[DOCUMENT-COUNT] 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON JULY 1, 1997 REGISTRATION NO. 33 - _______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
________________________________
Real Goods Trading Corporation
(Exact Name Of Small Business Issuer In Its Charter)
CALIFORNIA
(State or Other Jurisdiction of Incorporation or Organization)
5961
(Primary Standard Industrial Classification Code Number)
68-0227324
(I.R.S. Employer Identification No.)
___________________________________
555 LESLIE STREET
UKIAH, CALIFORNIA 94582
(707) 468-9292
(Address, including zip code, and telephone number, including
area code, of Principal Executive Offices and Principal Place of
Business)
___________________________________
JOHN SCHAEFFER
REAL GOODS TRADING CORPORATION
555 Leslie Street
Ukiah, California 94582
(707) 468-9292
(Name, Address and Telephone Number of Agent for Service)
___________________________________
COPIES TO:
BARRY REDER, ESQ.
COBLENTZ, CAHEN, MCCABE & BREYER LLP
222 KEARNY STREET, 7TH FLOOR
SAN FRANCISCO, CALIFORNIA
(415) 391-4800
___________________________________
<PAGE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are
to be offered on a delayed or continuous basis pursuant to Rule
415 under the Act of 1933, as amended (the "Securities Act"),
check the following box: [X]
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
<TABLE>
<CAPTION>
Title Of Each Class Of Proposed Maximum Price Amount Of
Securities To Be Register Aggregate Offering Registration Fee
<S> <C> <C>
Common Stock,
without par value $7,800,000 $2,363.64
</TABLE>
The registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Securities and
Exchange Commission, acting pursuant to said section 8(a), may
determine.
<PAGE>
REAL GOODS TRADING CORPORATION
CROSS-REFERENCE SHEET SHOWING LOCATION IN THE PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS OF PART I OF FORM SB-2
<TABLE>
<CAPTION>
ITEM REGISTRATION STATEMENT CAPTION OR LOCATION IN
NO. ITEM AND HEADING PROSPECTUS
<S><C> <C>
1. Front of Registration Statement and Outside Front Cover
Outside Front Cover of Prospectus Page
2. Inside Front and Outside Back Cover Inside Front and
Pages of Prospectus Outside Back Cover
Page
3. Summary Information and Risk Prospectus Summary,
Factors Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Securityholders Selling Securityholder
8. Plan of Distribution Outside Front Cover
Page; Plan of
Distribution
9. Legal Proceedings Business
10. Directors, Executive Officers, Management
Promoters and Control Persons
11. Security Ownership of Certain Principal Shareowners
Beneficial Owners and Management
12. Description of Securities Description of
Securities
13. Interest of Names Experts and Not Applicable
Counsel
14. Disclosure of Commission Position Management
on Indemnification for Securities
Act Liabilities
15. Organization Within Last Five Years Certain Transactions
16. Description of Business Business
17. Management's Discussion and Management's
Analysis or Plan of Operation Discussion and
Analysis
18. Description of Property Business
19. Certain Relationships and Certain Transactions
Related Transactions
20. Market for Common Equity Price Range of Common
and Related Shareholder Matters Stock; Shares Eligible
for Future Sale;
Description of
Securities
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Not Applicable
Accountants or Accounting and
financial Disclosure
</TABLE>
<PAGE>
SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED JULY 1, 1997
PROSPECTUS
1,300,000 Shares
[LOGO]
REAL GOODS TRADING CORPORATION
COMMON STOCK
_______________
This prospectus ("Prospectus") covers the sale of up to
1,000,000 shares of common stock, without par value ("Common
Stock") by Real Goods Trading Corporation (the "Company" or the
"Issuer") and the sale of up to 300,000 shares of Common Stock by
John Schaeffer, the President, Chairman and principal shareowner
of the Company (the "Selling Securityholder"). All of the shares
of common stock offered by the Company and the Selling
Securityholder hereby ("the Shares") will be sold directly by the
Company on a "best efforts" basis. The Company reserves the right
to use selling agents. There is no minimum offering amount and
no escrow of the proceeds of the sale of Shares. No underwriting
discounts, commissions or expenses are payable or applicable in
connection with the sale of the Shares. All purchases of Shares
will be allocated between the Company and the Selling
Securityholder as further described herein. Persons who wish to
purchase Shares in this offering must submit a Share Purchase
Agreement, attached hereto as Appendix A, together with the
required payment, to the Company. The minimum subscription is 25
Shares. See Selling Securityholder and Plan of Distribution.
THE COMPANY AND THE SELLING SECURITYHOLDER ARE OFFERING
INCENTIVES FOR (i) PURCHASE OF AT LEAST 500 SHARES BY OCTOBER 15,
1997 AND (ii) PURCHASE OF CERTAIN QUANTITIES OF SHARES. SEE
"PLAN OF DISTRIBUTION."
The Common Stock of the Company is quoted on the National
Association of Securities Dealers Automated Quotation System
(NASDAQ) Small Capitalization Market under the symbol RGTC and on
the Pacific Stock Exchange under the symbol RGT. On _________,
1997 the last reported sale price of the Common Stock on NASDAQ
was $____ per share and the last reported sale price on the
Pacific Stock Exchange was $____ per share. This Prospectus may
be used by the Company, the Selling Securityholder or by any
broker-dealer who may participate in sales of the Shares.
An electronic format of this Prospectus is available on the
Company's Internet World Wide Web Site at http:/www.realgoods.com
and shares may be purchased electronically at that site.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
_______________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Price to Proceeds to
Public Company(1) and
Selling Securityholder
Per Share $__________ $__________
Total $7,800,000.00 $7,800,000.00
(1) Before deducting certain estimated expenses payable by
the Company in the amount of $_________ . The Company and the
Selling Securityholder reserve the right to use registered
securities dealers as selling agents and to pay them a fee of up
to 5% of the sales price of the securities to be sold hereunder.
This also excludes the effect of volume purchase and early
purchase incentives; see "Plan of Distribution."
__________________________
The shares are being offered by the Company and the Selling
Securityholder subject to certain conditions. The Company and
the Selling Securityholder reserve the right to withdraw or
cancel such offer and reject any order, in whole or in part.
The date of this Prospectus is _______, 1997
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form
SB-2 relating to the Common Stock offered hereby. This
Prospectus, which is part of the Registration Statement, does not
contain all of the information included in the Registration
Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock
offered hereby, reference is made to the Registration Statement,
including the exhibits and schedules thereto. Statements
contained in this Prospectus concerning the provisions or
contents of any contract, agreement or any other document
referred to herein are not necessarily complete. With respect to
each such contract, agreement or document filed as an exhibit
to the Registration Statement, reference is made to such exhibit
for a more complete description of the matters involved.
The Registration Statement, including the exhibits and
schedules thereto, may be inspected and copied at prescribed
rates at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, DC 20549 and at
the Commission's regional offices at 7 World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. The Commission also
maintains a web site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission, including the Company. The
address of such site is http://www.sec.gov.
The Company is subject to the information and periodic
reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and, in accordance therewith, files
periodic reports, proxy statements and other information with the
Commission. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the
public reference facilities and regional offices referred to
above, and on the Company's Web site at http://www.realgoods.com.
Reports and other information can also be inspected at the
offices of NASDAQ and the Pacific Stock Exchange.
The Company intends to furnish to its shareowners annual
reports containing audited consolidated financial statements
certified by independent public accountants for each fiscal year
and quarterly reports containing unaudited consolidated financial
statements for the first three quarters of each fiscal year. The
Company will also make such reports available on its web site at
http:/www.realgoods.com.
The Company will provide without charge to each person who
receives a Prospectus, upon written or oral request of such
person, a copy of any of the information that was incorporated by
reference in the Prospectus (not including Exhibits to the
information that is incorporated by reference unless the Exhibits
are themselves specifically incorporated by reference). Any such
request shall be directed to the Chief Executive Officer of Real
Goods Trading Corporation at 555 Leslie Street, Ukiah, California
95482 (telephone: (707) 468-9292 Email: [email protected].)
ELECTRONIC FORMAT OF PROSPECTUS. An electronic version of this
Prospectus is available on the Company's Internet World Wide Web
Site at http://www.realgoods.com. The paper format of this
Prospectus contains descriptions and/or transcripts of material,
graphic image and audio information which is included in the
electronic format of this Prospectus. The Shares may be purchased
electronically at that site.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD
BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND
FINANCIAL DATA, INCLUDING THE FINANCIAL STATEMENTS AND NOTES
THERETO, APPEARING ELSEWHERE IN, OR INCORPORATED BY REFERENCE
INTO, THIS PROSPECTUS.
THE COMPANY
Real Goods Trading Corporation and its predecessor have sold
environmentally related products, primarily through catalogs and
retail stores, for more than 10 years. The Company's mission is
to promote and inspire an environmentally healthy and sustainable
future through its products, publications and educational
demonstrations. Except for 1996, the Company has operated at a
profit each year since it was incorporated in 1990. This
offering is being made by the Company and John Schaeffer, its
primary shareowner. The first 100,000 shares will be sold by the
Company, primarily to fund the opening of one or more additional
retail stores. Mr. Schaeffer is selling the next 250,000 shares
(approximately 11.7% of his holdings) primarily to satisfy
certain of his obligations under his Marital Settlement Agreement
and to pay the taxes on the shares so sold. The remaining
950,000 Shares will be sold 95% by the Company and 5% by the
Selling Securityholder. The Company's common stock has been
owned by the public since 1991; it is traded on the Pacific Stock
Exchange, the NASDAQ Small Capitalization Market and at the
Company's World Wide Web site http://www.realgoods.com.
THE OFFERING
Common Stock offered
hereby by the Company 1,000,000 shares of Common Stock
Common Stock offered hereby by
the Selling Securityholder 300,000 shares of Common Stock
Offering price $_____ per share of Common Stock
Minimum subscription $_______ or 25 shares
Use of proceeds Up to the first $600,000 raised
will be used to pay the expenses
of the offering and to open
additional retail stores. The
next $1,500,000 of common stock
will be sold by the Selling
Securityholder. All remaining
proceeds will be divided 95% to
the Company and 5% to the
Selling Securityholder. The
funds raised in excess of that
amount, supplemented by borrowed
funds to the extent necessary,
will be used to open additional
stores, to expand the Company's
product offerings and to augment
working capital. See Use of
Proceeds.
Risk Factors The purchase of Shares offered
hereby involves a high degree
of risk. See "Risk Factors."
<PAGE>
SUMMARY FINANCIAL DATA
(ALL AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
The financial data below are derived from the audited
Consolidated Financial Statements of Real Goods Trading
Corporation and subsidiary as of March 31, 1997 and 1996.
The selected financial data should be read in conjunction with
the Company's Consolidated Financial Statements and accompanying
Notes which are included herein.
<TABLE>
<CAPTION>
Years Ended March 31
1997 1996
<S> <C> <C>
Statement of Operations Data:
Sales $ 18,424 $15,432
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
Net Earnings (Loss) $363 $(175)
Net 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 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
Balance Sheet Data:
Total Assets $6,802 $6,497
Current Liabilities 968 2,052
Long-term debt 1,143 15
Shareowners' equity 4,691 4,430
</TABLE>
<PAGE>
RISK FACTORS
This Prospectus contains certain forward-looking statements.
Actual results could differ materially from those projected in
the forward-looking statements as a result of certain of the risk
factors set forth below and elsewhere in this Prospectus. An
investment in the Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider
the following risk factors, in addition to the other information
in this Prospectus, prior to making an investment in the Common
Stock offered in this Prospectus.
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.
*Real Goods and Earth Care are registered trademarks owned or
licensed by the Company.
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, replicable. 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.
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 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. Although
the Solar Living Center is located on a flood plain, the
Company believes the buildings on the property sit above the 100
year flood level. The Company maintains flood insurance for the
Site.
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.
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.
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.
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.
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.
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.
DEPENDENCE ON CERTAIN SUPPLIERS, INCLUDING FOREIGN SUPPLIERS
The Company carries approximately 350 articles in each color
catalog. No more than 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.
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' charges. The Company has experienced a
small reduction in postage costs since the third quarter due to
recently enacted postal reclassification 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.
Note: In addition to the above risks, businesses are often
subject to risks not foreseen or fully appreciated by management.
In reviewing this Prospectus, potential investors should keep
in mind other possible risks that could be important.
<PAGE>
USE OF PROCEEDS
The following table sets forth the Company s use of the
proceeds from the Company's sale of all 1,000,000 of the Shares
offered by it hereby. Although there is no minimum offering, a
column assuming the sale of 500,000 shares by the Company is
included for illustrative purposes:
<TABLE>
<CAPTION>
If $3,000,000 If $6,000,000
Sold by the Company Sold by the Company
Amount % Amount %
<S> <C> <C> <C> <C>
Total Proceeds to Company*: $3,000,000 100.% $6,000,000 100.%
Less Offering Expenses:
Commissions/Finder's Fees** (100,000) 3.33% (250,000) 4.17%
Legal and Accounting (75,000) 2.50% (75,000) 1.25%
Printing and Advertising (90,000) 3.00% (90,000) 1.50%
Postage (25,000) .83% (25,000) .42%
Filing Fees (10,000) .33% (10,000) .17%
Net Proceeds to the Company
from Offering $2,700,000 90.01.% $5,550,000 92.5%
</TABLE>
* Excludes effect of volume purchase and early purchase
incentives.
** The commission is calculated assuming the Company will be
able to raise $1,000,000 through its own sales and will pay
a 5% commission to an outside broker/dealer selling agent on
the additional sales.
There is no minimum necessary to close this offering.
Accordingly, while Management does not expect it to be the case,
it is theoretically possible that only a small number of shares
will be sold in this offering. If that occurs, the proceeds will
be added to the Company's working capital, and the Company will
finance its business plan to the extent feasible through the use
of its own capital resources and borrowed funds. The Company
will use the first $600,000 of offering proceeds to pay the
expenses of the offering and to open additional retail stores.
The next $1,500,000 of common stock will be sold by John
Schaeffer, primarily to fulfill the terms of his Marital
Settlement Agreement and pay capital gains taxes on the stock
sold. The funds raised in excess of that amount, supplemented by
borrowed funds to the extent necessary, will be used to open
additional stores as discussed below, to expand the Company's
product offerings and to augment working capital in such amounts
as Management shall deem appropriate from time to time.
USE OF NET PROCEEDS:
The Company intends to open a San Francisco Bay Area retail
store in Berkeley ("Store #3") for which it is presently
negotiating a lease. The presently identified space contains
approximately 4,000 square feet of selling space. The Company
estimates that this store would cost approximately $225,000
for renovation and displays ($56/square foot) and $300,000 for
inventory. The Company intends to open this store whether or not
this offering is successful. The cost of renovations will come
from the sale of the Amherst, Wisconsin store or liquidation of
its inventory. The $300,000 for Berkeley store inventory
will come out of the proceeds of this offering or, if the
offering is not successful, from bank borrowing. There can be no
assurance that such a store will be opened or, if opened, that it
will be successful.
Amount: $300,000
As the Company has increased its emphasis on growth of its
Renewable Energy department and its retail stores, growth of its
catalog has not kept pace. The Company believes, however, that
it has the potential to grow its catalog revenues at a rate not
less than 15% per year and potentially as high as 25% per year,
while maintaining profitability. In order to keep this
department of the Company competitive and operationally
efficient, the Company requires certain capital improvements in
infrastructure, including upgrading of phone systems, computer
systems and distribution systems. There can be no assurance that
the Company's catalog will continue to grow or that capital
improvements will result in increased efficiencies.
Amount: $200,000
The Company believes there is a great opportunity in the
emerging "Eco-Tourism" market for renewable energy systems,
particularly in Latin America. The Company intends to continue
its marketing programs to exploit these markets in order to
attempt to replicate its successes in Belize ($2,000,000
sale), the U.S. Virgin Islands ($300,000 sale) and in Mexico
($200,000 sale). In order to do this, the Company intends to
provide additional resources for its Real Goods Renewables
department, including enhanced hardware and software systems,
enhanced staffing, a possible office in Latin America, and
targeted public relations efforts towards this burgeoning market
around the world.
Amount $100,000
If Store #3 is successful and proves to be replicable, the
Company intends to open either a second store in Northern
California or a store in the Seattle, Washington area ("Store
#4"). The Company estimates that Store #4 would also cost
approximately $225,000 for renovation and displays ($56/square
foot) and $275,000 for inventory. There can be no assurance that
such a store will be opened or that it will be successful.
Amount: $500,000
The Company sees much potential in its Solar Living Center
and in its Institute for Solar Living, both located in Hopland,
California. In order to maximize the effectiveness of the site,
which drew approximately 100,000 visitors in its first year of
operation, the Company intends to build an "education and
learning center" at its Solar Living Center. This new building
would be approximately 1500 square feet and would house a
"renewable energy museum," an education and demonstration
component with interactive displays, and the classroom for the
Institute for Solar Living. The building would also house
several offices for Solar Living Center staff and for the
technicians of Real Goods Renewables to give them greater access
to the buying public and a viable venue to solicit new clients
from around the world interested in Renewable Energy Systems.
The building would also house a small "snack bar" which
would serve organic produce from the Solar Living Center's
gardens, healthy soft drinks and juices, and other snacks. The
Company estimates the cost of the building at $125/square foot
($187,500) with an additional $50,000 needed for audio visual
equipment and interactive displays, $25,000 needed for restaurant
equipment for the "snack bar," and the balance for office
furniture, equipment and fixturing.
Amount: -0- (if $3,000,000 raised)
$300,000 (if $6,000,000 raised)
The Company has evaluated the retail market in the context
of its customer demographics around the country. The Company has
determined that there are seven prime markets for its customer
demographic. These areas are the San Francisco Bay Area, the
Seattle area, the Los Angeles area, the Rocky Mountain area, the
Southwest area, the Boston area, and the New York area. Should
the first Bay Area store prove to be successful and should the
second rolled out store prove to be successful, the Company
intends to open approximately five more retail stores in the
areas listed above over the next several years (Stores #5, #6,
#7, #8 and #9). Four of these stores would be financed by the
proceeds from this public offering (equity) and the balance of
stores would be financed through debt. The Company estimates
that each of these additional stores would cost approximately
$225,000 for renovation and displays ($56/square foot) and
$275,000 for inventory. There can be no assurance that such
stores will be opened or that if opened, they will be successful.
Amount: $ 500,000 (if $3,000,000 raised)
$2,000,000 (if $6,000,000 raised)
The Company currently has two outstanding loans secured by
the Solar Living Center. One of these loans is for $568,000
bearing interest at 2.0% above the prime rate with a final
maturity date of 2021. The prime rate was 9% on May 31, 1997. The
Company believes that it may be financially prudent to pay off
this loan. The other loan, similar in amount, carries
substantial pre-payment penalties, and it may not be advisable to
repay it at this time.
Amount: -0- (if $3,000,000 raised)
$568,000 (if $6,000,000 raised)
Additions to working capital that may be made (although
actual allocations will depend upon management's judgment at the
time cash becomes available). The Company has already hired a
Retail Division Director, Doug Doll, who has rolled out mulitiple
stores for the Nature Company and Hearthsong, specialty retailers
similar to the Company. The Company intends to hire within the
next year upper- and mid-level executives and several clerical
employees.
Amount: $1,100,000 (if $3,000,000 raised)
$1,582,000 (if $6,000,000 raised)
NOTWITHSTANDING THE FOREGOING, THE COMPANY EXPRESSLY
RESERVES THE RIGHT TO USE UP TO $600,000 OF PROCEEDS TO ACQUIRE
THE COMPANY'S CAPITAL STOCK FROM SHAREOWNERS, INCLUDING JOHN
SCHAEFFER, IF HE DOES NOT SELL 200,000 OF THE SHARES HE OFFERS
HEREUNDER; PROVIDED, HOWEVER, THAT THE COMPANY WILL NOT DO SO
UNLESS IT IS ABLE TO DO SO AT A DISCOUNT FROM THE PREVAILING
MARKET PRICE.
CAPITALIZATION
There is no minimum offering; the amounts set forth below
are for illustration only:
<TABLE>
<CAPTION>
Amount Outstanding (in thousands)
if $3,000,000 if $6,000,000
As of Sold by Sold by
March 31, 1997 the Company the Company
<S> <C> <C> <C>
DEBT:
Long-term debt $1,143 $1,143 $575 (1)
Shareowners' equity:
Preferred stock 0 0 0
(without par value)
Common Stock 4,252 6,952 (2) 9,802 (3)
(without par value)
Retained earnings 439 439 439
Total shareowners'
equity 4,691 7,391 10,241
Total capitalization: $5,834 $8,534 $10,816
</TABLE>
(1) Assumes repayment of $568,000 of long-term debt.
(2) Assumes proceeds (net of offering costs) of $2,700,000.
(3) Assumes proceeds (net of offering costs) of $5,550,000.
Number of preferred shares authorized: 1,000,000 shares,
without par value; none issued. Number of common shares
authorized: 10,000,000 shares, without par value; 3,403,804
issued as of May 20, 1997.
Number of common shares reserved to meet conversion
requirements or for the issuance upon exercise of options,
warrants or rights: 700,000 are subject to issuance under
existing stock option plans. Options to purchase 268,700 shares
of common stock were outstanding on March 31, 1997.
<PAGE>
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 fiscal 1997 there were
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. 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
assetsincluding inventory, accounts receivable and mailing lists
as well as 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. 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.
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 (4,200 square feet of selling space) 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 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 Amherst, Wisconsin store,
Snow-Belt, has been 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 because it
failed to meet the Company's long- term strategic objectives.
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 17% 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 distributing 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 http://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.
I. 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.
J. LEGAL PROCEEDINGS.
The Company is not party to any material legal proceedings.
CHART APPEARS HERE
CHART APPEARS HERE
CHART APPEARS HERE
SELLING SECURITYHOLDERS
John Schaeffer, Chairman of the Board, CEO and President is
selling approximately 14% of his shares primarily to satisfy
certain of his obligations under the terms of his Marital
Settlement Agreement and to pay taxes on the shares to be sold.
Mr. Schaeffer owns 2,138,528 shares of the Company's common
stock beneficially and of record at June 17, 1997. The number of
shares to be offered for Mr. Schaeffer's account is 300,000. The
percentage of the common stock of Real Goods Trading Corporation
to be owned by Mr. Schaeffer after the offering is complete
is 41.7%.
PRICE RANGE OF COMMON STOCK
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 two fiscal years, to the extent the Company is aware
thereof.
<TABLE>
<CAPTION>
Fiscal Year Ended March 31
High Low
<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
1998:
First Quarter
(through June 30, 1997 only) 6 4-3/4
</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 5,446 shareowners of record as of June 17,
1997.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have 4,403,804
shares of Common Stock outstanding, assuming the maximum number
of Shares is sold. Of these shares, 2,307,526 shares will be
freely tradeable without restriction or further registration
under the Securities Act, except for shares purchased by
"affiliates" of the Company, which will be subject to the resale
limitations of Rule 144 under the Securities Act. As defined in
Rule 144, an affiliate of an issuer is a person who directly, or
indirectly through one or more intermediaries, controls, is
controlled by or is under common control with, such issuer, and
generally includes members of the Board of Directors and senior
management. The remaining outstanding shares (the "Restricted
Shares") are deemed "restricted securities" under Rule 144 in
that they were originally issued and sold by the Company in
private transactions in reliance upon an exemption under the
Securities Act.
In general, under Rule 144 as currently in effect, a person
(or persons whose shares are aggregated) is entitled to sell
within any three-month period Restricted Shares that were
acquired from the Company or an "affiliate" of the Company not
less than one year before the sale, in an amount that does not
exceed the greater of 1% of the then outstanding shares of Common
Stock (44,038 shares based on the number of shares to be
outstanding after the offering, if the Maximum Offering is sold)
or the average weekly trading volume in the public market during
the four calendar weeks preceding such sale. Sales under Rule
144 are also subject to certain requirements as to the manner and
notice of sale and the availability of public information
concerning the Company. A person (or persons whose shares
are aggregated) who is not an "affiliate" of the Company at the
time of sale and has not been such an "affiliate" at any time
during the three months preceding such sale, and whose Restricted
Shares were acquired from the Company or an affiliate of the
Company at least two years before the sale would be entitled
to sell such shares under Rule 144 without regard to the volume
limitations, manner-of-sale provisions, notice or public
information requirements described above.
As of the date of this Prospectus, options to purchase___________
shares of the Company's Common Stock are outstanding, __________of
which are currently exercisable. Shares of Common Stock issued
upon exercise of such options have been registered on Form S-8.
Since the commencement of public trading of the Company's stock,
trading has been sporadic and, on some days, non-existent.
Accordingly, the Company s stock price can fluctuate by a
relatively large percentage on relatively light trading volumes.
No prediction can be made as to the effect, if any, that market
sales of shares or the availability of shares for sale will have
on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of shares in the public market could
adversely affect market prices of the shares and make it more
difficult for the Company to sell equity securities in the future
at a time and price which it deems appropriate.
PLAN OF DISTRIBUTION
The Company is offering to sell, on a best efforts basis, up
to 1,000,000 newly issued shares of its Common Stock at $________
per share. In addition, John Schaeffer, the President, Chairman
and principal shareowner of the Company, is offering to sell up
to 300,000 shares of Common Stock of the Company.
The Company is offering two programs to investors to
encourage (i) early participation and (ii) purchases of larger
quantities of stock:
1. Early Purchase Inducement. For each properly completed
Share Purchase Agreement, attached hereto as Appendix A, to
purchase at least 500 shares offered hereby, accompanied by full
payment received by the Company prior to October 15, 1997, the
Company will issue a $100 gift certificate, redeemable for goods
through a Real Goods or Earth Care catalog or purchased at a
Real Goods retail store.
2. Volume Purchase Discount. The Company will offer the
following volume purchase discounts for all persons purchasing
the following numbers of shares of the Company's Common Stock to
be registered in a single name:
<TABLE>
<CAPTION>
Number of Shares Discount
<C> <C>
2500-4999 5.0%
5000-9999 7.5%
10,000-99,999 10.0%
100,000 or more 15.0%
The Company and the Selling Securityholder will bear the costs of
the Volume Purchase Discounts and the Early Purchase Inducement
pro rata to the numbers of shares sold by each in this offering.
This offering is being made directly by the Company
through written announcements, under the direction of John
Schaeffer, the Company's President and CEO. The Company will
publish announcements of the offering in its catalogs,
newsletters and Internet web site, and will mail and e-mail
copies of the announcement to its shareowners, customers and
inquirers. The announcements will provide the very limited
information permitted under applicable securities laws and will
give the Company's telephone number, mailing address and e-mail
address for requesting this Prospectus. Similar announcements
will be published in other selected media and mailed to other
selected individuals. The Prospectus will be accompanied by a
Share Purchase Agreement, attached hereto as Appendix A, and a
return envelope. The electronic prospectus will be availble on
line at the Company's website with an electronic Share Purchase
Agreement. Assistance in connection with the offering will be
available from the selling agents, if any; from John Schaeffer,
President of the Company; and from Cindy Dryden, its Shareowner
Relations Coordinator.
Compensation will be paid only to any registered securities
broker-dealer selected by the Company as a selling agent, and
then only as a percent of the offering price. No compensation
related to sales of shares will be paid to any employees of the
Company. The Company will indemnify the selling agents against
liabilities for claimed misstatements or omissions in this
Prospectus.
Only residents of those states in which the Common Stock
offered hereby has been qualified for sale under applicable
securities or Blue Sky laws may purchase shares in this
offering. Each potential investor will be required to execute a
Share Purchase Agreement, attached hereto as Appendix A, which,
among other things, requires the potential investor to certify
his or her state of residence. A potential investor who is a
resident of a state other than a state in which the Common Stock
offered hereby has been qualified for sale may request that
the Company register the shares in the state in which such
investor resides; however, the Company is under no obligation to
do so and may refuse any such request.
Except for his shares offered hereby, public sales of the
Company s Common Stock by John Schaeffer are governed by Rule 144
under the Securities Act. Generally, he may not publicly sell
more than 1 % of the total shares of the Company outstanding
within any three-month period, but if the number of shares being
traded increases substantially, an alternative limit could apply,
that is, the average weekly trading volume of the shares during
the four calendar weeks preceding the date on which notice of the
sale is filed. Rule 144 has additional requirements as to the
manner of sale, notice and availability of current public
information about the Company.
Shares may be purchased by completing and delivering the
Company's Share Purchase Agreement, attached hereto as Appendix
A, along with the purchase price by check to the Company. Within
10 days after its receipt of a Share Purchase Agreement
accompanied by a check for the purchase price, the Company will
send by electronic mail or first class mail a written
confirmation to notify the subscriber of the extent, if any, to
which such subscription has been accepted by the Company.
In addition, investors will be able to execute Share
Purchase Agreements on the Internet at the Company's web site and
purchase shares by charging to their credit cards. The Company
expects to permit persons purchasing their shares at the
Company's web site to download a non-negotiable replica of the
stock certificate which will be issued to such purchasers by the
transfer agent.
The offering will begin on the date of this Prospectus and
continue until either all of the Shares have been sold or the
Company terminates the offering.
<PAGE>
MANAGEMENT
Information about (i) each director nominee, and (ii) the only
officer of the Company who is not a director, is set forth below:
</TABLE>
<TABLE>
<CAPTION>
NAME AGE OFFICE DIRECTOR TERM
SINCE EXPIRES
<S> <C> <C> <C> <C>
John Schaeffer 47 President, Chief 1990 1997
Executive Officer and
Chairman of the Board
Stephen Morris 49 Director 1993 1997
James T. Robello 51 Director October 1995 1997
Linda Francis 48 Director May 1996 1997
John Lenser 52 Director May 1996 1997
Barry Reder 52 Director May 1996 1997
Donna Montag 49 Chief Financial Officer N/A N/A
and Secretary
</TABLE>
PROFESSIONAL EXPERIENCE OF EXECUTIVE OFFICERS AND DIRECTORS:
JOHN SCHAEFFER. Mr. Schaeffer founded the Company's
predecessor in 1986 and since 1990 has been the Company's
President, Chief Executive Officer and Chairman of the Board.
Mr. Schaeffer has been involved in retail businesses since 1978.
In 1994 Mr. Schaeffer was named California Small Businessperson
of the Year. Mr. Schaeffer received a B.A. degree in Anthropology
from the University of California at Berkeley in 1971.
STEPHEN MORRIS. Mr. Morris joined the Company's Board of
Directors in October 1993. On July 1, 1994, Mr. Morris became
Executive Vice President and Chief Operating Officer of the
Company. He resigned from such position in June, 1995. Prior to
July 1, 1994 and subsequent to June, 1995, Mr. Morris has been
the principal of Stephen Morris Associates, a provider of sales
and marketing consulting services. From 1978 to 1990, Mr. Morris
was a Sales Manager, Director of Sales and Distribution, and Vice
President, Sales and Marketing for Vermont Castings, Inc. of
Randolph, Vermont, a manufacturer of wood stoves. He is
currently the publisher at Chelsea Green Publishing Co. in
Vermont. Mr. Morris received an A.B. degree in Psychology from
Yale University in 1970.
JAMES ROBELLO. Mr. Robello joined the Company's Board of
Directors in October 1995. Mr. Robello was hired by Real Goods
as its Controller in 1991, and in August 1992 was appointed its
Chief Financial Officer. He resigned from that position in
October 1995, to become General Administrator of Santa Rosa
Anesthesia Medical Group, Inc., currently operating under the
name Anesthesia & Analgesia Medical Group, Inc. At that time he
was elected to the Board of Directors at Real Goods. Mr. Robello
served as Secretary of the Company from August 1992 to May 21,
1996. From 1983 to 1991, Mr. Robello was employed at Cray
Research, Inc., a manufacturer and distributor of supercomputers,
as a Business Controls Manager, Western Region; a Business
Manager I; and a Business Manager II, Western/Asia Pacific
Region. Mr. Robello received a B.A. in finance and business
environment from the University of Oregon in 1967.
LINDA FRANCIS. Ms. Francis joined the Company's Board of
Directors in May 1996. Ms. Francis has been a self-employed
management consultant since 1989. Ms Francis founded and ran a
non-profit corporation serving developmentally disabled persons.
Since 1995, Ms. Francis has worked with Real Goods to fine tune
its organization and corporate structure, utilizing her
experience in "open book management" and employee motivational
programs. Ms. Francis received a B.A. degree in Sociology from
Sonoma State University in 1972, an M.A. degree in Education from
Sonoma State University in 1982 and a Special Education teaching
credential from Sonoma State University in 1973.
JOHN LENSER. Mr. Lenser joined the Company's Board of
Directors in May 1996. Mr. Lenser was Chairman of the Board of
The Music Box Company from 1978 to 1991, and was President of
Hearthsong and David Kay Catalog from 1992 to 1995. Mr. Lenser
has been an independent consultant from 1994 to the present.
Mr. Lenser received a B.A. degree in 1966 and a Masters Degree in
1969 from the University of California at Berkeley.
BARRY REDER. Mr. Reder joined the Company's Board of
Directors in May 1996. Since October 1993, Mr. Reder has been a
partner at the San Francisco firm of Coblentz, Cahen, McCabe &
Breyer, a California law firm. From 1976 to October 1993, Mr.
Reder was a partner at Dinkelspiel, Donovan & Reder, a San
Francisco, California law firm that dissolved in October 1993.
Mr. Reder has served as counsel to the Company since 1990.
He is a general corporate and securities counsel for a broad
range of businesses throughout the United States. His expertise
is in mergers and acquisitions, venture capital, contracts and
real estate. Mr. Reder received a B.A. degree from Wesleyan
University in 1966 and a J.D. degree from Cornell Law School in
1969.
DONNA MONTAG. Ms. Montag joined the Company as its
Assistant Controller in 1993. She was appointed Controller of
the Company on November 8, 1995, Secretary of the Company on May
21, 1996 and Chief Financial Officer on August 6, 1996. Ms.
Montag was the Controller at Scharffenberger Cellars from 1989
until 1993. Ms. Montag received a B.A. degree in Economics from
Marymount College in 1969 and C.M.A. certification in 1996.
There is no family relationship among directors, executive
officers or persons nominated or chosen by the Company to become
directors or executive officers.
LIMITED LIABILITY FOR OFFICERS AND DIRECTORS
The California General Corporation Law provides for the
indemnification of directors, officers, employees and agents of a
corporation under certain circumstances set forth in Section 317
thereof. The California General Corporation Law permits a
corporation to indemnify its agents, typically directors and
officers, for expenses incurred or settlements or judgments paid
in connection with certain legal proceedings, subject only to
applicable limits set forth in Section 204 thereof. Only those
legal proceedings arising out of such persons or actions as
agents of the corporation may be grounds for indemnification.
The Company's Amended and Restated Articles of Incorporation
(the "Articles of Incorporation") limit the liability of
directors to the fullest extent permissible under California law.
The Articles of Incorporation authorize the Company to indemnify
agents of the Company in excess of the indemnification otherwise
permitted by Section 317 of the California General Corporation
Law, subject only to applicable limits set forth in Section 204
of the California General Corporation Law with respect to actions
for breach of duty to the corporation and its shareowners.
The Company's Bylaws provide that the Company shall
indemnify its directors, officers, employees and other agents to
the fullest extent permitted by the California Corporations Code.
The Company believes that indemnification under its Bylaws covers
at least negligence and gross negligence on the part of
indemnified parties. The Company's Bylaws also permit it to (i)
secure insurance on behalf of any officer, director, employee or
other agent for any liability arising out of his or her actions
in such capacity, regardless of whether the Bylaws would permit
indemnification and (ii) advance reasonably expected expenses in
connection with such indemnification upon receipt of the
undertaking required by Section 317(f) of the California General
Corporation Law.
The Company has entered into agreements to indemnify certain
of its directors and officers to the fullest extent permitted by
law. Under these agreements, among other things, the Company is
obligated to indemnify such persons for certain expenses
(including attorneys' fees), judgments, fines and settlement
amounts incurred by any such person in any action or proceeding,
including any action by or in the right of the Company, arising
out of such person's services as a director or officer of the
Company or any other company or other enterprise to which the
person provides services at the request of the Company.
The above provisions in the Articles of Incorporation and
Bylaws and the written indemnity agreements may have the effect
of reducing the likelihood of derivative litigation against
directors and may discourage or deter shareowners or management
from bringing a lawsuit against directors for breach of their
fiduciary duty, even though such an action, if successful, might
otherwise have benefited the Company and its shareowners.
However, the Company believes the foregoing provisions are
necessary to attract and retain qualified persons as directors,
officers or agents.
At present, there is no pending litigation or proceeding
involving any director, officer, employee or agent of the Company
where indemnification will be required or permitted. The Company
is not aware of any threatened litigation or proceeding that
might result in a claim for such indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection
with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will
be governed by the final adjudication of such issue.
EXECUTIVE AND DIRECTOR COMPENSATION
REMUNERATION OF DIRECTORS
Under the Company's Amended and Restated Non-Employee Directors'
Plan (the "Amended Directors' Plan"), Directors receive an option
to purchase 10,000 shares of the Company's Common Stock upon
election, and an option to purchase 2,000 shares of stock on the
sixth and each succeeding anniversary of service thereafter. Mr.
Reder has disclaimed participation in the Amended Directors'
Plan.
The non-employee directors of the Company each receive an annual
cash retainer fee of $6,000 per year. Also as of May 21, 1996,
each non-employee director who chairs the Compensation Committee
and Audit Committee of the Board receives an additional $3,000
per year for chairing each such committee. Mr. Reder is the
chairman of the Audit Committee and the Compensation Committee.
The directors are not reimbursed for their out-of-pocket expenses
in connection with their service on the Company's Board.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the cash, bonus and other annual
compensation received by Mr. Schaeffer, the Company's President
and Chief Executive Officer, for the three fiscal years ending on
March 31, 1995, 1996 and 1997, respectively. Mr. Schaeffer
received no bonuses, reportable perquisites, securities or
property, long term compensation awards in the form of restricted
stock awards, option or SAR awards, or payouts pursuant to any
long term incentive plan during fiscal 1997 or the two preceding
fiscal years. Mr. Schaeffer holds no options to purchase any of
the Company's securities, including Common Stock. No officer
received in excess of $100,000 of total annual salary and bonus
compensation during such period.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Name and Annual
Principal Compensation All Other
Position Fiscal Year Salary 1, 2 Compensation 3
<S> <C> <C> <C>
John Schaeffer,
President, 1997 $70,981 $8,112
Chairman of 1996 79,083 5,704
the Board, 1995 84,492 2,855
Chief Executive
Officer
</TABLE>
1 Includes amounts deferred at the election of Mr. Schaeffer
pursuant to the Company's 401(k) Plan established pursuant
to Section 401(k) of the Internal Revenue Code of 1986, as
amended.
2 Includes certain amounts accrued during the year indicated
and paid the following year.
3 Consists entirely of the cash value benefit to Mr.
Schaeffer of split-dollar life insurance premiums paid by
the Company on a $2,500,000 life insurance policy owned
by the Schaeffer 1994 Irrevocable Trust. The figure was
established using the demand loan valuation method and
assuming a long-term interest rate of 7.5%. Such
split-dollar life insurance policy and the arrangement
between Mr. Schaeffer, the Schaeffer 1994 Irrevocable
Trust and the Company regarding such policy is discussed
under "Employment Contracts, Employment Termination and
Change-in-Control Arrangements" below. Prior to fiscal
1995, Mr. Schaeffer did not receive such a benefit.
EMPLOYMENT CONTRACTS, EMPLOYMENT TERMINATION AND
CHANGE-IN-CONTROL ARRANGEMENTS
John Schaeffer has had an employment agreement with the Company
since June 1990. The agreement is renewable on an annual basis,
commencing February 28th of each year, and is terminable by Mr.
Schaeffer upon thirty (30) days' notice, or by the Company upon
sixty (60) days' notice. Mr. Schaeffer's base salary is subject
to annual increase by the Board as determined by the Board. Mr.
Schaeffer is also eligible to participate in the Company's
benefit plans, including option, profit sharing, insurance and
similar plans. If Mr. Schaeffer becomes disabled during the term
of his employment, his disability benefits will be paid through
the remaining term of the agreement. The agreement requires Mr.
Schaeffer's full-time service to the Company.
Mr. Schaeffer owns 2,138,528 shares of the Company's Common
Stock. Mr. Schaeffer and the Company have been advised that on
the death of Mr. Schaeffer the estate may be required to sell all
or a substantial portion of such shares to satisfy estate tax
obligations. The sale of such number of shares would likely
destabilize the market for the Company's stock. The Company
agreed to pay a portion of the premiums due on a life insurance
policy for Mr. Schaeffer (the "Policy"). The Policy is owned by
the Schaeffer 1994 Irrevocable Trust (the "Trust") established
for the benefit of Mr. Schaeffer's children. Pursuant to a
Split-Dollar Agreement dated May 15, 1995, among the Company, Mr.
Schaeffer and the Trustee of the Trust, the Company will be
reimbursed for the amount of the premiums it pays on the policy
at such time as the Split-Dollar Agreement is terminated, the
Trust surrenders or cancels the Policy, or when the Policy's
death benefit proceeds are paid. Such repayment has been secured
by the collateral assignment of the Policy by the Trust to the
Company.
Since January 1996, Mr. Morris has been a part-time consultant
to the Company on an hourly basis. In fiscal 1997, the Company
paid Mr. Morris $14,115 as a consultant. Mr. Morris may exercise
stock options to purchase 31,300 shares of Company Common Stock
at any time until 30 days after his term as a part-time
consultant has ended. A 25,000-share stock option granted to Mr.
Morris on March 31, 1995 was terminated on April 29, 1996.
FUTURE TRANSACTIONS
Any future transactions (including loans) between the Company
and any officer, director, principal shareholder or affiliate of
the Company will be approved by a majority of the directors
disinterested in such transactions and by a majority of the
independent outside directors, each of whom shall have determined
that the transaction is fair to the Company and its stock and
that the terms of such transaction are no less favorable to the
Company than could be obtained from unaffiliated parties.
CERTAIN TRANSACTIONS
On April 8, 1997, the Company entered into an extended line of
credit agreement for $1,500,000 from the National Bank of the
Redwoods replacing the Company's previous line of credit for
$1,000,000. Mr. Schaeffer personally guaranteed each line of
credit. On March 31, 1997 no amounts were outstanding under the
extended line of credit.
Stephen Morris, a director of the Company, currently serves as
the publisher at, and owns 10% of the Common Stock of, Chelsea
Green Publishing Co. ("CGP") in Vermont, a company which has
co-published several books with the Company and is a distributor
of the Company's Real Goods Solar Living Sourcebook. All
transactions between the Company and CGP resulted in total gross
payments of $192,892 made by the Company to CGP from April 1,
1996 through March 31, 1997.
On March 3, 1997, the Board of Directors of the Company
determined that a modest adjustment to the exercise prices of all
outstanding stock options could have a beneficial impact on the
Company both for employee morale and for other reasons. At that
time, there were outstanding options to purchase an aggregate of
233,700 shares with exercise prices ranging from $5.10 to $5.69.
On that date, the fair market value of the Company's Common Stock
was $5.00 per share. The Board of Directors determined to offer
all employees who had received stock options form 1993 to 1996 an
opportunity to surrender their unexercised options with exercise
prices ranging from $5.05 to $5.64 per share, so that all
option exercise prices were reduced by $.05 per share. Options
granted to directors pursuant to the Company's Non-Employee
Directors' Stock Option Plan were not effected by the repricing.
Donna Montag, Chief Financial Officer of the Company, was allowed
to participate in the repricing offer. Ms. Montag surrendered
options to purchase 20,000 shares of common stock granted October
3, 1995 at an exercise price of $5.69 per share for options to
purchase 20,000 shares at $5.64 per share. The new options
retained the same vesting status and expiration date as the
options surrendered.
The Company entered into an agreement with John Schaeffer
effective June 18, 1997 that granted Mr. Schaeffer the right to
require registration under the Securities Act of certain of his
shares of the Company's capital stock. Pursuant to the
agreement, Mr. Schaeffer may require that the Company include
registrable securities (as defined in the agreement) held by him
in up to two of the Company's registered offerings. The
Company's obligation to include shares held by Mr. Schaeffer in a
registered offering terminates on December 31, 1999. All
expenses of such offerings will be borne by the Company.
PRINCIPAL SHAREOWNERS
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of May 20,
1997, by (i) each person (including any "group" as that term is
used in Section 13(d)(3) of the Securities Exchange Act of 1934
(the "Exchange Act")) who is known by the Company to own
beneficially 5% or more of the Common Stock, (ii) each director
of the Company, and (iii) all directors and executive officers as
a group. Unless otherwise indicated, all persons listed below
have sole voting power and investment power with respect to such
shares.
<TABLE>
<CAPTION>
Share Amount Percentage Percentage
and Nature of of Class of Class
Name and Address of Beneficial Before After
Beneficial Owner Ownership* Offering Offering 1
<S> <C> <C> <C>
John Schaeffer
555 Leslie Street 2,138,528 2 62.8% 41.7%
Ukiah, CA 95482
Stephen Morris
555 Leslie Street 32,300 3 ** **
Ukiah, CA 95482
James T. Robello
555 Leslie Street 2,000 4 ** **
Ukiah, CA 95482
Linda Francis
555 Leslie Street 2,000 4 ** **
Ukiah, CA 95482
John Lenser
555 Leslie Street 2,000 4 ** **
Ukiah, CA 95482
Barry Reder
222 Kearny Street,7th Fl None N/A N/A
San Francisco, CA 94108
All directors and officers
as a group(7 persons) 2,182,828 3,5 64.2% 42.8%
</TABLE>
* The amounts and percentages indicated as beneficially owned
were calculated pursuant to Rule 13d-3(d)(1) under the
Exchange Act which provides that beneficial ownership of a
security is acquired by a person if that person has the
right to acquire beneficial ownership of such security
within 60 days through the exercise of a right such as the
exercise of an option or the conversion of a convertible
security into common stock. Any securities not outstanding
which are subject to options or conversion privileges are
deemed outstanding for the purpose of computing the
percentage of outstanding securities of the class owned by
the person who owns the option or conversion privilege but
are not deemed outstanding for the purpose of computing the
percentage of the class owned by any other person.
** Less than one percent of such class of stock.
1 Assumes sale of all 1,300,000 shares offered hereby.
2 The amount reported excludes 3,000 shares transferred in
December 1994 by Mr. Schaeffer to an irrevocable trust
established for the benefit of Mr. Schaeffer's children.
Mr. Schaeffer does not have voting or investment powers over
these 3,000 shares and Mr. Schaeffer disclaims beneficial
ownership of all of the shares held in this irrevocable
trust.
3 Includes 31,300 shares subject to issuance within 60 days
after May 20, 1997, upon the exercise of stock options
granted pursuant to Company's Fiscal 1993 Stock Incentive
Plan, as amended (the "1993 Plan") and 1000 shares subject
to issuance within 60 days after May 20, 1997, upon the
exercise of stock options granted subject to the 1995
Non-Employee Directors' Stock Option Plan.
4 Includes 2,000 shares subject to issuance within 60 days
after May 20, 1997 upon the exercise of stock options
granted pursuant to the Company's Non-Employee Directors'
Stock Option Plan.
5 Includes 6,000 shares subject to issuance with 60 days after
May 20, 1997 to an officer of the Company upon the exercise
of stock options granted pursuant to the 1993 Plan. Also
includes 6,000 shares subject to issuance within 60 days
after May 20, 1997 to the Company's Non-Employee Directors'
Stock Option Plan.
DESCRIPTION OF SECURITIES
COMMON STOCK
As of June 17, 1997, there were 10,000,000 shares of Common
Stock authorized, 3,403,804 of which were outstanding and held of
record by 5,446 shareowners.
Each share of Common Stock entitles the holder to one vote
on all matters submitted to a vote of the shareowners, and a
majority vote is required for all action to be taken by
shareowners. Holders of Common Stock have cumulative voting
rights with respect to the election of directors. If any
shareowner has given a notice for cumulative voting, then all
shareowners entitled to vote for the election of directors may
cumulate their votes. Cumulative voting entitles a shareowner to
give one nominee as many votes as are equal to the number of
directors to be elected, multiplied by the number of shares
owned, or to distribute votes on the same principle between two
or more nominees.
In the event of a liquidation, dissolution or winding up of
the Company, holders of the Common Stock have the right to a
ratable portion of the assets remaining after payment of
liabilities. All shares of Common Stock outstanding and to be
outstanding upon completion of this offering are and will be
fully paid and non-assessable.
The Common Stock is listed on the NASDAQ Small
Capitalization Market under the symbol RGTC and on the Pacific
Stock Exchange under the symbol RGT. The transfer agent and
registrar for the Common Stock is US Stock Transfer.
PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of
preferred stock in one or more series, with such voting powers,
or without voting powers, and with such designations, preferences
and relative participating optional or other special rights,
qualifications, limitations or restrictions, as shall be set
forth in resolutions providing for the issue thereof adopted by
the Board of Directors. No preferred stock is currently
outstanding.
DIVIDENDS
Holders of Common Stock will be entitled to receive ratably
such dividends as may be declared by the Board of Directors out
of funds legally available therefor. The Company has not paid or
declared cash distributions or dividends to date and does not
intend to pay cash dividends on the Common Stock in the
foreseeable future. The Company currently intends to retain all
earnings, if any, to finance the development and expansion of its
operations. The declaration of cash dividends in the future will
be determined by the Board of Directors based upon the Company's
earnings, financial condition, capital requirements and other
relevant factors. In addition, the Company s Business Loan
Agreement with its regular bank, National Bank of the Redwoods,
requires the bank s written consent before any dividends may be
paid (other than dividends payable in stock).
LEGAL MATTERS
The validity of the issuance of the shares offered hereby
will be passed upon for the Company by Coblentz, Cahen, McCabe &
Breyer LLP, San Francisco, California.
EXPERTS
The consolidated financial statements included in this
Prospectus and in the Registration Statement have been audited by
Deloitte & Touche, LLP, independent certified auditors as stated
in their report appearing herein and in the Registration
Statement (which contains an explanatory paragraph regarding
the Company's accounting change in fiscal 1996), and are so
included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
<PAGE>
FINANCIAL STATEMENTS
REAL GOODS TRADING CORPORATION
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT . . . . . . . . . . . . . . . F-2
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996:
Consolidated Balance Sheets. . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations. . . . . . . . . . . F-4
Consolidated Statements of Cash Flows. . . . . . . . . . . F-5
Consolidated Statements of Shareowners' Equity . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . F-7
<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 2.0%, 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.
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Exercise
(in thousands) Price
<S> <C> <C>
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
Weighted average fair value of options granted
during the year ended March 31, 1996: $1.38
Weighted average fair value of options granted
during the year ended March 31, 1997: $1.54
</TABLE>
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.
No dealer, salesman or any other person is authorized to give any
information or to make any representations not contained in this
Prospectus in connection with the offering covered by this
Prospectus. If given or made, such information or representations
must not be relied upon as having been authorized by the Company.
This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, the Shares where, or to any
person to whom, it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create an
implication that there has not been any change in the facts set
forth in this Prospectus or in the affairs of the Company since
the date hereof.
Until ____________, 1997 (25 calendar days after the date of this
Prospectus), all dealers effecting transactions in the Shares,
whether or not participating in this distribution, may be
required to deliver a Prospectus.
1,300,000
SHARES REAL GOODS TRADING CORPORATION COMMON STOCK
<PAGE>
Appendix A
Share Purchase Agreement
To Real Goods Trading Corporation:
Please issue shares of your common stock in the amounts and
name(s) shown below. My signature acknowledges that I have read
the Prospectus dated ___________, 1997, and the documents
incorporated by reference therein (the "Prospectus") and am aware
of the risk factors contained therein. I represent that I have
relied solely upon the contents of the Prospectus in making an
investment decision with regard to the shares offered thereby,
and I have not relied on any other statements made by or with
regard to the Company in connection with its anticipated
operations or financial performance.
______________________________ ______________________________
(Signature) (Date)
______________________________ ______________________________
(Signature) (Date)
Enclosed is payment for ________ shares at $________;
Total: $________*
Register the shares in the following name(s) and amount(s):
(Please Print)
Name(s):_________________________________________________________
Number of share(s): ________________
As (check one) [ ] Individual [ ] Joint Tenancy
[ ] Husband & Wife as community property
[ ] Tenants in Common [ ] Corporation [ ] Trust [ ] Other:
For the person(s) who will be registered shareowners:
Mailing
Address:_________________________________________________________
City, State, Zip:________________________________________________
Telephone:_______________________________________________________
Social Security or Taxpayer ID Number(s):________________________
[ ] Check if eligible for $100 gift certificate because
purchasing 500 shares before October 15, 1997.
Note: Please attach any instructions for mailing the
certificates or shareowner communications other than to the
registered shareowner at this address.
<PAGE>
No Subscription Is Effective Until Acceptance.
Subscription Accepted by Real Goods Trading Corporation:
_________________________ ___________________
John Schaeffer, President Date
* Please adjust if you are eligible for the Volume Purchase
Discount as follows:
<TABLE>
<CAPTION>
Number of Shares Discount
<C> <C>
2500-4999 5.0%
5000-9999 7.5%
10,000-99,999 10.0%
100,000 or more 15.0%
</TABLE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
PROSPECTUS PAGE
Available Information. . . . . . . . . . . . . . . . . . . . 1
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . 2
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . 4
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . 7
Capitalization . . . . . . . . . . . . . . . . . . . . . . . 11
Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . 12
Description of Business . . . . . . . . . . . . . . . . . . 15
Selling Securityholders. . . . . . . . . . . . . . . . . . . 27
Price Range of Common Stock. . . . . . . . . . . . . . . . . 28
Shares Eligible for Future Sale. . . . . . . . . . . . . . . 29
Plan of Distribution . . . . . . . . . . . . . . . . . . . . 30
Management . . . . . . . . . . . . . . . . . . . . . . . . . 32
Certain Transactions . . . . . . . . . . . . . . . . . . . . 38
Principal Shareowners. . . . . . . . . . . . . . . . . . . . 39
Description of Securities. . . . . . . . . . . . . . . . . . 41
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Index to Financial Statements. . . . . . . . . . . . . . . .F-1
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . .A-1
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation provide that, to the
fullest extent permitted by California law, the Company's
directors will not be liable for monetary damages for breach of
the directors' fiduciary duty of care to the Company or its
shareowners. This provision in the Articles of Incorporation
does not eliminate the duty of care and in appropriate
circumstances equitable remedies such as an injunction or other
forms of nonmonetary relief would remain available under
California law. Each director will continue to be subject to
liability for (i) breach of the director's duty of loyalty to the
Company or its shareowners, (ii) acts or omissions involving
intentional misconduct or knowing and culpable violations of law,
(iii) acts or omissions that a director believes to be contrary
to the best interests of the Company or its shareowners or that
involve the absence of good faith on the part of the director,
(iv) any transaction from which the director derived an improper
personal benefit, (v) acts or omissions involving a reckless
disregard for the director's duty to the Company or its
shareowners when the director was aware or should have been aware
of a risk of serious injury to the Company or its shareowners,
(vi) acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty
to the Company or its shareowners, (vii) improper transactions
between the director and the Company, (viii) improper
distributions to shareowners and loans to directors and officers
or (ix) acts or omissions by the director in his or her capacity
as an officer of the Company.
The Company's Articles of Incorporation limit the liability
of directors to the fullest extent permissible under California
law. The Articles of Incorporation authorize the Company to
indemnify agents of the Company in excess of the indemnification
otherwise permitted by Section 317 of the California General
Corporation Law, subject only to applicable limits set h of duty
to the corporation and its shareowners.
The Company's Bylaws provide that the Company shall
indemnify its directors, officers, employees and other agents to
the fullest extent permitted by the California Corporations Code.
The Company believes that indemnification under its Bylaws covers
at least negligence and gross negligence on the part of
indemnified parties. The Company's Bylaws also permit it to (i)
secure insurance on behalf of any officer, director, employee or
other agent for any liability arising out of his or her actions
in such capacity, regardless of whether the Bylaws would permit
indemnification and (ii) advance reasonably expected expenses in
connection with such indemnification upon receipt of the
undertaking required by Section 317(f) of the California General
Corporation Law.
The Company has entered into agreements to indemnify certain
of its directors and officers to the fullest extent permitted by
law. These agreements, among other things, indemnify such
persons for certain expenses (including attorneys' fees),
judgments, fines and settlement amounts incurred by any such
person in any action or proceeding, including any action by or in
the right of the Company, arising out of such person's services
as a director or officer of the Company or any other company or
other enterprise to which the person provides services at the
request of the Company.
The above provisions in the Articles of Incorporation and
Bylaws and the written indemnity agreements may have the effect
of reducing the likelihood of derivative litigation against
directors and may discourage or deter shareowners or management
from bringing a lawsuit against directors for breach of their
fiduciary duty, even though such an action, if successful, might
otherwise have benefited the Company and its shareowners.
At present, there is no pending litigation or proceeding
involving any director, officer, employee or agent of the Company
where indemnification will be required or permitted. The Company
is
not aware of any threatened litigation or proceeding that might
result in a claim for such indemnification.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<C> <C>
Legal fees $ 50,000
Blue sky fees 15,000
Printing 90,000
SEC filing fee 2,364
EDGAR filing expenses 0
Accounting 10,000
Postage 25,000
Miscellaneous 7,635
_________
Total $200,000
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Registrant has in the past three years issued an aggregate
of 30,363 unregistered shares of its common stock to 12 employees
pursuant to employment agreements and the Company s Second
Amended and Restated 1993 Stock Incentive Plan. The sales and
issuances of the Common Stock described above were deemed to be
exempt from registration under the Securities Act in reliance
upon Section 4(2) thereof as transactions not involving a public
offering. The purchasers in such private offerings represented
their intention to acquire the securities for investment only
and not with a view to the distribution thereof and appropriate
legends were affixed to the stock certificates issued in such
transactions. All purchasers had adequate access, through their
employment or other relationships, to sufficient information
about the Registrant to make an informed investment decision. No
underwriter was employed with respect to any such sales.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits are filed with this registration
statement, and this list constitutes the exhibit index.
EXHIBIT NO. DESCRIPTION
3.1* Articles of Incorporation
3.2* Bylaws
5 Form of Opinion of Coblentz, Cahen, McCabe &
Breyer LLP
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 of 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
10.19 Registration Rights Agreement between the Company
and John Schaeffer dated as of June 18, 1997
23.1^ Consent of Deloitte & Touche LLP
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Coblentz, Cahen, McCabe & Breyer LLP
* 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
ITEM 28. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes as follows:
(1) The Registrant will file, during any period in which
it offers or sells securities, a post-effective amendment to this
Registration Statement to:
(i) include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, as amended (the
"Securities Act");
(ii) reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change
in the information in the Registration Statement; and
(iii) include any additional or changed material
information in the plan of distribution.
(2) The Registrant will, for determining liability under
the Securities Act, treat each post-effective amendment as a new
registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona
fide offering.
(3) The Registrant will file a post-effective amendment to
remove from registration any of the securities that remain unsold
at the end of the offering.
(b) Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers
and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in
the successful defense of any action, suit or preceding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Company
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication
of such issue.
(c) For determining any liability under the Securities Act,
the registrant will treat the information omitted from the form
of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant under Rule 424(b)(1) or (4) under the
Securities Act as part of this registration statement as of the
time the Securities and Exchange Commission declared it
effective.
(d) For determining any liability under the Securities Act,
the registrant will treat each post-effective amendment that
contains a form of prospectus as a new registration statement for
the securities offered in the registration statement, and that
offering of the securities at that time as the initial bona fide
offering of those securities.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements of filing on Form
SB-2 and authorized this registration statement to be signed on
its behalf by the undersigned, in the City of Ukiah, State of
California, on June 30, 1997.
REAL GOODS TRADING CORPORATION
(Registrant)
By:[S]DONNA MONTAG, CHIEF FINANCIAL OFFICER
Donna Montag, Chief Financial Officer
In accordance with the requirements of the Securities Act of
1933, this Registration Statement was signed by the following
persons on behalf of the registrant in the capacities and on the
dates stated.
Signature Title Date
[S]JOHN SCHAEFFER President/CEO July 1, 1997.
John Schaeffer
[S]DONNA MONTAG Chief Financial Officer July 1, 1997.
Donna Montag
[S]STEPHEN MORRIS Director July 1, 1997.
Stephen Morris
[S]JAMES T. ROBELLO Director July 1, 1997.
James T. Robello
[S]LINDA FRANCIS Director July 1, 1997.
Linda Francis
[S]JOHN LENSER Director July 1, 1997.
John Lenser
[S]BARRY REDER Director July 1, 1997.
Barry Reder
<PAGE>
PROPOSED LETTER TO ACCOMPANY TOMBSTONE TO GO TO REAL GOODS
CUSTOMERS
1 August 1997
Dear Loyal Real Goods Customer (Shareowner),
We want you to be the first to know about our new offering of
Real Goods shares that we're making directly to our shareowners
and customers and to the public. Real Goods has blazed many
trails in the past by pioneering the concept of the direct public
offering which has allowed us to grow at a healthy and
sustainable rate over the past several years. In fact, our sales
have grown 1000-fold since 1986 from $18,000 annually to over
$18.4 million in the fiscal year ending 31 March 1997.
Our last offering of shares in 1993 allowed us to build our
12-acre Solar Living Center, which has drawn over 100,000
visitors in its first year of being open, a number we hadn't
expected to reach until the year 2000. It has also allowed us to
fulfill our mission of educating the public into the necessity of
renewable energy and a sustainable future by presenting a
demonstration center. Following in our pioneering tradition, in
July 1996, we became the first company ever approved by the SEC
(Securities & Exchange Commission) to establish a bulletin board
so that our shareowners and customers could trade our stock on
our Web page on the Internet without paying one penny in
commission.
Now, we're asking for your support one more time in a unique
offering of shares. Knowing that almost all of our shareowners
are customers we've decided to offer a $100 gift certificate to
anyone who purchases 500 or more shares of stock before 15
October 1997. The gift certificate can be used in any of our
retail stores or in any of our catalogs. In addition,
we'reoffering you a discount on share purchases under the
following schedule:
Buy 2500 to 4999 shares:
Get a 5% discount off of the share price
Buy 5000 to 9999 shares:
Get a 7.5% discount off of the share price
Buy 10,000 to 99,999 shares:
Get a 10% discount off of the share price
Buy 100,000 or more shares:
Get a 15% discount off of the share price
We're offering 1,000,000 shares for sale by Real Goods and
another 300,000 shares for sale by myself (primarily to satisfy
the terms of my marital settlement agreement). While the full
details of our new stock offering are in the prospectus, (which
we hope you will request) we'd like give you a preview of what we
want to do with some of this new capital which is as follows:
. Open a third store in Berkeley, California by this holiday
season to replicate our success at our Hopland Solar Living
Center. We've already hired a retail division manager who
has retail rollout experience with over 18 new stores with
Nature Company and Hearthsong.
. Make some capital improvements in our base mail order and
renewable energy businesses to assure that we re ready for
more volume of business.
. Expand our Eco-Tourism marketing program to try and build on
our sale of the largest solar electric system in Latin
America and our largest sale ($2 million) in our history
which occurred in fiscal year 1997.
. Open five more stores around the country in selected areas
where Real Goods customers have the most strength, each with
approximately 4,000 square feet.
. Build a "Learning Center" at our Solar Living Center which
will house our Institute for Solar Living, our renewable
energy museum and educational displays, house our
technicians selling renewable energy systems, and provide
food services for our 100,000 plus visitors per year.
We're adhering to our mission of reducing our amount of marketing
with "dead trees," by doing as much as possible electronically on
the Internet. For this reason, you can read our prospectus online
and you can even buy shares of stock in Real Goods online using
your credit card simply by browsing our Web site on the Internet
at:
http://www.realgoods.com
We think the future will be as exciting (if not more) as the past
at Real Goods. We invite you to take part in this exhilarating
adventure with us. The shares will be offered on a first come,
first served basis and remember that if you buy 500 shares or
more before 15 October 1997 you will receive a free $100 gift
certificate. And, in order to make buying shares easier for
students and those with limited amounts of money who want to
support the Company, we're making our minimum number of shares
only 25. Of course any shares ordered directly from the company
will be commission-free.
I hope you'll choose to check out our prospectus and annual
report for fiscal 1997. If you read it and have questions feel
free to contact our Chief Financial Officer or our Shareowner
Relations Coordinator or email me at: [email protected]. I look
forward to welcoming you into the family of Real Goods
Shareowners and sharing our growth with you.
Best Regards,
<JOHN SCHAEFFER, PRESIDENT
John Schaeffer, President
P.S. A little legalese here: this letter is neither an offer nor
the solicitation of an offer to buy these securities. The offer
is made only by the prospectus, which will be furnished to
residents of any state in which it shall be lawful to offer these
securities.
<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>
July 1, 1997
6306-006-3
Real Goods Trading Corporation
555 Leslie Street
Ukiah, CA 95482
Ladies and Gentlemen:
Reference is made to the Registration Statement on Form SB-2
(the "Registration Statement") filed by Real Goods Trading
Corporation ("RGTC"), a California corporation, on July 1, 1997
with the Securities and Exchange Commission for the purpose of
registering under the Securities Act of 1933, as amended,
1,300,000 shares of common stock without par value.
As counsel for RGTC, we are familiar with the actions taken
by RGTC with respect to the authorization and issuance of the
securities covered by the Registration Statement. We have
examined originals and/or copies, certified or otherwise
identified to our satisfaction, of such corporate records,
certificates of public officials and other documents as we have
deemed necessary or relevant as a basis for the opinion set forth
herein.
Based on the foregoing, it is our opinion that:
1. RGTC is a corporation duly organized, validly existing
and in good standing under the laws of the State of
California.
2. Upon the issuance of the shares covered by the
Registration Statement in the manner described therein,
said shares will be validly issued, fully paid and
non-assessable.
Very truly yours,
COBLENTZ, CAHEN, MCCABE & BREYER, LLP
[S]BARRY REDER
Barry Reder
June 30, 1997
6306-006-3
Real Goods Trading Corporation
555 Leslie Street
Ukiah, CA 95482
Ladies and Gentlemen:
We hereby consent to the use of our opinion, dated June 30,
1997, in the Registration Statement and any amendments thereto,
and to the use of our name under the caption "Legal Matters"
therein.
Very truly yours,
COBLENTZ, CAHEN, MCCABE & BREYER, LLP
[S]BARRY REDER
Barry Reder
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this registration statement of Real
Goods Trading Corporation on Form SB-2 of our report dated May 9,
1997, appearing in the Prospectus, which is part of this
Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
DELOITTE AND TOUCHE, LLP
Oakland, California
June 27, 1997
REAL GOODS TRADING CORPORATION
A CALIFORNIA CORPORATION
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
and entered into as of June 18, 1997 by and between REAL GOODS
TRADING CORPORATION, a California corporation (the "Company") and
John Schaeffer (the "Holder").
In consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1. DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings:
1.1 ACT: The Securities Act of 1933, as amended, or any
other statute in effect from time to time corresponding to such
act.
1.2 HOLDER: John Schaeffer or any other holder of
Registrable Securities to whom registration rights have been
transferred in compliance with paragraph 8.2 hereof.
1.3 PERSON: An individual, partnership, corporation, trust
or unincorporated organization, or a government or agency or
political subdivision thereof.
1.4 PROSPECTUS: The prospectus included in any
Registration Statement, as amended or supplemented by any
prospectus supplement with respect to the terms of the offering
of any portion of the Registrable Securities covered by the
Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective
amendments and all material incorporated by reference in such
prospectus.
1.5 REGISTER, REGISTERED, AND REGISTRATION: A registration
effected by preparing and filing a Registration Statement in
compliance with the Act and the declaration or ordering of
effectiveness of such Registration Statement by the SEC.
1.6 REGISTRABLE SECURITIES: All Shares issued or issuable
to the Holder (and his transferees); provided that a security
ceases to be a Registrable Security when it is transferred other
than pursuant hereto or if it is no longer a Restricted Security.
A security is a Restricted Security unless and until
1.6.1 it has been effectively registered under the Act
and may be disposed of in accordance with the Registration
Statement covering it, except for such registrations withdrawn
pursuant hereto; or
1.6.2 all of the Shares owned by Holder may be
distributed to the public pursuant to Rule 144 (or any similar
provision then in force) under the Act within the succeeding six
(6) months without regard to the volume of trading in the
Company's securities.
1.7 REGISTRATION STATEMENT: Any registration statement of
the Company which covers Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus,
amendments and supplements to such Registration Statement,
post-effective amendments, and all exhibits and all material
incorporated by reference in such Registration Statement.
1.8 SEC: The Securities and Exchange Commission or any
other agency assuming or succeeding to the responsibilities
thereof in connection with the registration of securities.
1.9 SHARES: Shares of capital stock of the Company.
ARTICLE II
COMPANY REGISTRATION
2.1 COMPANY REGISTRATION. Subject to Article IV hereof, if
at any time after the date of this Agreement the Company
determines to register, either for its own account or the account
of any security holder or holders, any of its capital stock on a
form that would also permit the registration of Registrable
Securities (expressly excluding any public offering relating
solely to Form S-8 for employee benefit plans or Form S-4 for
certain business combinations, or their successor forms, or any
form that does not permit secondary offerings) the Company shall,
each such time, promptly give Holder written notice of such
determination. Upon the written request of Holder to
participate, with such request given within ten (10) days after
mailing of any such notice by the Company, the Company shall use
its best efforts to include in such registration (and any related
qualification under blue sky laws, and in any underwriting) all
of the Registrable Securities that Holder has requested be
registered, subject to the provisions of Section 8.1 of this
Agreement. The Company may withdraw any registration pursuant to
this Article II at any time prior to the effectiveness of the
Registration Statement whether or not Holder has elected to
participate. Holder shall be entitled to participate in two
registrations pursuant to this Article II. Any registration
withdrawn by the Company before closing shall not be counted as
one of the two (2) registrations allowed the Holder hereunder.
2.2 COMPANY'S NOTICE. For each Company registration
pursuant to Section 2.1, the Company shall state in a written
notice to Holder those jurisdictions in which the Company intends
to attempt to qualify such securities under applicable blue sky
laws. The Company may withdraw any registration pursuant to this
Article II at any time prior to the effectiveness of the
Registration Statement whether or not Holder has elected
to participate. Subject to the provisions of Article VIII
hereof, Holder may participate in an unlimited number of
registrations pursuant to this Article II.
ARTICLE III
OBLIGATIONS OF THE COMPANY
3.1 OBLIGATIONS OF THE COMPANY. Whenever required under
Article II to use its best efforts to effect the registration of
any Registrable Securities, the Company shall, as expeditiously
as reasonably possible, do the following:
3.1.1 Prepare and file with the SEC a Registration
Statement with respect to such Registrable Securities
as promptly as possible and use all reasonable efforts
to cause such Registration Statement to become and
remain effective until Holder has completed the
distribution described in the Registration Statement or
at such time as Holder's Shares are no longer
Registrable Securities.
3.1.2 Use all reasonable efforts to prepare and
file with the SEC such amendments (including
post-effective amendments) and supplements to such
Registration Statement and the Prospectus used in
connection with such Registration Statement as may be
necessary to comply with the provisions of the Act with
respect to the disposition of all securities covered by
such Registration Statement, subject to a Waiting
Period (as defined in Section 8.2.2 hereof), if
applicable;
3.1.3 Keep Holder advised as to the progress of the
registration and offering, and furnish to Holder, at
any time and from time to time, such numbers of
copies of a Prospectus, including a preliminary
prospectus, amendments or supplements, in conformity
with the requirements of the Act, and such other
documents as any of them from time to time may
reasonably request in order to facilitate the
disposition of Registrable Securities owned by Holder;
3.1.4 Subject to a Waiting Period (as defined in
Section 8.2.2 hereof), if applicable, notify Holder of
the happening of any event which might cause the
Prospectus included in such Registration Statement, as
then in effect, to include an untrue statement of a
material fact or omit to state a material fact required
to be stated therein or necessary to make the
statements therein not misleading or incomplete in the
light of the circumstances then existing, and at the
request of Holder, prepare and furnish to Holder a
reasonable number of copies of a supplement to or an
amendment of such Prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such
shares, such Prospectus shall not include an untrue
statement of a material fact or omit to state a
material fact required to be stated therein or
necessary to make the statements therein not misleading
or incomplete in the light of the circumstances than
Existing;
3.1.5 Cause all such Registrable Securities
registered pursuant hereunder to be listed on each
securities exchange on which similar securities issued
by the Company are then listed;
3.1.6 Provide a transfer agent and registrar for
all Registrable Securities registered pursuant to such
registration statement and a CUSIP number of all such
Registrable Securities, in each case not later than the
effective date of such registration; and
3.1.7 Use its best efforts to register and qualify
the securities covered by such Registration Statement
under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably appropriate for
the distribution of the securities covered by the
Registration Statement, provided that the Company shall
not be required to register or qualify the securities
in any jurisdiction where the Company, in connection
with such registration or qualification or as a
condition thereto, is required to qualify to do
business or to file a general consent to service of
process (unless the Company is already subject to
service in such jurisdiction and except as required by
the Act), and further provided that (anything in this
Agreement to the contrary notwithstanding with respect
to the bearing of expenses) if any jurisdiction in
which the securities shall be qualified shall require
that expenses incurred in connection with the
qualification of the securities in that jurisdiction be
borne by selling shareholders, then such expenses shall
be payable by the Holder to the extent required by such
jurisdiction.
3.2 FURNISH INFORMATION. It shall be a condition precedent
to the obligations of the Company to take any action pursuant to
this Agreement that Holder furnish to the Company such
information regarding such person, the Registrable Securities
held by such person, and the intended method of disposition of
such securities as the Company shall reasonably request and as
shall be required in connection with the action to be taken by
the Company.
3.3 EXPENSES OF REGISTRATION. All expenses incurred in
connection with any registration effected hereunder (excluding
underwriters' discounts and commissions and stock transfer
taxes),including, without limitation, all registration and
qualification fees (other than the SEC registration fee) and
printing, legal and accounting fees and costs, shall be borne by
the Company.
ARTICLE IV
UNDERWRITING REQUIREMENTS
4.1 UNDERWRITING. If any registration hereunder shall
involve an underwriting, then the Company shall so advise Holder
in writing, and the right of Holder to participate in any
registration hereunder shall be conditioned upon Holder's
participation in such underwriting and the inclusion of Holder's
Registrable Securities in the underwriting to the extent provided
herein. The Company, together with Holder (if Holder intends to
distribute their Registrable Securities through such
underwriting), shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for
such underwriting by the Company. If the underwriter or
underwriters determine that marketing factors require a
limitation on the number of shares of Common Stock to be
underwritten, then the Company shall so advise Holder. The
Company shall be entitled to include all securities it proposed
to register for its own account in its notice to Holder, and the
number of shares of Registrable Securities which may thereafter
be included in the registration and underwriting shall be
allocated first to Holder and other selling stockholders whose
shares are included as a result of registration rights granted by
the Company, in proportion to the number of securities held by
each such person at the time of the initial filing of the
Registration Statement, and then to other participants, as may be
agreed by such other participants.
4.2 WITHDRAWAL. No Registrable Securities excluded from
the underwriting by reason of this Article IV shall be included
in such registration. If any person disapproves of the terms of
the underwriting, such person may elect to withdraw therefrom by
written notice to the Company and the underwriter or
underwriters. All Registrable Securities so withdrawn shall also
be withdrawn from the registration and shall not be transferred
in a public distribution prior to one hundred and eighty (180)
days after the effective date of the Registration Statement
relating thereto or such other shorter period of time as the
underwriter or underwriters may require.
ARTICLE V
INDEMNIFICATION
5.1 INDEMNIFICATION BY COMPANY. To the extent permitted by
law, the Company will indemnify and hold harmless Holder, each of
the Holder's respective partners, officers, directors,
employees, heirs, successors, assigns and agents, and each
Person, if any, who controls Holder within the meaning of either
Section 15 of the Act or Section 20 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (each such person
being sometimes hereinafter referred to as an "Indemnified
Holder"), from and against any and all losses, claims, damages,
liabilities and expenses (or actions, proceedings or settlements
with respect thereto) including reasonable costs of investigation
and legal fees and expenses, (i) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or Prospectus (or in any
amendment or supplement thereto or in any preliminary prospectus)
or any document relating thereto, or (ii) arising out of or based
upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) arising out of or
based upon any violation by the Company of the Act or any rule or
regulation thereunder applicable to the Company and the relating
action or inaction required of the Company in connection
therewith, and the Company will reimburse each Holder, each of
its partners, officers, directors, employees, heirs, successors,
assigns and agents, and each person controlling Holder, for any
and all legal and other expenses reasonably incurred in
connection with investigating, defending or settling such loss,
claim, damage or liability. Notwithstanding the above, this
indemnity and duty to defend shall not apply to Holder to the
extent that such losses, claims, damages, liabilities or expenses
arise out of or are based upon any untrue statement or omission
or allegation thereof based upon information furnished in writing
to the Company by Holder expressly for use in any Registration
Statement or Prospectus, or any amendment or supplement thereto,
or any preliminary prospectus, or given supplementally to the
SEC, the National Association of Securities Dealers, any exchange
or state securities regulators. Further, the Company shall not be
liable nor have any duty to defend in any such case to the extent
that any such loss, claim, damage, liability or expense arises
out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any preliminary
prospectus if (i) such Indemnified Holder failed to send or
deliver a copy of the Prospectus with or prior to the delivery of
written confirmation of the sale of Registrable Securities, and
(ii) the Prospectus would have completely corrected such untrue
statement or omission. Further, the Company shall not be liable
nor have any duty to defend in any case to the extent that any
such loss, claim, damage, liability or expense arises out of or
is based upon an untrue statement or alleged untrue statement or
omission or alleged omission in the Prospectus if such untrue
statement or alleged untrue statement, omission or alleged
omission is completely corrected in an amendment or supplement to
the Prospectus and if, having previously been furnished by or on
behalf of the Company with copies of the Prospectus as so amended
or supplemented, such Indemnified Holder thereafter fails to
deliver such Prospectus as so amended or supplemented, prior to
or concurrently with the sale of a Registrable Security to the
person asserting such loss, claim, damage, liability or expense
who purchased such Registrable Security which is the subject
thereof from such Indemnified Holder. This indemnity will be in
addition to any liability which the Company may otherwise have.
This indemnity shall not apply to any amount paid or incurred in
settlement without the express written consent of the Company,
which consent shall not be unreasonably withheld.
Each Indemnified Holder shall give prompt notice to the
Company after it has actual knowledge of any claim in respect of
which indemnity may be sought from the Company hereunder. After
receipt of such notice, the Company may assume the defense
thereof at the Company's expense, provided that counsel for the
Company shall be satisfactory to such Indemnified Holder (whose
approval shall not be unreasonably withheld). The failure of any
Indemnified Holder to give notice as provided herein shall not
relieve the Company of any of its obligations hereunder to the
extent such failure is not prejudicial. If the Company assumes
the defense in such action, such Indemnified Holder shall retain
the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses
of such counsel shall be the expense of such Indemnified Holder
unless (i) the Company has expressly agreed in writing to pay
such fees and expenses, or (ii) the Company shall have a duty to
assume the defense of such action or proceeding and has failed to
do so and failed to employ counsel satisfactory to such
Indemnified Holder in any such action or proceeding as required
hereunder, or (iii) the named parties to any such action or
proceeding (including any impleaded parties) include both the
Indemnified Holder and the Company, and such Indemnified Holder
shall have been advised by counsel that there is a conflict of
interest between the Company and the Indemnified Holder making
representation by the same counsel inappropriate. In all
circumstances, if the Indemnified Holder notifies the Company in
writing that it elects to employ separate counsel at the expense
of the Company, the Company shall not have the obligation to
assume the defense of such action or proceeding on behalf of such
Indemnified Holder; it being understood, however, that the
Company shall not, in connection with any one such action or
proceeding or separate but substantially similar or related
actions or proceedings in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of
attorneys at any time for such Indemnified Holder, which firm
shall be designated in writing by such Indemnified Holder and
shall be subject to the approval of the Company, which approval
shall not be unreasonably withheld. The Company shall not
be liable for any settlement of any such action or proceeding
effected without its written consent, but if settled with its
written consent, or if there be a final judgment for the
plaintiff in any such action or proceeding, the Company agrees to
indemnify and hold harmless such Indemnified Holder from and
against any loss or liability by reason of such settlement or
judgment.
5.2 INDEMNIFICATION BY HOLDER. To the extent permitted by
law, Holder agrees to indemnify and hold harmless the Company,
its directors, employees, officers and agents, and each person,
if any, who controls the Company within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act, and
Holder, and each of Holder's partners, officers, directors,
employees, heirs, successors, assigns and agents and each person
controlling Holder, to the same extent as the foregoing indemnity
from the Company to the Indemnified Holder, but only with respect
to information relating to Holder furnished in writing by Holder
expressly for use in any Registration Statement or Prospectus, or
any amendment or supplement thereto, or any preliminary
prospectus, or given supplementally to the SEC, the National
Association of Securities Dealers, any exchange or state
securities regulators. In case any action or proceeding shall be
brought in respect of which indemnity may be sought against
Holder hereunder, (a) Holder shall have the rights and duties
given the Company, and (b) the Company and its directors,
officers, employees or agents and controlling persons shall have
the rights and duties given to each Indemnified Holder by
paragraph 5.1. In no event shall the liability of Holder
hereunder be greater in amount than the dollar amount of the
proceeds received by Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
5.3 CONTRIBUTION. If the indemnification provided for in
this Article V is unavailable to an indemnified party under
paragraphs 5.1 or 5.2 hereof (other than by reason of exceptions
provided in those paragraphs) in respect of any losses, claims,
damages or liabilities referred to therein, then each applicable
indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the
relative fault of the Company, on the one hand, and of the
Indemnified Holder or Holders, on the other hand, in connection
with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative fault of the Company on
the one hand and of the Indemnified Holder or Holders on the
other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the
Indemnified Holder or Holders and the parties' relative intent,
knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by
a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include,
subject to the limitations set forth in paragraph 5.1, any legal
or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim.
The Company and the Holder agrees that it would not be just and
equitable if contribution pursuant to this paragraph 5.3 were
determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable
considerations referred to herein. Notwithstanding the
provisions of this paragraph 5.3, Holder shall not be required to
contribute any amount in excess of the amount by which the total
price at which the Registrable Securities sold by Holder and
distributed to the public were offered to the public exceeds the
amount of any damages which Holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
5.4 SURVIVAL. All provisions of this Article V shall
survive the expiration or termination of this Agreement for any
reason.
ARTICLE VI
TERM AND TERMINATION
6.1 Termination of the Company's Obligations. The
Company's obligations pursuant to Articles II and III shall
expire at the earlier of December 31, 1999 or when there are no
longer any Registrable Securities outstanding.
ARTICLE VII
RULE 144 REPORTING
7.1 REPORTS UNDER EXCHANGE ACT. With a view to making
available to Holder the benefits of Rule 144 promulgated under
the Act ("Rule 144") and any other rule or regulation of the SEC
that may at any time permit Holder to sell securities of the
Company to the public without registration, the Company agrees to
use its best efforts to:
7.1.1 make and keep public information available, as
those terms are understood and defined in Rule 144, at
all times subsequent to ninety (90) days after the
effective date of the first registration statement
covering a public offering of the Company's securities
filed with the SEC by the Company;
7.1.2 file with the SEC, in a timely manner, all
reports and other documents required of the Company
under the Act and the Exchange Act; and 7.1.3 so long
as such person owns any Registrable Securities, furnish
to Holder forthwith upon request, a written statement
by the Company that it has complied with the reporting
requirements of Rule 144 (at any time after ninety (90)
days after the effective date of said first
registration statement filed by the Company), and of
the Act and the Exchange Act (at any time after it has
become subject to such reporting requirements), (ii) a
copy of the most recent annual or quarterly report of
the Company, and (iii) such other reports and
documents so filed by the Company as may be reasonably
requested in availing the Holder of any rule or
regulation of the SEC permitting the selling of any
such securities without registration.
ARTICLE VIII
OBLIGATIONS OF THE HOLDER
8.1 LOCKUP AGREEMENT. In consideration for the Company
agreeing to its obligations hereunder, Holder agrees in
connection with any registration of the Company's Common Stock
for sale to the general public and, upon the request of the
Company or the Company's underwriters managing any underwritten
offering of the Company's securities, not to sell, make short
sale of, loan, grant any option for the purchase of, or otherwise
dispose of any Registrable Securities (other than those included
in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period
of time (not to exceed 180 days) from the effective date of such
registration as the Company or the Company's underwriters may
specify. If the Holder is to be so obligated, Holder agrees to
execute and deliver such documentation as may be reasonably
required by the underwriters in connection with this Article
VIII. This restriction shall not apply to a registration
relating solely to employee benefit plans on Form S-8 or similar
successor forms, or a registration relating solely to a Rule 145
transaction on Form S-4 or similar successor forms. In any
registered offering after the initial offering, Holder shall
agree to a similar "lockup" of their shares (other than those
included in the registration) provided the lockup period does not
exceed 90 days.
8.2 NOTICE OF PROPOSED TRANSFERS. The rights to cause the
Company to register securities under Article II hereunder shall
be transferable or assignable only to a transferee or assignee of
Registrable Securities (as presently constituted and subject to
adjustments for stock splits, stock dividends, and the like)
equal to not less than 1% of the Company's outstanding common
stock or all of the Registrable Securities held by the
Purchasers, subject to the following:
8.2.1 Prior to any proposed sale, assignment, transfer
or pledge of any Registrable Securities (other than a
transfer not involving a change in beneficial ownership)
unless there is in effect a registration statement under the
Act covering the proposed transfer, Holder thereof shall
give 10 calendar days' prior written notice to the Company
of Holder's intention to effect such transfer, sale,
assignment or pledge in sufficient detail, and, if requested
by the Company, such notice shall be accompanied, at
Holder's expense, by either (i) an unqualified written
opinion of legal counsel who shall be, and whose legal
opinion shall be, reasonably satisfactory to the Company,
addressed to the Company, to the effect that the proposed
transfer of the Registrable Securities may be effected
without registration under the Act, or (ii) a "no action"
letter from the SEC to the effect that the transfer of such
securities without registration will not result in a
recommendation by the staff of the SEC that action be taken
with respect thereto.
8.2.2 If Holder proposes to sell any Registrable
Securities pursuant to an effective Registration
Statement, Holder shall give 10 calendar days' prior
written notice to the Company of Holder's intention to
effect such sale, and if within 2 business days after
the Company's receipt of any such notice pursuant to
Section 8.2.1 or this Section 8.2.2, the Company provides
written notice to Holder that the Company possesses material
undisclosed information relating to its business operations
and instructs Holder not to sell such Registrable Securities
for a specified time not to exceed 30 calendar days (the
"Waiting Period"), Holder shall not sell such Registrable
Securities until the earlier of (i) Holder's receipt of
written notice from the Company that Holder may sell such
Registrable Securities, or (ii) the expiration of the
Waiting Period. The Company may impose the Waiting Period
for only one proposed sale per quarter by Holder.
8.2.3 After Holder complies with the requirements of
this Section 8, Holder shall be entitled to transfer such
Registrable Securities in accordance with the terms of the
notice delivered by Holder to the Company. It is agreed
that the Company will not request an opinion of counsel for
Holder for transactions made in reliance on Rule 144 under
the Act as to which no notice shall be necessary, so long as
appropriate Rule 144 representations by Holder and his or
its broker are provided to the Company. Each certificate
evidencing the Registrable Securities transferred as above
provided shall bear the appropriate restrictive legend
except that such certificate shall not bear any restrictive
legend if, in the opinion of counsel for Holder and the
Company, such legend is not required in order to establish
compliance with any provision of the Act. Notwithstanding
the foregoing, each Holder agrees that it will not request
that a transfer of the Registrable Securities be made (or
that any legend be removed from the certificate evidencing
the Registrable Securities) solely in reliance on Rule
144(k) under the Act if as a result of such proposed
transfer, the Company would be rendered subject to the
reporting requirements of the Exchange Act.
8.3 NO RIGHT TO DELAY. Holder shall not have any right to
take any action to restrain, enjoin, or otherwise delay any
registration as a result of any controversy under this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 ASSIGNMENT. The terms and conditions of this Agreement
shall be binding upon and inure to the benefit of all of the
respective successors, transferees and assigns of the parties
hereto who agree to be bound by all of the terms of this
Agreement. This Agreement shall be binding upon the parties with
respect to shares of capital stock subsequently acquired by
Holder.
9.2 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement
(including the Exhibits hereto, if any) constitutes the full and
entire understanding and agreement between the parties with
regard to the subjects hereof and thereof. Neither this
Agreement nor any term hereof may be amended, waived, discharged
or terminated, except by a written instrument signed by the
Company and the Holder.
9.3 INFORMATION CONFIDENTIAL. Holder acknowledges that the
information received by it pursuant hereto may be confidential
and for its use only, and it will not use such confidential
information in violation of the Exchange Act or reproduce,
disclose or disseminate such information to any other person
(other than its employees or agents having a need to know the
contents of such information, and its attorneys) or use such
information to the detriment of the Company, except in connection
with the exercise of rights under this Agreement, unless the
Company has made such information available to the public
generally or Holder is required to disclose such information by a
governmental body.
9.4 FURTHER ASSURANCES. The parties hereto shall use their
best efforts to do and perform or cause to be done and performed
all such further acts and shall execute and deliver all such
other agreements, certificates, instruments or documents as any
other party may reasonably request in order to carry out the
intent and purpose of this Agreement and the consummation of the
transactions contemplated hereby and thereby. Neither the
Company nor Holder shall voluntarily undertake any course of
action inconsistent with the satisfaction of the requirements
applicable to them set forth in this Agreement and each shall
promptly do all such acts and take all such measures as may be
appropriate to enable them to perform as early as practicable the
obligations herein and therein required to be performed by them.
9.5 THIRD PARTIES. Nothing in this Agreement, express or
implied, is intended to confer upon any Person, other than the
parties hereto, the Indemnified Holder, the Company's directors,
controlling persons, employees, officers, agents and their
respective heirs, successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement,
except as expressly provided herein.
9.6 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California
applicable to contracts executed by residents of California and
wholly to be performed in California. Each party hereby submits
to the exclusive jurisdiction and venue of the Superior Court of
the State of California for the City and County of San Francisco
or the Federal District Court for the Northern District of
California for purposes of any legal or equitable action or
proceeding arising out of this Agreement. Each party agrees that
service upon such party in any such action or proceeding may be
made by first class mail, certified or registered, return receipt
requested as provided by the giving of notices in Section 9.8.
9.7 TITLES AND SUBTITLES; FORM OF PRONOUNS. The titles of
the articles and sections of this Agreement are for convenience
only and are not to be considered in construing this Agreement.
All pronouns used in this Agreement shall be deemed to include
masculine, feminine and neuter forms.
9.8 NOTICES. Except as otherwise expressly provided
herein, all notices and other communications required or
permitted hereunder shall be given in writing and shall be deemed
effectively given upon personal delivery (professional courier
permissible), United States certified mail delivery or confirmed
facsimile transmission to the address set forth with respect to
such party on the signature pages of this Agreement (and with
copies as indicated thereon), or to such other address as such
party shall have given notice of pursuant hereto to the other
party or parties.
9.9 SEVERABILITY. If one or more provisions of this
Agreement are held to be invalid, illegal or unenforceable under
applicable law, portions of such provisions, or such provisions
in their entirety, to the extent necessary, shall be severed from
this Agreement, and the balance of this Agreement shall be
enforceable in accordance with its terms.
9.10 DELAYS OR OMISSIONS. No delays or omissions to
exercise any right, power or remedy accruing to any party to this
Agreement, upon any breach or default of the other party, shall
impair any such right, power or remedy of such nonbreaching party
nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar
breach or default thereafter occurring; nor shall any waiver of
any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on
the part of any party of any breach or default under this
Agreement, must be made in writing and shall be effective only to
the extent specifically set forthin such writing. All remedies,
either under this Agreement, or by law or otherwise afforded to
any holder, shall be cumulative and not alternative.
9.11 ATTORNEYS' FEES. In the event of litigation
hereunder, the prevailing party or parties shall be entitled to
recover its or their costs of litigation, including reasonable
attorneys' fees, in addition to all other relief as may be
granted.
9.12 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but
all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
COMPANY:
REAL GOODS TRADING CORPORATION,
a California corporation
BY:[S]JOHN SCHAEFFER
John Schaeffer
Title:[S]PRESIDENT
President
Address for Notice:
555 Leslie Street
Ukiah, California 95482
Attn: President
With a copy to:
Barry Reder, Esq.
Coblentz, Cahen, McCabe & Breyer, LLP
222 Kearny Street, 7th Floor
San Francisco, California 94108
HOLDER:[S]JOHN SCHAEFFER
JOHN SCHAEFFER
Address for Notice:
555 Leslie Street
Ukiah, California 95482
