Table of Contents

 

 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

 

Form 10-Q

 

 

 

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

For the quarterly period ended March 31, 2015

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, COLORADO 80027-2452

(Address of principal executive offices)

(303) 222-8300

(Registrant’s telephone number, including area code)

 

 

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 and 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class

 

Outstanding at May 6, 2015

Class A Common Stock ($.0001 par value)   92,697,367

 

 

 


Table of Contents

REAL GOODS SOLAR, INC.

 

 

FORM 10-Q

INDEX

 

PART I. FINANCIAL INFORMATION   4   
Item 1. Financial Statements (Unaudited):   4  
Condensed Consolidated Balance Sheets   5  
Condensed Consolidated Statements of Operations   6  
Condensed Consolidated Statement of Equity   7   
Condensed Consolidated Statements of Cash Flows   8  
Notes to Condensed Consolidated Financial Statements   9   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   18  
Item 3. Quantitative and Qualitative Disclosures About Market Risk   23  
Item 4. Controls and Procedures   23  
PART II. OTHER INFORMATION   24  
Item 1. Legal Proceedings   24  
Item 1A. Risk Factors   24  
Item 6. Exhibits   24  
SIGNATURES   26  

 

2


Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report may contain forward-looking statements that involve risks and uncertainties. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they provide our current beliefs, expectations, assumptions and forecasts about future events, and include statements regarding our future results of operations and financial position, business strategy, budgets, projected costs, plans and objectives of management for future operations. The words “anticipate,” “believe,” “plan,” “estimate,” “expect,” “strive,” “future,” “intend,” “may,” “will” and similar expressions as they relate to us are intended to identify such forward-looking statements. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, without limitation, the following:

the continuation and level of government subsidies and incentives for solar energy, the impacts of worsening economic conditions on homeowners and small commercial operation that may limit their ability and desire to invest in solar systems, changing and updating technologies and the issues presented by these new technologies related to customer demand and our product offering, the rates charged by electric utilities that may impact the desirability of our product to customers, the impact of a drop in the price of conventional energy on demand for solar energy systems, new regulations impacting solar installations including electric codes, access to electric grids, the willingness of electric utilities to allow interconnections and other regulations affecting energy consumption by consumers, factors impacting the timely installation of systems, seasonality and adverse weather conditions inhibiting our ability to install solar systems, our inability to maintain effective disclosure controls and procedures and internal control over financial reporting, our ability to operate with our existing financial resources and capital available under our debt facility, the impact of our present indebtedness and projected future borrowings on our financial health, our ability to continue to obtain access to financing and financial concessions when needed from financiers, loss of key personnel and ability to attract necessary personnel, our history of operating losses, our failure to realize cost savings from restructuring and optimization, geographic concentration of revenue from the sale of solar energy systems in east coast states, Hawaii and California, our failure to timely or accurately complete financing paperwork behalf of customers, adverse outcomes arising from litigation and contract disputes, disruption of our supply chain from equipment manufacturers, construction risks and costs, competition, continued access to competitive third party financiers to finance customer solar installations, failure by manufacturers of third party installers to perform under their warranties to us, failure of customers to pay per contractual terms, potential shortages of supplies for solar energy systems, conditions affecting international trade can have an adverse effect on the supply of solar photovoltaic modules, delays or cancellations for system installations done on a percentage-of-completion, non-compliance with NASDAQ continued listing requirements, changing reporting requirements which require significant compliance efforts and resources, volatile market price of our Class A common stock, lack of coverage of our Class A common stock by securities analysts, the low likelihood that we will pay any cash dividends on our Class A common stock for the foreseeable future, possibility of future dilutive issuances of securities, anti-takeover provisions in our organizational documents, the significant ownership and voting power of our Class A common stock held by Riverside Renewable Energy Investments, LLC (“Riverside”), and such other factors as discussed throughout Part I, Item 1A, Risk Factors and Part II, Item 7, Management’s Discussion and Analysis of Financial Conditions and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2014 and Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Quarterly Reports on Form 10-Q for this quarter.

Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

 

3


Table of Contents

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited)

Unaudited Interim Condensed Consolidated Financial Statements

We have prepared our unaudited interim condensed consolidated financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to these rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. In our opinion, the unaudited interim condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly, in all material respects, our consolidated financial position as of March 31, 2015, the interim results of operations for the three months ended March 31, 2015 and 2014, and cash flows for the three months ended March 31, 2015 and 2014. These interim statements have not been audited. The balance sheet as of December 31, 2014 was derived from our audited consolidated financial statements included in our annual report on Form 10-K. The interim consolidated financial statements contained herein should be read in conjunction with our audited financial statements, including the notes thereto, for the year ended December 31, 2014.

 

4


Table of Contents

REAL GOODS SOLAR, INC.

Condensed Consolidated Balance Sheets

 

(in thousands, except share data)

   March 31,
2015
    December 31,
2014
 
     (Unaudited)        
ASSETS     

Current assets:

    

Cash

   $ 992     $ 1,947  

Accounts receivable, net

     6,521       8,293  

Costs in excess of billings

     2,254        2,789   

Inventory, net

     3,713       4,639  

Deferred costs on uncompleted contracts

     2,622       2,011  

Other current assets

     2,678       1,047  

Current assets of discontinued operations

     3,698       8,427  
  

 

 

   

 

 

 

Total current assets

  22,478     29,153  

Property and equipment, net

  1,465     1,504  

Goodwill

  1,338     1,338  

Other assets

  2,408     2,029  

Noncurrent assets of discontinued operations

  997     1,082  
  

 

 

   

 

 

 

Total assets

$ 28,686   $ 35,106  
  

 

 

   

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Line of credit

$ 1,960   $ 4,350  

Accounts payable

  11,373     13,398  

Accrued liabilities

  2,695     2,978  

Billings in excess of costs on uncompleted contracts

  1,994     1,984  

Related party debt

  3,150     3,150  

Deferred revenue and other current liabilities

  2,637     3,613  

Current liabilities of discontinued operations

  6,237     7,984  
  

 

 

   

 

 

 

Total current liabilities

  30,046     37,457  

Other liabilities

  108     132  

Common stock warrant liability

  9,909     2,491  

Noncurrent liabilities of discontinued operations

  237     327  
  

 

 

   

 

 

 

Total liabilities

  40,300     40,407  
  

 

 

   

 

 

 

Commitments and contingencies

Shareholders’ equity:

Class A common stock, $.0001 par value, 150,000,000 shares authorized, 81,047,676 and 52,025,684 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively

  8     5  

Additional paid-in capital

  137,542     140,124  

Business acquisition consideration to be transferred

  1,244     1,244  

Accumulated deficit

  (150,408   (146,674
  

 

 

   

 

 

 

Total shareholders’ deficit

  (11,614 )   (5,301 )
  

 

 

   

 

 

 

Total liabilities and shareholders’ deficit

$ 28,686   $ 35,106  
  

 

 

   

 

 

 

See accompanying notes.

 

5


Table of Contents

REAL GOODS SOLAR, INC.

Condensed Consolidated Statements of Operations

 

     For the Three Months Ended
March 31,

(unaudited)
 

(in thousands, except per share data)

   2015     2014  

Net revenue

   $ 10,610     $ 13,767  

Cost of goods sold

     9,713       10,956  
  

 

 

   

 

 

 

Gross profit

  897     2,811  
  

 

 

   

 

 

 

Expenses:

Selling and operating

  4,071     5,936  

General and administrative

  1,557     2,073  

Share based compensation

  245      203   

Acquisition costs

  —       1,110  

Restructuring costs

  21     —    

Depreciation and amortization

  150     631  
  

 

 

   

 

 

 

Total expenses

  6,044     9,953  
  

 

 

   

 

 

 

Loss from continuing operations

  (5,147   (7,142

Interest and other expense, net

  (225   (221

Change in valuation of warrants

  1,755     (4,667
  

 

 

   

 

 

 

Loss before income taxes

  (3,617   (12,030

Income tax (benefit) expense

  (65   6  
  

 

 

   

 

 

 

Loss from continuing operations, net of tax

  (3,552   (12,036

Loss from discontinued operations, net of tax

  (182   (2,792 )
  

 

 

   

 

 

 

Net loss

$ (3,734 $ (14,828
  

 

 

   

 

 

 

Net loss per share – basic and diluted:

From continuing operations

$ (0.06 $ (0.28

From discontinued operations

  (0.00   (0.06 )
  

 

 

   

 

 

 

Net loss per share – basic and diluted

$ (0.06 $ (0.34
  

 

 

   

 

 

 

Weighted-average shares outstanding:

Basic and diluted

  57,421     43,600  
  

 

 

   

 

 

 

See accompanying notes.

 

6


Table of Contents

REAL GOODS SOLAR, INC.

Condensed Consolidated Statement of Equity (unaudited)

 

     Class A Common Stock      Class B Common
Stock
     Additional
Paid - in Capital
    Business
Combination
Consideration
to be
Transferred
     Accumulated
Deficit
    Total
Shareholders’
(Deficit)
 

(in thousands, except share data)

   Shares      Amount      Shares      Amount            

Balances, January 1, 2015

     52,025,684      $ 5        —        $ —        $ 140,124     $ 1,244      $ (146,674 )   $ (5,301 )

Issuance of common stock and other equity changes related to compensation

                 245            245  

Proceeds from 2015 Offering and warrant exercises, net of costs

     29,021,992         3               6,345             6,348   

Establishment of liability related to common stock warrant issuance

                 (12,033          (12,033

Adjustment to warrant liability for warrants exercised

                 2,861             2,861   

Net loss

                      (3,734 )     (3,734 )
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Balances, March 31, 2015

  81,047,676   $ 8     —      $ —      $ 137,542   $ 1,244   $ (150,408 ) $ (11,614 )
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

7


Table of Contents

REAL GOODS SOLAR, INC.

Condensed Consolidated Statements of Cash Flows

 

     For the Three Months Ended
March 31,

(unaudited)
 

(in thousands except share data)

   2015     2014  

Operating activities

    

Net loss

   $ (3,734 )   $ (14,828

Loss from discontinued operations

     (182 )     (2,792
  

 

 

   

 

 

 

Loss from continuing operations

  (3,552 )   (12,036 )

Adjustments to reconcile net loss from continuing operations to net cash used in operating activities – continuing operations:

Depreciation

  150     310  

Amortization

  —       480  

Share-based compensation

  245     203  

Change in valuation of warrants

  (1,755 )   4,667   

Loss (gain) on sale of assets

  (100   —     

Deferred interest on related party debt

  95     —    

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

Accounts receivable, net

  1,772     1,108   

Costs in excess of billings on uncompleted contracts

  535     (28 )

Inventory, net

  926     537   

Deferred costs on uncompleted contracts

  (611 )   (493 )

Other current assets

  (379 )   (255 )

Other assets

  (1,631 )   —    

Accounts payable

  (2,025 )   1,318   

Accrued liabilities

  (377 )   688   

Billings in excess of costs on uncompleted contracts

  10     —    

Deferred revenue and other current liabilities

  (976 )   (96 )

Other liabilities

  (24 )   (84 )
  

 

 

   

 

 

 

Net cash used in operating activities – continuing operations

  (7,697 )   (3,681

Net cash provided by (used in) operating activities – discontinued operations

  2,795     (7,367 )
  

 

 

   

 

 

 

Net cash used in operating activities

  (4,902 )   (11,048
  

 

 

   

 

 

 

Investing activities

Cash from acquired businesses

  —       9,647  

Purchase of property and equipment

  (129 )   (370

Proceeds from sale of property and equipment

  118      —     
  

 

 

   

 

 

 

Net cash (used in) provided by investing activities – continuing operations

  (11 )   9,277   

Net cash provided by (used in) investing activities – discontinued operations

  —       —    
  

 

 

   

 

 

 

Net cash (used in) provided by investing activities

  (11 )   9,277   
  

 

 

   

 

 

 

Financing activities

Principal borrowings on revolving line of credit

  12,272     —    

Principal payments on revolving line of credit

  (14,662   —    

Proceeds from 2015 Offering and warrant exercises, net of costs

  6,348     418  

Exercise of stock options

  —       15  
  

 

 

   

 

 

 

Net cash provided by financing activities

  3,958     433  
  

 

 

   

 

 

 

Net change in cash

  (955 )   (1,338

Cash at beginning of period

  1,947     12,449  
  

 

 

   

 

 

 

Cash at end of period

$ 992   $ 11,111  
  

 

 

   

 

 

 

Supplemental cash flow information

Income taxes paid

$ —     $ 6  

Interest paid

$ 72   $ 150  

Non-cash items

Issuance of 8,348,145 shares of Class A common stock in conjunction with the acquisition of businesses

$ —     $ 31,973  

Change in common stock warrant liability in conjunction with exercise of 167,262 warrants

$ —     $ 621  

Common stock warrant liability recorded in conjunction with 2015 Offering

$ 12,033   $ —    

Change in common stock warrant liability in conjunction with exercise of 24,821,992 warrants

$ 2,861    $ —    

See accompanying notes.

 

8


Table of Contents

Notes to Condensed Consolidated Financial Statements

1. Organization, Nature of Operations, and Principles of Consolidation

Real Goods Solar, Inc. (the “Company” or “RGS”) is a residential and small commercial solar energy engineering, procurement, and construction firm.

Discontinued Operations

During 2014, the Company committed to a strategic shift of its business resulting in a plan to sell certain net assets and rights, and attrition of substantially completed contracts over the following twelve months comprising its large commercial installations business. Accordingly, the assets and liabilities, operating results, and operating and investing activities cash flows for the entire Commercial segment are presented as a discontinued operation, separate from the Company’s continuing operations, for all periods presented in these condensed consolidated financial statements and footnotes, unless indicated otherwise. See Note 11. Discontinued Operations.

Liquidity and Financial Resources Update

In recent years, including the quarter ended March 31 2015, the Company has reported recurring operating losses and negative cash from operations, resulting in not paying vendors on a timely basis. To address these circumstances, the Company has taken actions designed to position the Company to operate profitably in the future including (i) exiting the large commercial segment which was operating at a significant operating and cash flow loss, (ii) reducing its operating cost infrastructure through reductions in its workforce and implementing new commission and marketing spend programs, and (iii) arranging for new capital with its 2015 Offering (as defined below).

The reported cash outflow from operations for the three months ended March 31, 2015 include the Company’s efforts to reduce its total accounts payable from both the Residential segment and discontinued operations:

On February 26 and 27, 2015, the Company raised gross proceeds of $3.5 million in the initial closings of a registered public offering of units consisting of Class A common stock and warrants (the “2015 Offering”). Over the next 12 months the Company can raise up to an additional $8.0 million either through (i) the forced exercise of a portion of the Series B warrants issued in the 2015 Offering, provided that it is in compliance with certain equity conditions and other terms specified in the Securities Purchase Agreement entered into in connection with the 2015 Offering and the warrants or (ii) voluntary exercise by the Series B warrant holders. The equity conditions include, among other items (i) that the Company’s Class A common stock is trading at or above $0.20, (ii) that the Company is listed on The NASDAQ Capital market or other eligible market, (iii) that 200% of the shares of Class A common stock subject to an exercise notice is issuable, and (iv) the dollar trading volume of the Class A common stock for each day during the 30 preceding days of an exercise is at least $100,000. The Company’s stock traded below $0.20 on April 27, 2015 and accordingly, the Company was not in compliance with the equity conditions and cannot force exercise warrants until June 9, 2015; however, since the date of noncompliance the Company has through May 5, 2015 received voluntary exercises of $0.8 million and anticipates additional voluntary exercises during this period. As of May 5, 2015, the Company has realized $5.8 million from the Series B warrants both from voluntary exercises by the Series B warrant holders and forced exercises by the Company, or 72% of the amount available. The Company anticipates further voluntary exercises by Series B warrant holders.

The Company has prepared its business plan for 2015 which includes the 2015 Offering proceeds, anticipated timing of vendor payments for existing accounts payable and for new solar panels, anticipated timing of collection of accounts receivable, and its operating cost structure following its cost improvement actions, and believes it has sufficient financial resources to operate for the ensuing 12-month period. The Company objectives in preparing this plan included (i) further reducing its fixed operating cost infrastructure commencing during the first quarter of 2015 in order to reduce the required level of revenue for profitable operations and (ii) reducing the company’s present operating losses and returning the Company to profitable operations in the future. Elements of this plan include, among others, (i) realizing operating costs savings from reductions in staff, of which substantially all had been achieved by the end of the first quarter of 2015, (ii) the positive impact of the strategic decision to exit the large commercial segment which operated at both a substantial cash and operating loss, (iii) moving towards an optimized field and e-sales force, (iv) optimizing the Company’s construction capability through authorized third-party integrators to realize the revenue from installation of the Company’s backlog and minimize the impact on gross margin of idle construction crew time, (v) changing the mix of marketing expenditures to achieve a lower cost of acquisition than that employed in prior periods, and (vi) continued internal efforts to convert the Company’s accounts receivable to cash.

The Company believes that as a result of (i) raising access to additional capital of $11.5 million, of which 81% has been realized through May 5, 2015, (ii) renewing its credit facilities on improved terms for the ensuing 12 months, and (iii) the actions it has already implemented to reduce its fixed operating cost infrastructure, the Company has sufficient financial resources to operate for the ensuing 12 months. However, if operational initiatives are not successful in significantly reducing historical loss from operations, or if the Company encounters unplanned operational difficulties, or if the timing of collection of accounts receivable and payments of accounts payable are significantly different than anticipated, the Company may not have sufficient funds to repay any outstanding borrowings as they come due or to fund our operating cash needs for the next twelve months. These circumstances would require obtaining financing from another source or raise additional capital through debt or equity financing. While the Company has been successful in the past in obtaining new financing, there is no assurance that it will be able to raise any new funds in the future.

The Company had total cash and available borrowings as follows:

 

(in thousands)

   December 31, 2014      March 31, 2015      May 5, 2015  

Cash plus availability under current borrowing base

   $ 3,001       $ 2,765       $ 2,637   

Cash plus availability under maximum allowed borrowing base

   $ 3,097       $ 4,032       $ 3,255   

 

9


Table of Contents

2. Significant Accounting Policies

The Company made no changes to its significant accounting policies during the three months ended March 31, 2015.

Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company’s management in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in compliance with the rules and regulations of the United States Securities and Exchange Commission. Accordingly, these unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of our management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the expected results for the year ending December 31, 2015. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014. Intercompany balances and transactions have been eliminated.

Use of Estimates and Reclassifications

The preparation of the condensed consolidated financial statements in accordance with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ materially from those estimates.

Certain amounts in the 2014 financial statements have been reclassified to conform to the current year presentation.

Common Stock Warrant Liability

The Company accounts for common stock warrants and put options in accordance with applicable accounting guidance provided in Financial Accounting Standards Board (“FASB”) ASC 480,  Liabilities – Distinguishing Liabilities from Equity , as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement. Certain of the Company’s warrants are accounted for as liabilities due to provisions either allowing the warrant holder to request redemption, at the intrinsic value of the warrant, upon a change of control and/or providing for an adjustment to the number of shares of the Company’s Class A common stock underlying the warrants and the exercise price in connection with dilutive future funding transactions. The Company classifies these derivative liabilities on the condensed consolidated balance sheets as long term liabilities, which are revalued at each balance sheet date subsequent to their initial issuance. The Company used a Monte Carlo pricing model to value these derivative liabilities. The Monte Carlo pricing model, which is based, in part, upon unobservable inputs for which there is little or no market data, requires the Company to develop its own assumptions.

The following table reflects original assumptions for common stock warrant liability issued in the first quarter of 2015.

 

Date of issuance

   Exercise
Price
     Closing
Market
Price
     Risk-free
Rate
    Market
Price
Volatility
    Remaining
Term
(years)
     Expected
dividend
yield
    Probability
of change
in control
 

February 26, 2015

   $ 0.50       $ 0.45         1.62     102.5     5.50         0.0     15.0

March 17-31, 2015

     variable       $ 0.45         0.03     190.0     0.21         0.0     NA   

The following table reflects March 31, 2015 assumptions for common stock warrants liability outstanding as of March 31, 2015.

 

Date of issuance

   Exercise
Price
     Closing
Market
Price
     Risk-free
Rate
    Market
Price
Volatility
    Remaining
Term
(years)
     Expected
dividend
yield
    Probability
of change
in control
 

June 3, 2013

   $ 2.45       $ 0.27         0.93     125.0     3.18         0.0     15.0

November 15, 2013

   $ 3.41       $ 0.27         1.37     105.0     4.12         0.0     15.0

June 6, 2014

   $ 2.36       $ 0.27         1.63     102.0     6.18         0.0     NA   

July 9, 2014

   $ 3.19       $ 0.27         1.37     105.0     4.77         0.0     15.0

November 18, 2014

   $ 0.81       $ 0.27         1.71     103.0     6.63         0.0     NA   

February 26, 2015

   $ 0.50       $ 0.27         1.46     103.4     5.40         0.0     15.0

March 17-31, 2015

     variable       $ 0.27         0.05     210.0     0.13         0.0     NA   

 

10


Table of Contents

To reflect changes in the fair values of its outstanding warrants, the Company recorded to its common stock warrant liability, a net noncash decrease of $1.8 million and an increase of $4.7 million during the three months ended March 31, 2015 and 2014, respectively. In the event warrants are exercised or expire without being exercised, the fair value is reduced by the number of warrants exercised or expired multiplied by the fair value of each warrant at the time of exercise or expiration, with a credit to additional paid-in capital.

The table below summarizes the Company’s warrant activity for the three months ended March 31, 2015:

 

     2013 & 2014
Issuances
     2015
Issuances
    Total  

Warrants outstanding at December 31, 2014

     8,134,717         —          8,134,717   

Issuances

     —           35,579,600        35,579,600   

Anti-dilution adjustments (a)

     —          28,706,234        28,706,234   

Exercises

     —           (24,821,992     (24,821,992
  

 

 

    

 

 

   

 

 

 

Warrants outstanding at March 31, 2015

  8,134,717      39,463,842      47,598,559   
  

 

 

    

 

 

   

 

 

 

 

(a) Anti-dilution adjustments reflect pro-forma issuance of warrants in accordance with the 2015 Offering as of March 31, 2015.

 

     2013 & 2014
Issuances
    2015
Issuances
    Total  

Value of warrants at December 31, 2014

   $ 2,491      $ —        $ 2,491   

Value of warrants issued

     —          12,033        12,033   

Adjustment for warrants exercised

       (2,861     (2,861

Changes in fair value, net

     (1,130     (625     (1,755
  

 

 

   

 

 

   

 

 

 

Value of warrants at March 31, 2015

$ 1,362    $ 8,547    $ 9,909   
  

 

 

   

 

 

   

 

 

 

Certain of the warrants also give the holder the right to require the Company to redeem the warrant for the then fair value of the warrant in the event of a change in control (the “Put Option Component”). The Company used 10,000 simulations in the Monte Carlo pricing model to value the warrants and the Put Option Component. If factors change and different assumptions are used, the warrant liability and the change in estimated fair value could be materially different. Changes in the fair value of the warrants are reflected in the consolidated statement of operations as change in fair value of warrant liability, with an offsetting non-cash entry recorded as an adjustment to the warrant liability.

Fair Value Measurement

ASC 820 , Fair Value Measurements , clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

ASC 820 requires that the valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes inputs that may be used to measure fair value as follows:

 

    Level 1 — Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.

 

    Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

    Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

11


Table of Contents

When determining the fair value measurements for assets or liabilities required or permitted to be recorded at and/or marked to fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. When possible, the Company looks to active and observable markets to price identical assets. When identical assets are not traded in active markets, the Company looks to market observable data for similar assets.

The following tables summarize the basis used to measure certain financial assets and liabilities at fair value on a recurring basis in the condensed consolidated balance sheets:

 

Balance at March 31, 2015 (in thousands)

   Total      Quoted Prices
in Active
Markets for
Identical
Items
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Common stock warrant liability

   $ 9,909      $ —        $ —        $ 9,909  
  

 

 

    

 

 

    

 

 

    

 

 

 

For the Company’s Level 3 measures, which represent common stock warrants, fair value is based on a Monte Carlo pricing model that is based, in part, upon unobservable inputs for which there is little or no market data, requiring the Company to develop its own. The Company used a market approach to valuing these derivative liabilities.

The following table shows the reconciliation from the beginning to the ending balance for the Company’s common stock warrant liability measured at fair value on a recurring basis using significant unobservable inputs (i.e. Level 3) for the three months ended March 31, 2015:

 

(in thousands)

   Fair Value
Measurements
Using Significant
Unobservable
Inputs
 

Fair value of common stock warrant liability at December 31, 2014

   $ 2,491  

Issuance of common stock warrants

     12,033  

Change in the fair value of common stock warrant liability, net

     (1,755

Adjustment for warrants exercised

     (2,861
  

 

 

 

Fair value of common stock warrant liability at March 31, 2015

$ 9,909  
  

 

 

 

Recently Issued Accounting Standards

ASU 2015-03

On April 7, 2015, the FASB issued Accounting Standard Update No. 2015-03 (“ASU 2015-03”), Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. For public business entities, the standard is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the standard is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Early adoption is permitted for financial statements that have not been previously issued. The new guidance will be applied on a retrospective basis. The Company is currently assessing the impact of ASU 2015-03 on its consolidated financial statements.

ASU 2014-15

On August 27, 2014, the FASB issued Accounting Standards Update No. 2014-15 (“ASU 2014-15”), Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures.

Under GAAP, financial statements are prepared with the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. Financial reporting under this presumption is commonly referred to as the going concern basis of accounting. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities.

ASU 2014-09

On May 28, 2014, the FASB issued Accounting Standards Update No. 2014-09 (“ASU 2014-09”), which created Topic 606,  Revenue From Contracts With Customers  (“Topic 606”) and superseded the revenue recognition requirements in Topic 605,  Revenue Recognition,  including most industry-specific revenue recognition guidance. In addition, ASU 2014-09 superseded the cost guidance in Subtopic 605-35,  Revenue Recognition—Construction-Type and Production-Type Contracts,  and created new Subtopic 340-40,  Other Assets and Deferred Costs—Contracts with Customers.  In summary, the core principle of Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

The amendments in ASU 2014-09 are effective for the Company on January 1, 2017. The Company is assessing the impact of ASU 2014-09 on its consolidated financial statements.

 

12


Table of Contents

Currently, GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures. ASU 2014-15 provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes.

The amendments in ASU 2014-15 are effective for the Company on January 1, 2017, with early application permitted for unissued financial statements. The Company is currently assessing the impact of ASU 2014-15 on its consolidated financial statements.

3. Revolving Line of Credit and Term Loan

Under a loan agreement, as amended (the “SVB Loan”), with Silicon Valley Bank, the Company has a revolving line of credit that provides for advances not to exceed $5.0 million based upon a borrowing base availability of 75% of eligible accounts receivable as defined in the SVB Loan. Borrowings bear interest at the greater of (a) the greater of the bank’s prime rate or 4.00%, plus 4.00%, and (b) 8.00%. The amended maturity date for the SVB Loan is currently March 15, 2016. 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. The Company may reserve up to $500,000 for stand-by letters of credit under the line of credit. The SVB Loan contains various covenants, including a covenant requiring compliance with a liquidity ratio. As of March 31, 2015 and December 31, 2014, the Company had a line of credit outstanding of $2.0 million and $4.4 million, respectively, accruing interest at 8% per annum as of March 31, 2015.

Ninth Loan Modification

On March 16, 2015 the Company entered into a Ninth Loan Modification Agreement (the “Ninth Loan Modification Agreement”) with SVB to extend the maturity date of the revolving line of credit under the SVB Loan from March 17, 2015 to March 15, 2016. Further, the amendment also restated certain financial covenants of the SVB Loan, reduced the revolving line amount available at any one time from $5.5 million to $5.0 million, and increased the borrowing base by eliminating the Seventh Loan Modification’s requirement to maintain a $1.0 million reserve under the Availability Amount (as defined in the SVB Loan). In connection with the Ninth Loan Modification Agreement, the Company paid a $50,000 fee to Silicon Valley Bank.

4. Related Party Transactions

At March 31, 2015, the Company’s outstanding related party debt consisted of $3.15 million payable to Riverside Fund III. L.P., an entity affiliated with Riverside. On March 16, 2015 the Company extended its notes payable owed to Riverside Fund III L.P. for twelve months, extending the maturity date to March 31, 2016. In connection with the extension the Company granted Riverside Fund III L.P. the option to place a second lien upon assets of the Company. The loans bear interest at 10% and are subordinated to the SVB Loan.

Accrued interest on the Company’s related party debt was $1.0 million and $0.9 million at March 31, 2015 and December 31, 2014, respectively, and is reported in accrued liabilities on the Company’s consolidated balance sheet.

Riverside holds approximately 9.7% of the Company’s outstanding Class A common stock as of March 31, 2015. Pursuant to the terms of a Shareholders Agreement, Riverside has the right to designate a certain number of individuals for appointment or nomination to our Board of Directors, tied to its ownership of the Company’s Class A common stock.

5. Commitments and Contingencies

The Company leases offices and warehouse space through non-cancelable operating leases. Some of these leases contain escalation clauses, based on increases in property taxes and building operating costs, and renewal options ranging from one month to five years.

The Company also leases a fleet of vehicles classified as operating leases. The lease terms range from 36 to 60 months.

The following schedule represents the remaining future minimum payments of all leases as of March 31, 2015:

 

(in thousands)    As of
March 31,
 

2015

   $ 887  

2016

     844  

2017

     267  

2018 and thereafter

     95  
  

 

 

 
$ 2,093  
  

 

 

 

The Company incurred rent expense of $0.3 million and $0.2 million for the three months ended March 31, 2015 and 2014, respectively.

 

13


Table of Contents

The Company is subject to risks and uncertainties in the normal course of business, including legal proceedings; governmental regulation, such as the interpretation of tax and labor laws; and the seasonal nature of its business due to weather-related factors. The Company has accrued for probable and estimable costs that may be incurred with respect to identified risks and uncertainties based upon the facts and circumstances currently available. Due to uncertainties in the estimation process, actual costs could vary from the amounts accrued.

From time to time, we are involved in legal proceedings that we consider to be in the normal course of business. On July 9, 2014, the Company completed a PIPE offering of approximately $7.0 million at a price per share of $2.40. Subsequently, the Company’s stock price has declined to $0.27 as of March 31, 2015 and four of the investors in the offering (out of approximately 20 total investors in the offering) have asserted claims against the Company in three separate lawsuits alleging certain misrepresentations and omissions in the offering. The Company intends to vigorously defend itself in the litigation and has made a motion for dismissal. As of March 31, 2015 we have not recorded a liability associated with this claim.

6. Shareholders’ Equity

On February 26 and February 27, 2015, we closed the 2015 Offering. Each unit consisted of: (i) one share of Class A common stock; (ii) a Series A Warrant to purchase share of the Company’s Class A common stock equal to 50% of the sum of the number of shares of Class A common stock purchased as part of the units plus, if applicable, the number of shares of Class A common stock issuable upon exercise in full of the Series E Warrants (without regard to any limitations on exercise) described below; (iii) a Series B Warrant to purchase shares of the Company’s Class A common stock for a “stated amount” (as described in the offering document); (iv) a Series C Warrant to purchase up to 50% of that number of shares of Class A common stock actually issued upon exercise of the Series B Warrant; and (v) a Series D Warrant to purchase additional shares of Class A common stock in an amount determined on a future reset date after the issuance of the Series D Warrant. In addition, investors who, together with certain “attribution parties,” would beneficially own in excess of 4.99% of the number of shares of Class A common stock outstanding immediately after the closing of the offering as a result of their purchase of units, received shares of Class A common stock in an amount up to such 4.99% cap and a Series E Warrant to purchase the balance of the shares of Class A common stock the investor would have received at closing but for the 4.99% cap.

As of March 31, 2015, the Company has realized gross proceeds of $7.1 million from the 2015 Offering.

During the three months ended March 31, 2015, the Company issued no shares of its Class A common stock to employees upon the exercise of stock options. During the three months ended March 31, 2015, and March 31, 2014 the Company issued 29,021,992 and 167,262 shares of its Class A common stock pursuant to the exercise of warrants, respectively.

At March 31, 2015, the Company had the following shares of Class A common stock reserved for future issuance:

 

Stock options outstanding under incentive plans

  2,513,631   

Stock options outstanding under plans not approved by security holders

  90,000  

Sunetric – provisional purchase consideration to be transferred

  302,356  

Common stock warrants outstanding - derivative liability (a)

  47,598,559   

Common stock warrants outstanding - equity security

  282,535  
  

 

 

 

Total shares reserved for future issuance

  50,787,081   
  

 

 

 

 

(a) As of March 31, 2015, the number of derivative Series B and Series C warrants totaled 35,963,842. These warrants are variable and will be adjusted, consistent with the terms of the 2015 Offering, based on the Class A common stock fair market value at the end of fiscal quarter reporting and the date of exercise.

7. Share-Based Compensation

During the three months ended March 31, 2015, the Company granted 633,611 stock options and cancelled 455,260 stock options versus grants of 1,329,500 stock options and cancelled 75,420 stock options during the three months ended March 31, 2014, under its 2008 Long-Term Incentive Plan. The new stock options vest at 2% per month for the 50 months beginning with the first day of the eleventh month after date of grant.

Options issued to the Company’s Board of Directors under its 2008 Long-Term Incentive Plan vest in 8.33% quarterly installments on the first day of each calendar quarter beginning on April 1, 2015 and ending on April 1, 2018, when the options become fully vested.

Total share-based compensation expense recognized was $0.2 million during each of the three months ended March 31, 2015 and 2014. Share-based compensation expense is reported separately on the Company’s consolidated statements of operations.

 

14


Table of Contents

8. Income Taxes

The Company performed assessments of the realizability of its net deferred tax assets generated during each reporting period, considering all available evidence, both positive and negative. As a result of these assessments, the Company concluded that it was more likely than not that none of its net deferred tax assets would be recoverable through the reversal of temporary differences and near term normal business results. The Company, during the three months ended March 31, 2015 and 2014, increased its valuation allowance by $1.6 million and $3.7 million, respectively. The Company recognized no income tax benefit for losses incurred during the three months ended March 31, 2015.

9. Net Loss Per Share

Basic net loss per share excludes any dilutive effects of options or warrants. The Company computes basic net loss per share using the weighted average number of shares of its Class A common stock outstanding during the period. The Company computes diluted net loss per share using the weighted average number of shares of its Class A common stock and common stock equivalents outstanding during the period. The Company excluded common stock equivalents of 75.3 million and 5.7 million for the three months ended March 31, 2015 and 2014, respectively, from the computation of diluted net loss per share because their effect was antidilutive.

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

 

     Three Months Ended
March 31,
 

(in thousands, except per share data)

   2015      2014  

Net loss:

     

Loss from continuing operations

   $ (3,552 )    $ (12,036

Loss from discontinued operations

     (182 )      (2,792 )
  

 

 

    

 

 

 

Net loss

$ (3,734 ) $ (14,828
  

 

 

    

 

 

 

Weighted average shares for basic and diluted net loss per share

  57,421     43,600  
  

 

 

    

 

 

 

Net loss per share – basic and diluted:

Loss from continuing operations

$ (0.06 ) $ (0.28

Loss from discontinued operations

  (0.00 )   (0.06
  

 

 

    

 

 

 

Net loss

$ (0.06 ) $ (0.34
  

 

 

    

 

 

 

10. Segment Information

During 2014, the Company discontinued its entire former Commercial segment and sold the assets of the catalog segment. As a result of this major strategic shift, the Company now operates as three reportable segments: (1) Residential – the installation of solar systems for homeowners, including lease financing thereof, and for small businesses (small commercial) in the continental U.S.; (2) Sunetric – the installation of solar systems for both homeowners and small business owners (small commercial) in Hawaii; and (3) Other – catalog, for 2014, and corporate operations.

Financial information for the Company’s segments and a reconciliation of the total of the reportable segments’ income (loss) from operations (measures of profit or loss) to the Company’s consolidated net loss are as follows:

 

     Three Months Ended
March 31,
 

(in thousands)

   2015      2014  

Net revenue:

     

Residential

   $ 6,857      $ 13,274  

Sunetric

     3,753        —    

Other

     —          493  
  

 

 

    

 

 

 

Consolidated net revenue

  10,610     13,767  
  

 

 

    

 

 

 

Loss from operations:

Residential

  (2,469 )   (2,181 )

Sunetric

  (313 )   —    

Other

  (2,365 )   (4,961
  

 

 

    

 

 

 

Consolidated loss from continuing operations

  (5,147 )   (7,142
  

 

 

    

 

 

 

Reconciliation of consolidated loss from operations to consolidated net loss:

Interest and other expense, net

  (225 )   (221

Change in valuation of warrants

  1,755     (4,667

Income tax (benefit) expense

  (65 )   6  

Loss from discontinued operations, net of tax

  (182 )   (2,792 )
  

 

 

    

 

 

 

Net loss

$ (3,734 ) $ (14,828
  

 

 

    

 

 

 

 

15


Table of Contents

The following is a reconciliation of reportable segments’ assets to the Company’s consolidated total assets. The Other segment includes certain unallocated corporate amounts.

 

(in thousands)

   March 31, 2015      December 31, 2014  

Total assets – continuing operations:

     

Residential

   $ 17,153      $ 17,183  

Sunetric

     5,328        7,430  

Other

     1,510        984  
  

 

 

    

 

 

 
$ 23,991   $ 25,597  
  

 

 

    

 

 

 

Total assets – discontinued operations:

Commercial

  4,695     9,509  
  

 

 

    

 

 

 
$ 28,686   $ 35,106  
  

 

 

    

 

 

 

11. Discontinued Operations

The following is a reconciliation of the major line items constituting pretax loss of discontinued operations to the after-tax loss of discontinued operations that are presented in the condensed consolidated statements of operations as indicated:

 

     For the Three Months Ended
March 31,
 

(in thousands)

   2015      2014  

Major line items constituting pretax loss of discontinued operations:

  

Net revenue

   $ 423      $ 8,376   

Cost of goods sold

     248        7,896   

Selling and operating

     260        1,932   

General and administrative

     74        —    

Depreciation and amortization

     23        149   

Acquisition related costs

     —          1,191   
  

 

 

    

 

 

 

Pretax loss from discontinued operations

  (182 )   (2,792

Income tax benefit

  —       —    

Loss from discontinued operations

$ (182 ) $ (2,792
  

 

 

    

 

 

 

The following is a reconciliation of the carrying amounts of major classes of assets and liabilities of the discontinued operations to the total assets and liabilities of the discontinued operations presented separately in the condensed consolidated balance sheets as indicated:

 

(in thousands)

   March 31,
2015
     December 31,
2014
 

Carrying amounts of major classes of assets included as part of discontinued operations:

     

Current assets:

     

Accounts receivable, net

   $ 2,153      $ 6,223  

Costs in excess of billings on uncompleted contracts

     1,271        1,841  

 

16


Table of Contents

(in thousands)

   March 31,
2015
     December 31,
2014
 

Inventory, net

     135         242  

Deferred costs on uncompleted contracts

     —          42  

Other current assets

     139        79  
  

 

 

    

 

 

 

Total major classes of current assets of the discontinued operations

  3,698     8,427  
  

 

 

    

 

 

 

Noncurrent assets:

Property and equipment, net

  27     45  

Other noncurrent assets

  970     1,037  

Total noncurrent assets of discontinued operations

  997     1,082  
  

 

 

    

 

 

 

Total assets of the discontinued operations in the balance sheet

$ 4,695   $ 9,509  
  

 

 

    

 

 

 

Carrying amounts of major classes of liabilities included as part of discontinued operations:

Current liabilities:

Accounts payable

$ 3,290   $ 4,977  

Accrued liabilities

  2,622     2,608  

Billings in excess of costs on uncompleted contracts

  289     373  

Deferred revenue and other current liabilities

  36     26  
  

 

 

    

 

 

 

Total current liabilities of discontinued operations

  6,237     7,984  
  

 

 

    

 

 

 

Noncurrent liabilities:

Other liabilities

  237     327  
  

 

 

    

 

 

 

Total major classes of noncurrent liabilities of the discontinued operations

  237     327  
  

 

 

    

 

 

 

Total liabilities of the discontinued operations in the balance sheet

$ 6,474   $ 8,311  
  

 

 

    

 

 

 

 

17


Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

We recommend users read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this document. This section is designed to provide information that will assist in understanding our condensed consolidated financial statements, changes in certain items in those statements from period to period, the primary factors that caused those changes, and how certain accounting principles, policies and estimates affect the condensed consolidated financial statements.

Discontinued Operations

During 2014, we committed to a plan to sell certain contracts and rights comprising our large commercial installations business, otherwise known as our former Commercial segment. At the same time, we determined not to enter into further contracts. We expect that contracts in process at December 31, 2014 will be completed during 2015. We now report this business as a discontinued operation, separate from our continuing operations. The following management discussion and analysis of financial condition and results of operations is for our continuing operations, unless indicated otherwise.

Overview

We are a residential and small 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. 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, including our predecessors, have more than 35 years of experience in residential solar energy and trace our roots to 1978, when Real Goods Trading Corporation sold the first solar photovoltaic panels in the United States. We have designed and installed tens of thousands of residential and commercial solar systems since our founding.

During 2014, we discontinued our entire former Commercial segment and sold the assets associated with our catalog segment. As a result of this major strategic shift, we now operate as three reportable segments: (1) Residential – the installation of solar systems for homeowners, including lease financing thereof, and for small businesses (small commercial) in the continental U.S.; (2) Sunetric – the installation of solar systems for both homeowners and small business owners (small commercial) in Hawaii; and (3) Other – catalog segment, for 2014, and corporate operations. We believe this new structure will enable us to more effectively manage our operations and resources.

We generally recognize revenue from solar energy systems sold to our customers when we install the solar energy system. Our business requires that we incur up-front costs of acquiring solar panels and labor to install solar systems on our customer rooftops and thereafter receive cash from customers. As such, during periods when we are increasing sales, we will have negative cash flow from operations, a portion of which we offset from borrowing under our line of credit. We account for our leases as sales-type leases.

Recent Developments

During 2015, in conjunction with our plans to position the company for future profitable operations, we have:

 

    Arranged the 2015 Offering to raise up to $11.5 million, before offering expenses, of new capital.

 

    Renewed both our revolving bank facility and subordinated debt for one year.

 

    Reduced and realigned our workforce and closed offices in California to reduce fixed operating cost infrastructure.

 

    Modified our commission plans and marketing spend plans to be cost efficient.

 

    Entered into arrangements with third party installers under programs that will reduce our investment in working capital for transactions.

 

    Entered into an arrangement with a financier to acquire leases to be originated in future periods to reduce the working capital required for leasing transactions.

Critical Accounting Policies and Estimates

There were no material changes to our critical accounting policies or estimates during the three months ended March 31, 2015 from those disclosed in our annual report on Form 10-K for the year ended December 31, 2014.

Results of Operations

Three Months Ended March 31, 2015 Compared to Three Months Ended March 31, 2014

 

18


Table of Contents

Net revenue . Net revenue decreased $3.2 million, or 22.9%, to $10.6 million during the three months ended March 31, 2015 from $13.8 million during the three months ended March 31, 2014. Net revenue for our residential segment decreased $6.4 million, or 48.3%, to $6.9 million during the three months ended March 31, 2015 from $13.3 million during three months ended March 31, 2014. The states for which we made installations changed materially from the prior year. For the prior year quarter, we had approximately $2.0 million of revenue from installations in each of the states of Missouri, Colorado and California. The state rebates did not exist this quarter for Missouri and Colorado and we were not successful with growing our field sales organization in California and, accordingly, revenue declined by approximately $6 million. Since the prior year, we were successful in growing our East Coast sales, but inclement weather and not having the financial resources for part of the quarter to acquire equipment minimized the offset that could have occurred from the improved East Coast sales. Kilowatts installed by the residential segment decreased 1,986 kilowatts, or 54.5%, to 1,657 kilowatts during the three months ended March 31, 2015 from 3,643 kilowatts during the three months ended March 31, 2014. Net revenue for our Sunetric segment was $3.8 million and represents the installment of 904 kilowatts for the three months ended March 31, 2015.

Gross profit . Gross profit decreased $1.9 million, or 68.1%, to $0.9 million or 8.5% of net revenue during the three months ended March 31, 2015 from $2.8 million or 20.4% of net revenue during the three months ended March 31, 2014. Gross profit for our residential segment decreased $2.0 million, or 73.3%, to $0.7 million or 10.3% of net revenue during the three months ended March 31, 2015 from $2.7 million or 20% of net revenue during the three months ended March 31, 2014. The decrease in the residential segment’s gross profit margin percentage was due to the proportionate greater absorption of fixed costs associated with the decline in revenue of $6 million from the prior year quarter. Gross profit for the Sunetric segment was $0.2 million or 5.0% of net revenue during the three months ended March 31, 2015. The decrease in the Sunetric segment’s gross profit margin percentage was due to the proportionate greater absorption of fixed costs associated with lesser revenue arising from the local utility not approving interconnection requests in a timely manner.

Selling and operating expenses . Selling and operating expenses decreased $1.9 million, or 31.4%, to $4.1 million or 38.4% of net revenue during the three months ended March 31, 2015 from $6.0 million or 43.1% of net revenue during the three months ended March 31, 2014. Selling and operating expenses for our residential segment decreased $1.8 million, or 37.5%, to $3.0 million or 44.1% of net revenue during the three months ended March 31, 2015 from $4.8 million or 36.5% of net revenue during the three months ended March 31, 2014. The decrease in the residential segment’s selling and operating expenses was in part attributable to management’s decision to implement new commission plans, reduce marketing spend as well as a decrease in headcount. Selling and operating expenses for our Sunetric segment were $0.5 million or 12.1% of net revenue during the three months ended March 31, 2015.

General and administrative expenses . General and administrative expenses decreased $0.5 million, or 24.9%, to $1.6 million or 14.7% of net revenue during the three months ended March 31, 2015 from $2.1 million or 15.1% of net revenue during the three months ended March 31, 2014. The decrease in the other segment’s general and administrative expenses was primarily due reduction of payroll and insurance costs resulting from the reduction of headcount.

Stock based compensation. There was stock based compensation expense of $0.2 million during the three months ended March 31 2015 and 2014.

Acquisition costs . Acquisition costs were $0.0 million during the three months ended March 31, 2015 and $1.1 million during the three months ended March 31, 2014 related to the acquisition and integration costs of Sunetric and Syndicated.

Restructuring costs . Restructuring costs, which arose from the closing of offices, were $21,000 during the three months ended March 31, 2015. There were no restructure costs for the three months ended March 31, 2014.

Depreciation and Amortization . Depreciation and amortization were $0.2 million during the three months ended March 31, 2015 and $0.6 million during the three months ended March 31, 2014, of which approximately $0.5 million was amortization of intangible assets which have been subsequently impaired and no longer subject to amortization.

Interest and other expense, net . Interest and other expense, net was $0.2 million during each of the three months ended March 31, 2015 and 2014.

Change in valuation of warrants . We recorded a noncash gain of $1.8 million during the three months ended March 31, 2015, compared to a noncash loss of $4.7 million during the three months ended March 31, 2014. The recognition of gain and loss is primarily due to changes in our stock prices resulting in adjustments to the carrying value of the common stock warrant liability. Accordingly, as our stock price goes up, the liability is increased and we record expense, and conversely, when our stock price goes down, the liability is decreased and we record income.

Income tax benefit . There was $0.1 million income tax benefit during the three months ended March 31, 2015 and zero during the three months ended March 31, 2014.

Net loss from continuing operations. As a result of the above factors, our net loss from continuing operations during the three months ended March 31, 2015 was $3.5 million, or $(0.06) per share, as compared to a net loss from continuing operations of $12.0 million, or $(0.28) per share, during the three months ended March 31, 2014.

 

19


Table of Contents

Net loss from discontinued operations. Our net loss from discontinued operations during the three months ended March 31, 2015 was $0.2 million, or $(0.00) per share, as compared to a net loss from discontinued operations of $2.8 million, or $(0.06) per share, during the three months ended March 31, 2014. The decline is related to the expiration of contracts of this discontinued segment.

Net loss. Our net loss during the three months ended March 31, 2015 was $3.7 million, or $(0.06) per share, as compared to a net loss of $14.9 million, or $(0.34) per share, during the three months ended March 31, 2014.

Seasonality

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 lowest installation quarter of the year primarily due to weather.

Liquidity and Capital Resources

Our capital needs arise from working capital required to fund operations, including procurement of materials such as photovoltaic panels and inverters, operating and back office infrastructure, maintenance, expansion and improvement, and future growth. These operating requirements depend on numerous factors, 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 necessary to remain competitive in the marketplace, 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 operating requirements are variable and may fluctuate from time to time, as well as varying based on seasonality. We did not have any material commitments for capital expenditures as of March 31, 2015, and we do not presently have any plans for future material capital expenditures.

As amended, the amount of available credit under the revolving line of credit is $5.0 million, subject to the Borrowing Base (as defined in the Loan Agreement) of 75% of Eligible Accounts (as defined in the SVB Loan).

We are required to satisfy the financial covenants as described in the SVB Loan, as of the end of each fiscal quarter. As of March 31, 2015 we were in compliance with these covenants. We believe that we presently have sufficient resources available to the Company to operate for the following 12 months, as well as comply with the SVB loan covenants. However, if our operational initiatives are not successful in significantly reducing our historical loss from operations, or if we encounter unplanned operational difficulties, or if the timing of collection of accounts receivable and payments of accounts payable are significantly different than anticipated, we may not have sufficient funds to repay any outstanding borrowings as they come due or to fund our operating cash needs for the next twelve months. These circumstances would require us to obtain financing from another source or raise additional capital through debt or equity financing. While we have been successful in the past in obtaining new financing, there is no assurance that we will be able to raise any new funds in the future.

We have also received loans from an affiliate of Riverside. Riverside Fund III L.P. loaned us $3.0 million on May 4, 2012 and $150,000 on June 20, 2012. The maturity dates for both of these loans have been extended to March 31, 2016. The loans bear interest at a rate of 10%. As of March 31, 2015, we owed $4.2 million to Riverside Fund III L.P. on these loans, including $1.0 million of accrued interest. We have not paid any interest or principal on these Riverside loans. Riverside owns approximately 9.7% of our Class A common stock as of March 31, 2015. Pursuant to the terms of a Shareholders Agreement, Riverside has the right to designate a certain number of individuals for appointment or nomination to our board of directors.

The Company had total cash and available borrowings as follows:

 

For the quarter ended (in thousands)

   December 31, 2014      March 31, 2015      May 5, 2015  

Cash plus availability under current borrowing base

   $ 3,001       $ 2,765       $ 2,637   

Cash plus availability under maximum allowed borrowing base

   $ 3,097       $ 4,032       $ 3,255   

We have prepared our business plan for 2015, which includes the 2015 Offering proceeds, anticipated timing of vendor payments for existing accounts payable and for new solar panels, anticipated timing of collection of accounts receivable, and our operating cost structure following our cost improvement actions, and believe we have sufficient financial resources to operate for the ensuing 12-month period from March 31, 2015. Our objectives in preparing this plan included (i) further reducing our fixed operating cost infrastructure commencing during the first quarter of 2015 in order to reduce the required level of revenue for profitable operations and (ii) reducing our present operating losses and returning to profitable operations in the future. Elements of this plan include, among others, (i) realizing operating costs savings from reductions in staff, of which substantially all had been achieved by the end of the first quarter of 2015, (ii) the positive impact of the strategic decision to exit the large commercial segment which operated at both a substantial cash and operating loss, (iii) moving towards an optimized field and e-sales force, (iv) optimizing our construction capability through authorized third-party integrators to realize the revenue from installation of our backlog and minimize the impact on gross margin of idle construction crew time, (v) changing the mix of marketing expenditures to achieve a lower cost of acquisition than that employed in prior periods, and (vi) continued internal efforts to convert our accounts receivable to cash.

During the second quarter of 2015, we anticipate realizing cash proceeds from the remaining Class B warrants outstanding at March 31, 2015 and use the proceeds to make payments to vendors on accounts payable as well as acquire inventory to convert our backlog to revenue. We expect that we will have a cash outflow from operating activities for the balance of the year as we will utilize cash to fund an increased level of rooftop installations for customers, thereby generating revenue, and also to continue to reduce our present accounts payable.

 

20


Table of Contents

Cash Flows

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

 

     For the Three
Months Ended March 31,
 

(in thousands)

   2015      2014  

Net cash provided by (used in):

     

Operating activities – continuing operations

   $ (7,697 )    $ (3,681 )

Operating activities – discontinued operations

     2,795        (7,367 )
  

 

 

    

 

 

 

Operating activities

  (4,902 )   (11,048
  

 

 

    

 

 

 

Investing activities – continuing operations

  (11 )   9,277   

Investing activities – discontinued operations

  —       —    
  

 

 

    

 

 

 

Investing activities

  (11 )   9,227   
  

 

 

    

 

 

 

Financing activities

  3,958     433  
  

 

 

    

 

 

 

Net increase (decrease) in cash

$ (955 ) $ (1,338
  

 

 

    

 

 

 

Continuing Operations

Operating activities . Our operating activities used net cash of $7.7 million and $3.7 million during the three months ended March 31, 2015 and 2014, respectively. Our net cash used in operating activities during the three months ended March 31, 2015 was due to our net loss increased by noncash items of $4.0 million and a net decrease in working capital assets and liabilities of $2.8 million, primarily the result of an increase in other assets of $1.9 million, a net decrease in accounts payable of $2.1 million and a decrease in deferred revenue of $1.0 million, offset by a decrease in accounts receivable of $1.8 million. Our net cash used in operating activities during the three months ended March 31, 2015 was primarily due to our net loss decreased by noncash items of $5.7 million and a decrease in accounts receivable of $1.1 million and an increase in accounts payable of $1.3 million.

Investing activities . During the three months ended March 31 2015, we received proceeds on the sale of property and equipment of $0.1 million and purchased $0.1 million of property and equipment. During the three months ended March 31, 2014, our investing activities provided net cash of $9.3 million consisting of $9.6 million from acquired businesses, offset by the acquisition of property and equipment.

Financing activities. Our financing activities provided net cash of $4.0 million and $0.4 million during the three months ended March 31, 2015 and 2014, respectively. Our net cash provided by financing activities during the three months ended March 31, 2015 reflected the net proceeds on the issuance of Class A common stock and warrants of $6.4 million, and net repayments against our revolving line of credit of $2.4 million. Our net cash provided by financing activities during the three months ended March 31, 2014 reflected the net proceeds on the issuance of Class A common stock and warrants of $4.0 million.

Discontinued Operations

Operating activities . Our operating activities provided net cash of $2.8 million and used $7.4 million during the three months ended March 31, 2015 and 2014, respectively. Our net cash provided by operating activities during the three months ended March 31, 2015 was primarily due to our net loss, increased by a decrease in accounts receivable of $4.0 million, a decrease in costs in excess of billings of $0.6 million offset by a decrease of $1.7 million in accounts payable. Our net cash used in operating activities during the three months ended March 31, 2014 was primarily due to our net loss, increased by $1.1 million of accounts payable and $2.5 million of billings in excess of costs offset by increases of $4.6 million of accounts payable, $1.4 million of costs in excess of billings and an increase in other assets of $1.4 million.

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 and as a result we do not have and are not reasonably likely to have any off-balance sheet arrangements.

Risk Factors

We caution that there are risks and uncertainties that could cause our actual results to be materially different from those indicated by forward-looking statements that, from time-to-time, we make 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 by our representatives. These risks and uncertainties include, but are not limited to, those risks listed in our Annual Report on Form 10-K for the year

 

21


Table of Contents

ended December 31, 2014. Except for the historical information contained herein, the matters discussed in this analysis are forward-looking statements that involve risk and uncertainties, including, but not limited to, general economic and business conditions, competition, pricing, brand reputation, consumer trends, and other factors which are often beyond our control. We do not undertake any obligation to update forward-looking statements except as required by law.

Investing in our securities involves significant risks. You should carefully read the risk factors in the section entitled “RISK FACTORS” in our Annual Report on Form 10-K for the year ended December 31, 2014, which is on file with the Securities and Exchange Commission. Before making an investment decision, you should carefully consider these risks as well as other information we include or incorporate by reference in this prospectus and any prospectus supplement. The risks and uncertainties we have described are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business operations. We do not undertake any obligation to update forward-looking statements except as required by law.

 

22


Table of Contents
Item 3. Quantitative and Qualitative Disclosures About Market Risk

At March 31, 2015, the estimated fair value of derivative instruments was $9.9 million. We estimate the fair values of these instruments using the Monte Carlo option pricing model which takes into account a variety of factors, including historical stock price volatility, risk-free interest rates, remaining maturity and the closing price of our common stock. We believe that the assumption that has the greatest impact on the determination of fair value is the closing price of our Class A common stock. The recognition of gain and loss is primarily due to changes in our stock prices resulting in adjustments to the carrying value of the Class A common stock warrant liability. Accordingly, as our stock price goes up, the liability is increased and we record expense, and conversely, when our stock price goes down, the liability is decreased and we record income.

At times, we are exposed to market risk from adverse changes in interest rates with respect to the short-term floating interest rate on borrowings under our credit agreements. As of March 31, 2015, we had $2.0 million in borrowings outstanding under our credit agreements. Any borrowings outstanding accrue interest at the greater of (a) the greater of the bank’s prime rate or 4.00%, plus 4.00%, and (b) 8.00%. As of March 31, 2015, if the bank’s prime rate were to increase or decrease by one percentage point, our interest expense would increase or decrease by approximately $0.1 million per year.

Our financial instruments consist primarily of cash and cash equivalents. 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.

 

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our chief executive officer, who also serves as our acting principal financial officer, and our principal accounting 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 March 31, 2015, they have concluded that our disclosure controls and procedures are not effective.

In connection with our evaluation of the effectiveness of the design and operation of our disclosure controls and procedures and the assessment of internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 for calendar 2014, we identified materially weaknesses in our disclosure controls and procedures and internal control over financial reporting. For a discussion of our internal financial reporting and a description of the identified material weaknesses, see Item 9A. Controls and Procedures included on our Annual Report on Form 10-K for the year ended December 31, 2014.

Changes in Internal Control over Financial Reporting

Since the appointment of our current chief executive officer in the third quarter of 2014, management began documentation and testing of internal controls which has led to enhancements in controls during the fourth quarter of 2014 and the first quarter of 2015 related to review and approval of journal entries, account reconciliations as well as enhanced documentation standards. We will continue to improve our internal controls during 2015 to remedy the material weaknesses disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014.

Remediation Plan for Material Weaknesses in Internal Control over Financial Reporting and Disclosure Controls and Procedures

We have begun taking steps and plan to take additional measures to remediate the underlying cause of the material weaknesses in our internal control over financial reporting and disclosure controls and procedures. Management intends to:

 

  1) Implement enhanced system-based controls, as well as other compensating controls, over restricted access, automated controls and change management activities within our ERP and other information technology systems.
  2) Continue to supplement our accounting department with personnel having an appropriate level of accounting knowledge, experience and training commensurate with our financial reporting requirements, and continue to train them on our control procedures, including, without limitation, account reconciliations, that are intended to ensure (i) appropriate supporting documentation is prepared and reviewed timely and (ii) that we file regulatory reports on a timely basis;
  3) Prepare an accounting policies and procedures manual and other written control documentation, and conduct training of accounting and operational personnel on accounting policies and procedures; and
  4) Revise our procedures for testing of our internal control over financial reporting, including changing the start date for the process to earlier in the year.

Our management believes that these measures will address the issues described above. We can make no assurance that these plans will be sufficient to correct the material weaknesses in internal control over financial reporting and on disclosure controls and procedures or that additional steps may not be necessary in the future. Our management and the audit committee of our board of directors will continue to monitor the effectiveness of our internal control over financial reporting and on disclosure controls and procedures on an ongoing basis and will take further action as appropriate.

 

23


Table of Contents

PART II – OTHER INFORMATION

 

Item 1. 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 1A. Risk Factors

There have been no material changes from the risk factors disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

 

Item 6. Exhibits

 

  a) Exhibits.

 

Exhibit

No.

  

Description

  1.1    Placement Agency Agreement, dated February 23, 2015, between Real Goods Solar, Inc. and WestPark Capital, Inc. (Incorporated by reference to Exhibit 1.1 to Real Goods Solar’s Current Report on Form 8-K filed February 24, 2015 (Commission File No. 001-34044))
  4.1    Combined Form of Warrant issued to investors on February 26 and 27, 2015 (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Current Report on Form 8-K filed February 24, 2015 (Commission File No. 001-34044))
  4.2*    Form of Warrant to Purchase Common Stock issued to a placement agent on February 27, 2015
  4.3*    Waiver and Amendment Agreement, dated March 31, 2015, among Real Goods Solar, Inc. and the investor party thereto
10.1    Form of Securities Purchase Agreement, dated February 23, 2015, among Real Goods Solar, Inc. and the investor party thereto (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed February 24, 2015 (Commission File No. 001-34044))
10.2    Form of Lock-Up Agreement, dated February 26, 2015, among Real Goods Solar, Inc. and its directors and Alan Fine (Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Current Report on Form 8-K filed February 24, 2015 (Commission File No. 001-34044))
10.3    Form of Voting Agreement, dated February 26, 2015, among Real Goods Solar, Inc. and Riverside Renewable Energy Investments, LLC (Incorporated by reference to Exhibit 10.3 to Real Goods Solar’s Current Report on Form 8-K filed February 24, 2015 (Commission File No. 001-34044))
10.4*    Eighth Loan Modification Agreement, dated January 30, 2015, among Real Goods Energy Tech, Inc., Real Goods Trading Corporation, Alteris Renewables, Inc., Real Goods Syndicated, Inc., Mercury Energy, Inc., Real Goods Solar, Inc.—Mercury Solar, Elemental Energy, LLC, Sunetric Management LLC and Silicon Valley Bank
10.5    Ninth Loan Modification Agreement, dated March 16, 2015, among Real Goods Energy Tech, Inc., Real Goods Trading Corporation, Alteris Renewables, Inc., Real Goods Syndicated, Inc., Mercury Energy, Inc., Real Goods Solar, Inc.—Mercury Solar, Elemental Energy, LLC, Sunetric Management LLC and Silicon Valley Bank (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed March 18, 2015 (Commission File No. 001-34044))
10.6    Fourth Amended and Restated Promissory Note for $3,000,000, dated March 16, 2015, between Real Goods Solar, Inc. and Riverside Fund III, L.P. (Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Current Report on Form 8-K filed March 18, 2015 (Commission File No. 001-34044))
10.7    Fourth Amended and Restated Promissory Note for $150,000, dated March 16, 2015, between Real Goods Solar, Inc. and Riverside Fund III, L.P. (Incorporated by reference to Exhibit 10.3 to Real Goods Solar’s Current Report on Form 8-K filed March 18, 2015 (Commission File No. 001-34044))
10.8    Security Agreement, dated March 16, 2015, among Real Goods Solar, Inc., Real Goods Energy Tech, Inc., Alteris Renewables, Inc., Mercury Energy, Inc., Real Goods Solar, Inc.—Mercury Solar, Elemental Energy, LLC, Sunetric Management LLC and Riverside Fund III, L.P. (Incorporated by reference to Exhibit 10.4 to Real Goods Solar’s Current Report on Form 8-K filed March 18, 2015 (Commission File No. 001-34044))

 

24


Table of Contents

Exhibit

No.

  

Description

31.1*    Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2*    Certification of the Principal Accounting Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1**    Certification of the Chief Executive Officer and Acting Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**    Certification of the Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS    XBRL Instance Document.
101.SCH    XBRL Taxonomy Extension Schema.
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.

 

* Filed herewith
** Furnished herewith

 

25


Table of Contents

SIGNATURES

Pursuant to the requirements 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.
(Registrant)
Date: May 11, 2015 By:

/s/ Dennis Lacey

Dennis Lacey

Chief Executive Officer

(principal executive officer and acting principal financial officer)

Date: May 11, 2015 By:

/s/ Alan Fine

Alan Fine
Treasurer and Principal Accounting Officer

 

26


Table of Contents

EXHIBIT INDEX

 

 

Exhibit

No.

  

Description

  1.1    Placement Agency Agreement, dated February 23, 2015, between Real Goods Solar, Inc. and WestPark Capital, Inc. (Incorporated by reference to Exhibit 1.1 to Real Goods Solar’s Current Report on Form 8-K filed February 24, 2015 (Commission File No. 001-34044))
  4.1    Combined Form of Warrant issued to investors on February 26 and 27, 2015 (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Current Report on Form 8-K filed February 24, 2015 (Commission File No. 001-34044))
  4.2*    Form of Warrant to Purchase Common Stock issued to a placement agent on February 27, 2015
  4.3*    Waiver and Amendment Agreement, dated March 31, 2015, among Real Goods Solar, Inc. and the investor party thereto
10.1    Form of Securities Purchase Agreement, dated February 23, 2015, among Real Goods Solar, Inc. and the investor party thereto (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed February 24, 2015 (Commission File No. 001-34044))
10.2    Form of Lock-Up Agreement, dated February 26, 2015, among Real Goods Solar, Inc. and its directors and Alan Fine (Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Current Report on Form 8-K filed February 24, 2015 (Commission File No. 001-34044))
10.3    Form of Voting Agreement, dated February 26, 2015, among Real Goods Solar, Inc. and Riverside Renewable Energy Investments, LLC (Incorporated by reference to Exhibit 10.3 to Real Goods Solar’s Current Report on Form 8-K filed February 24, 2015 (Commission File No. 001-34044))
10.4*    Eighth Loan Modification Agreement, dated January 30, 2015, among Real Goods Energy Tech, Inc., Real Goods Trading Corporation, Alteris Renewables, Inc., Real Goods Syndicated, Inc., Mercury Energy, Inc., Real Goods Solar, Inc.—Mercury Solar, Elemental Energy, LLC, Sunetric Management LLC and Silicon Valley Bank
10.5    Ninth Loan Modification Agreement, dated March 16, 2015, among Real Goods Energy Tech, Inc., Real Goods Trading Corporation, Alteris Renewables, Inc., Real Goods Syndicated, Inc., Mercury Energy, Inc., Real Goods Solar, Inc.—Mercury Solar, Elemental Energy, LLC, Sunetric Management LLC and Silicon Valley Bank (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed March 18, 2015 (Commission File No. 001-34044))
10.6    Fourth Amended and Restated Promissory Note for $3,000,000, dated March 16, 2015, between Real Goods Solar, Inc. and Riverside Fund III, L.P. (Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Current Report on Form 8-K filed March 18, 2015 (Commission File No. 001-34044))
10.7    Fourth Amended and Restated Promissory Note for $150,000, dated March 16, 2015, between Real Goods Solar, Inc. and Riverside Fund III, L.P. (Incorporated by reference to Exhibit 10.3 to Real Goods Solar’s Current Report on Form 8-K filed March 18, 2015 (Commission File No. 001-34044))
10.8    Security Agreement, dated March 16, 2015, among Real Goods Solar, Inc., Real Goods Energy Tech, Inc., Alteris Renewables, Inc., Mercury Energy, Inc., Real Goods Solar, Inc.—Mercury Solar, Elemental Energy, LLC, Sunetric Management LLC and Riverside Fund III, L.P. (Incorporated by reference to Exhibit 10.4 to Real Goods Solar’s Current Report on Form 8-K filed March 18, 2015 (Commission File No. 001-34044))
31.1*    Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2*    Certification of the Principal Accounting Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1**    Certification of the Chief Executive Officer and Acting Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**    Certification of the Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS    XBRL Instance Document.
101.SCH    XBRL Taxonomy Extension Schema.
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.

 

* Filed herewith
** Furnished herewith

 

27

EXHIBIT 4.2

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND ANY APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

REAL GOODS SOLAR, INC.

W ARRANT T O P URCHASE C OMMON S TOCK

Warrant No.: WPA-             

Number of Shares of Common Stock:             

Date of Issuance: February 27, 2015 (“ Issuance Date ”)

Real Goods Solar, Inc., a Colorado corporation (the “ Company ”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,                    , the registered holder hereof or its permitted assigns (the “ Holder ”), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, at any time or times on or after the later of (i) six (6) months after the Issuance Date, and (ii) the date as of which the Reverse Stock Split Resolution and the Authorized Shares Increase Resolution (each, as defined in the Securities Purchase Agreement) have been obtained and both the Reverse Stock Split and Authorized Shares Increase Amendment have been adopted and become effective (the “ Initial Exercisability Date ”), but not after 11:59 p.m., New York time, on the Expiration Date, (as defined below), up to such number of fully paid and nonassessable shares of Common Stock equal to the Warrant Share Number, subject to adjustment as provided herein (the “ Warrant Shares ”). Except as otherwise defined herein, capitalized terms in this Warrant to Purchase Common Stock (including any warrants to purchase Common Stock issued in exchange, transfer or replacement hereof, this “ Warrant ”), shall have the meanings set forth in Section 17. Capitalized terms used herein and not otherwise defined shall have the definitions ascribed to such terms in the Securities Purchase Agreement.


1. EXERCISE OF WARRANT.

(a) Mechanics of Exercise . Subject to the terms and conditions hereof (including, without limitation, the limitations set forth in Section 1(f)), this Warrant may be exercised by the Holder at any time or times on or after the Initial Exercisability Date, in whole or in part, by (i) delivery of a written notice, in the form attached hereto as Exhibit A (the “ Exercise Notice ”), of the Holder’s election to exercise this Warrant and (ii) (A) payment to the Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the “ Aggregate Exercise Price ”) in cash by wire transfer of immediately available funds or (B) if the provisions of Section 1(d) are applicable, by notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder. Execution and delivery of the Exercise Notice with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares. Execution and delivery of an Exercise Notice for all of the then remaining Warrant Shares shall have the same effect as cancellation of the original of this Warrant after delivery of the Warrant Shares in accordance with the terms hereof. On or before the first (1 st ) Trading Day following the date on which the Company has received the Exercise Notice, the Company shall transmit by facsimile an acknowledgment of confirmation of receipt of the Exercise Notice to the Holder and the Company’s transfer agent (the “ Transfer Agent ”). On or before the third (3rd) Trading Day following the date on which the Company has received the Exercise Notice, so long as the Holder delivers the Aggregate Exercise Price (or notice of a Cashless Exercise) on or prior to the second (2nd) Trading Day following the date on which the Company has received the Exercise Notice (the “ Share Delivery Date ”) (provided that if the Aggregate Exercise Price has not been delivered by such date, the Share Delivery Date shall be one (1) Trading Day after the Aggregate Exercise Price (or notice of a Cashless Exercise) is delivered), the Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company (“ DTC ”) Fast Automated Securities Transfer Program and the Holder may sell the Warrant Shares without restriction or limitation either (I) pursuant to Rule 144 of the Securities Act and without the requirement to be in compliance with Rule 144(c)(1) of the Securities Act or (II) pursuant to an effective registration statement registering the Warrant Shares for issuance, credit such aggregate number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit / Withdrawal At Custodian system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program or if Holder may not sell the Warrant Shares without restriction or limitation either (I) pursuant to Rule 144 of the Securities Act and without the requirement to be in compliance with Rule 144(c)(1) of the Securities Act or (II) pursuant to an effective registration statement registering the Warrant Shares for issuance, issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise. The Company shall be responsible for all fees and expenses of the Transfer Agent and all fees and expenses with respect to the issuance of Warrant Shares via DTC, if any. Upon delivery of the Exercise Notice, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has

 

- 2 -


been exercised, irrespective of the date such Warrant Shares are credited to the Holder’s DTC account or the date of delivery of the certificates evidencing such Warrant Shares, as the case may be. If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than three (3) Trading Days after any exercise and at its own expense, issue a new Warrant (in accordance with Section 7(d)) representing the right to purchase the number of Warrant Shares issuable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised. No fractional Warrant Shares are to be issued upon the exercise of this Warrant, but rather the number of Warrant Shares to be issued shall be rounded up to the nearest whole number. The Company shall pay any and all taxes (other than the Holder’s income taxes) which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant. The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms and subject to the conditions hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination.

(b) Exercise Price . For purposes of this Warrant, “ Exercise Price ” means $0.50, subject to adjustment as provided herein.

(c) Company’s Failure to Timely Deliver Securities . If the Company shall fail for any reason or for no reason to issue to the Holder on or prior to the Share Delivery Date either (I) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, a certificate for the number of shares of Common Stock to which the Holder is entitled and register such shares of Common Stock on the Company’s share register or if the Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program, to credit the Holder’s balance account with DTC, for such number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise of this Warrant, or (II) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, the Company shall fail to issue and deliver a certificate to the Holder and register such shares of Common Stock on the Company’s share register or, if the Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program, credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise hereunder or pursuant to the Company’s obligation pursuant to clause (ii) below, and if on or after such Trading Day the Holder (or any other Person in respect, or on behalf, of the Holder) purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of all or any portion of the number of shares of Common Stock equal to or any portion of the number of shares of Common Stock issuable upon such exercise that the Holder anticipated receiving from the Company (a “ Buy-In ”), then, in addition to all other remedies available to the Holder, the Company shall, within three (3) Trading Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (the “ Buy-In Price ”), at which point the Company’s obligation to deliver such certificate (and to issue such

 

- 3 -


shares of Common Stock) or credit such Holder’s balance account with DTC for such shares of Common Stock shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such shares of Common Stock or credit such Holder’s balance account with DTC, as applicable, and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) any trading price of the Common Stock selected by the Holder in writing as in effect at any time during the period beginning on the date of the applicable Exercise Notice and ending on the date of such issuance and payment under this Section 3(c). Nothing shall limit the Holder’s right to pursue any other remedies available to it hereunder, at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock (or to electronically deliver such shares of Common Stock) upon the exercise of this Warrant as required pursuant to the terms hereof.

(d) Cashless Exercise . Notwithstanding anything contained herein to the contrary, the Holder may, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the “Net Number” of shares of Common Stock determined according to the following formula (a “ Cashless Exercise ”):

Net Number = (A x B) - (A x C)

D

For purposes of the foregoing formula:

 

  A= the total number of shares with respect to which this Warrant is then being exercised.

 

  B= the arithmetic average of the Closing Sale Prices of the Common Stock for the five (5) consecutive Trading Days ending on the date immediately preceding the date of the Exercise Notice.

 

  C= the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

 

  D= the Closing Sale Price of the Common Stock on the date of the Exercise Notice.

If Warrant Shares are issued in a Cashless Exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the 1933 Act, the Warrant Shares shall take on the registered characteristics of the warrants being exercised, and the holding period of the warrants being exercised may be tacked on to the holding period of the Warrant Shares. The Company agrees not to take any position contrary to this Section 1(d).

(e) Disputes . In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 12.

 

- 4 -


(f) Beneficial Ownership Limitation on Exercises . Notwithstanding anything to the contrary contained herein, the Company shall not effect the exercise of any portion of this Warrant, and the Holder shall not have the right to exercise any portion of this Warrant, pursuant to the terms and conditions of this Warrant and any such exercise shall be null and void and treated as if never made, to the extent that after giving effect to such exercise, the Holder together with the other Attribution Parties collectively would beneficially own in excess of 9.99% (the “ Maximum Percentage ”) of the number of shares of Common Stock outstanding immediately after giving effect to such exercise. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by the Holder and the other Attribution Parties shall include the number of shares of Common Stock held by the Holder and all other Attribution Parties plus the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) exercise of the remaining, unexercised portion of this Warrant beneficially owned by the Holder or any of the other Attribution Parties and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company (including, without limitation, any convertible notes or convertible preferred stock or warrants). For purposes of this Section 1(f), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “ 1934 Act ”). For purposes of this Warrant, in determining the number of outstanding shares of Common Stock the Holder may acquire upon the exercise of this Warrant without exceeding the Maximum Percentage, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other public filing with the Securities and Exchange Commission (the “ SEC ”), as the case may be, (y) a more recent public announcement by the Company or (3) any other written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding (the “ Reported Outstanding Share Number ”). If the Company receives an Exercise Notice from the Holder at a time when the actual number of outstanding shares of Common Stock is less than the Reported Outstanding Share Number, the Company shall (i) notify the Holder in writing of the number of shares of Common Stock then outstanding and, to the extent that such Exercise Notice would otherwise cause the Holder’s beneficial ownership, as determined pursuant to this Section 1(f), to exceed the Maximum Percentage, the Holder must notify the Company of a reduced number of Warrant Shares to be purchased pursuant to such Exercise Notice (the number of shares by which such purchase is reduced, the “ Reduction Shares ”) and (ii) as soon as reasonably practicable, the Company shall return to the Holder any exercise price paid by the Holder for the Reduction Shares. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Business Day confirm orally and in writing or by electronic mail to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder and any other Attribution Party since the date as of which the Reported Outstanding Share Number was reported. In the event that the issuance of shares of Common Stock to the Holder upon exercise of this Warrant results in the Holder and the other Attribution Parties being deemed to

 

- 5 -


beneficially own, in the aggregate, more than the Maximum Percentage of the number of outstanding shares of Common Stock (as determined under Section 13(d) of the 1934 Act), the number of shares so issued by which the Holder’s and the other Attribution Parties’ aggregate beneficial ownership exceeds the Maximum Percentage (the “ Excess Shares ”) shall be deemed null and void and shall be cancelled ab initio, and the Holder shall not have the power to vote or to transfer the Excess Shares. As soon as reasonably practicable after the issuance of the Excess Shares has been deemed null and void, the Company shall return to the Holder the exercise price paid by the Holder for the Excess Shares. Upon delivery of a written notice to the Company, the Holder may from time to time increase (with such increase not effective until the sixty-first (61 st ) day after delivery of such notice) or decrease the Maximum Percentage to any other percentage not in excess of 9.99% as specified in such notice; provided that any such increase in the Maximum Percentage will not be effective until the sixty-first (61 st ) day after such notice is delivered to the Company. For purposes of clarity, the shares of Common Stock issuable pursuant to the terms of this Warrant in excess of the Maximum Percentage shall not be deemed to be beneficially owned by the Holder for any purpose including for purposes of Section 13(d) or Rule 16a-1(a)(1) of the 1934 Act. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 1(f) to the extent necessary to correct this paragraph or any portion of this paragraph which may be defective or inconsistent with the intended beneficial ownership limitation contained in this Section 1(f) or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitation contained in this paragraph may not be waived and shall apply to a successor holder of this Warrant.

(g) Insufficient Authorized Shares . The Company shall not issue shares upon exercise of this Warrant if such shares are not then authorized. From and after the date the Reverse Stock Split Resolution and the Authorized Shares Increase Resolution (each, as defined in the Securities Purchase Agreement) have been obtained and both the Reverse Stock Split and Authorized Shares Increase Amendment have been adopted and become effective and while this Warrant remains outstanding, the Company shall initially reserve out of its authorized and unissued Common Stock shares of Common Stock (as adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction occurring after the Subscription Date) equal to at least 135% of the shares of Common Stock issuable upon exercise of this Warrant. The number of shares of Common Stock that the Company is required form time to time to reserve from its authorized and unissued capital for the exercise of this Warrant is herein referred to as the “ Required Reserve Amount ” and the failure to have such sufficient number of authorized and unreserved shares of Common Stock is herein referred to as an “ Authorized Share Failure ”. If at any time from and after the date the Reverse Stock Split Resolution and the Authorized Shares Increase Resolution (each, as defined in the Securities Purchase Agreement) have been obtained and both the Reverse Stock Split and Authorized Shares Increase Amendment have been adopted and become effective and while this Warrant remains outstanding, the Company does not have at least the Required Reserve Amount of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon exercise of this Warrant, then the Company shall promptly take all action reasonably necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for this Warrant. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an

 

- 6 -


Authorized Share Failure, but in no event later than seventy-five (75) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its shareholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each shareholder with a proxy statement and shall use its reasonable best efforts to solicit its shareholders’ approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the shareholders that they approve such proposal. Notwithstanding the foregoing, if at any such time of an Authorized Share Failure, the Company is able to obtain the written consent of a majority of the shares of its issued and outstanding Common Stock to approve the increase in the number of authorized shares of Common Stock, the Company may satisfy this obligation by obtaining such consent and submitting for filing with the SEC an Information Statement on Schedule 14C. In the event that upon any exercise of this Warrant, the Company does not have sufficient authorized shares to deliver in satisfaction of such exercise, then unless the Holder elects to void such attempted exercise, the Holder may require in lieu of delivering the number of Warrant Shares that the Company is unable to deliver pursuant to this Section 1(g), the Company to pay to the Holder within three (3) Trading Days of the applicable exercise, cash in an amount equal to the greatest Closing Sale Price of the Common Stock on any Trading Day at any time during the period beginning on the date of the applicable Exercise Notice and ending on the date the Company makes the payment provided for in this sentence.

2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES . The Exercise Price and the number of Warrant Shares shall be adjusted from time to time as follows:

(a) [Reserved.]

(b) Voluntary Adjustment By Company . The Company may at any time during the term of this Warrant, with the prior written consent of the Holder, reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.

(c) Adjustment Upon Subdivision or Combination of Shares of Common Stock . If the Company at any time on or after the Subscription Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Warrant Shares will be proportionately increased. If the Company at any time on or after the Subscription Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of Warrant Shares will be proportionately decreased. Any adjustment under this Section 2(c) shall become effective at the close of business on the date the subdivision or combination becomes effective.

 

- 7 -


(d) Other Events . If any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s Board of Directors will make an appropriate adjustment in the Exercise Price and the number of Warrant Shares, as mutually determined by the Company’s Board of Directors and the Holder, so as to protect the rights of the Holder; provided that no such adjustment pursuant to this Section 2(d) will increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 2.

3. RIGHTS UPON DISTRIBUTION OF ASSETS . If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property, options, evidence of indebtedness or any other assets by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “ Distribution ”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations or restrictions on exercise of this Warrant, including without limitation, the Maximum Percentage, and as if both of the Reverse Stock Split and the Authorized Shares Increase Amendment had, as of such date, been adopted and become effective) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution ( provided , however , that to the extent that the Holder’s right to participate in any such Distribution would result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Distribution to such extent (and shall not be entitled to beneficial ownership of such shares of Common Stock as a result of such Distribution (and beneficial ownership) to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time or times as its right thereto would not result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, at which time or times the Holder shall be granted such Distribution (and any Distributions declared or made on such initial Distribution or on any subsequent Distribution held similarly in abeyance) to the same extent as if there had been no such limitation).

4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS .

(a) Purchase Rights . In addition to any adjustments pursuant to Section 2 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the “ Purchase Rights ”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations or restrictions on exercise of this Warrant, including without limitation, the Maximum Percentage, and as if both of the Reverse Stock Split and the Authorized Shares Increase Amendment had, as of such date, been adopted and become effective) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the

 

- 8 -


date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights ( provided , however , that to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Purchase Right to such extent (and shall not be entitled to beneficial ownership of such shares of Common Stock as a result of such Purchase Right (and beneficial ownership) to such extent) and such Purchase Right to such extent shall be held in abeyance for the benefit of the Holder until such time or times as its right thereto would not result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, at which time or times the Holder shall be granted such right (and any Purchase Right granted, issued or sold on such initial Purchase Right or on any subsequent Purchase Right held similarly in abeyance) to the same extent as if there had been no such limitation).

(b) Fundamental Transactions . The Company shall not enter into or be party to a Fundamental Transaction unless the Successor Entity assumes in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 4(b) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder, such approval not to be unreasonably withheld or delayed, prior to such Fundamental Transaction, including agreements, if so requested by the Holder, to deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant, including, without limitation, an adjusted exercise price equal to the value for the shares of Common Stock reflected by the terms of such Fundamental Transaction, and exercisable for a corresponding number of shares of capital stock equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant and as if both of the Reverse Stock Split and the Authorized Shares Increase Amendment had, as of such date, been adopted and become effective) prior to such Fundamental Transaction, and satisfactory to the Holder, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such adjustments to the number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the occurrence or consummation of such Fundamental Transaction). Upon the occurrence or consummation of any Fundamental Transaction, and it shall be a required condition to the occurrence or consummation of any Fundamental Transaction that, the Company and the Successor Entity or Successor Entities, jointly and severally, shall succeed to, and the Company shall cause any Successor Entity or Successor Entities to jointly and severally succeed to, and be added to the term “Company” under this Warrant (so that from and after the date of such Fundamental Transaction, and the provisions of this Warrant referring to the “Company” shall refer instead to each of the Company and the Successor Entity or Successor Entities, jointly and severally), and the Company and the Successor Entity or Successor Entities, jointly and severally, may exercise every right and power of the Company prior thereto and shall assume all of the obligations of the Company prior thereto under this Warrant with the same effect as if the Company and such Successor Entity or Successor Entities, jointly and severally, had been named as the Company in this Warrant, and, solely at the request of the Holder, if the Successor Entity and/or Successor Entities is a publicly traded corporation whose common stock is quoted on or listed for trading

 

- 9 -


on an Eligible Market, shall deliver (in addition to and without limiting any right under this Warrant) to the Holder in exchange for this Warrant a security of the Successor Entity and/or Successor Entities evidenced by a written instrument substantially similar in form and substance to this Warrant and exercisable for a corresponding number of shares of capital stock of the Successor Entity and/or Successor Entities (the “ Successor Capital Stock ”) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant and as if both of the Reverse Stock Split and the Authorized Shares Increase Amendment had, as of such date, been adopted and become effective) prior to such Fundamental Transaction (such corresponding number of shares of Successor Capital Stock to be delivered to the Holder shall be equal to the greater of (A) the quotient of (i) the aggregate dollar value of all consideration (including cash consideration and any consideration other than cash (“ Non-Cash Consideration ”), in such Fundamental Transaction, as such values are set forth in any definitive agreement for the Fundamental Transaction that has been executed at the time of the first public announcement of the Fundamental Transaction or, if no such value is determinable from such definitive agreement, as determined in accordance with Section 12 with the term “Non-Cash Consideration” being substituted for the term “Exercise Price”) that the Holder would have been entitled to receive upon the happening of such Fundamental Transaction or the record, eligibility or other determination date for the event resulting in such Fundamental Transaction, had this Warrant been exercised immediately prior to such Fundamental Transaction or the record, eligibility or other determination date for the event resulting in such Fundamental Transaction (without regard to any limitations on the exercise of this Warrant and as if both of the Reverse Stock Split and the Authorized Shares Increase Amendment had, as of such date, been adopted and become effective) (the “ Aggregate Consideration ”) divided by (ii) the per share Closing Sale Price of such Successor Capital Stock on the Trading Day immediately prior to the consummation or occurrence of the Fundamental Transaction and (B) the product of (i) the Aggregate Consideration and (ii) the highest exchange ratio pursuant to which any shareholder of the Company may exchange Common Stock for Successor Capital Stock) (provided, however, to the extent that the Holder’s right to receive any such shares of publicly traded common stock (or their equivalent) of the Successor Entity would result in the Holder and its other Attribution Parties exceeding the Maximum Percentage, if applicable, then the Holder shall not be entitled to receive such shares to such extent (and shall not be entitled to beneficial ownership of such shares of publicly traded common stock (or their equivalent) of the Successor Entity as a result of such consideration to such extent) and the portion of such shares shall be held in abeyance for the Holder until such time or times, as its right thereto would not result in the Holder and its other Attribution Parties exceeding the Maximum Percentage, at which time or times the Holder shall be delivered such shares to the extent as if there had been no such limitation), and such security shall be reasonably satisfactory to the Holder, and with an identical exercise price to the Exercise Price hereunder (such adjustments to the number of shares of capital stock and such exercise price being for the purpose of protecting after the consummation or occurrence of such Fundamental Transaction the economic value of this Warrant that was in effect immediately prior to the consummation or occurrence of such Fundamental Transaction, as elected by the Holder solely at its option). Upon occurrence or consummation of the Fundamental Transaction, and it shall be a required condition to the occurrence or consummation of such Fundamental Transaction that, the Company and the Successor Entity or Successor Entities shall deliver to the

 

- 10 -


Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the occurrence or consummation of the Fundamental Transaction, as elected by the Holder solely at its option, shares of Common Stock, Successor Capital Stock or, in lieu of the shares of Common Stock or Successor Capital Stock (or other securities, cash, assets or other property purchasable upon the exercise of this Warrant prior to such Fundamental Transaction), such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights), which for purposes of clarification may continue to be shares of Common Stock, if any, that the Holder would have been entitled to receive upon the happening of such Fundamental Transaction or the record, eligibility or other determination date for the event resulting in such Fundamental Transaction, had this Warrant been exercised immediately prior to such Fundamental Transaction or the record, eligibility or other determination date for the event resulting in such Fundamental Transaction (without regard to any limitations on the exercise of this Warrant and as if both of the Reverse Stock Split and the Authorized Shares Increase Amendment had, as of such date, been adopted and become effective), as adjusted in accordance with the provisions of this Warrant. In addition to and not in substitution for any other rights hereunder, prior to the occurrence or consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities, cash, assets or other property with respect to or in exchange for shares of Common Stock (a “ Corporate Event ”), the Company shall make appropriate provision to ensure that, and any applicable Successor Entity or Successor Entities shall ensure that, and it shall be a required condition to the occurrence or consummation of such Corporate Event that, the Holder will thereafter have the right to receive upon exercise of this Warrant at any time after the occurrence or consummation of the Corporate Event, shares of Common Stock or Successor Capital Stock or, if so elected by the Holder, in lieu of the shares of Common Stock (or other securities, cash, assets or other property) purchasable upon the exercise of this Warrant prior to such Corporate Event (but not in lieu of such items still issuable under Sections 3 and 4(a), which shall continue to be receivable on the Common Stock or on the such shares of stock, securities, cash, assets or any other property otherwise receivable with respect to or in exchange for shares of Common Stock), such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights and any shares of Common Stock) which the Holder would have been entitled to receive upon the occurrence or consummation of such Corporate Event or the record, eligibility or other determination date for the event resulting in such Corporate Event, had this Warrant been exercised immediately prior to such Corporate Event or the record, eligibility or other determination date for the event resulting in such Corporate Event (without regard to any limitations on exercise of this Warrant and as if both of the Reverse Stock Split and the Authorized Shares Increase Amendment had, as of such date, been adopted and become effective). Provision made pursuant to the preceding sentence shall be in a form and substance reasonably satisfactory to the Holder. The provisions of this Section 4(b) shall apply similarly and equally to successive Fundamental Transactions and Corporate Events. Notwithstanding the foregoing, the Holder may elect, in its sole discretion, by delivery of written notice to the Company, to waive this Section 4(b) and allow the Company to enter into or be a party to a Fundamental Transaction without the assumption of this Warrant pursuant to the provisions of this Section 4(b).

 

- 11 -


(c) Notwithstanding the foregoing, in the event of a Fundamental Transaction, other than one in which the Successor Entity that is a publicly traded corporation whose stock is quoted or listed for trading on an Eligible Market and which Successor Entity assumes this Warrant such that the Warrant shall be exercisable for the publicly traded Common Stock of such Successor Entity, at the request of the Holder delivered before the thirtieth (30 th ) day after either the occurrence or consummation of such Fundamental Transaction, the Company (or the Successor Entity) shall purchase this Warrant from the Holder by paying to the Holder, within five (5) Business Days after such request (or, if later, on the effective date of the Fundamental Transaction), cash in an amount equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of such Fundamental Transaction.

5. NONCIRCUMVENTION . The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation or Bylaws, or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all of the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, so long as this Warrant is outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the exercise of this Warrant, the Required Reserve Amount to effect the exercise of this Warrant then outstanding (without regard to any limitations on exercise).

6. WARRANT HOLDER NOT DEEMED A SHAREHOLDER . Except as otherwise specifically provided herein, the Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person’s capacity as the Holder of this Warrant, any of the rights of a shareholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a shareholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 6, the Company shall provide the Holder with copies of the same notices and other information given to the shareholders of the Company generally, contemporaneously with the giving thereof to the shareholders.

 

- 12 -


7. REISSUANCE OF WARRANTS .

(a) Transfer of Warrant . Pursuant to FINRA Rule 5110(g), neither this Warrant nor any Warrant Shares issued upon exercise of this Warrant shall be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of the securities by any Person for a period of 180 days immediately following the date of effectiveness or commencement of sales of the offering pursuant to which this Warrant is being issued, except the transfer of any security pursuant to FINRA Rule 5110(g)(2). If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred.

(b) Lost, Stolen or Mutilated Warrant . Upon receipt by the Company 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, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.

(c) Exchangeable for Multiple Warrants . This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new warrant or warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided , however , that no warrants for fractional Warrant Shares shall be given.

(d) Issuance of New Warrants . Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.

8. NOTICES . Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with Section 9 of the Placement Agency Agreement, dated February 23, 2015, between the Company and WestPark Capital, Inc. (the “Placement Agency Agreement”). All notices to the Holder shall be given to the Placement Agent (as defined in the Placement Agency Agreement). The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Warrant,

 

- 13 -


including in reasonable detail a description of such action and the reason therefor. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon any adjustment of the Exercise Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least fifteen (15) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation; provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder. It is expressly understood and agreed that the time of exercise specified by the Holder in each Exercise Notice shall be definitive and may not be disputed or challenged by the Company.

9. AMENDMENT AND WAIVER . Except as otherwise provided herein, the provisions of this Warrant may be amended or waived and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder.

10. GOVERNING LAW; JURISDICTION; JURY TRIAL . This Warrant shall be governed by and construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. The Company hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to the Company at the address set forth in Section 9(f) of the Securities Purchase Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations to the Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

- 14 -


11. CONSTRUCTION; HEADINGS . This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any Person as the drafter hereof. The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant.

12. DISPUTE RESOLUTION . In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within two (2) Business Days of receipt of the Exercise Notice giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or the Warrant Shares within three (3) Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within two (2) Business Days submit via facsimile (a) the disputed determination of the Exercise Price to an independent, reputable investment bank selected by the Holder and approved by the Company, such approval not to be unreasonably withheld or delayed or (b) the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside accountant, selected by the Holder and approved by the Company, such approval not to be unreasonably withheld or delayed. The Company shall cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten (10) Business Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF . The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder to pursue actual damages for any failure by the Company to comply with the terms of this Warrant. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holder of this Warrant shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

 

- 15 -


14. TRANSFER . This Warrant and the Warrant Shares may be offered for sale, sold, transferred, pledged or assigned without the consent of the Company, subject to compliance with all applicable state and federal securities laws. The Holder, by acceptance of this Warrant, represents and warrants that it is acquiring this Warrant and, upon any exercise of this Warrant, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.

15. SEVERABILITY . If any provision of this Warrant is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Warrant so long as this Warrant as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

16. DISCLOSURE . Upon receipt or delivery by the Company of any notice in accordance with the terms of this Warrant, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries (as defined in the Securities Purchase Agreement), the Company shall within one (1) Business Day after any such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, nonpublic information relating to the Company or its Subsidiaries, the Company so shall indicate to such Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.

17. CERTAIN DEFINITIONS . For purposes of this Warrant, the following terms shall have the following meanings:

(a) “1933 Act means the Securities Act of 1933, as amended.

(b) “Affiliate means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person, it being understood for purposes of this definition that “control” of a Person means the power directly or indirectly either to vote 10% or more of the stock having ordinary voting power for the election of directors of such Person or direct or cause the direction of the management and policies of such Person whether by contract or otherwise.

 

- 16 -


(c) “ Attribution Parties ” means, collectively, the following Persons and entities: (i) any investment vehicle, including, any funds, feeder funds or managed accounts, currently, or from time to time after the Issuance Date, directly or indirectly managed or advised by the Holder’s investment manager or any of its Affiliates or principals, (ii) any direct or indirect Affiliates of the Holder or any of the foregoing, (iii) any Person acting or who could be deemed to be acting as a Group together with the Holder or any of the foregoing and (iv) any other Persons whose beneficial ownership of the Company’s Common Stock would or could be aggregated with the Holder’s and the other Attribution Parties for purposes of Section 13(d) of the 1934 Act. For clarity, the purpose of the foregoing is to subject collectively the Holder and all other Attribution Parties to the Maximum Percentage.

(d) “ Authorized Shares Increase Amendment ” shall have the meaning ascribe to such term in the Securities Purchase Agreement.

(e) “ Black Scholes Value ” means the value of this Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day immediately following the public announcement of the applicable Fundamental Transaction, or, if the Fundamental Transaction is not publicly announced, the date the Fundamental Transaction is consummated, for pricing purposes and reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of this Warrant as of such date of request, (ii) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the day immediately following the public announcement of the applicable Fundamental Transaction, or, if the Fundamental Transaction is not publicly announced, the date the Fundamental Transaction is consummated, (iii) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in the Fundamental Transaction, (iv) a zero cost of borrow and (v) a 360 day annualization factor.

(f) “ Bloomberg ” means Bloomberg Financial Markets.

(g) “ Business Day ” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

(h) “ Closing Bid Price ” and “ Closing Sale Price ” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or the last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as

 

- 17 -


reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the OTC Link or “pink sheets” by OTC Markets Group Inc. (formerly Pink OTC Markets Inc.). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 12. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or other similar transaction during the applicable calculation period.

(i) “ Common Stock ” means (i) the Company’s shares of Class A Common Stock, par value $0.0001 per share, and (ii) any share capital into which such Common Stock shall have been changed or any share capital resulting from a reclassification of such Common Stock.

(j) “ Convertible Securities ” means any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock.

(k) “ Eligible Market ” means the Principal Market, the NYSE MKT LLC, The NASDAQ Global Market, The NASDAQ Global Select Market, The New York Stock Exchange, Inc., the OTC QX or the OTC QB.

(l) “ Expiration Date ” means February 22, 2020.

(m) “ Fundamental Transaction ” means (A) that the Company shall, directly or indirectly, including through Subsidiaries, Affiliates or otherwise, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Subject Entity, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company or any of its “significant subsidiaries” (as defined in Rule 1-02 of Regulation S-X) to one or more Subject Entities, or (iii) make, or allow one or more Subject Entities to make, or allow the Company to be subject to or have its Common Stock be subject to or party to one or more Subject Entities making, a purchase, tender or exchange offer that is accepted by the holders of at least either (x) 50% of the outstanding shares of Common Stock, (y) 50% of the outstanding shares of Common Stock calculated as if any shares of Common Stock held by all Subject Entities making or party to, or Affiliated with any Subject Entities making or party to, such purchase, tender or exchange offer were not outstanding; or (z) such number of shares of Common Stock such that all Subject Entities making or party to, or Affiliated with any Subject Entity making or party to, such purchase, tender or exchange offer, become collectively the beneficial owners (as defined in Rule 13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common Stock, or (iv) consummate a share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with one or more Subject Entities whereby such Subject Entities, individually or in the aggregate, acquire,

 

- 18 -


either (x) at least 50% of the outstanding shares of Common Stock, (y) at least 50% of the outstanding shares of Common Stock calculated as if any shares of Common Stock held by all the Subject Entities making or party to, or Affiliated with any Subject Entity making or party to, such stock purchase agreement or other business combination were not outstanding; or (z) such number of shares of Common Stock such that the Subject Entities become collectively the beneficial owners (as defined in Rule 13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common Stock, or (v) reorganize, recapitalize or reclassify its Common Stock, (B) that the Company shall, directly or indirectly, including through Subsidiaries, Affiliates or otherwise, in one or more related transactions, allow any Subject Entity individually or the Subject Entities in the aggregate to be or become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, whether through acquisition, purchase, assignment, conveyance, tender, tender offer, exchange, reduction in outstanding shares of Common Stock, merger, consolidation, business combination, reorganization, recapitalization, spin-off, scheme of arrangement, reorganization, recapitalization or reclassification or otherwise in any manner whatsoever, of either (x) at least 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock, (y) at least 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock not held by all such Subject Entities as of the Subscription Date calculated as if any shares of Common Stock held by all such Subject Entities were not outstanding, or (z) a percentage of the aggregate ordinary voting power represented by issued and outstanding shares of Common Stock or other equity securities of the Company sufficient to allow such Subject Entities to effect a statutory short form merger or other transaction requiring other shareholders of the Company to surrender their shares of Common Stock without approval of the shareholders of the Company or (C) directly or indirectly, including through Subsidiaries, Affiliates or otherwise, in one or more related transactions, the issuance of or the entering into any other instrument or transaction structured in a manner to circumvent, or that circumvents, the intent of this definition in which case this definition shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this definition to the extent necessary to correct this definition or any portion of this definition which may be defective or inconsistent with the intended treatment of such instrument or transaction.

(n) “ Group ” means a “group” as that term is used in Section 13(d) of the 1934 Act and as defined in Rule 13d-5 thereunder.

(o) “ Options ” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

(p) “ Parent Entity ” of a Person means an entity that, directly or indirectly, controls the applicable Person, including such entity whose common shares or common stock or equivalent equity security is quoted or listed on an Eligible Market (or, if so elected by the Holder, any other market, exchange or quotation system), or, if there is more than one such Person or such entity, the Person or such entity designated by the Holder or in the absence of such designation, such Person or entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.

 

- 19 -


(q) “ Person ” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

(r) “ Principal Market ” means The NASDAQ Capital Market.

(s) “ Reverse Stock Split ” shall have the meaning ascribe to such term in the Securities Purchase Agreement.

(t) “ Securities Purchase Agreement ” means the Securities Purchase Agreement, dated as of February 23, 2015, by and among the Company and the investors named on the Schedule of Buyers attached thereto.

(u) “ Subject Entity ” means any Person, Persons or Group or any Affiliate or associate of any such Person, Persons or Group.

(v) “ Successor Entity ” means one or more Person or Persons (or, if so elected by the Holder, the Company or Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or one or more Person or Persons (or, if so elected by the Holder, the Company or the Parent Entity) with which such Fundamental Transaction shall have been entered into.

(w) “ Trading Day ” means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded; provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time).

(x) “ Warrant Share Number ” means             (            ).

[Signature Page Follows]

 

- 20 -


IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock to be duly executed as of the Issuance Date set out above.

 

REAL GOODS SOLAR, INC.
By:

 

Name:
Title:


EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

REAL GOODS SOLAR, INC.

The undersigned holder hereby exercises the right to purchase             of the shares of Common Stock (“ Warrant Shares ”) of Real Goods Solar, Inc., a Colorado corporation (the “ Company ”), evidenced by the attached Series             Warrant to purchase Common Stock No.             (the “ Warrant ”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

1. Form of Exercise Price. The holder intends that payment of the Exercise Price shall be made as:

                     a “ Cash Exercise” with respect to                      Warrant Shares; or

                     a “Cashless Exercise” with respect to                      Warrant Shares.

2. Payment of Exercise Price. In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of $            to the Company in accordance with the terms of the Warrant.

3. Delivery of Warrant Shares. The Company shall deliver to the holder             Warrant Shares in accordance with the terms of the Warrant.

Please issue the Warrant Shares in the following name and to the following account:

 

            Issue to:  

                                                                                                                                                                                                                                

                                                                                                                                                                                                                                
                                                                                                                                                                                                                                

 

Facsimile Number

and Electronic Mail:

 

Authorization:

 

By:

 

Title:

 

Dated:

 


Broker Name:

 

Broker DTC #:

 

Broker Telephone #:

 

Account Number:

 

    (if electronic book entry transfer)
Transaction Code Number:

 

    (if electronic book entry transfer)

EXHIBIT 4.3

WAIVER AND AMENDMENT AGREEMENT

THIS WAIVER AND AMENDMENT AGREEMENT (this “ Agreement ”) is made and entered into as of March 31 2015 (the “ Execution Date ”), by and among Real Goods Solar, Inc., a Colorado corporation (the “ Company ”), and the undersigned investor (the “ Holder ”). Capitalized terms used but not defined herein shall have the meanings set forth in the Securities Purchase Agreement (as defined in the Recitals below).

RECITALS:

WHEREAS, reference is made to that certain Securities Purchase Agreement dated as of February 23, 2015, by and among the Company and the Holder (the “ Securities Purchase Agreement ”), and the five (5) series of Warrants to purchase shares of the Company’s Class A common stock, par value $0.0001 per share (the “ Common Stock ”) issued to the Holder pursuant thereto (collectively, the “ Warrants ”);

WHEREAS, the Company has proposed that the Holder waive the Authorized Shares Increase Amendment; and

WHEREAS, the Holder constitutes the Required Holders under each of the Securities Purchase Agreement and each series of Warrants.

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual agreements herein contained and for other good and valuable consideration, the parties hereto agree as follows:

 

  A. WAIVER AND AMENDMENTS; RATIFICATIONS; CONFLICTS; RESERVATION OF RIGHTS .

 

  (1) Waivers and Amendments .

(a) The Holder agrees that, notwithstanding Section 4(p) of the Securities Purchase Agreement, the Company shall not be required to seek approval of the Authorized Shares Increase Resolution by its shareholders and effect the Authorized Shares Increase, provided that the Company’s shareholders approve the Reverse Stock Split Resolution on or prior to the deadline set forth in the Securities Purchase Agreement and the Company effects a Reverse Stock Split at a ratio of at least one-for-five (a “ Specified Reverse Stock Split ”) on or prior to the date that is five (5) Business Days immediately following the Reverse Stock Split Resolution Date (the date the Company effects a Specified Reverse Stock Split, the “ Reverse Stock Split Date ”). Accordingly, as of the Reverse Stock Split Date, the Company and the Holder agree that any reference in the Securities Purchase Agreement and any series of Warrant to the Authorized Shares Increase Amendment (and all related defined terms, including, without limitation, Authorized Shares Increase Resolution and Authorized Shares Increase Resolution Date) shall be disregarded and any condition providing for the occurrence of the Authorized Share Increase Amendment (including, without limitation, obtaining the Authorized Shares Increase Resolution) shall be deemed satisfied.


(b) In addition, the Company agrees for the benefit of the Holder and the Retail Investors that, notwithstanding anything to the contrary in the Transaction Documents, (i) within five (5) Business Days after the Reverse Stock Split Date, the Company shall reserve out of its authorized and unissued Common Stock at least a number of shares of Common Stock equal to the greater of (A) the difference obtained by subtracting from (1) 300,000,000 shares of Common Stock (as adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction occurring on or after the Execution Date), (2) the number of shares of Common Stock issued to the Holder and/or any Retail Investor prior to the Execution Date (as adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction occurring on or after the Execution Date) and (B) such greater number of shares of Common Stock determined by taking into account the Maximum Eligibility Number (as defined in each of the Series B Warrants, the Series C Warrants and the Series D Warrants, without giving effect to the proviso set forth in such definitions), in order to effect the exercise of all of the outstanding Warrants and (ii) to the extent the Registration Statement does not, at any time, cover a sufficient number of shares of Common Stock issuable upon exercise in full of the Warrants then outstanding (without any regard to any limitation or restriction on the exercise of Warrants set forth therein and without taking into account the proviso set forth in the definition of “Maximum Eligibility Number” in any of the Warrants), the Company shall promptly amend or supplement the Registration Statement or, if necessary, file a new registration statement in order to register such number of Warrant Shares not covered by the Registration Statement.

(2) Ratifications . Except as otherwise expressly provided herein, the Securities Purchase Agreement, each Warrant and each other Transaction Document, are, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, except that on and after the Closing Date (i) all references in the Securities Purchase Agreement to “this Agreement”, “hereto”, “hereof”, “hereunder” or words of like import referring to the Securities Purchase Agreement shall mean the Securities Purchase Agreement as amended by this Agreement, (ii) all references in any of the Warrants to “this Warrant”, “hereto”, “hereof”, “hereunder” or words of like import referring to such Warrants shall mean such Warrants as amended by this Agreement, and (iii) all references in the other Transaction Documents, to the “Securities Purchase Agreement” and any “Warrant” (and corollary references to “thereto”, “thereof”, “thereunder” or words of like import referring to the Securities Purchase Agreement and any of the Warrants, respectively) shall mean the Securities Purchase Agreement and such Warrant as amended by this Agreement. Except as expressly set forth herein, this Agreement shall not be deemed to be a waiver, amendment or modification of any provisions of the Warrant, or of any right, power or remedy of the Holder, or constitute a waiver, amendment or modification of any provision of the Warrant (except to the extent explicitly set forth herein), or any other document, instrument and/or agreement executed or delivered in connection therewith, in each case whether arising before or after the date hereof or as a result of performance hereunder or thereunder, all of which (except as specified herein) remain in full force and effect.


(3) Conflicts . In the event of any conflict between (i) this Agreement and (ii) the Securities Purchase Agreement and/or the Warrants, this Agreement shall control.

(4) Reservation of Rights . Except as explicitly set forth herein, the Holder reserves all of its rights, remedies, powers, and privileges.

B. NO MATERIAL INFORMATION . The Company hereby agrees and acknowledges that the transactions contemplated by this Agreement does not constitute material, nonpublic information of the Company or any of its Subsidiaries and that the undersigned is not subject to any confidentiality or similar obligations under any agreement, whether written or oral, between the Company, any of its Subsidiaries or any of their respective officers, directors, Affiliates, employees or agents, on the one hand, and the undersigned or any of its Affiliates, on the other hand. The Company shall not, and shall cause each of its Subsidiaries and its and each of their respective officers, directors, Affiliates, employees and agents, not to, provide the Holder with any material, nonpublic information regarding the Company or any of its Subsidiaries from and after the date hereof without the express prior written consent of the Holder. To the extent that the Company, any of its Subsidiaries or any of their respective officers, directors, Affiliates employees or agents delivers any material, non-public information to the Holder without the Holder’s consent, the Company hereby covenants and agrees that the Holder’s shall not have any duty of confidentiality to the Company, any of its Subsidiaries or any of their respective officers, directors, Affiliates, employees or agents with respect to, or a duty to the Company, any of its Subsidiaries or any of their respective officers, directors, Affiliates, employees or agents not to trade on the basis of, such material, non-public information. The Company understands and confirms that the undersigned and its affiliates will rely on the foregoing representations in effecting transactions in securities of the Company.

C. FEES AND EXPENSES . The Company shall reimburse the Holder for its legal fees and expenses in connection with the preparation and negotiation of this Agreement and transactions contemplated thereby, by paying any such amount to Schulte Roth & Zabel LLP (the “ Holder Counsel Expense ”) by wire transfer of immediately available funds in accordance with the written instructions of Schulte Roth & Zabel LLP delivered to the Company on or prior to the fifth (5 th ) Business Day immediately following the Execution Date. The Holder Counsel Expense shall be paid by the Company whether or not the transactions contemplated by this Agreement are consummated. Except as otherwise set forth above, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all stamp and other taxes and duties levied in connection with the transactions contemplated hereby, if any

D. MISCELLANEOUS . This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon


the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. In the event that any provision of this Agreement is found to be void or invalid, then such provision shall be deemed to be severable from the remaining provisions of this Agreement, and it shall not affect the validity of the remaining provisions, which provisions shall be given full effect as if the void or invalid provision had not been included herein. The terms and provisions of this Agreement shall inure to the benefit of and be binding upon the heirs, successors and assigns of the parties. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York (without giving effect to the conflict of laws principles thereof). The courts of the State of New York shall have exclusive jurisdiction to resolve any and all disputes that may arise under this Agreement. Any amendments or modifications hereto must be executed in writing by all parties. Each party hereto shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this letter agreement.

[Remainder of page left blank intentionally]


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

 

COMPANY:
REAL GOODS SOLAR, INC.
By:

/s/ Dennis Lacey

Name: Dennis Lacey
Title: Chief Executive Officer

[Signature Page to Waiver and Amendment Agreement]


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

 

HOLDER:
_______________________________________.
By:

 

Name:

 

Title:

 

[Signature Page to Waiver and Amendment Agreement]

EXHIBIT 10.4

EIGHTH LOAN MODIFICATION AGREEMENT

This Eighth Loan Modification Agreement (this “ Loan Modification Agreement ”) is entered into as of January 30, 2015 (the “ Eighth Loan Modification Effective Date ”), by and among (i)  SILICON VALLEY BANK , a California corporation with a loan production office located at 2400 Hanover Street, Palo Alto, California 94304 (“ Bank ”), and (ii)  REAL GOODS ENERGY TECH, INC. , a Colorado corporation (“ Real Goods Energy ”), REAL GOODS TRADING CORPORATION , a California corporation (“ Real Goods Trading ”), ALTERIS RENEWABLES, INC ., a Delaware corporation (“ Alteris ”) and REAL GOODS SYNDICATED, INC., a Delaware corporation (“ Syndicated ”), MERCURY ENERGY, INC. , a Delaware corporation (“ Mercury ”), REAL GOODS SOLAR, INC. – MERCURY SOLAR , a New York corporation (“ Mercury Solar ”), ELEMENTAL ENERGY, LLC , a Hawaii limited liability company (“ Elemental ”), and SUNETRIC MANAGEMENT LLC , a Delaware limited liability company (“ Sunetric ”, and together with Real Goods Energy, Real Goods Trading, Alteris, Syndicated, Mercury, Mercury Solar and Elemental, individually and collectively, jointly and severally, the “ Borrower ”).

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 further amended by a certain Second Loan Modification and Reinstatement Agreement, dated as of November 13, 2012 as further amended by a certain Third Loan Modification Agreement, dated as of March 27, 2013, as further amended by a certain Joinder and Fourth Loan Modification Agreement, dated as of September 26, 2013, as further amended by a certain Fifth Loan Modification Agreement, dated as of November 5, 2013, as further amended by a certain Joinder and Sixth Loan Modification Agreement, dated as of June 6, 2014 and as further amended by a certain Seventh Loan Modification and Waiver Agreement, dated as of November 19, 2014(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 (i) the Collateral as described in the Loan Agreement, (ii) that certain Security Agreement, dated as of December 19, 2011, between the Secured Guarantor and Bank (as amended, the “ Security Agreement ”), and (ii) the “Intellectual Property Collateral”, as such term is defined in each certain IP 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 definitions from Section 13.1 thereof:

Revolving Line Maturity Date ” is January 31, 2015.

and inserting in lieu thereof the following:

Revolving Line Maturity Date ” is March 17, 2015.

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

 

1


  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. executed copies of the Eighth Loan Modification Agreement and the Bank Invoice; and

 

  C. such other documents as Bank may reasonably request.

5. FEES . Borrower shall pay to Bank a non-refundable modification fee equal to Eight Thousand One Hundred Twenty Five Dollars ($8,125.00), 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. 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 certain Perfection Certificates previously delivered to the Bank (in each case as supplemented through the Seventh Loan Modification Effective Date), and acknowledges, confirms and agrees the disclosures and information above Borrower provided to Bank in such Perfection Certificates, as supplemented, remain true and correct in all material respects as of the date hereof.

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

8. RATIFICATION OF LOAN DOCUMENTS . Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of the Loan Agreement and each other Loan Document (including, without limitation, each Borrower’s and each Guarantor’s Operating Documents previously delivered to Bank (unless re-delivered to Bank in connection with this Loan Modification Agreement)), and of all security or other collateral granted to the Bank, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations.

9. 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.

10. 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 modify the Existing Loan Documents pursuant to this Loan Modification Agreement in no way shall obligate Bank to make any future 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.

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

 

2


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

[Signature page follows.]

 

3


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

 

REAL GOODS ENERGY TECH, INC. REAL GOODS SYNDICATED, INC.
By:

/s/ Dennis Lacey

By:

/s/ Dennis Lacey

Name: Dennis Lacey Name: Dennis Lacey
Title: Chief Executive Officer Title: Chief Executive Officer
REAL GOODS ENERGY TRADING ALTERIS RENEWABLES, INC.
CORPORATION
By:

/s/ Dennis Lacey

By:

/s/ Dennis Lacey

Name: Dennis Lacey Name: Dennis Lacey
Title: Chief Executive Officer Title: Chief Executive Officer
MERCURY ENERGY, INC. ELEMENTAL ENERGY, LLC
By:

/s/ Dennis Lacey

By:

/s/ Dennis Lacey

Name: Dennis Lacey Name: Dennis Lacey
Title: Chief Executive Officer Title: Chief Executive Officer
REAL GOODS SOLAR, INC.—MERCURY SOLAR SUNETRIC MANAGEMENT LLC
By:

/s/ Dennis Lacey

By:

/s/ Dennis Lacey

Name: Dennis Lacey Name: Dennis Lacey
Title: Chief Executive Officer Title: Chief Executive Officer

 

BANK:
SILICON VALLEY BANK
By:

/s/ Ben Fargo

Name: Ben Fargo
Title: Vice President

Acknowledgment and Agreement:

The undersigned ratifies, confirms and reaffirms, all and singular, the terms and conditions of a certain Second Amended and Restated Unconditional Guaranty and a certain Second Amended and Restated Security Agreement, each dated as of June 6, 2014, and each document executed in connection therewith, and acknowledges, confirms and agrees that the Second Amended and Restated Unconditional Guaranty, Second Amended and Restated 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/ Dennis Lacey

Name: Dennis Lacey
Title: Chief Executive Officer

 

4

Exhibit 31.1

CERTIFICATION

I, Dennis Lacey, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q 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 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 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: May 11, 2015

 

/s/ Dennis Lacey

Dennis Lacey

Chief Executive Officer

(principal executive officer and acting principal financial officer)

Exhibit 31.2

CERTIFICATION

I, Alan Fine, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q 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 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 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: May 11, 2015

 

/s/ Alan Fine

Alan Fine
Treasurer and Principal Accounting Officer

Exhibit 32.1

CERTIFICATIONS 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 Quarterly Report of Real Goods Solar, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2015, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Dennis Lacey, Chief Executive Officer and acting Principal 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 the best of 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: May 11, 2015

 

/s/ Dennis Lacey

Dennis Lacey

Chief Executive Officer

(principal executive officer and acting principal financial officer)

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of Real Goods Solar, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2015, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Alan Fine, Treasurer and Principal Accounting 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: May 11, 2015

 

/s/ Alan Fine

Alan Fine
Treasurer and Principal Accounting Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.