U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1997
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 No. - 0-22524
REAL GOODS TRADING CORPORATION
(Exact name of small business issuer as specified in its charter)
California 68-0227324
(State or other jurisdiction (IRS Employer
(incorporation or organization) Identification Number)
555 Leslie Street, Ukiah, California 95482
(Address of principal executive office) (Zip Code)
Issuer's telephone number, including area code: (707) 468-9292
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
Securities registered under Section 12(g) of the Exchange Act:
Common Stock (Title of Class)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 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
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B not contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB [ ].
State issuer's revenues for its most recent fiscal year.
$18,424,000
State the aggregate market value of the voting stock held by non-
affiliates computed by reference to the price at which the stock
was sold, or the average bid and asked prices of such stock, as
of a specified date within the past 60-days. $6,807,185 as
of May 01, 1997.
The number of shares of the issuer's Common Stock outstanding as
of May 20, 1997 was 3,403,804.
Documents Incorporated by Reference
A portion of the Real Goods Trading Corporation's Proxy
Statement for the 1997 Annual Meeting of Shareowners to be filed
with the Commission on or before June 27, 1997 is incorporated by
reference into Part III, Items 9, 10, 11 and 12 of this Annual
Report on Form 10-KSB. With the exception of those portions
which are specifically incorporated by reference in this Annual
Report on Form 10-KSB, the Real Goods Trading Corporation Proxy
Statement for the 1997 Annual Meeting of Shareowners is not to be
deemed filed as part of this report.
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS
Mission Statement: Through our products, publications and
educational demonstrations, Real Goods promotes and inspires an
environmentally healthy and sustainable future.
Introduction. Real Goods Trading Corporation ("Real Goods" or
the "Company") sells primarily environmentally related products
and renewable energy products through mail order catalogs, direct
sales and retail stores. Except for fiscal 1996, the Company has
been profitable every year since it was incorporated in 1990.
The Company currently mails catalogs under the names of Real
Goods*, Earth Care*, REAL GOODS NEWS (currently being transformed
into the REAL GOODS RENEWABLES), REAL STUFF (currently being
transformed into the REAL GOODS NEWS) and the POST CONSUMER. The
Company sells renewable energy products directly to its customers
through the Renewable Energy Department (RG Renewables). The
Company's continuing retail stores are located in Hopland,
California and Eugene, Oregon. The Company is selling or closing
its Snow-Belt Energy store in Amherst, Wisconsin. The Company
also conducts consumer education activities through the
"Institute for Solar Living", a seminar series, and creates
educational products to support its renewable energy products.
Each year the Company conducts an internal eco-audit and
publishes the results in its annual report to shareowners.
In May 1996 the Company opened its Solar Living Center ("SLC"), a
twelve acre demonstration site housing a 5,000 square foot retail
store constructed of adobe-like covered rice straw bales and with
a utility intertie system with its local utility, Pacific Gas &
Electric Company. The Company's 10 kilowatt photovoltaic array
and 3 kilowatt wind generator produce much of the power for the
site; the Company sells the excess power back to PG&E. In the
event of power failures or lack of wind and sunshine, a battery
backup system provides electricity. The Solar Living Center
embodies the Company's core principles and provides an
opportunity to demonstrate the practicality of living and working
on a low consumption, environmentally sensitive and renewable
energy basis. The site is immediately adjacent to Highway 101 in
Hopland, California, and has to date been of interest both to
residents of Northern California and to tourists who have made it
a destination. The Company believes that the Solar Living Center
has the potential to be of great strategic importance to the
Company's future. In its ten months of operation approximately
100,000 people visited the SLC. In fiscal 1997, store sales
nearly doubled from the sales in the store's previous Hopland
location in fiscal 1996, although selling space increased by only
20%.
A. THE COMPANY'S MARKETS
The Company serves several related market segments within the
single line of business of specialty retailing. The
"ENVIRONMENTALLY RELATED PRODUCTS MARKET," consists of consumers
who wish to pursue simpler, more energy conserving, wholesome
lifestyles with a belief in preserving the earth's resources in a
sustainable manner. Consumers in this market tend to live in
urban and suburban residences served by the conventional electric
utility power grid. The Company has revamped its color Real
Goods and Earth Care catalogs to be more appealing to these
customers, and these catalogs now carry primarily conservation
and healthy lifestyle products.
The "REGIONAL RETAIL MARKET" is served by the Company's three
retail stores, located in Hopland, California; Eugene, Oregon and
Amherst, Wisconsin. Each of the three stores carries environ-
mentally related and renewable energy products as well as
regional products with a unique focus. The Hopland, California
store, relocated to the Company's new Solar Living Center in May
1996, features a number of products that are handmade locally or
made in small quantities that are not suitable for mail order
sale. Due to the Hopland store's proximity to Highway 101 and
its exposure to summer tourists to Northern California's
attractions, the store carries many items for the traveler and
camper. The store plans to focus on proprietary and private
labelled products which traditionally command higher gross
margins. The Amherst, Wisconsin store, Snow-Belt, is the
Company's national hearth center, marketed in fiscal 1997 through
a REAL GOODS NEWS special catalog; the Company is selling or
closing this store. The Eugene, Oregon store features technical
sales of hot water systems and is also one of the Company's
outlet stores for inventory no longer available through mail
order. Since November 1996 the Company has kept open an outlet
store in Ukiah at its corporate headquarters; the outlet store
was previously only open during the holiday season.
The Company's original focus, the "RENEWABLE ENERGY MARKET,"
consists of homeowners and others living and working without the
benefit of the traditional electric company power grid and
generating their own electricity. Installation and use of
renewable energy products requires a substantial investment of
time and money by the consumer. These products are often
purchased in connection with constructing or rehabilitating
residences with systems and appliances that supply renewable
sources of energy or otherwise circumvent the consumer's need to
use conventional sources of energy. To increase customer service
as well as more effectively manage these larger sales, the
Company created a Renewable Energy Department, called Real Goods
Renewables, that relates to customers directly. The Company has
also identified eco-tourism as a promising market for its
renewable energy sales. In the first quarter of fiscal 1997, the
Company made the largest sale in its history, a $1.8 million 100
kilowatt photovoltaic renewable energy sale to a resort on the
island of Belize in Central America (the "Belize sale"). The
Company also earned a $200,000 bonus for the on-time completion
of the project. The Company believes there will be other
opportunities for significant sales in this market in the future,
although there can be no assurance either that the opportunities
will develop or that the Company will convert the opportunities
to sales thereof.
In conjunction with its product marketing efforts, the Company
has always emphasized the "CONSUMER EDUCATION MARKET". The
Company produces and sells a wide variety of educational
materials through its catalogs and retail stores. The primary
product that the Company produces for this market is the SOLAR
LIVING SOURCEBOOK. In 1992, the Company established the
Institute for Solar Living, which offers educational seminars on
a variety of topics. With the opening of the SLC in May, 1996
the Company has a demonstration site for the Institute, as the
retail store there has been built with sustainable building
techniques, including strawbale construction, and has many
functioning renewable energy systems. The Company has also
established a successful co-publishing relationship with Chelsea
Green Publishers of Vermont.
1. ENVIRONMENTALLY RELATED PRODUCTS MARKET. The Company's
mail order catalogs market energy saving conservation devices,
environmentally related products and educational and well-made
gifts to urban and suburban dwellers. Approximately 65% of the
Company's total sales in fiscal 1997, including the Belize sale,
were derived from catalogs. The Company mailed approximately
6,300,000 catalogs in the current year, compared to 5,400,000 in
the previous year. This 15% increase in mailings was implemented
to take advantage of paper price decreases and to increase the
revenues from the Earth Care catalog.
The environmentally related products offered by the Company
comprise a full spectrum of energy-efficient lighting equipment;
high efficiency appliances; water saving devices such as low-flow
showerheads, low-flush toilets and faucet aerators; recycled
paper products including toilet paper, paper towels and facial
tissue; household products; gift and cards and wraps. The
Company also sell non-toxic household cleaning products, water
and air purification devices, health-related products and
magnetic radiation meters to this same customer base.
In January 1997 the Company began a trial program offering a
number of its catalog products on its Internet website. The
Company believes that the Internet is consistent with the
Company's mission to reduce the use of paper and fossil
fuels. There can be no assurance that the Company will continue
to use the Internet as a means of reaching potential customers in
the future.
In fiscal 1997 the Company conducted its first large scale
catalog mailing utilizing a native language order form in Japan.
This fall test mailing had a favorable initial response, and the
Company has increased the Japanese fall mailing scheduled in
fiscal 1998. Subsequent to year end, in April 1997, the Company
also participated in launching a commercial Internet site in
Japanese that offered Real Goods products for sale. Initial
response supports the Company's belief in the broad based appeal
of the Company's products in the Japanese market. There can be
no assurance that the Company will successfully exploit foreign
sales opportunities.
In January 1997 the Company began printing a wholesale catalog
that offers a limited number of catalog products at attractive
wholesale prices. The catalog is being distributed to inquirers
and certain selected businesses. Included in the offering are
many of the products that the Company imports directly. Although
initial response to this limited offering has been encouraging,
there can be no assurance that the Company will be successful at
wholesale sales.
2. REGIONAL RETAIL MARKET. The Company's retail stores
sell environmentally related products, renewable energy products
and unique regional products. In fiscal 1997, the Company's
three retail stores accounted for 15% of total sales, including
the Belize sale. In May 1996 the Hopland store moved from
temporary quarters to the new Solar Living Center, and the Eugene
store relocated as well, increasing the square footage of the
retail stores to a total of 9,600 square feet from a total of
7,400 square feet for the first two months of fiscal 1997 and all
of fiscal 1996.
In addition to stocking a majority of the products from the
Company catalogs as well as Renewable Energy Products, the
Hopland store also offers items that are unique to the Northern
California bio-region. Many of these unique products are
handmade or made in small quantities that are not suitable for
mail order. The Hopland store's products are currently comprised
of 65% mail order catalog and renewable items and 35% retail
unique items.
In April 1996 the Eugene, Oregon store moved from smaller
quarters to a 3,800 square foot downtown location. The store
carries a majority of the items in the color catalogs, as well
renewable energy products and provides full technical support.
In addition to being nationally advertised as the Company's
outlet center, the store specializes in solar hot water systems.
During the November through January months, the Company has
previously operated a seasonal outlet store in Ukiah as a
clearance center for returned and discontinued merchandise. The
Company currently plans to expand this facility and leave it open
year round. There can be no assurance the Company will continue
to operate an outlet store in Ukiah.
The Company's 1,600 square foot Snow-Belt store in Amherst
Wisconsin emphasized hearth stoves and related products, as well
as many items sold by the Company through its catalogs. The
Company expects to sell or close the Snow-Belt store in fiscal
1998 for failing to achieve the long term strategic objectives
which the Company had for the store.
3. RENEWABLE ENERGY PRODUCTS MARKET. In fiscal 1997 the
Company completed a sale of the largest solar power generating
system in Latin America. The system, located at a resort in
Belize, generated $2,000,000 of revenue. The Company believes
that the size and non-recurring nature of the Belize sale, which
accounted for 10% of the Company's fiscal 1997 sales, make it
appropriate to state portions of the Company's operating results
without reference to the Belize sale. For instance, excluding
the Belize sale, approximately 10% of the Company's sales were
from renewable energy sales in fiscal 1997, compared to 8% of
sales in fiscal 1996; including the Belize sale, approximately
20% of the Company's sales were from renewable energy sales.
Real Goods Renewables markets its products through the REAL GOODS
NEWS, currently being transformed into the REAL GOODS RENEWABLES
CATALOG, a specific catalog mailed to the more sophisticated
renewable energy buyer, as well as through the Company's own
SOLAR LIVING SOURCEBOOK and other educational materials, and by
direct sales. The Company's technical staff are fully trained in
energy system sizing and specializes in designing solar systems
of all sizes.
Real Goods Renewables offers power systems for the eco-tourism
market and for remote homes using renewable sources of energy
including photovoltaic (solar electric), hydroelectric and wind
electric, as well as emerging renewable energy technologies such
as hydrogen fuel cells and a new generation of photovoltaic
cells. Real Goods Renewables endeavors to provide a broad array
of appliances and other system components for most aspects of the
independent power systems lifestyle. These products include
battery storage systems, power conversion devices, charge
controllers, meters, low voltage water pumping systems, solar and
propane gas water heaters, high efficiency refrigerators, solar
cooling devices, composting toilets and a wide variety of
low-voltage household appliances.
The traditional markets for these power systems have been remote
homes in excess of one-quarter mile from the power companies'
lines in the United States and remote villages in third world
countries. The Company believes it has assisted over 25,000
homes in making the transition to renewable energy primarily
through solar systems. Market research in the solar energy field
suggests that the domestic market for solar systems is growing at
a rate of 10%-15% annually. However, the Company believes that
the market for small scale solar electric systems in the
developing third world market is increasing significantly.
The Company is seeking to serve the domestic remote home market
directly and to develop strategic alliances to address the
developing third world market through product sales and
education. The Company believes that its renewable energy market
will grow significantly in the near future.
4. CONSUMER EDUCATION ACTIVITIES. The Company has
traditionally emphasized consumer education as part of its
mission, and continues to produce and sell a wide variety of
educational materials. The Company's primary product for this
market is its SOLAR LIVING SOURCEBOOK, a 700 page textbook that
the Company periodically (now in its ninth edition) revises and
which features all of the Company's renewable energy products.
The SOLAR LIVING SOURCEBOOK is currently distributed by an
independent publisher (Chelsea Green) as well as by the Company
itself. The Company also markets many publications on specific
aspects of renewable energy, conservation and sustainable living
within its catalogs and in its retail stores. Additionally, the
Company is continuing to develop educational materials and
products through its Renewables Department. Currently the
Company does not spend material amounts for research and
development.
The Company has established a successful co-publishing
relationship with Chelsea Green Publishers of Vermont. Through
this relationship, thirteen books have been co-published bearing
" Real Goods Independent Living Series" on the books' covers,
including the Company's own SOLAR LIVING SOURCEBOOK. The Company
believes that these co-publishing efforts have significantly
boosted its position as an education leader in the sustainability
movement.
In 1992, the Company established the Institute for Solar Living,
which offers seminars each year for individuals on a variety of
topics such as "Planning and Building Your Renewable Energy Home"
and "Strawbale Construction." The seminars are taught by the
Company's employees and by third-party industry specialists. The
Company believes the Institute for Solar Living creates increased
consumer awareness with regard to the Company's renewable energy
products and integrates well with the Solar Living Center as a
demonstration site. Although the Institute for Solar Living
accounts for a modest portion of the Company's sales, it is a
significant aspect of the Company's mission.
The Company has established a website (www.realgoods.com) which
the Company believes to be both user-friendly and informative.
The website provides the Company with an alternative avenue for
offering its products and explaining its mission, history,
programs and products. On the website the Company also maintains
an innovative bulletin board for interested Shareowners and
prospective stock purchasers to agree upon the purchase and sale
of the Company's common stock without the intermediation of stock
brokers. Transaction are without cost to purchasers and sellers
pay only transfer fees. The Company received the approval of the
Staff of the Securities and Exchange Commission for this program
in June 1996, and this approval was the first of its kind. There
can be no assurance that the Company will continue to offer this
service to its Shareowners in the future.
B. VENDORS
The Company currently purchases its products from a vendor base
of more than 750 suppliers, none of which accounts for more than
5% of purchases. The Company's three largest purchases are from
vendors who sell renewable energy products, including
photovoltaics, appliances, and inverters. While there are many
suppliers of these products, the Company has chosen to limit the
majority of its renewable energy purchases to three vendors:
Solar Electric Specialties Company, a distributor of solar
modules manufactured by Siemens Solar Industries; Photocomm,
Inc., a distributor of solar modules and high efficiency
refrigerators; and Trace Engineering, a manufacturer of inverters
and other solar electric controls. The Company has developed
long-term relationships with all three of these vendors. Because
many of the renewable energy products are relatively new, the
number of suppliers for these products can be limited, and the
Company, from time to time, may face short-term dependencies upon
certain manufacturers for these products. However, the Company
believes it would not face long-term difficulties in securing
alternate sources of supply for such products if it experiences
an interruption in its current supply. The Company believes such
an interruption would be brief and is not likely to have a
material adverse effect on the Company's back orders and sales
revenues for the period affected.
The Company generally does not enter into long-term contracts
with its suppliers because the Company believes that adequate
alternative sources for most products exist and that it has
greater flexibility to take advantage of competitive price
fluctuations or improvements in technology or quality by not
being obligated pursuant to long-term arrangements. As a result,
there can be no assurances that the Company will not be subject
to unanticipated cost increases or shortages of supply.
C. SEASONALITY
The Company's revenues are not subject to the extreme seasonality
experienced by certain other retailers, however, excluding the
Belize sale, 40% of the Company's revenues are realized in the
third quarter. Renewable energy products are also subject to
seasonality, but the cycle for these products is the inverse of
the environmental, conservation and gift products, which has
lessened the effect of the holiday season on the Company's sales.
The Company's fiscal year ends on March 31. Excluding the Belize
sale, the Company's sales have generally increased sequentially
over the term of the first, second and third fiscal quarters, and
generally declined in the fourth fiscal quarter. It is possible
that such seasonal effects will be increased if the Company's
customer base continues to include a greater percentage of urban
and suburban dwellers. The Company believes that current trends
reflect (i) increased demands for its renewable energy products
during the mild-weather months when its customers are more likely
to undertake construction and major home improvement projects and
(ii) increased demand for environmentally related and gift
products, similar to that generally experienced by conventional
retailers, during the holiday season. (See: "Description of
Business -- A. The Company's Markets".)
D. BACKORDERS; RETURNS
The Company's backorders are generally less than $100,000 at any
one time. At March 31, 1997, backorders were $54,000, which was
4.7% of that month's catalog sales. At March 31, 1996 backorders
were $27,000, which was 3% of that month's catalog sales.
Backorders are considered healthy in certain other industries;
however, in the mail order industry, backorders can be symptoms
of inefficiency, lack of inventory or bad strategic planning or
implementation, since they create both additional costs and risks
of lost sales. The majority of the Company's Backorders arise
when (i) vendors fail to deliver as promised, or (ii) sales are
higher than anticipated. The Company attempts to keep its
Backorders at any given time to less than 10% of its total
orders; the Company believes this is the industry standard.
However, the Company may experience fluctuations in backorder
levels due to seasonal changes in demand, inventory levels and
delivery from suppliers.
Although the Company does have a 90-day return policy for
products returned by customers in their original condition, the
Company has not historically experienced substantial product
returns for its catalog segment. For fiscal 1997, returns of
catalog sales were 5.1% of gross catalog sales, compared to 4.8%
in the previous year. The Company believes that the hard goods
catalog industry in general experiences returns of 5-6%.
E. COMPETITION
In the sale of environmentally related products, the Company
believes that it has many indirect competitors but few direct
competitors; indirect competitors range from other catalog
retailers selling similar products to specialty retailers and
local hardware stores. The Company is currently testing a
program to sell branded goods and is in the process of developing
new and innovative proprietary products. There can be no
assurance that the Company will ever sell material quantities of
branded goods or proprietary products.
The Company has a number of competitors in the sale of renewable
energy products, none of whom is known to the Company to be
substantially larger than the Company. However, there can be no
assurance that the resources or market positions of the Company's
competitors in this area will not change.
In both product areas, the Company competes on the basis of
price, selection and service. The Company has continued to work
to improve its pricing through increased buying and improved
vendor discounts. In fiscal 1997 the Company increased its
presence at trade shows and plans to improve its product
selection. To improve catalog customer service, the Company
hired more in house staff and extended in house hours for a
reduced reliance on outside operators for its telephone lines.
The Company has also increased staff for RG Renewables.
The Company believes that its image is enhanced by the various
accomplishments that it has made in achieving its mission,
including the opening of the Solar Living Center demonstration
site, the completion of the sale of the largest solar array in
Latin America, the ninth edition of the Solar Living Sourcebook,
the Company's increased presence on the Internet, the mission
message in the national mail order catalogs and public relations
efforts.
The Company has a membership program in which members pay a $50
fee to receive a designated newsletter with special pricing,
closeout bargains and substantial additional information, as well
as a 5% discount on all purchases. The Company's members order
much more frequently and have a higher average order than the
Company's other customers. In fiscal 1997 the membership
program increased by approximately 24% to over 38,000 members.
The Company is continuing to explore opportunities to enhance the
membership program, including co-ventures with other like-minded
mission-oriented companies.
F. REGULATION
Although the Company believes that certain federal, state and
local laws to promote energy conservation may encourage the
purchase of its products, the Company also believes that most of
its customers purchase its products for other reasons. The
Company does not believe that it is subject to regulation other
than regulations applicable to catalog vendors of comparable
products. The Company does not believe that the costs and
effects of its own compliance with federal, state and local
environmental laws are likely to be material. The Company does
not generally seek or obtain governmental approval for the
products it sells; rather, it believes that obtaining such
approval is the responsibility of its vendors or the products'
manufacturers. The Company has not, to its knowledge, been named
in any environmental cause of action relating to its products or
the sales thereof.
G. EMPLOYEES
The Company currently has the full time equivalent of 100
employees. Of those employees, approximately 20 are employed at
the Company's retail stores, 8 are employed at RG Renewables and
approximately 72 are employed in Ukiah providing support to the
catalog and corporate functions. As with many retailers, the
Company increases its use of temporary employees during its third
fiscal quarter to meet the increased demands of the holiday
season. The Company believes its use of temporary employees
contributes to its ability to control overhead costs. The
Company is not subject to any collective bargaining agreements,
and the Company believes its relationships with its employees are
good.
H. TRADEMARKS
The Company has registered the trademark "Real Goods." In
addition, the Company has a license to use the name "Earth Care"
for recycled paper products. That license may be terminated
under certain circumstances. The Company has submitted an
application to register the name "Real Goods" in Japan. The
Company does not believe that any other patents, trademarks,
licenses, franchises, concessions, royalty agreements or labor
contracts are material to the business of the Company.
Item 2. DESCRIPTION OF PROPERTIES.
The Company owns the 12-acre parcel in Hopland, California that
is the site of the Solar Living Center and retail store. Hopland
is located approximately 12 miles south of Ukiah, on US Highway
101, a major interstate highway.
The Company owns the Amherst, Wisconsin facility housing the
Snow-Belt retail store. This property consists of a 5,000 square
foot cold warehouse, a 3,000 square foot cold storage building
and a 1,600 square foot office and retail store.
The Company currently leases its Ukiah, California operations
facilities, which consist of a 15,300 square foot warehouse
distribution center facility on a month-to-month lease. The
Company's 13,790 square foot office/customer service/warehouse
facility is leased through 1998.
The Company has a lease agreement expiring in 1999 for the
3,800 square foot retail store in Eugene, Oregon.
The Company's lease on its IBM RISC 6000, which is the computer
system and portions of its telephone system, expires in fiscal
1998.
The Company believes that it maintains adequate insurance for its
real and personal property.
Item 3. LEGAL PROCEEDINGS.
The Company is not party to any material legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock has been eligible for over-the-counter
trading since February 25, 1993. The Company's common stock was
listed on the Pacific Stock Exchange on April 11, 1994 under the
symbol RGT. Effective July 23, 1996, the Company's stock was
listed on the NASDAQ SmallCap Market under the symbol RGTC.
Effective July 1996, the Company's stock has traded on the
Internet on a bulletin board at http://www.realgoods.com/
maintained by the Company. Between the Company's initial public
offering in 1991 and the date listed on the Pacific Stock
Exchange, trading in the Company's securities was extremely
isolated because the Company's shares were traded only through a
single broker offering a passive "bulletin board" matching
service. The following chart sets forth the high and low actual
sale prices of the Company's common stock for each quarter within
the last three fiscal years, to the extent the Company is aware
thereof.
<TABLE>
<CAPTION> Fiscal Year Ended March 31
High (Purchase) Low (Sale)
by Share by Share
<S> <C> <C>
1996:
First Quarter 9 8
Second Quarter 8-7/8 5-3/4
Third Quarter 7-1/4 5-1/8
Fourth Quarter 6 5-1/2
1997:
First Quarter 8 5-1/4
Second Quarter 7-7/8 6-1/8
Third Quarter 6-3/8 4-1/4
Fourth Quarter 6 5-1/8
</TABLE>
To the extent the Company is aware thereof, the prices on the
foregoing table reflect the actual prices paid or received by the
investors before commissions and taxes. There were 3,403,804
shares of the Company's common stock outstanding as of May 20,
1997. The Company had 5,333 shareowners of record as of May 1,
1997.
<PAGE>
Item 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Sales
The Company reported the highest net sales in its history,
$18,424,000 for fiscal 1997, an increase of 19% over fiscal 1996.
Net sales include a $2 million 100 kilowatt photovoltaic
renewable energy sale to a resort in Belize. While the amounts
of this sale distort some of the amounts and percentages set
forth herein, they are included for completeness, and are
excluded only when specifically so stated.
For the fiscal year ended March 31, 1997, without the Belize
resort sale, net sales for the year were $16,463,000, up 7% from
$15,432,000 from the previous year. Excluding the Belize sale,
retail and renewable energy sales continued to grow as a
percentage of total Company sales, and catalog sales decreased as
a percentage of sales: catalog sales were 73% of sales, as
compared to 78% in the prior year; retail store sales were 17% of
sales, as compared to 14% in the prior year, and renewable energy
department sales were 10% of sales, as compared to 8% in the
prior year.
Catalog sales remained level at $11,968,000, compared to prior
year sales of $11,972,000. The Company mailed approximately 17%
more catalogs in fiscal 1997, or 6,300,000 compared to 5,400,000,
primarily taking advantage of paper price declines in the third
and fourth quarter. The Real Goods catalog showed a 12% increase
in circulation, and an increase in dollars per book to $2.12 per
book in fiscal 1997 from $2.04 per book in fiscal 1996. The
remerchandised, re-positioned and expanded Earth Care catalog had
a 35% increase in circulation, with dollars per book falling to
$1.42 per book compared to $1.80 per book in fiscal 1996. The
Company took advantage of the paper price decrease to mail the
Earth Care catalog to additional prospect lists and implement
long term growth plans for the title.
As the Company moved both the Hopland, California and Eugene,
Oregon stores to larger quarters, retail store sales increased
26% to $2,754,000, compared to $2,181,000 in the previous fiscal
year. The Company had 7,400 square feet of retail selling space
during fiscal 1996. For 10 months of the current fiscal year
there was 9,600 square feet of retail selling space. The Hopland
store has been relocated to the Company's Solar Living Center,
and the Eugene store has been relocated to a larger, more central
location at a mall in downtown Eugene. Since November 1996, the
Company has kept a small outlet store open in Ukiah all year; in
fiscal 1996 the Ukiah store was open only from November through
January.
Renewable energy sales, excluding the Belize sale, increased 37%
to $1,693,000 compared to $1,237,000 in the previous fiscal
year. The Company believes that Real Goods Renewables has shown
a significant sales increase due to the department's increased
staff levels, emphasis on customer service (including separate
800 lines), and utilization of a separate and more technical
catalog, the Real Goods News, for the renewable energy customers.
Due to increased staffing, Renewables has been able to pursue
many new leads in both national and international markets, as
well as in the expanding "eco-tourism" business.
Gross Profit
For fiscal 1997, gross profit amounted to $8,799,000, or 47.8% of
sales, compared to gross profits of $7,426,000 or 48.1% of sales
in the previous fiscal year. Overall gross profits as a
percentage of sales was slightly lower due to the percentage
of retail and renewable energy sales, including the Belize sale,
increasing in comparison to catalog sales; renewable and retail
sales traditionally have lower margins than catalog sales.
Catalog, retail and renewable energy sales all showed an
improvement in gross margins over the previous fiscal year.
Catalog sales had a gross profit of $6,373,000 or 53.2% of sales,
compared to $6,151,000 or 51.4% of sales in the previous year,
which was a $220,000 increase in margin on flat sales. Retail
store sales had a gross profit of $1,096,000 or 39.8% of sales,
compared to $839,000 or 38.4% of sales in the previous year.
Renewable energy sales had a gross profit of $1,282,000 or 35% of
sales, including the Belize sale, compared to $394,000 or 31.8%
of sales in the previous year.
The gains in margins in all areas were attributed to the
successful efforts to improve terms with vendors that allow for
cash discounts, quantity discounts, and generally improved
purchasing efficiencies.
Operating Expenses
Selling, general, and administrative expenses amounted to
$8,133,000 or 44% of sales in fiscal 1997, compared to $7,745,000
or 50.1% of sales in the prior year. Operating expense increased
only 5% in absolute dollars while sales increased 19% including
the Belize sale, or 7% without the Belize sale. The Belize sale
did not generate incremental operating expense. Labor and
benefits increased only 2% on the sales increase, reflecting the
Company's efforts to improve and streamline internal management.
Catalog circulation increased by 15%, yet due to paper price
declines experienced in the third and fourth quarters, overall
catalog expense declined by 6%. Postage and freight expense
increased 19%, reflecting the increased catalog circulation as
well as increases by United Parcel Service in February 1996 and
February 1997. The Company has experienced small reductions in
postage costs since July 1996 due to favorable new postal
reclassification regulations. The Company also continued to
reduce outside consulting expenses, general expenses, and other
variable costs. Depreciation increased $100,000, due to the
completion of the Solar Living Center.
Earnings from operations were $666,000 for the year, compared to
a loss of $319,000 in the previous year, representing a
turnaround of $985,000. The Belize sale, improved margins, paper
price reductions and improved operational efficiencies
contributed to this dramatic improvement.
Interest
In fiscal 1997, interest expense was $103,000 and interest income
was $23,000, resulting in a net interest expense of $80,000. In
the previous fiscal year, interest income was $32,000 and
interest expense was capitalized into the Solar Living Center
construction project. The increased interest expense is due to
the loans required to finance the Solar Living Center (see Note
5). Approximately $11,000 of the interest expense in fiscal 1997
was related to the line of credit. The Company largely uses its
line of credit to increase inventory levels for the holiday
season.
Income Taxes
Income taxes as a percentage of pretax income was 38% compared to
a tax benefit at the rate of 34% for the previous year when the
Company reported a loss. The Company believes that the applied
tax rate accurately reflects its actual experience.
Earnings
The Company earned $586,000 before tax and had $363,000 net
earnings in the current fiscal year, or $.11 per share. In
fiscal 1996, the Company had a before tax loss of $287,000 and a
net loss of $175,000 or $.05 per share. Current year profits are
the highest annual results ever earned by the Company. These
earnings represent a significant turnaround for the Company, as
they follow the Company's first annual loss in fiscal 1996.
Management believes that the Belize sale, the improved margins
particularly from catalog sales, the decreased paper costs in its
third and fourth quarters, and improved internal operating
efficiencies are to be credited with the earnings gain. The
Company has remained committed to its mission of reducing waste
and pollution and heightening environmental awareness by
continuing to print catalogs on recycled paper, despite the 4% -
10% premium that it pays for recycled paper.
Liquidity and Capital Resources
During the fiscal year ended March 31, 1997, cash of $252,000 was
provided by operations. Cash was increased by a decrease in
prepaid purchases of $285,000 due to the effect in the prior year
of a purchase for the Belize sale. Cash was decreased by a
decrease in customer deposits of $585,000 due to the Belize
deposit being recognized in sales in the current year.
The Company used $685,000 of cash largely for purchase of
property, equipment and improvements related to the completion of
its Solar Living Center.
Cash provided by financing activities was $677,000, primarily due
to the Company completing its construction loan and entering into
two long term debt agreements (see note 5) for $585,000 and
$604,000 respectively. Cash of $115,000 was used in the
repurchase of common stock (see Note 10).
The net effect of all of the Company's activities was to increase
the Company's cash position to $513,000 at the end of the period
from $270,000 at the beginning of the period.
The Company has secured a $1,500,000 line of credit for fiscal
1998 to use for seasonal fluctuations in inventory levels as well
as operating expenses. Management believes that cash flow from
operations together with bank debt financing and existing cash
reserves will be sufficient to fund the Company's operations
through fiscal 1998.
The overall effects of inflation on the Company's business during
the periods discussed were not believed to be material.
CERTAIN CONSIDERATIONS
Except for the historical information contained in this Annual
Report on Form 10-KSB, the matters discussed in this document are
forward looking statements. These forward looking statements
concern matters that involve risks and uncertainties, including,
but not limited to, those set forth below, that could cause
actual results to differ materially from those in the forward
looking statements. The matters set forth below should be
carefully considered when evaluating the Company's business and
prospects.
A. CATALOG SALES. The mail order industry is susceptible to the
ebb and flow of both retail industry trends and the general
economy. While the Company could be a beneficiary of a trend
which increases the popularity of the Company's products, that
trend could also ebb away. Of approximately 350 products in each
of the Real Goods and Earth Care color catalogs, 35% are new to
those catalogs; there can be no assurance that the product
selection will be effective. While the Company must incur
catalog production and mailing costs, purchase inventory and
staff up in preparation for customer responses in advance of
need, if customer response is below management's expectations and
the Company's gross income decreases, the Company's expenses
cannot be reduced timely and proportionately. In addition, the
Company will be reliant to some extent on the state of the
general economy. An adverse economic environment could impact
the mail order catalog industry as a whole. Finally, catalog
companies seeking to increase revenues and their "house list"
often "prospect" with rented lists; unwise or excessive
prospecting can adversely affect operating results.
B. RETAIL STORES. There are substantial risks in store
retailing, including poor location of retail stores, failing to
identify consumer trends correctly, theft by customers and
employees, poor financial controls, and losing customers to
competitors. The Company is experimenting with retail store
formats; there can be no assurance that any of those formats
will be profitable, or, if profitable, replicatable. The Company
is selling or closing its Amherst, Wisconsin store due to the
store's failure to achieve the long term strategic objectives
which the Company had for the store.
C. SOLAR LIVING CENTER. The Company's mission is to promote and
inspire an environmentally healthy and sustainable future through
its products, publications and educational demonstrations. The
Company has spent approximately $3,000,000 to acquire the land
for the Solar Living Center, landscape the land and construct it
as a demonstration of many of the principles underlying the
Company's mission and vision. Although the initial response has
been extremely encouraging in both sales and number of visitors,
there can be no assurance that the Solar Living Center, which
opened in May 1996, will fulfill the Company's hopes to increase
the public's awareness of the Real Goods mission, that the
Company will ever realize a suitable return on its investment or
that the Company will not incur a substantial loss from the Solar
Living Center. The Solar Living Center is located on a flood
plain.
D. SEASONALITY. As with nearly all retail enterprises, the
Company's business is seasonal, and it customarily generates
approximately 40% of its revenues in its third fiscal quarter
which is the last calendar quarter of the year. The Company's
execution in its third quarter is material to its financial
success for a fiscal year. Poor third quarter results in any
given year would adversely impact the Company to a greater
absolute extent than poor results in any other quarter.
E. COMPETITION. The Company believes that as to certain of its
products it operates in a niche presently too technical and
application specific to interest the larger catalogs and that the
Company's knowledge of its customers and vendors offerings
enables it to be a better intermediary between suppliers and
customers for its segment of the market than larger catalogs.
However, the Company is small compared to industry leaders. If
one or more of the larger catalog retailers decides either to
have a major renewable energy and conservation section in an
existing catalog or to launch a comparable catalog, the Company's
business could be adversely affected.
F. NEW INITIATIVES. The Company has undertaken test programs in
Japan, in wholesale sales and in selling via the Internet, which
may prove to be productive endeavors; however, there can be no
assurance that any of them will be successful or, if they appear
successful, that they will continue to be successful.
G. UNCONTROLLABLE EVENTS. The Company is subject to larger
trends and events which are beyond the Company's control. For
instance, a severe recession would decrease disposable income and
the amounts people spend on non-essential products such as those
the Company offers. If there is a war, earthquake, fire or
similar event, the Company could be adversely impacted. While
the Company carries reasonable insurance considering its size
and economics, such insurance may not fully protect the Company
from events which are beyond the Company's control. Any long
term drop in energy prices could also reduce the attractiveness
of certain of the Company's products; reciprocally, the Company
could benefit from a long term increase in energy prices.
H. SALES TAXES. In 1992, the United States Supreme Court ruled
that states may not impose taxes on out-of-state direct
marketers, but it suggested that Congress could delegate that
power. To date, there has been no congressional action. The
Company collects sales tax only on sales made in California and,
for so long as it operates the Snow-Belt store, Wisconsin. If
the Congress does delegate the power to levy a sales tax and
states do levy those taxes, the operations of the Company will
likely be affected substantially because the Company's average
order is relatively high and the combination of sales taxes with
shipping charges may affect consumer buying decisions.
I. DEPENDENCE ON KEY PERSONNEL. The Company is substantially
dependent on the continued services of John Schaeffer. The loss
of Mr. Schaeffer's services for any substantial period of time is
certain to have a material adverse impact on the Company. The
Company maintains a $1,000,000 life insurance policy on Mr.
Schaeffer. The Company does not anticipate acquiring disability
insurance on Mr. Schaeffer.
J. DEPENDENCE ON CERTAIN SUPPLIERS. Including Foreign Suppliers.
The Company carries approximately 350 articles in each color
catalog. No more that 5% of the Company's sales arise from a
single product. Approximately 3% of the Company's sales are
generated from products purchased directly from foreign
countries. Accordingly, the Company is subject to both exchange
rate fluctuations and possible disruptions in supplies for those
products. The Company could also be vulnerable because 5% of its
revenues derive from products purchased from a single supplier.
However, there is at least one alternative supplier for each
product in every case, and management believes that any such
effect would be temporary.
K. COST INCREASES. For the portion of its sales derived from
mail order catalogs, the Company is particularly susceptible to
increases in paper prices and postal and shipping charges. In
late 1994 and early 1995 paper prices increased dramatically,
causing significant cost increases; those prices eased in 1996.
There is an immediate effect on the Company's catalog marketing
costs as a result of the paper market price fluctuations. Since
paper capacity is relatively fixed, the Company believes that
prices in this market are directly affected by the strength of
the economy. Increased paper prices as well as increased mailing
and shipping charges could substantially impact the Company's
catalog growth and profitability. Decreased paper prices result
in a more favorable mail order catalog market.
Postage costs are affected by price changes by the United States
Postal Service and United Parcel Service. In early 1995, United
States Postal Service prices increased and could increase in the
future. In February 1996 and February 1997 United Parcel Service
increased rates. The Company does expect annual increases in
United Parcel Services's charges. The Company has experienced a
small reduction in postage costs since the third quarter due to
recently enacted postal reclassification regulations.
L. CONTROL. Because of his stock ownership position, John
Schaeffer will at all times have the ability to control the
operations and strategy of the Company.
Item 7. FINANCIAL STATEMENTS.
<PAGE>
REAL GOODS TRADING CORPORATION
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 16
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996:
Consolidated Balance Sheets 17
Consolidated Statements of Operations 18
Consolidated Statements of Cash Flows 19
Consolidated Statements of Shareowners' Equity 20
Notes to Consolidated Financial Statements 21-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareowners
Real Goods Trading Corporation:
We have audited the accompanying consolidated balance sheets of
Real Goods Trading Corporation and subsidiary (the "Company") as
of March 31, 1997 and 1996, and the related consolidated
statements of operations, shareowners' equity and of cash flows
for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Real
Goods Trading Corporation and subsidiary as of March 31, 1997 and
1996, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the financial statements in fiscal 1996
the Company changed its method of accounting for certain
inventory acquisition and distribution costs.
[S]DELOITTE & TOUCHE, LLP
Deloitte & Touche, LLP
Oakland, California
May 9, 1997
<PAGE>
REAL GOODS TRADING CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND 1996
(In thousands except share data)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash $ 513 $ 270
Accounts Receivable, net of
allowance of $6 169 179
Inventories 2,112 2,139
Deferred catalog costs, net 383 403
Prepaid expenses 112 403
Total current assets 3,289 3,394
Property, equipment and improvements, net 3,347 2,936
Intangible assets and other assets, net 166 167
Total assets $6,802 $6,497
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Accounts payable $ 481 $ 575
Accrued expenses 304 345
Customer deposits 85 670
Current maturities of long-term debt 37 387
Deferred income taxes 13 40
Income taxes and other taxes payable 48 35
Total current liabilities 968 2,052
Long-term debt 1,143 15
Total liabilities $2,111 $2,067
Shareowners' equity:
Common stock, without par value:
Authorized 10,000,000 shares;
Issued and outstanding, 3,403,804
and 3,434,666 shares respectively 4,252 4,354
Retained Earnings 439 76
Total shareowners' equity 4,691 4,430
Total liabilities and shareowners'
equity $6,802 $6,497
</TABLE>
See notes to consolidated financial statements
<PAGE>
REAL GOODS TRADING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1997 AND 1996
(In thousands except share data)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net sales $18,424 $15,432
Cost of sales (9,625) (8,006)
Gross profit 8,799 7,426
Selling, general and administrative
expenses 8,133 7,745
Earnings (loss) from operations 666 (319)
Interest income (expense), net (80) 32
Earnings (loss) before income taxes
and cumulative effect of change
in accounting principle 586 (287)
Income tax benefit (expense) (223) 85
Earnings (loss) before cumulative
effect of change in accounting principle 363 (202)
Cumulative effect of change in accounting
principle, net of tax (Note 2) - 27
Net earnings (loss) $ 363 $ (175)
Earnings (loss) per share of common stock:
Before cumulative effect of change
in accounting principle $0.11 ($0.06)
Cumulative effect of change in
accounting principle - accounting
for certain inventory acquisition
and distribution costs $0.00 $0.01
Net earnings (loss) per share $0.11 ($0.05)
Weighted average shares used to compute
earnings per share 3,418,089 3,435,167
</TABLE>
See notes to consolidated financial statements
<PAGE>
REAL GOODS TRADING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1997 AND 1996
(In thousands)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) before cumulative
effect of change in accounting principle $363 $(202)
Adjustments to reconcile net earning (loss)
before cumulative effect of change in
accounting principle to net cash provided
by operating activities:
Depreciation and amortization 283 176
Other (27) 39
Changes in assets and liabilities:
Accounts receivable 9 (92)
Inventory 27 110
Deferred catalog costs 20 189
Prepaid expenses 285 (299)
Accounts payable (94) (273)
Accrued expenses (41) 172
Income taxes and other taxes payable 13 13
Customer deposits (586) 630
Net cash provided by operating activities 252 463
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of land, equipment, and construction
in progress (673) (1,411)
Purchase of other assets (23)
Proceeds from sale of equipment 11 3
Net cash used in investing
activities (685) (1,408)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 2,559 361
Proceeds from issuance of common stock 13 109
Repayment of debt (1,780) (20)
Purchase of common stock (115) (67)
Net cash provided by financing activities 677 383
Net increase (decrease) in cash 243 (562)
Cash at beginning of period 270 832
Cash at end of period $513 $270
Other cash flow information:
Interest paid 99
Income taxes paid 233 1
Non cash investing/financing activities:
Notes receivable cancelled upon
repurchase of options (17)
</TABLE>
See notes to consolidated financial statements
<PAGE>
REAL GOODS TRADING CORPORATION
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
YEARS ENDED MARCH 31, 1997 AND 1996
(In thousands)
<TABLE>
<CAPTION>
COMMON STOCK
Total
Notes Share-
Number Recieve Retained owners'
of Shares Amount able Earnings Equity
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1995 3,422 $4,285 $ (17) $ 251 $4,519
Issuance of stock for:
Bonuses 1 10 10
Stock options exercised 18 109 109
Repurchase of stock
and stock options (6) (68) 17 (51)
Stock option compensation 18 18
Net earnings (175) (175)
BALANCE, MARCH 31, 1996 3,435 4,354 - 76 4,430
Issuance of stock for:
Bonuses 1 10 10
Stock options exercised 1 3 3
Repurchase of stock (33) (115) (115)
Net earnings 363 363
BALANCE, MARCH 31, 1997 3,404 $4,252 $ - $ 439 $4,691
</TABLE>
See notes to consolidated financial statements
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Real Goods Trading Corporation (the "Company")
sells primarily environmentally related products and renewable
energy products through mail order catalogs, retail stores, and
direct sales of its renewable energy department. The Company was
organized on July 1, 1990.
Principles of Consolidation - In December, 1995 the Company's
wholly owned subsidiary, Snow-Belt Energy Center, Inc. was merged
into the Company. The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary,
Snow-Belt. Intercompany transactions and balances have been
eliminated.
Use of Estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Inventories are stated at the lower of cost (first-in/first-out
method) or market. Inventories include expenses associated with
acquiring the inventory. See Note 2 to the financial statements.
Deferred Catalog Costs - The Company capitalizes the direct cost
of producing and distributing its mail order catalogs. Deferred
catalog costs are amortized based on the estimated sales lives of
the catalogs.
Property, equipment and improvements are stated at cost.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, which range from 5 to 40
years.
Pre-opening costs for retail stores are expensed as incurred.
Intangibles represent the excess of cost over tangible net assets
acquired and are amortized over 5 years.
Income Taxes - The Company accounts for its income taxes using an
asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future
events other than changes in tax laws.
Earnings per share are computed based on the weighted average
number of shares outstanding during the period.
Reclassification - Certain reclassifications have been made to
the March 1996 amounts in order to conform to the March 1997
presentation.
Estimated Fair Value of Financial Instruments - Statement of
Financial Accounting Standard ("SFAS") No. 107, "Disclosures
About Fair Value of Financial Instruments" requires disclosure of
the estimated fair value of financial instruments. The carrying
values of cash, accounts receivable, accounts payable, and
long-term debt approximates their estimated fair values.
Stock-based Compensation - The Company accounts for stock-based
awards to employees using the intrinsic value method in
accordance with APB No. 25, "Accounting for Stock Issued to
Employees."
New Accounting Standards - In fiscal 1997, Real Goods adopted the
provisions of Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." SFAS
No.121 establishes recognition and measurement criteria for
impairment losses when the Company no longer expects to recover
the carrying values of a long-lived asset. The adoption of SFAS
No. 121 did not have a significant impact on the Company's
financial statements.
Recently Issued Accounting Standard - In February 1997 the
Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128). The Company is required to adopt SFAS 128 in the
third quarter of fiscal 1997 and will restate at that time
earnings per share (EPS) data for prior periods to conform with
SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires
a dual presentation of basic and diluted EPS. Basic EPS excludes
dilution and is computed by dividing net income (available to
common shareowners) by the weighted average of common shares
outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock.
If SFAS 128 had been in effect during the current and prior year
periods, basic EPS would have been $.11 and ($.05) for the years
ended March 31, 1997 and 1996 respectively. Diluted EPS and SFAS
128 would not have been significantly different than primary EPS
currently reported for the periods.
2. CHANGE IN ACCOUNTING PRINCIPLE
The Company changed its method of accounting for certain
inventory acquisition and distribution costs to capitalize such
costs into merchandise inventories to better match these costs
with their related sales and to conform to the predominant
industry practice. Previously, such costs were expensed as
incurred. The cumulative effect on prior years of adopting this
method was $27,000, which is included in 1996 net income. The
effect of this accounting change was an increase in earnings for
fiscal 1996 of $4,000.
3. PROPERTY, EQUIPMENT AND IMPROVEMENTS
<TABLE>
<CAPTION>
Property, equipment and improvements consist of the following at
March 31 (in thousands):
1997 1996
<S> <C> <C>
Land $ 490 $ 262
Land Improvements 770
Buildings and leasehold improvements 1,717 200
Equipment, furniture and fixtures 902 798
Construction in progress 10 2,136
Total 3,889 3,396
Less accumulated depreciation (542) (460)
Property, equipment and improvements, net $3,347 $2,936
</TABLE>
At the end of fiscal 1996, construction in progress related to
the Solar Living Center (SLC), located in Hopland, California.
The SLC is a twelve acre demonstration site of sustainable living
practices and renewable energy systems and includes a retail
store. The Solar Living Center was completed in May, 1996.
$62,000 of interest was capitalized over a two year period in
connection with this project.
4. LINE OF CREDIT
On April 8, 1997, the Company entered into an extended line of
credit agreement for $1,500,000 from National Bank of the
Redwoods (the" Bank"). Borrowings bear interest at 1% over the
prime rate, and interest is payable monthly. The line is
personally guaranteed by the Company's majority shareowner. This
agreement expires April 8, 1998.
In fiscal 1997, the Company had a $1,000,000 line of credit with
the Bank. Borrowings bore interest at 2% over the prime rate,
and interest was payable monthly. That line was personally
guaranteed by the Company's majority shareowner. On March 31,
1997, no amounts were outstanding on the Company's line of
credit.
The extended line of credit agreement contains restrictive
covenants including debt to net worth and current ratios,
restrictions on capital expenditures, positive cash flow at a
certain point in the fiscal year and prohibitions on payment of
cash dividends without the Bank's approval. The line is
collateralized by substantially all of the Company's assets
including inventory, accounts receivable and mailing lists as
well as a key person life insurance policy on the life of the
Company's majority shareowner. The Company was in compliance
with all covenants of the extended line of credit agreement as of
March 31, 1997.
5. DEBT
<TABLE>
<CAPTION>
Long term debt consists of the following on March 31 (in
thousands):
1997 1996
<S> <C> <C>
National Bank of the Redwoods term loan,
interest at prime plus .5%, payable
through June 30, 2021 $568
Small Business Administration term loan,
interest at 7.77%, payable through
September, 2016 596
National Bank of the Redwoods construction
loan, interest at prime plus 2%, paid
June 1996 387
Other 16 15
Total $1,180 $ 402
Short-term 37 387
Long- term 1,143 15
Total $1,180 $402
</TABLE>
Collateral for both term loans is a first deed of trust on the
Hopland, California property.
<TABLE>
<CAPTION>
Principal payments on long-term debt are as follows (in
thousands):
Fiscal Year ending March 31:
<C> <C>
1998 $37
1999 54
2000 39
2001 41
2002 42
Thereafter 966
Total $1,180
</TABLE>
6. DISPOSITION OF ASSETS
The Company plans to sell or close its retail store in Amherst,
Wisconsin during fiscal 1998, due to the failure of the store to
achieve the long term strategic objectives that the Company had
for the store. The Company does not anticipate that the sale or
closure of this store will result in a loss.
7. LEASES
The Company has operating leases for office, warehouse
facilities, the Eugene store and certain equipment, which expire
from 1997 through 2000. Rental expense for the years ended March
31, 1997 and 1996 was $158,000 and $264,000, respectively.
<TABLE>
<CAPTION>
Future minimum annual lease payments under operating leases are
as follows (in thousands):
Fiscal Year ending March 31:
<C> <C>
1998 $166
1999 43
2000 11
2001 5
Total $225
</TABLE>
8. INCOME TAXES
<TABLE>
<CAPTION>
Income tax expense (benefit) consists of the following for the
years ended March 31 (in thousands):
1997 1996
<S> <C> <C>
Current:
Federal $196 $ (40)
State 52 1
Total 248 (39)
Deferred (25) (31)
Total $ 223 $ (70)
</TABLE>
The provisions for income taxes for financial reporting purposes
are different from the tax provision computed by applying the
statutory federal income tax rate.
<TABLE>
<CAPTION>
The differences for each year are reconciled as follows (in
thousands):
1997 1996
<S> <C> <C>
Federal income taxes at statutory income
tax rate (34%) $ 199 $ (84)
State taxes net of federal tax benefit 33 (10)
Effect of nondeductible expenses 13 13
Other (22) 11
Provision $ 223 $(70)
</TABLE>
<TABLE>
<CAPTION>
The components of the net deferred tax liability at year-end are
as follows (in thousands):
1997 1996
<S> <C> <C>
Deferred tax assets:
Accrued reserves $ 23 $ 23
Stock option compensation 14 8
State income taxes 5 1
Other 24 -
Total deferred tax assets 66 32
Deferred tax liabilities:
Catalog costs (73) (63)
Other (6) (9)
Total deferred tax liabilities (79) (72)
Net deferred tax liability $ (13) $ (40)
</TABLE>
9. MAJORITY SHAREOWNER AGREEMENTS
The President and majority stockholder has a renewable one-year
employment agreement with the Company which provides for an
annual salary of $72,000. The President and majority shareowner
has personally guaranteed the Company's line of credit agreement.
(See Note 4.)
The Company has a split dollar life insurance agreement with its
President, whereby the Company pays the premiums. The Company
has been granted a security interest in the cash value and death
benefit of the policy, and stock has been pledged as additional
collateral during the period the premiums exceed the cash
surrender value. The amount receivable at March 31, 1997 was
$111,000.
10. SHAREOWNERS' EQUITY
In September 1995 the Board of Directors approved a stock
repurchase program. The Company is authorized to repurchase up
to $250,000 of common stock. As of March 31, 1997, the Company
had repurchased 9,184 shares at an average price of $5.34 per
share.
In July 1996 the Company repurchased 30,000 shares of
unregistered stock from its President and majority shareowner at
a below-market price of $3.33 per share.
11. BENEFIT PLANS AND STOCK OPTIONS
In August 1992, the Company adopted the Real Goods Trading
Corporation 401(k) Retirement Plan effective for the plan year
commencing on January 1, 1992. The Plan does not require
matching funds from the Company, and the Company has made no
contributions.
Under the Company's Second Amended and Restated Fiscal 1993 Stock
Incentive Plan (the "Plan") the Company can grant incentive and
non-qualified options to purchase 600,000 shares of common stock.
Incentive Stock Options can be granted at prices not less than
100% of the fair market value of the common shares (85% for
non-qualified options) on the date the option is granted, and
normally vest over a period not exceeding four years from the
date of grant. As of March 31, 1997, options to purchase 233,700
shares were outstanding, and 26,100 had been exercised.
On March 3, 1997, the Board of Directors granted to all optionees
under the Plan who surrendered their held options the same number
of options with the same vesting provisions but at an exercise
price which was both (i) five cents per share below the exercise
price of the old options and (ii) at or above the current fair
market value of the Company's stock on that date.
In June 1995 the Company reserved 50,000 shares of common stock
for its Non-Employee Directors' Stock Option Plan (Director's
Plan). In May 1996 the Company amended and restated the
Non-Employee Directors' Stock Option Plan and increased the plan
to 100,000 shares. As of March 31, 1997, options to purchase
35,000 shares were outstanding and none had been exercised.
Weighted
Number of Average
Shares Exercise
(in thousands) Price
Outstanding at March 31, 1995 325 $ 6.10
Granted 103 5.79
Exercised (18) 5.10
Cancelled (100) 8.38
Forfeited (79) 5.10
Outstanding at March 31, 1996 231 5.48
Granted 368 5.71
Exercised (1) 7.00
Forfeited (330) 5.43
Outstanding at March 31, 1997 268 $5.40
Shares exercisable at March 31, 1997 136 $5.12
Shares available for grant at March 31, 1997 405
Range of exercise prices $5.05 to $7.12
Weighted average remaining contractual
life at March 31, 1997 8 years
At March 31, 1997, 340,200 and 65,000 shares were available for
future grants under the Second Amended and Restated Stock
Incentive Plan and Directors' Plan respectively.
Additional Stock Plan Information
As discussed in Note 1, the Company continues to account for its
stock-based awards using the intrinsic value method in accordance
with Accounting Principles Board No.25, "Accounting for Stock
Issued to Employees" and its related interpretations.
Accordingly, no compensation expense has been recognized in the
financial statements for employee stock arrangements in fiscal
1997. In fiscal 1996, as some options had been previously granted
at an exercise price below market, an expense of $31,000 was
reflected in the financial statements.
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation", (SFAS 123) requires the disclosure
of pro forma net income and earnings per share had the Company
adopted the fair value method as of the beginning of fiscal 1996.
Under SFAS 123, the fair value of stock-based awards to employees
is calculated through the use of the option pricing models, even
though such models were developed to estimate the fair value of
freely tradeable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock
option awards. These models also require subjective assumptions,
including future stock price volatility and expected time to
exercise, which greatly affect the calculate values. The
Company's calculations were made using the Black-Scholes option
pricing model with the following weighted average assumptions:
Expected life, 60 months following investing; stock volatility,
26.18% in fiscal 1997 and fiscal 1996; risk free interest rate 6%
in fiscal 1997 and fiscal 1996; and no dividends during the
expected term. The Company's calculations are based on a
multiple option valuation approach and forfeitures are
calculated at 50% expected rate, based on the Company's
historical experience. If the computed fair values of the fiscal
1996 and fiscal 1997 awards had been amortized to expense over
the vesting period of the awards, pro forma net earnings would
have been $345,000 or $.10 per share in fiscal 1997, and net loss
would have been $183,000 or ($.05) per share in fiscal 1996.
However, the impact of outstanding non-vested stock options
granted prior to fiscal 1996 have been excluded from the pro
forma calculation; accordingly, the fiscal 1996 and fiscal 1997
pro forma adjustments are not indicative of future period pro
forma adjustments, when the calculation will apply to all
applicable stock options.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Information with respect to this Item is incorporated by
reference to the information set forth under the headings
"General Information Regarding Directors and Executive Officers,"
"Professional Experience of Executive Officers and Directors" and
"Reports Required by Section 16(a)" under the section entitled
"Board of Directors" in the Company's Proxy Statement for the
1997 Annual Meeting of Shareowners.
Item 10. EXECUTIVE COMPENSATION.
Information with respect to this Item is incorporated by
reference to the information set forth under the headings
"Remuneration of Directors," "Compensation of Executive Officers"
and "Employee Contracts, Employment Termination and Change
- -in-Control Arrangements" under the section entitled "Board
of Directors" in the Company's Proxy Statement for the 1997
Annual Meeting of Shareowners.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information with respect to this Item is incorporated by
reference to the information set forth in the section entitled
"Security Ownership of Certain Beneficial Owners and Management"
in the Company's Proxy Statement for the 1997 Annual Meeting of
Shareowners.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to this Item is incorporated by
reference to the information set forth under the heading "Certain
Relationships and Related Transactions" under the section
entitled " Board of Directors" in the Company's Proxy Statement
for the 1997 Annual Meeting of Shareowners.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Form 8-K filed dated April 25, 1996
Form 8-K filed dated May 21, 1996.
(b) See Index to Exhibits following Signature Page.
........................
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on this June 10th day of 1997.
REAL GOODS TRADING CORPORATION
(Registrant)
By:[S]DONNA MONTAG, CHIEF FINANCIAL OFFICER
Donna Montag, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant in the capacities and on the dates
indicated.
Signature Title Date
[S]DONNA MONTAG Chief Financial Officer May 20,1997
Donna Montag
[S]JOHN SCHAEFFER President/CEO May 20,1997
John Schaeffer
[S]STEPHEN MORRIS Director May 20,1997
Stephen Morris
[S]JAMES T. ROBELLO Director May 20,1997
James T. Robello
[S]LINDA FRANCIS Director May 20,1997
Linda Francis
[S]JOHN LENSER Director May 20,1997
John Lenser
[S]BARRY REDER Director May 20,1997
Barry Reder
</PAGE>
Item 13. INDEX TO EXHIBITS.
Exhibit No. Description
3.1* Articles of Incorporation
3.2* Bylaws
10.1* Form of Indemnification Agreement with Directors
10.2** Contract to Purchase Hopland Property
10.7** License Agreement, as amended, between Sierra Club and
Earth Care Paper Company, Inc.,
and consent letter from Sierra Club to the Company
10.9*** Lease of 1670 West 7th Avenue, Eugene, Oregon
10.10**** Lease on 555 Leslie Street, Ukiah, California
10.11**** Loan Agreement between the Company and National Bank of
the Redwoods dated April 4, 1995 and certain ancillary
documents
10.12**** Split Dollar Agreement by and among the Company and
John C. Schaeffer and the Trustee of the Schaeffer 1994
Irrevocable Trust dated May 15, 1995 and Assignment of
Life Insurance Policy as Collateral by Trustee of the
Schaeffer 1994 Irrevocable Trust
10.13**** Consulting Agreement with Stephen Morris
10.14**** Amended and Restated Real Goods Trading Corporation
Fiscal 1993 Stock Incentive Plan
10.15**** The Real Goods Trading Corporation Non-Employee
Directors' Stock Option Plan
10.16^ Loan Agreement between the Company and National Bank of
the Redwoods dated April 8, 1997 and certain ancillary
documents.
10.17^ Term Loan agreement between the Company and National
Bank of the Redwoods, dated June 24, 1996 and certain
ancillary documents.
10.18^ Term Loan agreement between the Company and Small
Business Administration, dated June 17, 1996 and certain
ancillary documents.
23.1^ Independent Auditors' Consent.
* Incorporated by reference to the Company's Registration
Statement of Form 10-KSB filed with the Securities and Exchange
Commission on October 1, 1993.
** Incorporated by reference to Amendment No. 1 to the
Company's Registration Statement on Form 10-KSB filed with the
Securities and Exchange Commission on December 21, 1993.
*** Incorporated by reference to the Company's Form 10-KSB
filed with the Securities and Exchange Commission on June 29,
1994.
**** Incorporated by reference to the Company's Form 10-KSB
filed with the Securities and Exchange Commission on June 28,
1995.
^ Incorporated by reference to the Company's Form 10-KSB
filed with the Securities and Exchange Commission on June 11,
1997.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 513
<SECURITIES> 0
<RECEIVABLES> 175
<ALLOWANCES> 6
<INVENTORY> 2112
<CURRENT-ASSETS> 3289
<PP&E> 3889
<DEPRECIATION> 542
<TOTAL-ASSETS> 6802
<CURRENT-LIABILITIES> 968
<BONDS> 0
0
0
<COMMON> 4252
<OTHER-SE> 439
<TOTAL-LIABILITY-AND-EQUITY> 6802
<SALES> 18424
<TOTAL-REVENUES> 18424
<CGS> 9625
<TOTAL-COSTS> 9625
<OTHER-EXPENSES> 8133
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80
<INCOME-PRETAX> 586
<INCOME-TAX> 223
<INCOME-CONTINUING> 363
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 363
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
BUSINESS LOAN AGREEMENT
Borrower: REAL GOODS TRADING CORPORATION
555 LESLIE ST
UKIAH, CA 95482
Lender: National Bank of the Redwoods
Ukiah Office
319 East Perkins
Ukiah, CA 95482
THIS BUSINESS LOAN AGREEMENT between REAL GOODS TRADING
CORPORATION ("Borrower") and National Bank of the Redwoods
("Lender") is made and executed on the following terms and
conditions. Borrower has received prior commercial loans from
Lender or has applied to Lender for a commercial loan or loans
and other financial accommodations, including those which may be
described on any exhibit or schedule attached to this Agreement.
All such loans and financial accommodations, together with all
future loans and financial accommodations from Lender to
Borrower, are referred to in this Agreement Individually as the
"Loan" and collectively as the "Loans". Borrower understands and
agrees that: (a) In granting, renewing, or extending any Loan,
Lender is relying upon Borrower's representations, warranties,
and agreements, as set forth In this Agreement; (b)the granting,
renewing, or extending of any Loan by Lender at all times shall
be subject to Lender's sole judgment and discretion; and (c) all
such Loans shall be and shall remain subject to the following
terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of April 8, 1997, and
shall continue thereafter until all Indebtedness of Borrower to
Lender has been performed in full and the parties terminate this
Agreement in writing.
DEFINITIONS. The following words shall have the following
meanings when used in this Agreement. Terms not otherwise defined
in this Agreement shall have the meanings attributed to such
terms in the Uniform Commercial Code. All references to dollar
amounts shall mean amounts in lawful money of the United States
of America.
Agreement. The word "Agreement" means this Business Loan
Agreement, as this Business Loan Agreement may be amended or
modified from time to time, together with all exhibits and
schedules attached to this Business Loan Agreement from time to
time.
Borrower. The word "Borrower" means REAL GOODS TRADING
CORPORATION. The word "Borrower" also includes, as applicable,
all subsidiaries and affiliates of Borrower as provided below in
the paragraph titled "Subsidiaries and Affiliates".
CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
Collateral. The word "Collateral" means and includes without
limitation all property and assets granted as collateral security
for a Loan, whether real or personal property, whether granted
directly or indirectly, whether granted now or in the future, and
whether granted in the form of a security interest, mortgage,
deed of trust, assignment, pledge, chattel mortgage, chattel
trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security
or lien interest whatsoever, whether created by law, contract, or
otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
Event of Default. The words "Event of Default" mean and include
without limitation any of the Events of Default set forth below
in the section titled "EVENTS OF DEFAULT."
Grantor. The word "Grantor" means and includes without limitation
each and all of the persons or entitles granting a Security
Interest in any Collateral tor the Indebtedness, including
without limitation all Borrowers granting such a Security
Interest.
Guarantor. The word "Guarantor" means and includes without
limitation each and all of the guarantors, sureties, and
accommodation parties in connection with any Indebtedness.
Indebtedness. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts
and liabilities of Borrower to Lender, or any one or more of
them, as well as all claims by Lender against Borrower, or any
one or more of them; whether now or hereafter existing, voluntary
or involuntary, due or not due, absolute or contingent,
liquidated or unliquidated; whether Borrower may be liable
individually or jointly with others; whether Borrower may be
obligated as a guarantor, surety, or otherwise; whether recovery
upon such Indebtedness may be or hereafter may become barred by
any statute of limitations; and whether such Indebtedness may be
or hereafter may become otherwise unenforceable.
Lender. The word "Lender" means National Bank of the Redwoods,
its successors and assigns.
Loan. The word "Loan" or "Loans" means and includes without
limitation any and all commercial loans and financial
accommodations from Lender to Borrower, whether now or hereafter
existing, and however evidenced, including without limitation
those loans and financial accommodations described herein or
described on any exhibit or schedule attached to this Agreement
from time to time.
Note. The word "Note" means and includes without limitation
Borrower's promissory note or notes, if any, evidencing
Borrower's Loan obligations in favor of Lender, as well as any
substitute, replacement or refinancing note or notes therefore.
Permitted Liens. The words "Permitted Liens" mean: (a) liens and
security interests securing Indebtedness owed by Borrower to
Lender; (b) liens for taxes, assessments, or similar charges
either not yet due or being contested in good faith; (c) liens of
materialmen, mechanics, warehousemen, or carriers, or other like
liens arising in the ordinary course of business and securing
obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any
property acquired or held by Borrower in the ordinary course of
business to secure indebtedness outstanding on the date of this
Agreement or permitted to be incurred under the paragraph of this
Agreement titled "Indebtedness and Liens"; (e) liens and security
interests which, as of the date of this Agreement, have been
disclosed to and approved by the Lender in writing; and (f) those
liens and security interests which in the aggregate constitute an
immaterial and insignificant monetary amount with respect to the
net value of Borrower's assets.
Related Document. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, and all other instruments,
agreements and documents. whether now or hereafter existing,
executed in connection with the Indebtedness.
Security Agreement. The words "Security Agreement" mean and
include without limitation any agreements, promises, covenants,
arrangements, understandings or other agreements, whether created
by law, contract, or otherwise, evidencing, governing,
representing, or creating a Security Interest.
Security Interest. The words "Security Interest" mean and include
without limitation any type of collateral security, whether in
the form of a lien, charge, mortgage, deed of trust, assignment,
pledge, chattel mortgage, chattel trust, factor's lien, equipment
trust, conditional sale, trust receipt, lien or title retention
contract. Lease or consignment intended as a security device, or
any other security or lien interest whatsoever, whether created
by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and
Reauthorization Act of 1986 as now or hereafter amended.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make
the initial Loan Advance and each subsequent Loan Advance under
this Agreement shall be subject to the fulfillment to Lender's
satisfaction of all of the conditions set forth in this Agreement
and in the Related Documents.
Loan Documents. Borrower shall provide to Lender in form
satisfactory to Lender the following documents for the Loan: (a)
the Note, (b) Security Agreements granting to Lender security
interests in the Collateral, (c) Financing Statements perfecting
Lender's Security Interests; (d) evidence of insurance as
required below; and (e) any other documents required under this
Agreement or by Lender or its counsel, including without
limitation any guaranties described below.
Borrower's Authorization. Borrower shall have provided in form
and substance satisfactory to Lender properly certified
resolutions, duly authorizing the execution and delivery of this
Agreement, the Note and the Related Documents, and such other
authorizations and other documents and instruments as Lender or
its counsel, in their sole discretion, may require. Payment of
Fees and Expenses. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as
specified in this Agreement or any Related Document.
Representations and Warranties. The representations and
warranties set forth in this Agreement, in the Related Documents,
and in any document or certificate delivered to Lender under this
Agreement are true and correct.
No Event of Default. There shall not exist at the time of any
advance a condition which would constitute an Event of Default
under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants
to Lender, as of the date of this Agreement, as of the date of
each disbursement of Loan proceeds, as of the date of any
renewal, extension or modification of any Loan, and at all times
any Indebtedness exists:
Organization. Borrower is a corporation which is duly organized,
validly existing, and in good standing under the laws of the
State of California and is validly existing and in good standing
in all states in which Borrower is doing business. Borrower has
the full power and authority to own its properties and to
transact the businesses in which it is presently engaged or
presently proposes to engage. Borrower also is duly qualified as
a foreign corporation and is in good standing in all states in
which the failure to so qualify would have a material adverse
effect on its businesses or financial condition.
Authorization. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to
be executed delivered or performed by Borrower, have been duly
authorized by all necessary action by Borrower, do not require
the consent or approval of any other person, regulatory authority
or governmental body; and do not conflict with, result in a
violation of, or constitute a default under (a) any provision of
its articles of incorporation or organization, or bylaws, or any
agreement or other instrument binding upon Borrower or (b) any
law, governmental regulation, court decree, or order applicable
to Borrower.
Financial Information. Each financial statement of Borrower
supplied to Lender truly and completely disclosed Borrower's
financial condition as of the date of the statement, and there
has been no material adverse change in Borrower's financial
condition subsequent to the date of the most recent financial
statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when
delivered will constitute, legal, valid and binding obligations
of Borrower enforceable against Borrower in accordance with their
respective terms.
Properties. Except as contemplated by this Agreement or as
previously disclosed in Borrower's financial statements or in
writing to Lender and as accepted by Lender, and except for
property tax liens for taxes not presently due and payable,
Borrower owns and has good title to all of Borrower's properties
free and clear of all Security Interests, and has not executed
any security documents or financing statements relating to such
properties. All of Borrowers properties are titled in borrower's
legal name, and Borrower has not used, or filed a financing
statement under, any other name for at least the last five (5)
years.
Hazardous Substances. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as
used in this Agreement, shall have the same meanings as set
forth in the "CERCLA," "SARA," the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq.,
Chapters 6.5 through 7.7 of Division 20 of the California Health
and Safety Code, Section 25100, et seq., or other applicable
state or Federal laws, rules, or regulations adopted pursuant to
any of the foregoing. Except as disclosed to and acknowledged by
Lender in writing, Borrower represents and warrants that: (a)
During the period of Borrower's ownership of the properties,
there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any
hazardous waste or substance by any person on, under, about or
from any of the properties. (b) Borrower has no knowledge of, or
reason to believe that there has been (i) any use, generation,
manufacture, storage, treatment, disposal, release, or threatened
release of any hazardous waste or substance on, under, about or
from the properties by any prior owners or occupants of any of
the properties, or (ii) any actual or threatened litigation or
claims of any kind by any person relating to such matters. (c)
Neither Borrower nor any tenant, contractor, agent or other
authorized user of any of the properties shall use, generate,
manufacture, store, treat, dispose of, or release any hazardous
waste or substance on, under, about or from any of the
properties; and any such activity shall be conducted in
compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation those
laws, regulations and ordinances described above. Borrower
authorizes Lender and its agents to enter upon the properties to
make such inspections and tests as Lender may deem appropriate to
determine compliance of the properties with this section of the
Agreement. Any inspections or tests made by Lender shall be at
Borrower's expense and for Lender's purposes only and shall not
be construed to create any responsibility or liability on the
part of Lender to Borrower or to any other person. The
representations and warranties contained herein are based on
Borrower's due diligence in investigating the properties for
hazardous waste and hazardous substances. Borrower hereby (a)
releases and waives any future claims against Lender for
indemnity or contribution in the event Borrower becomes liable
for cleanup or other costs under any such laws, and (b) agrees to
indemnify and hold harmless Lender against any and all claims,
losses, liabilities, damages, penalties, and expenses which
Lender may directly or indirectly sustain or suffer resulting
from a breach of this section of the Agreement or as a
consequence of any use, generation, manufacture, storage,
disposal, release or threatened release occurring prior to
Borrower's ownership or interest in the properties, whether or
not the same was or should have been known to Borrower. The
provisions of this section of the Agreement, including the
obligation to indemnify, shall survive the payment of the
indebtedness and the termination or expiration of this Agreement
and shall not be affected by Lenders acquisition of any interest
in any of the properties, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation,
administrative proceeding or similar action (including those for
unpaid taxes) against Borrower is pending or threatened, and no
other event has occurred which may materially adversely affect
Borrower's financial condition or properties, other than
litigation, claims, or other events, if any, that have been
disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrowers knowledge, all tax returns and
reports of Borrower that are or were required to be filed, have
been filed, and all taxes, assessments and other governmental
charges have been paid in full, except those presently being or
to be contested by Borrower in good faith in the ordinary course
of business and for which adequate reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security
Agreements, or permitted the filing or attachment of any Security
Interests on or affecting any of the Collateral directly or
indirectly securing repayment of Borrowers Loan and Note, that
would be prior or that may in any way be superior to Lenders
Security Interests and rights in and to such Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements
directly or indirectly securing repayment of Borrowers Loan and
Note and all of the Related Documents are binding upon Borrower
as well as upon Borrowers successors, representatives and
assigns, and are legally enforceable in accordance with their
respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds
solely for business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which
Borrower may have any liability complies in all material respects
with all applicable requirements of law and regulations, and (i)
no Reportable Event nor Prohibited Transaction (as defined in
ERISA) has occurred with respect to any such plan, (ii) Borrower
has not withdrawn from any such plan or initiated steps to do so,
(iii) no steps have been taken to terminate any such plan, and
(iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of
business, or Borrower's Chief executive office, if Borrower has
more than one place of business, is located at 555 LESLIE ST,
UKIAH, CA 95482. Unless Borrower has designated otherwise in
writing this location is also the office or offices where
Borrower keeps its records concerning the Collateral.
Information. All information heretofore or contemporaneously
herewith furnished by Borrower to Lender for the purposes of or
in connection with this Agreement or any transaction contemplated
hereby is, and all information hereafter furnished by or on
behalf of Borrower to Lender will be, true and accurate in every
material respect on the date as of which such information is
dated or certified; and none of such information is or will be
incomplete by omitting to state any material fact necessary to
make such information not misleading.
Survival of Representations and Warranties. Borrower understands
and agrees that Lender, without independent investigation, is
relying upon the above representations and warranties in
extending Loan.
Advances to Borrower. Borrower further agrees that the foregoing
representations and warranties shall be continuing in nature and
shall remain in full force and effect until such time as
Borrowers Indebtedness shall be paid in full, or until this
Agreement shall be terminated in the manner provided above,
whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender
that, while this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material
adverse changes in Borrowers financial condition, and (b) all
existing and all threatened litigation, claims, investigations,
administrative proceedings or similar actions affecting Borrower
or any Guarantor which could materially affect the financial
condition of Borrower or the financial condition of any
Guarantor.
Financial Records. Maintain its books and records in accordance
with generally accepted accounting principles, applied on a
consistent basis, and permit Lender to examine and audit
Borrowers books and records at all reasonable times.
Additional Information. Furnish such additional information and
statements, lists of assets and liabilities, agings of
receivables and payables, inventory schedules, budgets,
forecasts, tax returns, and other reports with respect to
Borrowers financial condition and business operations as Lender
may request from time to time.
Insurance. Maintain fire and other risk insurance, public
liability insurance, as Lender may require with respect to
Borrowers properties and operations, in form, amounts, coverages
and with insurance companies reasonably acceptable to Lender.
Borrower, upon request of Lender, will deliver to Lender from
time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will
not be cancelled or diminished without at least ten (10) days prior
written notice to Lender. Each insurance policy also shall include
an endorsement providing that coverage in favor of Lender will not
be impaired in any way by any act, omission or default of Borrower
or any other person. In connection with all policies covering assets
in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender,
reports on each existing insurance policy showing such
information as Lender may reasonably request, including without
limitation the following: (a) the name of the insurer; (b) the
risks insured; (c) the amount of the policy; (d) the properties
insured; (e) the then current property values on the basis of
which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In
addition, upon request of Lender (however not more often than
annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash
value or replacement cost of any Collateral. The cost of such
appraisal shall be paid by Borrower.
Guaranties. Prior to disbursement of any Loan proceeds, furnish
executed guarantees of the Loans in favor of Lender, executed by
the guarantor named below. on Lender s forms, and in the amount
and under the conditions spelled out in those guaranties.
Guarantor JOHN C. SCHAEFFER Amount $1,500,000
Other Agreements. Comply with all terms and conditions of all
other agreements, whether now or hereafter existing, between
Borrower and any other party and notify Lender immediately in
writing of any default in connection with any other such
agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrowers
business operations, unless specifically consented to the
contrary by Lender in writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments taxes, governmental charges. Levies and liens, of
every kind and nature, imposed upon Borrower or its properties,
income, or profits, prior to the date on which penalties would
attach, and all lawful claims that, if unpaid, might become a
lien or charge upon any of Borrowers properties, income, or
profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or
claim so long as (a) the legality of the same shall be contested
in good faith by appropriate proceedings, and (b) Borrower shall
have established on its books adequate reserves with respect to
such contested assessment, tax, charge, levy, lien, or claim in
accordance with generally accepted accounting practices.
Borrower, upon demand of Lender, will furnish to Lender evidence
of payment of the assessments, taxes, charges, levies liens and
claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any
assessments taxes, charges, levies, liens and claims against
Borrower properties, income, or profits.
Performance. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related
Documents in a timely manner, and promptly notify Lender if
Borrower learns of the occurrence of any event which constitutes
an Event of Default under this Agreement or under any of the
Related Documents.
Operations. Conduct its business affairs in a reasonable and
prudent manner and in compliance with all applicable federal,
state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations,
including without limitation, compliance with the Americans With
Disabilities Act and with all minimum funding standards and other
requirements of ERISA and other laws applicable to Borrower's
employee benefit plans.
Inspection. Permit employees or agents of Lender at any
reasonable time to inspect any and all Collateral for the Loan or
Loans and Borrower's other properties and to examine or audit
Borrower's books, accounts, and records and to make copies and
memoranda of Borrower's books, accounts, and records. If Borrower
now or at any time hereafter maintains any records (including
without limitation computer generated records and computer
software programs for the generation of such records) in the
possession of a third party, Borrower, upon request of Lender,
shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies
of any records it may request, all at Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender,
provide Lender at least annually and at the time of each
disbursement of Loan proceeds with a certificate executed by
Borrowers chief financial officer, or other officer or person
acceptable to Lender, certifying that the representations and
warranties set forth in this Agreement are true and correct as of
the date of the certificate and further certifying that, as of
the date of the certificate, no Event of Default exists under
this Agreement.
Environmental Compliance and Reports. Borrower shall comply in
all respects with all environmental protection federal, state and
local laws, statutes, regulations and ordinances, not cause or
permit to exist, as a result of an intentional or unintentional
action or omission on its part or on the part of any third party,
on property owned and/or occupied by Borrower, any environmental
activity where damage may result to the environment, unless such
environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state
or local governmental authorities, shall furnish to Lender
promptly and in any event within thirty (30) days after receipt
thereof a copy of any notice, summons, lien, citation, directive,
letter or other communication from any governmental agency or
instrumentality concerning any intentional or unintentional
action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the
environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements, instruments, documents and other agreements
as Lender or its attorneys may reasonably request to evidence and
secure the Loans and to perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender
that while this Agreement is in effect, Borrower shall not,
without the prior written consent of Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the
normal course of business and indebtedness to Lender contemplated
by this Agreement, create, incur or assume indebtedness for
borrowed money, including capital leases, (b) except as allowed
as a Permitted Lien, sell, transfer, mortgage, assign, pledge,
lease, grant a security interest in, or encumber any of
Borrower's assets, or (c) sell with recourse any of Borrower's
accounts, except to Lender.
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, (b) cease operations, liquidate, merge, transfer,
acquire or consolidate with any other entity, change ownership,
change its name, dissolve or transfer or sell Collateral out of
the ordinary course of business, (c) pay any dividends on
Borrowers stock (other than dividends payable in its stock),
provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or
would result from the payment of dividends, if Borrower is
a"Subchapter S Corporation" (as defined in the Internal Revenue
Code of 1986, as amended), Borrower may pay cash dividends on its
stock to its shareholders from time to time in amounts necessary
to enable the shareholders to pay income taxes and make estimated
income tax payments to satisfy their liabilities under federal
and state law which arise solely from their status as
Shareholders of a Subchapter S Corporation because of their
ownership of shares of stock of Borrower, or (d) purchase or
retire any of Borrower's outstanding shares or alter or amend
Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or
advance money or assets, (b) purchase, create or acquire any
interest in any other enterprise or entity, or (c) incur any
obligation as surety or guarantor other than in the ordinary
course of business. Borrower does not require prior written
consent from bank for these transactions which are less than
$25,000.
CESSATION OF ADVANCES. If Lender has made any commitment to make
any Loan to Borrower, whether under this Agreement or under any
other agreement, Lender shall have no obligation to make Loan
Advances or to disburse Loan proceeds if: (a) Borrower or any
Guarantor is in default under the terms of this Agreement or any
of the Related Documents or any other agreement that Borrower or
any Guarantor has with Lender; (b) Borrower or any Guarantor
becomes insolvent, files a petition in bankruptcy or similar
proceedings, or is adjudged a bankrupt; (c) there occurs a
material adverse change in Borrower's financial condition, in the
financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; or (d) any Guarantor seeks, claims
or otherwise attempts to limit, modify or revoke such Guarantor's
guaranty of the Loan or any other loan with Lender.
EXHIBIT "A" - COVENANTS. An exhibit, titled "EXHIBIT "A" -
Covenants," is attached to this Agreement and by this reference
is made a part of this Agreement just as if all the provisions,
terms and conditions of the Exhibit had been fully set forth in
this Agreement.
RIGHT OF SETOFF. Borrower grants to Lender a contractual
possessory security interest in, and hereby assigns, conveys,
delivers, pledges, and transfers to Lender all Borrower's right,
title and interest in and to, Borrowers accounts with Lender
(whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else
and all accounts Borrower may open in the future, excluding
however all IRA and accounts, and all trust accounts for which
the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable
law, to charge or setoff all sums owing on the Indebtedness
against any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an
Event of Default under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment
when due on the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with
or to perform when due any other term, obligation, covenant or
condition contained in this Agreement or in any of the Related
Documents, or failure of Borrower to comply with or to perform
any other term, obligation, covenant or condition contained in
any other agreement between Lender and Borrower.
Default In Favor of Third Parties. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of
any other creditor or person that may materially affect any of
Borrower's property or Borrower's or any Grantor's ability to
repay the Loans or perform their respective obligations under
this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made
or furnished to Lender by or on behalf of Borrower or any Grantor
under this Agreement or the Related Documents is false or
misleading in any material respect at the time made or furnished,
or becomes false or misleading at any time thereafter.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including
failure of any Security Agreement to create a valid and perfected
Security Interest) at any time and for any reason.
Insolvency. The dissolution or termination of Borrower's
existence as a going business, the insolvency of Borrower, the
appointment of a receiver for any part of Borrower's property,
any assignment for the benefit of creditors, any type of creditor
workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure
or forfeiture proceedings whether by judicial proceeding
self-help repossession or any other method by any creditor of
Borrower any creditor of any Grantor against any collateral
securing the Indebtedness, or by any governmental agency. This
includes a garnishment attachment or levy on or of any of
Borrowers deposit accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs
with respect to any Guarantor of any of the Indebtedness or any
Guarantor dies or becomes incompetent or revokes or disputes the
validity of or liability under any Guaranty of the Indebtedness.
Change In Ownership. Any change in ownership of twenty-five
percent (25%) or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's
financial condition or Lender believes the prospect of payment or
performance of the indebtedness is impaired.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall
occur except where otherwise provided in this Agreement or the
Related Documents all commitments and obligations of Lender under
this Agreement or the Related Documents or any other agreement
immediately will terminate (including any obligation to make Loan
Advances or disbursements) and at Lenders option all indebtedness
immediately will become due and payable all without notice of any
kind to Borrower except that in the case of an Event of Default
of the type described in the insolvency subsection above such
acceleration shall be automatic and not optional in addition
Lender shall have all the rights and remedies provided in the
Related Documents or available at law in equity or otherwise.
Except as may be prohibited by applicable law all of Lender's
rights and remedies shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any
remedy shall not exclude pursuit of any other remedy and an
election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender
s right to declare a default and to exercise its rights and
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions
are a part of this Agreement:
Amendments. This Agreement together with any Related Documents
constitutes the entire understanding and agreement of the parties
as to the matters set forth in this Agreement. No alteration of
or amendment to this Agreement shall be effective unless given in
writing and signed by the party or duties sought to be changed or
bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and
accepted by Lender In the State of California. If there is a
lawsuit Borrower agrees upon Lender's request to submit to the
jurisdiction of the courts of Mendocino County the State of
California. This Agreement shall be governed by and construed In
accordance with the laws of the State of California.
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Agreement. Multiple Parties;
Corporate Authority. All obligations of Borrower under this
Agreement shall be joint and several and all references to
Borrower shall mean each and every Bonower. This means that each
of the persons signing below is responsible for all obligations
in this Agreement.
Consent to Loan Participation. Borrower agrees and consents to
Lenders sale or transfer whether now or later of one or more
participation interests in the Loans to one or more purchasers
whether related or unrelated to Lender. Lender may provide
without any limitation whatsoever to any one or more purchasers
or potential purchasers any information or knowledge Lender may
have about Borrower or about any other matter relating to the
Loan and Borrower hereby waives any rights to privacy it may have
with respect to such matters. Borrower additionally waives any
and all notices of sale of participation interests as well as
all notices of any repurchase of such participation interests.
Borrower also agrees that the purchasers of any such
participation interests will be considered as the absolute owners
of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing
the sale of such participation interests. Borrower further waives
all rights of offset or counterclaim that it may have now or
later against Lender or against any purchaser of such a
participation interest and unconditionally agrees that either
Lender or such purchaser may enforce Borrowers obligation under
the Loans irrespective of the failure or insolvency of any holder
of any interest in the Loans. Borrower further agrees that the
purchaser of any such participation interest may enforce its
interests irrespective of any personal Claims or defenses that
Borrower may have against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of
Lenders reasonable expenses, including without limitation
attorney's fees, incurred in connection with the preparation,
execution, enforcement, modification and collection of this
Agreement or in connection with the Loans made pursuant to this
Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount.
This includes, subject to any limits under applicable law, Lenders
attorneys fees and Lenders legal expenses, whether or not there
is a lawsuit, including attorney's fees for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment
collection services. Borrower also will pay any court costs, in
addition to all other sums provided by law.
Notices. All notices required to be given under this Agreement
shall be given in writing, may be sent by, and shall be
effective when actually delivered or when deposited with a
nationally recognized overnight courier or deposited in the
United States mail, first class, postage prepaid, addressed to
the party to whom the notice is to be given at the address shown
above. Any party may change its address for notices under this
Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the
party's address. To the extent permitted by applicable law, if
there is more than one Borrower, notice to any Borrower will
constitute notice to all Borrowers. For notice purposes, Borrower
will keep Lender informed at all times of Borrower's current
address(es).
Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to
any person or circumstance, such finding shall not render that
provision invalid or unenforceable as to any other persons or
circumstances. if feasible, any such offending provision shall be
deemed to be modified to be within the limits of enforceability
or validity; however, if the offending provision cannot be so
modified it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and
enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the
context of any provisions of this Agreement makes it appropriate,
including without limitation any representation, warranty or
covenant, the word Borrower as used herein shall include all
subsidiaries and affiliates of Borrower. Notwithstanding the
foregoing however, under no circumstances shall this Agreement be
construed to require Lender to make any Loan or other financial
accommodation to any subsidiary or affiliate of Borrower.
Successors and Assigns. All covenants and agreements contained by
or on behalf of Borrower shall bind its successors and assigns
and shall inure to the benefit of Lender, its successors and
assigns. Borrower shall not, however, have the right to assign
its rights under this Agreement or any interest therein, without
the prior written consent of Lender.
Survival. All warranties, representations, and covenants made by
Borrower in this Agreement or in any certificate or other
instrument delivered by Borrower to Lender under this Agreement
shall be considered to have been relied upon by Lender and will
survive the making of the Loan and delivery to Lender of the
Related Documents, regardless of any investigation made by Lender
or on Lender s behalf.
Time Is of the Essence. Time is of the essence in the performance
of this Agreement.
Waiver. Lender shall not be deemed to have waived any rights
under this Agreement unless such waiver is given in writing and
signed by Lender. No delay or omission on the part of Lender in
exercising any right shall operate as a waiver of such right or
any other right. A waiver by Lender of a provision of this
Agreement shall not prejudice or constitute a waiver of Lender s
right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Borrower, or
between Lender and any Grantor, shall constitute a waiver of any
of Lender's rights or of any obligations of Borrower or of any
Grantor as to any future transactions. Whenever the consent of
Lender is required under this Agreement, the granting of such
consent by Lender in any instance shall not constitute continuing
consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
BUSINESS LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS
AGREEMENT IS DATED AS OF APRIL 8, 1997.
BORROWER: REAL GOODS TRADING CORPORATION
BY: [S]JOHN C. SCHAEFFER
LENDER: National Bank of the Redwoods
[S]JOHN HORNE
BY: Authorized Officer
<PAGE>
EXHIBIT "A" - COVENANTS
References in the shaded area are for Lender's use only and do
not limit the applicability of this document to any particular
loan or item.
Borrower: REAL GOODS TRADING CORPORATION
555 LESLIE ST
UKIAH, CA 95482
Lender: National Bank of the Redwoods
Ukiah Office
319 East Perkins
Ukiah, CA 95482
This EXHIBIT "A" - Covenants is attached to and by this reference
is made a part of each Business Loan Agreement or Negative Pledge
Agreement, dated April 8, 1997, and executed in connection with a
Loan or other financial accommodations between National Bank of
the Redwoods and REAL GOODS TRADING CORPORATION.
BORROWER AGREES TO PROVIDE:
Monthly Inventory Valuation Reports due within 20 days of month
end. Quarterly 10Q Corporate Financial Statements due within
45 days of quarter end.
Annual CPA audited FYE Corporate Financial Statements due within
90 days of 3-31.
Copy of annual Corporate Tax Return starting with tax return for
3-31-97 due 9-30-97.
Annual Personal Financial Statement for John C. Schaeffer.
Copy of annual Personal Tax Return or Extension for John C.
Schaeffer starting with 1996.
BORROWER AGREES THAT:
Current Ratio must be at least 1.25:1.
Total Tangible Debt to net worth ratio not to exceed 1 1, as
measured quarterly.
Positive cash flow after operations is required for the 4
consecutive calendar quarters ending 12/31, as determined
from the 10Q reports. The basis for this calculation is attached
on Exhibit "B", to be completed and signed by Borrower and
submitted to Bank.
BORROWING BASE:
Maximum advance rate on line not to exceed the lesser of
$1,500,000.00 or 50% of the value of inventory located in
California.
Line to be clear 30 consecutive days after December 31.
Bank reserves the right to conduct inventory exams at the
Borrower's expense.
National Bank of the Redwoods will be major depository bank
during term of line.
Liability Insurance coverage must be maintained during term of
loan. Evidence must be furnished to National Bank of the
Redwoods.
Evidence of insurance coverage for Equipment and Inventory is
required and must be maintained during term of loan. National
Bank of the Redwoods to be name Lender's Loss Payee.
Life insurance policy to be maintained in a minimum amount
of $1,000,000.00.
LETTER OF CREDIT SUBLIMIT:
As a sublimit under the Line of Credit, Bank agrees from time to
time to issue sight import letters of credit for the account of
Borrower to support purchases and catalog expenses (each, a
"Letter of Credit" and collectively, "Letters of Credit');
provided however, that the form and substance of each Letter of
Credit shall be subject to approval by Bank, in its sole
discretion; and provided further, that the aggregate undrawn
amount of all outstanding Letters of Credit shall not at any time
exceed THREE HUNDRED THOUSAND DOLLARS ($300,000.00). Each Letter
of Credit shall not have an expiration date subsequent to April
4, 1998. The undrawn amount of all Letters of Credit shall be
reserved under the line of Credit and shall not be available for
advances thereunder. Each Letter of Credit shall be subject to
the additional terms and conditions of the Letter of Credit
Agreement and related documents, if any, required by Bank in
connection with the issuance thereof (each, a "Letter of Credit
Agreement" and collectively, "Letter of Credit Agreements"). Each
draft paid by Bank under a Letter of Credit shall be deemed
advance under the Line of Credit and shall be repaid by Borrower
in accordance with the terms and conditions of this Agreement
applicable to such advances; provided however, that if the Line
of Credit is not available, for any reason whatsoever, at the
time any draft is paid by Bank, or if advances are not available
under the Line of Credit at such time due to any limitation on
Borrowings set forth herein, then the full amount of such draft
shall be immediately due and payable, together with interest
thereon, from the date such amount is paid by Bank to the date
such amount is fully repaid by Borrower, at the rate of interest
applicable to advances under the Line of Credit. In such event,
Borrower agrees that Bank, at Bank's sole discretion, may debit
Borrower's deposit account with Bank for the amount of any such
draft.
THIS EXHIBIT "A" - COVENANTS IS EXECUTED ON APRIL 8, 1997.
LENDER:[S]JOHN C. SCHAEFFER
National Bank of the Redwoods
BY:[S]JOHN HORNE
Authorized Officer
<PAGE>
PROMISSORY NOTE
Borrower: REAL GOODS TRADING CORPORATION
555 LESLIE ST
UKIAH, CA 95482
Lender: National Bank of the Redwoods
Ukiah Office
319 East Perkins Street
Ukiah, CA 95482
PRINCIPAL AMOUNT: $1,500,000.00 INITIAL RATE: 9.500%
DATE OF NOTE: April 8, 1997
PROMISE TO PAY. REAL GOODS TRADING CORPORATION ("Borrower")
promises to pay to National Bank of the Redwoods ("Lender"), or
order, in lawful money of the United States of America, the
principal amount of One Million Five Hundred Thousand & 00/100
Dollars ($1,500,000.00) or so much as may be outstanding,
together with interest on the unpaid outstanding principal
balance of each advance. Interest shall be calculated from the
date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all
outstanding principal plus all accrued unpaid interest on April
4, 1998. In addition, Borrower will pay regular monthly payments
of accrued unpaid Interest beginning May 4, 1997, and all
subsequent Interest payments are due on the same day of each
month after that. Interest on this Note is computed on a 365/365
simple interest basis; that is, by applying the ratio of the
annual interest rate over the number of days in a year,
multiplied by the outstanding principal balance, multiplied by
the actual number of days the principal balance is outstanding.
Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be
applied first to accrued unpaid interest, then to principal,
and any remaining amount to any unpaid collection costs and late
charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject
to change from time to time based on changes in an independent
index which is the The West Coast Edition Of The Wall Street
Journal Prime Rate (the "Index"). The Index is not necessarily
the lowest rate charged by Lender on its loans. If the index
becomes unavailable during the term of this loan, Lender may
designate a substitute index after notice to Borrower. Lender
will tell Borrower the current index rate upon Borrower's
request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more
often than each day the prime rate changes. The index currently
Is 8.500% per annum. The interest rate to be paid to the unpaid
principal balance of this Note will be at a rate of 1.000
percentage point over the index, resulting in an initial rate of
9.500% per annum. NOTICE: Under no circumstances will the
interest rate on this Note be more than the maximum rate allowed
by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid
finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether
voluntary or as a result of default), except as otherwise
required by law. Except for the foregoing, Borrower may pay
without penalty all or a portion of the amount owed earlier than
it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to
make payments of accrued unpaid interest. Rather, they will
reduce the principal balance due.
LATE CHARGE. If a payment is 11 days or more late, Borrower will
be charged 5.000% of the regularly scheduled payment or $75.00,
whichever is less.
DEFAULT. Borrower will be in default if any of the following
happens: (a) Borrower fails to make any payment when due. (b)
Borrower breaks any promise Borrower has made to Lender, or
Borrower fails to comply with or to perform when due any other
term, obligation, covenant, or condition contained in this Note
or any agreement related to this Note, or in any other agreement or
loan Borrower has with Lender. (c) Borrower defaults under any
loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor
or person that may materially affect any of Borrower's property
or Borrower's ability to repay this Note or perform Borrower's
obligations under this Note or any of the Related Documents. (d)
Any representation or statement made or furnished to Lender by
Borrower or on Borrower's behalf is false or misleading in any
material respect either now or at the time made or furnished. (e)
Borrower becomes insolvent, a receiver is appointed for any part
of Borrower's property, Borrower makes an assignment for the benefit
of creditors, or any proceeding is commenced either by Borrower
or against Borrower under any bankruptcy or insolvency laws. (f) Any
creditor tries to take any of Borrower's property on or in which
Lender has a lien or security interest. This includes a
garnishment of any of Borrower's accounts with Lender.
(g) Any guarantor dies or any of the other events described in
this default section occurs with respect to any guarantor of this
Note. (h) A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance
of the Indebtedness is impaired.
LENDER'S RIGHTS. Upon default, Lender may declare the entire
unpaid principal balance on this Note and all accrued unpaid
interest immediately due, without notice, and then Borrower will
pay that amount. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will
pay Lender that amount. This includes, subject to any limits under
applicable law, Lender's attorneys' fees and Lender's legal
expenses whether or not there is a lawsuit, including attorneys'
fees and legal expenses for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services.
Borrower also will pay any court costs, in addition to all other
sums provided by law. This Note has been delivered to Lender and
accepted by Lender in the State of California. If there is
lawsuit, Borrower agrees upon Lender's request to submit to the
jurisdiction of the courts of MENDOCINO County, the State of
California. This Note shall be governed by and construed in
accordance with the laws of the State of California.
RIGHT OF SETOFF. Borrower grants to Lender a contractual
possessory security interest in, and hereby assigns, conveys,
delivers, pledges, and transfers to Lender all Borrower's right,
title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else
and all accounts Borrower may open in the future, excluding
however all IRA and Keogh accounts, and all trust accounts for
which the grant of a security interest would be prohibited by
law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note
against any and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit.
Advances under this Note, as well as directions for payment from
Borrower's accounts, may be requested orally or in writing by
or as provided in this paragraph. Lender may, but need not,
require that all oral requests be confirmed in writing. The
following party or parties are authorized as provided in this
paragraph to request advances under the line of credit until
Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: JOHN SCHAEFFER,
PRESIDENT; and DONNA MONTAG, CFO. ANYONE OF THESE PARTIES IS
AUTHORIZED TO REQUEST ADVANCES. Borrower agrees to be liable for
all sums either: (a) advanced in accordance with the instructions
of an authorized person or (b) credited to any of Borrower's
accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or
by Lender's internal records, including daily computer print-outs.
Lender will have no obligation to advance funds under this Note if:
(a) Borrower or any guarantor is in default under the terms of this
Note or any agreement that Borrower or any guarantor has with
Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing
business or is insolvent; (c) any guarantor seeks, claims or
otherwise attempts to limit, modify or revoke such guarantor's
guarantee of this Note or any other loan with Lender; or (d)
Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender.
DEFAULT INTEREST RATE-18.00% PER YEAR. Notwithstanding any other
provisions of this note, Borrower acknowledges that in the event
of 04-08-1997 default, the interest rate applied to this
indebtedness will be increased to 18.00%. Borrower will be
notified in writing, with a copy to all guarantors, that an event
of default has occurred and that failure to cure the default will
result in the application of the default interest rate as of a
certain date. That date will be at least seven (7) calendar days
from the date of notification to the Borrower.
LETTER OF CREDIT SUBLIMIT. This line of credit has a sublimit of
$300,000.00 for the issuance of sight import letters of credit as
more fully described in the Business Loan Agreement.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of
its rights or remedies under this Note without losing them.
Borrower and any other person who signs, guarantees or endorses
this Note, to the extent allowed by law, waive any applicable
statute of limitations, presentment, demand for payment, protest
and notice of dishonor. Upon any change in the terms of this
Note, and unless otherwise expressly stated in writing, no party
who signs this Note, whether as maker, guarantor, accommodation
maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and
for any length of time) this loan, or release any party or
guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take
any other action deemed necessary by Lender without the consent
of or notice to anyone. All such parties also agree that Lender
may modify this loan without the consent of or notice to anyone
other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE
PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND
ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER: REAL GOODS TRADING CORPORATION
BY:[S]JOHN C. SCHAEFFER
John C. Schaeffer, President
LENDER: National Bank of the Redwoods
BY:[S]JOHN HORNE
Authorized Officer
<PAGE>
COMMERCIAL SECURITY AGREEMENT
Borrower: REAL GOODS TRADING CORPORATION
555 LESLIE ST
UKIAH, CA 95482
Lender: National Bank of the Redwoods
Ukiah Office
319 East Perkins
Ukiah. CA 95482
THIS COMMERCIAL SECURITY AGREEMENT is entered into between REAL
GOODS TRADING CORPORATION (referred to below as "Grantor"), and
National Bank of the Redwoods (referred to below as "Lender").
For valuable consideration, Grantor grants to Lender a security
Interest In the Collateral to secure the Indebtedness and agrees
that Lender shall have the rights stated in this Agreement with
respect to the Collateral, in addition to all other rights which
Lender may have by law.
DEFINITIONS. The following words shall have the following
meanings when used in this Agreement. Terms not otherwise defined
in this Agreement shall have the meanings attributed to such
terms in the Uniform Commercial Code. All references to dollar
amounts shall mean amounts in lawful money of the United States
of America.
Agreement The word "Agreement" means this Commercial
Security Agreement, as this Commercial Security Agreement may be
amended or modified from time to time, together with all exhibits
and schedules attached to this Commercial Security Agreement from
time to time.
Collateral. The word "Collateral" means the following
described properly of Grantor, whether now owned or hereafter
acquired, whether now existing or hereafter arising, and wherever
located:
All Inventory, chattel paper, accounts, equipment, general
intangibles and fixtures, together with the following
specifically described property: Furniture and Mailing List.
In addition, the word "Collateral" includes all the following,
whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
(a) All attachments, accessions, accessories, tools, parts,
supplies, increases, and additions to and all replacements of and
substitutions for any property described above.
(b) All products and produce of any of the property
described in this Collateral section.
(c) All accounts, general intangibles, instruments,
rents, monies, payments, and all other rights, arising out of a
sale, lease, or other disposition of any of the properly
described in this Collateral section.
(d) All proceeds (including insurance proceeds) from the
sale, destruction, loss, or other disposition of any of the
properly described in this Collateral section.
(e) All records and data relating to any of the properly
described in this Collateral section, whether in the form of a
writing, photograph, microfilm, microfiche, or electronic media,
together with all of Grantor's right, title, and interest in and
to all computer software required to utilize, create, maintain,
and process any such records or data on electronic media.
Fixtures are and will be located on the following described real
estate:
PROPERTY LOCATED AT 200 CLARA AVENUE, UKIAH, CALIFORNIA 95482,
MENDOCINO COUNTY; PARCEL NUMBERS' 002-124-10 AND 002-125-02.
HAROLD MADDEN AND BARBARA MADDEN ARE THE RECORD OWNERS OF THE
REAL PROPERTY DESCRIBED ON WHICH THE COLLATERAL IS LOCATED; AND
555 LESLIE ST, UKIAH, CA 95482, MENDOCINO COUNTY, APN#[S] JOHN C.
SCHAEFFER IS THE RECORD OWNER OF THE REAL PROPERTY DESCRIBED ON
WHICH THE COLLATERAL IS LOCATED.
Event of Default. The words "Event of Default" mean and
include without limitation any of the Events of Default set forth
below in the section titled "Events of Default.
Grantor. The word "Grantor" means REAL GOODS TRADING
CORPORATION, its successors and assigns.
Guarantor. The word "Guarantor" means and includes without
limitation each and all of the guarantors, sureties, and
accommodation parties in connection with the Indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness
evidenced by the Note, including all principal and interest,
together with all other indebtedness and costs and expenses for
which Grantor is responsible under this Agreement or under any of
the Related Documents.
Lender. The word "Lender" means National Bank of the
Redwoods, its successors and assigns.
Note. The word "Note" means the note or credit agreement
dated April 8, 1997, in the principal amount of $1,500,000.00
from REAL GOODS TRADING CORPORATION to Lender, together with all
renewals of, extensions of, modifications of, refinancings of,
consolidations of and substitutions for the note or credit
agreement.
Related Documents. The words "Related Documents" mean and
include without limitation all promissory notes, credit
agreements, loan agreements, environmental agreements,
guaranties, security agreements, mortgages, deeds of trust,
and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the
Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual
possessory security interest in and hereby assigns, conveys,
delivers, pledges, and transfers all of Grantor's right, title
and interest in and to Grantor's accounts with Lender (whether
checking, savings, or some other account), including all accounts
held jointly with someone else and all accounts Grantor may open
in the future, excluding, however, all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest
would be prohibited by law. Grantor authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all
Indebtedness against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender
as follows:
Perfection of Security Interest Grantor agrees to execute
such financing statements and to take whatever other actions are
requested by Lender to perfect and continue Lender's security
interest in the Collateral. Upon request of Lender, Grantor will
deliver to Lender any and all of the documents evidencing or
constituting the Collateral, and Grantor will note Lender's
interest upon any and all chattel paper if not delivered to
Lender for possession by Lender Grantor hereby appoints Lender as
its irrevocable attorney-in-fact for the purpose of executing any
documents necessary to perfect or to continue the security
interest granted in this Agreement. Lender may at any time, and
without further authorization from Grantor, file a carbon,
photographic or other reproduction of any financing statement or
of this Agreement for use as a financing statement. Grantor will
reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in
the Collateral. Grantor promptly will notify Lender before any
change in Grantor's name including any change to the assumed
business names of Grantor. This is a continuing Security
Agreement and will continue in effect even though all or any part
of the Indebtedness is paid in full and even though for a period
of time Grantor may not be Indebted to Lender.
No Violation. The execution and delivery of this Agreement
will not violate any law or agreement governing Grantor or to
which Grantor is a party, and its certificate or articles of
incorporation and bylaws do not prohibit any term or condition of
this Agreement.
Enforceability of Collateral. To the extent the Collateral
consists of accounts, chattel paper, or general intangibles, the
Collateral is enforceable in accordance with its terms, is
genuine, and complies with applicable laws concerning form,
content and manner of preparation and execution, and all persons
appearing to be obligated on the Collateral have authority and
capacity to contract and are in fact obligated as they appear to
be on the Collateral. At the time any account becomes subject to
a security interest in favor of Lender, the account shall be a
good and valid account representing an undisputed, bona fide
indebtedness incurred by the account debtor, for merchandise held
subject to delivery instructions or theretofore shipped or
delivered pursuant to a contract of sale, or for services
theretofore performed by Grantor with or for the account debtor,
there shall be no setoffs or counterclaims against any such
account; and no agreement under which any deductions or discounts
may be claimed shall have been made with the account debtor
except those disclosed to Lender in writing.
Location of the Collateral. Grantor, upon request of Lender,
will deliver to Lender in form satisfactory to Lender a schedule
of real properties and Collateral locations relating to Grantor's
operations, including without limitation the following: (a) all
real property owned or being purchased by Grantor; (b) all real
property being rented or leased by Grantor; (c) all storage
facilities owned, rented, leased, or being used by Grantor; and
(d) all other properties where Collateral is or may be located.
Except in the ordinary course of its business, Grantor shall not
remove the Collateral from its existing locations without the
prior written consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or
to the extent the Collateral consists of intangible property such
as accounts, the records concerning the Collateral) at Grantor's
address shown above, or at such other locations as are acceptable
to Lender. Some or all of the Collateral may be located at the
real property described above. Except in the ordinary course of
its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the
prior written consent of Lender. To the extent that the
Collateral consists of vehicles, or other titled property,
Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside
the State of California, without the prior written consent of
Lender.
Transactions Involving Collateral. Except for inventory sold
or accounts collected in the ordinary course of Grantor's
business, Grantor shall not sell, offer to sell, or otherwise
transfer or dispose of the Collateral. While Grantor is not in
default under this Agreement, Grantor may sell inventory, but
only in the ordinary course of its business and only to buyers
who qualify as a buyer in the ordinary course of business. A sale
in the ordinary course of Grantor's business does not include a
transfer in partial or total satisfaction of a debt or any bulk
sale. Grantor shall not pledge, mortgage, encumber or otherwise
permit the Collateral to be subject to any lien, security
interest, encumbrance, or charge, other than the security
interest provided for in this Agreement, without the prior
written consent of Lender. This includes security interests even
if junior in right to the security interests granted under this
Agreement.
Unless waived by Lender, all proceeds from any disposition
of the Collateral (for whatever reason) shall be held in trust
for Lender and shall not be commingled with any other funds;
provided however, this requirement shall not constitute consent
by Lender to any sale or other disposition. Upon receipt, Grantor
shall immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that it
holds good and marketable title to the Collateral, free and clear
of all liens and encumbrances except for the lien of this
Agreement. No financing statement covering any of the Collateral
is on file in any public office other than those which reflect
the security interest created by this Agreement or to which
Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all
other persons.
Collateral Schedules and Locations. As often as Lender shall
require, and insofar as the Collateral consists of accounts and
general intangibles, Grantor shall deliver to Lender schedules of
such Collateral, including such information as Lender may require
including without limitation names and addresses of account
debtors and agings of accounts and general intangibles. Insofar
as the Collateral consists of inventory and equipment, Grantor
shall deliver to Lender, as often as Lender shall require, such
lists, descriptions, and designations of such Collateral as
Lender may require to identify the nature, extent, and location
of such Collateral. Such information shall be submitted for
Grantor and each of its subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor shall
maintain all tangible Collateral in good condition and repair.
Grantor will not commit or permit damage to or destruction of the
Collateral or any part of the Collateral. Lender and its
designated representatives and agents shall have the right at all
reasonable times to examine, inspect, and audit the Collateral
wherever located. Grantor shall immediately notify Lender of all
cases involving the return, rejection, repossession, loss
or damage of or to any Collateral; of any request for credit or
adjustment or of any other dispute arising with respect to the
Collateral; and generally of all happenings and events affecting
the Collateral or the value or the amount of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all
taxes, assessments and liens upon the Collateral, its use or
operation, upon this Agreement, upon any promissory note or notes
evidencing the Indebtedness, or upon any of the other Related
Documents. Grantor may withhold any such payment or may elect to
contest any lien if Grantor is in good faith conducting an
appropriate proceeding to contest the obligation to pay and so
long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien
which is not discharged within fifteen (15) days, Grantor shall
deposit with Lender cash, a sufficient corporate surety bond or
other security satisfactory to Lender in an amount adequate to
provide for the discharge of the lien plus any interest, costs,
attorneys' fees or other charges that could accrue as a result of
foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final
adverse judgment before enforcement against the Collateral.
Grantor shall name Lender as an additional obligee under any
surety bond furnished in the contest proceedings.
Compliance With Governmental Requirements. Grantor shall
comply promptly with all laws, ordinances, rules and
regulations of all governmental authorities, now or hereafter in
effect, applicable to the ownership, production, disposition, or
use of the Collateral. Grantor may contest in good faith any such
law, ordinance or regulation and withhold compliance during any
proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not
jeopardized.
Hazardous Substances. Grantor represents and warrants that
the Collateral never has been, and never will be so long as this
Agreement remains a lien on the Collateral, used for the
generation, manufacture, storage, transportation, treatment,
disposal, release or threatened release of any hazardous waste or
substance, as those terms are defined in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980,
as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, Pub. L. No.
99-499 ("SARA"), the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801, et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5
through 7.7 of Division 20 of the California Health and Safety
Code, Section 25100, et seq., or other applicable state or
Federal laws, rules, or regulations adopted pursuant to any of
the foregoing. The terms "hazardous waste" and "hazardous
substance" shall also include, without limitation, petroleum and
petroleum by-products or any fraction thereof and asbestos. The
representations and warranties contained herein are based on
Grantor's due diligence in investigating the Collateral for
hazardous wastes and substances.
Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor
becomes liable for cleanup or other costs under any such laws,
and (b) agrees to indemnify and hold harmless Lender against any
and all claims and losses resulting from a breach of this
provision of this Agreement. This obligation to indemnify shall
survive the payment of the Indebtedness and the satisfaction of
this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and
maintain all risks insurance, including without limitation
fire, theft and liability coverage together with such other
insurance as Lender may require with respect to the Collateral,
in form, amounts, coverages and basis reasonably acceptable to
Lender and issued by a company or companies reasonably acceptable
to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations
that coverages will not be cancelled or diminished without at
least ten (10) days' prior written notice to Lender and not
including any disclaimer of the insurer's liability for failure
to give such a notice. Each insurance policy also shall include
an endorsement providing that coverage in favor of Lender will
not be impaired in any way by any act, omission or default of
Grantor or any other person. In connection with all policies
covering assets in which Lender holds or is offered a security
interest, Grantor will provide Lender with such loss payable or
other endorsements as Lender may require. If Grantor at any time
fails to obtain or maintain any insurance as required under this
Agreement, Lender may (but shall not be obligated to) obtain such
insurance as Lender deems appropriate, including if it so chooses
"single interest insurance," which will cover only Lender's
interest in the Collateral.
Application of Insurance Proceeds. Grantor shall promptly
notify Lender of any loss or damage to the Collateral. Lender may
make proof of loss if Grantor fails to do so within fifteen (15)
days of the casualty. All proceeds of any insurance on the
Collateral, including accrued proceeds thereon, shall be held by
Lender as part of the Collateral. If Lender consents to repair or
replacement of the damaged or destroyed Collateral, Lender shall,
upon satisfactory proof of expenditure, pay or reimburse Grantor
from the proceeds for the reasonable cost of repair or
restoration. If Lender does not consent to repair or replacement
of the Collateral, Lender shall retain a sufficient amount of the
proceeds to pay all of the indebtedness, and shall pay the
balance to Grantor. Any proceeds which have not been disbursed
within six (6) months after their receipt and which Grantor has
not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
Insurance Reserves. Lender may require Grantor to maintain
with Lender reserves for payment of insurance premiums, which
reserves shall be created by monthly payments from Grantor of a
sum estimated by Lender to be sufficient to produce, at least
fifteen (15) days before the premium due date, amounts at least
equal to the insurance premiums to be paid. If fifteen (15) days
before payment is due, the reserve funds are insufficient,
Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and
shall constitute a non-interest-bearing account which Lender may
satisfy by payment of the insurance premiums required to be paid
by Grantor as they become due. Lender does not hold the reserve
funds in trust for Grantor, and Lender is not the agent of
Grantor for payment of the insurance premiums required to be paid
by Grantor. The responsibility for the payment of premiums shall
remain Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall
furnish to Lender reports on each existing policy of insurance
showing such information as Lender may reasonably request
including the following: (a) the name of the insurer; (b) the
risks insured; (c) the amount of the policy; (d) the property
insured; (e) the then current value on the basis of which
insurance has been obtained and the manner of determining that
value; and (f) the expiration date of the policy. In addition,
Grantor shall upon request by Lender (however not more often than
annually) have an independent appraiser sabsfactory to Lender
determine, as applicable, the cash value or replacement cost of
the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until
default and except as otherwise provided below with respect to
accounts, Grantor may have possession of the tangible personal
property and beneficial use of all the Collateral and may use it
in any lawful manner not inconsistent with this Agreement or the
Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where
possession of the Collateral by Lender is required by law to
perfect Lender's security interest in such Collateral. Until
otherwise notified by Lender, Grantor may collect any of the
Collateral consisting of accounts. At any bme and even though no
Event of Default exists, Lender may exercise its rights to
collect the accounts and to notify account debtors to make
payments directly to Lender for application to the Indebtedness.
If Lender at any time has possession of any Collateral, whether
before or after an Event of Default, Lender shall be deemed to
have exercised reasonable care in the custody and preservation of
the Collateral if Lender takes such action for that purpose
as Grantor shall request or as Lender, in Lender's sole
discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be
deemed to be a failure to exercise reasonable care. Lender shall
not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect,
preserve or maintain any security interest given to secure the
Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due,
Lender may (but shall not be obligated to) discharge or pay any
amounts required to be discharged or paid by Grantor under this
Agreement, including without limitation all taxes, liens,
security interests, encumbrances, and other claims, at any time
levied or placed on the Collateral. Lender also may (but shall
not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid
by Lender for such purposes will then bear interest at the rate
charged under the Note from the date incurred or paid by Lender
to the date of repayment by Grantor. All such expenses shall
become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note
and be apportioned among and be payable with any installment
payments to become due during either (i) the term of any
applicable insurance policy or (ii) the remaining term of the
Note, or (c) be treated as a balloon payment which will be due
and payable at the Note's maturity. This Agreement also will
secure payment of these amounts. Such right shall be in addition
to all other rights and remedies to which Lender may be entitled
upon the occurrence of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an
Event of Default under this Agreement:
Default on Indebtedness. Failure of Grantor to make any
payment when due on the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to
perform any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents or
in any other agreement between Lender and Grantor.
Default In Favor of Third Parties. Should Borrower or any
Grantor default under any loan, extension of credit, security
agreement, purchase or sales agreement, or any other agreement,
in favor of any other creditor or person that may materially
affect any of Borrower's property or Borrower's or any Grantor's
ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement
made or furnished to Lender by or on behalf of Grantor under
this Agreement, the Note or the Related Documents is false or
misleading in any material respect, either now or at the time
made or furnished.
Detective Collateralization. This Agreement or any of the
Related Documents ceases to be in full force and effect
(including failure of any collateral documents to create a valid
and perfected security interest or lien) at any time and for any
reason.
Insolvency. The dissolution or termination of Grantor's
existence as a going business, the insolvency of Grantor, the
appointment of a receiver for any part of Grantor's property, any
assignment for the benefit of creditors, any type of creditor
workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of
foreclosure or forfeiture proceedings, whether by judicial
proceeding, self-help, repossession or any other method, by any
creditor of Grantor or by any governmental agency against the
Collateral or any other collateral securing the Indebtedness.
This includes a garnishment of any of Grantor's deposit accounts
with Lender.
Events Affecting Guarantor. Any of the preceding events
occurs with respect to any Guarantor of any of the Indebtedness
or such Guarantor dies or becomes incompetent.
Adverse Change. A material adverse change occurs in
Grantor's financial condition, or Lender believes the prospect of
payment or performance of the Indebtedness is impaired.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs
under this Agreement, at any time thereafter, Lender shall have
all the rights of a secured party under the California Uniform
Commercial Code. In addition and without limitation, Lender may
exercise any one or more of the following rights and remedies:
Accelerate Indebtedness. Lender may declare the entire
Indebtedness, including any prepayment penalty which Grantor
would be required to pay, immediately due and payable, without
notice.
Assemble Collateral. Lender may require Grantor to deliver
to Lender all or any portion of the Collateral and any and all
certificates of title and other documents relating to the
Collateral. Lender may require Grantor to assemble the Collateral
and make it available to Lender at a place to be designated by
Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the
Collateral. If the Collateral contains other goods not covered by
this Agreement at the time of repossession, Grantor agrees Lender
may take such other goods, provided that Lender makes reasonable
efforts to return them to Grantor after repossession.
Sell the Collateral. Lender shall have full power to sell,
lease, transfer, or otherwise deal with the Collateral or
proceeds thereof in its own name or that of Grantor. Lender may
sell the Collateral at public auction or private sale. Unless the
Collateral threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Lender will give Grantor
reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is
given at least ten (10) days, or such lesser time as required by
state law, before the time of the sale or disposition. All
expenses relating to the disposition of the Collateral, including
without limitation the expenses of retaking, holding, insuring,
preparing for sale and selling the Collateral, shall become a
part of the Indebtedness secured by this Agreement and shall be
payable on demand, with interest at the Note rate from date of
expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law,
Lender shall have the following rights and remedies regarding the
appointment of a receiver: (a) Lender may have a receiver
appointed as a matter of right, (b) the receiver may be an
employee of Lender and may serve without bond, and (c) all fees
of the receiver and his or her attorney shall become part of the
Indebtedness secured by this Agreement and shall be available on
demand, with interest at the Note rate from date of expenditure
until repaid.
Collect Revenues, Apply Accounts. Lender, either itself or
through a receiver, may collect the payments, rents, income, and
revenues from the Collateral. Lender may at any time in its
discretion transfer any Collateral into its own name or that of
its nominee and receive the payments, rents, income, and revenues
therefrom and hold the same as security for the Indebtedness or
apply it to payment of the Indebtedness in such order of
preference as Lender may determine. Insofar as the Collateral
consists of accounts, general intangibles, insurance policies,
instruments, chattel paper, chooses in action, or similar
property, Lender may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the
Collateral as Lender may determine, whether or not Indebtedness
or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose
of mail addressed to Grantor; change any address to which mail
and payments are to be sent; and endorse notes, checks, drafts,
money orders, documents of title, instruments and items
pertaining to payment, shipment, or storage of any Collateral. To
facilitate collection, Lender may notify account debtors and
obligators on any Collateral to make payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of
the Collateral, Lender may obtain a judgment against Grantor for
any deficiency remaining on the Indebtedness due to Lender after
application of all amounts received from the exercise of the
rights provided in this Agreement. Grantor shall be liable for
a deficiency even if the transaction described in this subsection
is a sale of accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights
and remedies of a secured creditor under the provisions of the
Uniform Commercial Code, as may be amended from time to time. In
addition, Lender shall have and may exercise any or all other
rights and remedies it may have available at law, in equity, or
otherwise.
Cumulative Remedies. All of Lender's rights and remedies,
whether evidenced by this Agreement or the Related Documents or
by any other writing, shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any
remedy shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's
failure to perform, shall not affect Lender's right to declare a
default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions
are a part of this Agreement:
Amendments. This Agreement, together with any Related
Documents, constitutes the entire understanding and agreement of
the parties as to the manners set forth in this Agreement. No
alteration of or amendment to this Agreement shall be effective
unless given in writing and signed by the party or parties sought
to be charged or bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender
and accepted by Lender in the State of California. If there is a
lawsuit, Grantor agrees upon Lenders request to submit to the
jurisdiction of the courts of the State of California. This
Agreement shall be governed by and construed in accordance with
the laws of the State of California.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand
all of Lender's costs and expenses, including attorneys' fees and
Lender's legal expenses, incurred in connection with the
enforcement of this Agreement. Lender may pay someone else to
help enforce this Agreement, and Grantor shall pay the costs and
expenses of such enforcement. Costs and expenses include Lenders
attorney's fees and legal expenses whether or not there is a
lawsuit, including attorney's fees and legal expenses for
bankruptcy proceedings (and including efforts to modify or vacate
any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Grantor also shall pay all
court costs and such additional fees as may be directed by the
court.
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Agreement.
Multiple Parties-Corporate Authority. All obligations of
Grantor under this Agreement shall be joint and several, and all
references to Grantor shall mean each and every Grantor. This
means that each of the persons signing below is responsible for
all obligations in this Agreement.
Notices. All notices required to be given under this
Agreement shall be given in writing, may be sent by
telefacsimile, and shall be effective when actually delivered or
when deposited with a nationally recognized overnight courier or
deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for
notices under this Agreement by giving formal written notice to
the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by
applicable law, if there is more than one Grantor, notice to any
Grantor will constitute notice to all Grantors. For notice
purposes, Grantor will keep Lender informed at all times of
Grantors current address(es).
Power of Attorney. Grantor hereby appoints Lender as its
true and lawful attorney-in-fact, irrevocably, with full power of
substitution to do the following: (a) to demand collect receive
receipt for sue and recover all sums of money or other property
which may now or hereafter become due, owing or payable from the
Collateral; (b) to execute sign and endorse any and all claims,
instruments receipts checks drafts or warrants issued in payment
for the Collateral; (c) to settle or compromise any and all
claims arising under the Collateral and in the place and stead of
Grantor to execute and deliver its release and settlement for the
claim and (d) to file any claim or claims or to take any action
or institute or take part in any proceedings, either in its own
name or in the name of Grantor, or otherwise which in the
discretion of Lender may seem to be necessary or advisable. This
power is given as security for the Indebtedness and the authority
hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
Preference Payments. Any monies Lender pays because of an
asserted preference claim in Borrower's bankruptcy will become a
part of the Indebtedness and at Lender s option shall be payable
by Borrower as provided above in the EXPENDITURES BY LENDER
paragraph.
Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to
any person or circumstance such finding shall not render that
provision invalid or unenforceable as to any other persons or
Circumstances. If feasible any such offending provision shall be
deemed to be modified to be within the limits of enforceability
or validity; however if the offending provision cannot be so
modified it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and
enforceable.
Successor Interests. Subject to the limitations set forth
above on transfer of the Collateral this Agreement shall be
binding upon and inure to the benefit of the parties their
successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights
under this Agreement unless such waiver is given in writing and
signed by Lender. No delay or omission on the part of Lender in
exercising any right shall operate as a waiver of such right or
any other right. A waiver by Lender of a provision of this
Agreement shall not prejudice or constitute a waiver of Lenders
right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by
Lender nor any course of dealing between Lender and Grantor shall
constitute a waiver of any of Lender's rights or of any of
Grantor's obligations as to any future transactions. Whenever the
consent of Lender is required under this Agreement the granting
of such consent by Lender in any instance shall not constitute
continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld
in the sole discretion of Lender.
Waiver of Co-obligators Rights. If more than one person is
obligated for the Indebtedness Borrower irrevocably waives
disclaims and relinquishes all claims against such other person
which Borrower has or would otherwise have by virtue of payment
of the Indebtedness or any part thereof specifically including
but not limited to all rights of indemnity contribution or
exoneration.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
COMMERCIAL SECURITY AGREEMENT AND GRANTOR AGREES TO ITS TERMS.
THIS AGREEMENT IS DATED APRIL 8 1997.
GRANTOR:
REAL GOODS TRADING CORPORATION
BY:[S]JOHN C. SCHAEFFER, PRESIDENT
John C. Schaeffer, President
<PAGE>
COMMERCIAL GUARANTY
Borrower: REAL GOODS TRADING CORPORATION
555 LESLIE ST
UKIAH, CA 95482
Lender: National Bank of the Redwoods
Ukiah Office
319 East Perkins
Ukiah, CA 95482
Guarantor: JOHN C. SCHAEFFER
350 N SPRING ST
UKIAH, CA 95482
AMOUNT OF GUARANTY. The principal amount of this Guaranty is One
Million Five Hundred Thousand & 00/100 Dollars ($1,500,000.00).
CONTINUING GUARANTY. For good and valuable consideration, JOHN C.
SCHAEFFER ("Guarantor") absolutely and unconditionally guarantees
and promises to pay to National Bank of the Redwoods ("Lender")
or its order, in legal tender of the United States of America,
the Indebtedness (as that term is defined below) of REAL GOODS
TRADING CORPORATION ("Borrower") to Lender on the terms and
conditions set forth in this Guaranty. The obligations of
Guarantor under this Guaranty are continuing.
DEFINITIONS. The following words shall have the following
meanings when used in this Guaranty:
Borrower. The word "Borrower" means REAL GOODS TRADING
CORPORATION.
Guarantor. The word "Guarantor" means JOHN C. SCHAEFFER.
Guaranty. The word "Guaranty" means this Guaranty made by
Guarantor for the benefit of Lender dated April 8, 1997.
Indebtedness. The word "Indebtedness" is used in its most
comprehensive sense and means and includes any and all of
Borrower's liabilities, obligations, debts, and indebtedness to
Lender, now existing or hereinafter incurred or created,
including, without limitation, all loans, advances, interest,
costs, debts, overdraft indebtedness, credit card indebtedness,
lease obligations, other obligations, and liabilities of
Borrower, or any of them, and any present or future judgments
against Borrower, or any of them; and whether any such
indebtedness is voluntarily or involuntarily incurred, due or not
due, absolute or contingent, liquidated or unliquidated,
determined or undetermined; whether Borrower may be liable
individually or jointly with others, or primarily or secondarily,
or as guarantor or surety; whether recovery on the indebtedness
may be or may become barred or unenforceable against Borrower for
any reason whatsoever; and whether the indebtedness arises from
transactions which may be voidable on account of infancy,
insanity, ultra vires, or otherwise.
Lender. The word "Lender" means National Bank of the
Redwoods, its successors and assigns.
Related Documents. The words "Related Documents" mean and
include without limitation all promissory notes, credit
agreements, loan agreements, environmental agreements,
guaranties, security agreements, mortgages, deeds of trust, and
all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the indebtedness.
MAXIMUM LIABILITY. The maximum liability of Guarantor under this
Guaranty shall not exceed at any one time the sum of the
principal amount of $1,500,000.00, plus all interest thereon,
plus all of Lender's costs, expenses, and attorneys' fees
incurred in connection with or relating to (a) the collection of
the Indebtedness, (b) the collection and sale of any collateral
for the Indebtedness or this Guaranty, or (c) the enforcement of
this Guaranty. Attorneys' fees include, without limitation,
attorneys' fees whether or not there is a lawsuit, and if there
is a lawsuit, any fees and costs for trial and appeals.
The above limitation on liability is not a restriction on the
amount of the Indebtedness of Borrower to Lender either in the
aggregate or at any one time. If Lender presently holds one or
more guaranties, or hereafter receives additional guaranties from
Guarantor, the rights of Lender under all guaranties shall be
cumulative. This Guaranty shall not (unless specifically provided
below to the contrary) affect or invalidate any such other
guaranties. The liability of Guarantor will be the aggregate
liability of Guarantor under the terms of this Guaranty and any
such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty
shall be open and continuous for so long as this Guaranty remains
in force. Guarantor intends to guarantee at all times the
performance and prompt payment when due, whether at maturity or
earlier by reason of acceleration or otherwise, of all
Indebtedness within the limits set forth in the preceding section
of this Guaranty. Accordingly, no payments made upon the
Indebtedness will discharge or diminish the continuing liability
of Guarantor in connection with any remaining portions of the
Indebtedness or any of the Indebtedness which subsequently arises
or is thereafter incurred or contracted. Any married person who
signs this Guaranty hereby expressly agrees that recourse may be
had against both his or her separate property and community
property.
DURATION OF GUARANTY. This Guaranty will take effect when
received by Lender without the necessity of any acceptance by
Lender, or any notice to Guarantor or to Borrower, and will
continue in full force until all Indebtedness incurred or
contracted before receipt by Lender of any notice of revocation
shall have been fully and finally paid and satisfied and all
other obligations of Guarantor under this Guaranty shall have
been performed in full. If Guarantor elects to revoke this
Guaranty, Guarantor may only do so in writing. Guarantor's
written notice of revocation must be mailed to Lender, by
certified mail, at the address of Lender listed above or such
other place as Lender may designate in writing. Written
revocation of this Guaranty will apply only to advances or new
Indebtedness created after actual receipt by Lender of
Guarantor's written revocation. For this purpose and without
limitation, the term "new Indebtedness" does not include
Indebtedness which at the time of notice of revocation is
contingent, unliquidated, undetermined or not due and which later
becomes absolute, liquidated, determined or due. This Guaranty
will continue to bind Guarantor for all Indebtedness incurred by
Borrower or committed by Lender prior to receipt of Guarantor's
written notice of revocation, including any extensions, renewals,
substitutions or modifications of the Indebtedness. All renewals,
extensions, substitutions, and modifications of the Indebtedness
granted after Guarantor's revocation, are contemplated under this
Guaranty and, specifically will not be considered to be new
Indebtedness. This Guaranty shall bind the estate of Guarantor as
to Indebtedness created both before and after the death or
incapacity of Guarantor, regardless of Lender's actual notice of
Guarantor's death. Subject to the foregoing, Guarantor's executor
or administrator or other legal representative may terminate this
Guaranty in the same manner in which Guarantor might have
terminated it and with the same effect. Release of any other
guarantor or termination of any other guaranty of the
Indebtedness shall not affect the liability of Guarantor under
this Guaranty. A revocation received by Lender from any one or
more Guarantors shall not affect the liability of any remaining
Guarantors under this Guaranty. It is anticipated that
fluctuations may occur in the aggregate amount of Indebtedness
covered by this Guaranty, and it is specifically acknowledged and
agreed by Guarantor that reductions in the amount of
Indebtedness, even to zero dollars ($0.00), prior to written
revocation of this Guaranty by Guarantor shall not constitute a
termination of this Guaranty. This Guaranty is binding upon
Guarantor and Guarantor's heirs, successors and assigns so long
as any of the guaranteed Indebtedness remains unpaid and even
though the Indebtedness guaranteed may from time to time be zero
dollars ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender,
either before or after any revocation hereof, without notice or
demand and without lessening Guarantor's liability under this
Guaranty, from time to time: (a) prior to revocation as set forth
above, to make one or more additional secured or unsecured loans
to Borrower, to lease equipment or other goods to Borrower, or
otherwise to extend additional credit to Borrower; (b) to alter,
compromise, renew, extend, accelerate, or otherwise change one or
more times the time for payment or other terms of the
Indebtedness or any part of the Indebtedness, including increases
and decreases of the rate of interest on the indebtedness;
extensions may be repeated and may be for longer than the
original loan term; (c) to take and hold security tor the payment
of this Guaranty or the Indebtedness, and exchange, enforce,
waive, subordinate, fail or decide not to perfect, and release
any such security, with or without the substitution of new
collateral; (d) to release, substitute, agree not to sue or deal
with any one or more of Borrower's sureties, endorsers, or other
guarantors on any terms or in any manner Lender may choose;
(e) to determine how, when and what application of payments and
credits shall be made on the Indebtedness; (f) to apply such
security and direct the order or manner of sale thereof,
including without limitation, any nonjudicial sale permitted by
the terms of the controlling security agreement or deed of trust,
as Lender in its discretion may determine; (g) to sell, transfer,
assign, or grant participations in all or any part of the
Indebtedness; and (h) to assign or transfer this Guaranty in
whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents
and warrants to Lender that (a) no representations or agreements
of any kind have been made to Guarantor which would limit or
qualify in any way the terms of this Guaranty; (b) this Guaranty
is executed at Borrower's request and not at the request of
Lender (c) Guarantor has full power right and authority to enter
into this Guaranty; (d) the provisions of this Guaranty do not
conflict with or result in a default under any agreement or other
instrument binding upon Guarantor and do not result in a
violation of any law, regulation court decree or order applicable
to Guarantor; (e) Guarantor has not and will not, without the
prior written consent of Lender sell, lease, assign, encumber,
hypothecate, transfer, or otherwise dispose of all or
substantially all of Guarantor's assets, or any interest therein;
(f) upon Lenders request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender,
and all such financial information which currently has been, and
all future financial information which will be provided to Lender
is and will be true and correct in all material respects and
fairly present the financial condition of Guarantor as of the
dates the financial information is provided; (g) no material
adverse change has occurred in Guarantor's financial condition
since the date of the most recent financial statements provided
to Lender and no event has occurred which may materially
adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or
similar action (including those for unpaid taxes) against
Guarantor is pending or threatened; (i) Lender has made no
representation to Guarantor as to the creditworthiness of
Borrower; and (j) Guarantor has established adequate means of
obtaining from Borrower on a continuing basis information
regarding Borrower's financial condition.
Guarantor agrees to keep adequately informed from such means of
any facts, events, or circumstances which might in any way affect
Guarantor's risks under this Guaranty, and Guarantor further
agrees that, absent a request for information Lender shall have
no obligation to disclose to Guarantor any information or
documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law
Guarantor waives any right to require Lender to (a) make any
presentment protest, demand, or notice of any kind, including
notice of change of any terms of repayment of the Indebtedness,
default by Borrower or any other guarantor or surety, any action
or nonaction taken by Borrower, Lender, or any other guarantor or
surety of Borrower, or the creation of new or additional
Indebtedness; (b) proceed against any person, including Borrower,
before proceeding against Guarantor; (c) proceed against any
collateral for the Indebtedness, including Borrower's collateral,
before proceeding against Guarantor; (d) apply any payments or
proceeds received against the Indebtedness in any order; (e) give
notice of the terms, time, and place of any sale of the
collateral pursuant to the Uniform Commercial Code or any other
law governing such sale; (f) disclose any information about the
Indebtedness, the Borrower, the collateral, or any other
guarantor or surety, or about any action or nonaction of Lender;
or (g) pursue any remedy or course of action in Lender's power
whatsoever.
Guarantor also waives any and all rights or defenses arising by
reason of (h) any disability or other defense of Borrower, any
other guarantor or surety or any other person; (i) the cessation
from any cause whatsoever, other than payment in full, of the
Indebtedness; (j) the application of proceeds of the Indebtedness
by Borrower for purposes other than the purposes understood and
intended by Guarantor and Lender, (k) any act of omission or
commission by Lender which directly or indirectly results in or
contributes to the discharge of Borrower or any other guarantor
or surety, or the Indebtedness, or the loss or release of any
collateral by operation of law or otherwise; (l) any statute of
limitations in any action under this Guaranty or on the
Indebtedness; or (m) any modification or change in terms of the
Indebtedness, whatsoever, including without limitation, the
renewal, extension acceleration, or other change in the time
payment of the Indebtedness is due and any change in the interest
rate, and including any such modification or change in terms
after revocation of this Guaranty on Indebtedness incurred prior
to such revocation.
Guarantor waives all rights and any defenses arising out of an
election of remedies by Lender even though that election of
remedies, such as a nonjudicial foreclosure with respect to
security for a guaranteed obligation, has destroyed Guarantor's
rights of subrogation and reimbursement against Borrower by
operation of Section 580d of the California Code of Civil
Procedure or otherwise.
Guarantor waives all rights and defenses that Guarantor may have
because Borrower's obligation is secured by real property. This
means among other things: (1) Lender may collect from Guarantor
without first foreclosing on any real or personal property
collateral pledged by Borrower. (2) If Lender forecloses on any
real property collateral pledged by Borrower: (A) The amount of
Borrower's obligation may be reduced only by the price for which
the collateral is sold at the foreclosure sale, even if the
collateral is worth more than the sale price. (B) Lender may
collect from Guarantor even if Lender by foreclosing on the real
property collateral, has destroyed any right Guarantor may have
to collect from Borrower. This is an unconditional waiver of any
rights and defenses Guarantor may have because Borrower's
obligation is secured by real property. These rights and defenses
include, but are not limited to, any rights and defenses based
upon Section 580a, 580bl 580dl or 726 of the Code of Civil
Procedure.
Guarantor understands and agrees that the foregoing waivers are
waivers of substantive rights and defenses to which Guarantor
might otherwise be entitled under state and federal law. The
rights and defenses waived include without limitation, those
provided by California laws of suretyship and guaranty,
anti-deficiency laws, and the Uniform Commercial Code. Guarantor
acknowledges that Guarantor has provided these waivers of rights
and defenses with the intention that they be fully relied upon by
Lender. Until all Indebtedness is paid in full, Guarantor waives
any right to enforce any remedy Lender may have against Borrower
or any other guarantor, surety, or other person, and further,
Guarantor waives any right to participate in any collateral for
the Indebtedness now or hereafter held by Lender.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor
warrants and agrees that each of the waivers set forth above is
made with Guarantor's full knowledge of its significance and
consequences and that, under the circumstances, the waivers are
reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or
public policy, such waiver shall be effective only to the extent
permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and
rights of setoff against the moneys, securities or other property
of Guarantor given to Lender by law, Lender shall have, with
respect to Guarantor's obligations to Lender under this Guaranty
and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor
hereby assigns, conveys, delivers, pledges, and transfers to
Lender all of Guarantor's right, title and interest in and to,
all deposits, moneys, securities and other property of Guarantor
now or hereafter in the possession of or on deposit with Lender,
whether held in a general or special account or deposit, whether
held jointly with someone else, or whether held for safekeeping
or otherwise, excluding however all IPA, Keogh, and trust
accounts. Every such security interest and right of setoff may be
exercised without demand upon or notice to Guarantor. No security
interest or right of setoff shall be deemed to have been waived
by any act or conduct on the part of Lender or by any neglect to
exercise such right of setoff or to enforce such security
interest or by any delay in so doing. Every right of setoff and
security interest shall continue in full force and effect until
such right of setoff or security interest is specifically waived
or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees
that the Indebtedness of Borrower to Lender, whether now existing
or hereafter created, shall be prior to any claim that Guarantor
may now have or hereafter acquire against Borrower, whether or
not Borrower becomes insolvent. Guarantor hereby expressly
subordinates any claim Guarantor may have against Borrower, upon
any account whatsoever, to any claim that Lender may now or
hereafter have against Borrower. In the event of insolvency and
consequent liquidation of the assets of Borrower, through
bankruptcy, by an assignment for the benefit of creditors,
by voluntary liquidation, or otherwise, the assets of Borrower
applicable to the payment of the claims of both Lender and
Guarantor shall be paid to Lender and shall be first applied by
Lender to the Indebtedness of Borrower to Lender. Guarantor does
hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy
of Borrower, provided however, that such assignment shall be
effective only for the purpose of assuring to Lender full payment
in legal tender of the Indebtedness. If Lender so requests, any
notes or credit agreements now or hereafter evidencing any debts
or obligations of Borrower to Guarantor shall be marked with a
legend that the same are subject to this Guaranty and shall be
delivered to Lender. Guarantor agrees, and Lender hereby is
authorized, in the name of Guarantor, from time to time to
execute and file financing statements and continuation statements
and to execute such other documents and to take such other
actions as Lender deems necessary or appropriate to perfect,
preserve and enforce its rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions
are a part of this Guaranty:
Integration, Amendment. Guarantor warrants, represents and
agrees that this Guaranty, together with any exhibits or
schedules incorporated herein, fully incorporates the agreements
and understandings of Guarantor with Lender with respect to the
subject manner hereof and all prior negotiations, drafts, and
other extrinsic communications between Guarantor and Lender shall
have no evidentiary effect whatsoever. Guarantor further agrees
that Guarantor has read and fully understands the terms of this
Guaranty; Guarantor has had the opportunity to be advised by
Guarantor's attorney with respect to this Guaranty; the Guaranty
fully reflects Guarantor's intentions and parol evidence is not
required to interpret the terms of this Guaranty. Guarantor
hereby indemnifies and holds Lender harmless from all losses,
claims, damages, and costs (including Lender's attorneys' fees)
suffered or incurred by Lender as a result of any breach by
Guarantor of the warranties, representations and agreements of
this paragraph. No alteration or amendment to this Guaranty shall
be effective unless given in writing and signed by the parties
sought to be charged or bound by the alteration or amendment.
Applicable Law. This Guaranty has been delivered to Lender
and accepted by Lender in the State of California. If there is a
lawsuit, Guarantor agrees upon Lender's request to submit to the
jurisdiction of the courts of Mendocino County, State of
California. This Guaranty shall be governed by and construed in
accordance with the laws of the State of California.
Attorneys' Fees; Expenses. Guarantor agrees to pay upon
demand all of Lender's costs and expenses, including attorneys'
fees and Lender's legal expenses, incurred in connection with the
enforcement of this Guaranty. Lender may pay someone else to help
enforce this Guaranty, and Guarantor shall pay the costs and
expenses of such enforcement. Costs and expenses include Lender's
attorneys' fees and legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (and including efforts to modify or vacate
any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Guarantor also shall pay all
court costs and such additional fees as may be directed by the
court.
Notices. All notices required to be given by either party to
the other under this Guaranty shall be in writing, may be sent by
telefacsimile, and, except for revocation notices by Guarantor,
shall be effective when actually delivered or when deposited with
a nationally recognized overnight courier, or when deposited in
the United States mail, first class postage prepaid, addressed to
the party to whom the notice is to be given at the address shown
above or to such other addresses as either party may designate to
the other in writing. All revocation notices by Guarantor shall
be in writing and shall be effective only upon delivery to Lender
as provided above in the section titled "DURATION OF GUARANTY."
If there is more than one Guarantor, notice to any Guarantor will
constitute notice to all Guarantors. For notice purposes,
Guarantor agrees to keep Lender informed at all times of
Guarantor's current address.
Interpretation. In all cases where there is more than one
Borrower or Guarantor, then all words used in this Guaranty in
the singular shall be deemed to have been used in the plural
where the context and construction so require; and where there is
more than one Borrower named in this Guaranty or when this
Guaranty is executed by more than one Guarantor, the words
"Borrower" and "Guarantor" respectively shall mean all and any
one or more of them. The words "Guarantor," "Borrower," and
"Lender" include the heirs, successors, assigns, and transferees
of each of them. Caption headings in this Guaranty are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Guaranty. If a court of competent
jurisdiction finds any provision of this Guaranty to be invalid
or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to
any other persons or circumstances, and all provisions of this
Guaranty in all other respects shall remain valid and
enforceable. If any one or more of Borrower or Guarantor are
corporations or partnerships, it is not necessary for Lender to
inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to
act on their behalf. and any Indebtedness made or created in
reliance upon the professed exercise of such powers shall be
guaranteed under this Guaranty.
Waiver. Lender shall not be deemed to have waived any rights
under this Guaranty unless such waiver is given in writing and
signed by Lender. No delay or omission on the part of Lender in
exercising any right shall operate as a waiver of such right or
any other right. A waiver by Lender of a provision of this
Guaranty shall not prejudice or constitute a waiver of Lender's
right otherwise to demand strict compliance with that provision
or any other provision of this Guaranty. No prior waiver by
Lender, nor any course of dealing between Lender and Guarantor,
shall constitute a waiver of any of Lender's rights or of any of
Guarantor's obligations as to any future transactions. Whenever
the consent of Lender is required under this Guaranty, the
granting of such consent by Lender in any instance shall
not constitute continuing consent to subsequent instances where
such consent is required and in all cases such consent may be
granted or withheld in the sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE
PROVISIONS OF THIS GUARANTY AND AGREES TO ITS TERMS. IN ADDITION,
EACH GUARANTOR UNDERSTANDS THAT THIS GUARANTY IS EFFECTIVE UPON
GUARANTOR'S EXECUTION AND DELIVERY OF THIS GUARANTY TO LENDER AND
THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE MANNER
SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY
EFFECTIVE. THIS GUARANTY IS DATED APRIL 8.1997.
GUARANTOR:[S]JOHN C. SCHAEFFER, PRESIDENT
John C. Schaeffer, President
BUSINESS LOAN AGREEMENT
Borrower: REAL GOODS TRADING CORPORATION
555 LESLIE ST
UKIAH, CA 95482
Lender: National Bank of the Redwoods
Main Office
111 Santa Rosa Ave
Santa Rosa, CA 95404-4905
THIS BUSINESS LOAN AGREEMENT between REAL GOODS TRADING
CORPORATION ("Borrower") and National Bank of the Redwoods
("Lender") is made and executed on the following terms
and conditions. Borrower has received prior commercial loans from
Lender or has applied to Lender for a commercial loan or loans
and other financial accommodations, including those which may be
described on any exhibit or schedule attached to this Agreement.
All such loans and financial accommodations, together with all
future loans and financial accommodations from Lender to
Borrower, are referred to in this Agreement Individually as the
"Loan" and collectively as the "Loans." Borrower understands and
agrees that: (a) In granting, renewing, or extending any Loan,
Lender is relying upon Borrower's representations, warranties,
and agreements, as set forth in this Agreement; (b) the granting,
renewing, or extending of any Loan by Lender at all times shall
be subject to Lender's sole judgment and discretion; and (c) all
such Loans shall be and shall remain subject to the following
terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of June 24, 1996, and
shall continue thereafter until all Indebtedness of Borrower to
Lender has been performed in full and the parties terminate this
Agreement in writing.
DEFINITIONS. The following words shall have the following
meanings when used in this Agreement. Terms not otherwise defined
in this Agreement shall have the meanings attributed to such
terms in the Uniform Commercial Code. All references to dollar
amounts shall mean amounts in lawful money of the United States
of America.
Agreement. The word "Agreement" means this Business Loan
Agreement, as this Business Loan Agreement may be amended or
modified from time to time, together with all exhibits and
schedules attached to this Business Loan Agreement from time to
time.
Borrower. The word "Borrower" means REAL GOODS TRADING
CORPORATION. The word "Borrower" also includes, as applicable,
all subsidiaries and affiliates of Borrower as provided below in
the paragraph titled "Subsidiaries and Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980,
as amended.
Collateral. The word "Collateral" means and includes without
limitation all properly and assets granted as collateral
security for a Loan, whether real or personal property, whether
granted directly or indirectly, whether granted now or in the
future, and whether granted in the form of a security interest,
mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale,
trust receipt, lien, charge, lien or title retention contract,
lease or consignment intended as a security device, or any other
security or lien interest whatsoever, whether created by law,
contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
Event or Default. The words "Event of Default" mean and
include without limitation any of the Events of Default set forth
below in the section titled "EVENTS OF DEFAULT."
Grantor. The word "Grantor" means and includes without
limitation each and all of the persons or entities granting a
Security Interest in any Collateral for the Indebtedness,
including without limitation all Borrowers granting such a
Security Interest.
Guarantor. The word "Guarantor" means and includes without
limitation each and all of the guarantors, sureties, and
accommodation parties in connection with any Indebtedness.
Indebtedness. The word "Indebtedness" means and includes
without limitation all Loans, together with all other
obligations, debts and liabilities of Borrower to Lender, or any
one or more of them, as well as all claims by Lender against
Borrower, or any one or more of them; whether now or hereafter
existing, voluntary or involuntary, due or not due, absolute or
contingent, liquidated or unliquidated; whether Borrower may be
liable individually or jointly with others; whether Borrower may
be obligated as a guarantor, surety, or otherwise; whether
recovery upon such Indebtedness may be or hereafter may become
barred by any statute of limitations; and whether such
Indebtedness may be or hereafter may become otherwise
unenforceable.
Lender. The word "Lender" means National Bank of the
Redwoods, its successors and assigns.
Loan. The word "Loan" or "Loans" means and includes without
limitation any and all commercial loans and financial
accommodations from Lender to Borrower, whether now or hereafter
existing, and however evidenced, including without limitation
those loans and financial Accommodations described herein or
described on any exhibit or schedule attached to this Agreement
from time to time.
Note. The word "Note" means and includes without limitation
Borrower's promissory note or notes, if any, evidencing
Borrower's Loan obligations in favor of Lender, as well as any
substitute, replacement or refinancing note or notes therefor.
Permitted Liens. The words "Permitted Liens" mean: (a) liens
and security interests securing Indebtedness owed by Borrower to
Lender; (b) liens for taxes, assessments, or similar charges
either not yet due or being contested in good faith; (c) liens of
materialmen, mechanics, warehousemen, or carriers, or other like
liens arising in the ordinary course of business and securing
obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any
property acquired or held by Borrower in the ordinary course of
business to secure indebtedness outstanding on the date of this
Agreement or permitted to be incurred under the paragraph of this
Agreement titled "Indebtedness and Liens"; (e) liens and security
interests which, as of the date of this Agreement, have been
disclosed to and approved by the Lender in writing; and (f) those
liens and security interests which in the aggregate constitute an
immaterial and insignificant monetary amount with respect to the
net value of Borrower's assets.
Related Documents. The words "Related Documents" mean and
include without limitation all promissory notes, credit
agreements, loan agreements, environmental agreements,
guaranties, security agreements, mortgages, deeds of trust, and
all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
Security Agreement. The words "Security Agreement" mean and
include without limitation any agreements, promises, covenants,
arrangements, understandings or other agreements, whether created
by law, contract, or otherwise, evidencing, governing,
representing, or creating a Security Interest.
Security Interest. The words "Security Interest" mean and
include without limitation any type of collateral security,
whether in the form of a lien, charge, mortgage, deed of trust,
assignment, pledge, chattel mortgage, chattel trust, factor's
lien, equipment trust, conditional sale, trust receipt, lien or
title retention contract, lease or consignment intended as a
security device, or any other security or lien interest
whatsoever, whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and
Reauthorization Act of 1986 as now or hereafter amended.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make
the initial Loan Advance and each subsequent Loan Advance under
this Agreement shall be subject to the fulfillment to Lender's
satisfaction of all of the conditions set forth in this Agreement
and in the Related Documents.
Loan Document. Borrower shall provide to Lender in form
satisfactory to Lender the following documents for the Loan: (a)
the Note, (b) Security Agreements granting to Lender security
interests in the Collateral, (c) Financing Statements perfecting
Lender's Security Interests; (d) evidence of insurance as
required below; and (e) any other documents required under this
Agreement or by Lender or its counsel.
Borrower's Authorization. Borrower shall have provided in
form and substance satisfactory to Lender properly certified
resolutions, duly authorizing the execution and delivery of this
Agreement, the Note and the Related Documents, and such other
authorizations and other documents and instruments as Lender or
its counsel, in their sole discretion, may require.
Payment of Fees and Expenses. Borrower shall have paid to
Lender all fees, charges, and other expenses which are then due
and payable as specified in this Agreement or any Related
Document.
Representations and Warranties. The representations and
warranties set forth in this Agreement, in the Related Documents,
and in any document or certificate delivered to Lender under this
Agreement are true and correct.
No Event of Default. There shall not exist at the time of
any advance a condition which would constitute an Event of
Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants
to Lender, as of the date of this Agreement, as of the date of
each disbursement of Loan proceeds, as of the date of any
renewal, extension or modification of any Loan, and at all times
any Indebtedness exists:
Organization. Borrower is a corporation which is duly
organized, validly existing, and in good standing under the laws
of the State of California and is validly existing and in good
standing in all states in which Borrower is doing business.
Borrower has the full power and authority to own its properties
and to transact the businesses in which it is presently engaged
or presently proposes to engage. Borrower also is duly qualified
as a foreign corporation and is in good standing in all states in
which the failure to so qualify would have a material adverse
effect on its businesses or financial condition.
Authorization. The execution, delivery, and performance of
this Agreement and all Related Documents by Borrower, to the
extent to be executed delivered or performed by Borrower, have
been duly authorized by all necessary action by Borrower, do not
require the consent or approval of any other person, regulatory
authority or governmental body; and do not conflict with, result
in a violation of, or constitute a default under (a) any
provision of its articles of incorporation or organization, or
bylaws, or any agreement or other instrument binding upon
Borrower or (b) any law, governmental regulation, court decree,
or order applicable to Borrower.
Financial Information. Each financial statement of Borrower
supplied to Lender truly and completely disclosed Borrower's
financial condition as of the date of the statement, and there
has been no material adverse change in Borrower's financial
condition subsequent to the date of the most recent financial
statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument
or agreement required hereunder to be given by Borrower when
delivered will constitute, Legal, valid and binding obligations
of Borrower enforceable against Borrower in accordance with their
respective terms.
Properties. Except as contemplated by this Agreement or as
previously disclosed in Borrower's financial statements or in
writing to Lender and as accepted by Lender, and except for
property tax liens for taxes not presently due and payable,
Borrower owns and has good title to all of Borrower's properties
free and clear of all Security Interests, and has not executed
any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's
legal name, and Borrower has not used, or filed a financing
statement under, any other name for at least the last five (5)
years.
Agreement. Any inspections or tests made by Lender shall be
at Borrower's expense and for Lender's purposes only and shall
not be construed to create any responsibility or liability on the
part of Lender to Borrower or to any other person. The
representations and warranties contained herein are based on
Borrower's due diligence in investigating the properties for
hazardous waste and hazardous substances. Borrower hereby
(a)releases and waives any future claims against Lender for
indemnity or contribution in the event Borrower becomes liable
for cleanup or other costs under any such laws, and (b) agrees to
indemnify and hold harmless Lender against any and all claims,
losses, liabilities, damages, penalties, and expenses which
Lender may directly or indirectly sustain or suffer resulting
from a breach of this section of the Agreement or as a
consequence of any use, generation, manufacture, storage,
disposal, release or threatened release occurring prior to
Borrower's ownership or interest in the properties, whether or
not the same was or should have been known to Borrower. The
provisions of this section of the Agreement, including the
obligation to indemnify, shall survive the payment of the
Indebtedness and the termination or expiration of this Agreement
and shall not be affected by Lenders acquisition of any interest
in any of the properties, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation,
administrative proceeding or similar action (including those for
unpaid taxes) against Borrower is pending or threatened, and no
other event has occurred which may materially adversely affect
Borrower's financial condition or properties, other than
litigation, claims, or other events, if any, that have been
disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns
and reports of Borrower that are or were required to be filed,
have been filed, and all taxes, assessments and other
governmental charges have been paid in full, except those
presently being or to be contested by Borrower in good faith in
the ordinary course of business and for which adequate reserves
have been provided.
Lien Priority. Unless otherwise previously disclosed to
Lender in writing, Borrower has not entered into or granted any
Security Agreements, or permitted the filing or attachment of any
Security Interests on or affecting any of the Collateral directly
or indirectly securing repayment of Borrower's Loan and Note,
that would be prior or that may in any way be superior to
Lender's Security Interests and rights in and to such Collateral.
Binding Effect. This Agreement, the Note, all Security
Agreements directly or indirectly securing repayment of
Borrower's Loan and Note and all of the Related Documents are
binding upon Borrower as well as upon Borrower's successors,
representatives and assigns, and are legally enforceable in
accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan
proceeds solely for business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to
which Borrower may have any liability complies in all material
respects with all applicable requirements of law and regulations,
and (i) no Reportable Event nor Prohibited Transaction (as
defined in ERISA) has occurred with respect to any such plan,
(ii) Borrower has not withdrawn from any such plan or initiated
steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other than
those previously disclosed to Lender in writing.
Location of Borrower's Offices and Records. Borrower's place
of business, or Borrower's Chief executive office, if Borrower
has more than one place of business, is located at 555 LESLIE
STREET, UKIAH, CA 95482. Unless Borrower has designated otherwise
in writing this location is also the office or offices where
Borrower keeps its records concerning the Collateral.
Information. All information heretofore or contemporaneously
herewith furnished by Borrower to Lender for the purposes of or
in connection with this Agreement or any transaction contemplated
hereby is, and all information hereafter furnished by or on
behalf of Borrower to Lender will be, true and accurate in every
material respect on the date as of which such information is
dated or certified; and none of such information is or will be
incomplete by omitting to state any material fact necessary to
make such information not misleading.
Survival of Representations and Warranties. Borrower
understands and agrees that Lender, without independent
investigation, is relying upon the above representations and
warranties in making the above referenced Loan to Borrower.
Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full
force and effect until such time as Borrower's Indebtedness shall
be paid in full, or until this Agreement shall be terminated in
the manner provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender
that, while this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all
material adverse changes in Borrower's financial condition, and
(b) all existing and all threatened litigation, claims,
investigations, administrative proceedings or similar actions
affecting Borrower or any Guarantor which could materially affect
the financial condition of Borrower or the financial condition of
any Guarantor.
Financial Records. Maintain its books and records in
accordance with generally accepted accounting principles, applied
on a consistent basis, and permit Lender to examine and audit
Borrower's books and records at all reasonable times.
Additional Information. Furnish such additional information
and statements, lists of assets and liabilities, agings of
receivables and payables, inventory schedules, budgets,
forecasts, tax returns, and other reports with respect to
Borrower's financial condition and business operations as Lender
may request from time to time.
Insurance. Maintain fire and other risk insurance, public
liability insurance, and such other insurance as Lender may
require with respect to Borrower's properties and operations, in
form, amounts, coverages and with insurance companies reasonably
acceptable to Lender. Borrower, upon request of Lender, will
deliver to Lender from time to time the policies or certificates
of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished
without at least ten (10) days' prior written notice to Lender.
Each insurance policy also shall include an endorsement providing
that coverage in favor of Lender will not be impaired in any way
by any act, omission or default of Borrower or any other person.
In connection with all policies covering assets in which Lender
holds or is offered a security Interest for the Loans, Borrower
will provide Lender with such loss payable or other endorsements
as Lender may require.
Insurance Reports. Furnish to Lender, upon request of
Lender, reports on each existing insurance policy showing such
information as Lender may reasonably request, including without
limitation the following: (a) the name of the insurer; (b) the
risks insured; (c) the amount of the policy; (d) the properties
insured; (e) the then current property values on the basis of
which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In
addition, upon request of Lender (however not more often than
annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash
value or replacement cost of any Collateral. The cost of such
appraisal shall be paid by Borrower.
Other Agreements. Comply with all terms and conditions of
all other agreements, whether now or hereafter existing, between
Borrower and any other party and notify Lender immediately in
writing of any default in connection with any other such
agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's
business operations, unless specifically consented to the
contrary by Lender in writing.
Taxes, Charges and Liens. Pay and discharge when due all of
its indebtedness and obligations, including without limitation
all assessments taxes, governmental charges, levies and liens, of
every kind and nature, imposed upon Borrower or its properties,
income, or profits, prior to the date on which penalties would
attach, and all lawful claims that, if unpaid, might become a
lien or charge upon any of Borrowers properties, income, or
profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or
claim so long as (a) the legality of the same shall be contested
in good faith by appropriate proceedings, and (b) Borrower shall
have established on its books adequate reserves with respect to
such contested assessment, tax, charge, levy, lien, or claim in
accordance with generally accepted accounting practices.
Borrower, upon demand of Lender, will furnish to Lender evidence
of payment of the assessments, taxes, charges, levies, liens and
claims and will authorize the appropriate governmental official
to deliver to Lender at any bme a written statement of any
assessments, taxes, charges, levies, liens and claims against
Borrower's properties, income, or profits.
Performance. Perform and comply with all terms, conditions,
and provisions set forth in this Agreement and in the Related
Documents in a timely manner, and promptly notify Lender if
Borrower learns of the occurrence of any event which constitutes
an Event of Default under this Agreement or under any of the
Related Documents.
Operations. Maintain executive and management personnel with
substantially the same qualifications and experience as the
present executive and management personnel; provide written
notice to Lender of any change in executive and management
personnel; conduct its business affairs in a reasonable and
prudent manner and in compliance with all applicable federal,
state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations,
including without limitation, compliance with the Americans With
Disabilities Act and with all minimum funding standards and other
requirements of ERISA and other laws applicable to Borrower's
employee benefit plans.
Inspection. Permit employees or agents of Lender at any
reasonable time to inspect any and all Collateral for the Loan or
Loans and Borrower's other properties and to examine or audit
Borrower's books, accounts, and records and to make copies and
memoranda of Borrower's books, accounts, and records. If Borrower
now or at any time hereafter maintains any records (including
without limitation computer generated records and computer
software programs for the generation of such records) in the
possession of a third party, Borrower, upon request of Lender,
shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies
of any records it may request, all at Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender,
provide Lender at least annually and at the time of each
disbursement of Loan proceeds with a certificate executed by
Borrower's chief financial officer, or other officer or person
acceptable to Lender, certifying that the representations and
warranties set forth in this Agreement are true and correct as of
the date of the certificate and further certifying that, as of
the date of the certificate, no Event of Default exists under
this Agreement.
Environmental Compliance and Reports. Borrower shall comply
in all respects with all environmental protection federal, state
and local laws, statutes, regulations and ordinances; not cause
or permit to exist, as a result of an intentional or
unintentional action or omission on its part or on the part of
any third party, on property owned and/or occupied by Borrower,
any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to
and in compliance with the conditions of a permit issued by the
appropriate federal, state or local governmental authorities;
shall furnish to Lender promptly and in any event within thirty
(30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional
or unintentional action or omission on Borrower's part in
connection with any environmental activity whether or not there
is damage to the environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender
such promissory notes, mortgages, deeds of trust, security
agreements, financing statements, instruments, documents and
other agreements as Lender or its attorneys may reasonably
request to evidence and secure the Loans and to perfect all
Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender
that while this Agreement is in effect, Borrower shall not,
without the prior written consent of Lender:
Indebtedness and Liens. (a) Except for trade debt incurred
in the normal course of business and indebtedness to Lender
contemplated by this Agreement, create, incur or assume
indebtedness for borrowed money, including capital leases, (b)
except as allowed as a Permitted Lien, sell, transfer, mortgage,
assign, pledge, lease, grant a security interest in, or encumber
any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
Continuity of Operations. (a) Engage in any business
activities substantially different than those in which Borrower
is presently engaged, (b) cease operations, liquidate, merge,
transfer, acquire or consolidate with any other entity, change
ownership, change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business, (c) pay any
dividends on Borrower's stock (other than dividends payable in
its stock), provided, however that not withstanding the
foregoing, but only so long as no Event of Default has occurred
and is continuing or would result from the payment of dividends,
if Borrower is a "Subchapter S Corporation" (as defined in the
Internal Revenue Code of 1986, as amended), Borrower may pay cash
dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes
and make estimated income tax payments to satisfy their
liabilities under federal and state law which arise solely from
their status as Shareholders of a Subchapter S Corporation
because of their ownership of shares of stock of Borrower, or (d)
purchase or retire any of Borrower's outstanding shares or alter
or amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or
advance money or assets, (b) purchase, create or acquire any
interest in any other enterprise or entity, or (c) incur any
obligation as surety or guarantor other than in the ordinary
course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to
make any Loan to Borrower, whether under this Agreement or under
any other agreement, Lender shall have no obligation to make Loan
Advances or to disburse Loan proceeds if: (a) Borrower or any
Guarantor is in default under the terms of this Agreement or any
of the Related Documents or any other agreement that Borrower or
any Guarantor has with Lender; (b) Borrower or any Guarantor
becomes insolvent, files a petition in bankruptcy or similar
proceedings, or is adjudged a bankrupt; (c) there occurs a
material adverse change in Borrower's financial condition, in the
financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; or (d) any Guarantor seeks, claims
or otherwise attempts to limit, modify or revoke such Guarantor's
guaranty of the Loan or any other loan with Lender.
EXHIBIT "A" - COVENANTS. An exhibit, titled "Exhibit "A" -
Covenants," is attached to this Agreement and by this reference
is made a part of this Agreement just as if all the provisions,
terms and conditions of the Exhibit had been fully set forth in
this Agreement.
EVENTS OF DEFAULT. Each of the following shall constitute an
Event of Default under this Agreement: Default on Indebtedness.
Failure of Borrower to make any payment when due on the Loans
Other Defaults. Failure of Borrower or any Grantor to comply
with or to perform when due any other term, obligation, covenant
or condition contained in this Agreement or in any of the Related
Documents, or failure of Borrower to comply with or to perform
any other term, obligation, covenant or condition contained in
any other agreement between Lender and Borrower Default in Favor
of Third Parties. Should Borrower or any Grantor default under
any loan, extension of credit, security agreement, purchase or
sales agreement, or any other agreement, in favor of any other
creditor or person that may materially affect any of Borrower's
property or Borrower's or any Grantor's ability to repay the
Loans or perform their respective obligations under this
Agreement or any of the Related Documents.
False Statement. Any warranty, representation or statement
made or furnished to Lender by or on behalf of Borrower or any
Grantor under this Agreement or the Related Documents is false or
misleading in any material respect at the time made or furnished,
or becomes false or misleading at any time thereafter.
Detective Collateralization. This Agreement or any of the
Related Documents ceases to be in full force and effect
(including failure of any Security Agreement to create a valid
and perfected Security Interest) at any time and for any reason.
Insolvency. The dissolution or termination of Borrower's
existence as a going business, the insolvency of Borrower, the
appointment of a received for any part of Borrower's property,
any assignment for the benefit of creditors, any type of creditor
workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of
foreclosure or forfeiture proceedings, whether by judicial
proceeding, self-help, repossession or any other method, by any
creditor of Borrower, any creditor of any Grantor against any
collateral securing the Indebtedness, or by any governmental
agency. This includes a garnishment, attachment, or levy on or of
any of Borrower's deposit accounts with Lender. Event Affecting
Guarantor. Any of the preceding events occurs with respect to any
Guarantor of any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the Indebtedness.
Change In Ownership. Any change in ownership of twenty-five
percent (25%) or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in
Borrower's financial condition, or Lender believes the prospect
of payment or performance of the Indebtedness is impaired.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall
occur, except where otherwise provided in this Agreement or the
Related Documents, all commitments and obligations of Lender
under this Agreement or the Related Documents or any other
agreement immediately will terminate and, at Lender's option, all
Indebtedness immediately will become due and payable, all without
notice of any kind to Borrower, except that in the case of an
Event of Default of the type described in the "Insolvency"
subsection above, such acceleration shall be automatic and not
optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law,
in equity, or otherwise. Except as may be prohibited by
applicable law, all of Lender's rights and remedies shall be
cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Borrower or of any
Grantor shall not affect Lender's right to decline a default and
to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions
are a put of this Agreement:
Amendments. This Agreement, together with any Related
Documents, constitutes the enbre understanding and agreement of
the parties as to the manners set forth in this Agreement. No
alteration of or amendment to this Agreement shall be effective
unless given in writing and signed by the party or parties sought
to be charged or bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender
and accepted by Lender In the State of California. If there is a
Lawsuit, Borrower agrees upon Lender's request to submit to the
jurisdiction of the courts of Sonoma County, the State of
California. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Agreement.
Consent to Loan Participation. Borrower agrees and consents
to Lender's sale or transfer, whether now or later, of one or
more participation interests in the Loans to one or more
purchasers, whether related or unrelated to Lender. Lender may
provide, without any limitation whatsoever, to any one or more
purchasers, or potential purchasers, any information or knowledge
Lender may have about Borrower or about any other manner relating
to the Loan, and Borrower hereby waives any rights to privacy it
may have with respect to such matters. Borrower additionally
waives any and all notices of sale of participation interests, as
well as all notices of any repurchase of such participation
interests. Borrower also agrees that the purchasers of any such
participation interests will be considered as the absolute owners
of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing
the sale of such participation interests. Borrower further waives
all rights of offset or counterclaim that it may have now or
later against Lender or against any purchaser of such a
participation interest and unconditionally agrees that either
Lender or such purchaser may enforce Borrower's obligation under
the Loans irrespective of the failure or insolvency of any holder
of any interest in the Loans. Borrower further agrees that the
purchaser of any such participation interests may enforce its
interests irrespective of any personal claims or defenses that
Borrower may have against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all
of Lender's expenses, including without limitation attorneys'
fees, incurred in connection with the preparation, execution,
enforcement, modification and collection of this Agreement or in
connection with the Loans made pursuant to this Agreement. Lender
may pay someone else to help collect the Loans and to enforce
this Agreement, and Borrower will pay that amount. This includes,
subject to any limits under applicable law, Lender's attorney's
fees and Lender's legal expenses, whether or not there is a
lawsuit, including attorneys' fees for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment
collection services. Borrower also will pay any court costs, in
addition to all other sums provided by law.
Notices. All notices required to be given under this
Agreement shall be given in writing, may be sent by
telefacsimile, and shall be effective when actually delivered or
when deposited with a nationally recognized overnight courier or
deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for
notices under this Agreement by giving formal written notice to
the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by
applicable law, if there is more than one Borrower, notice to any
Borrower will constitute notice to all Borrowers. For notice
purposes, Borrower will keep Lender informed at all times of
Borrower's current address(es).
Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to
any person or circumstance, such finding shall not render that
provision invalid or unenforceable as to any other persons or
circumstances. If feasible, any such offending provision shall be
deemed to be modified to be within the limits of enforceability
or validity; however, if the offending provision cannot be so
modified, it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and
enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the
context of any provisions of this Agreement makes it appropriate,
including without limitation any representation, warranty or
covenant, the word "Borrower" as used herein shall include all
subsidiaries and affiliates of Borrower. Notwithstanding the
foregoing however, under no circumstances shall this Agreement be
construed to require Lender to make any Loan or other financial
accommodation to any subsidiary or affiliate of Borrower.
Successors and Assigns. All covenants and agreements
contained by or on behalf of Borrower shall bind its successors
and assigns and shall inure to the benefit of Lender, its
successors and assigns. Borrower shall not, however, have the
right to assign its rights under this Agreement or any interest
therein, without the prior written consent of Lender.
Survival. All warranties, representations, and covenants
made by Borrower in this Agreement or in any certificate or other
instrument delivered by Borrower to Lender under this Agreement
shall be considered to have been relied upon by Lender and will
survive the making of the Loan and delivery to Lender of the
Related Documents, regardless of any investigation made by Lender
or on Lender's behalf.
Time Is of the Essence. Time is of the essence in the
performance of this Agreement.
Waiver. Lender shall not be deemed to have waived any rights
under this Agreement unless such waiver is given in writing and
signed by Lender. No delay or omission on the part of Lender in
exercising any right shall operate as a waiver of such right or
any other right. A waiver by Lender of a provision of this
Agreement shall not prejudice or constitute a waiver of Lender's
right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Borrower, or
between Lender and any Grantor, shall constitute a waiver of any
of Lender's rights or of any obligations of Borrower or of any
Grantor as to any future transactions. Whenever the consent of
Lender is required under this Agreement, the granting of such
consent by Lender in any instance shall not constitute continuing
consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
BUSINESS LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS
AGREEMENT IS DATED AS OF JUNE 24, 1996.
BORROWER: REAL GOODS TRADING CORPORATION
BY:[S]John C. Schaeffer, President
John C. Schaeffer, President
LENDER: National Bank of the Redwoods
By:[S]Marshall McDonald
Authorized Officer
<PAGE> EXHIBIT "A" - COVENANTS
References In the shaded area are for Lender's use only and do
not limit the applicability of this document to any particular
loan or item.
Borrower: REAL GOODS TRADING CORPORATION
555 LESLIE STREET
UKIAH, CA 95482
Lender: National Bank of the Redwoods
Main Office
111 Santa Rosa Ave
Santa Rosa, CA
95404-4905
This Exhibit "A" - Covenants is attached to and by this reference
is made a part of each Business Loan Agreement or Negative Pledge
Agreement, dated June 24, 1996, and executed in connection with a
loan or other financial accommodations between National Bank of
the Redwoods and REAL GOODS TRADING CORPORATION.
BORROWER AGREES TO PROVIDE:
Quarterly corporate financial statements which can be company
prepared due within 30 days of quarter end, starting with the
June 30, 1996 quarter end.
Annual CPA audited FYE business financials due by June 30 of each
year.
Copy of annual corporate tax return due within 90 days of March
31st of each year, beginning 3-31-97.
Annual personal financial statement of John C. Schaeffer to be
submitted no later than September 30th of each year.
Copy of annual personal tax return of John C. Schaeffer, to be
submitted by June 30th of each year, beginning 6/30/97 for the
1996 tax year.
BORROWER AGREES THAT:
National Bank of the Redwoods will be major depository bank
during term of loan. Evidence of insurance coverage for flood,
fire, and property on the property known as 13701 Highway 101,
Hopland, CA is required and must be maintained during term of
loan. National Bank of the Redwoods to be named Lender's Loss
Payee.
THIS EXHIBIT "A" - COVENANTS IS EXECUTED ON JUNE 24, 1996.
BORROWER: REAL GOODS TRADING CORPORATION
By:[S]JOHN C. SCHAEFFER, PRESIDENT
John C. Schaeffer, President
LENDER: National Bank of the Redwoods
By:[S]MARSHALL MCDONALD
Authorized Officer
<PAGE>
PROMISSORY NOTE
References in the shaded area are for Lender's use only and do
not limit the applicability of this document to any particular
loan or item.
Borrower: REAL GOODS TRADING CORPORATION
555 LESLIE ST
UKIAH, CA 95482
Lender: National Bank of the Redwoods
Main Office
111 Santa Rosa Ave
Santa Rosa, CA 95404-4905
PRINCIPAL AMOUNT: $585,000.00 INITIAL RATE: 10.750%
DATE OF NOTE: June 24, 1996
PROMISE TO PAY. REAL GOODS TRADING CORPORATION ("Borrower")
promises to pay to National Bank of the Redwoods ("Lender"), or
order, In lawful money of the United States of America, the
principal amount of Five Hundred Eighty Five Thousand & 00/100
Dollars ($585,000.00), together with interest on the unpaid
principal balance from June 24, 1996, until paid in full.
PAYMENT. Subject to any payment changes resulting from changes in
the index, Borrower will pay this loan on demand, or 11 days no
demand is made, in 299 principal payments of $1,950.00 each and
one final principal and interest payment of $1,967.23. Borrower's
first principal payment is due July 31, 1996, and all subsequent
principal payments are due on the last day of each month after
that In addition, Borrower will pay regular monthly payments of
all accrued unpaid interest due as of each payment date.
Borrower's first interest payment is due July 31, 1996, and all
subsequent interest payments are due on the last day of each
month after that Borrower's final payment due June 30, 2021,
will be for all principal and accrued interest not yet paid.
Interest on this Note is computed on a 365/365 simple interest
basis; that is, by applying the rate of the annual interest rate
over the number of days in a year, multiplied by the outstanding
principal balance, multiplied by the actual number of days the
principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender
may designate in writing. Unless otherwise agreed or required
by applicable law, payments will be applied first to accrued
unpaid interest, then to principal, and any remaining amount to
any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject
to change from time to time based on changes in an independent
index which is the "NBR REFERENCE RATE". This index is calculated
by adding .50 percentage points to the PRIME RATE as published in
the MONEY RATES section of the West Coast Edition of the Wall
Street Journal (the "Index'). The Index is not necessarily the
lowest rate charged by Lender on its loans. If the index becomes
unavailable during the term of this loan, Lender may designate a
substitute index after notice to Borrower. Lender will tell
Borrower the current index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as
well. The interest rate change will not occur more often than
each day the independent index changes. When PRIME RATE is
published as a range of rates, the index will not change until a
single rate has been published for two consecutive days. The
index currently is 9.000% per annum. The Interest rate to be
applied to the unpaid principal balance of this Note will be at
a rate of 2.000 percentage points over the index, resulting in
initial rate of 10.750% per annum. NOTICE: Under no circumstances
will the interest rate on this Note be more than the maximum rate
allowed by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid
finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether
voluntary or as a result of default), except as otherwise required
by law. Except for the foregoing, Borrower may pay without penalty
all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve
Borrower of Borrower's obligation to continue to make payments under
the payment schedule. Rather, they will reduce the principal balance
due and may result in Borrower making fewer payments.
LATE CHARGE. If a payment is 11 days or more late, Borrower will
be charged 5.000% of the regularly scheduled payment or $75.00,
whichever is less.
LENDER'S RIGHTS. Upon Lender's demand, Lender may declare the
entire unpaid principal balance on this Note and all accrued
unpaid interest immediately due, without notice, and then
Borrower will pay that amount. Lender may hire or pay someone
else to help collect this Note if Borrower does not pay. Borrower
also will pay Lender that amount. This includes, subject to any
limits under applicable law, Lender's attorneys' fees and Lender's
legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition
to all other sums provided by law. This Note has been delivered
to Lender and accepted by Lender In the State of California.
If there is a lawsuit, Borrower agrees upon Lender's request
to submit to the jurisdiction of the courts of Sonoma County,
in the State of California. This Note shall be governed by and
construed in accordance with the laws of the State of California.
COLLATERAL. Borrower acknowledges this Note is secured by, in
addition to any other collateral, a Deed of Trust dated June
24,1996, to a trustee in favor of Lender on real property located
in MENDOCINO County, State of California. That agreement contains
the following due on sale provision: Lender may, at its option,
declare immediately due and payable all sums secured by this Deed
of Trust upon the sale or transfer, without the Lender's prior
written consent, of all or any part of the Real Property, or any
interest in the Real Property. A "sale or transfer" means the
conveyance of Real Property or any right, title or interest
therein; whether legal, beneficial or equitable; whether
voluntary or involuntary; whether by outright sale, deed,
installment sale contract, land contract, contract for deed,
leasehold interest with a term greater than three (3) years,
lease-option contract, or by sale, assignment, or transfer of
any beneficial interest in or to any land trust holding title
to the Real Property, or by any other method of conveyance of
Real Property interest. If any Trustor is a corporation,
partnership or limited liability company, transfer also
includes any change in ownership of more than twenty-five
percent (25%) of the voting stock, partnership interests or
limited liability company interests, as the case may
be, of Trustor. However, this option shall not be exercised by
Lender if such exercise is prohibited by applicable law.
DEFAULT INTEREST RATE - 18.00% PER YEAR. Not withstanding any
other provisions of this note, Borrower acknowledges that in the
event of default, the interest rate applied to this indebtedness
will be increased to 18.00%. Borrower will be notified in
writing, with a copy to all guarantors, that an event of default
has occurred and that failure to cure the default will result
in the application of the default interest rate as of a certain
date. That date will be at least seven (7) calendar days from
the date of notification to the Borrower.
ADDITIONAL PROVISION. Borrower acknowledges that this note is
secured by, in addition to any other collateral, a separate
Security Agreement dated August 10,1995 covering leasehold
improvements.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of
its rights or remedies under this Note without losing them.
Borrower and any other person who signs, guarantees or endorses
this Note, to the extent allowed by law, waive any applicable
statute of limitations, presentment demand for payment, protest
and notice of dishonor. Upon any change in the terms of this
Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or
extend (repeatedly and for any length of time) this loan,
or release any party or guarantor or collateral;
or impair, fail to realize upon or perfect Lender's security
interest in the collateral; and take any other action deemed
necessary by Lender without the consent of or notice to anyone.
All such parties also agree that Lender may modify this loan
without the consent of or notice to anyone other than the
party with whom the notification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE
PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND
ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER: REAL GOODS TRADING CORPORATION
By:[S]JOHN C. SCHAEFFER
JOHN C. SCHAEFFER, PRESIDENT
LENDER: National Bank of the Redwoods
BY:[S]MARSHALL MCDONALD
Authorized Officer
<PAGE>
COMMERCIAL SECURITY AGREEMENT
References in the shaded area are for Lender's use only and do
not limit the applicability of this document to any particular
loan or item.
Borrower: REAL GOODS TRADING CORPORATION
555 LESLIE ST
UKIAH, CA 95482
Lender: National Bank of the Redwoods
Main Office
111 Santa Rosa Ave
Santa Rosa, CA 95404-4905
THIS COMMERCIAL SECURITY AGREEMENT is entered into between REAL
GOODS TRADING CORPORATION (referred to below as "Grantor"); and
National Bank of the Redwoods (referred to below as "Lender").
For valuable consideration, Grantor grants to Lender a security
interest in the Collateral to secure the Indebtedness and agrees
that Lender shall have the rights stated in this Agreement with
respect to the Collateral, in addition to all other rights which
Lender may have by law.
DEFINITIONS. The following words shall have the following
meanings when used in this Agreement. Terms not otherwise defined
in this Agreement shall have the meanings attributed to such
terms in the Uniform Commercial Code. All references to dollar
amounts shall mean amounts in lawful money of the United States
of America.
Agreement. The word "Agreement" means this Commercial
Security Agreement, as this Commercial Security Agreement may be
amended or modified from time to time, together with all exhibits
and schedules attached to this Commercial Security Agreement from
time to time.
Collateral. The word "Collateral" means the following
described property of Grantor, whether now owned or hereafter
acquired, whether now existing or hereafter arising, and wherever
located:
SEE ADDENDUM "A" ATTACHED HERETO AND MADE A PART HEREOF.
In addition, the word "Collateral" includes all the
following, whether now owned or hereafter acquired, whether now
existing or hereafter arising, and wherever located:
(a) All attachments, accessions, accessories, tools,
parts, supplies, increases, and additions to and all replacement
of and substitutions for any property described above.
(b) All products and produce of any of the property
described in this Collateral section.
(c) All accounts, general intangibles, instruments, rents,
monies, payments, and all other rights arising out of a sale,
lease, or other disposition of any of the property described in
this Collateral section.
(d) All proceeds (including insurance proceeds) from the
sale, destruction, loss, or other disposition of any of the
property described in this collateral section.
(e) All records and data relating to any of the property
described in this Collateral section, whether in the form of a
writing, photograph, microfilm, microfiche, or electronic media,
together with all of Grantor's right, title, and interest in and
to all computer software required to Utilize, create, maintain,
and process any such records or data on electronic media.
Event of Default. The words "Event of Default" mean and
include without limitation any of the Event of Default set forth
below in the section titled "Events of Default."
Grantor. The word "Grantor" means REAL GOODS TRADING
CORPORATION, its successors and assigns.
Guarantor. The word "Guarantor" means and includes without
limitation each and all of the guarantors, sureties, and
accommodation parties in connection with the indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness
evidenced by the Note, including all principal and interest,
together with all other indebtedness and costs and expenses for
which Grantor is responsible under this Agreement or under any of
the Related Documents.
Lender. The word "Lender" means National Bank of the
Redwoods, its successors and assigns.
Note. The word "Note" means the note or credit agreement
dated June 24, 1996, in the principal amount of $585,000.00 from
REAL GOODS TRADING CORPORATION to Lender, together with all
renewals of, extensions of, modifications of, refinancings of,
consolidations of and substitutions for the note or credit
agreement.
Related Documents. The words "Related Documents" mean and
include without limitation all promissory notes, credit
agreement, loan agreements, environmental agreements, guaranties,
security agreements, mortgages, deeds of trust, and all other
instruments, agreements and documents, whether now or hereafter
existing, executed in connection with the Indebtedness.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender
as follows:
Perfection of Security Interest. Grantor agrees to execute
such financing statements and to take whatever other actions are
requested by Lender to perfect and continue Lender's security
interest in the Collateral. Upon request of Lender, Grantor will
deliver to Lender any and all of the documents evidencing or
constituting the Collateral, and Grantor will note Lender's
interest upon any and all chattel paper not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any
documents necessary to perfect or to continue the security
interest granted in this Agreement. Lender may at any time, and
without further authorization from Grantor, file a carbon,
photographic or other reproduction of any financing statement or
of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in
the Collateral. Grantor promptly will notify Lender before any
change in Grantor's name including any change to the assumed
business names of Grantor.
No Violation. The execution and delivery of this Agreement
will not violate any law or agreement governing Grantor or to
which Grantor is a party, and its certificate or articles of
incorporation and bylaws do not prohibit any term or condition of
this Agreement.
Enforceability of Collateral. To the extent the Collateral
consists of accounts, chattel paper, or general intangibles, the
Collateral is enforceable in accordance with its terms, is
genuine, and complies with applicable laws concerning form,
content and manner of preparation and execution, and all persons
appearing to be obligated on the Collateral have authority and
capacity to contract and are in fact obligated as they appear to
be on the Collateral.
Location of the Collateral. Grantor, upon request of Lender,
will deliver to Lender in form satisfactory to Lender a schedule
of real properties and Collateral locations relating to Grantor's
operations, including without limitation the following: (a) all
real property owned or being purchased by Grantor; (b) all real
property being rented or leased by Grantor; (c) all storage
facilities owned, rented, leased, or being used by Grantor; and
(d) all other properties where Collateral is or may be located.
Except in the ordinary course of its business, Grantor shall not
remove the Collateral from its existing locations without the
prior written consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or
to the extent the Collateral consists of intangible property such
as accounts, the records concerning the Collateral) at Grantor's
address shown above, or at such other locations as are acceptable
to Lender. Except in the ordinary course of its business,
including the sales of inventory, Grantor shall not remove the
Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of
vehicles, or other titled property, Grantor shall not take or
permit any action which would require application for
certificates of title for the vehicles outside the State of
California, without the prior written consent of Lender.
Transactions Involving Collateral. Except for inventory sold
or accounts collected in the ordinary course of Grantor's
business, Grantor shall not sell, offer to sell, or otherwise
transfer or dispose of the Collateral. While Grantor is not in
default under this Agreement, Grantor may sell inventory, but
only in the ordinary course of its business and only to buyers
who qualify as a buyer in the ordinary course of business. A
sale in the ordinary course of Grantor's business does not
include a transfer in partial or total satisfaction of a
debt or any bulk sale. Grantor shall not pledge, mortgage,
encumber or otherwise permit the Collateral to be
subject to any lien, security interest, encumbrance, or charge,
other than the security interest provided for in this
Agreement, without the prior written consent of Lender. This
includes security interests even if junior in right to
the security interests granted under this Agreement. Unless
waived by Lender, all proceeds from any disposition
of the Collateral (for whatever reason) shall be held in trust
for Lender and shall not be commingled with any
other funds; provided however, this requirement shall not
constitute consent by Lender to any sale or other
desolation. Upon receipt. Grantor shall immediately deliver any
such proceeds to Lender.
Title. Grantor represents and warrants to Lender that it
holds good and marketable title to the Collateral,
free and clear of all liens and encumbrances except for the lien
of this Agreement. No financing statement covering any of the
Collateral is on file in any public office other than those which
reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend
Lender's rights in the Collateral against the claims and demands
of all other persons.
Collateral Schedules and Locations. Insofar as the
Collateral consists of inventory, Grantor shall deliver to
Lender, as often as Lender shall require, such lists,
descriptions, and designations of such Collateral as Lender may
require to identify the nature, extent, and location of such
Collateral. Such information shall be submitted for Grantor and
each of its subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor shall
maintain all tangible Collateral in good condition and repair.
Grantor will not commit or permit damage to or destruction of the
Collateral or any part of the Collateral. Lender and its
designated representatives and agents shall have the right at all
reasonable times to examine, inspect, and audit the Collateral
wherever located. Grantor shall immediately notify Lender of all
cases involving the return, rejection, repossession, loss or
damage of or to any Collateral; of any request for credit or
adjustment or of any other dispute arising with respect to the
Collateral; and generally of all happenings and events affecting
the Collateral or the value or the amount of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all
taxes, assessments and liens upon the Collateral, its use or
operation, upon this Agreement, upon any promissory note or notes
evidencing the Indebtedness, or upon any of the other Related
Documents. Grantor may withhold any such payment or may elect to
contest any lien if Grantor is in good faith conducting an
appropriate proceeding to contest the obligation to pay and so
long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien
which is not discharged within fifteen (15) days, Grantor shall
deposit with Lender cash, a sufficient corporate surety bond or
other security satisfactory to Lender in an amount adequate to
provide for the discharge of the lien plus any interest, costs,
attorneys' fees or other charges that could accrue as a result of
foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final
adverse judgment before enforcement against the Collateral.
Grantor shall name Lender as an additional obligee under any
surety bond furnished in the contest proceedings.
Compliance With Governmental Requirements. Grantor shall
comply promptly with all laws, ordinances, rules and regulations
of all governmental authorities, now or hereafter in effect,
applicable to the ownership, production, disposition, or use of
the Collateral. Grantor may contest in good faith any such law,
ordinance or regulation and withhold compliance during any
proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not
jeopardized.
Maintenance of Casualty Insurance. Grantor shall procure and
maintain all risks insurance, including without limitation fire,
theft and liability coverage together with such other insurance
as Lender may require with respect to the Collateral, in form,
amounts, coverages and basis reasonably acceptable to Lender and
issued by a company or companies reasonably acceptable to Lender.
Grantor, upon request of Lender, will deliver to Lender from time
to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages
will not be cancelled or diminished without at least ten (10)
days' prior written notice to Lender and not including any
disclaimer of the insurer's liability for failure to give such a
notice. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired
in any way by any act, omission or default of Grantor or any
other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor
will provide Lender with such loss payable or other endorsements
as Lender may require. If Grantor at any time fails to obtain or
maintain any insurance as required under this Agreement, Lender
may (but shall not be obligated to) obtain such insurance as
Lender deems appropriate, including if it so chooses "single
interest insurance," which will cover only Lender's interest in
the Collateral.
Application of Insurance Proceeds. Grantor shall promptly
notify Lender of any loss or damage to the Collateral. Lender may
make proof of loss if Grantor fails to do so within fifteen (15)
days of the casualty. All proceeds of any insurance on the
Collateral, including accrued proceeds thereon, shall be held by
Lender as part of the Collateral. If Lender consents to repair or
replacement of the damaged or destroyed Collateral, Lender shall,
upon satisfactory proof of expenditure, pay or reimburse Grantor
from the proceeds for the reasonable cost of repair or
restoration. If Lender does not consent to repair or replacement
of the Collateral, Lender shall retain a sufficient amount of the
proceeds to pay all of the Indebtedness, and shall pay the
balance to Grantor. Any proceeds which have not been disbursed
within six (6) months after their receipt and which Grantor has
not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
Insurance Reserves. Lender may require Grantor to maintain
with Lender reserves for payment of insurance premiums, which
reserves shall be created by monthly payments from Grantor of a
sum estimated by Lender to be sufficient to produce, at least
fifteen (15) days before the premium due date, amounts at least
equal to the insurance premiums to be paid. If fifteen (15) days
before payment is due, the reserve funds are insufficient,
Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and
shall constitute a non-interest-bearing account which Lender may
satisfy by payment of the insurance premiums required to be paid
by Grantor as they become due. Lender does not hold the reserve
funds in trust for Grantor, and Lender is not the agent of
Grantor for payment of the insurance premiums
required to be paid by Grantor. The responsibility for the
payment of premiums shall remain Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall
furnish to Lender reports on each existing policy of insurance
showing such information as Lender may reasonably request
including the following: (a) the name of the insurer; (b) the
risks insured; (c) the amount of the policy; (d) the property
insured; (e) the then current value on the basis of which
insurance has been obtained and the manner of determining that
value, and (f) the expiration date of the policy. In addition,
Grantor shall upon request by Lender (however not more often
than annually) have an independent appraiser satisfactory to
Lender determine, as applicable, the cash value or replacement
cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have
possession of the tangible personal property and beneficial use
of all the Collateral and may use it in any lawful manner not
inconsistent with this Agreement or the Related Documents,
provided that Grantor's right to possession and beneficial use
shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's
Security Interest in Such Collateral. If Lender at any time has
possession of any Collateral, whether before or after an Event of
Default, Lender shall be deemed to have exercised reasonable care
in the custody and preservation of the Collateral if Lender takes
such action for that purpose as Grantor shall request or as
Lender, in Lender's sole discretion, shall deem appropriate
under the circumstances, but failure to honor any request by
Grantor shall not of itself be deemed to be a failure to exercise
reasonable care. Lender shall not be required to take any steps
necessary to preserve any rights in the Collateral against prior
parties, nor to protect, preserve or maintain any security
interest given to secure the indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due,
Lender may (but shall not be obligated to) discharge or pay any
amounts required to be discharged or paid by Grantor under this
Agreement, including without limitation all taxes, liens,
security interests, encumbrances, and other claims, at any time
levied or placed on the Collateral. Lender also may (but shall
not be obligated to) pay all costs for insuring, maintaining
and preserving the Collateral. All such expenditures incurred or
paid by Lender for such purposes will then bear interest at the
rate charged under the Note from the date incurred or paid by
Lender to the date of repayment by Grantor. All such expenses
shall become a part of the Indebtedness and at Lender's option,
will (a) be payable on demand, (b) be added to the balance of the
Note and be apportioned among and be payable with any installment
payments to become due during either (i) the term of any
applicable insurance policy or (ii) the remaining term of the
Note, or (c) be treated as a balloon payment which will be due
and payable at the Note's maturity. This Agreement also will
secure payment of these amounts. Such right shall be in addition
to all other rights and remedies to which Lender may be
entitled upon the occurrence of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an
Event of Default under this Agreement:
Default on Indebtedness. Failure of Grantor to make any
payment when due on the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to
perform any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents or
in any other agreement between Lender and Grantor.
Default In Favor of Third Parties. Should Borrower or any
Grantor default under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other
agreement, in favor of any other creditor or person that may
materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement
made or furnished to Lender by or on behalf of Grantor under this
Agreement, the Note or the Related Documents is false or
misleading in any material respect, either now or at the time
made or furnished.
Defective Collateralization. This Agreement or any of the
Related Documents ceases to be in full force and effect
(including failure of any collateral documents to create a valid
and perfected security interest or lien) at any time and for any
reason.
Insolvency. The dissolution or termination of Grantor's
existence as a going business, the insolvency of Grantor, the
appointment of a receiver for any pan of Grantor's property, any
assignment for the benefit of creditors, any type of creditor
workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of
foreclosure or forfeiture proceedings, whether by judicial
proceeding, self-help, repossession or any other method, by any
creditor of Grantor or by any governmental agency against the
Collateral or any other collateral securing the indebtedness.
This includes a garnishment of any of Grantor's deposit accounts
with Lender.
Events Affecting Guarantor. Any of the preceding events
occurs with respect to any Guarantor of any of the Indebtedness
or such Guarantor dies or becomes incompetent.
Adverse Change. A material adverse change occurs in
Grantor's financial condition, or Lender believes the prospect of
payment or performance of the Indebtedness is impaired.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs
under this Agreement, at any time thereafter, Lender shall have
all the rights of a secured party under the California Uniform
Commercial Code. In addition and without limitation, Lender may
exercise any one or more of the following rights and remedies:
Accelerate Indebtedness. Lender may declare the entire
Indebtedness, including any prepayment penalty which Grantor
would be required to pay, immediately due and payable, without
notice.
Assemble Collateral. Lender may require Grantor to deliver
to Lender all or any option of the Collateral and any and all
certificates of title and other documents relating to the
Collateral. Lender may require Grantor to assemble the Collateral
and make it available to Lender at a place to be designated by
Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the
Collateral. If the Collateral contains other goods not covered by
this Agreement at the time of repossession, Grantor agrees
Lender may take such other goods, provided that Lender makes
reasonable efforts to return them to Grantor after repossession.
Sell the Collateral. Lender shall have full power to sell,
lease, transfer, or otherwise deal with the Collateral or
proceeds thereof in its own name or that of Grantor. Lender may
sell the Collateral at public auction or private sale. Unless the
Collateral threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Lender will give Grantor
reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is
given at least ten (10) days, or such lesser time as required by
state law, before the time of the sale or disposition. All
expenses relating to the disposition of the Collateral,
including without limitation the expenses of retaking, holding,
insuring, preparing for sale and selling the Collateral, shall
become a pan of the indebtedness secured by this Agreement and
shall be payable on demand, with interest at the Note rate from
date of expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law,
Lender shall have the following rights and remedies regarding the
appointment of a receiver: (a) Lender may have a receiver
appointed as a matter of right, (b) the receiver may be an
employee of Lender and may serve without bond, and (c) all fees
of the receiver and his or her attorney shall become part of the
Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure
until repaid.
Collect Revenues, Apply Accounts. Lender, either itself or
through a receiver, may collect the payments, rents, income, and
revenues from the Collateral. Lender may at any time in its
discretion transfer any Collateral into its own name or that of
its nominee and receive the payments, rents, income, and revenues
therefrom and hold the same as security for the Indebtedness or
apply it to payment of the Indebtedness in such
order of preference as Lender may determine. Insofar as the
Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel paper, chooses in
action, or similar property, Lender may demand, collect, receipt
for, settle, compromise, adjust, sue for, foreclose, or realize
on the Collateral as Lender may determine, whether or not
Indebtedness or Collateral is then due. For these purposes,
Lender may, on behalf of and in the name of Grantor, receive,
open and dispose of mail addressed to Grantor; change any address
to which mail and payments are to be sent; and endorse notes,
checks, drafts, money orders, documents of title, instruments and
items pertaining to payment, shipment, or storage of any
Collateral. To facilitate collection, Lender may notify account
debtors and obligators on any Collateral to make payments
directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of
the Collateral, Lender may obtain a judgment against Grantor for
any deficiency remaining on the Indebtedness due to Lender after
application of all amounts received from the exercise of the
rights provided in this Agreement. Grantor shall be liable for a
deficiency even if the transaction described in this subsection
is a sale of accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights
and remedies of a secured creditor under the provisions of the
Uniform Commercial Code, as may be amended from time to time. In
addition, Lender shall have and may exercise any or all other
rights and remedies it may have available at law, in equity, or
otherwise.
Cumulative Remedies. All of Lender's rights and remedies,
whether evidenced by this Agreement or the Related Documents or
by any other writing, shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any
remedy shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's
failure to perform, shall not affect Lender's right to declare a
default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions
are a part of this Agreement:
Amendments. This Agreement, together with any Related
Documents, constitutes the entire understanding and agreement of
the parties as to the matters set forth in this Agreement. No
alteration of or amendment to this Agreement shall be
effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or
amendment.
Applicable Law. This Agreement has been delivered to Lender
and accepted by Lender in the State of California. If there is a
lawsuit, Grantor agrees upon Lender's request to submit to the
jurisdiction of the courts of the State of California. This
Agreement shall be governed by and construed in accordance with
the laws of the State of California.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand
all of Lender's costs and expenses, including attorneys' fees
and Lender's legal expenses, incurred in connection with the
enforcement of this Agreement. Lender may pay someone else to
help enforce this Agreement, and Grantor shall pay the costs and
expenses of such enforcement. Costs and expenses include Lender's
attorneys' fees and legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (and including efforts to modify or vacate
any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Grantor also shall pay all
court costs and such additional fees as may be directed by the
court.
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Agreement.
Notices. All notices required to be given under this
Agreement shall be given in writing, may be sent by
telefacsimile, and shall be effective when actually delivered or
when deposited with a nationally recognized overnight courier or
deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for
notices under this Agreement by giving formal written notice to
the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by
applicable law, if there is more than one Grantor, notice to any
Grantor will constitute notice to all Grantors. For notice
purposes, Grantor will keep Lender informed at all times of
Grantor's current address(es).
Power of Attorney. Grantor hereby appoints Lender as its
true and lawful attorney-in-fact irrevocably, with full power of
substitution to do the following: (a) to demand, collect,
receive, receipt for, sue and recover all sums of money o; other
property which may now or hereafter become due, owing or payable
from the Collateral; (b) to execute, sign and endorse any and all
claims, instruments, receipts, checks, drafts or warrants issued
in payment for the Collateral, (c) to settle or compromise any
and all claims arising under the Collateral, and, in the place
and stead of Grantor, to execute and deliver its release and
settlement for the claim; and (d) to file any claim or claims or
to take any action or institute or take part in any proceedings,
either in its own name or in the name of Grantor, or otherwise,
which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the Indebtedness,
and the authority hereby conferred is and shall be irrevocable
and shall remain in full force and effect until renounced
by Lender.
Preference Payments. Any monies Lender pays because of an
asserted preference claim in Borrower's bankruptcy will become a
part of the Indebtedness and, at Lender's option, shall be
payable by Borrower as provided above in the "EXPENDITURES BY
LENDER" paragraph.
Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to
any person or circumstance, such finding shall not render that
provision invalid or unenforceable as to any other persons or
circumstances. If feasible, any such offending provision shall be
deemed to be modified to be within the limits of enforceability
or validity; however, if the offending provision cannot be so
modified, it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and
enforceable.
Successor Interests. Subject to the limitations set forth
above on transfer of the Collateral, this Agreement shall be
binding upon and inure to the benefit of the parties, their
successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights
under this Agreement unless such waiver is given in writing and
signed by Lender. No delay or omission on the part of Lender in
exercising any right shall operate as a waiver of such right or
any other right. A waiver by Lender of a provision of this
Agreement shall not prejudice or constitute a waiver of Lender's
right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver
by Lender, nor any course of dealing between Lender and Grantor,
shall constitute a waiver of any of Lender's rights or of any of
Grantor's obligations as to any future transactions. Whenever the
consent of Lender is required under this Agreement, the granting
of such consent by Lender in any instance shall not constitute
continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld
in the sole discretion of Lender.
Waiver of Co-obligator's Rights. If more than one person is
obligated for the Indebtedness, Borrower irrevocably waives,
disclaims and relinquishes all claims against such other person
which Borrower has or would otherwise have by virtue of payment
of the Indebtedness or any part thereof, specifically including
but not limited to all rights of indemnity, contribution or
exoneration.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
COMMERCIAL SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS.
THIS AGREEMENT IS DATED JUNE 24, 1996.
GRANTOR: REAL GOODS TRADING CORPORATION
BY:[S]JOHN C. SCHAEFFER
LOAN AGREEMENT
BETWEEN
CALIFORNIA STATEWIDE CERTIFIED
DEVELOPMENT CORPORATION
129 C STREET
DAVIS, CA 95616
AND
REAL GOODS TRADING CORPORATION
13771 SOUTH HIGHWAY 101
HOPLAND, CA 95449
LOAN AGREEMENT
THIS AGREEMENT dated June 17, 1996, by and between REAL
GOODS TRADING CORPORATION, having their principal office at 13771
South Highway 101, Hopland, CA 95449 (hereinafter the"Borrower"),
and CALIFORNIA STATEWIDE CERTIFIED DEVELOPMENT CORPORATION, a
California corporation, having its principal offices at 129
C Street, Davis, CA 95616 (hereinafter the "Lender").
WHEREAS, the Borrower has applied to the Lender for a loan
for the purpose of providing Borrower permanent financing for a
physical plant located at 13771 South Highway 101, Hopland, CA
95449, construction loan interest and permits and fees.
(hereinafter the "Acquisition Assets"), and
WHEREAS, the Lender is willing to sell a Debenture
(hereinafter the "Debenture"), the proceeds of which Debenture
will be used to make such a Loan to the Borrower on the terms and
conditions hereinafter set forth:
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the parties hereto agree as follows:
ARTICLE I
THE LOAN
SECTION 1.01: THE LOAN, NOTE AND RATE
Subject to the terms and conditions of this Agreement, and
the Authorization and Debenture Guaranty Agreement of the U. S.
Small Business Administration, the Lender hereby agrees to
lend the Borrower, and the Borrower hereby agrees to borrow from
the Lender and repay the Lender or its Assigns, the amount of
$604,000.00 (hereinafter the "Loan"). The obligation of
the Borrower to repay the Loan shall be evidenced by the
promissory note (hereinafter the "Note") of the Borrower in a
form satisfactory to the Lender payable to the order of the
Lender for the amount of the Loan with interest on the unpaid
principal as determined at the time when the Debenture of the
Lender, in the amount of $604,000.00, is sold as per the SBA
Authorization and Debenture Guaranty Agreement No. CDC 848 941 30
05 CA.
SECTION 1.02: THE TERM AND PREPAYMENT
The term of the loan shall be 20 years. The Note shall be
repayable in 240 equal monthly installments. The first monthly
installment shall be due and payable on October 1, 1996. All
payments will be made promptly to the Lender at its address
specified at the beginning of this Agreement, or at such other
address as it may designate in writing.
Prepayment of the entire outstanding balance of the
Indebtedness may be made prior to the maturity date hereof, but
no partial prepayments may be made. The actual amount necessary
to prepay the Indebtedness during the term on the loan will be an
amount equal to the outstanding principal balance of the
Debenture, plus interest accrued and unpaid thereon to the
prepayment date, plus a prepayment premium ("PP"), if and,
determined as follows:
PP = D(I x P), where
D = the remaining principal balance of the Debenture
I = the interest rate stated on the face of the
Debenture expressed in decimal points
P = the factor set forth below for the applicable year:
<TABLE>
<C> <C>
Year P
1 1.00
2 .90
3 .80
4 .70
5 .60
6 .50
7 .40
8 .30
9 .20
10 .10
11 and thereafter .0
</TABLE>
The borrower will be responsible for monthly payments up to
and including the payment due for the month of the next
semi-annual debenture payment following the date on which the
prepayment is made. A request for prepayment shall be made to
the Development Company at least forty-five (45) days before the
prepayment date. Seven (7) business days prior to the scheduled
prepayment date, Borrower shall cause to be transferred by wire a
non-refundable good faith deposit of One Thousand Dollars
($1,000.00) to the CSA. Such deposit shall be applied in full to
the repurchase price of the debenture secured by the Note, and
shall be forfeited if Borrower fails to pay the designated total
prepayment amount on the designated prepayment date.
SECTION 1.03: PURPOSE OF LOAN
The purpose of the loan is to provide Borrower with
permanent financing for real property and improvements located at
13701 South Highway 101, Hopland, CA 95449 as well as for
construction loan interest, permits and fees. Borrower agrees
that it will apply the funds received by it under this Agreement
in accordance with the use of loan proceeds specified in the
SBA Authorization and Debenture Guaranty Agreement No. CDC 848
941 30 05 CA. Borrower further agrees that no application of any
funds received from the Lender hereunder shall be made in
violation of the Small Business Investment Act of l958 as
amended, or the Regulations promulgated thereunder.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower represents and covenants the following:
SECTION 2.01: BORRROWER DULY AUTHORIZED
Borrower is a corporation duly organized, validly existing
and in good standing under the laws of the State of California
and has power to enter into this Agreement and to execute its
guaranty of the Note.
SECTION 2.02: DULY AUTHORIZED
The making and performance by Borrower of this Agreement,
and the execution and delivery of the Note, and Security
Agreements and Instruments by Borrower and the execution
of its guaranty by Guarantor will not violate any law, rule,
regulation, order, writ, judgment, decree, determination or award
presently in effect having applicability to Borrower or Guarantor
or any provision of the Borrower s Certificate of Incorporation
or By-Laws or result in a breach of or constitute a default under
any indenture or bank loan or credit agreement or any other
agreement or instrument to which Borrower or Guarantor is a party
or by which either party or either party's property may be bound
or affected.
SECTION 2.03: LEGALLY BINDING INSTRUMENTS
When this Agreement is executed by Borrower and Lender, and
when the Note is executed and delivered by Borrower for value,
each such instrument shall constitute the legal, valid, and
binding obligation of Borrower in accordance with its terms. Any
Security Agreements and Instruments, Financing Statements,
Mortgages and other liens on chattel or real estate shall
constitute legal, valid and binding liens free and clear of all
prior liens and encumbrances except as provided for.
SECTION 2.04: NO LEGAL SUITS
There are no legal actions, suits, or proceedings pending
or, to the knowledge of Borrower, threatened against Borrower or
Guarantor before any court or administrative agency, which, if
determined adversely to Borrower or Guarantor, would have a
material adverse effect on the financial condition or business of
Borrower or Guarantor.
SECTION 2.05: NO LEGAL AUTHORIZATION NEEDED
No authorization, consent or approval or any formal
exemption of any Governmental body, regulatory authorities
(Federal, state or local) or mortgagee, creditor or third party
is or was necessary to the valid execution and delivery by
Borrower of this Agreement, the Note, or any Security Agreement,
Financing Statement or Mortgage except as provided for under
Sections 3.09 and 3.10 herein.
SECTION 2.06: NOT IN DEFAULT
Neither Borrower nor Guarantor is in default of any
obligation, covenant, or condition contained in any bond,
debenture, note or other evidence of indebtedness or any mortgage
or collateral instrument securing the same.
SECTION 2.07: TAXES ARE PAID
Borrower and Guarantor have filed all tax returns which are
required and have paid or made provision for the payment of all
taxes which have or may become due pursuant to said returns
or pursuant to any assessments received by Borrower or Guarantor.
No tax liability has been asserted by the Internal Revenue
Service or other taxing agency, federal, state, or local for
taxes materially in excess of those already provided for and
Borrower knows of no basis for any such deficiency assessment.
SECTION 2.08: NO ADVERSE CHANGE
Borrower certifies that there has been no adverse change
since the date of the Loan Application in the financial
condition, organization, operation, business prospects, fixed
properties, or personnel of Borrower or Guarantor.
ARTICLE III
CONDITIONS OF LENDING
The obligation of Lender to make the Loan shall be subject
to the fulfillment at the time of closing of each of the
following conditions:
SECTION 3.01: EXECUTION OF AUTHORIZATION
Borrower shall have executed and delivered to Lender the SBA
Authorization and Debenture Guaranty Agreement No. CDC 848 941 30
05 CA.
SECTION 3.02: EXECUTION AND DELIVERY OF NOTE AND LOAN AGREEMENT
Borrower shall have executed and delivered to Lender this
Loan Agreement and the Note in a form satisfactory to Lender and
its Counsel.
SECTION 3.03: EXECUTION AND DELIVERY OF MORTGAGE
Borrower shall have executed and delivered to Lender a
Mortgage on the real estate purchased with the Loan proceeds.
Said Mortgage shall be free and clear of all prior liens and
encumbrances except as provided for in accordance with the SBA
Authorization and Debenture Guaranty Agreement No. CDC 848 941 30
05 CA. Said Mortgage is to secure payment of the principal of
the Note, the interest thereon, and any other sums payable by
Borrower hereunder.
SECTION 3.04: EXECUTION AND CERTIFICATION OF RESOLUTION OF BOARD
OF DIRECTORS
Guarantor shall have executed and delivered to Lender a duly
certified copy of a Resolution of its Board of directors
authorizing the execution and delivery by Guarantor of the
Guaranty.
SECTION 3.05: CORPORATE PAPERS
Borrower shall have delivered to Lender copies of
Guarantor's Certificate of Incorporation, By-Laws, and
Certificate of Good Standing.
SECTION 3.06: EXECUTION OF CSA AGREEMENT
Borrower shall have executed and delivered to Lender the
Central Servicing Agent Agreement (SBA Form 1506) in a form
satisfactory to Lender's Counsel.
SECTION 3.07: PERSONAL AND CORPORATE GUARANTEES
Lender shall have received duly executed guaranty agreements
(SBA Form l48) of all individuals or entities, as set forth in
the SBA Authorization and Debenture Guaranty Agreement No. CDC
848 941 30 05 CA in amount and form satisfactory to
Lender's counsel.
SECTION 3.08: TITLE INSURANCE
Borrower shall have secured mortgage title insurance in the
form issued by companies satisfactory to Lender, in the amount of
the Loan insuring Lender and secured by a mortgage or deed of
trust subject only to exceptions approved in the SBA
Authorization and Debenture Guaranty Agreement No. CDC 848 941 30
05 CA. The title policy shall show no delinquent taxes or
assessments affecting the real property or any part thereof on
the date of closing except as approved by Lender.
SECTION 3.09: GOVERNMENTAL APPROVAL
Borrower shall have secured all necessary approvals or
consents, if required, of Governmental bodies having jurisdiction
with respect to any construction contemplated in accordance with
the use of proceeds of the SBA Authorization and Debenture
Guaranty Agreement No. CDC 848 941 30 05 CA.
SECTION 3.10: APPROVAL OF OTHERS
Borrower shall have secured all necessary approvals or
consents required with respect to this transaction by any
mortgagee, creditor or other party having any financial interest
in Borrower.
SECTION 3.11: OPINION OF COUNSEL
Lender shall have received the opinion of Borrower's counsel
that:
1. the Guarantor is a corporation duly organized and
validly existing under the laws of the State of
California;
2. The Note has been duly executed and delivered by the
Borrower and when the principal amount stated
therein, less fees and expenses, has been advanced to
the Borrower or its assigns, will be a valid and
binding obligation of the Borrower enforceable in
accordance with its terms, except as limited by
bankruptcy and similar laws affecting creditors
generally.
ARTICLE IV
AFFIRMATIVE COVENANTS OF THE BORROWER
Borrower agrees to comply with the following covenants from
the date hereof until Lender has been fully repaid with interest,
unless Lender or its Assigns shall otherwise consent in writing:
SECTION 4.01: PAYMENT OF THE LOAN
Borrower agrees to pay punctually the principal and interest
on the Note according to its terms and conditions and to pay
punctually any other amounts that may become due and payable
to Lender under or pursuant to the terms of this Agreement or
Note.
SECTION 4.02: PAYMENT OF OTHER INDEBTEDNESS
Borrower and Guarantor agree to pay punctually the principal
and interest due on any other indebtedness now or hereafter at
anytime owing by Borrower or Guarantor to Lender or any other
lender.
SECTION 4.03: PAYMENT OF CDC FEES
In consideration of Lender's expenses associated with
processing and servicing this Loan, the Borrower agrees to pay to
Lender a processing fee of l.5% of the Debenture amount at loan
closing and an annual servicing fee of 0.5% of the unpaid balance
payable on a monthly basis. The remaining balance on which the
servicing fee will be based will be determined every five (5)
years commencing five (5) years from the Closing Date.
SECTION 4.04: CENTRAL SERVICING AGENT
Borrower agrees to use the services of the Central Servicing
Agent, hereinafter "CSA", as agent for Lender. In consideration
of the CSA's expenses associated with the origination and
servicing of the Loan, Borrower agrees to pay the CSA an
origination fee of 0.25% of the Debenture amount at the time of
Loan disbursement and an annual servicing fee payable monthly
of l/10 of l% of the unpaid Loan balance for until the Loan is
paid in full. The remaining balance on which the servicing fee
will be based will be determined every five (5) years
commencing five (5) years from the Closing Date. Borrower
further agrees to allow the CSA to withhold from the Debenture
sale proceeds and amount equal to 0.5% of the total Debenture
proceeds to establish a Master Reserve Account. The Master
Reserve Account is not refundable.
SECTION 4.05: SELLING GROUP - UNDERWRITING FEE
Borrower authorizes SBA through its agents to contract for
the firm underwritten offering of the Certificates (as that term
is defined in the Servicing Agent Agreement, SBA Form 1506)
through one or more underwriters (the "Selling Group") and to
permit the Selling Group to receive an underwriting fee not to
exceed 5/8 of 1% of the total Debenture proceeds.
SECTION 4.06: FUNDING FEE
Borrower authorizes the CSA to deposit into the Master
Reserve Account a funding fee in the amount of 1/4 of 1% of the
net debenture proceeds to be distributed by the CSA as the SBA
shall direct.
SECTION 4.07: MAINTAIN AND INSURE PROPERTY
Borrower agrees at all times to maintain the property
provided as security for this loan in such conditions and repair
that Lender's security will be adequately protected. Borrower
also agrees to maintain during the term of the Loan adequate
hazard insurance policies covering fire and extended coverage and
such other hazards as may be deemed appropriate in amounts and
form sufficient to prevent Borrower from becoming a co-insurer
and issued by companies satisfactory to Lender with acceptable
loss payee clauses in favor of Lender. Borrower further agrees,
if at any time during the life of the Loan, Borrower's property
is declared to be within a flood hazard area, to purchase Federal
Flood Insurance if available. Such insurance shall be in an
amount equal to the lesser of:
l. the amount of the Loan;
2. the insurable value of the property; or
3. the maximum limit of coverage available.
If the property is not located in a flood hazard area at the
time of the Loan closing, Borrower will provide satisfactory
evidence of that fact. Borrower further agrees to maintain
adequate liability and worker's compensation insurance in amounts
and form satisfactory to Lender.
SECTION 4.08: PAY ALL TAXES
Borrower and Guarantor agree to duly pay and discharge all
taxes, assessments and governmental charges upon either or
against either's properties prior to the date on which the
penalties attach thereto except that Borrower and/or Guarantor
shall not be required to pay any such tax, assessment, or
governmental charge which is being contested by either in good
faith and by appropriate proceedings.
SECTION 4.09: PROVIDE ADDITIONAL EQUITY
Borrower agrees to provide additional equity funds to cover
additional project costs incurred as a result of overruns or
unanticipated expenses or changes in work orders in the project
as specified in SBA Authorization and Debenture Guaranty
Agreement No. CDC 848 941 30 05 CA.
SECTION 4.10: MAINTAIN EXISTENCE
Borrower agrees to maintain its corporate existence, rights,
privileges, and franchises within the State of California and
qualify and remain qualified as a foreign corporation in each
jurisdiction in which its present or future operations or its
ownership of property require such qualifications.
SECTION 4.11: PROVIDE FINANCIAL INFORMATION
Borrower and Guarantor agree to maintain adequate records
and books of account, in which complete entries will be made
reflecting all of their business and financial transactions, such
entries to be made in accordance with generally accepted
principles of good accounting practice consistently applied in
the case of financial transactions.
In addition, Borrower agrees to deliver to Lender quarterly
financial statements certified by an authorized officer of
Borrower, to be true and accurate copies within sixty (60) days
of the close of the period and annual financial statements,
prepared by an independent accountant and certified by an
authorized officer of Borrower to be true and accurate copies
within ninety(90) days of the close of the period.
SECTION 4.12: PROVIDE OTHER INFORMATION AND DOCUMENTS
Borrower agrees to provide further information, display
documents and execute and deliver any and all additional
documents and instruments as may be reasonably requested by
Lender, its Assigns or Counsel, or the CSA including but not
limited to:
l. executing the SBA Form l59 "Compensation Agreement";
2. displaying the SBA Form 722 "Equal Opportunity
Poster";
3. executing the SBA Form 600 Series "Civil Rights
Compliance Forms"; and
4. Providing information as required of Lender by the
SBA for its annual reporting requirements.
Borrower further agrees to provide written notice to Lender
of any public hearing or meeting before any administrative or
other public agency which may, in any manner, affect the chattel,
personal property, or real estate securing the Loan.
SECTION 4.13: RIGHT TO INSPECTION
Borrower agrees to grant Lender, until the Note has been
fully repaid with interest, the right at all reasonable hours to
inspect the chattel, personal property and real estate used to
secure the Loan; and Borrower further agrees to provide Lender
free access to Borrower's premises for the purpose of such
inspection to determine the condition of the chattel, personal
property and real estate.
SECTION 4.14: NULL AND VOID COVENANTS
Borrower agrees that in the event that any provision of this
Loan Agreement or any other instrument executed at closing or the
application thereof to any person or circumstances shall be
declared null and void, invalid, or held for any reason to be
unenforceable by a Court of competent jurisdiction, the remainder
of such agreement shall nevertheless remain in full force and
effect, and to this end, the provisions of all covenants,
conditions, and agreements described herein are deemed separate.
SECTION 4.15: EXPENSES AND CLOSING COSTS
Borrower agrees to pay all fees, expenses, and charges in
respect to the Loan, or its making or transfer to Lender in any
way connected therewith including, but not limited to, the fees
and out-of-pocket expenses of Counsel employed by Lender, title
insurance and survey costs, recording and filing fees, mortgage
taxes, documentary stamp, and any other taxes, fees and expenses
payable in connection with this transaction and with the
enforcement of this Loan Agreement and Note.
SECTION 4.16: NOTICE OF DEFAULT
Borrower agrees to give written notice to Lender of any
event within fifteen (15) days of the event which constitutes an
Event of Default under this Loan Agreement or that would, with
notice or lapse of time or both, constitute an Event of Default
under this Loan Agreement.
SECTION 4.17: INDEMNIFICATION
Borrower agrees to indemnify and save Lender or its assigns
harmless against any and all liability with respect to, or
resulting from, any delay in discharging any obligation of
Borrower.
SECTION 4.18: EXPENSES OF COLLECTION OR ENFORCEMENT
Borrower agrees, if at any time Borrower defaults on any
provision of this Loan Agreement, to pay Lender or its assigns,
in addition to any other amounts that may be due from Borrower,
an amount equal to the costs and expenses of collection,
enforcement or correction or waiver of the default incurred by
Lender or its assigns in such collection, enforcement, correction
or waiver of default, including but not limited to all attorneys'
fees.
ARTICLE V
NEGATIVE COVENANTS OF THE BORROWER
Borrower covenants and agrees that, from the date hereof
until payment in full of the Note, unless Lender or its assigns
shall otherwise expressly consent in writing, it will not enter
into any agreement or other commitment the performance of which
would constitute a breach of any of the covenants contained in
this Loan Agreement, including but not limited to the following
covenants:
SECTION 5.01: ENCUMBER THE ACQUISITION ASSETS
Borrower will neither create nor suffer to exist any
mortgage, pledge, lien, charge, or encumbrance, including liens
arising from judgments on the Acquisition Assets except as
provided for by the SBA Authorization and Debenture Guaranty
Agreement No. CDC 848 941 30 05 CA.
SECTION 5.02: SELL THE ACQUISITION ASSETS
Borrower will not sell, convey, or suffer to be conveyed,
lease, assign, transfer or otherwise dispose of the Acquisition
Assets unless approved in writing by the Small Business
Administration. This agreement and the Note are secured by a
Deed of Trust which contains the following provision, among
others:
"IN THE EVENT OF SALE OR TRANSFER OF ALL OR ANY PORTION OF THE
PROPERTY DESCRIBED HEREIN, ALL SUMS REMAINING UNPAID UNDER THE
NOTE SECURED BY THIS DEED OF TRUST SHALL BECOME IMMEDIATELY DUE
AND PAYABLE AT THE ELECTION OF THE BENEFICIARY HEREIN AND NOTICE
OF SUCH ELECTION IS HEREBY WAIVED."
SECTION 5.03: CHANGE OWNERSHIP
The principals of Borrower will not permit without the
written permission of the SBA any material change in the
ownership structure, control, or operation of Borrower including
but not limited to:
1. any change in ownership of the Borrower other than
the regular public trading of Borrower s stock
2. Any change in the controlling interest of the
Borrower;
3. any merger into or consolidation with any other
person, firm, or corporation;
4. any significant issuance of any stock having ordinary
voting power for the election of governing body of
the Borrower;
5. any change in the nature of its business as carried
at the date hereof;
6. any substantial distribution, liquidation or other
disposal of the Borrower's assets to the shareholders
other than distribution of dividends in the normal
course of business.
SECTION 5.04: BORROWER OWNERSHIP OF LENDER
During the term of the Loan, neither the Borrower nor its
affiliates nor its principals nor its close associates will
acquire, either directly or indirectly, an ownership position or
interest in the Lender in excess of l0% of the votes or shares of
the Lender.
ARTICLE VI
EVENTS OF DEFAULT
The entire unpaid principal of the Note, and the interest
then accrued thereon, shall become and be immediately due and
payable upon the written demand of the Lender or its Assigns,
without any other notice or demand of any kind or any presentment
or protest, if any one of the following events (hereafter an
"Event of Default") shall occur and be continuing at the time of
such demand, whether voluntarily or involuntarily, or without
limitation, occurring or brought about by operation of law or
pursuant to or in compliance with any judgment, decree or order
of any court or any order, rules or regulation of any
administrative or governmental body, provided, however, that such
sum shall not be then payable if Borrower's payments have been
expressly waived in writing, or the time for making the
Borrower's payments has been expressly extended by the SBA in
writing:
SECTION 6.01: NON-PAYMENT OF LOAN
If the Borrower shall fail to make payment when due of any
installment of principal on the Note, or interest accrued thereon
and if the default shall remain unremedied for fifteen (l5) days;
SECTION 6.02: NON-PAYMENT OF OTHER INDEBTEDNESS
If default shall be made in the payment when due of any
installment of principal or of interest on any of the Borrower's
other indebtedness and if such default shall remain unremedied
for fifteen (l5) days;
SECTION 6.03: INCORRECT REPRESENTATION OR WARRANTY
If any representation or warranty contained in, or made in
connection with the execution and delivery of, this Loan
Agreement, or in any certificate furnished pursuant hereto, shall
prove to have been incorrect when made in any material respect;
SECTION 6.04: DEFAULT IN COVENANTS
If the Borrower shall default in the performance of any
other term, covenant, or agreement contained in this Loan
Agreement, and such default shall continue unremedied for thirty
(30) days after either:
l. it becomes known to Borrower or an executive officer
of the Guarantor; or
2. written notice thereof shall have been duly given to
the Borrower by the Lender;
SECTION 6.05: VOLUNTARY INSOLVENCY
If the Borrower or Guarantor shall become insolvent or
shall ease to pay its debts as they mature or shall voluntarily
file a petition in Bankruptcy or a petition seeking
reorganization, or the appointment of a receiver, trustee, or
liquidation for it or a substantial portion of its assets or to
effect a plan or other arrangement with creditors, or shall be
adjudicated bankrupt, or shall make a voluntary assignment for
the benefit of its creditors;
SECTION 6.06: INVOLUNTARY INSOLVENCY
If any involuntary petition shall be filed against the
Borrower or Guarantor under any bankruptcy, insolvency or similar
law or seeking the reorganization of or the appointment of any
receiver, trustee, or liquidator for the Borrower or Guarantor,
or of a substantial part of the property of the Borrower or the
Guarantor, or if a writ or warrant of attachment or similar
process shall be issued against a substantial part of the
property of the Borrower or the Guarantor, and such petition
shall not be dismissed or such writ or warrant of attachment or
similar process shall not be released or bonded within thirty
(30) days after filing of levy;
SECTION 6.07: JUDGMENTS
If any final judgment for the payment of money that is not
fully covered by liability insurance and is in excess of
$l0,000.00 shall be rendered against the Borrower or the
Guarantor, and within thirty (30) days, shall not be discharged,
or an appeal therefrom taken and execution thereon effectively
stayed pending such appeal and, if such judgment is affirmed on
appeal, the same shall not be discharged within thirty (30) days.
ARTICLE VII
HAZARDOUS MATERIALS
SECTION 7.01
Lender and Borrower agree as follows with respect to the
existence or "Use" of "Hazardous Materials" (as hereinafter
defined) on the Premises:
a) Borrower, at its sole cost, shall comply with all
local, state, and federal laws, regulations and permit conditions
and requirements relating to the generation, manufacture,
above-ground storage, underground storage, use, handling,
management, processing, treatment, recycling, transportation, or
disposal (herein collectively referred to as "Use") of Hazardous
Materials on the Premises. If Borrower (or any of Borrower's
agents, employees, contractors, licensees or invitees) intends to
commence Use of any Hazardous Materials on the Premises (except
for reasonable quantities of gasoline, motor oil or similar
petroleum products used in connection with automobiles and other
vehicles), Borrower shall notify Lender in writing at least
twenty (20) days prior to (i) the first appearance on the
Premises of the respective Hazardous Material, indicating in such
notice the nature of the Hazardous Material and the intended
manner and extent of such Use; and (ii) any material increase or
change in the manner or extent of such Use. Lender shall have
the right, in its sole discretion, to approve or disapprove of
any such Use of Hazardous Material on the Premises, and may as a
condition to approving any such Use, impose such requirements as
are at that time dictated by the S.B.A. and may require the
depositing by Borrower with Lender of appropriate insurance
and/or other security to ensure that Lender and the Premises are
reasonably protected against any potential liability or loss that
may arise therefrom. No approval by Lender shall relieve
Borrower from any of its other obligations under this Article.
(b) If the presence of Hazardous Materials on the
Premises caused or permitted by Borrower, its agents, employees,
contractors, licensees or invitees results in contamination or
deterioration of the air, water, soil or of any improvements on
or under the Premises or on or under any adjacent property, or
results in any exposure of any person, including but not limited
to Borrower's employees, to Hazardous Materials in violation of
any local, state, or federal law or regulation, then Borrower
shall promptly take any and all action which may be necessary
or appropriate to clean up such contamination in the manner and
to the extent (i) required by applicable law or regulation or by
any applicable governmental agency, (ii) as may be a condition to
the future issuance or continuing effectiveness of any
governmental permit or approval which relates to the use,
occupancy, licensing or development of the Premises or all or any
part of the property of which the Premises form a part, (iii) as
may be reasonably required by Lender, or (iv) as may be required
by any actual or prospective lender with respect to the Premises.
(c) Borrower shall be solely responsible for and shall
defend, indemnify, and hold Lender (including all prior and
future owners of the Premises or any leasehold or other interest
therein) and its partners, lenders, agents and employees free and
harmless from and against any and all claims, causes of action,
costs, fines, penalties, liabilities and expenses, including
attorneys' fees and costs and experts' and consultants' fees and
costs, incurred or arising in any way out of or in connection
with any Use of Hazardous Materials by Borrower, its agents,
employees, contractors, licensees or invitees, including but not
limited to all costs and expenses associated with any permit
compliance, investigation, testing, monitoring, feasibility
studies, remedial action, planning, removal, clean-up, abatement,
restoration work or other action required to return the Premises
to its condition existing prior to the appearance of any such
Hazardous Materials on the Premises. The indemnity obligation of
Borrower hereunder shall survive any expiration or earlier
termination of the term of this Lease.
(d) Lender may cause or permit testing wells to be
installed on the Premises or on adjoining property in locations
selected by Lender or its consultants or agents, or by any
applicable regulatory authority and may cause the soil and/or
ground water to be tested to detect the presence of Hazardous
Material by the use of such tests as Lender or its consultants or
agents or any applicable regulatory authority may deem
appropriate for such purposes. The cost of such tests and of the
installation, maintenance, repair and replacement of such wells
shall be paid by Lender, except that Borrower shall pay the cost
thereof if the presence of Hazardous Materials is detected which
is reasonably believed to have been caused by Borrower, its
agents, employees, contractors, licensees or invitees.
(e) As used herein, the term "Hazardous Material" means
any hazardous or toxic substance, material or waste, the storage,
use or disposition of which is or becomes regulated by any local
governmental authority, the State of California or the United
States Government. The term "Hazardous Material" includes,
without limitation, any material or substance which is (i)
"hazardous material", "hazardous substance", "hazardous waste",
or "extremely hazardous waste" as defined in California Health
and Safety Code Sections 25501(j), 25316, 25501(k), 25115 and
25117; (ii) any waste listed under Article 9 or defined as
hazardous or extremely hazardous pursuant to Article 11 of Title
22 of the California Administrative Code, Division 4, Chapter 20;
(iii) any "hazardous waste" as defined or listed pursuant to
Section 1004 of the Federal Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901 et seq. (42 U.S.C. Section 6903),
(iv) any"hazardous substance" as defined in Section 101 of the
Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C. Section 9601), (v)
any material, substance, or waste defined or listed as a
"hazardous material", "hazardous substance", "hazardous waste" or
other similar designation by any regulatory scheme of the State
of California, the U.S. Government, or any local or regional
governmental agency having jurisdiction over the Premises, that
is similar to the foregoing; (vi) any chemical known to the State
of California to cause cancer or reproductive toxicity that is
subject to California Health and Safety Code Sections 25249.5 and
following; and/or (vii) the successor to any of the
aforementioned statutes, rules or regulations.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01: NO WAIVER BY FAILURE TO EXERCISE
No failure or delay on the part of the Lender in exercising
any right, power, or remedy hereunder shall operate as a waiver
thereof, nor shall any single partial exercise of any such
right, power, or remedy preclude any other or further exercise
thereof or the exercise of any other right, power or remedy
hereunder.
SECTION 8.02: NO NON-WRITTEN WAIVER
No modification or waiver of any provision of this Loan
Agreement or of the Note, nor any consent to any departure by the
Borrower therefrom, shall in any event be effective unless the
same shall be in writing and then such waiver or consent shall be
effective only in the specific instance and for the specific
purpose for which given.
SECTION 8.03: NO RIGHT TO NOTICE
No notice to or demand on the Borrower in any case shall
entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
SECTION 8.04: AMENDMENTS
The Borrower and the Lender or its Assigns, with the
concurrence of the SBA, hereby expressly reserve all rights to
amend any provisions of this Agreement, to consent to or waiver
any departure from the provisions of the Note, and to release or
otherwise deal with any collateral security for payment of the
Note provided, however, that all such amendments be in writing
and executed by the Lender or its Assigns, the Borrower
and the SBA.
SECTION 8.05: NOTICES
All notices, consents, requests, demands and other
communications hereunder shall be in writing and shall be deemed
to have been duly given to a party hereto if mailed by certified
mail, prepaid, to the parties at their respective addresses set
forth at the end of this Loan Agreement or to such other
addresses as any party may have designated in writing to any
other party hereto.
SECTION 8.06: PAYMENTS
The Borrower will make payments to the Lender in accordance
with the terms and conditions and instructions contained in the
Central Servicing Agent Agreement (SBA Form 1506).
SECTION 8.07: SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All agreements, representations, and warranties made by the
Borrower herein or any other document or certificate delivered to
the Lender in connection with the transactions contemplated by
this Loan Agreement shall survive the delivery of this Agreement,
the Note and the Security Agreements hereunder and shall continue
in full force and effect so long as the Note is outstanding.
SECTION 8.08: SUCCESSORS AND ASSIGNS
This Loan Agreement shall be binding upon the Borrower, its
Successors, and assigns, except that the Borrower may not assign
or transfer its rights without prior written consent of the
Lender and the SBA. This Agreement shall insure to the
benefit of the Lender, its Successors and Assigns, and, except as
otherwise provided in particular provisions hereof, all
subsequent holders of the Note.
SECTION 8.09: COUNTERPARTS
This Loan Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
SECTION 8.10: GOVERNING LAW
This Loan Agreement and the Note and Security Agreements,
Financing Statements and Mortgage shall be deemed contracts made
under the laws of the State of California and for all purposes
shall be construed in accordance with the laws of California.
SECTION 8.11: ARTICLE AND SECTION HEADINGS
Article and section headings used in this Agreement are for
convenience only and shall not affect the construction of this
Agreement.
DATED: June 17, 1996
Borrower: Lender:
Real Goods Trading Corporation California Statewide Certified
13771 South Highway 101 Development Corporation
Hopland, CA 95449 29 C Street
Davis, CA 95616
By: [S]John C. Schaeffer By:[S]Barbara A. Vohryzek
John C. Schaeffer Barbara A. Vohryzek
President Executive Director
By: [S]Donna Montag
Donna Montag
Secretary
<PAGE>
OMB Approval No. 3245-0201 expiration Date 11-30-90
SBA LOAN NO. CDC 848 94I 30 05 CA
SMALL BUSINESS ADMINISTRATION (SBA) GUARANTY
June 17, 1996
California Statewide Certified In order to induce Development
Corporation hereinafter called "Lender") to make a loan or (SBA
or other Lending Institution) loans, or renewal or extension
thereof, to Real Goods Trading Corporation (hereinafter called
"Debtor"), the Undersigned hereby unconditionally guarantees to
Lender, its successors and assigns, the due and punctual payment
when due, whether by acceleration or otherwise, in accordance
with the terms thereof, of the principal of and interest on and
all other sums payable, or stated to be payable, with respect to
the note of the Debtor, made by the Debtor to Lender dated June
17, 1996 in the principal amount of $604,000.00 , with interest
to the rate of * per cent per annum. Such note, and the
interest thereon and all other sums payable with respect thereto
are hereinafter collectively called "Liabilities". As security
for the performance of this guaranty the Undersigned hereby
mortgages, pledges, assigns, transfers and delivers to Lender
certain collateral (if any), listed in the schedule on the
reverse side hereof. The term "collateral" s used herein shall
mean any funds, guaranties, agreements or there property or
rights or interest of any nature whatsoever, or the proceeds
thereof, which may have been, are, or hereafter may be,
mortgaged, pledged, assigned, transferred or delivered directly
or indirectly by or on behalf of the Debtor or the Undersigned or
any other party to Lender or to the holder of the aforesaid note
of the Debtor, or which may have been, are, or hereafter may be
held by any party as trustee or otherwise, as security, whether
immediate or underlying, for the performance of this guaranty or
the payment of the Liabilities or any of them or any security
therefor.
The Undersigned waives any notice of the incurring by the Debtor
at any time of any of the Liabilities, and waives any and all
presentment, demand, protest or notice of dishonor, nonpayment,
or other default with respect to any of the Liabilities and any
obligation of any party at any time comprised in the collateral.
The Undersigned hereby grants to Lender full power, in its
uncontrolled discretion and without notice to the undersigned,
but subject to the provisions of any agreement between the Debtor
or any other party and Lender at the time in force, to deal in
any manner with the Liabilities and the collateral, including,
but without limiting the generality of the foregoing, the
following powers:
(a) To modify or otherwise change any terms of all or any part of
the Liabilities or the rate of interest thereon (but not to
increase the principal amount of the note of the Debtor to
Lender), to grant any extension or renewal thereof and any other
indulgence with respect thereto, and to effect any release,
compromise or settlement with respect thereto;
(b) To enter into any agreement of forbearance with respect to
all or any part of the Liabilities, or with respect to all or any
part of the collateral, and to change the terms of any such
agreement;
(c) To forbear from calling for additional collateral to secure
any of the Liabilities or to secure any obligation comprised in
the collateral;
(d) To consent to the substitution, exchange or release of all or
any part of the Liabilities, whether or not the collateral, if
any received by Lender upon any such substitution, exchange or
release shall be of the same or of a different character or value
than the collateral surrendered by Lender;
(e) In the event of the nonpayment when due, whether by
acceleration or otherwise, of any of the Liabilities, or in the
event of default in the performance of any obligation comprised
in the collateral, to realize on the collateral or any part
thereof, as a whole or in such parcels or subdivided interests as
Lender may elect, at any public or private sale or sales, for
cash or on credit or for future delivery, without demand,
advertisement or notice of the time or place of sale or any
adjournment thereof (the Undersigned hereby waiving any such
demand, advertisement and notice to the extent permitted by law),
or by foreclosure or otherwise, or to forbear from realizing
thereon, all as Lender in its uncontrolled discretion may deem
proper, and to purchase all or any part of the collateral for its
own account at any such sale or foreclosure, such powers to be
exercised only to the extent permitted by law.
* Interest to be determined at the time when the Debenture of the
Lender is sold as per the SBA Authorization referencing the above
SBA Loan Number.
The obligations of the Undersigned hereunder shall not be
released, discharged or in any way affected, nor shall the
Undersigned have any rights or recourse against Lender, by
reason of any action Lender may take or omit to take under the
foregoing powers.
In case the Debtor shall fail to pay all or any part of the
Liabilities when due, whether by acceleration or otherwise,
according to the terms of said note, the Undersigned, immediately
upon the written demand of Lender, will pay to Lender the amount
due and unpaid by the Debtor as aforesaid, in like manner as if
such amount constituted the direct and primary obligation of the
Undersigned. Lender shall not be required, prior to any such
demand on, or payment by, the Undersigned, to make any demand
upon or pursue or exhaust any of its rights or remedies against
the Debtor or others with respect to the payment of any of the
Liabilities, or to pursue or exhaust any of its rights or
remedies with respect to any part of the collateral. The
Undersigned shall have no right of subrogation whatsoever with
respect to the Liabilities or the collateral unless and until
Lender shall have received full payment of all the Liabilities.
The obligations of the Undersigned hereunder, and the right of
Lender in the collateral, shall not be released, discharged or in
any way affected, nor shall the Undersigned have any rights
against Lender by reason of the fact that any of the collateral
may be in default at the time of acceptance thereof by Lender or
later; nor by reason of the fact that a valid lien in any of the
collateral may not be conveyed to, or created in favor of,
Lender; nor by reason of the fact that any of the collateral may
be subject to equities or defenses or claims in favor of others
or may be invalid or defective in any way; nor by reason of the
fact that any of the Liabilities may be invalid for any reason
whatsoever; nor by reason of the fact that the value of any of
the collateral, or the financial condition of the Debtor or of
any obligor under or guarantor of any of the collateral, may not
have been correctly estimated or may have changed or may
hereafter change; nor by reason of any deterioration, waste, or
loss by fire, theft, or otherwise of any of the collateral,
unless such deterioration, waste or loss be caused by the willful
act or willful failure to act of Lender. The Undersigned agrees
to furnish Lender, or the holder of the aforesaid note of the
Debtor, upon demand, but not more often than semiannually, so
long as any part of the indebtedness under such note remains
unpaid, a financial statement setting forth, in reasonable
detail, the assets, liabilities, and net worth of the
Undersigned.
The Undersigned acknowledges and understands that if the Small
Business Administration (SBA) enters into, has entered into, or
will enter into, a Guaranty Agreement, with Lender or any other
lending institution, guaranteeing a portion of Debtor's
Liabilities, the Undersigned agrees that it is not a co-guarantor
with SBA and shall have no right of contribution against SBA. The
Undersigned further agrees that all liability hereunder shall
continue notwithstanding payment by SBA under its Guaranty
Agreement to the other lending institution.
The term "Undersigned" as used in this agreement shall mean the
signer or signers of this agreement, and such signers, if more
than one, shall be jointly and severally liable hereunder. The
Undersigned further agrees that all liability hereunder shall
continue notwithstanding the incapacity, lack of authority,
death, or disability of any one or more of the Undersigned, and
that any failure by Lender or its assigns to file or enforce a
claim against the estate of any of the Undersigned shall not
operate to release any other of the Undersigned from liability
hereunder. The failure of any other person to sign this guaranty
shall not release or affect the liability of any signer hereof.
Guarantor waive all rights and defense arising out of an election
of remedies by the creditor, even though that election of
remedies, such as a nonjudicial foreclosure with respect to
security for a guaranteed obligation, has destroyed the
guarantor's rights of subrogation and reimbursement against the
principal by the operation of Section 580d of the Code of Civil
Procedure or otherwise.
[S]JOHN C. SCHAEFFER
John C. Schaeffer
NOTE-- Corporate guarantors must execute guaranty in corporate
name, by duly authorized officer, and seal must be affixed and
duly attested; partnership guarantors must execute guaranty in
firm name, together with signature of a general partner. Formally
executed guaranty is to be delivered at the time of disbursement
of loan.
(LIST COLLATERAL SECURING THE GUARANTY)
In consideration of the Guaranty by the Small Business
Administration of a Debenture in the amount of $604,000.00 issued
by CALIFORNIA STATEWIDE CERTIFIED DEVELOPMENT CORPORATION (which
Debenture is identified as REAL GOODS TRADING CORPORATION) said
CALIFORNIA STATEWIDE CERTIFIED DEVELOPMENT CORPORATION assigns
and transfers all interest herein to the U.S. SMALL BUSINESS
ADMINISTRATION
CALIFORNIA STATEWIDE CERTIFIED DEVELOPMENT CORPORATION
By:[S] BARBARA A. VOHRYZEK
Barbara A. Vohryzek, Executive Director
Attest:[S]KAREN L. GODELL
Karen L. Goodell
<PAGE>
U. S. Small Business Administration
Certified Development Company Program
"504" NOTE
Loan Number CDC 848 941 30 05 CA
Ukiah, California
(City and State)
$ 604,000 00 (Date) June 17, 1996
For value received, the Undersigned promises to pay to the order
of California Statewide Certified Development Corporation, Payee
(development company), at its office in (City and State) Davis,
California or upon assignment or transfer of this Note by the
Payee, and written notice thereof to the Undersigned, at such
other place as may be designated from time to time by said
assignee or transferee, Six hundred four thousand dollars,
(Write out amount) with interest on the outstanding balance at
7.77% per annum commencing on September 11, 1996 (date of
Debenture).
Loan payments shall be made in equal installments, each in the
amount of $4,962.82, commencing on the first day of
September 1, 2016, and continuing due and payable on the
first day of each month thereafter until September 11, 2016, when
the full unpaid balance of principal and interest shall become
due and payable. In addition to the aforesaid loan payments,
Undersigned's total monthly obligation shall include the service
fees set forth in the Servicing Agent Agreement (SBA Form 1506)
attached to and incorporated into this Note.
This Promissory Note evidences and related Collateral is given,
to secure a loan made by the Payee to the Undersigned and such
Note and Collateral will be assigned by Payee to the Small
Business Administration (SBA) to secure the guaranty by SBA
pursuant to 503(a) of the Small Business Investment Act [15
U.S.C. 697(a)], of a Debenture to be issued and sold by the
Payee (the "Debenture"), which is hereby incorporated herein by
reference.
All payments under this note shall be applied in this order: (1)
to the servicing fees set forth in the Servicing Agent Agreement,
(2) to interest, (3) to principal, (4) to the late fee set forth
in this Note.
LATE CHARGE
In the event Payee or its Agent or assignee accepts a late
payment after the fifteenth day of the month in which such
payment is due, the Undersigned agrees to pay a late payment
charge equal to five percent of the late amount or $100.00,
whichever is greater, as compensation for additional collection
efforts.
DEFINITIONS
The term "Indebtedness" as used herein shall mean the
indebtedness evidenced by this Note, including principal,
interest, service fees, late payment charges, and expenses
including but not limited to the expenses related to the
care and preservation of Collateral and interest at the note rate
thereon, whether contingent, now due or hereafter to become due,
and the stated prepayment premium, if applicable. The term
"Collateral" as used in this Note shall mean any funds,
guaranties, or other property, or rights therein of any nature
whatsoever, or the proceeds thereof, which are, or hereafter may
be hypothecated, directly or indirectly, by the Undersigned or
others, in connection with, or as security for, the Indebtedness
or any part thereof. The Collateral, and each part thereof, shall
secure the Indebtedness and each part thereof. The covenants and
conditions set forth or referred to in any instruments of
hypothecation constituting the Collateral are hereby incorporated
in this Note as covenants and conditions of the Undersigned with
the same force and effect as though such covenants and conditions
were fully set forth herein. The term "CSA" shall mean the
Central Servicing Agent appointed by the development company (SBA
Form 1506) and accepted by the Undersigned to receive all
payments by the Undersigned under this Note. The term
"Undersigned" shall mean the borrower under this Note and, if the
operating small concern for the benefit of which this loan is
made is not the borrower, such operating small concern.
PREPAYMENT
Payment of the entire outstanding balance of the Indebtedness may
be made prior to the maturity date hereof, timing to be arranged
with Payee or SBA as assignee but no partial prepayments may be
made. The amount required to prepay this Note shall be the
aggregate of the Indebtedness including interest to the
prepayment (repurchase) date, and any prepayment premium
required by the schedule to be attached to this Note and
incorporated by this reference. For purposes of prepayment the
repurchase date is the next semi-annual payment date on the
Debenture. The Undersigned must make a written request for
prepayment to the payee or SBA as assignee at least forty-five
(45) days before the prepayment date. Ten (10) business days
prior to the scheduled prepayment date the undersigned shall
cause to be transferred by wire a nonrefundable good faith
deposit of one thousand dollars ($1,000) to the CSA. Such deposit
shall be applied in full to the repurchase price of said
debenture and shall be forfeited if undersigned fails to pay the
designated total prepayment amount to the CSA on the designated
prepayment date, as compensation for the cost of arranging the
failed prepayment.
ACCELERATION
The Indebtedness shall immediately become due and payable, upon
the appointment of a receiver or liquidator, whether voluntary or
involuntary, for the Undersigned or for any of its property, or
upon the filing of a petition by or against the Undersigned under
the provisions of any State or Federal insolvency law or under
the provisions of the Bankruptcy Code of 1978 or upon the making
by the Undersigned of an assignment for the benefit of its
creditors. Payee with the consent of SBA, or SBA as assignee is
authorized to declare all or any part of the Indebtedness
immediately due and payable upon the happening of any of the
following events: (1) Failure to pay any part of the Indebtedness
when due; (2) nonperformance by the Undersigned of any agreement
with, or any condition imposed by, the development company or
SBA; (3) failure of the Undersigned or any person acting on
behalf of the Undersigned to disclose any material fact, in any
application, declaration or other document delivered to the
development company or SBA or any misrepresentation by or for the
benefit of the Undersigned in such document; (4) the
reorganization, merger or consolidation of the Undersigned
without prior written consent of the development company and SBA,
or the making of an agreement therefor; (5) the sale of the
Collateral, or any part of it or any interest in it, or any
agreement that the Collateral will be alienated by the
Undersigned, or any alienation of the Collateral by operation of
law or otherwise; (6) the Undersigned's failure duly to account,
to Payee's or SBA's (as assignee) satisfaction, at such time or
times as may be required, for any of the Collateral, or proceeds
thereof, coming into the control of the Undersigned; (7) the
institution of any suit affecting the Undersigned deemed by SBA
to affect adversely its interest hereunder in the Collateral or
otherwise; (8) any change, without prior written approval by SBA,
affecting ten or more percent in the legal or equitable ownership
of the Undersigned; (9) any change in the respective ownerships
of the Undersigned; (10) if the Undersigned and/or its affiliates
acquire directly or indirectly an ownership interest of ten or
more percent in the development company; (11) any other event
prohibited by the related security or other instruments; or (12)
any violation by the Undersigned of SBA regulations. Payee's or
SBA's as assignee failure to exercise its rights under this
paragraph shall not constitute a waiver thereof. Upon
acceleration pursuant to this paragraph, the indebtedness shall
be computed in the same manner as is set forth for the prepayment
amount in the preceding paragraph captioned "Prepayment".
COLLATERAL
Upon the nonpayment of the Indebtedness, or any part thereof,
when due, whether by acceleration or otherwise, Payee with SBA's
consent or SBA as assignee is empowered to sell, assign, and
deliver the whole or any part of the Collateral at public or
private sale. After deducting all expenses incidental to such
sale or sales, Payee or SBA as assignee may apply the proceeds
thereof to the payment of the Indebtedness as it shall deem
proper. The Undersigned hereby waives all rights to redemption or
appraisement whether before or after sale. Payee with SBA's
consent or SBA as assignee is further empowered, to convert into
money all or any part of the Collateral, by suit or otherwise,
and to surrender, compromise, release, renew, extend, exchange,
or substitute any item of the Collateral in transactions with the
Undersigned or any third party. Whenever any item of the
Collateral shall not be paid when due, or otherwise shall be in
default, whether or not the Indebtedness, or any part thereof,
has become due, Payee or SBA as assignee shall have the same
rights and powers with respect to such item of the Collateral
as are granted in respect thereof in this paragraph in case of
nonpayment of the Indebtedness, or any part thereof, when due.
None of the rights, remedies, privileges, or powers of Payee or
SBA as assignee expressly provided for herein shall be exclusive,
but each of them shall be cumulative with and in addition to
every other such power now or hereafter existing in favor of
Payee or SBA as assignee, whether at law or in equity, by statute
or otherwise.
The Undersigned agrees to take all necessary steps to administer,
supervise, preserve, and protect the Collateral; and regardless
of any action taken by Payee or SBA as assignee, there shall be
no duty upon Payee or SBA as assignee in this respect. The
Undersigned shall pay all expenses of any nature, including but
not limited to reasonable attorney's fees and costs, which Payee
or SBA as assignee may deem necessary in connection with the
satisfaction of the Indebtedness or the administration,
preservation (including, but not limited to, adequate insurance
of), or the realization upon the Collateral. Payee with SBA's
consent or SBA as assignee is authorized to pay at any time and
from time to time any or all of such expenses, add the amount of
such payment to the amount of the Indebtedness, and charge
interest thereon at the rate specified herein with respect to the
principal amount of this Note.
The security rights of Payee or SBA as assignee hereunder shall
not be impaired by any indulgence, including but not limited to
(a) any renewal, extension, or modification which Payee or SBA
as assignee may grant with respect to the Indebtedness or any
part thereof, or (b) any surrender, compromise, release,
exchange, or substitution which Payee or SBA as assignee may
grant in respect of the Collateral, or (c) any indulgence granted
in respect to any endorser, guarantor, or surety. The Payee or
SBA as assignee of this Note, the Collateral, any guaranty, and
any other document (or any of them), sold, transferred, or
pledged, shall forthwith become vested with and entitled to
exercise all the powers and rights given by this Note as if said
purchaser, transferee, or pledgee were originally named as Payee
in this Note.
Real Goods Trading Corporation
By:[S]DONNA MONTAG By:[S]JOHN C. SCHAEFFER
Donna Montag, Secretary John C. Schaeffer, President
In consideration of the guarantee by Small Business
Administration of a Debenture in the amount of $604,000.00,
issued by California Statewide Certified Development
Corporation, (Development Company) (which Debenture is identified
as Small Business. Project Real Goods Trading Corporation) said
California Statewide Certified Development Corporation hereby
assigns and transfers all rights, title and interest in this Note
to the Small Business Administration.
California Statewide Certified Development Corporation
By: [S]BARBARA A. VOHRYZEK
Barbara A. Vohryzek,
Executive Director
Prepayment Schedule
Prepayment of the entire outstanding balance of the Indebtedness
may be made prior to the maturity date hereof, but no partial
prepayments may be made. The actual amount necessary to prepay
the Indebtedness during the term on the loan will be a
nonrefundable $1,000.00 deposit plus an amount equal to the
outstanding principal balance of the Debenture, plus interest
accrued and unpaid thereon to the next semi-annual payment date
on the Debenture, plus a prepayment premium ("PP"), if and,
determined as follows:
PP = D(I x P), where
D = the remaining principal balance of the Debenture I = the
interest rate stated on the face of the Debenture expressed in
decimal points
P = the factor set forth below for the applicable year:
<TABLE>
<C> <C>
Year P
1 1.00
2 .90
3 .80
4 .70
5 .60
6 .50
7 .40
8 .30
9 .20
10 .10
11 end "hereafter .0
</TABLE>
This Schedule is incorporated into the promissory Note of the
borrower by the paragraph entitled "Prepayment" on page 2 of the
Note.
[S]J. S.
Borrower's
Initials
DELOITE AND TOUCHE, LLP
INDEPENDENT AUDITORS' REPORT
We consent to the Incorporation by reference in Registration Statement No.
333-15991 Real Goods Trading Corporation on Form S-8 of our report dated
May 9, 1997, appearing in this Annual Report on Form 10-KSB of Real Goods
Trading Corporation for the year ended March 31, 1997.
[S]DELOITTE AND TOUCHE, LLP
Deloitte and Touche, LLP
Oakland, California
May 9, 1997
