODS SOLAR, INC.

Annual Report on Form 10-K

For the Fiscal Year Ended December 31, 2012

INDEX

 

     Page
Number
 

PART I

     

Item 1.

   Business      3   

Item 1A.

   Risk Factors      8   

Item 1B.

   Unresolved Staff Comments      19   

Item 2.

   Properties      19   

Item 3.

   Legal Proceedings      19   

Item 4.

   Mine Safety Disclosures      19   

PART II

     

Item 5.

   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities      20   

Item 6.

   Selected Consolidated Financial Data      20   

Item 7.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      22   

Item 7A.

   Quantitative and Qualitative Disclosures About Market Risk      29   

Item 8.

   Financial Statements      30   

Item 9.

   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure      47   

Item 9A.

   Controls and Procedures      47   

Item 9B.

   Other Information      48   

PART III

     

Item 10.

   Directors, Executive Officers and Corporate Governance      50   

Item 11.

   Executive Compensation      50   

Item 12.

   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      50   

Item 13.

   Certain Relationships and Related Transactions, and Director Independence      50   

Item 14.

   Principal Accountant Fees and Services      50   

PART IV

     

Item 15.

   Exhibits and Financial Statement Schedules      51   

SIGNATURES

     54   

 

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Item 1. Business

Introduction

We are a leading residential and commercial solar energy engineering, procurement, and construction firm. We also perform most of our own sales and marketing activities to generate leads and secure projects. We offer turnkey services, including design, procurement, permitting, build-out, grid connection, financing referrals and warranty and customer satisfaction activities. Our solar energy systems use high-quality solar photovoltaic modules from manufacturers such as Canadian Solar and SunPower. 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 over 30 years of experience in residential solar energy. We trace our roots to 1978, when Real Goods Trading Corporation sold the first solar photovoltaic, or PV, panels in the United States. We have designed and installed over 14,000 residential and commercial solar systems since our founding. Our focused customer acquisition approach and our efficiency in converting customer leads into sales enable us to have what we believe are competitive customer acquisition costs that we continuously focus on improving. We believe that our Real Goods Solar brand has a national reputation for high quality customer service in the solar energy market, which leads to a significant number of word-of-mouth referrals and new customers.

Our History

We were incorporated in Colorado in 2008 as a successor to Gaiam Energy Tech, Inc. founded in 1999. Our second acquisition was Real Goods Trading Corporation, which was publicly traded from 1991 to 2001 when it was acquired by Gaiam Energy Tech, Inc., a subsidiary of Gaiam, Inc. (“Gaiam”). We operated essentially as a separate business (except for certain consolidated corporate functions) from 2001 to 2008, when operations were moved into our corporate entity, Real Goods Solar, Inc., upon its formation. We acquired Marin Solar in November 2007, Carlson Solar in January 2008, Independent Energy Systems (“IES”) in August 2008, Regrid Power, Inc. (“Regrid Power”) in October 2008, and Earth Friendly Energy Group Holdings LLC d/b/a Alteris Renewables, Inc. (“Alteris”) in June 2011.

Growth Strategy

Our goal is to continue to build on our industry-leading position and become one of the largest and most profitable residential and commercial solar energy integrators in the United States. We intend to pursue the following strategies to achieve this goal:

 

   

Enhance and leverage the Real Goods Solar brand name to increase our market presence . We intend to enhance and leverage the Real Goods Solar brand name and our reputation for 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.

 

   

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, a number of 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. Federal law provides a 30% investment tax credit that was extended for eight years in 2008, when the $2,000 cap on the credit for residential systems was removed. We believe that this tax credit will continue to stimulate the solar market on a national basis.

 

   

Consolidate the fragmented U.S. solar energy system installation market . The U.S. solar energy system installation market remains highly fragmented, with hundreds of independent installers or integrators in California alone. We have completed a number of acquisitions as part of a consolidation strategy and although we now focus primarily on organic growth, we will continue to look at appropriate acquisition opportunities to strengthen the company and increase our market reach. We plan to create economies of scale in order to increase our operating efficiencies, with a goal of improving our margins and profitability.

 

   

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 Solar brand to expand our “community of customers,” which cares deeply about solar energy and a renewable energy lifestyle and views us as the premier solar energy engineering, procurement, and construction firm. We intend to leverage our customer base to continue to provide us with new leads and referrals, which, in conjunction with our marketing efforts, should allow us to continue to lower our customer acquisition costs.

 

   

Make a difference in the world . We intend to promote our solar energy systems 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.

 

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Competitive Advantages

We believe that we have a number of advantages over our competitors, including the following:

 

   

Brand recognition and authenticity . We believe that our customers often buy our solar energy systems because of the strength of the Real Goods Solar brand, our longevity in the marketplace and our reputation for excellent customer service. As a result of over 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.

 

   

Strength of management . We have a highly experienced management team. Our Chief Executive Officer, Kamyar (Kam) Mofid, has a wealth of experience and expertise managing national and international organizations and has a deep knowledge of the solar sector. In addition, Jirka Rysavy, non-executive Chairman of our Board of Directors, founded and grew Corporate Express from $30 million to $3 billion in revenue in less than five years, and founded Gaiam. Members of our management team, as well as Mr. Rysavy, have considerable experience in the consolidation of fragmented industries, having acquired over 250 companies.

 

   

Low-cost customer acquisition model . Our business model gives us a significant marketing advantage by providing us access to potential purchasers of solar energy systems from visitors to our Solar Living Center and from our strong web presence. In addition, our strong brand name and reputation for outstanding customer service provide us with word-of-mouth referrals. We closely monitor our customer acquisitions costs and have strategies in place to continue to reduce these costs.

Challenges Facing the Electric Power Industry

We believe that as demand for electric power increases, the electric power industry will face various challenges, including the following:

 

   

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.

 

   

Finite natural 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.

 

   

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.

 

   

Pollution and climate change concerns . 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 climate change, 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 (“RPS”), which require the generation of a certain amount of power from renewable sources. We believe that increased concerns about climate change are likely to result in increased focus on alternative energy sources.

Because the solar energy industry offers solutions to these challenges, we believe it has extremely large growth potential. Currently, less than one percent of the world’s power is generated from solar energy sources.

Drivers of Solar Energy Industry Growth

We expect a number of factors will contribute to growth in the solar energy industry, including the following:

 

   

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. California has mandated an increase in the percentage of renewable energy retail sales by certain utilities to 20%, with a goal of 33% by 2020. Colorado has enacted an RPS goal of 20% for investor-owned utilities and 10% for electric cooperatives and municipal utilities serving more than 40,000 customers by 2020. The various states in the northeast in which we operate have also implemented a variety of solar initiatives.

 

   

Financial incentives . As RPS programs are implemented, it is common for financial incentives to be made available, making the purchase of solar energy systems more affordable and opening additional solar markets in the United States.

 

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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. These rebates, coupled with tax credits, substantially reduce the customer’s out-of-pocket cost for purchasing a solar energy system.

 

   

Tax credits . There is currently a 30% federal tax credit for residential and commercial solar energy systems, and in October 2008 Congress extended the availability of this credit for both residential and commercial solar installations for another eight years and eliminated the $2,000 cap on the tax credit for residential installations.

 

   

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, over three quarters of the states have required some of their utility providers to accept net metering. 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 higher rates during peak times when traditional loads are at their highest demand. These customers can then buy back electricity from the utilities during off-peak times at a much lower rate, providing them an additional financial benefit for solar installations. Performance-based incentives, or PBIs, reward customers based on the generation of their solar energy over time, as opposed to through an initial rebate.

 

   

Renewable energy credits . In many states, the installation of a solar energy system generates a renewable energy credit, which is marketable in certain states.

 

   

Property tax exemptions . In certain jurisdictions, such as California, assessors are prohibited from increasing a solar energy system owner’s property tax assessment as a result of the added value of qualified solar energy systems.

 

   

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. 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 for air conditioning 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 expenses because the systems 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 fewer 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:

 

   

Customer economics and financing . The decision to install a solar energy system represents a significant investment of approximately $10,000 to $30,000 or more (net of rebates and federal tax credits), if purchased outright, for the typical home. Financing sources specifically for solar energy systems, including loans and system leases, are not always available depending upon the state and the customer’s credit rating. 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 costs associated with the initial investment decision against the potential benefit associated with anticipated longer-term utility cost reductions, increased property value and low system maintenance costs provided by a solar energy system.

 

   

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.

 

   

Supply of solar PV modules . At times in recent years, there has been a global shortage of solar PV modules, which has resulted in some price increases and limited availability for solar PV modules. While we believe that the risk of future shortages has abated, it is always a possibility. In addition, other problems with the supply chain could impair the timely delivery of key system components.

 

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Cost of traditional energy sources . The cost of solar power generation is often compared by customers to the cost of traditional sources of electricity generation such as coal. Traditional power plants are relatively cheap to build but expensive to operate when the true price of their environmental impact is considered. Solar power plants are more expensive to build but cheaper to operate over the long-term, with minimal environmental impact. The growth of the solar power industry is dependent on how consumers weigh the relative importance of construction costs relative to the operating costs for both types of electricity production and the extent to which government mandates require traditional power plants to incorporate environmental costs.

 

   

Challenging economic environment . The challenging economic environment has created a challenging business climate for the purchase of solar systems. We believe that many customers remain interested in solar but are electing to postpone their decision to install a system until they have better visibility into the economy and their own personal financial situation.

 

   

Competitive pressures . The solar industry has been growing very rapidly and the competitive landscape has evolved. Our historically strong position, in particular in the residential sector, has been challenged by existing and new competitors. We must continue to improve and evolve to be able to grow profitability.

Services

We offer turnkey solar energy services, including design, procurement, permitting, build-out, grid connection, financing referrals and warranty and customer satisfaction activities. We install residential and commercial systems that are generally between 3 kilowatts, or kW, and 1megawatt, or MW, output, with the average residential installation being approximately 6 kW output. We also on occasion install larger commercial projects in the 3-5 MW range.

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 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, which 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 in certain situations), 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, but rather 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 contract through final inspection by the local building department typically takes between 60 to 90 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.

 

   

Solar PV modules . We source solar PV modules from several primary manufacturers: Canadian Solar and SunPower. These modules range in conversion efficiency from 14% to 16%. 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.

 

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Inverters . An inverter is an electronic device that converts the low-voltage DC power generated by solar PV modules to conventional 120-volt AC power 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, sometimes 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.

Warranty Terms

Most manufacturers of solar PV modules currently offer a 20- to 25-year transferable warranty of their products. We offer a 10-year parts and labor warranty, 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 and we are typically reimbursed by the manufacturers for our labor and materials. Historically, our costs associated with warranty claims have been minimal.

Financing

While many of our customers choose to purchase their solar energy systems without the use of financing, we also connect our customers with preferred third-party financing sources. We also work with solar financiers who lease solar systems to our customers over 10 to 20 year periods. We handle some of the administrative processing for our customers that choose to use third-party financing or leasing. Loss of preferred third-party financing and leasing sources for our customers could adversely affect our business as it would reduce funding alternatives available to homeowners seeking to install a solar system.

Sales and Marketing

Our conventional marketing program includes presentation booths at tradeshows and consumer shows, Internet search engine optimization, pay-per-click ad words, Internet banner advertisements, affiliate marketing programs, canvassing, community involvement initiatives 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 and maintain a robust website. Our website provides pricing tools, media programming, in-depth articles and product information, and how-to instructional content. 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 Solar brand name and reputation. We believe that these attractive sources of leads lower 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 inside 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 further lowers our customer acquisition costs because it narrows our customer leads and allows us to focus our direct sales efforts on highly targeted customers.

We own the Real Goods Solar Living Center, which is located on a 12-acre campus in Hopland, California, approximately 95 miles north of San Francisco. The Solar Living Center is a demonstration site for the technology and culture of solar living and serves as a very effective source of qualified leads for solar installations. In 2012, the Solar Living Center had over 150,000 visitors. Since it opened in 1996, more than 2.5 million people have visited the Solar Living Center, and it has become one of the largest tourist attractions in Northern California throughout the year.

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 1MW in size. Our typical residential customer is connected to the utility grid. Our commercial customers have included wineries, schools, apartment buildings, low income housing communities, churches and retail facilities.

 

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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 Canadian Solar, SunPower and others. We purchase inverters manufactured by SMA, Enphase and others. We currently purchase the components used 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 available from a number of different sources. With that said, the world-wide market for solar PV modules has from time to time experienced shortages of supply that have increased prices and affected availability.

Competition

The solar energy industry is in its early stages of development and is highly fragmented, especially in the residential sector, 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, Verengo and Solar City. Several of our competitors have expanded their market share in the California market by opening multiple offices within the state. We estimate that we are currently in the top ten residential solar energy system installers in California. In Colorado our competitors include Namaste Solar Electric, REC Solar and Solar City, but we are not aware of published data regarding competitive positions in Colorado. In the northeast, our competitors include Solar City, Sungevity, Trinity Solar and others, but we are not aware of published data regarding competitive position in that area. We compete on factors such as brand recognition, quality of services and products, pricing, speed and quality of installation.

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 operate under and have registered the tradenames “Real Goods”, which was last renewed in 2004, and “Real Goods Solar”, which is pending a tradename application. We believe these tradenames are significant assets to our business. The Real Goods tradename registration is valid for ten years and we endeavor to maintain such registrations as valid and current by filing all required renewal forms when due. In addition, we hold the copyright for most of the contents of the “Solar Living Sourcebook.”

Seasonality

We have historically experienced seasonality in our business, with the first quarter representing our slowest quarter of the year. Additionally, the fourth quarter can be impacted by unfavorable weather in certain geographic regions, especially in the northeastern parts of the country. Much of the seasonality in the business in previous quarters has been offset by changes in government activities as well as strong organic growth.

Employees

As of March 22, 2013, we had approximately 334 full-time and 9 part-time employees, including installation personnel.

 

Item 1A. Risk factors

We wish to caution you that there are risks and uncertainties that could cause our actual results to be materially different from those indicated by forward looking statements that we make from time to time in filings with the Securities and Exchange Commission, news releases, reports, proxy statements, registration statements and other written communications as well as oral forward looking statements made from time to time by our representatives. These risks and uncertainties include those risks described below of which we are presently aware. Historical results are not necessarily an indication of the future results. Cautionary statements below discuss important factors that could cause our business, financial condition, operating results and cash flows to be materially adversely affected.

 

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Risk Factors Related to our Business and Industry

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 economic factor in the determination to purchase a solar energy system. Certain states, 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. During the first quarter of 2013, Congress failed to reach a deal on balanced deficit reduction. As a result, the U.S. government is now subject to sequestration-automatic spending cuts aimed at reducing the U.S. federal budget cut. It is unclear exactly how sequestration will affect the solar energy industry in general and us in particular. However, it is likely to have some effect. For example, in March 2013, the U.S. Department of the Treasury announced a 8.7% reduction in funding under the so called Section 1603 programme, which provides reimbursement of a portion of the installation expense for solar energy systems. 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.

Adverse general economic conditions could have a material impact on our business.

Adverse overall economic conditions that impact consumer spending could impact our results of operations. Future economic conditions affecting disposable income such as employment levels, consumer confidence, credit availability, spending on housing, business conditions, stock market volatility, weather conditions, acts of terrorism, threats of war, and interest and tax rates could reduce consumer spending or cause consumers to shift their spending away from our products. While many economic indicators have improved recently, activity in many areas of the general U.S. economy remain sluggish. If the economic conditions continue to be adverse or worsen, we may experience material adverse impacts on our business, operating results and financial condition. The ongoing financial crisis and the loss of confidence in the stock market has increased our cost of funding and limited our access to some of our traditional sources of liquidity, including both secured and unsecured borrowings. Increases in funding costs and limitations on our access to liquidity could have a negative impact on our earnings and our ability to drive our growth strategies. In addition, the deteriorating general economic conditions in the United States have caused a drop in consumer spending in general, and discretionary spending in particular. These dynamics may also adversely impact the solar sector.

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 has experienced consistent growth over the past five years. 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:

 

   

availability of government and utility company subsidies and incentives to support the development of the solar energy industry;

 

   

fluctuations in economic and market conditions that affect the viability of conventional and non-solar renewable energy sources, such as changes in the price of oil and other fossil fuels;

 

   

cost-effectiveness, performance and reliability of solar energy systems compared with conventional and other non-solar renewable energy sources and products;

 

   

success of other renewable energy generation technologies, such as hydroelectric, wind, geothermal, solar thermal, concentrated solar and biomass;

 

   

availability of financing with economically attractive terms;

 

   

fluctuations in expenditures by purchasers of solar energy systems, which tend to decrease in slower economic environments and periods of rising interest rates and tighter credit; and

 

   

deregulation of the electric power industry and the broader energy industry.

 

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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 could cause the demand for solar energy systems to decline, which would have a negative impact on 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 jurisdictions 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.

For some of our projects, we recognize revenue on system installations on a percentage-of-completion basis and payments are due upon the achievement of contractual milestones, and any delay or cancellation of a project could adversely affect our business.

For some of our projects, we recognize revenue on a percentage-of-completion basis and, as a result, our revenue from these installations is driven by the performance of our contractual obligations. The time it takes to execute our contractual obligations may impact the amount of revenue recognized in a particular period. Timelines can be adversely impacted by weather, governmental agencies, utilities and customer requirements. In addition, certain customer contracts may include payment milestones due at specified points during a project. Although we generally build payment terms that provide for positive cash flow, delays in project execution or customer payments could adversely affect our business and cash flows.

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, metering caps currently exist 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. 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. 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 utility generated 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.

We derive the majority of the revenue from our solar energy integration services from sales in west coast and northeast states.

We currently derive the vast majority of our revenue from solar energy integration services from projects in fewer than ten states located on the west coast and in the northeast. This geographic concentration exposes us to increased risks associated with the growth rates, government regulations, 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 existing markets 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.

 

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Our business plan and proposed strategy have not been independently evaluated.

We have not obtained any independent evaluation of our business plan and proposed business strategy. There can be no assurance that our business plan and proposed strategy will generate sufficient revenues to maintain profitability.

Our success may depend in part on our ability to continue to make successful acquisitions.

As part of our business strategy, we may expand our operations through strategic acquisitions in our current markets and in new geographic markets. We acquired several businesses over the last few years. We cannot accurately predict the timing, size and success of our acquisition efforts. Our acquisition strategy involves significant risks, including the following:

 

   

limitations on our cash available for acquisitions;

 

   

market prices of our Class A common stock, to the extent we elect to use stock as all or part of the consideration for acquisitions;

 

   

our ability to identify suitable acquisition candidates at acceptable prices;

 

   

our ability to complete successfully the acquisitions of candidates that we identify;

 

   

our ability to compete effectively for available acquisition opportunities;

 

   

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;

 

   

diversion of management’s attention to expansion efforts;

 

   

unanticipated costs and contingent liabilities associated with acquisitions;

 

   

failure of acquired businesses to achieve expected results;

 

   

our failure to retain key customers or personnel of acquired businesses; and

 

   

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.

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 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 and adequate financing may not be available if and when we need it or may not be available on terms acceptable to us. 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. 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.

 

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Our present indebtedness and projected future borrowings could adversely affect our financial health; future cash flows may not be sufficient to meet our obligations and we may have difficulty obtaining additional financing; and we may experience adverse effects of interest rate fluctuations.

As of March 28, 2013, we had indebtedness of approximately $14.1 million. The indebtedness consisted of:

 

   

a revolving line of credit from Silicon Valley Bank of up to $6.5 million, with a maturity date of September 30, 2013, and fully drawn as of March 28, 2013.

 

   

a loan of $1.7 million from Gaiam under the terms of the Shareholders Agreement entered into in connection with the Alteris merger, with a current maturity date of April 30, 2014;

 

   

loans in an aggregate amount of $3.15 million from Riverside Renewable Energy Investment LLC (“Riverside”) under the terms of the Shareholders Agreement entered into in connection with the Alteris merger, with maturity dates of May 4, 2014 for $3.0 million and June 20, 2014 for $150 thousand;

 

   

additional loans of $1.0 million from each of Gaiam and Riverside, pursuant to the loan commitment entered into on November 13, 2012, for our general working capital needs. The maturity date for both of the loans is April 26, 2014; and

 

   

capital lease obligations and miscellaneous debt financing of $0.7 million with various maturity dates.

There can be no assurance in the future whether we will generate sufficient cash flow from operations or through asset sales to meet our long-term debt service obligations. Our present indebtedness and projected future borrowings could have important adverse consequences to us, such as:

 

   

making it more difficult for us to satisfy our obligations with respect to our existing indebtedness;

 

   

limiting our ability to obtain additional financing without restructuring the covenants in our existing indebtedness to permit the incurrence of such financing;

 

   

requiring a substantial portion of our cash flow to be used for payments on the debt and related interest, thereby reducing our ability to use cash flow to fund working capital, capital expenditures and general corporate requirements;

 

   

limiting our ability to respond to changing business, industry and economic conditions and to withstand competitive pressures, which may affect our financial condition;

 

   

causing us to incur higher interest expense in the event of increases in interest rates on our borrowings that have variable interest rates or in the event of refinancing existing debt at higher interest rates;

 

   

limiting our ability to make investments, dispose of assets, pay cash dividends or repurchase stock;

 

   

increasing our vulnerability to downturns in our business, our industry or the general economy and restricting us from making improvements or acquisitions or exploring business opportunities;

 

   

placing us at a competitive disadvantage to competitors with less debt or greater resources; and

 

   

subjecting us to financial and other restrictive covenants in our indebtedness, the non-compliance with which could result in an event of default.

As illustrated above, during 2013, $6.5 million of our indebtedness will become due and payable. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under existing or new sources of credit in amounts sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. In addition, if we consummate significant acquisitions in the future, our cash requirements and our debt service requirements may increase significantly.

If we fail to generate sufficient cash flow or otherwise obtain capital to meet our debt service obligations, we may need to refinance all or a portion of our debt on or before maturity. We cannot assure you that we will be able to refinance any of our debt on attractive terms, commercially reasonable terms or at all. Our future operating performance and our ability to service, extend or refinance our indebtedness will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. Our failure to meet our debt service obligations or pay our indebtedness when it comes due may cause us to become insolvent, which would cast doubt on our ability to continue as a going concern.

Our indebtedness imposes restrictive covenants on us.

Our indebtedness imposes various customary covenants on us and our subsidiaries. The restrictions that are imposed under these debt instruments include, among other obligations, limitations on our and our subsidiaries’ ability to:

 

   

sell assets;

 

   

change our business, management or ownership;

 

   

engage in any merger, acquisition or consolidation transactions;

 

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incur additional debt;

 

   

make dividends or distributions and repurchase stock;

 

   

make investments;

 

   

enter into certain transactions with affiliates; and

 

   

make payments on or amend any subordinated obligations

Our ability to comply with the covenants imposed by the terms of our indebtedness may be affected by general economic conditions, industry conditions, and other events beyond our control. As a result, we cannot assure you that we will be able to comply with these covenants. Our failure to comply with such covenants, including failure to comply as a result of events beyond our control, could result in an event of default, which could materially and adversely affect our operating results and our financial condition.

If there were an event of default under our indebtedness, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable, subject to applicable grace periods. This could trigger cross-defaults under our other debt instruments. We cannot assure you that our assets or cash flow would be sufficient to repay borrowings under our outstanding debt instruments if accelerated upon an event of default, or that we would be able to repay, refinance or restructure the payments on any of those debt instruments.

Our operations are largely dependent on the skill and experience of our management and key personnel. The loss of management and other key personnel or our inability to hire additional personnel could significantly harm our business and our ability to expand, and we may not be able to effectively replace members of management who have left the company.

Our continued success and our ability to maintain our competitive position is largely dependent upon, among other things, the efforts and skills of our senior executives and management team. We cannot guarantee that these individuals will remain with us. If we lose the services of any members of our management team or other key personnel, our business may be significantly impaired. We cannot assure you that we will be able to retain our existing senior executive and management personnel or attract additional qualified senior executive and management personnel.

The loss of or failure to hire additional personnel could materially and adversely affect our business, operating results and our ability to expand.

Further, the expansion of our business could place a significant strain on our managerial, financial and personnel resources. 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 Solar brand.

We depend on the name recognition of our Real Goods Solar 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.

Our failure to protect our brands may undermine our competitive position and litigation to protect our brands or defend against third-party allegations of infringement may be costly.

We believe that it is important for our business to achieve brand recognition. We rely primarily on tradenames to achieve this. Third parties may infringe or misappropriate our trademarks, trade names, and other intellectual property rights, which could have a material adverse effect on our business, financial condition, or operating results. In addition, policing unauthorized use of our trademarks, trade names, and other intellectual property can be difficult and expensive. Litigation may be necessary to enforce our intellectual property rights or determine the validity and scope of the proprietary rights of others. We cannot give assurance that the outcome of such potential litigation will be in our favor. Such litigation may be costly and may divert management attention as well as expend our other resources away from our business. An adverse determination in any such litigation will impair our intellectual property rights and may harm our business, prospects, and reputation.

From time to time, we are subject to litigation which, if adversely determined, could cause us to incur substantial losses.

From time to time during the normal course of operating our businesses, we are subject to various litigation claims and legal disputes. Some of the litigation claims may not be covered under our insurance policies, or our insurance carriers may seek to deny coverage. As a result, we might also be required to incur significant legal fees, which may have a material adverse effect on our financial position. In addition, because we cannot accurately predict the outcome of any action, it is possible that, as a result of current and/or future litigation, we will be subject to adverse judgments or settlements that could significantly reduce our earnings or result in losses.

 

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We depend upon a limited number of suppliers for the components used in our solar energy systems and our inability to purchase components would adversely affect our results of operations.

We rely on third-party suppliers for components used in our solar energy systems. During 2012, Canadian Solar accounted for over 78% of our purchases of solar PV modules, and PV Powered and Enphase accounted for over 73% 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 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.

Although currently there is no shortage of supplies for solar energy systems, historically, shortages have occurred and have impacted companies such as us. Shortages in the supply of silicon or supply chain issues could adversely affect the availability and cost of the solar PV modules used in our solar energy systems.

Shortages of silicon, inverters or supply chain issues 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 or inverters 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 or other materials could result in an increase in costs to us, price increases to our customers or reduced margins.

We install solar energy systems, and many factors could prevent us from completing installations as planned, including the escalation of construction costs beyond increments anticipated in our installation budgets.

Solar installations have certain inherent risks, including the risks of fire, structural collapse, human error and electrical and mechanical malfunction. In addition, our projects entail additional risks related to structural heights. Our installation projects also entail significant risks, including:

 

   

shortages of materials;

 

   

shortages of skilled labor;

 

   

unforeseen installation scheduling, engineering, excavation, environmental or geological problems;

 

   

natural disasters, hurricanes, weather interference, fires, earthquakes or other casualty losses or delays;

 

   

unanticipated cost increases or delays in completing the projects;

 

   

delays in obtaining or inability to obtain or maintain necessary licenses or permits;

 

   

changes to plans or specifications;

 

   

performance by subcontractors;

 

   

disputes with subcontractors; and

 

   

increases in the cost of solar panels and other products used in our installations, including as a result of unfair trade duties described elsewhere in these risk factors, higher labor and construction costs and other factors, may cause price increases beyond those anticipated in the budgets for our construction and installation projects.

Our installation projects expose us to risks of cost overruns due to typical uncertainties associated with any project or changes in the designs, plans or concepts of such projects. For these and other reasons, installation costs may exceed the estimated cost of completions.

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 will also more and more encounter competition from larger companies, some of which may have greater financial, technical and marketing resources and greater name recognition than we do.

 

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We believe that our ability to compete depends in part on a number of factors outside of our control, including the following:

 

   

the ownership by competitors of proprietary tools to customize solar energy systems to the needs of particular customers;

 

   

the availability of proprietary solar financing solutions;

 

   

the price at which competitors offer comparable products;

 

   

marketing efforts undertaken by our competitors;

 

   

the extent of our competitors’ responsiveness to customer needs; and

 

   

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.

An increase in pricing structures of our third party financing partners could reduce demand for our services and products.

Many of our customers depend on third party lease financing to fund the initial capital expenditure required to purchase our solar energy systems. Third-party financing sources for solar energy systems are currently limited, and due to the limited sources, they have significant leverage and control over the terms and pricing for their financing products. If our financing partners increase their pricing structure, our customers’ cost of purchasing our solar energy systems will increase and we may experience decreased demand for our products and services, resulting in reduced revenue. In the alternative, if we elect to absorb any financing price increase by lowering the price of our products and services to keep the total cost to our customers constant, our revenue will decrease and we will experience lower profit margins. An increase in the pricing structures of our third party financing partners likely will have a negative effect on our results of operations.

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.

Product liability claims against us could result in adverse publicity and potentially significant monetary damages.

As a seller of consumer products, we may face product liability claims in the event that use of our solar energy systems results in injuries. Because solar energy systems produce electricity, 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 both in workmanship and, in certain cases, in energy production, 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 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.

An increase in interest rates or tight credit markets 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, or leasing 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. The lack of financing sources, limitations on available credit 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.

We must meet the NASDAQ Global Market continued listing requirements or we risk delisting, which may decrease our stock price and make it harder for our shareholders to trade our stock.

Our Class A common stock is currently listed for trading on the NASDAQ Capital Market. We must continue to satisfy NASDAQ’s continued listing requirements or risk delisting of our securities. Delisting would have an adverse effect on the price of our Class A common stock and likely also on our business. During 2012, we received four different notices from NASDAQ that we were not in

 

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compliance with certain NASDAQ rules. As of February 21, 2013, we had regained compliance with all applicable NASDAQ rules. There can be no assurance that we will remain in compliance with the continued listing requirements for the NASDAQ Capital Market, or that our Class A common stock will not be delisted from the NASDAQ Capital Market in the future. If our Class A common stock is delisted from NASDAQ, it may trade on the over-the-counter market, which may be a less liquid market. In such case, our shareholders’ ability to trade, or obtain quotations of the market value of, shares of our Class A common stock would be severely limited because of lower trading volumes and transaction delays. These factors could contribute to lower prices and larger spreads in the bid and ask prices for our securities.

In the event the make-up of our Board of Directors or audit committee were not, or are not in the future, in compliance with the Securities and Exchange Commission and NASDAQ independence requirements, we face a number of risks that could materially and adversely affect our shareholders and our business.

The Securities and Exchange Commission rules and the NASDAQ Capital Market’s continued listing requirements require, among other things, that a majority of the members of our Board of Directors are independent and that our audit committee consists entirely of independent directors. In the event that we do not remain in compliance with these requirements, our executive officers could establish policies and enter into transactions without the requisite independent review and approval. This could present the potential for a conflict of interest between us and our shareholders generally and our executive officers, shareholders, or directors.

Further, our failure to comply with these requirements may limit the quality of the decisions that are made by our Board of Directors and audit committee, increasing the risk of material misstatements or omissions caused by errors or fraud with respect to our financial statements or other disclosures that may occur and not be detected in a timely manner or at all, or the payment of inappropriate levels of compensation to our executive officers. In the event that there are deficiencies or weaknesses in our internal control over financial reporting, we may misreport our financial results or lose significant amounts due to misstatements caused by errors or fraud. Finally, if the composition of our Board of Directors or audit committee fails to meet NASDAQ’s independence requirements in the future, our Class A common stock will be delisted from the NASDAQ Capital Market, as further described in the previous risk factor.

Risk Factors Related to Our Securities

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 may be volatile and could fluctuate widely in response to various factors, many of which are beyond our control, including the following:

 

   

actual or anticipated changes in our operating results;

 

   

regulatory, legislative or other developments affecting us or the solar energy industry generally;

 

   

changes in expectations relating to our services and products, plans and strategic position or those of our competitors or customers;

 

   

market conditions and trends within the solar energy industry;

 

   

acquisitions or strategic alliances by us or by our competitors;

 

   

litigation involving us, our industry or both;

 

   

introductions of new technological innovations, services, products or pricing policies by us or by our competitors;

 

   

the gain or loss of significant customers;

 

   

recruitment or departure of key personnel;

 

   

our ability to execute our business plan;

 

   

volume and timing of customer orders;

 

   

price and volume fluctuations in the overall stock market from time to time;

 

   

changes in investor perception;

 

   

the level and quality of any research analyst coverage of our Class A common stock;

 

   

changes in earnings estimates or investment recommendations by analysts;

 

   

the financial guidance we may provide to the public, any changes in such guidance or our failure to meet such guidance;

 

   

trading volume of our Class A common stock or the sale of such stock by Gaiam, Riverside, our management team or directors;

 

   

our issuance of additional shares of Class A common stock; and

 

   

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.

 

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The application of the “penny stock” rules could adversely affect the market price of our Class A common stock and increase the transaction costs to sell those shares.

The Securities and Exchange Commission has adopted regulations which generally define a “penny stock” as an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. Because the last reported trade of our company stock on the NASDAQ Global Market was at a price below $5.00 per share, our Class A common stock is currently considered a penny stock. The Securities and Exchange Commission’s penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and the salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that before a transaction in a penny stock occurs, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s agreement to the transaction. If applicable in the future, these rules may restrict the ability of brokers-dealers to sell our Class A common stock and may affect the ability of investors to sell their shares, until our Class A common stock no longer is considered a penny stock.

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, shareholders would have to sell some or all of their stock in order to generate cash flow from their 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.

Securities analysts may not continue to cover our Class A common stock, and this may have a negative impact on our Class A common stock’s market price.

The trading market for our Class A common stock depends, in part, on the research and reports that securities analysts publish about us and our business. We do not have any control over these analysts. If we are covered by securities analysts, and our stock is downgraded, our stock price would likely decline. If the analyst ceases to cover us or fails to publish regular reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.

Ownership could be diluted by future issuances of our stock, options, warrants or other securities.

Ownership of our securities may be diluted by future issuances of capital stock or the exercise of outstanding or to be issued options, warrants or convertible notes to purchase capital stock. In particular, we may sell securities in the future in order to finance operations, expansions, or particular projects or expenditures. Such issuances would have a significant dilutive effect.

There is a limited public trading market for our Class A common stock.

Our Class A common stock is currently traded on the NASDAQ Global Market under the trading symbol “RSOL.” There is a limited public trading market for our Class A common stock. Without an active trading market, there can be no assurance of any liquidity or resale value of our Class A common stock, and shareholders may be required to hold shares of our Class A common stock for an indefinite period of time.

Our business is subject to reporting requirements that continue to evolve and change, which could continue to require significant compliance effort and resources.

Because our Class A common stock is publicly traded, we are subject to certain rules and regulations of federal, state and financial market exchange entities charged with the protection of investors and the oversight of companies whose securities are publicly traded. These entities, including the Public Company Accounting Oversight Board, the Securities and Exchange Commission and NASDAQ, periodically issue new requirements and regulations and legislative bodies also review and revise applicable laws such as the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. As interpretation and implementation of these laws and rules and promulgation of new regulations continues, we will continue to be required to commit significant financial and managerial resources and incur additional expenses.

Risk Factors Related to our Relationship with Gaiam and Riverside

Gaiam and Riverside have significant influence over Real Goods Solar and their interests may conflict with or differ from interests of other shareholders.

 

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Gaiam and Riverside hold approximately 37% and 29%, respectively, of the currently outstanding shares of our Class A common stock. Their respective ownership may increase, stay the same or decrease depending on the amount of shares of Class A common stock we issue in the future. Further, pursuant to the terms of the Shareholders Agreement entered into in connection with the closing of the Alteris merger, Gaiam and Riverside currently each has the right to designate two individuals for appointment or nomination to our Board of Directors and they have agreed to vote their securities in favor of the election to our Board of Directors of these designated individuals. Because of their voting rights and their ability to designate individuals for appointment or nomination to our Board of Directors, each of them will be able to exert significant influence over our company and 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 the Real Goods Solar 2008 Long-Term Incentive Plan. Our Chairman of our Board of Directors, Jirka Rysavy, who is also the Chairman of Gaiam, currently owns approximately 27% of the outstanding equity, and in excess of 50% of the voting power, of Gaiam and is one of two individuals designated by Gaiam to serve on our Board of Directors.

Gaiam and Riverside are not prohibited from selling a significant interest in our company to a third party and may do so without shareholder approval and without providing for a purchase of other shares of Class A common stock. Accordingly, shares of Class A common stock may be worth less than they would be if Gaiam and Riverside did not maintain voting significance over us.

Our historical financial information as a business conducted by Gaiam may not be representative of our results as an independent public company.

Our historical financial information for periods prior to our initial public offering do not 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 occurred 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.

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:

 

   

labor, tax, employee benefit, indemnification and other matters arising from our separation from Gaiam;

 

   

employee retention and recruiting;

 

   

business combinations involving us;

 

   

pricing for shared and transitional services;

 

   

sales or distributions by Gaiam of all or any portion of its ownership interest in us;

 

   

the nature, quality and pricing of services Gaiam has agreed to provide us; and

 

   

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 have indemnification obligations under the Tax Sharing Agreement, Intercorporate Services Agreement, Facility Lease Agreement and Amended and Restated Registration Rights Agreement 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 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 own Gaiam Class A common stock and options to purchase Gaiam Class A common stock. In addition, some of our directors are also directors and/or executive officers of Gaiam. Ownership of Gaiam Class A common stock and options to purchase Gaiam Class A common stock by our directors and the presence of directors and executive officers 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

 

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renewable energy sources, energy efficiency or energy use reduction. However, we understand that 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.

Possible future sales of shares by Gaiam or Riverside could adversely affect the market price of our Class A common stock, even if our business is doing well.

Gaiam or Riverside may sell any or all of the shares of Class A common stock owned by it from time to time for any reason. Under the Amended and Restated Registration Rights Agreement among Gaiam, Riverside and us, entered into in connection with the closing of the Alteris merger, Gaiam and Riverside have the right to require us to register the shares of Class A common stock that they own 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 or Riverside 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.

 

Item 1B. Unresolved staff comments

None.

 

Item 2. Properties

Our principal executive offices are located in Louisville, Colorado. Our Hopland, California property is also the location of a 12-acre Solar Living Center. The following table sets forth certain information relating to our primary facilities:

 

Primary

Locations

 

Size

 

Use

   Lease
Expiration

Louisville, CO

  29,109 sq. ft.   Corporate Headquarters    December 2016

San Rafael, CA

  4,250 sq. ft.   Office and warehouse    June 2015

Fresno, CA

  10,000 sq. ft.   Office and warehouse    October 2013

Murrieta, CA

  8,205 sq. ft.   Office and warehouse    April 2014

San Jose, CA

  7,488 sq. ft.   Office and warehouse    March 2014

Hopland, CA

  6,700 sq. ft.   Office and retail store    Owned

Denver, CO

  5,885 sq. ft.   Office and warehouse    October 2013

Orange, CA.

  5,000 sq. ft.   Office and warehouse    October 2013

Wilton, CT

  2,500 sq. ft.   Office and warehouse    June 2013

Providence, RI

  2,500 sq. ft.   Office and warehouse    July 2013

Our existing facilities have lease renewal options ranging from 3 months to 4 years. We believe our facilities are adequate to meet our current needs and that suitable additional facilities will be available for lease or purchase when, and as, we need them. As further discussed in Note 8. Related Party Debt, pursuant to the terms of two $1.0 million loans owed to Gaiam and Riverside, respectively, if we fail to make payment of the principal and all interest owing one or both of these loans within 10 days of when due, then the creditor has the option to acquire an undivided 50% interest in our Hopland, California property in exchange for cancellation of such principal and interest, subject to (1) the approval of the transaction by our disinterested directors, and (2) the consent of our senior creditor, Silicon Valley Bank.

 

Item 3. 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.

 

Item 4. Mine Safety Disclosures

Not applicable.

 

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Part II

 

Item 5. Market for registrant’s common equity, related stockholder matters and issuer purchases of equity securities

Stock Price History

Our Class A common stock is listed on the NASDAQ Capital Market under the symbol “RSOL”. On March 22, 2013, we had 45 shareholders of record and 26,707,736 shares of $.0001 par value Class A common stock and no shares of $.0001 par value Class B shares outstanding.

The following table sets forth certain sales price and trading volume data for our Class A common stock for the periods indicated:

 

     High      Low      Close      Average
Daily
Volume
 

Fiscal 2012:

           

Fourth Quarter

   $ 1.16       $ 0.40       $ 0.76         38,494   

Third Quarter

   $ 1.17       $ 0.65       $ 0.70         18,278   

Second Quarter

   $ 1.50       $ 1.05       $ 1.13         11,248   

First Quarter

   $ 1.80       $ 1.25       $ 1.45         22,666   

Fiscal 2011:

           

Fourth Quarter

   $ 1.99       $ 0.99       $ 1.43         26,876   

Third Quarter

   $ 3.06       $ 1.72       $ 1.82         40,055   

Second Quarter

   $ 2.99       $ 2.22       $ 2.99         25,140   

First Quarter

   $ 2.92       $ 2.35       $ 2.65         39,339   

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. Our revolving line of credit with Silicon Valley Bank prohibits the payment of dividends.

Sale of Unregistered Securities

None.

Equity Compensation Plan Information

The following table summarizes equity compensation plan information for our Class A common stock as of December 31, 2012:

 

Plan Category

   Number of securities
to be issued upon
exercise of  outstanding
options, warrants and
rights
     Weighted average
exercise price of
outstanding options,
warrants and  rights
     Number of securities
remaining available for
future issuance  under
equity compensation
plans
 

Equity compensation plans approved by security holders

     1,525,320       $ 2.03         709,137   

Equity compensation plans not approved by security holders

     300,000         1.15         —    
  

 

 

    

 

 

    

 

 

 

Total

     1,825,320       $ 1.88         709,137   
  

 

 

    

 

 

    

 

 

 

 

Item 6. 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 Form 10-K 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, 2012, 2011 and 2010 and the consolidated balance sheet data as of December 31, 2012 and 2011 from our audited consolidated financial statements included elsewhere in this Form 10-K. We derived the consolidated statements of operations data for the years ended December 31, 2009 and 2008 and the consolidated balance sheet data as of December 31, 2010, 2009 and 2008 from our audited consolidated financial statements, which are not included in this Form 10-K. The consolidated financial data includes the effects of our acquisitions from the date of those transactions.

 

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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 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, with respect to periods prior to our initial public offering, what such results 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)

   2012     2011     2010      2009     2008 (a)  

Consolidated Statements of Operations Data:

           

Net revenue

   $ 92,891      $ 109,257      $ 77,324       $ 64,328      $ 39,221   

Cost of goods sold

     69,859        81,397        55,814         48,371        28,779   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Gross profit

     23,032        27,860        21,510         15,957        10,442   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Expenses:

           

Selling and operating

     29,807        23,634        16,717         16,213        12,526   

General and administrative

     8,909        4,109        2,772         2,340        1,525   

Acquisition-related costs

     —         2,393        —           —          —     

Goodwill and other asset impairments

     22,012        —          —           —          27,192   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total expenses

     60,728        30,136        19,489         18,553        41,243   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Income (loss) from operations

     (37,696     (2,276     2,021         (2,596     (30,801

Interest income (expense)

     (790     (184     15         (2     261   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Income (loss) before income taxes and noncontrolling interest

     (38,486     (2,460     2,036         (2,598     (30,540

Income tax expense (benefit)

     8,720        (560     797         (1,021     (2,226
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss)

     (47,206     (1,900     1,239         (1,577     (28,314

Net (income) attributable to noncontrolling interest

     —          —          —           —          (5
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss) attributable to Real Goods Solar, Inc.

   $ (47,206   $ (1,900   $ 1,239       $ (1,577   $ (28,319
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss) per share attributable to Real Goods Solar, Inc. common shareholders:

           

Basic and diluted

   $ (1.77   $ (0.08   $ 0.07       $ (0.09   $ (1.89
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Weighted average shares outstanding:

           

Basic

     26,673        23,572        18,301         18,181        15,014   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Diluted

     26,673        23,572        18,367         18,181        15,014   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

(a) We restated 2008 to reflect the correction of immaterial errors with regards to income taxes. Income tax benefit was reduced and net loss was increased by $364 thousand, and net loss per share increased by $0.03.

 

 

     As of December 31,  

(in thousands)

   2012      2011      2010      2009      2008  

Consolidated Balance Sheet Data:

              

Cash and cash equivalents

   $ 10,390       $ 11,813       $ 11,123       $ 12,206       $ 12,339   

Working capital (deficit)

     377         18,751         23,559         20,583         22,330   

Total assets (a)

     42,308         89,549         47,599         42,930         39,701   

Related party obligations

     6,914         2,176         2,865         1,636         1,111   

Total liabilities

     38,383         38,743         16,029         12,957         9,147   

Total shareholders’ equity (a)

     3,925         50,806         31,570         29,973         30,554   

 

(a) We restated total assets and total shareholders’ equity to reflect the correction of immaterial errors with regards to income taxes for 2008. Commencing with 2008, total assets and total shareholders’ equity were each reduced by $364 thousand.

 

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Item 7. 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 Form 10-K.

Overview

We are a leading provider of turnkey commercial and residential solar energy solutions, with more than 14,000 solar systems in place. We also have more than 33 years of experience in solar energy, beginning with the sale in 1978 of the first solar PV panels in the United States. With 15 offices across the West and the Northeast, we are one of the larger solar energy installers in the U.S. in the residential and commercial sectors. However, there are market participants, especially in the utility-size solar systems, who are much larger than us.

Our revenue primarily results from the installation of solar energy systems. We also derive a portion of our revenue from the retail sale of renewable energy products. Our expenses primarily consist of labor costs incurred in connection with solar installations, product costs for solar modules and other products sold, and related sales and marketing and back-office costs.

During 2012, we completed the integration of Alteris and centralized key operating functions at our corporate head office in Louisville, Colorado. We have significantly invested in operating expenses and working capital toward such efforts. We believe that this will result in an efficient and scalable infrastructure that can be leveraged to expand our depth and breath of capabilities, in both the residential and the commercial sectors. While the solar manufacturing industry has struggled based on oversupply and global pricing competition, downstream distributed solar power integrators have benefited from reduced costs. Financing companies have entered the market to enable compelling financing terms for homeowners and businesses, including no money down leasing.

We continue to expect strong demand for both residential and commercial solar installations, despite the overall economic weakness in the United States. As one of the few solar installers with a relatively strong national footprint (in solar-friendly states), we expect to capitalize on our expanded footprint and the evolving U.S. solar industry.

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. 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, which vested 50% upon our initial public offering. Following such initial vesting, 2% of the warrants will vest each month thereafter. The warrants have a seven year term and were still outstanding at December 31, 2012.

Carlson Solar

On January 1, 2008, our then 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 vested 50% upon our initial public offering. 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. On May 23, 2008, we exchanged 280,000 shares of our Class A common stock for our then current Chief Financial Officer’s 11.6% ownership in Real Goods Carlson Inc. The warrants have a seven year term and were still outstanding at December 31, 2012.

Independent Energy Systems, Inc.

On August 1, 2008, we acquired 100% ownership of IES for $3.3 million in cash and $0.3 million worth of our Class A common stock, plus direct acquisition costs of approximately $0.2 million.

Regrid Power, Inc.

On October 1, 2008, we acquired 100% ownership of Regrid Power through a merger into one of our subsidiaries, for an aggregate of $3.8 million in cash and 2,047,256 shares of our Class A common stock, plus the assumption of certain liabilities, subject to post

 

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closing adjustments, plus direct acquisition costs of approximately $0.3 million. During 2009, as purchase price true-up and contingent consideration related to this acquisition, we issued 163,504 shares and 200,000 shares, respectively, of our Class A common stock with an estimated combined fair value of $0.7 million.

Earth Friendly Energy Group Holdings, LLC d/b/a Alteris Renewables

We obtained financial control, through an Agreement and Plan of Merger, of 100% of the voting equity interests of Earth Friendly Energy Group Holdings, LLC d/b/a Alteris Renewables on June 21, 2011. The total consideration transferred was approximately $21.7 million and was comprised of 8.7 million shares of our Class A common stock, valued at $21.6 million based on our Class A common stock closing market price of $2.48 per share on June 21, 2011, and $0.1 million worth of replacement share-based payment awards attributable to services rendered prior to the acquisition date.

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 primarily of solar energy system installation fees. We recognize revenue from fixed price contracts using either the completed contract or percentage-of-completion method, based on the size of the energy system installation. As a result of a recent business acquisition (see Note 3. Mergers and Acquisitions), we slightly modified our method of applying revenue recognition for fixed price contracts in that we now recognize revenue from energy system installations of less than 100 kilowatts, or kW, when the installation is substantially complete, while we recognize revenue from energy system installations equal to or greater than 100 kW on a percentage-of-completion basis, measured by the percentage of contract costs incurred to date to total estimated costs for each contract.

Allowances for Doubtful Accounts

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 collectability of our accounts receivable by analyzing historical bad debts, specific customer creditworthiness, and current economic trends. 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.

Inventory

Inventory consists primarily of solar energy system components (such as solar panels and inverters) located in various warehouse facilities 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.

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 reviewed for impairment annually or more frequently if impairment indicators arise. Since we operate in only one business segment, we assess impairment at the Company level. We have the option of first assessing qualitative factors to determine whether events and circumstances indicate that it is more likely than not that the fair value of the Company is less than its carrying amount. If it is determined that the fair value of the Company is more likely than not greater than its carrying amount, then the two-step impairment test is unnecessary. If it is determined that the two-step impairment test is necessary, then for step one, we compare the estimated fair value of the Company with its carrying amount, including goodwill. If the estimated fair value of the Company exceeds its carrying amount, we consider the Company’s goodwill not impaired. If the carrying amount of the Company exceeds its estimated fair value, we perform the second step of the goodwill impairment test to measure the amount of impairment loss. We use either a comparable market approach, traditional present value method, or some combination thereof to test for potential impairment. The use of present value techniques requires 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. The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment at many points during the analysis. Application of alternative assumptions and definitions could yield significantly different results.

 

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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.

Stock-Based Compensation

We recognize compensation cost for share-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 estimate the fair value for purposes of accounting and disclosures. In calculating this fair value, there are certain highly subjective assumptions that we use, 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.

Income Taxes

We provide for income taxes pursuant to the liability method. 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, including the utilization of a net operating loss carryforward prior to its expiration, is more likely than not.

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, 2012 Compared to Year Ended December 31, 2011

Net revenue . Net revenue decreased $16.4 million, or 15.0%, to $92.9 million during 2012 from $109.3 million during 2011. The revenue decline was primarily attributable to the direct supplying to customers by financing companies of certain components used in residential installation. Sourcing of such components in conjunction with the associated financing allowed residential customers to take advantage of certain expiring tax benefits, and are referred to as “safe harbor” installations and amounted to $9.6 million in 2012. While we recognize lower revenue from safe harbor installations, our gross margins are similar to non-safe harbor installations. In addition, revenue from commercial customer installations declined by approximately $6.0 million due to a lower average sales price per watt installed.

Gross profit . Gross profit decreased $4.8 million, or 17.3%, to $23.0 million during 2012 from $27.9 million during 2011. As a percentage of net revenue, gross profit decreased to 24.8% during 2012 from 25.5% during 2011. The decrease in gross profit was due to a higher proportion of commercial installations, which have lower gross profit margins than residential installations, as well as lower year over year average margins on those commercial installations.

Selling and operating expenses . Selling and operating expenses increased $6.2 million, or 26.1%, to $29.8 million during 2012 from $23.6 million during 2011. As a percentage of net revenue, selling and operating expenses increased to 32.1% during 2012 from 21.6% during 2011. The increase in selling and operating expenses is attributable to costs associated with the integration of Alteris that resulted in the centralization of functions in our Colorado corporate head office.

 

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General and administrative expenses . General and administrative expenses increased $4.8 million, or 116.8%, to $8.9 million during 2012 from $4.1 million during 2011. As a percentage of net revenue, general and administrative expenses increased to 9.6% during 2012 from 3.8% during 2011. The increase in general and administrative expenses is due to investments in our Louisville, Colorado head office, in management and leadership talent, and in shared services personnel subsequent to the Alteris merger, and executive recruiting fees.

Acquisition-related costs . Acquisition-related costs were $2.4 million during 2011 and were the result of our acquisition of Alteris.

Goodwill and other asset impairments. Goodwill and other asset impairments were $22.0 million for 2012 and were comprised of noncash impairment charges of $19.7 million for goodwill, $2.1 million for property and equipment, and $0.2 million for other intangibles. We estimated the fair value of our business for the intangibles impairment analysis based on the quoted market price for our Class A common stock (level one input of the fair value hierarchy), as adjusted by our judgmental qualitative factors (level three of the fair value hierarchy). The impairment of our property and equipment was based on market place property comparables (level two of the fair value hierarchy). These noncash impairments were necessitated by the trading price of our Class A common stock, recent operating losses, and our financial forecasts.

Income Tax Expense. Income tax expense was $8.7 million for 2012 and includes a $16.1 million noncash charge for the establishment of a valuation allowance for all of our net deferred tax assets.

Net income (loss). As a result of the above factors, our net loss was $47.2 million, or $1.77 per share, during 2012 compared to $1.9 million, or $0.08 per share, during 2011.

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

Net revenue . Net revenue increased $31.9 million, or 41.3%, to $109.3 million during 2011 from $77.3 million during 2010. All of the revenue growth was attributable to our acquisition of Alteris.

Gross profit . Gross profit increased $6.4 million, or 29.5%, to $27.9 million during 2011 from $21.5 million during 2010. As a percentage of net revenue, gross profit decreased to 25.5% during 2011 from 27.8% during 2010. The decrease in gross profit percentage was due to an increase in the mix of commercial revenue, as well as lower average profit margins on those commercial projects. Gross margins for residential improved in the latter half of 2011 as compared to the prior year due to improved selling practices and lower module pricing.

Selling and operating expenses . Selling and operating expenses increased $6.9 million, or 41.4%, to $23.6 million during 2011 from $16.7 million during 2010. As a percentage of net revenue, selling and operating expenses remained constant at 21.6% during 2011 and 2010. Approximately three-quarters of the increase in selling and operating expenses was due to the consolidation of Alteris, with the remainder due to increases in marketing spend, sales commissions, and travel expenses.

General and administrative expenses . General and administrative expenses increased $1.3 million, or 48.2%, to $4.1 million during 2011 from $2.8 million during 2010. As a percentage of net revenue, general and administrative expenses increased to 3.8% during 2011 from 3.6% during 2010. Approximately three-quarters of the increase in general and administrative expenses was due to the consolidation of Alteris, with the remainder due to the addition of senior management positions.

Acquisition-related costs . Acquisition-related costs were $2.4 million during 2011 and were the result of our acquisition of Alteris.

Income tax expense (benefit) . Income tax benefit during 2011 was reduced by certain nondeductible acquisition-related costs for the Alteris acquisition that for tax purposes were capitalized into the basis of the stock investment.

Net income (loss). As a result of the above factors, net loss was $1.9 million during 2011 compared to net income of $1.2 million during 2010. Net loss per share was $0.08 during 2011 compared to net income per share of $0.07 during 2010.

 

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Quarterly and Seasonal Fluctuations

The following table sets forth our unaudited quarterly results of operations during each of the quarters in 2012 and 2011. 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 Form 10-K. The results of operations for any quarter are not necessarily indicative of future results of operations.

 

(in thousands, except per share data)

   Fiscal Year 2012 Quarters Ended  
     March 31     June 30     September 30 (a)     December 31 (b)  

Net revenue

   $ 18,256      $ 21,447      $ 26,358      $ 26,830   

Gross profit

     6,427        5,319        5,737        5,549   

Loss before income taxes

     (3,052     (4,070     (27,549     (3,815

Net loss

     (1,856     (2,518     (39,017     (3,815

Diluted net loss per share

   $ (0.07   $ (0.09   $ (1.46   $ (0.14

Weighted average shares outstanding-diluted

     26,661        26,669        26,677        26,694   

(in thousands, except per share data)

   Fiscal Year 2011 Quarters Ended  
     March 31     June 30     September 30     December 31  

Net revenue

   $ 17,425      $ 19,954      $ 31,586      $ 40,292   

Gross profit

     5,029        5,360        7,853        9,618   

Income (loss) before income taxes

     68        (1,883     (739     94   

Net income (loss)

     37        (1,575     (478     116   

Diluted net income (loss) per share

   $ 0.00      $ (0.08   $ (0.02   $ 0.00   

Weighted average shares outstanding-diluted

     18,310        19,112        26,655        26,655   

 

(a) The quarter ended September 30, 2012 includes a noncash charge of $22.0 million for the impairment of goodwill and other assets and a noncash charge of $14.5 million for the establishment of a valuation allowance for all of our net deferred tax assets.
(b) The quarter ended December 31, 2012 includes a noncash charge of $1.6 million for an additional valuation allowance for our net deferred tax assets generated during that quarter.

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, economic trends and other factors. We have historically experienced seasonality in our solar installation business, with the first quarter representing our slowest installation quarter of the year. Much of the seasonality in our business in past years has been offset by the timing of government activities as well as strong organic growth. With the addition of Alteris, we expect increased seasonal fluctuations due to the severity of winters in the northeast.

Liquidity and Capital Resources

Our capital needs arise from capital related to acquisitions of new businesses, working capital required to fund our purchases of solar PV modules and inverters, 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 may fluctuate from time to time.

To the extent we have or can arrange available capital, we plan to continue to pursue acquisitions and other opportunities to expand our sales territories, technologies, and products and increase our sales and marketing programs as needed. We did not have any material commitments for capital expenditures as of December 31, 2012, and we do not presently have any plans for future material capital expenditures.

 

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On July 22, 2011, Alteris entered into a new financing arrangement with a bank to fund commercial solar installations. Under a master lease agreement between a project finance subsidiary of Alteris and the bank, the project finance subsidiary may form new subsidiaries that will enter into sale leaseback arrangements with solar installation customers to finance specifically designated solar installations. The project finance entities will grant a security interest in substantially all their assets, and the project finance subsidiary’s equity will be pledged by Alteris on a non-recourse basis to the bank. Alteris will provide limited unsecured guarantees of payment and performance of the obligations of the project finance entities, including operating, maintenance and indemnity obligations and payment of certain fees and expenses. This financing arrangement would not generate capital for use in our business, but instead would offer a financing alternative to our commercial installation customers. As of December 31, 2012, there were no commercial solar installations funded under this financing arrangement.

On March 27, 2013, our wholly owned subsidiaries Real Goods Energy Tech, Inc., a Colorado corporation, Real Goods Trading Corporation, a California corporation, and Alteris Renewables, Inc., a Delaware corporation, entered into a Third Loan Modification Agreement with Silicon Valley Bank (the “Loan Agreement Amendment”) pursuant to which the parties thereto agreed to certain amendments to the Loan and Security Agreement, dated as of December 19, 2011, among them (as amended by the First Loan Modification Agreement, dated as of August 28, 2012, and the Second Loan Modification and Reinstatement Agreement, dated as of November 13, 2012, and together with the Loan Agreement Amendment, the “Loan Agreement”).

Under the Loan Agreement, the amount of available credit under the revolving line of credit is $6.5 million, subject to the Borrowing Base (as defined in the Loan Agreement) of 75% of Eligible Accounts (as defined in the Loan Agreement). The Loan Amendment extended the maturity date from March 31, 2013 to September 30, 2013. The Loan Agreement provides for an interest rate on borrowings of the greater of the bank’s prime rate or 4.00%, plus 4.75%. The interest rate accruing on borrowings during a Streamline Period (as defined in the Loan Agreement) increased from the greater of the bank’s prime rate or 4.00%, to the greater of the bank’s prime rate or 4.00%, plus 2.00%.

As amended, the Loan Agreement now requires the borrowers to pay a final payment fee of $60 thousand in cash upon termination or maturity of the revolving line of credit. The final payment fee will be reduced to $40 thousand if we raise at least $3.0 million in net proceeds through a public offering of our Class A common stock prior to August 31, 2013.

The borrowers paid Silicon Valley Bank a $60,000 extension fee and agreed to reimburse the bank for certain expenses incurred in connection with entering into the Loan Agreement Amendment.

Upon the closing of the Alteris transaction on December 19, 2011, we received commitments from Riverside to make us a single loan of up to $3.15 million and from Gaiam to loan us up to $1.7 million. Gaiam funded its loan commitment on December 30, 2011. Riverside loaned us $3.0 million on May 4, 2012 and another $150 thousand on June 20, 2012. The loans originally were for a period of 12 months. The maturity dates for these loans have been extended and Gaiam’s $1.7 million loan is now due April 30, 2014, Riverside’s $3.0 million loan is due May 4, 2014 and Riverside’s $150 thousand loan is due June 20, 2014. The loans bear interest at a rate of 10%. If we repay the loans owed to Riverside on or before their respective maturity date, the accrued interest is waived.

On November 13, 2012, we entered into a Loan Commitment with Gaiam and Riverside pursuant to which each agreed to advance to us up to an additional $1.0 million in cash upon request from us until March 31, 2013 at an annual interest rate of 10% and with an original maturity date of April 26, 2013. The maturity date for these loans has been extended until April 26, 2014. During December 2012, we requested and received an advance of $1.0 million from each of Gaiam and Riverside under the Loan Commitment. Further, the Loan Commitment also required us to execute and deliver to Gaiam in the near future an option agreement, reasonably acceptable to both parties, permitting Gaiam to purchase for $0.2 million all tenant improvements constructed by us in our principal office space leased by us from Gaiam. In addition, we agreed to amend our lease to cancel, effective December 31, 2012, the $3 per square foot credit set forth in the current lease.

The loans from Gaiam and Riverside are subordinate to all indebtedness for borrowed money owed by us to any lenders unaffiliated with us. Payment of the unpaid principal and all accrued but unpaid interest under a loan is accelerated and become immediately due and payable upon the occurrence of certain events related to proceedings under bankruptcy, insolvency, receivership or similar laws, the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for our company or a substantial part of our assets, and our making a general assignment for the benefit of creditors.

Gaiam owns approximately 37% of our Class A common stock and is one of our creditors. Riverside owns approximately 29% of our Class A common stock and is one of our creditors. Pursuant to the terms of a Shareholders Agreement, Gaiam and Riverside each has the right to designate a certain number of individuals for appointment or nomination to our Board of Directors, tied to their respective ownership of our Class A common stock.

At December 31, 2012, our cash balance was $10.4 million.

 

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Cash Flows

The following table summarizes our primary sources (uses) of cash during the periods presented:

 

     Years ended December 31,  

(in thousands)

   2012     2011     2010  

Net cash provided by (used in):

      

Operating activities

   $ (12,688   $ 1,965      $ (298

Investing activities

     (196     3,468        (785

Financing activities

     11,461        (4,743     —    
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ (1,423   $ 690      $ (1,083
  

 

 

   

 

 

   

 

 

 

Operating activities . Our operating activities used net cash of $12.7 million and provided net cash of $2.0 million during 2012 and 2011, respectively. Our net cash used by operating activities during 2012 was primarily attributable to our net loss of $47.2 million, decreased accounts payable and accrued liabilities of $12.1 million, and decreased deferred revenue and other current liabilities of $2.0 million, partially offset by noncash impairment of intangibles of $22.0 million, deferred income tax benefit of $8.7 million, decreased accounts receivable of $7.6 million and decreased inventory of $6.6 million. Our net cash provided by operating activities during 2011 was primarily attributable to increased accounts payable and deferred revenue and other current liabilities of $7.0 million and $1.9 million, respectively, decreased accounts receivable, other current assets, and deferred costs on uncompleted contracts and advertising of $2.2 million, $1.0 million, and $0.5 million, respectively, and noncash adjustment to the net loss of $0.9 million, partially offset by increased costs in excess of billings on uncompleted contracts of $5.3 million, decreased payable to Gaiam of $2.1 million, net loss of $1.9 million, decreased accrued liabilities of $1.5 million, and increased inventory of $0.9 million.

Investing activities . Our investing activities used net cash of $0.02 million and provided net cash of $3.5 million during 2012 and 2011, respectively. Our net cash used by investing activities during 2012 was primarily attributable to the purchase of property and equipment for $0.2 million, partially offset by a decrease in restricted cash of $0.2 million. Our net cash provided by investing activities during 2011 was primarily attributable to $3.4 million of cash acquired from our acquisition of Alteris and reduction in restricted cash of $0.7 million, partially offset by the acquisition of property and equipment of $0.6 million.

Financing activities. Our financing activities provided net cash of $11.3 million and used net cash of $4.7 million during 2012 and 2011, respectively. Our net cash provided by financing activities during 2012 was primarily the result of borrowings on our line of credit of $6.5 million and loans from related parties of $5.15 million, partially offset by payments on debt and capital lease obligations of $0.4 million. Our net cash used by financing activities during 2011 was primarily used to repay borrowings on Alteris’ line of credit, debt, and capital lease obligations of $5.3 million and to repurchase 379,400 shares of our Class A common stock for $1.1 million, partially offset by a $1.7 million loan from Gaiam.

In the normal course of our business, we investigate, evaluate and discuss acquisition, joint venture, non-controlling 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.

While there can be no assurances, we believe our cash on hand, cash raised through debt commitments, cash expected to be generated from operations, cash obtainable from additional investors, and cash savings through further operational efficiencies should be sufficient to fund our continuing operations and meet our current debt repayment obligations through at least calendar year 2013. However, our projected cash needs may change as a result of unforeseen operational difficulties or other factors.

In response to our current financial condition, we are negotiating with other financial institutions to obtain a new credit facility to replace the Silicon Valley Bank revolving line of credit and have engaged an investment bank to seek additional capital. In addition, we will continue to make operational improvements to reduce our operating cash requirements. Operational initiatives to reduce costs include productivity enhancements within support functions through greater use of information technology and other process improvements and greater project level control over working capital deployed and labor utilization. With the completion of the debt extensions and additional loans and achievement of some or all of the above noted remaining initiatives, while there can be no assurances, we expect to be able to continue to operate through 2013, and thereby generate adequate cash flow to meet our debt obligations.

Contractual Obligations

We have commitments under operating leases and various service agreements with Gaiam (see Notes 7 and 11 to our consolidated financial statements), but do not have any significant outstanding commitments under long-term debt obligations or purchase obligations. The following table shows our commitments to make future payments under our operating leases:

 

(in thousands)

   Total      < 1 year      1-3 years      3-5 years      > 5 yrs  

Operating lease obligations

   $ 1,601       $ 582       $ 724       $ 295       $  —     

To the extent we become entitled to utilize certain loss carryforwards relating to periods prior to our initial public offering, 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 recognized a valuation allowance against all of our deferred tax assets as of the effective date of our tax sharing agreement with Gaiam, May 13, 2008. These net operating loss carryforwards begin to expire in 2018 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 net operating loss carryforwards is limited by annual limitations described in Sections 382 and 383 of the Internal Revenue Code. As of December 31, 2012, $4.4 million of these net operating loss carryforwards remained available for current and future utilization, meaning that potential future payments to Gaiam, which would be made over a period of several years, could therefore aggregate to approximately $1.6 million based on current tax rates.

 

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As a condition of entering into some of our construction contracts, we had surety bonds of approximately $22.7 million at December 31, 2012.

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.

 

Item 7A. Quantitative and qualitative disclosures about market risk

We are exposed to market risks, which include changes in U.S. interest rates and foreign exchange rates. We do not engage in financial transactions for trading or speculative purposes.

We purchase a significant amount of our 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, 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.

 

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Item 8. Financial statements

 

Index to consolidated financial statements

  

Report of independent registered public accounting firm

     31   

Real Goods Solar, Inc. Consolidated Financial Statements:

  

Consolidated balance sheets

     32   

Consolidated statements of operations

     33   

Consolidated statement of changes in shareholders’ equity

     34   

Consolidated statements of cash flows

     35   

Notes to consolidated financial statements

     36   

 

 

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Report of independent registered public accounting firm

To the Board of Directors and Shareholders of

Real Goods Solar, Inc.

Louisville, Colorado

We have audited the accompanying consolidated balance sheets of Real Goods Solar, Inc. and subsidiaries (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012. 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. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Real Goods Solar, Inc. and subsidiaries as of December 31, 2012 and 2011, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

/s/ EKS&H LLLP

April 1, 2013

Denver, Colorado

 

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REAL GOODS SOLAR, INC.

Consolidated balance sheets

 

     As of December 31,  

(in thousands, except share and per share data)

   2012     2011  
ASSETS     

Current assets:

    

Cash

   $ 10,390      $ 11,813   

Restricted cash

     —          172   

Accounts receivable, net

     13,902        21,539   

Costs in excess of billings on uncompleted contracts

     5,288        5,411   

Inventory, net

     5,711        12,264   

Deferred costs on uncompleted contracts

     896        1,313   

Receivable and deferred tax assets

     200        3,333   

Other current assets

     1,930        1,014   
  

 

 

   

 

 

 

Total current assets

     38,317        56,859   

Property and equipment, net

     3,991        6,930   

Deferred tax assets

     —          5,444   

Goodwill

     —          19,885   

Other intangibles, net

     —          390   

Other assets

     —          41   
  

 

 

   

 

 

 

Total assets

   $ 42,308      $ 89,549   
  

 

 

   

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY     

Current liabilities:

    

Line of credit

   $ 6,498      $ —     

Accounts payable

     15,887        27,785   

Accrued liabilities

     4,943        3,292   

Billings in excess of costs on uncompleted contracts

     2,975        2,144   

Payable to Gaiam

     64        476   

Related party debt

     6,850        1,700   

Debt

     114        197   

Capital lease obligations

     213        126   

Deferred revenue and other current liabilities

     396        2,388   
  

 

 

   

 

 

 

Total current liabilities

     37,940        38,108   

Debt, net of current portion

     69        202   

Capital lease obligations, net of current portion

     374        433   
  

 

 

   

 

 

 

Total liabilities

     38,383        38,743   
  

 

 

   

 

 

 

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; 26,693,696 and 26,660,640 shares issued and outstanding at December 31, 2012 and 2011, respectively

     3        3   

Class B common stock, par value $.0001 per share; 50,000,000 shares authorized; no shares issued and outstanding

     —          —     

Additional paid-in capital

     82,185        81,860   

Accumulated deficit

     (78,263     (31,057
  

 

 

   

 

 

 

Total shareholders’ equity

     3,925        50,806   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 42,308      $ 89,549   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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REAL GOODS SOLAR, INC.

Consolidated statements of operations

 

     Years ended December 31,  

(in thousands, except per share data)

   2012     2011     2010  

Net revenue

   $ 92,891      $ 109,257      $ 77,324   

Cost of goods sold

     69,859        81,397        55,814   
  

 

 

   

 

 

   

 

 

 

Gross profit

     23,032        27,860        21,510   
  

 

 

   

 

 

   

 

 

 

Expenses:

      

Selling and operating

     29,807        23,634        16,717   

General and administrative

     8,909        4,109        2,772   

Acquisition-related costs

     —          2,393        —     

Goodwill and other asset impairments

     22,012        —          —     
  

 

 

   

 

 

   

 

 

 

Total expenses

     60,728        30,136        19,489   
  

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     (37,696     (2,276     2,021   

Interest income (expense)

     (790     (184     15   
  

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (38,486     (2,460     2,036   

Income tax expense (benefit)

     8,720        (560     797   
  

 

 

   

 

 

   

 

 

 

Net income (loss).

   $ (47,206   $ (1,900   $ 1,239   
  

 

 

   

 

 

   

 

 

 

Net income (loss) per share:

      

Basic and diluted

   $ (1.77   $ (0.08   $ 0.07   
  

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding:

      

Basic

     26,673        23,572        18,301   
  

 

 

   

 

 

   

 

 

 

Diluted

     26,673        23,572        18,367   
  

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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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, 2009

     16,136,299      $ 1         2,153,293      $ —         $ 60,368      $ (30,396   $ 29,973   

Issuance of common stock and other equity changes related to compensation

     21,040        —           —          —           358        —          358   

Net income

     —          —           —          —           —          1,239        1,239   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance at December 31, 2010

     16,157,339        1         2,153,293        —           60,726        (29,157     31,570   

Issuance of common stock and other equity changes related to compensation

     29,408        —           —          —           533        —          533   

Issuance of common stock and stock options related to an acquisition

     8,700,000        2         —          —           21,671        —          21,673   

Repurchase of common stock

     (379,400     —           —          —           (1,070     —          (1,070

Conversion of Class B common stock to Class A common stock

     2,153,293        —           (2,153,293     —           —          —          —     

Net loss

     —          —           —          —           —          (1,900     (1,900
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

     26,660,640        3         —          —           81,860        (31,057     50,806   

Issuance of common stock and other equity changes related to compensation

     33,056        —           —          —           325        —          325   

Net loss

     —          —           —          —           —          (47,206     (47,206
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance at December 31, 2012

     26,693,696      $ 3         —        $  —         $ 82,185      $ (78,263   $ 3,925   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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REAL GOODS SOLAR, INC.

Consolidated statements of cash flows

 

     Years ended December 31,  

(in thousands)

   2012     2011     2010  

Operating activities:

      

Net income (loss)

   $ (47,206   $ (1,900   $ 1,239   

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

      

Depreciation

     1,186        811        529   

Amortization

     245        210        —     

Share-based compensation expense

     325        524        348   

Deferred income tax expense (benefit)

     8,655        (623     264   

Goodwill and other asset impairments

     22,012        —          —     

Changes in operating assets and liabilities, net of effects from acquisitions:

      

Accounts receivable, net

     7,639        2,231        (5,263

Costs in excess of billings on uncompleted contracts

     123        (5,328     —     

Inventory, net

     6,554        (862     (1,625

Deferred costs on uncompleted contracts

     417        512        874   

Other current assets

     (814     1,041        265   

Accounts payable

     (13,700     6,993        1,178   

Accrued liabilities

     1,650        (1,533     130   

Billings in excess of costs on uncompleted contracts

     830        83        —     

Deferred revenue and other current liabilities

     (1,994     1,914        534   

Payable to Gaiam

     1,390        (2,108     1,229   
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (12,688     1,965        (298
  

 

 

   

 

 

   

 

 

 

Investing activities:

      

Purchase of property and equipment

     (368     (678     (785

Change in restricted cash

     172        730        —     

Cash from acquired business

     —          3,416        —     
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (196     3,468        (785
  

 

 

   

 

 

   

 

 

 

Financing activities:

      

Borrowings from related parties

     5,150        1,700        —     

Principal borrowings (payments) on revolving line of credit, net

     6,498        (3,119     —     

Principal payments on debt and capital lease obligations

     (187     (2,254     —     

Repurchase of Class A common stock, including related costs

     —          (1,070     —     
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     11,461        (4,743     —     
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (1,423     690        (1,083

Cash at beginning of year

     11,813        11,123        12,206   
  

 

 

   

 

 

   

 

 

 

Cash at end of year

   $ 10,390      $ 11,813      $ 11,123   
  

 

 

   

 

 

   

 

 

 

Supplemental cash flow information:

      

Income taxes paid

   $ 38      $ 208      $ 6   

Interest paid

     538        187        —     

Common stock issued for acquisition

     —          21,576        —     

See accompanying notes to consolidated financial statements.

 

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Notes to consolidated financial statements

1. Principles of Consolidation, Organization and Nature of Operations

We are a leading residential and commercial solar energy engineering, procurement, and construction firm. We were incorporated in Colorado on January 29, 2008 under the name Real Goods Solar, Inc. (“Real Goods Solar”, “Company”, “we”, “us”, or “our”). Our initial public offering of common stock occurred on May 7, 2008.

The consolidated financial statements include the accounts of Real Goods Solar and its majority-owned or otherwise controlled subsidiaries. We have prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States, or GAAP, and they include our accounts and those of our subsidiaries. Intercompany transactions and balances have been eliminated. We have included the results of operations of acquired companies from the effective date of acquisition.

Debt Financing Update

At December 31, 2012, our cash balance was $10.4 million. As of the date of filing this Form 10-K, the maturity date for our Silicon Valley Bank revolving line of credit with current capacity and outstanding borrowings of $6.5 million has been extended first from October 30, 2012 to March 31, 2013, and then to September 30, 2013. Our related party debt of $1.7 million owed to Gaiam, Inc. has been extended first from December 30, 2012 to April 30, 2013, and then to April 30, 2014. . Our related party debt of 3.15 million owed to Riverside Renewable Energy Investment LLC (“Riverside”) has also been extended and the $3.0 million Riverside loan is now due May 4, 2014 and the $150 thousand Riverside loan is now due June 20, 2014. We also obtained additional loans of $1.0 million each from our two largest shareholders, which mature on April 26, 2014 under their current terms. Furthermore, in response to our current financial condition, we are negotiating with other financial institutions to obtain a new credit facility to replace the Silicon Valley Bank revolving line of credit and have engaged an investment bank to seek additional capital. In addition, we will continue to make operational improvements to reduce our operating cash requirements. Operational initiatives to reduce costs include productivity enhancements within support functions through greater use of information technology and other process improvements and greater project level control over working capital deployed and labor utilization. With the completion of the debt extensions and additional loans and achievement of some or all of the above noted remaining initiatives, while there can be no assurances, we expect to be able to continue to operate through 2013, and thereby generate adequate cash flow to meet our debt obligations.

NASDAQ Non-Compliance

During 2012, we received four different non-compliance notices from The Nasdaq Stock Market (“NASDAQ”). As of February 21, 2013, the Company had regained compliance with all of the applicable NASDAQ rules.

2. Significant Accounting Policies

No changes were made to our significant accounting policies during the year ended December 31, 2012.

We have evaluated events subsequent to December 31, 2012 and concluded that no material event, other than those already disclosed, has occurred which either would impact the results reflected in this report or our results going forward.

Cash

Cash represents demand deposit accounts with financial institutions that are denominated in U.S. dollars.

Allowance for Doubtful Accounts

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 collectability of our accounts receivable by analyzing historical bad debts, specific customer creditworthiness and current economic trends. The allowance for doubtful accounts was $1.1 million and $0.5 million at December 31, 2012 and 2011, respectively. If the financial condition of our customers or the public utilities or financing companies were to deteriorate such that their ability to make payments to us was impaired, additional allowances could be required.

Inventory

Inventory consists primarily of solar energy system components (such as solar panels and inverters) located at our various warehouses 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. At December 31, 2012 and 2011, we estimated obsolete or slow-moving inventory to be $0.7 million and $0.2 million, respectively.

Deferred Advertising Costs

Prior to 2011, we had deferred advertising costs related to the preparation, printing, advertising and distribution of catalogs. We deferred such costs for financial reporting purposes until the catalogs were distributed, then amortized such costs over succeeding

 

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periods on the basis of estimated direct relationship sales. We amortized seasonal catalogs within seven months and our annual catalogs within one year. Forecasted sales statistics were the principal factor used in estimating the amortization rate. We expense other advertising and promotional costs as incurred. Amounts recorded as advertising expense were $3.4 million, $2.7 million and $2.2 million for the years ended December 31, 2012, 2011 and 2010, 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 twenty 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 reviewed for impairment annually or more frequently if impairment indicators arise. Since we operate in only one business segment, we assess impairment at the Company level. We have the option of first assessing qualitative factors to determine whether events and circumstances indicate that it is more likely than not that the fair value of the Company is less than its carrying amount. If it is determined that the fair value of the Company is more likely than not greater than its carrying amount, then the two-step impairment test is unnecessary. If it is determined that the two-step impairment test is necessary, then for step one, we compare the estimated fair value of the Company with its carrying amount, including goodwill. If the estimated fair value of the Company exceeds its carrying amount, we consider the Company’s goodwill not impaired. If the carrying amount of the Company exceeds its estimated fair value, we perform the second step of the goodwill impairment test to measure the amount of impairment loss. We use either a comparable market approach, traditional present value method, or some combination thereof to test for potential impairment. The use of present value techniques requires 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. The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment at many points during the analysis. Application of alternative assumptions and definitions could yield significantly different results.

Our goodwill balances were zero and $19.9 million at December 31, 2012 and 2011, respectively, and our other intangibles balances were zero and $0.4 million at December 31, 2012 and 2011, respectively.

The following table represents our other intangibles subject to amortization, which were all customer related, as of December 31, 2011.

 

(in thousands)

   December 31,
2011
 

Customer related:

  

Gross carrying amount

   $ 600   

Accumulated amortization

     (210
  

 

 

 
   $ 390   
  

 

 

 

Amortization expense for the year ended December 31, 2012 was $0.2 million. At September 30, 2012, we impaired all our goodwill and other intangibles. See Note 4. Goodwill and Other Asset Impairments.

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.

Revenue Recognition

Revenue consists primarily of solar energy system installation. We recognize revenue from fixed price contracts using either the completed contract or percentage-of-completion method, based on the size of the energy system installation. As a result of a recent business acquisition (see Note 3. Mergers and Acquisitions), we slightly modified our method of applying revenue recognition for fixed price contracts in that we now recognize revenue from energy system installations of less than 100 kilowatts, or kW, when the installation is substantially complete, while we recognize revenue from energy system installations equal to or greater than 100 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 amounts billed to customers for shipping and handling as revenue at the same time that the revenues arising from the product sale are recognized. We include shipping and handling costs, which were approximately $0.05 million, $0.1 million, and $0.2 million for 2012, 2011, and 2010, respectively, in selling and operating expense along with other fulfillment costs.

 

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The assets “Costs in excess of billings on uncompleted contracts” and “Deferred costs on uncompleted contracts” represent costs incurred plus estimated earnings in excess of amounts billed on percentage-of-completion method contracts and costs incurred but not recognizable until recognition of the related contract revenue on completed-method contracts, respectively. The liability “Billings in excess of costs on uncompleted contracts” represents billings in excess of related costs on percentage-of-completion method contracts. We bill our large installation customers for contract performance progress according to milestones defined in their respective contracts. The prerequisite for billing is the completion of an application and certificate of payment form as per the contract, which is done after each month end. Unbilled receivables were immaterial at December 31, 2012 and 2011.

Allocation of Costs

Presently, Gaiam provides us with administrative, technical accounting advisory, public financial reporting and certain occupancy and related office services under the Intercorporate Services Agreement and the Facility Lease Agreement. Our accompanying financial statements include an allocation of these expenses. The allocation is based on a combination of factors, including revenue 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

We 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 estimate the fair value for purposes of accounting and disclosures. In estimating this fair value, there are certain assumptions that we use, as disclosed in Note 13. 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 reported compensation expense.

Income Taxes

We provide for income taxes pursuant to the liability method. 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 net operating loss carryforwards and we will re-evaluate at the end of each reporting period whether we expect it is more likely than not that our deferred tax assets will be fully recoverable through the reversal of taxable temporary differences in future years as a result of normal business activities. We have agreed under our tax sharing agreement with Gaiam to make payments to Gaiam as we utilize certain of our net operating losses in the future. See Note 14. Income Taxes.

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 did not have a material impact on our consolidated financial statements. Our federal and state tax returns for all years after 2008 are subject to future examination by tax authorities for all our tax jurisdictions. We recognize interest and penalties related to income tax matters in interest expense and general and administration expenses, respectively.

Net Income (Loss) Per Share

We compute net income (loss) per share by dividing our net income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per share reflects the potential dilution that could occur if options or warrants to issue shares our Class A common stock were exercised. Weighted average common share equivalents of 2,173,000, 1,262,000 and 584,000 shares have been omitted from net income (loss) per share for 2012, 2011 and 2010, respectively, as they are anti-dilutive.

 

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The following table sets forth the computation of basic and diluted net income (loss) per share:

 

     For the Years Ended December 31,  

(In thousands, except per share data)

   2012     2011     2010  

Numerator for basic and diluted net income (loss) per share

   $ (47,206   $ (1,900   $ 1,239   

Denominator:

      

Weighted average shares for basic net income (loss) per share

     26,673        23,572        18,301   

Effect of dilutive securities:

      

Weighted average of common stock, stock options and warrants

     —          —          66   
  

 

 

   

 

 

   

 

 

 

Denominators for diluted net income (loss) per share

     26,673        23,572        18,367   
  

 

 

   

 

 

   

 

 

 

Net income (loss) per share—basic

   $ (1.77   $ (0.08   $ 0.07   
  

 

 

   

 

 

   

 

 

 

Net income (loss) per share—diluted

   $ (1.77   $ (0.08   $ 0.07   
  

 

 

   

 

 

   

 

 

 

Concentration of Risk

We have a potential concentration of credit risk in our accounts receivable in that two financing companies that purchase and then lease installed solar energy system to host users and two commercial customers accounted for 19.1%, 15.6%, 17.5% and 11.1% respectively, of our accounts receivable as of December 31, 2012.

We also have potential concentration of supply risk in that during 2012 we purchase approximately 78% of the major components for our solar installations from a single supplier.

Sales to our largest three customers for 2012 accounted for approximately 15.8%, 12.4% and 7.2%, respectively, of our total net revenue.

Use of Estimates and Reclassifications

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. We have made certain reclassifications to prior period amounts to conform to the current period presentations.

3. Mergers and Acquisitions

We obtained financial control, through an Agreement and Plan of Merger (the “Merger Agreement”), of 100% of the voting equity interests of Earth Friendly Energy Group Holdings, LLC d/b/a Alteris Renewables (“Alteris”) on June 21, 2011 (the “acquisition date”). Alteris sells, designs, installs, and supports renewable energy systems, primarily solar, for both residential and commercial customers. Alteris has more than a dozen offices across seven states.

Our Board of Directors and the manager of Alteris each approved the Merger Agreement prior to the acquisition date. On September 13, 2011 we distributed an information statement to our shareholders with respect to the execution by Gaiam, the holder of a majority of our outstanding equity, of a written consent approving the Merger Agreement. The acquisition closed in December 2011.

The total consideration transferred was approximately $21.7 million and was comprised of 8.7 million shares of our Class A common stock, or $21.6 million worth based on our Class A common stock closing market price of $2.48 per share on June 21, 2011 and $0.1 million worth of replacement share-based payment awards attributable to services rendered prior to the acquisition date. Of this amount, 0.7 million shares were issued based on Alteris’ completion of a financing arrangement for commercial installation jobs, which we estimated, as of the acquisition date, would be completed. The consideration excludes $2.4 million of expenses that are reported as acquisition-related costs in our consolidated statement of operations for the year ended December 31, 2011. In addition, the transaction had remaining contingent equity consideration of 2.0 million shares of our Class A common stock, which was contingent upon Alteris’ achievement of certain pre-tax income and cash flow performance targets for 2011, which was not earned. The fair value of the consideration shares was based on the closing price of our Class A common stock on the acquisition date.

We acquired Alteris, with its premier commercial customer experience, array of financing solutions, and strong in-house engineering expertise, to create a leading renewable energy engineering, procurement and construction provider with a strong presence on both coasts. We plan to capitalize on Alteris’ east coast presence and realize synergies from this acquisition by leveraging our existing infrastructure as well as by taking advantage of Alteris’ expertise with commercial installations. These strategic benefits expected to be received largely contributed to the goodwill resulting from the acquisition.

With regards to our acquisition of Alteris, we recorded $0.6 million for customer-related intangibles (20 month weighted-average useful life). Goodwill is not expected to be deductible for tax purposes.

 

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The following table summarizes the estimated fair values of Alteris’ net assets acquired at the acquisition date.

 

(in thousands)

   June 21,
2011
 

Cash

   $ 3,416   

Restricted cash

     902   

Accounts receivable

     4,511   

Inventory

     5,008   

Deferred costs on uncompleted contracts

     1,609   

Other current assets

     2,528   

Property and equipment

     1,427   

Deferred tax asset

     4,226   

Goodwill

     19,153   

Other intangibles

     600   
  

 

 

 

Total assets

     43,380   
  

 

 

 

Line of credit

     (3,119

Accounts payable and accrued liabilities

     (11,681

Debt

     (2,608

Billings in excess of costs on uncompleted contracts

     (2,062

Deferred revenue and other current liabilities

     (2,239
  

 

 

 

Net assets acquired

   $ 21,671   
  

 

 

 

We included the results of operations from Alteris in our consolidated financial statements from the acquisition date. Consequently, $40.9 million of revenue and $0.7 million of net income attributable to Alteris are included in our consolidated statement of operations for the year ended December 31, 2011.

The following is supplemental unaudited interim pro forma information for the Alteris acquisition as if we had issued 8.7 million shares of our Class A common stock to acquire this business on January 1, 2010. The pro forma net revenue and cost of goods sold were decreased by $0.7 million and $0.5 million, respectively, for the year ended December 31, 2011 to reflect Alteris’ adoption of our method, cost to cost, of measuring progress towards completion for jobs accounted for under the percentage of completion method. Additionally, the pro forma net loss was adjusted to exclude $2.4 million of nonrecurring expenses incurred during the year ended December 31, 2011, related to our acquisition of Alteris. Finally, pro forma net loss was adjusted by $0.6 million for the year ended December 31, 2010, to include amortization of intangible assets and share-based compensation expense related to replacement stock options, both resulting from the acquisition of Alteris. All pro forma adjustments are based on currently available information and upon assumptions that we believe are reasonable in order to reflect, on a supplemental pro forma basis, the impact of this acquisition on our historical financial information.

 

     Supplemental Pro
Forma (Unaudited)
 
     Years Ended
December 31,
 

(in thousands, except per share data)

   2011     2010  

Net revenue

   $ 121,910      $ 127,300   
  

 

 

   

 

 

 

Net loss

   $ (3,286   $ (2,422
  

 

 

   

 

 

 

Net loss per share—basic

   $ (0.12   $ (0.08
  

 

 

   

 

 

 

Net loss per share—diluted

   $ (0.12   $ (0.08
  

 

 

   

 

 

 

We include results from operations of acquired companies in our consolidated financial statements from their respective effective acquisition dates.

4. Goodwill and Other Asset Impairments

In accordance with the Financial Accounting Standards Board’s accounting standards, we evaluated the realizability of our tangible assets and determined based on market place property comparables (level two of the fair value hierarchy) that $2.1 million of our buildings was impaired at September 30, 2012. Additionally, we performed impairment analyses of goodwill and other intangibles using the discounted cash flows method and determined that $19.7 million of goodwill and $0.2 million of other intangibles were impaired at September 30, 2012. We estimated the fair value of our business for the goodwill impairment analysis based on the quoted

 

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market price for our Class A common stock (level one input of the fair value hierarchy), as adjusted by our judgmental qualitative factors (level three of the fair value hierarchy). These noncash impairments were necessitated by the trading price of our Class A common stock, recent operating losses, and financial forecasts. The $22.0 million of noncash impairment charges are reported in goodwill and other asset impairments on our consolidated statement of operations for the year ended December 31, 2012.

5. Property and Equipment

Property and equipment, stated at lower of cost or estimated fair value, consists of the following as of December 31:

 

(in thousands)

   2012     2011  

Land

   $ 1,716      $ 3,100   

Buildings and leasehold improvements (a)

     728        2,330   

Furniture, fixtures and equipment

     726        1,121   

Website development

     859        542   

Vehicles and Machinery

     3,671        3,716   
  

 

 

   

 

 

 
     7,700        10,809   

Accumulated depreciation and amortization

     (3,709     (3,879
  

 

 

   

 

 

 
   $ 3,991      $ 6,930   
  

 

 

   

 

 

 

 

(a) During 2012, we impaired $2.1 million of our buildings. See Note 4. Goodwill and Other Asset Impairments.

6. Revolving Line of Credit

Under a loan agreement, as amended, with Silicon Valley Bank (“SVB Loan”), we have a revolving line of credit that provides for advances not to exceed $6.5 million based upon a borrowing base of 75% of eligible accounts receivable. All borrowings are collateralized by a security interest in substantially all of our assets other than our interests in Alteris Project Financing Company LLC, and bear interest at the greater of the bank’s prime rate or 4.00% plus 4.75%. The interest rate accruing on borrowings during a Streamline Period (as defined in the SVB Loan) is the greater of the bank’s prime rate or 4.00% plus 2.00%. The original maturity date for the SVB Loan was October 30, 2012 and the maturity date was first extended to March 31, 2013 on October 30, 2012 and then again to September 30, 2013 on March 27, 2013. The line of credit has a facility fee of 0.5% per year of the average daily unused portion of the available line of credit during the applicable calendar quarter. We may reserve up to $500,000 for stand-by letters of credit under the line of credit. The SVB Loan establishing the line of credit contains various covenants, including a covenant requiring compliance with a liquidity ratio. The SVB Loan requires the borrowers to pay a final payment fee of $60 thousand in cash upon termination or maturity of the revolving line of credit. The final payment fee will be reduced to $40 thousand if we raise at least $3.0 million in net proceeds through a public offering of our Class A common stock prior to August 31, 2013. At December 31, 2012, we had $6.5 million of outstanding borrowings under this facility.

7. Payable to Gaiam

We are engaged in several related party transactions with Gaiam. Gaiam is the owner of approximately 37% of our issued and outstanding shares of Class A common stock. Our Chairman, Jirka Rysavy, also serves as the Chairman of Gaiam and is a significant shareholder of Gaiam.

We have and will continue to have a need for certain services to be provided by Gaiam under our Intercorporate Services Agreement and Industrial Building Lease Agreement for our corporate headquarters. These services may include, but are not limited to, administrative, technical accounting advisory, public financial reporting 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 with a complement of full time, skilled employees. Also see Note 11. Commitments and Contingencies – Operating Leases.

Services performed under the Intercorporate Services Agreement have and will be provided under our direction, and Gaiam has no 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 have and 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 have and will make appropriate payments to reflect such change. The annual amount and formula for various services making up the annual amount, as well as any quarterly changes, have and must be approved in writing by each of Gaiam’s and our board of directors.

During 2011, we completed a project for our Chairman to design and install an upgrade to an existing solar power system originally built in 1997 for his residence. The contract price or revenue recognized was $244,000, which was priced at a customary rate for work performed for employees.

 

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In consideration for Gaiam providing additional services under our Intercorporate Services Agreement with Gaiam and agreeing to amend our existing Intercorporate Services Agreement and Tax Sharing Agreement with Gaiam, we expensed during 2011 additional fees payable to Gaiam of $672,000.

8. Related Party Debt

Our related party debt at December 31, 2012 consisted of $4.15 million from Riverside Renewable Energy Investments, LLC (“Riverside”) and $2.7 million from Gaiam, Inc. (“Gaiam”). At December 31, 2011, our related party debt was comprised of $1.7 million from Gaiam. As of December 31, 2012, the Riverside loans were due as follows: $1.0 million by April 26, 2013, $3.0 million by May 4, 2013, and $150 thousand by June 20, 2013. The Gaiam loans were due as follows: $1.0 million by April 26, 2013 and $1.7 million by April 30, 2013. These loans bear interest at an annual rate of 10%. If we repay the $3.0 million and $150 thousand loans owed to Riverside on or before their respective maturity date, the accrued interest is waived. As conditions for Gaiam extending the maturity date of its existing $1.7 million loan to us from December 30, 2012 to April 30, 2013 and loaning us an additional $1.0 million, we had to pay all interest owed on the existing Gaiam loan of $1.7 million, execute and deliver to Gaiam in the near future an option agreement, reasonably acceptable to both parties, permitting Gaiam to purchase for $0.2 million all tenant improvements constructed by us in our principal office space leased by us from Gaiam; and amend our facility lease with Gaiam to cancel, effective December 31, 2012, the $3 per square foot credit set forth in the current lease.

Each of the $1.0 million promissory notes entered into with Gaiam and Riverside during December 2012 also include certain customary language making the loans payable upon the occurrence of certain events, such as insolvency or bankruptcy. Also, if we complete a sale of at least $50,000 of capital stock, then each creditor has the option of converting all or any portion of the principal and interest owing on the loan in question into securities in such sale at the same purchase price as paid by other purchasers in such sale. If we fail to make payment of the principal and all interest owing on one or both of these loans within 10 days of when due, then the creditor has the option to acquire an undivided 50% interest in our real property located in Hopland, California (including all land and buildings) in exchange for cancellation of such principal and interest. This option is conditioned upon (1) the approval of the transaction by our disinterested directors, and (2) the consent of our senior creditor, Silicon Valley Bank. The loans are unsecured and subordinated to our indebtedness owed to unaffiliated creditors. Subject to the rights of senior debt, we have the right to prepay the loans at any time without premium or penalty.

On March 27, 2013, the maturity dates for these loans were extended and Gaiam’s $1.7 million loan is now due April 30, 2014, Riverside’s $3.0 million loan is due May 4, 2014, Riverside’s $150 thousand loan is due June 20, 2014 and each of the $1.0 million loans are due April 26, 2014.

Accrued interest on our related party debt was $0.2 million at December 31, 2012 and is reported in accrued liabilities on our consolidated balance sheet.

Gaiam owns approximately 37% of our currently outstanding Class A common stock and is one of our creditors. Riverside owns approximately 29% of our currently outstanding Class A common stock and is one of our creditors. Pursuant to the terms of a Shareholders Agreement, Gaiam and Riverside each has the right to designate a certain number of individuals for appointment or nomination to our Board of Directors, tied to their respective ownership of our Class A common stock.

9. Debt

Our debt, other than related party debt, all of which relates to Alteris, consisted of the following at December 31:

 

(in thousands, except installment amounts and interest rates)

   2012     2011  

Notes payable to finance companies for the purchase of vehicles and equipment in 36 to 60 monthly installments totaling $12,162, including interest ranging from 2.9% to 10.35%. The notes are secured by Alteris’ vehicles and equipment

   $ 183      $ 399   

Less – current portion of debt

     (114     (197
  

 

 

   

 

 

 

Debt, net of current portion

   $ 69      $ 202   
  

 

 

   

 

 

 

Maturities of debt for each of the periods ended December 31st are as follows:

 

(in thousands)

   Years Ending
December 31,
 

2013

   $ 114   

2014

     67   

2015

     2   
  

 

 

 
   $ 183   
  

 

 

 

 

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10. Capital Lease Obligations

We have vehicles financed under capital leases. The cost of the capitalized leased assets included in property and equipment was $2.0 million and $0.6 million at December 31, 2012 and 2011, respectively. Accumulated amortization of capitalized leased assets was $1.4 million and $0.1 million at December 31, 2012 and 2011, respectively. Amortization expense for capitalized leased assets was $0.5 million and $0.1 million for the years ended December 31, 2012 and 2011, respectively.

Our future minimum lease payments and capital lease obligations at December 31, 2012 are as follows:

 

(in thousands)

   At December 31,
2012
 

Year ending December 31,

  

2013

   $ 213   

2014

     201   

2015

     161   

2016

     55   
  

 

 

 

Total future minimum lease payments

     630   

Less – amounts representing interest

     (43
  

 

 

 

Total capital lease obligations

     587   

Less – current portion of capital lease obligations

     (213
  

 

 

 

Capital lease obligations, net of current portion

   $ 374   
  

 

 

 

11. Commitments and Contingencies

Operating Leases

We lease office and warehouse space through operating leases. Some of the leases have renewal clauses, which range from three to five years. Until July 2011, when we relocated this portion of our operations, we leased a facility from DTTC Properties, LLC, a limited liability company partially owned by our former chief executive officer, who also was a beneficial owner of our Class A common stock. This lease agreement required monthly base payments of $10,694 plus common area operating expenses. Under this lease, we incurred expense of approximately $75,000 and $161,000 for the years ended December 31, 2011 and 2010. On December 19, 2011, we entered into a five year facility lease with Gaiam for office space located in one of Gaiam’s owned buildings in Colorado that commenced on January 1, 2012 and provides for monthly payment of approximately $11,179 plus common area maintenance expenses.

The following schedule represents the annual future minimum payments of all our leases at December 31, 2012:

 

(in thousands)

   At December 31,
2012
 

2013

   $ 582   

2014

     388   

2015

     336   

2016

     295   
  

 

 

 

Total minimum lease payments

   $ 1,601   
  

 

 

 

We incurred rent expense of $0.9 million for the year ended December 31, 2012 and $0.5 million for each of the years ended December 31, 2011 and 2010.

Risks and Uncertainties

We are subject to risks and uncertainties in the normal course of our business, including legal proceedings; governmental regulation, such as the interpretation of tax and labor laws; and seasonal nature of our business due to weather-related factors. We have accrued for probable and estimatable costs that may be incurred with respect to identified risks and uncertainties based upon the facts and circumstances currently available to us. Due to uncertainties in the estimation process, actual costs could vary from those accruals.

12. Shareholders’ Equity and Warrants

During 2012, we issued 33,056 shares of our Class A common stock under our Real Goods Solar, Inc. 2008 Long-Term Incentive Plan (“2008 Incentive Plan”) to certain of our independent directors, in lieu of cash compensation, for services rendered during 2012.

On December 19, 2011, we issued 8.7 million shares of our Class A common stock as consideration for Alteris. See Note 3. Mergers and Acquisitions.

 

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On December 31, 2011, Gaiam converted its remaining 2,153,293 shares of our Class B common stock into shares of our Class A common stock. At the end of 2011, Gaiam owned approximately 37% of our outstanding Class A common stock.

During 2011, we issued 29,408 shares of our Class A common stock under our 2008 Incentive Plan to our independent directors, in lieu of cash compensation, for services rendered during 2011.

On June 30, 2011, we repurchased 379,400 shares of our Class A common stock for a total cost of $1.1 million. We recorded this repurchase of our shares in accordance with the cost method of accounting for treasury stock. Since we have not yet decided the ultimate disposition of the re-acquired shares, their cost is reflected in our consolidated balance sheet at December 31, 2011 as a $1.1 million reduction to additional paid-in capital.

During 2010, we issued 21,040 shares of our Class A common stock under our 2008 Incentive Plan to our independent directors, in lieu of cash compensation, for services rendered during 2010. Following this issuance, Gaiam owned 54.6% of our total outstanding common stock. For the last five years, we have valued shares issued to our independent directors at estimated fair value based on the closing price of our Class A common stock on the date the shares were issued, which by policy is the last trading day of each quarter in which the services were rendered.

As part of the contingent consideration for the acquisition of Carlson Solar on January 1, 2008, we issued seven-year warrants to purchase 30,000 shares of our Class A common stock at an exercise price of $3.20 per share. On November 1, 2007, as part of the contingent consideration for the acquisition of Marin Solar, we issued seven-year warrants to purchase 40,000 shares of our Class A common stock at an exercise price of $3.20 per share.

At December 31, 2012, we had the following shares of Class A common stock reserved for future issuance:

 

Stock options under the our incentive plans

     1,525,320   

Stock options under plans not approved by security holders

     300,000   

Warrants outstanding

     70,000   
  

 

 

 

Total shares reserved for future issuance

     1,895,320   
  

 

 

 

Each holder of our Class A common stock is entitled to one vote for each share held on all matters submitted to a vote of shareholders. On December 31, 2011, Gaiam converted all of its holdings of our Class B common stock to Class A common stock and, as a result, we have had no shares of Class B common stock outstanding since December 31, 2011. Under the terms of our articles of incorporation and merger with Alteris, we are prohibited from issuing Class B common stock in the future. All holders of Class A common stock vote as a single class on all matters that are submitted to the shareholders for a vote. Accordingly, Gaiam and Riverside, as the holders of approximately 37% and 29% of the Class A common stock, respectively, and entitled to vote in any election of directors, may exert significant influence over the election of the directors. Shareholders with 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 were present and voted may consent to an action in writing and without a meeting under certain circumstances.

Holders of our Class A 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 Real Goods Solar, our Class A common stock holders are entitled to share ratably in our assets remaining after the payment of all of our debts and other liabilities. Holders of our Class A common stock have no preemptive, subscription or redemption rights, and there are no redemption or sinking fund provisions applicable to our Class A common stock.

13. Share-Based Compensation

Our share-based compensation programs are long-term retention programs that are intended to attract, retain and provide incentives for talented employees, officers, and directors and to align shareholder and employee interests. We primarily grant options under our 2008 Incentive Plan, but have also granted 300,000 non-shareholder approved options to our chief executive officer during 2012.

Our 2008 Incentive Plan provides for the granting of options to purchase up to the lesser of 3,000,000 shares of our Class A common stock or 10% of our then outstanding Class A common stock. Furthermore, our Board of Directors has resolved that all types of granted options shall not exceed 10% of our then outstanding Class A common stock. Both nonqualified stock options and incentive stock options may be issued under the provisions of the 2008 Incentive Plan. Employees, members of the Board of Directors, consultants, business partners, and certain key advisors are eligible to participate in the 2008 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. All outstanding options are nonqualified and are generally granted with an exercise price equal to the closing market price of our stock on the date of the grant. Options vest based on services conditions, performance (attainment of a certain amount of pre-tax income for a given year), or some combination thereof. Grants typically expire seven years from the date of grant.

 

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The determination of the estimated fair value of share-based payment awards on the date of grant using the Black-Scholes option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. Expected volatilities are based on a value calculated using the combination of historical volatility of comparable public companies in our industry and our stock price volatility since our initial public offering. 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. 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. We primarily use historical data by participant groupings to estimate option forfeitures and record share-based compensation expense only for those awards that are expected to vest.

The following are the variables we used in the Black-Scholes option pricing model to determine the estimated grant date fair value for options granted under our incentive plans for each of the years presented:

 

     2012    2011    2010

Expected volatility

   76% - 87%    74% - 88%    88%

Weighted-average volatility

   80%    81%    88%

Expected dividends

   —  %    —  %    —  %

Expected term (in years)

   5.0 - 6.6    5.0 - 6.7    5.0

Risk-free rate

   0.57% - 1.26%    1.17% - 2.24%    1.25% - 2.38%

The table below presents a summary of our option activity as of December 31, 2012 and changes during the year then ended:

 

     Shares     Weighted-
Average
Exercise
Price
     Weighted-
Average
Remaining
Contractual
Term
(Yrs)
     Aggregate
Intrinsic
Value
 

Outstanding at January 1, 2012

     1,902,120      $ 2.80         

Granted

     1,431,500        1.19         

Exercised

     —          —           

Forfeited or expired

     (1,508,300     2.38         
  

 

 

         

Outstanding at December 31, 2012

     1,825,320      $ 1.88         5.4       $  —     
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable at December 31, 2012

     508,350      $ 2.93         3.0       $ —     
  

 

 

   

 

 

    

 

 

    

 

 

 

As specified under the terms of our acquisition of Alteris (see Note 3. Mergers and Acquisitions), upon consummation of the acquisition in 2011, options for Alteris membership units were replaced with equal in fair value options to purchase our stock. In this regard, 478,500 replacement options were granted by us at an exercise price of $2.96 per share.

The weighted-average grant-date fair value of options granted during the years 2012, 2011 and 2010 was $0.76, $1.67 and $2.04, respectively. The total fair value of shares vested was $0.4 million during each of 2012 and 2011 and $0.1 million during 2010. Our share-based compensation cost charged against income was $0.4 million, $0.5 million, and $0.4 million during the years 2012, 2011 and 2010, respectively, and is shown in general and administrative expenses. The total income tax benefit recognized for share-based compensation was nil, $0.2 million, and $0.1 million for the years 2012, 2011, and 2010, respectively. As of December 31, 2012, there was $0.7 million of unrecognized cost related to nonvested shared-based compensation arrangements granted under the plans. We expect that cost to be recognized over a weighted-average period of 3.4 years.

 

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14. Income Taxes

Our provision for income tax expense (benefit) is comprised of the following:

 

     Years ended December 31,  

(in thousands)

   2012      2011     2010  

Current:

       

Federal

   $ —         $ —        $ 476   

State

     61         16        34   
  

 

 

    

 

 

   

 

 

 
     61         16        510   
  

 

 

    

 

 

   

 

 

 

Deferred:

       

Federal

     7,361         (494     246   

State

     1,298         (82     41   
  

 

 

    

 

 

   

 

 

 
     8,659         (576     287   
  

 

 

    

 

 

   

 

 

 
   $ 8,720       $ (560   $ 797   
  

 

 

    

 

 

   

 

 

 

Variations from the federal statutory rate are as follows:

 

(in thousands)

   2012     2011     2010  

Expected federal income tax expense (benefit) at statutory rate of 34%

   $ (13,086   $ (836   $ 692   

Effect of permanent goodwill impairment

     7,898        —          —     

Effect of permanent acquisition-related differences

     —          461        —     

Effect of permanent other differences

     94        30        13   

Effect of carryforward state net operating losses

     —          (72     —     

Effect of valuation allowance

     16,074        —          —     

Other

     49        (3     (24

State income tax expense (benefit), net of federal benefit

     (2,309     (140     116   
  

 

 

   

 

 

   

 

 

 

Income tax expense (benefit)

   $ 8,720      $ (560   $ 797   
  

 

 

   

 

 

   

 

 

 

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 assets as of December 31, 2012 and 2011 are as follows:

 

(in thousands)

   2012     2011  

Deferred tax assets (liabilities):

    

Current:

    

Provision for doubtful accounts

   $ 437      $ 216   

Inventory-related expense

     469        192   

Accrued liabilities

     1,281        1,644   

Net operating loss carryforward

     —          1,015   

Other

     —          5   
  

 

 

   

 

 

 

Total current deferred tax assets

   $ 2,187      $ 3,072   
  

 

 

   

 

 

 

Non-current:

    

Depreciation and amortization

   $ 613      $ (649

Net operating loss carryforward

     13,243        6,180   

Other

     31        (87
  

 

 

   

 

 

 

Total non-current deferred tax assets

   $ 13,887      $ 5,444   
  

 

 

   

 

 

 

Valuation allowance

     (16,074     —     
  

 

 

   

 

 

 

Total net deferred tax assets

   $ —        $ 8,516   
  

 

 

   

 

 

 

At December 31, 2012, we had $10.5 million in tax effected federal net operating loss carryforwards. These operating loss carryforwards, if unused, begin to expire in 2018. Additionally, we had $2.7 million in tax effected state net operating loss carryforwards. These operating loss carryforwards, if unused, will begin to expire in 2019. The Internal Revenue Code contains provisions that limit the net operating loss 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 net operating loss carryforwards from tax periods prior to the ownership changes. Certain of our net operating loss carryforwards as of December 31, 2012 are subject to annual limitations due to changes in ownership.

 

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During 2012, we performed assessments on the realizability of our net deferred tax assets considering all available evidence, both positive and negative. As a result of these assessments, we concluded that it was more likely than not that none of our net deferred tax assets would be recoverable through the reversal of temporary differences and normal business activities in the near term and, therefore, we established a valuation allowance through a noncash charge of $16.1 million to our income tax provision for the year ended December 31, 2012.

Additionally, to the extent we become entitled to utilize certain loss carryforwards relating to periods prior to our initial public offering, we are required under the terms of our tax sharing agreement with Gaiam to 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 recognized a valuation allowance against all of our deferred tax assets as of the effective date of our tax sharing agreement with Gaiam, May 13, 2008. These net operating loss carryforwards begin to expire in 2018 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 net operating loss carryforwards is limited by annual limitations described in Sections 382 and 383 of the Internal Revenue Code. As of December 31, 2012, $4.4 million of these net operating loss carryforwards remained available for current and future utilization, meaning that potential future payments to Gaiam, which would be made over a period of several years, could therefore aggregate to approximately $1.6 million based on current tax rates.

15. Quarterly Results of Operations (Unaudited)

The following is a summary of the quarterly results of operations for the years ended December 31, 2012 and 2011:

 

(in thousands, except per share data)

   Fiscal Year 2012 Quarters Ended  
     March 31     June 30     September 30 (a)     December 31 (b)  

Net revenue

   $ 18,256      $ 21,447      $ 26,358      $ 26,830   

Gross profit

     6,427        5,319        5,737        5,549   

Loss before income taxes

     (3,052     (4,070     (27,549     (3,815

Net loss

     (1,856     (2,518     (39,017     (3,815

Diluted net loss per share

   $ (0.07   $ (0.09   $ (1.46   $ (0.14

Weighted average shares outstanding-diluted

     26,661        26,669        26,677        26,694   

(in thousands, except per share data)

   Fiscal Year 2011 Quarters Ended  
     March 31     June 30     September 30     December 31  

Net revenue

   $ 17,425      $ 19,954      $ 31,586      $ 40,292   

Gross profit

     5,029        5,360        7,853        9,618   

Income (loss) before income taxes

     68        (1,883     (739     94   

Net income (loss)

     37        (1,575     (478     116   

Diluted net income (loss) per share

   $ 0.00      $ (0.08   $ (0.02   $ 0.00   

Weighted average shares outstanding-diluted

     18,310        19,112        26,655        26,655   

 

(a) The quarter ended September 30, 2012 includes a noncash charge of $22.0 million for the impairment of goodwill and other assets and a noncash charge of $14.5 million for the establishment of a valuation allowance for all of our net deferred tax assets.
(b) The quarter ended December 31, 2012 includes a noncash charge of $1.6 million for an additional valuation allowance for our net deferred tax assets generated during that quarter.

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

 

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our chief executive officer and chief financial officer conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and Rule 15d-15(e) under the Exchange Act. Based upon their evaluation as of December 31, 2012, they have concluded that those disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2012 that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.

 

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Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making the assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “ Internal Control-Integrated Framework .” Based on that assessment, our management concluded that, as of December 31, 2012, our internal control over financial reporting is effective based on those criteria.

This Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to

rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Form 10-K.

 

Item 9B. Other Information

Loan Modification Agreement

On March 27, 2013, our wholly-owned subsidiaries Real Goods Energy Tech, Inc., a Colorado corporation, Real Goods Trading Corporation, a California corporation, and Alteris Renewables, Inc., a Delaware corporation, entered into a Third Loan Modification Agreement with Silicon Valley Bank (the “Loan Amendment”) pursuant to which the parties thereto agreed to certain amendments to the Loan and Security Agreement, dated as of December 19, 2011 (as amended by the First Loan Modification Agreement, dated as of August 28, 2012, and the Second Loan Modification and Reinstatement Agreement, dated as of November 13, 2012, and together with the Loan Amendment, the “Loan Agreement”). Under the Loan Amendment, the amount of available credit under the revolving line of credit remains $6.5 million, the Borrowing Base (as defined in the Loan Agreement) remains 75% of Eligible Accounts (as defined in the Loan Agreement), and the maturity date was extended from March 31, 2013 to September 30, 2013. As of March 27, 2013, we had $6.5 million of outstanding borrowings under this facility.

In connection with the Loan Amendment, the borrowers paid Silicon Valley Bank a $60 thousand extension fee and agreed to reimburse the bank for certain expenses incurred in connection with entering into the Loan Amendment. We also granted warrants to Silicon Valley Bank to purchase 105,978 shares of our Class A common stock at a price of $1.84, subject to certain adjustments. These warrants will expire March 27, 2020. We are also obligated to obtain an additional $3.4 million in net proceeds of subordinated debt prior to April 30, 2013. The Loan Agreement contains other customary representation, warranties, covenants and events of default. A final payment fee of $60 thousand in cash is due upon termination or maturity of the facility. The final payment fee will be reduced to $40 thousand if we raise at least $3.0 million in net proceeds through a public offering of our Class A common stock prior to August 31, 2013.

On March 26, 2013, we also granted additional warrants to Silicon Valley Bank to purchase 106,557 shares of our Class A common stock at a price of $1.83, subject to certain adjustments, pursuant to the terms of the Second Loan Modification and Reinstatement Agreement dated as of November 13, 2012 and described in our Form 10-Q filed November 14, 2012. These warrants will expire March 26, 2020.

Gaiam and Riverside own approximately 37% and 29% of our issued and outstanding Class A common stock, respectively. Pursuant to the terms of a Shareholders Agreement, dated as of December 19, 2011, we have drawn on loan commitments from Gaiam and Riverside, which debt consists of $1.7 million from Gaiam and $3.15 million from Riverside. In addition, we have received a loan of $1.0 million from each of Gaiam and Riverside pursuant to the terms of a Loan Commitment, dated as of November 13, 2012. In connection with the Loan Amendment, the maturity date of the $1.7 million from Gaiam was extended from April 30, 2013 to April 30, 2014, the maturity date of $3.0 million from Riverside was extended from May 4, 2013 to May 4, 2014, the maturity date of the $150 thousand from Riverside was extended from June 20, 2013 to June 20, 2014, and the maturity date of the $1.0 million loans was extended from April 26, 2013 to April 26, 2014.

 

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Director Retirement

On March 27, 2013, one of our current directors, Barbara Mowry, notified us that she does not intend to run for reelection as a member of our board of directors at the 2013 annual meeting of shareholders, and that she plans to retire as a director effective upon the conclusion of the 2013 annual meeting. There were no disagreements between Ms. Mowry and us relative to her decision to not run for reelection.

 

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PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

We incorporate herein the information required by this Item by reference to our Proxy Statement for our 2013 Annual Meeting of Shareholders, to be filed with the Commission pursuant to Regulation 14A.

Code of Ethics

We have adopted a Code of Ethics applicable to our employees, including our principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. We have posted a copy of our Code of Ethics on the investor relations section of our Internet website at www.realgoodssolar.com. Our full Board of Directors must approve in advance any waivers of the Code of Ethics. We will post any amendments or waivers from our Code of Ethics that apply to our executive officers and directors on the “Code of Ethics” section of our Internet website located at www.realgoodssolar.com.

 

Item 11. Executive Compensation

We incorporate herein the information required by this Item by reference to our Proxy Statement for our 2013 Annual Meeting of Shareholders, to be filed with the Commission pursuant to Regulation 14A.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

We incorporate herein the information required by this Item by reference to our Proxy Statement for our 2013 Annual Meeting of Shareholders, to be filed with the Commission pursuant to Regulation 14A.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

We incorporate herein the information required by this Item by reference to our Proxy Statement for our 2013 Annual Meeting of Shareholders, to be filed with the Commission pursuant to Regulation 14A.

 

Item 14. Principal Accountant Fees and Services

We incorporate herein the information required by this Item by reference to our Proxy Statement for our 2013 Annual Meeting of Shareholders, to be filed with the Commission pursuant to Regulation 14A.

 

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PART IV

 

Item 15. Exhibits and Financial Statement Schedules

Documents filed as part of this report are as follows:

 

  1. Consolidated Financial Statements.
       See listing of Consolidated Financial Statements included as part of this Form 10-K in Item 8 of Part II.

 

  2. Exhibits:

The following exhibits are incorporated by reference into or are filed or furnished with this report as indicated below:

 

Exhibit No.

  

Description

  2.1    Agreement and Plan of Merger, effective as of June 21, 2011, among Real Goods Solar, Inc., Earth Friendly Energy Group Holdings, LLC, Real Goods Alteris, LLC and Riverside Renewable Energy Investments, LLC, as agent for Earth Friendly Energy Group Holdings, LLC (1)
  3.1    Articles of Incorporation of Real Goods Solar, Inc. (2)
  3.2    Bylaws of Real Goods Solar, Inc. (3)
  4.1    Form of Real Goods Solar Class A Common Stock Certificate (4)
  4.2    Amended and Restated Registration Rights Agreement, dated as of December 19, 2011, between Real Goods Solar, Inc., Gaiam, Inc. and Riverside Renewable Energy Investments, LLC (5)
  4.3    Shareholders Agreement, dated as of December 19, 2011, among Real Goods Solar, Inc., Riverside Renewable Energy Investments, LLC and Gaiam, Inc. (6)
10.1*    Form of Real Goods Solar, Inc. Employee Stock Option Agreement (7)
10.2*    Agreement, made as of February 27, 2008, between Real Goods Solar, Inc. and Erik Zech (8)
10.3    Tax Sharing and Indemnification Agreement between Real Goods Solar, Inc. and Gaiam, Inc. (9)
10.4    Intercorporate Services Agreement among Real Goods Solar, Inc. and Gaiam, Inc. and its subsidiaries (10)
10.5    Loan and Security Agreement, dated as of December 19, 2011, among Real Goods Energy Tech, Inc., Real Goods Trading Corporation, Earth Friendly Energy Group Holdings, LLC, Alteris Renewables, Inc., Earth Friendly Energy Group, LLC, Solar Works, LLC, Alteris RPS, LLC, Alteris ISI, LLC, and Silicon Valley Bank (11)
10.6    Security Agreement, dated as of December 19, 2011, between Real Goods Solar, Inc. and Silicon Valley Bank (12)
10.7    Form of Promissory Note issued to Gaiam, Inc. on December 30, 2011 and to Riverside Renewable Energy Investments, LLC on May 4, 2012 and June 20, 2012 (13)
10.8*    Confidential Separation Agreement and Release of Claims, dated as of March 31, 2012, by and between Real Goods Solar, Inc. and Erik Zech (14)
10.9*    Consulting Agreement, dated as of March 31, 2012, by and between Real Goods Solar, Inc. and Erik Zech (15)
10.10*    Amended and Restated Real Goods Solar, Inc. 2008 Long-Term Incentive Plan (16)
10.11    First Loan Modification Agreement, dated as of August 28, 2012, among Real Goods Energy Tech, Inc., Real Goods Trading Corporation, Earth Friendly Energy Group Holdings, LLC, Alteris Renewables, Inc., Earth Friendly Energy Group, LLC, Solar Works, LLC, Alteris RPS, LLC, Alteris ISI, LLC and Silicon Valley Bank (17)
10.12    Form of Indemnification Agreement and schedule of directors and officers who have entered into such agreement (18)
10.13    Loan Commitment, dated as of November 13, 2012, among Real Goods Solar, Inc., Riverside Renewable Energy Investment LLC and Gaiam, Inc. (filed herewith)

 

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Exhibit No.

 

Description

  10.14   Second Loan Modification and Reinstatement Agreement, dated as of November 13, 2012, among Silicon Valley Bank, Real Goods Energy Tech, Inc., Real Goods Trading Corporation, Earth Friendly Energy Group Holdings, LLC, Alteris Renewables, Inc., Earth Friendly Energy Group, LLC, Solar Works, LLC, Alteris RPS, LLC, and Alteris ISI, LLC (filed herewith)
  10.15   Form of Promissory Note issued to Gaiam, Inc. on December 11, 2012 and to Riverside Renewable Energy Investment LLC on December 13, 2013 pursuant to the Loan Commitment, dated as of November 13, 2012 (filed herewith)
  10.16*   Restated Employment Letter, dated as of December 21, 2012, between Kamyar Mofid and Real Goods Solar, Inc. (filed herewith)
  10.17   First Amendment to Tax Sharing Agreement, dated as of December 19, 2011, between Real Goods Solar, Inc and Gaiam, Inc. (filed herewith)
  10.18   Form of Amended and Restated Promissory Note in the principal amount of $1.7 million issued to Gaiam, Inc. on March 27, 2013 (filed herewith)
  10.19   Form of Amended and Restated Promissory Note issued to Riverside Renewable Energy Investments, LLC on March 27, 2013 in the principal amounts of $3 million and $150 thousand, respectively (filed herewith)
  10.20   Third Loan Modification Agreement, dated as of March 27, 2013, among Silicon Valley Bank, Real Goods Energy Tech, Inc., Real Goods Trading Corporation, and Alteris Renewables, Inc. (filed herewith)
  10.21   Warrant issued to Silicon Valley Bank on March 26, 2013 pursuant to the Second Loan Modification Agreement (filed herewith)
  10.22   Warrant issued to Silicon Valley Bank on March 27, 2013 pursuant to the Third Loan Modification Agreement (filed herewith)
  10.23   Form of Amended and Restated Promissory Note issued to Gaiam, Inc. and Riverside Renewable Energy Investment LLC on March 27, 2013 pursuant to the Loan Commitment, dated as of November 13, 2012 (filed herewith)
  21.1   Subsidiaries of the Registrant (filed herewith)
  23.1   Consent of EKS&H LLLP (filed herewith)
  31.1   Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 (filed herewith)
  31.2   Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 (filed herewith)
  32.1   Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
  32.2   Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
101.INS**   XBRL Instance Document
101.SCH**   XBRL Taxonomy Extension Schema

 

52


Table of Contents

Exhibit No.

 

Description

101.CAL**   XBRL Taxonomy Extension Calculation Linkbase
101.DEF**   XBRL Taxonomy Extension Definition Linkbase
101.LAB**   XBRL Taxonomy Extension Label Linkbase
101.PRE**   XBRL Taxonomy Extension Presentation Linkbase

 

(1) Incorporated by reference to Exhibit 2.1 to Real Goods Solar’s Current Report on Form 8-K filed June 27, 2011.
(2) Incorporated by reference to Exhibit 3.1 to Real Goods Solar’s Amendment No. 1 to Registration Statement on Form S-1 filed March 28, 2008.
(3) Incorporated by reference to Exhibit 3.2 to Real Goods Solar’s Amendment No. 1 to Registration Statement on Form S-1 filed March 28, 2008.
(4) Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Amendment No. 5 to Registration Statement on Form S-1 filed May 2, 2008.
(5) Incorporated by reference to Exhibit 10.3 to Real Goods Solar’s Current Report on Form 8-K filed December 21, 2011.
(6) Incorporated by reference to Exhibit 10.4 to Real Goods Solar’s Current Report on Form 8-K filed December 21, 2011.
(7) Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Amendment No. 1 to Registration Statement on Form S-1 filed March 28, 2008.
(8) Incorporated by reference to Exhibit 10.8 to Real Goods Solar’s Amendment No. 2 to Registration Statement on Form S-1 filed April 11, 2008.
(9) Incorporated by reference to Exhibit 10.7 to Real Goods Solar’s Amendment No. 3 to Registration Statement on Form S-1 filed April 17, 2008.
(10) Incorporated by reference to Exhibit 10.6 to Real Goods Solar’s Amendment No. 4 to Registration Statement on Form S-1 filed April 30, 2008.
(11) Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed December 21, 2011.
(12) Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Current Report on Form 8-K filed December 21, 2011.
(13) Incorporated by reference to the fourth attachment to the Shareholders Agreement filed as Exhibit 4.3 to this Form 10-K.
(14) Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Quarterly Report on Form 10-Q filed May 14, 2012.
(15) Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Quarterly Report on Form 10-Q filed May 14, 2012.
(16) Incorporated by reference to Appendix A to Real Goods Solar’s proxy statement for its 2012 annual meeting filed with the SEC on April 30, 2012 (Commission File No. 001-34044).
(17) Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed August 29, 2012.
(18) Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Quarterly Report on Form 10-Q filed November 14, 2012.
* Indicates management contract or compensatory plan or arrangement.
** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes or Section 18 of the Securities Exchange Act of 1934, and otherwise are not subject to liability under these sections.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized

 

Real Goods Solar, Inc.

/s/ Kam Mofid

By: Kamyar (Kam) Mofid

Chief Executive Officer

April 1, 2013

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature

  

Title

 

Date

/s/ Jirka Rysavy

Jirka Rysavy

   Chairman of the Board   April 1, 2013

/s/ Kam Mofid

Kamyar (Kam) Mofid

  

Chief Executive Officer and Director

(Principal Executive Officer)

  April 1, 2013

/s/ David L. Belluck

David L. Belluck

   Director   April 1, 2013

/s/ Pavel Bouska

Pavel Bouska

   Director   April 1, 2013

/s/ Steven B. Kaufman

Steven B. Kaufman

   Director   April 1, 2013

/s/ Barbara Mowry

Barbara Mowry

   Director   April 1, 2013

/s/ John Schaeffer

John Schaeffer

   Director and General Manager, Retail & Distribution   April 1, 2013

/s/ Robert L. Scott

Robert L. Scott

   Director   April 1, 2013

/s/ Anthony DiPaolo

Anthony DiPaolo

  

Chief Financial Officer

(Principal Financial and Accounting Officer)

  April 1, 2013

 

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EXHIBIT INDEX

 

Exhibit No.

  

Description

  2.1    Agreement and Plan of Merger, effective as of June 21, 2011, among Real Goods Solar, Inc., Earth Friendly Energy Group Holdings, LLC, Real Goods Alteris, LLC and Riverside Renewable Energy Investments, LLC, as agent for Earth Friendly Energy Group Holdings, LLC (1)
  3.1    Articles of Incorporation of Real Goods Solar, Inc. (2)
  3.2    Bylaws of Real Goods Solar, Inc. (3)
  4.1    Form of Real Goods Solar Class A Common Stock Certificate (4)
  4.2    Amended and Restated Registration Rights Agreement, dated as of December 19, 2011, between Real Goods Solar, Inc., Gaiam, Inc. and Riverside Renewable Energy Investments, LLC (5)
  4.3    Shareholders Agreement, dated as of December 19, 2011, among Real Goods Solar, Inc., Riverside Renewable Energy Investments, LLC and Gaiam, Inc. (6)
10.1*    Form of Real Goods Solar, Inc. Employee Stock Option Agreement (7)
10.2*    Agreement, made as of February 27, 2008, between Real Goods Solar, Inc. and Erik Zech (8)
10.3    Tax Sharing and Indemnification Agreement between Real Goods Solar, Inc. and Gaiam, Inc. (9)
10.4    Intercorporate Services Agreement among Real Goods Solar, Inc. and Gaiam, Inc. and its subsidiaries (10)
10.5    Loan and Security Agreement, dated as of December 19, 2011, among Real Goods Energy Tech, Inc., Real Goods Trading Corporation, Earth Friendly Energy Group Holdings, LLC, Alteris Renewables, Inc., Earth Friendly Energy Group, LLC, Solar Works, LLC, Alteris RPS, LLC, Alteris ISI, LLC, and Silicon Valley Bank (11)
10.6    Security Agreement, dated as of December 19, 2011, between Real Goods Solar, Inc. and Silicon Valley Bank (12)
10.7    Form of Promissory Note issued to Gaiam, Inc. on December 30, 2011 and to Riverside Renewable Energy Investments, LLC on May 4, 2012 and June 20, 2012 (13)
10.8*    Confidential Separation Agreement and Release of Claims, dated as of March 31, 2012, by and between Real Goods Solar, Inc. and Erik Zech (14)
10.9*    Consulting Agreement, dated as of March 31, 2012, by and between Real Goods Solar, Inc. and Erik Zech (15)
10.10*    Amended and Restated Real Goods Solar, Inc. 2008 Long-Term Incentive Plan (16)
10.11    First Loan Modification Agreement, dated as of August 28, 2012, among Real Goods Energy Tech, Inc., Real Goods Trading Corporation, Earth Friendly Energy Group Holdings, LLC, Alteris Renewables, Inc., Earth Friendly Energy Group, LLC, Solar Works, LLC, Alteris RPS, LLC, Alteris ISI, LLC and Silicon Valley Bank (17)
10.12    Form of Indemnification Agreement and schedule of directors and officers who have entered into such agreement (18)
10.13    Loan Commitment, dated as of November 13, 2012, among Real Goods Solar, Inc., Riverside Renewable Energy Investment LLC and Gaiam, Inc. (filed herewith)
10.14    Second Loan Modification and Reinstatement Agreement, dated as of November 13, 2012, among Silicon Valley Bank, Real Goods Energy Tech, Inc., Real Goods Trading Corporation, Earth Friendly Energy Group Holdings, LLC, Alteris Renewables, Inc., Earth Friendly Energy Group, LLC, Solar Works, LLC, Alteris RPS, LLC, and Alteris ISI, LLC (filed herewith)


Table of Contents

Exhibit No.

 

Description

  10.15   Form of Promissory Note issued to Gaiam, Inc. on December 11, 2012 and to Riverside Renewable Energy Investment LLC on December 13, 2013 pursuant to the Loan Commitment, dated as of November 13, 2012 (filed herewith)
  10.16*   Restated Employment Letter, dated as of December 21, 2012, between Kamyar Mofid and Real Goods Solar, Inc. (filed herewith)
  10.17   First Amendment to Tax Sharing Agreement, dated as of December 19, 2011, between Real Goods Solar, Inc and Gaiam, Inc. (filed herewith)
  10.18   Form of Amended and Restated Promissory Note in the principal amount of $1.7 million issued to Gaiam, Inc. on March 27, 2013 (filed herewith)
  10.19   Form of Amended and Restated Promissory Note issued to Riverside Renewable Energy Investments, LLC on March 27, 2013 in the principal amounts of $3 million and $150 thousand, respectively (filed herewith)
  10.20   Third Loan Modification Agreement, dated as of March 27, 2013, among Silicon Valley Bank, Real Goods Energy Tech, Inc., Real Goods Trading Corporation, and Alteris Renewables, Inc. (filed herewith)
  10.21   Warrant issued to Silicon Valley Bank on March 26, 2013 pursuant to the Second Loan Modification and Reinstatement Agreement (filed herewith)
  10.22   Warrant issued to Silicon Valley Bank on March 27, 2013 pursuant to the Third Loan Modification Agreement (filed herewith)
  10.23   Form of Amended and Restated Promissory Note issued to Gaiam, Inc. and Riverside Renewable Energy Investment LLC on March 27, 2013 pursuant to the Loan Commitment, dated as of November 13, 2012 (filed herewith)
  21.1   Subsidiaries of the Registrant (filed herewith)
  23.1   Consent of EKS&H LLLP (filed herewith)
  31.1   Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 (filed herewith)
  31.2   Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 (filed herewith)
  32.1   Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
  32.2   Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
101.INS**   XBRL Instance Document
101.SCH**   XBRL Taxonomy Extension Schema


Table of Contents

Exhibit No.

 

Description

101.CAL**   XBRL Taxonomy Extension Calculation Linkbase
101.DEF**   XBRL Taxonomy Extension Definition Linkbase
101.LAB**   XBRL Taxonomy Extension Label Linkbase
101.PRE**   XBRL Taxonomy Extension Presentation Linkbase

 

(1) Incorporated by reference to Exhibit 2.1 to Real Goods Solar’s Current Report on Form 8-K filed June 27, 2011.
(2) Incorporated by reference to Exhibit 3.1 to Real Goods Solar’s Amendment No. 1 to Registration Statement on Form S-1 filed March 28, 2008.
(3) Incorporated by reference to Exhibit 3.2 to Real Goods Solar’s Amendment No. 1 to Registration Statement on Form S-1 filed March 28, 2008.
(4) Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Amendment No. 5 to Registration Statement on Form S-1 filed May 2, 2008.
(5) Incorporated by reference to Exhibit 10.3 to Real Goods Solar’s Current Report on Form 8-K filed December 21, 2011.
(6) Incorporated by reference to Exhibit 10.4 to Real Goods Solar’s Current Report on Form 8-K filed December 21, 2011.
(7) Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Amendment No. 1 to Registration Statement on Form S-1 filed March 28, 2008.
(8) Incorporated by reference to Exhibit 10.8 to Real Goods Solar’s Amendment No. 2 to Registration Statement on Form S-1 filed April 11, 2008.
(9) Incorporated by reference to Exhibit 10.7 to Real Goods Solar’s Amendment No. 3 to Registration Statement on Form S-1 filed April 17, 2008.
(10) Incorporated by reference to Exhibit 10.6 to Real Goods Solar’s Amendment No. 4 to Registration Statement on Form S-1 filed April 30, 2008.
(11) Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed December 21, 2011.
(12) Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Current Report on Form 8-K filed December 21, 2011.
(13) Incorporated by reference to the fourth attachment to the Shareholders Agreement filed as Exhibit 4.3 to this Form 10-K.
(14) Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Quarterly Report on Form 10-Q filed May 14, 2012.
(15) Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Quarterly Report on Form 10-Q filed May 14, 2012.
(16) Incorporated by reference to Appendix A to Real Goods Solar’s proxy statement for its 2012 annual meeting filed with the SEC on April 30, 2012 (Commission File No. 001-34044).
(17) Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed August 29, 2012.
(18) Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Quarterly Report on Form 10-Q filed November 14, 2012.
* Indicates management contract or compensatory plan or arrangement.
** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes or Section 18 of the Securities Exchange Act of 1934, and otherwise are not subject to liability under these sections.

Exhibit 10.13

LOAN COMMITMENT

LOAN COMMITMENT dated as of November 13, 2012 (this “ Agreement ”), is among Real Goods Solar, Inc., a Colorado corporation (the “ Company ”), Riverside Renewable Energy Investments, LLC, a Delaware limited liability company (“ Riverside ”), and Gaiam, Inc., a Colorado corporation (“ Gaiam ” and, collectively with Riverside, the “ Shareholders ”). 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

D EBT C OMMITMENT AND L OAN E XTENSION

1.1 Gaiam Commitment . Gaiam agrees to make, in single or multiple cash advances by wire transfer to the Company, loans of up to $1,000,000 in the aggregate, within five (5) business days of receiving written notice from the Company requesting an advance. Gaiam’s commitment obligation pursuant to this Section 1.1 will terminate at the close of business on March 31, 2013 or upon advancing the full amount of Gaiam’s commitment under this Section 1.1.

1.2 Riverside Commitment . Riverside agrees to make, in a single or multiple cash advances by wire transfer to the Company, loans in an amount of up to $1,000,000 in the aggregate within five (5) business days of receiving written notices from the Company requesting an advance. Riverside’s commitment obligation pursuant to this Section 1.2 will terminate at the close of business on March 31, 2013 or upon advancing the full amount of Riverside’s commitment under this Section 1.2.

1.3 Equal Treatment of Advances . Notwithstanding anything in this Agreement to the contrary, any advances under this Agreement shall be made in equal amounts by both Riverside and Gaiam and the Company shall only request equal amounts from Riverside and Gaiam.

1.4 Promissory Note . Each advance by the Shareholders will be evidenced by a promissory note issued by the Company in favor of the respective lender in the form attached to this Agreement (the “Notes”).

1.5 Lease and Tenant Improvements . The Company agrees that it will execute and deliver to Gaiam an option agreement, reasonably acceptable to both parties, permitting Gaiam to purchase for $200,000 all tenant improvements constructed by the Company in the space leased by the Company at 833 W. South Boulder Road, Louisville, CO, 80027. Such option agreement will be exercisable by Gaiam at any time on or prior to December 31, 2013 and Gaiam’s payment for such tenant improvements will be amortized in equal installments over the remaining term of the Company’s lease. In addition, the Company agrees that it will execute and deliver to Gaiam an amendment to the Company’s lease for the space at 833 W. South Boulder Road, Louisville, CO, 80027, reasonably acceptable to both parties, pursuant to which the Company will agree to cancel, effective December 31, 2012, the $3 per square foot credit set forth in the current lease.

1.6 Extension . On December 31, 2012, the maturity date on Gaiam’s existing loan to the Company in the principal amount of $1.7 million (the “ Existing Loan ”), will be automatically extended, without any further action by the parties, to April 30, 2013, provided that the Company has repaid all accrued but unpaid interest then owing to Gaiam on such Existing Loan.

Article II

T ERMINATION

This Agreement shall become null and void and be of no further force or effect, and neither the Shareholders nor the Company shall have any further obligations hereunder or with respect to this Agreement upon the first to occur of (i) the mutual written consent of the Company and the Shareholders to terminate this Agreement,


(ii) March 31, 2013, if the Company has not requested the loans from the Shareholders described in this Agreement on or prior to such date, and (iii) final payment of all principal and interest on the loans, if the Company has requested the loans from the Shareholders described in this Agreement.

Article III

M ISCELLANEOUS

3.1 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 Colorado applicable to contracts made and performed in that State (without regard to the choice of law or conflicts of law provisions) and any applicable laws of the United States of America.

3.2 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 the Company, Gaiam or Riverside will, unless another address is specified in writing, be sent to the address indicated below:

If to the Company to :

Real Goods Solar, Inc.

833 W. South Boulder Road

Louisville, Colorado 80027-2452

Attention: Kam Mofid, CEO

Telephone: (303) 222-8303

Facsimile: 303-222-3700

E-Mail: kam.mofid@realgoods.com

with a copy (which shall not serve as notice) to:

Brownstein Hyatt Farber Schreck, LLP

410 Seventeenth Street, Suite 2200

Denver, CO 80202-4432

Attention: Kristin M. Macdonald

Telephone: 303.223.1242

Facsimile: 303.223.8042

E-Mail: kmacdonald@bhfs.com

If to Gaiam to :

Gaiam, Inc.

833 W. South Boulder Road

Louisville, Colorado 80027-2452

Attention: John Jackson

Telephone: (303) 222-3809

Facsimile: 303-222-3700

E-Mail: john.jackson@gaiam.com


with a copy (which shall not serve as notice) to:

Bartlit Beck Herman Palenchar & Scott LLP

1899 Wynkoop, Ste 800

Denver, Colorado 80202

Attention: Thomas R. Stephens

Telephone: (303) 592-3100

Facsimile: (303) 592-3140

E-Mail: thomas.stephens@bartlit-beck.com

If to Riverside to :

c/o Riverside Partners, LLC

One Exeter Plaza

699 Boylston Street

Boston, Massachusetts

Attention: David Belluck

Telephone: (617) 351-2806

Facsimile: (617) 351-2801

E-Mail: dbelluck@riversidepartners.com

or at such other address or addresses as the Company, Gaiam or Riverside, as the case may be, may specify by written notice given in accordance with this Section 3.2.

3.3 Benefit of Parties; Assignment . The provisions of this Agreement shall be binding upon the parties to this Agreement and their respective permitted successors and assigns and inure to the benefit of the Company and the Shareholders and their respective permitted successors and assigns. This Agreement may not be assigned by the Company without the prior written consent of the Shareholders or by any Shareholder except with the prior written consent of the Company and the other Shareholder.

3.4 Amendment . Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed by each of the Company and the Shareholders.

3.5 Waiver . Subject to the provisions of Section 1.3 hereof, no failure or delay by the Company or any Shareholder in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided in this Agreement shall be cumulative and not exclusive of any rights or remedies provided by law.

3.6 Severability . If any provision of this Agreement or the application of such provision to any party or set of circumstances shall, in any jurisdiction and to any extent, be finally held invalid or unenforceable, such term or provision shall only be ineffective as to such jurisdiction, and only to the extent of such invalidity or unenforceability, without invalidating or rendering unenforceable any other terms or provisions of this Agreement or under any other circumstances, and the parties shall negotiate in good faith a substitute provision which comes as close as possible to the invalidated or unenforceable term or provision, and which puts each party in a position as nearly comparable as possible to the position it would have been in but for the finding of invalidity or unenforceability, while remaining valid and enforceable.

3.7 Entire Agreement . This Agreement constitutes the entire agreement among the parties to this Agreement with respect to the subject matter of this Agreement and supersedes all prior agreements and undertakings, both written and oral, among the parties with respect to the subject matter hereof.

3.8 Counterparts; Effectiveness . This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party shall have received counterparts (or signature pages) hereof signed by all of the other parties.


3.9 Beneficiaries . Notwithstanding any provision in this Agreement to the contrary, this Agreement shall not confer any rights or remedies upon any person other than the Company and the Shareholders and each of their successors and permitted assigns.


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

 

THE COMPANY:

REAL GOODS SOLAR, INC., a Colorado corporation

By:

 

/s/ Kam Mofid

 

Name: Kam Mofid

Title: CEO

GAIAM:

GAIAM, INC., a Colorado corporation

By:

 

/s/ John R. Jackson

 

Name: John R. Jackson

Title: VP

RIVERSIDE:

RIVERSIDE RENEWABLE ENERGY INVESTMETNS LLC, a Delaware limited liability company

By:

 

/s/ David Belluck

 

Name: David Belluck

Title: Managing Partner


Form of Promissory Note

This promissory note (this “Note”) has not been registered under the Securities Act of 1933, as amended, or under the securities laws of any state. No transfer, sale or other disposition of this Note may be made unless a registration statement with respect to this Note has become effective under said Act, and such registration or qualification as may be necessary under the securities laws of any state has become effective, or the Maker (as defined below) has been furnished with an opinion of counsel satisfactory to the Maker that such registration is not required.

Payments of principal and interest in respect of this Note are subordinated to payments of certain other indebtedness of the Maker, as set forth herein.

PROMISSORY NOTE

Louisville, Colorado

$[            ]                                                                                                                                                 [            ], 201     (the “ Issue Date ”)

FOR VALUE RECEIVED, the undersigned, REAL GOODS SOLAR, INC., a Colorado corporation (“ Maker ”), PROMISES TO PAY TO THE ORDER OF [             ] or its registered assigns (the “ Payee ”), the sum of [            ] DOLLARS ($[            ]), in lawful money of the United States of America, together with interest on the unpaid principal amount, all in accordance with the provisions stipulated herein.

Interest shall accrue on the principal amount of this Note at the rate of ten percent (10.0%) per annum, compounded annually, calculated based on a 360-day year, and accruing daily from the Issue Date until repaid, and shall be due and payable on the Maturity Date (as defined below).

All unpaid principal and all accrued but unpaid interest shall mature and become due and payable in full on the earlier of April 26, 2013 or the occurrence of a Proceeding (the “ Maturity Date ”). For the purposes of this Note, a “Proceeding” shall mean either (a) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of Maker or such person’s debts, or of a substantial part of such person’s assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for Maker or for a substantial part of such person’s assets, and, in any such case, such proceeding or petition shall continue undismissed for a period of 60 or more days or an order or decree approving or ordering any of the foregoing shall be entered or (b) Maker shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (a) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for Maker or for a substantial part of such person’s assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing.

If Maker completes a sale of at least $50,000 of the Maker’s capital stock (the “Equity Financing”), then the all or any portion of the principal and interest owing on this Note will, at the option of the Payee, be converted into securities of the class or classes of equity securities of Maker issued in the Equity Financing, at the same purchase price as paid by other purchasers in the Equity Financing and effective as of the close of business on the closing date of the Equity Financing. If this any portion of this Note is converted pursuant to this paragraph, the portion so converted will be deemed cancelled without any further action by Maker or Payee.

If Maker fails to make payment of the principal and all interest owing on this Note within 10 days of when due, then the Payee will have the option to acquire an undivided 50% interest in Maker’s real estate located in Hopland, California (including all land and buildings) in exchange for cancellation of such principal and interest. This option is conditioned upon (1) the approval of Maker’s disinterested directors (namely Kam Mofid, Bob Scott, and John Schaeffer), and (2) Silicon Valley Bank’s consent. Upon meeting these conditions, this option may be exercised by Payee by providing written notice to Maker at any time prior to midnight on the 20 th day following the Maturity Date. If Payee exercises this option, Maker and Payee will cooperate in good faith to execute and deliver appropriate real estate transfer documents to effect the transfer of such 50% interest to Payee on customary terms and conditions (including with respect to pro-rations of taxes and other expenses related to the property).

Payee will have all rights and remedies of a creditor at law or in equity. All rights and remedies available to Payee under this Note shall be cumulative of and in addition to all other rights and remedies granted to Payee at law or in equity.


Maker agrees, and Payee by accepting this Note agrees, that this Note, and the indebtedness evidenced hereby, including all principal and interest (the “ Subordinated Obligations ”), shall be subordinate and junior in right of payment to the prior payment in full in cash of all indebtedness for borrowed money (the “ Senior Obligations ”) owed by Maker to any lenders unaffiliated with Maker (the “ Senior Lenders ”), and that such subordination of the payment of the Subordinated Obligations to the payment in full of the Senior Obligations shall be subject to customary subordination terms reasonably acceptable to such Senior Lenders, including the following:

(a) the subordination provisions shall be effective and apply to the Subordinated Obligations until such time as (i) the Senior Obligations shall be repaid in full in cash and (ii) all commitments of the Senior Lenders to make loans or other credit extensions to or on behalf of Maker shall expire or terminate (the “ Senior Obligations Termination ”); and

(b) notwithstanding any provision in this Note to the contrary, prior to the earlier of the Maturity Date and the Senior Obligations Termination, Payee shall not ask, demand, sue for, take or receive from Maker or any other person or entity, directly or indirectly, in cash or other property or by set-off or in any other manner, and Maker shall not repay, or cause to be repaid, any or all of the Subordinated Obligations, except under customary terms reasonably acceptable to the Senior Lenders.

Subject to the foregoing provisions, Maker shall have the right to prepay this Note at any time without premium or penalty, provided that payments will be applied first to accrued and unpaid interest on the principal amount and the balance, if any, to the reduction of principal.

No modification, amendment, termination, or cancellation of any provision of this Note shall be valid and binding, unless it be in writing and signed by Maker and Payee. No failure or delay on the part of Payee in exercising any right, power or privilege hereunder and no course of dealing between Maker and Payee shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

This note represents the final agreement between Maker and Payee and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements between Maker and Payee. There are no unwritten oral agreements between Maker and Payee.

This Note shall be governed by, and construed in accordance with, the laws of the State of Colorado .

 

MAKER : REAL GOODS SOLAR, INC.

By:

 

             

Name:

 

Kam Mofid

Title:

 

CEO

 

Acknowledged and Agreed:

PAYEE :

  [                                                   ]

By:

 

 

Name:

 

Title:

 

Exhibit 10.14

SECOND LOAN MODIFICATION AND REINSTATEMENT AGREEMENT

This Second Loan Modification and Reinstatement Agreement (this “ Loan Modification Agreement ”) is entered into as of November 13, 2012 (the “ Second Loan Modification Effective Date ”), by and between SILICON VALLEY BANK , a California corporation with a loan production office located at 555 Mission St., Suite 900, San Francisco, California 94105 (“ Bank ”), and REAL GOODS ENERGY TECH, INC. , a Colorado corporation (“ Real Goods Energy ”), REAL GOODS TRADING CORPORATION , a California corporation (“ Real Goods Trading ”), EARTH FRIENDLY ENERGY GROUP HOLDINGS, LLC , a Delaware limited liability company (“ EFEG Holdings ”), ALTERIS RENEWABLES, INC ., a Delaware corporation (“ Alteris ”), EARTH FRIENDLY ENERGY GROUP, LLC , a Delaware limited liability company (“ EFEG ”), SOLAR WORKS, LLC , a Delaware limited liability company (“ Solar Works ”), ALTERIS RPS, LLC , a Delaware limited liability company (“ RPS ”), ALTERIS ISI, LLC , a Delaware limited liability company (“ ISI ”, and together with Real Goods Energy, Real Goods Trading, EFEG Holdings, Alteris, EFEG, Solar Works and RPS, individually and collectively, jointly and severally, the “ Borrower ”) and, solely for purposes of Section 6 below, REAL GOODS SOLAR, INC. , a Colorado corporation (the “ Secured Guarantor ”).

Borrower and Bank hereby agree that, notwithstanding the fact that the Revolving Line Maturity Date has passed, the Loan Agreement and all Loan Documents (and all terms and provisions contained therein) shall be deemed to be reinstated and in full force and effect as if the Revolving Line Maturity Date did not occur prior to the extension herein.

1. DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS . Among other indebtedness and obligations which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan arrangement dated as of December 19, 2011, evidenced by, among other documents, a certain Loan and Security Agreement, dated as of December 19, 2011, as amended by a certain First Loan Modification Agreement, dated as of August 28, 2012 (as amended, the “ Loan Agreement ”). Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement.

2. DESCRIPTION OF COLLATERAL Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement and in that certain Security Agreement, dated as of December 19, 2011, between the Secured Guarantor and Bank (as amended, the “ Security Agreement ”) (together with any other collateral security granted to Bank, the “ Security Documents ”).

Hereinafter, the Loan Agreement, together with all other documents executed in connection therewith evidencing, securing or otherwise relating to the Obligations shall be referred to as the “ Existing Loan Documents ”.

3. DESCRIPTION OF CHANGE IN TERMS .

 

  A. Modifications to Loan Agreement.

 

  1 The Loan Agreement shall be amended by deleting the following text appearing as Section 2.3(a)(i) thereof:

“(i) Advances . Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line shall accrue interest at a floating per annum rate equal to the Prime Rate plus two and three-quarters percentage points (2.75%); provided that during a Streamline Period, the principal amount outstanding under the Revolving Line shall accrue interest at a floating per annum rate equal to the Prime Rate, which interest shall be payable monthly, in arrears, in accordance with Section 2.3(g) below.”

and inserting in lieu thereof the following:

“(i) Advances . Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line shall accrue interest at a floating per annum rate equal to the Prime Rate plus four and three-quarters percentage points (4.75%); provided that during a Streamline Period, the principal amount outstanding under the Revolving Line shall accrue interest at a floating per annum rate equal to the Prime Rate plus two percentage points (2.00%), which interest shall be payable monthly, in arrears, in accordance with Section 2.3(g) below.”

 

  2 The Loan Agreement shall be amended by deleting the following text appearing as Section 2.3(g) thereof:

“(g) Payment; Interest Computation; Float Charge . Interest is payable monthly on the last calendar day of each month. In computing interest on the Obligations, all Payments received after 12:00 noon Eastern time on any day shall be deemed received on the next Business Day. In addition, Bank shall be entitled to charge Borrower a “float” charge in an amount equal to two (2) Business Days interest, at the interest rate


applicable to the Advances, on all Payments received by Bank. The float charge for each month shall be payable on the last day of the month. Bank shall not, however, be required to credit Borrower’s account for the amount of any item of payment which is unsatisfactory to Bank in its good faith business judgment, and Bank may charge Borrower’s Designated Deposit Account for the amount of any item of payment which is returned to Bank unpaid.”

and inserting in lieu thereof the following:

“(g) Payment; Interest Computation . Interest is payable monthly on the last calendar day of each month. In computing interest on the Obligations, all Payments received after 12:00 noon Eastern time on any day shall be deemed received on the next Business Day. Bank shall not, however, be required to credit Borrower’s account for the amount of any item of payment which is unsatisfactory to Bank in its good faith business judgment, and Bank may charge Borrower’s Designated Deposit Account for the amount of any item of payment which is returned to Bank unpaid.”

 

  3 The Loan Agreement shall be amended by inserting the following new Section 2.4(e) immediately following Section 2.4(d) thereof:

“(e) Collateral Monitoring Fee . A monthly collateral monitoring fee of One Thousand Dollars ($1,000), payable in arrears on the last day of each month ( provided that : (i) such collateral monitoring fee shall be prorated for any partial month at the beginning and upon termination of this Agreement; and (ii) no collateral monitoring fee shall be applicable during a Streamline Period).”

 

  4 The Loan Agreement shall be amended by deleting the following text appearing as Section 6.2(a)(vi) thereof:

“(vi) within twenty (20) days after approval by Borrower’s board of directors and in any event within sixty (60) days after the end of each fiscal year of Borrower, (A) annual operating budgets (including income statements, balance sheets and cash flow statements, by quarter) for the upcoming fiscal year of Borrower, and (B) annual financial projections for the following fiscal year (on a quarterly basis) as approved by Borrower’s board of directors, together with any related business forecasts used in the preparation of such annual financial projections;”

and inserting in lieu thereof the following:

“(vi) within twenty (20) days after approval by Borrower’s board of directors and in any event within sixty (60) days after the end of each fiscal year of Borrower ( provided that for the Borrower’s 2013 fiscal year, on or before December 31, 2012), (A) annual operating budgets (including income statements, balance sheets and cash flow statements, by quarter) for the upcoming fiscal year of Borrower, and (B) annual financial projections for the following fiscal year (on a quarterly basis) as approved by Borrower’s board of directors, together with any related business forecasts used in the preparation of such annual financial projections;”

 

  5 The Loan Agreement shall be amended by deleting the following text appearing as Section 6.8(b) thereof:

“(b) Provide Bank five (5) days prior-written notice before establishing any Collateral Account at or with any bank or financial institution other than Bank or Bank’s Affiliates. For each Collateral Account that Borrower at any time maintains (including, without limitation, the Wells Fargo Account), Borrower shall cause the applicable bank or financial institution (other than Bank) at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the terms hereunder which Control Agreement may not be terminated without the prior written consent of Bank. The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to Bank by Borrower as such.”


and inserting in lieu thereof the following:

“(b) Provide Bank five (5) days prior-written notice before establishing any Collateral Account at or with any bank or financial institution other than Bank or Bank’s Affiliates. For each Collateral Account that Borrower at any time maintains (including, without limitation, the Wells Fargo Account, but excluding until required by Bank, in its sole discretion, existing Collateral Accounts of Real Goods Trading maintained at financial institutions other than Bank), Borrower shall cause the applicable bank or financial institution (other than Bank) at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the terms hereunder which Control Agreement may not be terminated without the prior written consent of Bank. The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to Bank by Borrower as such.”

 

  6 The Loan Agreement shall be amended by deleting the following text appearing as Section 6.9 thereof:

6.9 Financial Covenant. Maintain at all times, to be tested as of the last day of each month, on a consolidated basis with respect to Borrower and its Subsidiaries (A) the sum of (i) Qualified Cash plus (ii) Borrower’s Eligible Accounts divided by (B) the total outstanding Obligations of Borrower owed to Bank, expressed as a ratio, of at least 2.00:1.00.”

and inserting in lieu thereof the following:

6.9 Financial Covenant. Maintain at all times, to be tested as of the last day of each month, on a consolidated basis with respect to Borrower and its Subsidiaries (A) the sum of (i) Qualified Cash (which Qualified Cash shall in any event at all times consist of not less than Five Hundred Thousand Dollars ($500,000) of Borrower’s unrestricted cash maintained at Bank) plus (ii) Borrower’s Eligible Accounts divided by (B) the total outstanding Obligations of Borrower owed to Bank, expressed as a ratio, of at least 1.50:1.00.”

 

  7 The Loan Agreement shall be amended by inserting the following definition, in its appropriate alphabetical order, in Section 13.1 thereof:

Second Loan Modification Effective Date ” is November 12, 2012.

 

  8 The Loan Agreement shall be amended by deleting the following definitions from Section 13.1 thereof:

Borrowing Base ” is (a) 80% of Eligible Accounts, as determined by Bank from Borrower’s most recent Borrowing Base Certificate, provided , however , that Bank may decrease the foregoing percentage in its good faith business judgment based on events, conditions, contingencies, or risks which, as determined by Bank, may adversely affect the Collateral.

Revolving Line ” is an Advance or Advances in an amount not to exceed Seven Million Dollars ($7,000,000) outstanding at any time.

Revolving Line Maturity Date” is October 30, 2012.

and inserting in lieu thereof the following:

Borrowing Base ” is (a) 75% of Eligible Accounts, as determined by Bank from Borrower’s most recent Borrowing Base Certificate, provided , however , that Bank may decrease the foregoing percentage in its good faith business judgment based on events, conditions, contingencies, or risks which, as determined by Bank, may adversely affect the Collateral.

Revolving Line ” is an Advance or Advances in an amount not to exceed Six Million Five Hundred Thousand Dollars ($6,500,000) outstanding at any time.

Revolving Line Maturity Date” is March 31, 2013.

 

  9 The Compliance Certificate attached as Exhibit B to the Loan Agreement is hereby deleted in its entirety and is replaced with Exhibit A attached hereto.

4. CONDITIONS PRECEDENT . Borrower hereby agrees that the following documents shall be delivered to the Bank prior to or concurrently with the execution of this Loan Modification Agreement, each in form and substance satisfactory to the Bank (collectively, the “ Conditions Precedent ”):


  A. copies, certified by a duly authorized officer of Borrower, to be true and complete as of the date hereof, of each of (i) the governing documents of Borrower as in effect on the date hereof (but only to the extent modified since last delivered to the Bank), (ii) the resolutions of Borrower authorizing the execution and delivery of this Loan Modification Agreement, the other documents executed in connection herewith and Borrower’s performance of all of the transactions contemplated hereby (but only to the extent required since last delivered to Bank), and (iii) an incumbency certificate giving the name and bearing a specimen signature of each individual who shall be so authorized on behalf of Borrower (but only to the extent any signatories have changed since such incumbency certificate was last delivered to Bank);

 

  B. good standing certificates of each Borrower certified by the Secretary of State of each State in which Borrower is organized or incorporated, together with a certificate of foreign qualification from the applicable authority in each jurisdiction in which Borrower is so qualified, in each case dated as of a date no earlier than thirty (30) days prior to the Second Loan Modification Effective Date;

 

  C. evidence satisfactory to Bank that Borrower has received a commitment for not less than Two Million Dollars ($2,000,000) from the issuance of additional equity and/or additional Subordinated Debt (the “ 2012 Commitment ”), which 2012 Commitment may be decreased in the event that Borrower raises additional capital (through the issuance of additional equity and/or additional Subordinated Debt), by the amount of such additional capital (in the event such 2012 Commitment proceeds are the result of the issuance of additional Subordinated Debt, such Subordinated Debt will be issued to Borrower’s existing holders of Subordinated Debt or such new holders of Subordinated Debt will be subject to a Subordination Agreement in favor of Bank, in each case in form and substance acceptable to Bank, in its sole discretion);

 

  D. executed copies of each Acknowledgment and Reaffirmation of Subordination Agreement from (i) Gaiam, Inc. (existing $1.7MM unsecured Promissory Note) and (ii) Riverside Renewable Energy Investments, LLC (existing $3MM unsecured Promissory Note), together with evidence acceptable to Bank that the maturity date of such Subordinated Debt has been extended (as necessary) to no earlier than April 1, 2013; and

 

  E. such other documents as Bank may reasonably request.

5. FEES . Borrower shall pay to Bank an extension fee equal to Fifty Thousand Dollars ($50,000.00), which fee shall be due on the date hereof and shall be deemed fully earned as of the date hereof. Borrower shall also reimburse Bank for all legal fees and expenses incurred in connection with the Existing Loan Documents and this Loan Modification Agreement.

6. TERMINATION FEE; WARRANT . In the event that the Secured Guarantor or any entity comprising Borrower consummates a Change of Control on or before the earlier to occur of the Revolving Line Maturity Date and repayment in full of all Obligations, Borrower shall concurrently with such consummation pay to Bank a fee in cash in an amount equal to Three Hundred Thousand Dollars ($300,000) (the “ Termination Fee ”), which Termination Fee shall be fully earned and non-refundable when paid. In the event that the Secured Guarantor or any entity comprising Borrower shall not have consummated a Change of Control on or before the earlier to occur of the Revolving Line Maturity Date and repayment in full of all Obligations, then on and as of the date of such earlier-to-occur event the Secured Guarantor shall execute and deliver to Bank a Warrant to Purchase Stock in substantially the form attached as Exhibit B hereto (the “ Warrant ”). Among other things: (i) the initial Warrant Price (as defined in the Warrant) shall be the average of the closing prices of a share of the Class (as defined in the Warrant) for the five (5) consecutive trading days immediately preceding the date of issuance of the Warrant, (ii) the initial number of Shares (as defined in the Warrant) for which the Warrant shall be exercisable shall equal $195,000 divided by the initial Warrant Price, and (iii) the Warrant shall have a term of seven (7) years from the date of issuance, subject to earlier termination in accordance with the provisions thereof. As used herein, “ Change of Control ” means (x) with respect to any entity, a sale, assignment or other disposition by such entity of all or substantially all of its assets; (y) a sale, assignment or other disposition by the Secured Guarantor or any Borrower, in a single transaction or series of related transactions, of a majority of the outstanding voting equity securities of any Borrower to an equity holder who was not an equity holder immediately prior to such transaction, or the issuance by any Borrower, in a single transaction or series of related transactions, of voting equity securities constituting a majority of the total issued and outstanding voting equity securities of such Borrower immediately following the closing of such transaction or series of related transactions to an equity holder who was not an equity holder immediately prior to such transaction; or (z) with respect to any entity, a merger or consolidation of such entity into or with another person or entity (other than a merger effected solely for the purpose of changing such entity’s domicile). The Secured Guarantor represents and warrants to Bank that the execution and delivery of the Warrant (if any) in accordance with this Section 6 has been duly authorized by all necessary action on the part of the Secured Guarantor’s Board of Directors. The Secured Guarantor and Borrower agree that the Warrant shall constitute an Obligation and that the failure of the Secured Guarantor to execute and deliver the Warrant as and when required by this Section 6 shall constitute an Event of Default.


7. FINAL PAYMENT FEE . In addition to the fees and expenses described above, on the earlier to occur of (a) March 31, 2013 and (b) the termination of the Revolving Line, when Bank has no further obligation to make Credit Extensions under the Loan Agreement, Borrower shall pay to Bank a final payment fee equal to Thirty Thousand Dollars ($30,000), which final payment fee shall be fully earned and non-refundable when paid.

8. PAYMENT OF ACCRUED INTEREST TO GAIAM, INC. Notwithstanding the terms and conditions of (i) Section 7.9 of the Loan Agreement, and (ii) the terms and conditions of that certain Subordination Agreement, dated as of December 19, 2011, by and between Bank and Gaiam, Inc. (“ Gaiam ”), Borrower shall be permitted to pay to Gaiam, and Gaiam shall be permitted to receive and retain, all outstanding accrued but unpaid interest owed by Borrower to Gaiam pursuant to the terms and conditions of that certain Promissory Note, dated on or about December 19, 2011 (the “ Initial Gaiam Note ”), so long as (x) no Event of Default has occurred and is continuing, or would result immediately after giving effect to such payment; and (y) on or prior to such payment, the maturity date of the Initial Gaiam Note is extended to a date no earlier than April 30, 2013.

9. ADDITIONAL COVENANTS: RATIFICATION OF PERFECTION CERTIFICATE . Borrower hereby certifies that, other than as disclosed in the Perfection Certificate, no Collateral with a value greater than Ten Thousand Dollars ($10,000) in the aggregate is in the possession of any third party bailee (such as at a warehouse). In the event that Borrower, after the date hereof, intends to store or otherwise deliver the Collateral with a value in excess of Ten Thousand Dollars ($10,000) in the aggregate to such a bailee, then Borrower shall first receive, the prior written consent of Bank and such bailee must acknowledge in writing that the bailee is holding such Collateral for the benefit of Bank. Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in a certain Perfection Certificate, dated as of December 19, 2011, and acknowledges, confirms and agrees the disclosures and information above Borrower provided to Bank in such Perfection Certificate remains true and correct in all material respects as of the date hereof.

10. CONSENT . The Bank expressly consents to the terms, conditions and obligations of the Secured Guarantor, and, as applicable, Borrower, set forth in the Loan Commitment Agreement (together with the exhibits thereto), executed by the Secured Guarantor in connection with the 2012 Commitment described in Section 4(C) above, a copy of which is attached as Exhibit C hereto.

11. CONSISTENT CHANGES . The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.

12. RATIFICATION OF LOAN DOCUMENTS . Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of the Loan Agreement and each other Loan Document, and of all security or other collateral granted to the Bank, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations.

13. NO DEFENSES OF BORROWER . Borrower hereby acknowledges and agrees that Borrower has no offsets, defenses, claims, or counterclaims against Bank with respect to the Obligations, or otherwise, and that if Borrower now has, or ever did have, any offsets, defenses, claims, or counterclaims against Bank, whether known or unknown, at law or in equity, all of them are hereby expressly WAIVED and Borrower hereby RELEASES Bank from any liability thereunder.

14. CONTINUING VALIDITY . Borrower understands and agrees that in modifying the existing Obligations, Bank is relying upon Borrower’s representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Bank’s agreement to waive the Existing Default pursuant to this Loan Modification Agreement in no way shall obligate Bank to make any future waivers or any other modifications to the Obligations. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Bank and Borrower to retain as liable parties all makers of Existing Loan Documents, unless the party is expressly released by Bank in writing. No maker will be released by virtue of this Loan Modification Agreement.

15. JURISDICTION/VENUE . Section 11 of the Loan Agreement is hereby incorporated by reference.

16. COUNTERSIGNATURE . This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower and Bank.

[Signature page follows.]


This Loan Modification Agreement is executed as of the date first written above.

 

BORROWER      
REAL GOODS ENERGY TECH, INC.    

REAL GOODS TRADING

CORPORATION

By:

Name:

Title:

 

/s/ Kam Mofid

Kam Mofid

CEO

   

By:

Name:

Title:

 

/s/ Kam Mofid

Kam Mofid

CEO

ALTERIS RENEWABLES, INC.     EARTH FRIENDLY ENERGY GROUP HOLDINGS, LLC

By:

Name:

Title:

 

/s/ Kam Mofid

Kam Mofid

CEO

   

By:

Name:

Title:

 

/s/ Kam Mofid

Kam Mofid

CEO

EARTH FRIENDLY ENERGY GROUP, LLC     SOLAR WORKS, LLC

By:

Name:

Title:

 

/s/ Kam Mofid

Kam Mofid

CEO

   

By:

Name:

Title:

 

/s/ Kam Mofid

Kam Mofid

CEO

ALTERIS ISI, LLC     ALTERIS RPS, LLC
 

By: Alteris Renewables, Inc.

Its: Sole Member

     

By: Alteris Renewables, Inc.

Its: Sole Member

By:

Name:

Title:

 

/s/ Kam Mofid

Kam Mofid

CEO

   

By:

Name:

Title:

 

/s/ Kam Mofid

Kam Mofid

CEO

 

REAL GOODS SOLAR, INC.

(solely for purposes of Section 6)

By:  

/s/ Kam Mofid

Name:

Title:

 

Kam Mofid

CEO

 

BANK:

 

SILICON VALLEY BANK

By:  

/s/ Elisa Sun

Name:

Title:

 

Elisa Sun

Relationship Manager

Acknowledgment and Agreement:

The undersigned ratifies, confirms and reaffirms, all and singular, the terms and conditions of a certain Unconditional Guaranty and a certain Security Agreement, each dated as of December 19, 2012, and each document executed in connection therewith, and acknowledges, confirms and agrees that the Unconditional Guaranty, Security Agreement and each document executed in connection therewith shall remain in full force and effect and shall in no way be limited by the execution of this Loan Modification Agreement, or any other documents, instruments and/or agreements executed and/or delivered in connection herewith.


REAL GOODS SOLAR, INC.
By:  

/s/ Kam Mofid

Name:

Title:

 

Kam Mofid

CEO


Exhibit A to Second Loan Modification Agreement

EXHIBIT B

COMPLIANCE CERTIFICATE

 

TO: SILICON VALLEY BANK                                                                                                                   Date:                         

 

FROM: REAL GOODS ENERGY TECH, INC. ET. AL.

The undersigned authorized officer of REAL GOODS ENERGY TECH, INC., et al. (the “ Borrower ”) certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (as amended, the “ Agreement ”), (1) Borrower is in complete compliance for the period ending             with all required covenants except as noted below, (2) there are no Events of Default, (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided , however , that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided , further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement, and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries, if any, relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank. Attached are the required documents supporting the certification. The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.

Please indicate compliance status by circling Yes/No under “Complies” column.

 

Reporting Covenant

 

Required

 

Complies

Monthly financial statements with Compliance Certificate   Monthly within 30 days   Yes     No
   
10-Q, 10-K and 8-K   Within 5 days after filing with SEC   Yes     No
   
A/R & A/P Agings   Monthly within 20 days   Yes     No
   
Transaction Reports  

Weekly and with each request for a

Credit Extension (Monthly within 20 days during a Streamline Period)

  Yes     No
   
Projections  

Within 20 days of board approval

(no later than 60 days after FYE – for FY 2013, on or before December 31, 2012)

  Yes     No
   

Deferred Revenue Report, Schedule of Assets with respect to 3 rd party construction and financing arrangements (including performance bonds and bank statements for non-SVB bank accounts)

  Monthly within 30 days   Yes     No
   

The following Intellectual Property was registered after the Effective Date (if no registrations, state “None”)

 

 

 

 

Financial Covenant

   Required      Actual      Complies/Streamline  

Maintain as indicated:

        

Liquidity Ratio (monthly)

     1:50:1.00             :1.00         Yes    No   

Borrower’s unrestricted cash at Bank

   $ 500,000       $           Yes    No   

Streamline Period (Qualified Cash minus the total outstanding Obligations of Borrower owed to Bank)

   $ 2,000,000       $           Yes    No   


The following financial covenant analyses and information set forth in Schedule 1 attached hereto are true and accurate as of the date of this Certificate.

The following are the exceptions with respect to the certification above: (If no exceptions exist, state “No exceptions to note.”)

 

REAL GOODS ENERGY TECH, INC.     BANK USE ONLY
By:  

 

    Received by:  

 

Name:  

 

      AUTHORIZED SIGNER
Title:  

 

    Date:  

 

      Verified:  

 

        AUTHORIZED SIGNER
      Date:  

 

      Compliance Status:                                     Yes         No


Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

In the event of a conflict between this Schedule and the Loan Agreement, the terms of the Loan Agreement shall govern.

Dated:                                                  

 

I. Liquidity Ratio (Section 6.9)

Required:     Maintain at all times, to be tested as of the last day of each month, on a consolidated basis with respect to Borrower and its Subsidiaries (A) the sum of (i) Qualified Cash (which Qualified Cash shall in any event at all times consist of not less than Five Hundred Thousand Dollars ($500,000) of Borrower’s unrestricted cash maintained at Bank) plus (ii) Borrower’s Eligible Accounts divided by (B) the total outstanding Obligations of Borrower owed to Bank, expressed as a ratio, of at least 1.50:1.00.

Actual:

 

A.

   Qualified Cash    $     

B.

   Eligible Accounts    $     

C.

   Total Outstanding Obligations of Borrower owed to Bank    $     

D.

   Liquidity Ratio ( the sum of line A plus line B divided by line C, expressed as a ratio)      :1.00   

Is line D equal to or greater than 1.50:1:00?

                 No, not in compliance                                                                                                                            Yes, in compliance

Does Line A consist of not less than $500,000 of Borrower’s unrestricted cash at Bank?

                 No, not in compliance                                                                                                                            Yes, in compliance


II. Streamline Period.

Required:     Provided no Default or Event of Default has occurred and is continuing, the period (i) beginning on the first (1 st ) day in which Borrower has, for each consecutive day in the immediately preceding sixty (60) day period, maintained Qualified Cash minus the total outstanding Obligations of Borrower owed to Bank, as determined by Bank, in its sole discretion, in an amount at all times greater than or equal to Two Million Dollars ($2,000,000), as determined by Bank, in its sole discretion (the “ Streamline Balance ”); and (ii) ending on the earlier to occur of (A) the occurrence of a Default or an Event of Default; and (B) the first day thereafter in which Borrower fails to maintain the Streamline Balance, as determined by Bank, in its sole discretion. Upon the termination of a Streamline Period, Borrower must maintain the Streamline Balance each consecutive day for thirty (30) consecutive days, as determined by Bank, in its sole discretion, prior to entering into a subsequent Streamline Period.

Actual:

 

A.

   Qualified Cash    $            

B.

   Total Outstanding Obligations of Borrower owed to Bank    $            

C.

   Streamline Balance (line A minus line B)    $

Is line C equal to or greater than $2,000,000?

                 No, not in Streamline Period                                                                                                    Yes, in Streamline Period


Exhibit B to Second Loan Modification Agreement

Form of Warrant.

(See attached.)


Exhibit C to Second Loan Modification Agreement

2012 Commitment.

(See attached.)

Exhibit 10.15

Form of Promissory Note

This promissory note (this “Note”) has not been registered under the Securities Act of 1933, as amended, or under the securities laws of any state. No transfer, sale or other disposition of this Note may be made unless a registration statement with respect to this Note has become effective under said Act, and such registration or qualification as may be necessary under the securities laws of any state has become effective, or the Maker (as defined below) has been furnished with an opinion of counsel satisfactory to the Maker that such registration is not required.

Payments of principal and interest in respect of this Note are subordinated to payments of certain other indebtedness of the Maker, as set forth herein.

PROMISSORY NOTE

Louisville, Colorado

$1,000,000                                                                                                                                        [            ], 201     (the “ Issue Date ”)

FOR VALUE RECEIVED, the undersigned, REAL GOODS SOLAR, INC., a Colorado corporation (“ Maker ”), PROMISES TO PAY TO THE ORDER OF [             ] or its registered assigns (the “ Payee ”), the sum of [            ] DOLLARS ($[            ]), in lawful money of the United States of America, together with interest on the unpaid principal amount, all in accordance with the provisions stipulated herein.

Interest shall accrue on the principal amount of this Note at the rate of ten percent (10.0%) per annum, compounded annually, calculated based on a 360-day year, and accruing daily from the Issue Date until repaid, and shall be due and payable on the Maturity Date (as defined below).

All unpaid principal and all accrued but unpaid interest shall mature and become due and payable in full on the earlier of April 26, 2013 or the occurrence of a Proceeding (the “ Maturity Date ”). For the purposes of this Note, a “Proceeding” shall mean either (a) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of Maker or such person’s debts, or of a substantial part of such person’s assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for Maker or for a substantial part of such person’s assets, and, in any such case, such proceeding or petition shall continue undismissed for a period of 60 or more days or an order or decree approving or ordering any of the foregoing shall be entered or (b) Maker shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (a) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for Maker or for a substantial part of such person’s assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing.

If Maker completes a sale of at least $50,000 of the Maker’s capital stock (the “Equity Financing”), then the all or any portion of the principal and interest owing on this Note will, at the option of the Payee, be converted into securities of the class or classes of equity securities of Maker issued in the Equity Financing, at the same purchase price as paid by other purchasers in the Equity Financing and effective as of the close of business on the closing date of the Equity Financing. If this any portion of this Note is converted pursuant to this paragraph, the portion so converted will be deemed cancelled without any further action by Maker or Payee.

If Maker fails to make payment of the principal and all interest owing on this Note within 10 days of when due, then the Payee will have the option to acquire an undivided 50% interest in Maker’s real estate located in Hopland, California (including all land and buildings) in exchange for cancellation of such principal and interest. This option is conditioned upon (1) the approval of Maker’s disinterested directors (namely Kam Mofid, Bob Scott, and John Schaeffer), and (2) Silicon Valley Bank’s consent. Upon meeting these conditions, this option may be exercised by Payee by providing written notice to Maker at any time prior to midnight on the 20 th day following the Maturity Date. If Payee exercises this option, Maker and Payee will cooperate in good faith to execute and deliver appropriate real estate transfer documents to effect the transfer of such 50% interest to Payee on customary terms and conditions (including with respect to pro-rations of taxes and other expenses related to the property).

Payee will have all rights and remedies of a creditor at law or in equity. All rights and remedies available to Payee under this Note shall be cumulative of and in addition to all other rights and remedies granted to Payee at law or in equity.


Maker agrees, and Payee by accepting this Note agrees, that this Note, and the indebtedness evidenced hereby, including all principal and interest (the “ Subordinated Obligations ”), shall be subordinate and junior in right of payment to the prior payment in full in cash of all indebtedness for borrowed money (the “ Senior Obligations ”) owed by Maker to any lenders unaffiliated with Maker (the “ Senior Lenders ”), and that such subordination of the payment of the Subordinated Obligations to the payment in full of the Senior Obligations shall be subject to customary subordination terms reasonably acceptable to such Senior Lenders, including the following:

(a) the subordination provisions shall be effective and apply to the Subordinated Obligations until such time as (i) the Senior Obligations shall be repaid in full in cash and (ii) all commitments of the Senior Lenders to make loans or other credit extensions to or on behalf of Maker shall expire or terminate (the “ Senior Obligations Termination ”); and

(b) notwithstanding any provision in this Note to the contrary, prior to the earlier of the Maturity Date and the Senior Obligations Termination, Payee shall not ask, demand, sue for, take or receive from Maker or any other person or entity, directly or indirectly, in cash or other property or by set-off or in any other manner, and Maker shall not repay, or cause to be repaid, any or all of the Subordinated Obligations, except under customary terms reasonably acceptable to the Senior Lenders.

Subject to the foregoing provisions, Maker shall have the right to prepay this Note at any time without premium or penalty, provided that payments will be applied first to accrued and unpaid interest on the principal amount and the balance, if any, to the reduction of principal.

No modification, amendment, termination, or cancellation of any provision of this Note shall be valid and binding, unless it be in writing and signed by Maker and Payee. No failure or delay on the part of Payee in exercising any right, power or privilege hereunder and no course of dealing between Maker and Payee shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

This note represents the final agreement between Maker and Payee and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements between Maker and Payee. There are no unwritten oral agreements between Maker and Payee.

This Note shall be governed by, and construed in accordance with, the laws of the State of Colorado .

 

MAKER : REAL GOODS SOLAR, INC.

By:

 

/s/ Kam Mofid

Name:

 

Kam Mofid

Title:

 

CEO

 

Acknowledged and Agreed:

 

PAYEE: [                                                   ]

By:

 

 

Name:

 

Title:

 

Exhibit 10.16

December 21, 2012

CONFIDENTIAL

Kamyar (Kam) Mofid

3401 Arapahoe Avenue, #415

Boulder, Colorado 80303

Re: Restated Employment Letter

Dear Kam:

This Restated Employment Letter (this “Letter”) re-states in full the terms of employment between you, the “Executive”, in the position of Chief Executive Officer (“CEO”) of Real Goods Solar, Inc. (“RSOL” or the “Company”) set forth in the July 23, 2012 offer letter. Please review the following employment details set forth in this letter and sign it below. We look forward to you continuing to be a part of our team.

 

   

Location. You will be based out of our corporate head office in Louisville, CO.

 

   

Reporting. As the Company’s CEO, you will report directly to the Board. Furthermore, you will serve as a Director given your position with the Company.

 

   

Salary. Your annual base salary is $300,000 per year, payable bi-weekly in accordance with our standard payroll practices and subject to all appropriate withholdings. Effective January 1, 2013, your annual base salary will be increased to $360,000 upon the engagement of an investment banking firm as directed by the board before that date. Your base salary may be increased, but not decreased, by the Board without your consent.

 

   

Annual Bonus. Your bonus opportunity will be up to 100% of your base salary. Your annual bonus will be based upon the Company achieving financial and operating objectives established by the Board in consultation with you. For 2012, your bonus will be $120,000 guaranteed and will be paid at the same time as other executives, in accordance with the Company’s standard bonus policies and practices (the “2012 Bonus”). You must be employed by the Company on the date the 2012 Bonus is paid in order to be entitled to receive the 2012 Bonus.

 

   

Benefits. You are eligible to participate in any and all employee benefit programs that are in place, subject to the terms and conditions of those programs.

 

   

Paid-time Off. You are entitled to four weeks of paid-time off and Company holidays per Company calendar year, which paid time off shall accrue, and to the extent applicable, carry-over in accordance with the Company’s standard policies and practices.

 

   

Equity Incentive. Pursuant to the terms of the Company’s 2008 Long-Term Incentive Plan, as amended (“Plan”) you have been granted an Option to purchase 500,000 shares of the Company’s common stock (RSOL Nasdaq) with an exercise price equal to the market price on your Start Date, subject to the vesting schedule set forth in your Stock Option Agreement except as modified by the terms of this Letter.

 

   

Additional Equity Incentive. For your efforts as CEO, you will receive additional options granted under the Plan to purchase 200,000 shares of the Company’s common stock (RSOL Nasdaq) with an exercise price equal to the market price on the effective date of this restated Letter, subject to the Company’s vesting schedule set forth in your Stock Option Agreement except as modified by the terms of this Letter.

 

   

Relocation. The Company previously provided to you a $50,000 relocation/bonus allowance.

 

   

Confidentially and Non-compete. Your employment includes two-year covenants concerning confidentiality, noncompetition, non-solicitation of employees and customers and assignment of inventions (documented in the Company’s Stock Option Agreement).


   

Change of Control. “Change of Control” shall mean a new or an existing shareholder currently owning less than 10% of shares of the Company becoming a majority shareholder.

 

   

Equity Vesting after a Change of Control. Upon a Change of Control, 50% of all of your unvested Stock Options awarded to you will immediately vest in full. The rest of your equity awards will continue to vest in accordance with the Company’s Stock Option Plan and the applicable award documents. If you are terminated without Cause or resign for Good Reason (as defined below) within 12 months of a Change of Control, you can exercise your vested options for a period of 12 months after the date of such termination but in no event later than the date on which the options would otherwise terminate had your employment not terminated. The terms set forth in this Section shall supersede any contrary terms contained in the Stock Option Agreement.

 

   

Cash Sale of the Company. “Cash Sale” shall mean a sale, as approved by the board of directors and shareholders of the Company, of at least 51% of the issued and outstanding shares of capital stock of the Company where the consideration received by the shareholders in such sale is all cash.

 

   

Equity Vesting after a Cash Sale. Upon a Cash Sale, all of your unvested Stock Options awarded to you, will immediately vest in full. The terms set forth in this Section shall supersede any contrary terms contained in the Stock Option Agreement.

 

   

Severance and COBRA Coverage.

Upon your termination of employment for any reason, you will be paid all of your accrued salary, all accrued but unused PTO per the Company’s policy, any bonuses earned prior to the termination date on a pro-rata basis, the time and form of any such bonus to be paid in accordance with the terms of the applicable bonus plan or program (“Accrued Benefits”). All other benefits, including but not limited to life insurance, disability insurance, etc., shall cease upon your termination of employment unless otherwise required by applicable laws.

 

   

Involuntarily Termination without Cause or Termination for Good Reason

 

   

In the event that your employment is involuntarily terminated by the Company without Cause (as defined below) or is terminated by you for Good Reason (as defined below), you will be entitled to a severance payment from the Company equal to 12 months of your salary in effect on the date of such termination. In the event that your employment is involuntarily terminated without Cause or is terminated by you for Good Reason within 12 months of a Change of Control (as defined above), other than a Cash Sale, the amount of the severance payment shall be equal to 18 months of your salary in effect on the date of such termination. The severance payment will be paid in the form of a single lump sum cash payment, subject to all applicable payroll deductions, and will be paid on or before, but no later than, the 30 th day following the date of such termination.

 

   

Upon the closing of a Cash Sale (the “Cash Sale Closing Date”), you will receive a cash bonus equal to twice your annual base salary in effect on the date of the Cash Sale (the “Cash Sale Bonus”) in lieu of the severance payment in the preceding paragraph, and you will have no right to receive such severance payment. The Cash Sale Bonus will be paid in two installments.

 

   

The first installment shall be equal to one-half of the Cash Sale Bonus and shall be paid on or before, but no later than, the 30 th day following the Cash Sale Closing Date.

 

   

The second installment shall be equal to one-half of the Cash Sale Bonus and shall be paid on or before, but no later than, the earlier of (i) the 6-month anniversary of the Cash Sale Closing Date and (ii) March 15 th of the calendar year immediately following the calendar year in which occurs the Cash Sale Closing Date.

 

   

In addition, if you timely elect continuation coverage under the Company’s group health plan pursuant to Code Section 4980B (“COBRA Coverage”) following your involuntary termination by the Company without Cause or your termination for Good Reason, you will be entitled to such COBRA Coverage at active employee rates, as amended from time to time, for up to twelve month following your termination of employment or, in the case of such a termination following a Change of Control, other than a Cash Sale, for up to eighteen months following such termination (“Continued Coverage”).

 

   

In the event that your employment is involuntarily terminated by the Company without Cause or is terminated by you for Good Reason within 12 months following a Cash Sale and you timely elect COBRA Coverage, the period of Continued Coverage shall be limited to twelve months and the Company will reimburse you for entire cost of the COBRA Coverage during such period.


   

In no event shall the period of Continued Coverage exceed the period of time for which you would be entitled to COBRA Coverage. Following the 12- or 18-month period of Continued Coverage, as applicable, you shall be responsible for the entire cost of the COBRA Coverage for any remaining period of the COBRA Coverage. The Continued Coverage period shall count toward and run concurrently with the applicable COBRA Coverage period.

 

   

Involuntarily Termination for Cause or Voluntary Termination Other than for Good Reason

 

   

If you are involuntarily terminated by the Company for Cause or if you terminate your employment with the Company other than for Good Reason, you shall not be entitled to any compensation, severance, or benefits other than the Accrued Benefits.

 

   

Certain Terms. “Cause” means (a) misappropriation of funds, (b) conviction of a crime involving moral turpitude, (c) gross negligence in the performance of duties, (d) breach of fiduciary duty to the Company, or (e) material breach of any contractual obligations to the Company. “Good Reason” means the occurrence, without the consent of Executive, of one or more of the following actions, to which Executive objects in writing to the Board within 20 days following initial notification of its occurrence or proposed occurrence, and which action is not then rescinded within 30 days after delivery of such notice: (a) a change of the principal office or work place assigned to Executive to a location more than 25 miles distant from its location immediately prior to such change, (b) a material reduction by the Company of Executive’s title, authority, duties, or responsibilities, (c) a reduction of Executive’s base salary or benefits, or (d) any purported termination of Executive’s employment or service relationship for Cause by the Company or any successor or affiliate that is not in accordance with the definition of Cause set forth in this Letter or (e) failure of any successor or assign of the Company to assume the terms of this Agreement .

 

   

Insurance. The Company provides its executives, officers, and directors appropriate indemnity and D&O insurance which you will be covered by.

 

   

Start Date. Your official start date as the CEO was Monday July 30, 2012 (the “Start Date”).

 

   

Taxation and Code Section 409A.

 

   

You understand and agree that you are solely responsible for any and all taxes due as a result of any compensation, including any severance or Cash Sale Bonus, provided hereunder. Notwithstanding provision to the contrary, in no event does Employer guarantee any particular tax consequences, outcome, or tax liability to Employee. No provision of this Letter shall be interpreted or construed to transfer any liability for failure to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as it may be amended from time to time (“Section 409A”) from Executive or any other individual to the Company or its affiliates.

 

   

Compensation and benefits provided hereunder are subject to applicable payroll taxes and the related withholding obligations.

 

   

You acknowledge that the Company, nor any of their representatives, have provided any tax advice to you in connection with this Letter and/or any other compensation or benefits being provided to you, and you are hereby advised to seek tax advice from you own tax advisors regarding this Letter and payments and benefits that may be provided hereunder. You are specifically advised to consult with his tax advisors regarding the application of Section 409A to the compensation and benefits provided hereunder.

 

   

The compensation and benefits contemplated by this Letter are intended to either (a) be exempt from the requirements of Section 409A or (b) comply with the requirements of Section 409A. Notwithstanding any provision of this Letter to the contrary, in the event the Company determines after the effective date of this Letter that any compensation or benefits payable hereunder constitutes “nonqualified deferred compensation” within the meaning of Section 409A, the Company may (without any obligation to do so or to indemnify Employee for failure to do so, except as expressly set forth in this Letter), without the consent of Executive, adopt such amendments to this Letter or take any other actions that the Company in its sole discretion determines are necessary or appropriate to (a) exempt such payments and benefits from the requirements of Section 409A or (b) comply with the requirements of Section 409A.


   

To the extent that any payments or benefits under this Letter are deemed to be subject to Section 409A:

 

   

This Letter will be interpreted in accordance with Section 409A, U.S. Department of Treasury Regulations, and other interpretive guidance issued thereunder.

 

   

In no event shall Executive have the right, directly or indirectly, to determine the tax year in which any payment will be made.

 

   

No compensation or benefit that is subject to the requirements of Section 409A and that is payable upon Executive’s termination of employment shall be paid unless Executive’s termination of employment constitutes a “separation from service” within the meaning of 26 C.F.R. Section 1.409A-1(h).

 

   

If Executive is deemed at the time of his separation from service to be a “specified employee” for purposes of Code Section 409A(a)(2)(B)(i), to the extent delayed commencement of any portion of the compensation or benefits to which Executive is entitled under this Letter is required in order to avoid a prohibited distribution under Code Section 409A(a)(2)(B)(i) (any such delayed commencement, a “Payment Delay”), such compensation or benefits shall not be provided to Executive prior to the earlier of (1) the expiration of the six-month period measured from the date of Executive’s “separation from service” with the Company or (2) the date of Executive’s death. Upon the earlier of such dates, all payments and benefits deferred pursuant to the Payment Delay shall be paid in a lump sum to Executive, and any remaining compensation and benefits due under this Letter shall be paid or provided as otherwise set forth herein. The determination of whether Executive is a “specified employee” for purposes of Code Section 409A(a)(2)(B)(i) as of the time of his separation from service shall be made by the Company in accordance with the terms of Code Section 409A and applicable guidance thereunder (including without limitation 26 C.F.R. Section 1.409A-1(i) and any successor provision thereto).

 

   

Each installment payment payable hereunder shall be deemed to be a separate payment for purposes of Code Section 409A.

 

   

All expenses or other reimbursements paid pursuant to this Letter that are taxable income to Executive shall in no event be paid later than the end of the calendar year next following the calendar year in which Executive incurs such expense. With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted by Code Section 409A, (i) the right to payment or reimbursement or in-kind benefits shall not be subject to liquidation or exchange for any other benefit, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year, provided that the foregoing clause (ii) shall not be violated by any lifetime and other annual limits provided under the Company’s health plans and (iii) such payments shall be made on or before the last day of Executive’s taxable year following the taxable year in which the expense occurred.

Upon your execution below, this letter agreement is binding and effective as of the date set forth above.

 

/s/ Kam Mofid

   12/21/2012

Kam Mofid

  

/s/ John R. Jackson

   12/21/2012

John R. Jackson, Secretary, Real Goods Solar, Inc.

Exhibit 10.17

FIRST AMENDMENT TO

TAX SHARING AGREEMENT

THIS AMENDMENT (this “ Amendment ”) is entered into as of December 19, 2011 (the “ Amendment Date ”), among Gaiam, Inc., a Colorado corporation (“ Gaiam ”), and Real Goods Solar, Inc., a Colorado corporation (“ RGSI ”), and amends the Tax Sharing Agreement (the “ Original Agreement ”) effective as of May 8, 2008 (the “ Effective Date ”) among Gaiam and RGSI. Capitalized terms used in this Amendment and not defined herein have the meanings given them in the Original Agreement.

With respect to the period from the Effective Date to the Amendment Date (the “ Prior Period ”), the terms and conditions of the Original Agreement shall govern. With respect to the period from and after the Amendment Date, the terms and conditions of the Original Agreement as supplemented by this Amendment shall govern.

The Parties agree and acknowledge that, as of March 31, 2011, under current statutory tax rates, the amount owed by Real Goods to Gaiam pursuant to the Original Agreement is a net of $1,568,516, representing the maximum amount of the Tax Benefit Payable under Section 3.6 of the Original Agreement of $1,745,486, reduced by $176,970 owed by Gaiam to Real Goods pursuant to Section 3.5 the Original Agreement.

1. A new Section 3.5(c) is added to the Original Agreement to read as follows:

“(c) Notwithstanding anything in this Agreement to the contrary, Gaiam shall not be entitled to any payment under this Agreement by Real Goods or any of its Controlled Affiliates as a result of the utilization by the Real Goods Group of any Tax Item of Alteris Renewables, Inc. or any of Alteris Renewables Inc.’s Controlled Affiliates arising prior to the Real Goods’ acquisition of Alteris Renewables, Inc.”

2. The last paragraph of Section 3.6(b) of the Original Agreement is amended and restated in its entirety to read as follows:

“Gaiam shall in good faith determine the Tax Benefit Payable. In the event of a Final Determination that modifies the amount of any Tax Item described in this Section 3.6(b), the Tax Benefit Payable will be recalculated under subparts (i) and (ii) above and such recalculated amount, to the extent such recalculated amount exceeds the Tax Benefit Payable as determined prior to such Final Determination, shall be paid by Real Goods to Gaiam as described in Section 3.6(a) or, to the extent such recalculated amount is less than the Tax Benefit Payable as determined prior to such Final Determination, shall be paid by Gaiam to Real Goods within ten business days following the date of such Final Determination.”

3. The addresses for delivery of notice in Section 4.2 of the Original Agreement shall be amended and restated to read as set forth on the signature page.

4. Except as expressly amended by this Amendment, the Original Agreement shall continue in full force and effect as the binding obligation of each of the parties. This Amendment shall be governed by and construed in accordance with the domestic laws of the state of Colorado, without giving effect to any choice of law or conflict of law provision or rule (whether of the state of Colorado or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the state of Colorado. This Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute this Amendment.

[SIGNATURE PAGE FOLLOWS]


IN WITNESS WHEREOF the parties have entered into this Amendment as of the day and year first above written.

 

G AIAM , I NC .
By:   /s/ John Jackson
Title:   Vice President of Corporate Development

833 W. South Boulder Road

Louisville, Colorado 80027-2452

Attention: John Jackson

Telephone: (303) 222-3809

Facsimile: (303) 222-3700

E-Mail: john.jackson@gaiam.com

R EAL G OODS S OLAR , I NC .

By:

  /s/ John Jackson

Title:

  Vice President of Corporate Development

833 W. South Boulder Road

Louisville, Colorado 80027-2452

Attention: Chief Financial Officer

Telephone: (415) 456.2800

Facsimile: (415) 456-2855

E-Mail: erik.zech@realgoods.com

[First Amendment to Tax Sharing Agreement]

Exhibit 10.18

This amended and restated promissory note (this “ Note ”) has not been registered under the Securities Act of 1933, as amended, or under the securities laws of any state. No transfer, sale or other disposition of this Note may be made unless a registration statement with respect to this Note has become effective under said Act, and such registration or qualification as may be necessary under the securities laws of any state has become effective, or the Maker (as defined below) has been furnished with an opinion of counsel satisfactory to the Maker that such registration is not required.

Payments of principal and interest in respect of this Note are subordinated to payments of certain other indebtedness of the Maker, as set forth herein.

AMENDED AND RESTATED PROMISSORY NOTE

Louisville, Colorado

 

$1,700,000    March 27, 2013 (the “ Issue Date ”)

FOR VALUE RECEIVED, the undersigned, REAL GOODS SOLAR, INC., a Colorado corporation (“ Maker ”), PROMISES TO PAY TO THE ORDER OF GAIAM, INC. or its registered assigns (the “ Payee ”), the sum of ONE MILLION SEVEN HUNDRED THOUSAND DOLLARS ($1,700,000), in lawful money of the United States of America, together with interest on the unpaid principal amount, all in accordance with the provisions stipulated herein,

Interest shall accrue on the principal amount of this Note at the rate of ten percent (10.0%) per annum calculated based on a 360-day year, and accruing daily from the Issue Date until repaid. Interest shall be due and payable monthly in arrears on the first business day of the following month, provided however Maker shall not be considered in default of this interest payment obligation as a result of any late interest payment unless the Payee has provided Maker with written notice of such default and Maker has not cured such default within 30 days following receipt of written notice thereof.

All unpaid principal and all accrued but unpaid interest shall mature and become due and payable in full on the earlier of April 30, 2014 and the occurrence of a Proceeding (the “ Maturity Date ”). For the purposes of this Note, a “Proceeding” shall mean either (a) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of Maker or such person’s debts, or of a substantial part of such person’s assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for Maker or for a substantial part of such person’s assets, and, in any such case, such proceeding or petition shall continue undismissed for a period of 60 or more days or an order or decree approving or ordering any of the foregoing shall be entered, or (b) Maker shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (a) above, (iii) apply for or consent to the appointment


of a receiver, trustee, custodian, sequestrator, conservator or similar official for Maker or for a substantial part of such person’s assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, or (vi) take any action for the purpose of effecting any of the foregoing.

This Note is one of the promissory notes referred to in that certain Shareholders Agreement, dated as of December 19, 2011 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “ Shareholders Agreement ”), by and among Maker, Riverside Renewable Energy Investments, LLC and Gaiam, Inc., and is subject to the provisions of the Shareholders Agreement. All rights and remedies available to Payee under this Note shall be cumulative of and in addition to all other rights and remedies granted to Payee at law or in equity.

Maker agrees, and Payee by accepting this Note agrees, that this Note, and the indebtedness evidenced hereby, including all principal and interest (the “ Subordinated Obligations ”), shall be subordinate and junior in right of payment to the prior payment in full in cash of all indebtedness for borrowed money (the “ Senior Obligations ”) owed by Maker to any lenders unaffiliated with Maker (the “ Senior Lenders ”), and that such subordination of the payment of the Subordinated Obligations to the payment in full of the Senior Obligations shall be subject to customary subordination terms reasonably acceptable to such Senior Lenders, including the following:

(a) the subordination provisions shall be effective and apply to the Subordinated Obligations until such time as (i) the Senior Obligations shall be repaid in full in cash, and (ii) all commitments of the Senior Lenders to make loans or other credit extensions to or on behalf of Maker shall expire or terminate (the “ Senior Obligations Termination ”); and

(b) notwithstanding any provision in this Note to the contrary, prior to the earlier of the Maturity Date and the Senior Obligations Termination, Payee shall not ask, demand, sue for, take or receive from Maker or any other person or entity, directly or indirectly, in cash or other property or by set-off or in any other manner, and Maker shall not repay, or cause to be repaid, any or all of the Subordinated Obligations, except under customary terms reasonably acceptable to the Senior Lenders.

Subject to the foregoing provisions, Maker shall have the right to prepay this Note at any time without premium or penalty, provided that payments will be applied first to accrued and unpaid interest on the principal amount and the balance, if any, to the reduction of principal.

No modification, amendment, termination or cancellation of any provision of this Note shall be valid and binding, unless it be in writing and signed by Maker and Payee. No failure or delay on the part of Payee in exercising any right, power or privilege hereunder and no course of dealing between Maker and Payee shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.


This Note, together with the Shareholders Agreement, represents the final agreement between Maker and Payee and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements between Maker and Payee. There are no unwritten oral agreements between Maker and Payee.

This Note is issued in replacement of and substitution for, but not in repayment of, the Promissory Note, dated as of November 13, 2012, in the original principal amount of $1,700,000.

This Note shall be governed by, and construed in accordance with the laws of the State of Colorado.

 

MAKER :
REAL GOODS SOLAR, INC.
By:  

 

Name:   Anthony M. Dipaolo
Title:   Chief Financial Officer

 

Acknowledged and Agreed:
PAYEE :
GAIAM, INC.
By:  

 

Name:   John Jackson
Title:   Vice President

Exhibit 10.19

This amended and restated promissory note (this “ Note ”) has not been registered under the Securities Act of 1933, as amended, or under the securities laws of any state. No transfer, sale or other disposition of this Note may be made unless a registration statement with respect to this Note has become effective under said Act, and such registration or qualification as may be necessary under the securities laws of any state has become effective, or the Maker (as defined below) has been furnished with an opinion of counsel satisfactory to the Maker that such registration is not required.

Payments of principal and interest in respect of this Note are subordinated to payments of certain other indebtedness of the Maker, as set forth herein.

AMENDED AND RESTATED PROMISSORY NOTE

Louisville, Colorado

 

$                    March 27, 2013 (the “ Issue Date ”)

FOR VALUE RECEIVED, the undersigned, REAL GOODS SOLAR, INC., a Colorado corporation (“ Maker ”), PROMISES TO PAY TO THE ORDER OF RIVERSIDE FUND III, L.P. or its registered assigns (the “ Payee ”), the sum of                     ($            ), in lawful money of the United States of America, together with interest on the unpaid principal amount, all in accordance with the provisions stipulated herein.

Interest shall accrue on the principal amount of this Note (including all amounts added to the principal balance hereof as a payment-in-kind of interest as described below) at the rate of ten percent (10.0%) per annum, compounded annually, calculated based on a 360-day year, and accruing daily from the Issue Date until repaid. In the event all or any part of the principal amount of this Note is repaid on or prior to the one year anniversary of the Issue Date, all accrued interest on such amount repaid shall be waived.

All unpaid principal (including all amounts added to the principal balance hereof as a payment-in-kind of interest as described below) and all accrued but unpaid interest shall mature and become due and payable in full on the earlier of     , 2014 and the occurrence of a Proceeding (the “ Maturity Date ”). For the purposes of this Note, a Proceeding shall mean either (a) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of Maker or such person’s debts, or of a substantial part of such persons assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for Maker or for a substantial part of such person’s assets, and, in any such case, such proceeding or petition shall continue undismissed for a period of 60 or more days or an order or decree approving or ordering any of the foregoing shall be entered, or (b) Maker shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (a) above, (iii) apply for or consent to the appointment


of a receiver, trustee, custodian, sequestrator, conservator or similar official for Maker or for a substantial part of such person’s assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, or (vi) take any action for the purpose of effecting any of the foregoing.

This Note is one of the promissory notes referred to in that certain Shareholders Agreement, dated as of December 19, 2011 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “ Shareholders Agreement ”), by and among Maker, Riverside Renewable Energy Investments, LLC and Gaiam, Inc., and is subject to the provisions of the Shareholders Agreement. All rights and remedies available to Payee under this Note shall be cumulative of and in addition to all other rights and remedies granted to Payee at law or in equity.

Maker agrees, and Payee by accepting this Note agrees, that this Note, and the indebtedness evidenced hereby, including all principal and interest (the “ Subordinated Obligations ”), shall be subordinate and junior in right of payment to the prior payment in full in cash of all indebtedness for borrowed money (the “ Senior Obligations ”) owed by Maker to any lenders unaffiliated with Maker (the “ Senior Lenders ”), and that such subordination of the payment of the Subordinated Obligations to the payment in full of the Senior Obligations shall be subject to customary subordination terms reasonably acceptable to such Senior Lenders, including the following:

(a) the subordination provisions shall be effective and apply to the Subordinated Obligations until such time as (i) the Senior Obligations shall be repaid in full in cash, and (ii) all commitments of the Senior Lenders to make loans or other credit extensions to or on behalf of Maker shall expire or terminate (the “ Senior Obligations Termination ”); and

(b) notwithstanding any provision in this Note to the contrary, prior to the earlier of the Maturity Date and the Senior Obligations Termination, Payee shall not ask, demand, sue for, take or receive from Maker or any other person or entity, directly or indirectly, in cash or other property or by set-off or in any other manner, and Maker shall not repay, or cause to be repaid, any or all of the Subordinated Obligations, except under customary terms reasonably acceptable to the Senior Lenders.

Subject to the foregoing provisions, Maker shall have the right to prepay this Note at any time without premium or penalty, provided that payments will be applied first to accrued and unpaid interest on the principal amount and the balance, if any, to the reduction of principal.

No modification, amendment, termination, or cancellation of any provision of this Note shall be valid and binding, unless it be in writing and signed by Maker and Payee. No failure or delay on the part of Payee in exercising any right, power or privilege hereunder and no course of dealing between Maker and Payee shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.


This Note, together with the Shareholders Agreement, represents the final agreement between Maker and Payee and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements between Maker and Payee. There are no unwritten oral agreements between Maker and Payee.

This Note is issued in replacement of and substitution for, but not in repayment of, the Promissory Note, dated as of     , 2012, in the original principal amount of $            .

This Note shall be governed by, and construed in accordance with the laws of the State of Colorado.

[SIGNATURES ON THE FOLLOWING PAGE]


IN WITNESS WHEREOF, Maker has executed and delivered this Note as of the date first stated above.

 

MAKER :
REAL GOODS SOLAR, INC.
By:  

 

Name:   Anthony M. Dipaolo
Title:   Chief Financial Officer

 

Acknowledged and Agreed:
PAYEE :
RIVERSIDE FUND III, L.P.
By:   Riverside Partners III, LP, its general partner
By:   Riverside Partners III, LLC, its general partner
By:  

 

Name:   David Belluck
Title:   Manager

Exhibit 10.20

THIRD LOAN MODIFICATION AGREEMENT

This Third Loan Modification Agreement (this “ Loan Modification Agreement ”) is entered into as of March 27, 2013 (the “ Third Loan Modification Effective Date ”), by and between SILICON VALLEY BANK , a California corporation with a loan production office located at 555 Mission St., Suite 900, San Francisco, California 94105 (“ Bank ”), and REAL GOODS ENERGY TECH, INC. , a Colorado corporation (“ Real Goods Energy ”), REAL GOODS TRADING CORPORATION , a California corporation (“ Real Goods Trading ”), and ALTERIS RENEWABLES, INC ., a Delaware corporation (“ Alteris ” and together with Real Goods Energy, and Real Goods Trading, individually and collectively, jointly and severally, the “ Borrower ”) and, solely for purposes of Section 7 below, REAL GOODS SOLAR, INC. , a Colorado corporation (the “ Secured Guarantor ”).

1. DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS . Among other indebtedness and obligations which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan arrangement dated as of December 19, 2011, evidenced by, among other documents, a certain Loan and Security Agreement, dated as of December 19, 2011, as amended by a certain First Loan Modification Agreement, dated as of August 28, 2012 and as further amended by a certain Second Loan Modification and Reinstatement Agreement, dated as of November 13, 2012 (as amended, the “ Loan Agreement ”). Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement.

2. DESCRIPTION OF COLLATERAL Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement and in that certain Security Agreement, dated as of December 19, 2011, between the Secured Guarantor and Bank (as amended, the “ Security Agreement ”) (together with any other collateral security granted to Bank, the “ Security Documents ”).

Hereinafter, the Loan Agreement, together with all other documents executed in connection therewith evidencing, securing or otherwise relating to the Obligations shall be referred to as the “ Existing Loan Documents ”.

3. DESCRIPTION OF CHANGE IN TERMS .

 

  A. Modifications to Loan Agreement.

 

  1 The Loan Agreement shall be amended by deleting the following text appearing as Section 6.2(a)(viii) thereof:

“(viii) within five (5) days after filing, all reports on Form 10-K, 10-Q and 8-K filed with the SEC or a link thereto on Borrower’s or another website on the Internet;”

and inserting in lieu thereof the following:

“(viii) (x) as soon as available, and in any event within one hundred twenty (120) days following the end of Borrower’s fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm reasonably acceptable to Bank; and (y) within five (5) days after filing, all reports on Form 10-K, 10-Q and 8-K filed with the SEC or a link thereto on Borrower’s or another website on the Internet;”

 

  2 The Loan Agreement shall be amended by inserting the following new Section 6.2(a)(x) immediately following Section 6.2(a)(ix) thereof:

“(x) from and after the Third Loan Modification Effective Date, Borrower shall provide Bank electronic access to the Wells Fargo Account, to permit Bank the ability to view transactions and balances maintained in such Wells Fargo Account.”


  3 The Loan Agreement shall be amended by deleting the following text appearing as Section 6.3(c) thereof:

“(c) Collection of Accounts . Borrower shall have the right to collect all Accounts, unless and until a Default or an Event of Default has occurred and is continuing. All payments on, and proceeds of, Accounts (other than Accounts of the Real Goods Borrowers) shall be deposited directly by the applicable Account Debtor into a lockbox account, or such other “blocked account” as Bank may specify, pursuant to a blocked account agreement in form and substance satisfactory to Bank in its sole discretion. Whether or not an Event of Default has occurred and is continuing, Borrower shall immediately deliver all payments on and proceeds of Accounts (other than Accounts of the Real Goods Borrowers) to an account maintained with Bank to be applied (i) prior to an Event of Default, to the Revolving Line pursuant to the terms of Section 2.5(b) hereof, and (ii) after the occurrence and during the continuance of an Event of Default, pursuant to the terms of Section 9.4 hereof; provided , that during a Streamline Period, such payments and proceeds shall be transferred to an operating account of Borrower maintained at Bank. Notwithstanding anything herein to the contrary, including, without limitation, the provisions of Section 6.8, the parties acknowledge that Borrower shall be shall be permitted to maintain the Wells Fargo Account for the deposit of payments on, and proceeds of, Accounts of the Real Goods Borrowers.”

and inserting in lieu thereof the following:

“(c) Collection of Accounts . Borrower shall have the right to collect all Accounts, unless and until a Default or an Event of Default has occurred and is continuing. Not later than ninety (90) days after the Third Loan Modification Effective Date, borrower shall cause all payments on, and proceeds of, Accounts (including, without limitation, Accounts of the Real Goods Borrowers) to be deposited directly by the applicable Account Debtor into a lockbox account, or such other “blocked account” as Bank may specify, pursuant to a blocked account agreement in form and substance satisfactory to Bank in its sole discretion. Whether or not an Event of Default has occurred and is continuing, Borrower shall immediately deliver all payments on and proceeds of Accounts (including, without limitation, Accounts of the Real Goods Borrowers) to an account maintained with Bank to be applied (i) prior to an Event of Default, to the Revolving Line pursuant to the terms of Section 2.5(b) hereof, and (ii) after the occurrence and during the continuance of an Event of Default, pursuant to the terms of Section 9.4 hereof; provided , that during a Streamline Period, such payments and proceeds shall be transferred to an operating account of Borrower maintained at Bank. Notwithstanding anything herein to the contrary, including, without limitation, the provisions of Section 6.8, the parties acknowledge that, until the date that is ninety (90) days after the Third Loan Modification Effective Date, Borrower shall be permitted to maintain the Wells Fargo Account for the deposit of payments on, and proceeds of, Accounts of the Real Goods Borrowers.”

 

  4 The Loan Agreement shall be amended by deleting the following text appearing as Section 6.6 thereof:

6.6 Access to Collateral; Books and Records. In addition to the Initial Audit, at reasonable times, on one (1) Business Day’s notice (provided no notice is required if an Event of Default has occurred and is continuing), Bank, or its agents, shall have the right, in the event the Streamline Period is not in effect at any time during the four (4) months immediately prior to the Revolving Line Maturity Date to inspect the Collateral and the right to audit and copy Borrower’s Books. The foregoing inspections and audits shall be at Borrower’s expense, and the charge therefor shall be $850 per person per day (or such higher amount as shall represent Bank’s then-current standard charge for the same), plus

 

2


reasonable out-of-pocket expenses. In the event Borrower and Bank schedule an audit more than ten (10) days in advance, and Borrower cancels or seeks to reschedule the audit with less than ten (10) days written notice to Bank, then (without limiting any of Bank’s rights or remedies), Borrower shall pay Bank a fee of $1,000 plus any out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated costs and expenses of the cancellation or rescheduling.”

and inserting in lieu thereof the following:

6.6 Access to Collateral; Books and Records. In addition to the Initial Audit, at reasonable times, on one (1) Business Day’s notice (provided no notice is required if an Event of Default has occurred and is continuing), Bank, or its agents, shall have the right to inspect the Collateral and the right to audit and copy Borrower’s Books. The next such inspection shall occur on or before the date that is forty-five (45) days after the Third Loan Modification Effective Date, and such inspections shall thereafter be performed on a semi-annual basis. The foregoing inspections and audits shall be at Borrower’s expense, and the charge therefor shall be $850 per person per day (or such higher amount as shall represent Bank’s then-current standard charge for the same), plus reasonable out-of-pocket expenses. In the event Borrower and Bank schedule an audit more than ten (10) days in advance, and Borrower cancels or seeks to reschedule the audit with less than ten (10) days written notice to Bank, then (without limiting any of Bank’s rights or remedies), Borrower shall pay Bank a fee of $1,000 plus any out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated costs and expenses of the cancellation or rescheduling.”

 

  5 The Loan Agreement shall be amended by inserting the following new Section 6.10(c) immediately following Section 6.10(b) thereof:

“(c) To the extent not already disclosed in writing to Bank, if Borrower (i) obtains any Patent, registered Trademark, registered Copyright, registered mask work, or any pending application for any of the foregoing, whether as owner, licensee or otherwise, or (ii) applies for any Patent or the registration of any Trademark, then Borrower shall immediately provide written notice thereof to Bank and shall, at Bank’s request, execute such intellectual property security agreements and other documents and take such other actions as Bank may request in its good faith business judgment to perfect and maintain a first priority perfected security interest in favor of Bank in such property. If Borrower decides to register any Copyrights or mask works in the United States Copyright Office, Borrower shall: (x) provide Bank with at least fifteen (15) days prior written notice of Borrower’s intent to register such Copyrights or mask works together with a copy of the application it intends to file with the United States Copyright Office (excluding exhibits thereto); (y) execute an intellectual property security agreement and such other documents and take such other actions as Bank may request in its good faith business judgment to perfect and maintain a first priority perfected security interest in favor of Bank in the Copyrights or mask works intended to be registered with the United States Copyright Office; and (z) record such intellectual property security agreement with the United States Copyright Office contemporaneously with filing the Copyright or mask work application(s) with the United States Copyright Office. Borrower shall promptly provide to Bank copies of all applications that it files for Patents or for the registration of Trademarks, Copyrights or mask works, together with evidence of the recording of the intellectual property security agreement required for Bank to perfect and maintain a first priority perfected security interest in such property.”

 

  6 The Loan Agreement shall be amended by deleting the following clauses (b), (q) and (v) appearing in the definition of “Eligible Accounts” in Section 13.1 thereof:

“(b) Accounts that the Account Debtor has not paid within ninety (90) days of invoice date (one hundred twenty (120) days for rebate accounts of the Real Goods Borrowers, as approved by Bank, on a case-by-case basis), regardless of invoice payment period terms;

 

3


(q) Accounts for which Borrower has permitted Account Debtor’s payment to extend beyond ninety (90) days (one hundred twenty (120) days for rebate accounts of the Real Goods Borrowers, as approved by Bank, on a case-by-case basis);

(v) Accounts owing from an Account Debtor, whose total obligations to Borrower exceed thirty-five percent (35%) of all Accounts, for the amounts that exceed that percentage, unless Bank approves in writing;”

and inserting in lieu thereof the following:

“(b) Accounts that the Account Debtor has not paid within ninety (90) days of invoice date (one hundred twenty (120) days for (i) Accounts of the Account Debtor for which is Clean Power Finance, SunPower and SunRun; and (ii) rebate accounts of the Real Goods Borrowers, as approved by Bank, on a case-by-case basis), regardless of invoice payment period terms;

(q) Accounts for which Borrower has permitted Account Debtor’s payment to extend beyond ninety (90) days (120) days for (i) Accounts the Account Debtor for which is Clean Power Finance, SunPower and SunRun; and (ii) rebate accounts of the Real Goods Borrowers, as approved by Bank, on a case-by-case basis);

(v) Accounts owing from an Account Debtor, whose total obligations to Borrower exceed forty percent (40%) of all Accounts, for the amounts that exceed that percentage, unless Bank approves in writing;”

 

  7 The Loan Agreement shall be amended by inserting the following definition, in its appropriate alphabetical order, in Section 13.1 thereof:

Third Loan Modification Effective Date ” is March 27, 2013.

 

  8 The Loan Agreement shall be amended by deleting the following definitions from Section 13.1 thereof:

Finco ” means Alteris Project Finance Company LLC, a Delaware limited liability company and a direct Subsidiary of EFEG Holdings.

Revolving Line Maturity Date” is March 31, 2013.

and inserting in lieu thereof the following:

Finco ” means Alteris Project Finance Company LLC, a Delaware limited liability company and a direct Subsidiary of Alteris.

Revolving Line Maturity Date” is September 30, 2013.

 

  9 The Description of Collateral attached as Exhibit A to the Loan Agreement is hereby deleted in its entirety and is replaced with Exhibit A attached hereto.

 

  10 The Compliance Certificate attached as Exhibit B to the Loan Agreement is hereby deleted in its entirety and is replaced with Exhibit B attached hereto.

4. CONDITIONS PRECEDENT . Borrower hereby agrees that the following documents shall be delivered to the Bank prior to or concurrently with the execution of this Loan Modification Agreement, each in form and substance satisfactory to the Bank (collectively, the “ Conditions Precedent ”):

 

  A. copies, certified by a duly authorized officer of Borrower, to be true and complete as of the date hereof, of each of (i) the governing documents of Borrower as in effect on the date hereof (but only to the extent modified since last delivered to the Bank), (ii) the resolutions of Borrower authorizing the execution and delivery of this Loan Modification Agreement, the other documents executed in connection herewith and Borrower’s performance of all of the transactions contemplated hereby (but only to the extent required since last delivered to Bank), and (iii) an incumbency certificate giving the name and bearing a specimen signature of each individual who shall be so authorized on behalf of Borrower (but only to the extent any signatories have changed since such incumbency certificate was last delivered to Bank);

 

4


  B. Bank shall have exercised the Warrant described in the Second Loan Modification Agreement, and shall have received an executed copy of the Warrant issued in connection with this Loan Modification Agreement;

 

  C. good standing certificates of each Borrower certified by the Secretary of State of each State in which Borrower is organized or incorporated, together with a certificate of foreign qualification from the applicable authority in each jurisdiction in which Borrower is so qualified, in each case dated as of a date no earlier than thirty (30) days prior to the Third Loan Modification Effective Date;

 

  D. executed copies of each Acknowledgment and Reaffirmation of Subordination Agreement from (i) Gaiam, Inc. (total Subordinated Debt of $2,700,000) and (ii) Riverside Renewable Energy Investments, LLC (total Subordinated Debt of $4,150,000), together with evidence acceptable to Bank that the maturity date of such Subordinated Debt has been extended (as necessary) to no earlier than December 31, 2013; and

 

  E. such other documents as Bank may reasonably request.

5. CONDITIONS SUBSEQUENT . On or before April 30, 2013, Borrower shall have received net proceeds from the issuance of additional Subordinated Debt of not less than Three Million Four Hundred Thousand Dollars ($3,400,000). In addition, Bank shall have received an executed Subordination Agreement with respect to such Subordinated Debt, in form and substance acceptable to Bank, in its sole discretion.

6. FEES . Borrower shall pay to Bank an extension fee equal to Sixty Thousand Dollars ($60,000.00), which fee shall be due on the date hereof and shall be deemed fully earned as of the date hereof. Borrower shall also reimburse Bank for all legal fees and expenses incurred in connection with the Existing Loan Documents and this Loan Modification Agreement.

7. FINAL PAYMENT FEE . In addition to the fees and expenses described above, on the earlier to occur of (a) September 30, 2013 and (b) the termination of the Revolving Line, when Bank has no further obligation to make Credit Extensions under the Loan Agreement, Borrower shall pay to Bank a final payment fee equal to Sixty Thousand Dollars ($60,000) (the “ Final Payment Fee ”), which final payment fee shall be fully earned and non-refundable when paid; provided, that in the event Secured Guarantor, on or before August 1, 2013, raises additional equity through a subsequent public offering of not less than Three Million Dollars ($3,000,000), such Final Payment Fee shall be reduced to Forty Thousand Dollars ($40,000), which Final Payment Fee shall be due and payable on the earlier to occur of (a) September 30, 2013 and (b) the termination of the Revolving Line, when Bank has no further obligation to make Credit Extensions under the Loan Agreement. Once paid, the Final Payment Fee shall be non-refundable.

8. ADDITIONAL COVENANTS: RATIFICATION OF PERFECTION CERTIFICATE . Borrower hereby certifies that, other than as disclosed in the Perfection Certificate, no Collateral with a value greater than Ten Thousand Dollars ($10,000) in the aggregate is in the possession of any third party bailee (such as at a warehouse). In the event that Borrower, after the date hereof, intends to store or otherwise deliver the Collateral with a value in excess of Ten Thousand Dollars ($10,000) in the aggregate to such a bailee, then Borrower shall first receive, the prior written consent of Bank and such bailee must acknowledge in writing that the bailee is holding such Collateral

 

5


for the benefit of Bank. Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in a certain Perfection Certificate, dated as of December 19, 2011, and acknowledges, confirms and agrees the disclosures and information above Borrower provided to Bank in such Perfection Certificate remains true and correct in all material respects as of the date hereof.

9. ACKNOWLEDGMENT OF MERGER . Bank hereby acknowledges that, pursuant to (i) an Agreement and Plan of Merger, entered into as of March 1, 2013, Earth Friendly Energy Group, LLC, Solar Works, LLC, Alteris RPS, LLC, and Alteris ISI, LLC each merged with and into Alteris, with Alteris remaining as the sole surviving entity and (ii) a Certificate of Ownership and Merger, effective as of March 1, 2013, Earth Friendly Energy Group Holdings, LLC merged with and into Alteris, with Alteris remaining as the sole surviving entity (collectively, the “ Mergers ”). Such Mergers are permitted pursuant to the terms of Section 7.3 of the Loan Agreement.

10. CONSISTENT CHANGES . The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.

11. RATIFICATION OF LOAN DOCUMENTS . Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of the Loan Agreement and each other Loan Document, and of all security or other collateral granted to the Bank, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations.

12. NO DEFENSES OF BORROWER . Borrower hereby acknowledges and agrees that Borrower has no offsets, defenses, claims, or counterclaims against Bank with respect to the Obligations, or otherwise, and that if Borrower now has, or ever did have, any offsets, defenses, claims, or counterclaims against Bank, whether known or unknown, at law or in equity, all of them are hereby expressly WAIVED and Borrower hereby RELEASES Bank from any liability thereunder.

13. CONTINUING VALIDITY . Borrower understands and agrees that in modifying the existing Obligations, Bank is relying upon Borrower’s representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Bank’s agreement to waive the Existing Default pursuant to this Loan Modification Agreement in no way shall obligate Bank to make any future waivers or any other modifications to the Obligations. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Bank and Borrower to retain as liable parties all makers of Existing Loan Documents, unless the party is expressly released by Bank in writing. No maker will be released by virtue of this Loan Modification Agreement.

14. JURISDICTION/VENUE . Section 11 of the Loan Agreement is hereby incorporated by reference.

15. COUNTERSIGNATURE . This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower and Bank.

[Signature page follows.]

 

6


This Loan Modification Agreement is executed as of the date first written above.

 

BORROWER      
REAL GOODS ENERGY TECH, INC.     REAL GOODS TRADING CORPORATION
By:  

/s/ Anthony M. Dipaolo

    By:  

/s/ Anthony M. Dipaolo

Name:   Anthony M. Dipaolo     Name:   Anthony M. Dipaolo
Title:   Chief Financial Officer     Title:   Chief Financial Officer
ALTERIS RENEWABLES, INC.      
By:  

/s/ Anthony M. Dipaolo

     
Name:   Anthony M. Dipaolo      
Title:   Chief Financial Officer      
REAL GOODS SOLAR, INC.      
(solely for purposes of Section 7)      
By:  

/s/ Anthony M. Dipaolo

     
Name:   Anthony M. Dipaolo      
Title:   Chief Financial Officer      
BANK:      
SILICON VALLEY BANK      
By:  

/s/ Elisa Sun

     
Name:   Elisa Sun      
Title:   Vice President      

Acknowledgment and Agreement:

The undersigned ratifies, confirms and reaffirms, all and singular, the terms and conditions of a certain Unconditional Guaranty and a certain Security Agreement, each dated as of December 19, 2011, and each document executed in connection therewith, and acknowledges, confirms and agrees that the Unconditional Guaranty, Security Agreement and each document executed in connection therewith shall remain in full force and effect and shall in no way be limited by the execution of this Loan Modification Agreement, or any other documents, instruments and/or agreements executed and/or delivered in connection herewith.

REAL GOODS SOLAR, INC.

 

By:  

/s/ Anthony M. Dipaolo

Name:   Anthony M. Dipaolo
Title:   Chief Financial Officer

 

7


EXHIBIT A – COLLATERAL DESCRIPTION

The Collateral consists of all of Borrower’s right, title and interest in and to the following personal property:

All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles, commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and

all Borrower’s Books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

Notwithstanding the foregoing, the Collateral shall not include any of the Debtor’s right, title and interest in, to and under the following property, in each case whether tangible or intangible, wherever located, and whether now owned by the Debtor or hereafter acquired and whether now existing or hereafter coming into existence (collectively, the “ Pledged Collateral ”):

the Excluded Shares now owned or hereinafter acquired;

all rights and privileges of the Debtor with respect to the membership interests and the other property referred to as Excluded Shares; and

all Proceeds of any of the Pledged Collateral.

Excluded Shares ” means, with respect to Alteris Renewables, Inc. 100% of the limited liability company interests in Alteris Project Finance Company LLC, together with (a) all certificates representing the same and any entries on the books of Alteris Project Finance Company LLC pertaining to such shares, and (b) all shares, limited liability company interests, or other ownership interests, securities, moneys or other property representing a dividend on or a distribution or return of capital on or in respect of the Excluded Shares, or resulting from a split-up, revision, reclassification or other like change of the Excluded Shares or otherwise received in exchange therefor, and any warrants, rights or options issued to the holders of, or otherwise in respect of, the Excluded Shares.

Proceeds ” shall have the meaning set forth in Article 9 of the NY UCC.

 

8


Exhibit A to Third Loan Modification Agreement

EXHIBIT B

COMPLIANCE CERTIFICATE

 

TO:    SILICON VALLEY BANK    Date:  

 

FROM:    REAL GOODS ENERGY TECH, INC. ET. AL.     

The undersigned authorized officer of REAL GOODS ENERGY TECH, INC., et al. (the “ Borrower ”) certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (as amended, the “ Agreement ”), (1) Borrower is in complete compliance for the period ending                     with all required covenants except as noted below, (2) there are no Events of Default, (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided , however , that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided , further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement, and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries, if any, relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank. Attached are the required documents supporting the certification. The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.

Please indicate compliance status by circling Yes/No under “Complies” column.

 

Reporting Covenant

  

Required

  

Complies

Monthly financial statements with Compliance Certificate    Monthly within 30 days    Yes    No
10-Q, 10-K and 8-K    Within 5 days after filing with SEC    Yes    No
Annual Audited Financial Statements    FYE within 120 days   
A/R & A/P Agings    Monthly within 20 days    Yes    No
Transaction Reports    Weekly and with each request for a Credit Extension (Monthly within 20 days during a Streamline Period)    Yes    No
Projections    Within 20 days of board approval (no later than 60 days after FYE)    Yes    No
Deferred Revenue Report, Schedule of Assets with respect to 3 rd party construction and financing arrangements (including performance bonds and bank statements For non-SVB bank accounts)    Monthly within 30 days    Yes    No
Electronic viewing access to Wells Fargo Account    From and after the Third Loan Modification Effective Date    Yes    No

The following Intellectual Property was registered after the Effective Date (if no registrations, state “None”)

 

 

9


Financial Covenant

   Required      Actual     

Complies/Streamline

Maintain as indicated:

        

Liquidity Ratio (monthly)

     1:50:1.00                  :1.00       Yes    No

Borrower’s unrestricted cash at Bank

   $ 500,000       $                    Yes    No

Streamline Period (Qualified Cash minus the total outstanding Obligations of Borrower owed to Bank)

   $ 2,000,000       $                    Yes    No

The following financial covenant analyses and information set forth in Schedule 1 attached hereto are true and accurate as of the date of this Certificate.

The following are the exceptions with respect to the certification above: (If no exceptions exist, state “No exceptions to note.”)

 

 

 

 

 

 

 

REAL GOODS ENERGY TECH, INC.     BANK USE ONLY
By:  

 

    Received by:  

 

Name:  

 

      AUTHORIZED SIGNER
Title:  

 

    Date:  

 

      Verified:  

 

        AUTHORIZED SIGNER
      Date:  

 

      Compliance Status:        Yes    No

 

10


Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

In the event of a conflict between this Schedule and the Loan Agreement, the terms of the Loan Agreement shall govern.

Dated:                         

 

I. Liquidity Ratio (Section 6.9)

Required: Maintain at all times, to be tested as of the last day of each month, on a consolidated basis with respect to Borrower and its Subsidiaries (A) the sum of (i) Qualified Cash (which Qualified Cash shall in any event at all times consist of not less than Five Hundred Thousand Dollars ($500,000) of Borrower’s unrestricted cash maintained at Bank) plus (ii) Borrower’s Eligible Accounts divided by (B) the total outstanding Obligations of Borrower owed to Bank, expressed as a ratio, of at least 1.50:1.00.

Actual:

 

A.    Qualified Cash    $             
B.    Eligible Accounts    $             
C.    Total Outstanding Obligations of Borrower owed to Bank    $             
D.    Liquidity Ratio ( the sum of line A plus line B divided by line C, expressed as a ratio)             :1.00

Is line D equal to or greater than 1.50:1:00?

 

             No, not in compliance                 Yes, in compliance

Does Line A consist of not less than $500,000 of Borrower’s unrestricted cash at Bank?

 

             No, not in compliance                 Yes, in compliance

 

11


II. Streamline Period.

Required: Provided no Default or Event of Default has occurred and is continuing, the period (i) beginning on the first (1 st ) day in which Borrower has, for each consecutive day in the immediately preceding sixty (60) day period, maintained Qualified Cash minus the total outstanding Obligations of Borrower owed to Bank, as determined by Bank, in its sole discretion, in an amount at all times greater than or equal to Two Million Dollars ($2,000,000), as determined by Bank, in its sole discretion (the “ Streamline Balance ”); and (ii) ending on the earlier to occur of (A) the occurrence of a Default or an Event of Default; and (B) the first day thereafter in which Borrower fails to maintain the Streamline Balance, as determined by Bank, in its sole discretion. Upon the termination of a Streamline Period, Borrower must maintain the Streamline Balance each consecutive day for thirty (30) consecutive days, as determined by Bank, in its sole discretion, prior to entering into a subsequent Streamline Period.

Actual:

 

A.    Qualified Cash    $             
B.    Total Outstanding Obligations of Borrower owed to Bank    $             
C.    Streamline Balance (line A minus line B)    $             

Is line C equal to or greater than $2,000,000?

 

             No, not in Streamline Period                 Yes, in Streamline Period

 

12

Exhibit 10.21

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ ACT ”), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AS SET FORTH IN SECTIONS 5.3 AND 5.4 BELOW, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND LAWS OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER, SUCH OFFER, SALE, PLEDGE OR OTHER TRANSFER IS EXEMPT FROM SUCH REGISTRATION.

WARRANT TO PURCHASE STOCK

Company: Real Goods Solar, Inc., a Colorado corporation

Number of Shares: 106,557, subject to adjustment

Type/Series of Stock: Class A Common Stock, $0.0001 par value per share

Warrant Price: $1.83 per Share, subject to adjustment

Issue Date: March 26, 2013

Expiration Date: March 26, 2020 See also Section 5.1(b).

 

Credit Facility:    This Warrant to Purchase Stock (“ Warrant ”) is issued pursuant to that certain Second Loan Modification Agreement, dated November 13, 2012 (the “ Loan Modification Agreement ”), to that certain Loan and Security Agreement dated December 19, 2011 among Silicon Valley Bank, the Company and the subsidiaries of the Company named therein, as amended (collectively, and as may be further amended and/or modified and in effect from time to time, the “ Loan Agreement ”).

THIS WARRANT CERTIFIES THAT, for good and valuable consideration, SILICON VALLEY BANK (together with any successor or permitted assignee or transferee of this Warrant or of any shares issued upon exercise hereof, “ Holder ”) is entitled to purchase the number of fully paid and non-assessable shares (the “ Shares ”) of the above-stated Type/Series of Stock (the “ Class ”) of the above-named company (the “ Company ”) at the above-stated Warrant Price, all as set forth above and as adjusted pursuant to Section 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant. Reference is made to Section 5.4 of this Warrant whereby Silicon Valley Bank shall transfer this Warrant to its parent company, SVB Financial Group.

SECTION 1. EXERCISE .

1.1 Method of Exercise . Holder may at any time and from time to time exercise this Warrant, in whole or in part, by delivering to the Company the original of this Warrant together with a duly executed Notice of Exercise in substantially the form attached hereto as Appendix 1 and, unless Holder is exercising this Warrant pursuant to a cashless exercise set forth in Section 1.2, a check, wire transfer of same-day funds (to an account designated by the Company), or other form of payment acceptable to the Company for the aggregate Warrant Price for the Shares being purchased.

1.2 Cashless Exercise . On any exercise of this Warrant, in lieu of payment of the aggregate Warrant Price in the manner as specified in Section 1.1 above, but otherwise in accordance with the requirements of Section 1.1, Holder may elect to receive Shares equal to the value of this Warrant, or portion hereof as to which this Warrant is being exercised. Thereupon, the Company shall issue to the Holder such number of fully paid and non-assessable Shares as are computed using the following formula:

 

  X = Y(A-B)/A


where:

 

  X = the number of Shares to be issued to the Holder;

 

  Y = the number of Shares with respect to which this Warrant is being exercised (inclusive of the Shares surrendered to the Company in payment of the aggregate Warrant Price);

 

  A = the Fair Market Value (as determined pursuant to Section 1.3 below) of one Share; and

 

  B = the Warrant Price.

1.3 Fair Market Value . If shares of the Class are then traded or quoted on a nationally recognized securities exchange, inter-dealer quotation system or over-the-counter market (a “ Trading Market ”), the fair market value of a Share shall be the closing price or last sale price of a share of the Class reported for the Business Day immediately before the date on which Holder delivers this Warrant together with its Notice of Exercise to the Company. If shares of the Class are not then traded in a Trading Market, the Board of Directors of the Company shall determine the fair market value of a Share in its reasonable good faith judgment.

1.4 Delivery of Certificate and New Warrant . Within a reasonable time after Holder exercises this Warrant in the manner set forth in Section 1.1 or 1.2 above, the Company shall deliver to Holder a certificate representing the Shares issued to Holder upon such exercise and, if this Warrant has not been fully exercised and has not expired, a new warrant of like tenor representing the Shares not so acquired.

1.5 Replacement of Warrant . On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form, substance and amount to the Company or, in the case of mutilation, on surrender of this Warrant to the Company for cancellation, the Company shall, within a reasonable time, execute and deliver to Holder, in lieu of this Warrant, a new warrant of like tenor and amount.

1.6 Treatment of Warrant Upon Acquisition of Company .

(a) Acquisition. For the purpose of this Warrant, “ Acquisition ” means any transaction or series of related transactions involving: (i) the sale, lease, exclusive license, or other disposition of all or substantially all of the assets of the Company (ii) any merger or consolidation of the Company into or with another person or entity (other than a merger or consolidation effected exclusively to change the Company’s domicile), or any other corporate reorganization, in which the stockholders of the Company in their capacity as such immediately prior to such merger, consolidation or reorganization, own less than a majority of the Company’s (or the surviving or successor entity’s) outstanding voting power immediately after such merger, consolidation or reorganization (or, if such Company stockholders beneficially own a majority of the outstanding voting power of the surviving or successor entity as of immediately after such merger, consolidation or reorganization, such surviving or

 

2


successor entity is not the Company); or (iii) any sale or other transfer by the stockholders of the Company of shares representing at least a majority of the Company’s then-total outstanding combined voting power to an equity holder who was not an equity holder immediately prior to such transaction.

(b) Treatment of Warrant at Acquisition . In the event of an Acquisition in which the consideration to be received by the Company’s stockholders consists solely of cash, solely of Marketable Securities or a combination of cash and Marketable Securities (a “ Cash/Public Acquisition ”), either (i) Holder shall exercise this Warrant pursuant to Section 1.1 and/or 1.2 and such exercise will be deemed effective immediately prior to and contingent upon the consummation of such Acquisition or (ii) if Holder elects not to exercise the Warrant, this Warrant will expire immediately prior to the consummation of such Acquisition.

(c) The Company shall provide Holder with written notice of its request relating to the Cash/Public Acquisition (together with such reasonable information as Holder may reasonably require regarding the treatment of this Warrant in connection with such contemplated Cash/Public Acquisition giving rise to such notice), which is to be delivered to Holder not less than seven (7) Business Days prior to the closing of the proposed Cash/Public Acquisition. In the event the Company does not provide such notice, then if, immediately prior to the Cash/Public Acquisition, the fair market value of one Share (or other security issuable upon the exercise hereof) as determined in accordance with Section 1.3 above would be greater than the Warrant Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be exercised pursuant to Section 1.2 above as to all Shares (or such other securities) for which it shall not previously have been exercised, and the Company shall promptly notify the Holder of the number of Shares (or such other securities) issued upon such exercise to the Holder and Holder shall be deemed to have restated each of the representations and warranties in Section 4 of the Warrant as the date thereof.

(d) Upon the closing of any Acquisition other than a Cash/Public Acquisition, the acquiring, surviving or successor entity shall assume the obligations of this Warrant, and this Warrant shall thereafter be exercisable for the same securities and/or other property as would have been paid for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on and as of the closing of such Acquisition, subject to further adjustment from time to time in accordance with the provisions of this Warrant.

(e) As used in this Warrant, “ Marketable Securities ” means securities meeting all of the following requirements: (i) the issuer thereof is then subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and is then current in its filing of all required reports and other information under the Act and the Exchange Act; (ii) the class and series of shares or other security of the issuer that would be received by Holder in connection with the Acquisition were Holder to exercise this Warrant on or prior to the closing thereof is then traded in Trading Market, and (iii) following the closing of such Acquisition, Holder would not be restricted from publicly re-selling all of the issuer’s shares and/or other securities that would be received by Holder in such Acquisition were Holder to exercise or convert this Warrant in full on or prior to the closing of such Acquisition, except to the extent that any such restriction (x) arises solely under federal or state securities laws, rules or regulations, and (y) does not extend beyond six (6) months from the closing of such Acquisition.

 

3


SECTION 2. ADJUSTMENTS TO THE SHARES AND WARRANT PRICE .

2.1 Stock Dividends, Splits, Etc . If the Company declares or pays a dividend or distribution on the outstanding shares of the Class payable in additional shares of the Class or other securities or property (other than cash), then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without additional cost to Holder, the total number and kind of securities and property which Holder would have received had Holder owned the Shares of record as of the date the dividend or distribution occurred. If the Company subdivides the outstanding shares of the Class by reclassification or otherwise into a greater number of shares, the number of Shares purchasable hereunder shall be proportionately increased and the Warrant Price shall be proportionately decreased. If the outstanding shares of the Class are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased and the number of Shares shall be proportionately decreased.

2.2 Reclassification, Exchange, Combinations or Substitution . Upon any event whereby all of the outstanding shares of the Class are reclassified, exchanged, combined, substituted, or replaced for, into, with or by Company securities of a different class and/or series, then from and after the consummation of such event, this Warrant will be exercisable for the number, class and series of Company securities that Holder would have received had the Shares been outstanding on and as of the consummation of such event, and subject to further adjustment thereafter from time to time in accordance with the provisions of this Warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, combinations substitutions, replacements or other similar events.

2.3 No Fractional Share . No fractional Share shall be issuable upon exercise of this Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional Share interest arises upon any exercise of the Warrant, the Company shall eliminate such fractional Share interest by paying Holder in cash the amount computed by multiplying the fractional interest by (i) the fair market value (as determined in accordance with Section 1.3 above) of a full Share, less (ii) the then-effective Warrant Price.

2.4 Notice/Certificate as to Adjustments . Upon each adjustment of the Warrant Price, Class and/or number of Shares, the Company, at the Company’s expense, shall notify Holder in writing within a reasonable time setting forth the adjustments to the Warrant Price, Class and/or number of Shares and facts upon which such adjustment is based. The Company shall, upon written request from Holder, furnish Holder with a certificate of its Chief Financial Officer, including computations of such adjustment and the Warrant Price, Class and number of Shares in effect upon the date of such adjustment.

2.5 Special Adjustment for Private Financing . In the event that, on or before the first anniversary of the date of the Issue Date hereof, the Company consummates a sale and issuance for cash of shares of the Class or of any other class or series of its capital stock to one or more investor purchasers in a transaction not registered under the Act (excluding sales and issuances to employees, officers, directors and consultants of the Company or any affiliate thereof pursuant to the exercise by such persons of stock purchase options granted under a stock option plan approved by the Company’s Board of Directors) at an effective price per share (the “ Financing Price ”) less than the Warrant Price in effect on and as of the date of such consummation, the Warrant Price shall automatically be adjusted to equal the Financing Price, subject to further adjustment thereafter from time to time in accordance with the provisions of this Warrant.

 

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SECTION 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY .

3.1 Representations and Covenants . The Company represents and warrants to, and agrees with, the Holder as follows:

(a) All Shares which may be issued upon the exercise of this Warrant shall, upon issuance, be duly authorized, validly issued, fully paid and non-assessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.

(b) The Company covenants that it shall at all times cause to be reserved and kept available out of its authorized and unissued capital stock such number of shares of the Class and other securities as will be sufficient to permit the exercise in full of this Warrant.

3.2 Notice of Certain Events . If the Company proposes at any time to:

(a) declare any dividend or distribution upon the outstanding shares of the Class, whether in cash, property, stock, or other securities and whether or not a regular cash dividend;

(b) offer for subscription or sale pro rata to the holders of the outstanding shares of the Class any additional shares of any class or series of the Company’s stock (other than pursuant to contractual pre-emptive rights);

(c) effect any reclassification, exchange, combination, substitution, reorganization or recapitalization of the outstanding shares of the Class; or

(d) effect an Acquisition or to liquidate, dissolve or wind up;

then, in connection with each such event, the Company shall give Holder notice thereof at the same time and in the same manner as given to holders of the outstanding shares of the Class.

SECTION 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER.

The Holder represents and warrants to the Company as follows:

4.1 Purchase for Own Account. This Warrant and the Shares to be acquired upon exercise of this Warrant by Holder are being acquired for investment for Holder’s account, not as a nominee or agent, and not with a view to the public resale or distribution within the meaning of the Act. Holder also represents that it has not been formed for the specific purpose of acquiring this Warrant or the Shares.

4.2 Disclosure of Information. Holder is aware of the Company’s business affairs and financial condition and has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities. Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to Holder or to which Holder has access.

 

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4.3 Investment Experience. Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk. Holder has experience as an investor in securities of companies in the development stage and acknowledges that Holder can bear the economic risk of such Holder’s investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables Holder to be aware of the character, business acumen and financial circumstances of such persons.

4.4 Accredited Investor Status. Holder is an “accredited investor” within the meaning of Regulation D promulgated under the Act.

4.5 The Act. Holder understands that this Warrant and the Shares issuable upon exercise hereof have not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Holder’s investment intent as expressed herein. Holder understands that this Warrant and the Shares issued upon any exercise hereof must be held indefinitely unless subsequently registered under the Act and qualified under applicable state securities laws, or unless exemption from such registration and qualification are otherwise available. Holder is aware of the provisions of Rule 144 promulgated under the Act.

4.6 No Voting Rights . Holder, as a Holder of this Warrant, will not have any voting rights until the exercise of this Warrant.

SECTION 5. MISCELLANEOUS.

5.1 Term; Automatic Cashless Exercise Upon Expiration .

(a) Term . Subject to the provisions of Section 1.6 above, this Warrant is exercisable in whole or in part at any time and from time to time on or before 6:00 PM, Pacific time, on the Expiration Date and shall be void thereafter.

(b) Automatic Cashless Exercise upon Expiration . In the event that, upon the Expiration Date, the fair market value of one Share as determined in accordance with Section 1.3 above is greater than the Warrant Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be exercised pursuant to Section 1.2 above as to all Shares for which it shall not previously have been exercised, and the Company shall, within a reasonable time, deliver a certificate representing the Shares issued upon such exercise to Holder.

5.2 Legends . Each certificate evidencing Shares shall be imprinted with a legend in substantially the following form:

THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ ACT ”), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AS SET FORTH IN THAT CERTAIN WARRANT TO PURCHASE STOCK ISSUED BY THE ISSUER TO SILICON VALLEY BANK DATED MARCH 26, 2013, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE

 

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TRANSFERRED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND LAWS OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER, SUCH OFFER, SALE, PLEDGE OR OTHER TRANSFER IS EXEMPT FROM SUCH REGISTRATION.

5.3 Compliance with Securities Laws on Transfer . This Warrant may only be transferred or assigned in whole and not in part. This Warrant and the Shares issued upon exercise of this Warrant may not be transferred or assigned in whole or in part except in compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to SVB Financial Group (Silicon Valley Bank’s parent company) or any other affiliate of Holder, provided that any such transferee is an “accredited investor” as defined in Regulation D promulgated under the Act. Additionally, the Company shall also not require an opinion of counsel if there is no material question as to the availability of Rule 144 promulgated under the Act.

5.4 Transfer Procedure. After receipt by Silicon Valley Bank of the executed Warrant, Silicon Valley Bank will transfer all of this Warrant to its parent company, SVB Financial Group. By its acceptance of this Warrant, SVB Financial Group hereby makes to the Company each of the representations and warranties set forth in Section 4 hereof and agrees to be bound by all of the terms and conditions of this Warrant as if the original Holder hereof. Subject to the provisions of Section 5.3 and upon providing the Company with written notice, SVB Financial Group and any subsequent Holder may transfer all or part of this Warrant or the Shares issued upon exercise of this Warrant to any transferee, provided, however, in connection with any such transfer, SVB Financial Group or any subsequent Holder will give the Company notice of the portion of the Warrant and/or Shares being transferred with the name, address and taxpayer identification number of the transferee and Holder will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable); and provided further, that any subsequent transferee other than SVB Financial Group shall agree in writing with the Company to be bound by all of the terms and conditions of this Warrant.

5.5 Notices . All notices and other communications hereunder from the Company to the Holder, or vice versa, shall be deemed delivered and effective (i) when given personally, (ii) on the third (3 rd ) Business Day after being mailed by first-class registered or certified mail, postage prepaid, (iii) upon actual receipt if given by facsimile or electronic mail and such receipt is confirmed in writing by the recipient, or (iv) on the first Business Day following delivery to a reliable overnight courier service, courier fee prepaid, in any case at such address as may have been furnished to the Company or Holder, as the case may be, in writing by the Company or such Holder from time to time in accordance with the provisions of this Section 5.5. All notices to Holder shall be addressed as follows until the Company receives notice of a change of address in connection with a transfer or otherwise:

SVB Financial Group

Attn: Treasury Department

3003 Tasman Drive, HC 215

Santa Clara, CA 95054

Telephone: (408) 654-7400

Facsimile: (408) 988-8317

Email address: derivatives@svb.com

 

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Notice to the Company shall be addressed as follows until Holder receives notice of a change in address:

Real Goods Solar, Inc.

Attn: Chief Financial Officer

833 W. South Boulder Road

Louisville, CO 80027-2452

Telephone: (303) 222-8400

Facsimile:

Email:

5.6 Waiver . This Warrant and any term hereof may be changed, waived, discharged or terminated (either generally or in a particular instance and either retroactively or prospectively) only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

5.7 Attorneys’ Fees . In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys’ fees.

5.8 Counterparts; Facsimile/Electronic Signatures . This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement. Any signature page delivered electronically or by facsimile shall be binding to the same extent as an original signature page with regards to any agreement subject to the terms hereof or any amendment thereto.

5.9 Governing Law . This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law.

5.10 Headings . The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant.

5.11 Business Days . “ Business Day ” is any day that is not a Saturday, Sunday or a day on which Silicon Valley Bank is closed.

[Remainder of page left blank intentionally]

[Signature page follows]

 

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IN WITNESS WHEREOF, the parties have caused this Warrant to Purchase Stock to be executed by their duly authorized representatives effective as of the Issue Date written above.

 

“COMPANY”
REAL GOODS SOLAR, INC.
By:  

/s/ Anthony M. Dipaolo

Name:   Anthony M. Dipaolo
Title:   Chief Financial Officer
“HOLDER”
SILICON VALLEY BANK
By:  

/s/ Elisa Sun

Name:   Elisa Sun
Title:   Vice President

 

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APPENDIX 1

NOTICE OF EXERCISE

1. The undersigned Holder hereby exercises its right to purchase              shares of the Common Stock of                                          (the “ Company ”) in accordance with the attached Warrant To Purchase Stock, and tenders payment of the aggregate Warrant Price for such shares as follows:

 

  ¨ check in the amount of $            payable to order of the Company enclosed herewith

 

  ¨ Wire transfer of immediately available funds to the Company’s account

 

  ¨ Cashless Exercise pursuant to Section 1.2 of the Warrant

 

  ¨ Other [Describe]             

2. Please issue a certificate or certificates representing the Shares in the name specified below:

 

  

 

  
  

Holder’s Name

  
  

 

 

  
  

 

 

  
  

(Address)

  

3. By its execution below and for the benefit of the Company, Holder hereby restates each of the representations and warranties in Section 4 of the Warrant to Purchase Stock as of the date hereof.

 

HOLDER:

 

By:  

 

Name:  

 

Title:  

 

(Date):  

 

Schedule 1

Exhibit 10.22

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ ACT ”), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AS SET FORTH IN SECTIONS 5.3 AND 5.4 BELOW, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND LAWS OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER, SUCH OFFER, SALE, PLEDGE OR OTHER TRANSFER IS EXEMPT FROM SUCH REGISTRATION.

WARRANT TO PURCHASE STOCK

Company: Real Goods Solar, Inc., a Colorado corporation

Number of Shares: 105,978, subject to adjustment

Type/Series of Stock: Class A Common Stock, $0.0001 par value per share

Warrant Price: $1.84 per Share, subject to adjustment

Issue Date: March 27, 2013

Expiration Date: March 27, 2020 See also Section 5.1(b).

 

Credit Facility:    This Warrant to Purchase Stock (“ Warrant ”) is issued pursuant to that certain Third Loan Modification Agreement of even date herewith (the “ Loan Modification Agreement ”), to that certain Loan and Security Agreement dated December 19, 2011 among Silicon Valley Bank, the Company and the subsidiaries of the Company named therein, as amended (collectively, and as may be further amended and/or modified and in effect from time to time, the “ Loan Agreement ”).

THIS WARRANT CERTIFIES THAT, for good and valuable consideration, SILICON VALLEY BANK (together with any successor or permitted assignee or transferee of this Warrant or of any shares issued upon exercise hereof, “ Holder ”) is entitled to purchase the number of fully paid and non-assessable shares (the “ Shares ”) of the above-stated Type/Series of Stock (the “ Class ”) of the above-named company (the “ Company ”) at the above-stated Warrant Price, all as set forth above and as adjusted pursuant to Section 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant. Reference is made to Section 5.4 of this Warrant whereby Silicon Valley Bank shall transfer this Warrant to its parent company, SVB Financial Group.

SECTION 1. EXERCISE .

1.1 Method of Exercise . Holder may at any time and from time to time exercise this Warrant, in whole or in part, by delivering to the Company the original of this Warrant together with a duly executed Notice of Exercise in substantially the form attached hereto as Appendix 1 and, unless Holder is exercising this Warrant pursuant to a cashless exercise set forth in Section 1.2, a check, wire transfer of same-day funds (to an account designated by the Company), or other form of payment acceptable to the Company for the aggregate Warrant Price for the Shares being purchased.

1.2 Cashless Exercise . On any exercise of this Warrant, in lieu of payment of the aggregate Warrant Price in the manner as specified in Section 1.1 above, but otherwise in accordance with the requirements of Section 1.1, Holder may elect to receive Shares equal to the value of this Warrant, or portion hereof as to which this Warrant is being exercised. Thereupon, the Company shall issue to the Holder such number of fully paid and non-assessable Shares as are computed using the following formula:

 

X   =    Y(A-B)/A


where:

 

X   =    the number of Shares to be issued to the Holder;
Y   =    the number of Shares with respect to which this Warrant is being exercised (inclusive of the Shares surrendered to the Company in payment of the aggregate Warrant Price);
A   =    the Fair Market Value (as determined pursuant to Section 1.3 below) of one Share; and
B   =    the Warrant Price.

1.3 Fair Market Value . If shares of the Class are then traded or quoted on a nationally recognized securities exchange, inter-dealer quotation system or over-the-counter market (a “ Trading Market ”), the fair market value of a Share shall be the closing price or last sale price of a share of the Class reported for the Business Day immediately before the date on which Holder delivers this Warrant together with its Notice of Exercise to the Company. If shares of the Class are not then traded in a Trading Market, the Board of Directors of the Company shall determine the fair market value of a Share in its reasonable good faith judgment.

1.4 Delivery of Certificate and New Warrant . Within a reasonable time after Holder exercises this Warrant in the manner set forth in Section 1.1 or 1.2 above, the Company shall deliver to Holder a certificate representing the Shares issued to Holder upon such exercise and, if this Warrant has not been fully exercised and has not expired, a new warrant of like tenor representing the Shares not so acquired.

1.5 Replacement of Warrant . On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form, substance and amount to the Company or, in the case of mutilation, on surrender of this Warrant to the Company for cancellation, the Company shall, within a reasonable time, execute and deliver to Holder, in lieu of this Warrant, a new warrant of like tenor and amount.

1.6 Treatment of Warrant Upon Acquisition of Company .

(a) Acquisition. For the purpose of this Warrant, “ Acquisition ” means any transaction or series of related transactions involving: (i) the sale, lease, exclusive license, or other disposition of all or substantially all of the assets of the Company (ii) any merger or consolidation of the Company into or with another person or entity (other than a merger or consolidation effected exclusively to change the Company’s domicile), or any other corporate reorganization, in which the stockholders of the Company in their capacity as such immediately prior to such merger, consolidation or reorganization, own less than a majority of the Company’s (or the surviving or successor entity’s) outstanding voting power immediately after such merger, consolidation or reorganization (or, if such Company stockholders beneficially own a majority of the outstanding voting power of the surviving or successor entity as of immediately after such merger, consolidation or reorganization, such surviving or

 

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successor entity is not the Company); or (iii) any sale or other transfer by the stockholders of the Company of shares representing at least a majority of the Company’s then-total outstanding combined voting power to an equity holder who was not an equity holder immediately prior to such transaction.

(b) Treatment of Warrant at Acquisition . In the event of an Acquisition in which the consideration to be received by the Company’s stockholders consists solely of cash, solely of Marketable Securities or a combination of cash and Marketable Securities (a “ Cash/Public Acquisition ”), either (i) Holder shall exercise this Warrant pursuant to Section 1.1 and/or 1.2 and such exercise will be deemed effective immediately prior to and contingent upon the consummation of such Acquisition or (ii) if Holder elects not to exercise the Warrant, this Warrant will expire immediately prior to the consummation of such Acquisition.

(c) The Company shall provide Holder with written notice of its request relating to the Cash/Public Acquisition (together with such reasonable information as Holder may reasonably require regarding the treatment of this Warrant in connection with such contemplated Cash/Public Acquisition giving rise to such notice), which is to be delivered to Holder not less than seven (7) Business Days prior to the closing of the proposed Cash/Public Acquisition. In the event the Company does not provide such notice, then if, immediately prior to the Cash/Public Acquisition, the fair market value of one Share (or other security issuable upon the exercise hereof) as determined in accordance with Section 1.3 above would be greater than the Warrant Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be exercised pursuant to Section 1.2 above as to all Shares (or such other securities) for which it shall not previously have been exercised, and the Company shall promptly notify the Holder of the number of Shares (or such other securities) issued upon such exercise to the Holder and Holder shall be deemed to have restated each of the representations and warranties in Section 4 of the Warrant as the date thereof.

(d) Upon the closing of any Acquisition other than a Cash/Public Acquisition, the acquiring, surviving or successor entity shall assume the obligations of this Warrant, and this Warrant shall thereafter be exercisable for the same securities and/or other property as would have been paid for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on and as of the closing of such Acquisition, subject to further adjustment from time to time in accordance with the provisions of this Warrant.

(e) As used in this Warrant, “ Marketable Securities ” means securities meeting all of the following requirements: (i) the issuer thereof is then subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and is then current in its filing of all required reports and other information under the Act and the Exchange Act; (ii) the class and series of shares or other security of the issuer that would be received by Holder in connection with the Acquisition were Holder to exercise this Warrant on or prior to the closing thereof is then traded in Trading Market, and (iii) following the closing of such Acquisition, Holder would not be restricted from publicly re-selling all of the issuer’s shares and/or other securities that would be received by Holder in such Acquisition were Holder to exercise or convert this Warrant in full on or prior to the closing of such Acquisition, except to the extent that any such restriction (x) arises solely under federal or state securities laws, rules or regulations, and (y) does not extend beyond six (6) months from the closing of such Acquisition.

 

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SECTION 2. ADJUSTMENTS TO THE SHARES AND WARRANT PRICE .

2.1 Stock Dividends, Splits, Etc . If the Company declares or pays a dividend or distribution on the outstanding shares of the Class payable in additional shares of the Class or other securities or property (other than cash), then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without additional cost to Holder, the total number and kind of securities and property which Holder would have received had Holder owned the Shares of record as of the date the dividend or distribution occurred. If the Company subdivides the outstanding shares of the Class by reclassification or otherwise into a greater number of shares, the number of Shares purchasable hereunder shall be proportionately increased and the Warrant Price shall be proportionately decreased. If the outstanding shares of the Class are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased and the number of Shares shall be proportionately decreased.

2.2 Reclassification, Exchange, Combinations or Substitution . Upon any event whereby all of the outstanding shares of the Class are reclassified, exchanged, combined, substituted, or replaced for, into, with or by Company securities of a different class and/or series, then from and after the consummation of such event, this Warrant will be exercisable for the number, class and series of Company securities that Holder would have received had the Shares been outstanding on and as of the consummation of such event, and subject to further adjustment thereafter from time to time in accordance with the provisions of this Warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, combinations substitutions, replacements or other similar events.

2.3 No Fractional Share . No fractional Share shall be issuable upon exercise of this Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional Share interest arises upon any exercise of the Warrant, the Company shall eliminate such fractional Share interest by paying Holder in cash the amount computed by multiplying the fractional interest by (i) the fair market value (as determined in accordance with Section 1.3 above) of a full Share, less (ii) the then-effective Warrant Price.

2.4 Notice/Certificate as to Adjustments . Upon each adjustment of the Warrant Price, Class and/or number of Shares, the Company, at the Company’s expense, shall notify Holder in writing within a reasonable time setting forth the adjustments to the Warrant Price, Class and/or number of Shares and facts upon which such adjustment is based. The Company shall, upon written request from Holder, furnish Holder with a certificate of its Chief Financial Officer, including computations of such adjustment and the Warrant Price, Class and number of Shares in effect upon the date of such adjustment.

2.5 Special Adjustment for Private Financing . In the event that, on or before the first anniversary of Issue Date hereof, the Company consummates a sale and issuance for cash of shares of the Class or of any other class or series of its capital stock to one or more investor purchasers in a transaction not registered under the Act (excluding sales and issuances to employees, officers, directors and consultants of the Company or any affiliate thereof pursuant to the exercise by such persons of stock purchase options granted under a stock option plan approved by the Company’s Board of Directors) at an effective price per share (the “ Financing Price ”) less than the Warrant Price in effect on and as of the date of such consummation, the Warrant Price shall automatically be adjusted to equal the Financing Price, subject to further adjustment thereafter from time to time in accordance with the provisions of this Warrant.

 

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SECTION 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY .

3.1 Representations and Covenants . The Company represents and warrants to, and agrees with, the Holder as follows:

(a) All Shares which may be issued upon the exercise of this Warrant shall, upon issuance, be duly authorized, validly issued, fully paid and non-assessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.

(b) The Company covenants that it shall at all times cause to be reserved and kept available out of its authorized and unissued capital stock such number of shares of the Class and other securities as will be sufficient to permit the exercise in full of this Warrant.

3.2 Notice of Certain Events . If the Company proposes at any time to:

(a) declare any dividend or distribution upon the outstanding shares of the Class, whether in cash, property, stock, or other securities and whether or not a regular cash dividend;

(b) offer for subscription or sale pro rata to the holders of the outstanding shares of the Class any additional shares of any class or series of the Company’s stock (other than pursuant to contractual pre-emptive rights);

(c) effect any reclassification, exchange, combination, substitution, reorganization or recapitalization of the outstanding shares of the Class; or

(d) effect an Acquisition or to liquidate, dissolve or wind up;

then, in connection with each such event, the Company shall give Holder notice thereof at the same time and in the same manner as given to holders of the outstanding shares of the Class.

SECTION 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER.

The Holder represents and warrants to the Company as follows:

4.1 Purchase for Own Account. This Warrant and the Shares to be acquired upon exercise of this Warrant by Holder are being acquired for investment for Holder’s account, not as a nominee or agent, and not with a view to the public resale or distribution within the meaning of the Act. Holder also represents that it has not been formed for the specific purpose of acquiring this Warrant or the Shares.

4.2 Disclosure of Information. Holder is aware of the Company’s business affairs and financial condition and has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities. Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to Holder or to which Holder has access.

 

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4.3 Investment Experience. Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk. Holder has experience as an investor in securities of companies in the development stage and acknowledges that Holder can bear the economic risk of such Holder’s investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables Holder to be aware of the character, business acumen and financial circumstances of such persons.

4.4 Accredited Investor Status. Holder is an “accredited investor” within the meaning of Regulation D promulgated under the Act.

4.5 The Act. Holder understands that this Warrant and the Shares issuable upon exercise hereof have not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Holder’s investment intent as expressed herein. Holder understands that this Warrant and the Shares issued upon any exercise hereof must be held indefinitely unless subsequently registered under the Act and qualified under applicable state securities laws, or unless exemption from such registration and qualification are otherwise available. Holder is aware of the provisions of Rule 144 promulgated under the Act.

4.6 No Voting Rights . Holder, as a Holder of this Warrant, will not have any voting rights until the exercise of this Warrant.

SECTION 5. MISCELLANEOUS.

5.1 Term; Automatic Cashless Exercise Upon Expiration .

(a) Term . Subject to the provisions of Section 1.6 above, this Warrant is exercisable in whole or in part at any time and from time to time on or before 6:00 PM, Pacific time, on the Expiration Date and shall be void thereafter.

(b) Automatic Cashless Exercise upon Expiration . In the event that, upon the Expiration Date, the fair market value of one Share as determined in accordance with Section 1.3 above is greater than the Warrant Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be exercised pursuant to Section 1.2 above as to all Shares for which it shall not previously have been exercised, and the Company shall, within a reasonable time, deliver a certificate representing the Shares issued upon such exercise to Holder.

5.2 Legends . Each certificate evidencing Shares shall be imprinted with a legend in substantially the following form:

THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ ACT ”), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AS SET FORTH IN THAT CERTAIN WARRANT TO PURCHASE STOCK ISSUED BY THE ISSUER TO SILICON VALLEY BANK DATED MARCH 27, 2013, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS AND UNTIL REGISTERED UNDER SAID ACT

 

6


AND LAWS OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER, SUCH OFFER, SALE, PLEDGE OR OTHER TRANSFER IS EXEMPT FROM SUCH REGISTRATION.

5.3 Compliance with Securities Laws on Transfer . This Warrant may only be transferred or assigned in whole and not part. This Warrant and the Shares issued upon exercise of this Warrant may not be transferred or assigned in whole or in part except in compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to SVB Financial Group (Silicon Valley Bank’s parent company) or any other affiliate of Holder, provided that any such transferee is an “accredited investor” as defined in Regulation D promulgated under the Act. Additionally, the Company shall also not require an opinion of counsel if there is no material question as to the availability of Rule 144 promulgated under the Act.

5.4 Transfer Procedure. After receipt by Silicon Valley Bank of the executed Warrant, Silicon Valley Bank will transfer all of this Warrant to its parent company, SVB Financial Group. By its acceptance of this Warrant, SVB Financial Group hereby makes to the Company each of the representations and warranties set forth in Section 4 hereof and agrees to be bound by all of the terms and conditions of this Warrant as if the original Holder hereof. Subject to the provisions of Section 5.3 and upon providing the Company with written notice, SVB Financial Group and any subsequent Holder may transfer all or part of this Warrant or the Shares issued upon exercise of this Warrant to any transferee, provided, however, in connection with any such transfer, SVB Financial Group or any subsequent Holder will give the Company notice of the portion of the Warrant and/or Shares being transferred with the name, address and taxpayer identification number of the transferee and Holder will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable); and provided further, that any subsequent transferee other than SVB Financial Group shall agree in writing with the Company to be bound by all of the terms and conditions of this Warrant.

5.5 Notices . All notices and other communications hereunder from the Company to the Holder, or vice versa, shall be deemed delivered and effective (i) when given personally, (ii) on the third (3 rd ) Business Day after being mailed by first-class registered or certified mail, postage prepaid, (iii) upon actual receipt if given by facsimile or electronic mail and such receipt is confirmed in writing by the recipient, or (iv) on the first Business Day following delivery to a reliable overnight courier service, courier fee prepaid, in any case at such address as may have been furnished to the Company or Holder, as the case may be, in writing by the Company or such Holder from time to time in accordance with the provisions of this Section 5.5. All notices to Holder shall be addressed as follows until the Company receives notice of a change of address in connection with a transfer or otherwise:

SVB Financial Group

Attn: Treasury Department

3003 Tasman Drive, HC 215

Santa Clara, CA 95054

Telephone: (408) 654-7400

Facsimile: (408) 988-8317

Email address: derivatives@svb.com

 

7


Notice to the Company shall be addressed as follows until Holder receives notice of a change in address:

Real Goods Solar, Inc.

Attn: Chief Financial Officer

833 W. South Boulder Road

Louisville, CO 80027-2452

Telephone: (303) 222-8400

Facsimile:

Email:

5.6 Waiver . This Warrant and any term hereof may be changed, waived, discharged or terminated (either generally or in a particular instance and either retroactively or prospectively) only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

5.7 Attorneys’ Fees . In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys’ fees.

5.8 Counterparts; Facsimile/Electronic Signatures . This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement. Any signature page delivered electronically or by facsimile shall be binding to the same extent as an original signature page with regards to any agreement subject to the terms hereof or any amendment thereto.

5.9 Governing Law . This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law.

5.10 Headings . The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant.

5.11 Business Days . “ Business Day ” is any day that is not a Saturday, Sunday or a day on which Silicon Valley Bank is closed.

[Remainder of page left blank intentionally]

[Signature page follows]

 

8


IN WITNESS WHEREOF, the parties have caused this Warrant to Purchase Stock to be executed by their duly authorized representatives effective as of the Issue Date written above.

 

“COMPANY”
REAL GOODS SOLAR, INC.
By:  

/s/ Anthony M. Dipaolo

Name:   Anthony M. Dipaolo
Title:   Chief Financial Officer
“HOLDER”
SILICON VALLEY BANK
By:  

/s/ Elisa Sun

Name:   Elisa Sun
Title:   Vice President

 

9


APPENDIX 1

NOTICE OF EXERCISE

1. The undersigned Holder hereby exercises its right to purchase              shares of the Common Stock of                                          (the “ Company ”) in accordance with the attached Warrant To Purchase Stock, and tenders payment of the aggregate Warrant Price for such shares as follows:

 

  ¨ check in the amount of $            payable to order of the Company enclosed herewith

 

  ¨ Wire transfer of immediately available funds to the Company’s account

 

  ¨ Cashless Exercise pursuant to Section 1.2 of the Warrant

 

  ¨ Other [Describe]             

2. Please issue a certificate or certificates representing the Shares in the name specified below:

 

  

 

  
  

Holder’s Name

  
  

 

 

  
  

 

 

  
  

(Address)

  

3. By its execution below and for the benefit of the Company, Holder hereby restates each of the representations and warranties in Section 4 of the Warrant to Purchase Stock as of the date hereof.

 

HOLDER:

 

By:  

 

Name:  

 

Title:  

 

(Date):  

 

Schedule 1

Exhibit 10.23

This amended and restated promissory note (this “Note”) has not been registered under the Securities Act of 1933, as amended, or under the securities laws of any state. No transfer, sale or other disposition of this Note may be made unless a registration statement with respect to this Note has become effective under said Act, and such registration or qualification as may be necessary under the securities laws of any state has become effective, or the Maker (as defined below) has been furnished with an opinion of counsel satisfactory to the Maker that such registration is not required.

Payments of principal and interest in respect of this Note are subordinated to payments of certain other indebtedness of the Maker, as set forth herein.

AMENDED AND RESTATED PROMISSORY NOTE

Louisville, Colorado

 

$1,000,000    March 27, 2013 (the “Issue Date” )

FOR VALUE RECEIVED, the undersigned, REAL GOODS SOLAR, INC., a Colorado corporation (“ Maker ”), PROMISES TO PAY TO THE ORDER OF                         , a             , or its registered assigns (the “ Payee ”), the sum of ONE MILLION DOLLARS ($1,000,000), in lawful money of the United States of America, together with interest on the unpaid principal amount, all in accordance with the provisions stipulated herein.

Interest shall accrue on the principal amount of this Note at the rate of ten percent (10.0%) per annum, compounded annually, calculated based on a 360-day year, and accruing daily from the Issue Date until repaid, and shall be due and payable on the Maturity Date (as defined below).

All unpaid principal and all accrued but unpaid interest shall mature and become due and payable in full on the earlier of April 26, 2014 or the occurrence of a Proceeding (the “ Maturity Date ”). For the purposes of this Note, a “Proceeding” shall mean either (a) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of Maker or such person’s debts, or of a substantial part of such person’s assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for Maker or for a substantial part of such person’s assets, and, in any such case, such proceeding or petition shall continue undismissed for a period of 60 or more days or an order or decree approving or ordering any of the foregoing shall be entered or (b) Maker shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (a) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for Maker or for a substantial part of such person’s assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing.


If Maker completes a sale of at least $50,000 of the Maker’s capital stock (the “Equity Financing”), then the all or any portion of the principal and interest owing on this Note will, at the option of the Payee, be converted into securities of the class or classes of equity securities of Maker issued in the Equity Financing, at the same purchase price as paid by other purchasers in the Equity Financing and effective as of the close of business on the closing date of the Equity Financing. If this any portion of this Note is converted pursuant to this paragraph, the portion so converted will be deemed cancelled without any further action by Maker or Payee.

If Maker fails to make payment of the principal and all interest owing on this Note within 10 days of when due, then the Payee will have the option to acquire an undivided 50% interest in Maker’s real estate located in Hopland, California (including all land and buildings) in exchange for cancellation of such principal and interest. This option is conditioned upon (1) the approval of Maker’s disinterested directors (namely Kam Mofid, Bob Scott, and John Schaeffer), and (2) Silicon Valley Bank’s consent. Upon meeting these conditions, this option may be exercised by Payee by providing written notice to Maker at any time prior to midnight on the 20 th day following the Maturity Date. If Payee exercises this option, Maker and Payee will cooperate in good faith to execute and deliver appropriate real estate transfer documents to effect the transfer of such 50% interest to Payee on customary terms and conditions (including with respect to pro-rations of taxes and other expenses related to the property).

Payee will have all rights and remedies of a creditor at law or in equity. All rights and remedies available to Payee under this Note shall be cumulative of and in addition to all other rights and remedies granted to Payee at law or in equity.

Maker agrees, and Payee by accepting this Note agrees, that this Note, and the indebtedness evidenced hereby, including all principal and interest (the “ Subordinated Obligations ”), shall be subordinate and junior in right of payment to the prior payment in full in cash of all indebtedness for borrowed money (the “ Senior Obligations ”) owed by Maker to any lenders unaffiliated with Maker (the “ Senior Lenders ”), and that such subordination of the payment of the Subordinated Obligations to the payment in full of the Senior Obligations shall be subject to customary subordination terms reasonably acceptable to such Senior Lenders, including the following:

(a) the subordination provisions shall be effective and apply to the Subordinated Obligations until such time as (i) the Senior Obligations shall be repaid in full in cash and (ii) all commitments of the Senior Lenders to make loans or other credit extensions to or on behalf of Maker shall expire or terminate (the “ Senior Obligations Termination ”); and

(b) notwithstanding any provision in this Note to the contrary, prior to the earlier of the Maturity Date and the Senior Obligations Termination, Payee shall not ask, demand, sue for, take or receive from Maker or any other person or entity, directly or indirectly, in cash or other property or by set-off or in any other manner, and Maker shall not repay, or cause to be repaid, any or all of the Subordinated Obligations, except under customary terms reasonably acceptable to the Senior Lenders.

Subject to the foregoing provisions, Maker shall have the right to prepay this Note at any time without premium or penalty, provided that payments will be applied first to accrued and unpaid interest on the principal amount and the balance, if any, to the reduction of principal.

 

- 2 -


No modification, amendment, termination, or cancellation of any provision of this Note shall be valid and binding, unless it be in writing and signed by Maker and Payee. No failure or delay on the part of Payee in exercising any right, power or privilege hereunder and no course of dealing between Maker and Payee shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

This Note is issued in replacement of and substitution for, but not in repayment of, the Promissory Note, dated as of December     , 2012, in the original principal amount of $1,000,000.

This note represents the final agreement between Maker and Payee and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements between Maker and Payee. There are no unwritten oral agreements between Maker and Payee.

This Note shall be governed by, and construed in accordance with, the laws of the State of Colorado .

 

MAKER : REAL GOODS SOLAR, INC.
By:  

 

Name:  
Title:  

 

Acknowledged and Agreed:
PAYEE :  

 

By:  

 

Name:  
Title:  

 

- 3 -

Exhibit 21.1

Real Goods Solar, Inc.

 

Subsidiaries

   State or Country of Incorporation
or Registration
 

Real Goods Energy Tech, Inc. (1)

     Colorado   

Real Goods Trading Corporation (2)

     California   

Earth Friendly Energy Group Holdings, LLC (1)

     Delaware   

Alteris Renewables, Inc. (3)

     Delaware   

Earth Friendly Energy Group, LLC (4)

     Delaware   

Solar Works, LLC (4)

     Delaware   

Alteris RPS, LLC (4)

     Delaware   

Alteris ISI, LLC (4)

     Delaware   

 

(1) Owned by Real Goods Solar, Inc.
(2) Owned by Real Goods Energy Tech., Inc.
(3) Owned by Earth Friendly Energy Group Holdings, LLC
(4) Owned by Alteris Renewables, Inc.

This list may omit subsidiaries which, considered in the aggregate, would not constitute a significant subsidiary.

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Registration No. 333-153642) and Registration Statement on Form S-8 (Registration No. 33-186722) of our report dated April 1, 2013, with respect to the consolidated financial statements of Real Goods Solar, Inc. and subsidiaries included in the Annual Report on Form 10-K for the year ended December 31, 2012.

 

/s/ EKS&H LLLP

April 1, 2013

Denver, Colorado

Exhibit 31.1

CERTIFICATION

I, Kamyar (Kam) Mofid, certify that:

 

1. I have reviewed this annual report on Form 10-K of Real Goods Solar, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 1, 2013

 

/s/ Kam Mofid

Kamyar (Kam) Mofid

Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION

I, Anthony DiPaolo, certify that:

 

1. I have reviewed this annual report on Form 10-K of Real Goods Solar, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 1, 2013

 

/s/ Anthony DiPaolo

Anthony DiPaolo

Chief Financial Officer

(Principal Financial and Accounting Officer)

Exhibit 32.1

CERTIFICATION OF CEO PURSUANT TO

18 U.S.C. SECTION 1350

As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the report of Real Goods Solar, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2012, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Kamyar (Kam) Mofid, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 1, 2013

 

/s/ Kam Mofid

Kamyar (Kam) Mofid

Chief Executive Officer

(Principal Executive Officer)

Exhibit 32.2

CERTIFICATION OF CFO PURSUANT TO

18 U.S.C. SECTION 1350

As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the report of Real Goods Solar, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2012, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Anthony DiPaolo, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 1, 2013

 

/s/ Anthony DiPaolo

Anthony DiPaolo

Chief Financial Officer

(Principal Financial and Accounting Officer)