U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1998
OR
/_/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File No. - 0-22524
REAL GOODS TRADING CORPORATION
(Exact name of small business issuer as specified in its charter)
California 68-0227324
(State or other jurisdiction (IRS Employer Identification Number)
incorporation or organization)
555 Leslie Street, Ukiah, California 95482
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (707) 468-9292
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
Securities registered under Section 12(g) of the Exchange Act:
Common Stock (Title of Class)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B not contained in this
form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-KSB[ ].
State issuer's revenues for its most recent fiscal year.
$17,034,000
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such
stock, as of a specified date within the past 60-days.
$10,045,000 as of June 15, 1998. The number of shares of the
issuer's Common Stock outstanding as of June 15, 1998 was
3,939,580.
Documents Incorporated by Reference
A portion of the Real Goods Trading Corporation's Proxy
Statement for the 1998 Annual Meeting of Shareowners to be filed
with the Commission on or before June 25, 1998 is incorporated by
reference into Part III, Items 9, 10, 11 and 12 of this Annual
Report on Form 10-KSB. With the exception of those portions
which are specifically incorporated by reference in this Annual
Report on Form 10-KSB, the Real Goods Trading Corporation Proxy
Statement for the 1998 Annual Meeting of Shareowners is not to be
deemed filed as part of this report.
</PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS
Mission Statement: Through our products, publications and
educational demonstrations, Real Goods promotes and inspires an
environmentally healthy and sustainable future.
Introduction. Real Goods Trading Corporation ("Real Goods" or
the "Company") sells primarily environmentally related products
and renewable energy products through mail order catalogs, direct
sales, retail stores and its Internet web site
(www.realgoods.com).
The Company mailed catalogs under the names of Real Goods*, Earth
Care*, Real Goods News, Post Consumer, and the renewable energy
products catalog, Real Goods Renewables in fiscal 1998. The
Company sells renewable energy products directly to its customers
through its renewable energy department, Real Goods Renewables.
The Company's retail stores are located in Hopland and Berkeley,
California and Eugene, Oregon. The Company also moved a small
outlet store from Ukiah to a site adjacent to its Berkeley store
in January, 1998.
*Real Goods and Earth Care are registered trademarks owned or
licensed by the Company.
</PAGE>
The Company conducts consumer education activities through its
"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" as well as
an annual "social audit" and publishes the results in its annual
report to shareowners.
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. In fiscal 1998, the Company maintained two
differing color catalogs, the Real Goods Catalog containing
products for energy conservation for the suburban household, and
the Earth Care Catalog containing "soft goods" for gifts,
clothing and household cleaning products. In the coming year the
Company plans to eliminate the Earth Care catalog and offer two
different Real Goods catalogs aimed at different consumer
interests. The Company believes this plan will strengthen the
Real Goods brand identity, clarify the Real Goods merchandising
mission and create operating internal efficiencies.
The "Regional Retail Market" is served by the Company's retail
stores, located in Hopland and Berkeley, California and Eugene,
Oregon. Each of the three stores carries a majority of the
products in the color catalogs but also carries environmental and
clothing products as well as unique regional products. Each of
the stores has a resident technician who is knowledgeable about
renewable energy products, and displays that demonstrate
renewable energy products. The Company's new outlet store in
Berkeley, California, is used as a vehicle for reducing
overstocks, returns and discontinued products.
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. The Company has also
identified eco-tourism as a promising sub market for its
renewable energy sales. As the price of renewable energy
products, particularly photovoltaic (solar electric) modules
declines, this market has become more mainstream.
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 Company has
a successful co-publishing relationship with Chelsea Green
Publishers of Vermont. In 1992, the Company established the
Institute for Solar Living, which offers educational seminars on
a variety of topics. With the opening of the Solar Living Center
in May 1996 the Company has a demonstration site for the
Institute, as the retail store there has been built with
sustainable building materials, including strawbale construction,
and has many functioning renewable energy systems.
1. ENVIRONMENTALLY RELATED PRODUCTS MARKET. The Company's
mail order catalogs market energy saving conservation devices,
environmentally related products durable tools, products for
alternative health and educational and well-made gifts to urban
and suburban dwellers. Approximately 71% of the Company's total
sales in fiscal 1998 were derived from catalogs. The Company
mailed approximately 6,417,000 catalogs in the current year,
compared to 6,394,000 in the previous year.
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 durable
tools 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. In
March 1998 the Company began a beta test of "Tree Free", a
program by which Internet users will foreswear catalogs and
purchase the Company's offerings exclusively over the Internet.
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 the fall of fiscal 1998, the Company mailed catalogs to the
Japanese market that had a Japanese order form. Although initial
response was positive, the Company has postponed additional
catalog mailings into the Japanese market due to economic
uncertainties.
In April 1997, the Company participated in launching a commercial
Internet site in Japanese that offered Real Goods products for
sale. This project is continuing currently, and response
supports the Company's belief in the broad based appeal of the
Company's products in the Japanese market. There can be no
assurance that the Company will successfully exploit foreign
sales opportunities.
In January 1997 the Company began printing a wholesale catalog
that offers a limited number of catalog products at attractive
wholesale prices. The catalog is being distributed to inquirers
and certain selected businesses, and many of the products that
the Company imports directly are included in the offering.
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 serve
as demonstration centers for the mail order catalog and renewable
energy products. The Company markets energy saving devices,
environmentally related products, educational and well-made gifts
and unique regional products in each of its retail stores. In
fiscal 1998, the Company's four retail stores accounted for 17%
of total sales. The Company closed its Amherst, Wisconsin store
in August 1997, and opened a store in Berkeley, California in
November 1997. The Company opened an outlet store in Berkeley to
a site adjacent to its Berkeley store in January 1998.
The Company ended fiscal 1998 with 14,300 square feet of retail
space, which it had for the last four months of the fiscal year.
The weighted average retail selling space for fiscal 1998 was
10,767 square feet, compared to a weighted average of 9,233
square feet in fiscal 1997.
The Solar Living Center, which opened in 1996 in Hopland,
California, is a twelve acre demonstration site that is the home
of the Company's flagship store. The 4,200 square foot store is
constructed of adobe-like covered rice straw bales and has a
utility intertie system with the local utility, Pacific Gas &
Electric Company. The Company's 10 kilowatt photovoltaic array
and 3 kilowatt wind generator can seasonally produce more power
than is necessary for the site; the Company sells the excess
power back to PG &E. 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. Nearly 140,000 visitors came to the SLC in fiscal
1998, up from 100,000 visitors in the previous year. The Company
believes that the Solar Living Center has the potential to be of
strategic importance to the Company's future.
In addition to serving as a demonstration center for renewable
energy products and catalog products, the Hopland store also
offers retail products, some of which 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. About two thirds of the Hopland store's products are
catalog and renewable energy items; one third are retail unique
items.
In 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 catalogs as well as renewable energy
products and provides full technical support for these products.
The store is set in a low population area, where the Company
believes there are potential renewable energy customers.
In November 1997, the Company began implementing its retail
expansion strategy and opened a retail store in Berkeley,
California. The 4,800 square foot Berkeley store serves as an
urban demonstration center for the Company's catalog and
renewable energy products and features hands on displays of
solar, wind power and energy efficiency. The Company believes
that the store will further the Company's mission of spreading
renewable energy and sustainable living to a wider audience. In
January 1998, the Company opened a 1,500 square foot outlet store
adjacent to the Berkeley store. The Company intends to focus its
clearance program through this store.
In August 1997 the Company sold its store in Amherst, Wisconsin
which failed to achieve the long term strategic objectives which
the Company had for the store. The Company is seeking to sell
the land and building in which the store was located.
3. RENEWABLE ENERGY PRODUCTS MARKET. Real Goods Renewables
offers power systems for the eco-tourism market and for domestic
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 customers for these power systems have been
owners of 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 over 25,000 homes
have used its products to migrate to renewable energy primarily
through solar systems. 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.
The Company has continued to emphasize the eco-tourism sub
market, a well as foreign markets, and attributes a portion of
the gain in sales in fiscal 1998 to sales from these markets,
particularly in Brazil and Latin America.
President Clinton's new "million solar roofs" initiative has
brought much interest in renewable energy to mainstream America.
Currently the federal government is proposing tax credits for
homeowners installing renewable energy systems. The Department
of Energy continues to provide funds via Team UP funds for
photovoltaic installations. The California Energy Commission is
offering a renewable energy rebate program for homeowners who
install utility intertie systems. The Company has offered
assistance in fulfillment of the program requirements for its
customers and is well positioned to take advantage of these
offers.
Real Goods Renewables markets its products through the Real Goods
Renewables Catalog, a technical 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 is
fully trained in energy system sizing and specializes in
designing solar systems of all sizes.
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 the ninth edition of its Solar Living Sourcebook, a 700
page textbook that the Company periodically 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. Over 100,000 copies of this book have been sold in over
44 English speaking countries. The Company also markets many
publications on specific aspects of renewable energy conservation
and sustainable living within its catalogs and in its retail
stores. In fiscal 1998 the Company developed a series of
educational booklets, the Solar Living Series, as well as several
new portable power products through Real Goods Renewables.
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, fourteen books have been co-published bearing
"Real Goods Solar 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.
The Company has established a website (www.realgoods.com) which
it 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. Transactions 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.
Currently in its seventh season, the Institute for Solar Living
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.
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 the Company's purchases. The Company's ten largest vendors
account for 33% of purchases. The four largest annual 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 four vendors:
Astropower, a distributor of solar modules; 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 four 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 long term material adverse
effect on the Company's 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 assurance that the Company will not be subject to
unanticipated cost increases or shortages of supply.
C. SEASONALITY
Forty per cent of the Company's revenues are realized in the
third quarter, which ends on December 31. 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 lessens the effect of the holiday season on
the Company's sales. The Company's fiscal year ends on March 31.
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
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's backorders are generally
less than $100,000 at any one time. At March 31, 1998, backorders
were $44,000, which was 4.6% of that month's catalog sales. At
March 31, 1997 backorders were $54,000, which was 4.7% of that
month's catalog sales. The Company attempts to keep its backorders
at any given time to less than 10% of its total orders, which the
Company believes 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 1998, returns of
catalog sales were 5.1% of gross catalog sales, the same
percentage that they were in the previous year. The Company
believes that the hard goods catalog industry in general
experiences returns of 5-6%.
E. COMPETITION
Within the catalog market, the Company is very small compared to
industry leaders. The market for environmentally related
products has grown, and the number of both large and small
catalog retailers carrying these products has increased. The
Company is in the process of merging its Earth Care catalog into
its Real Goods catalog to consolidate the focus of its catalog
efforts. The Company believes that this will present an
opportunity to leverage the already strong Real Goods brand
identity. Real Goods has also developed a small number of
proprietary products. There can be no assurance that the Company
will ever sell material quantities of branded goods or
proprietary products.
In the renewable energy market, the Company operates in a niche
presently too technical and application specific to interest the
larger catalogs, and the Company's knowledge of its customer and
vendor offerings enables it to be a better intermediary between
suppliers and customers for its segment of the market than larger
catalogs. The Company believes that Internet vendors without
technical support staff are underselling the Company's prices for
common goods. There can be no assurance that the resources or
market positions of the Company's competitors in this area will
not change.
In the retail market, the Company is experimenting with retail
store formats. In all three markets, 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 1998 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 and telephone support for
Real Goods 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 1998 the membership
program increased by approximately 20% to approximately 49,000
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 113
employees. Of those employees, approximately 28 are employed at
the Company's retail stores, 9 are employed at Real Goods
Renewables and approximately 76 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.
</PAGE>
Item 2. DESCRIPTION OF PROPERTIES.
As of May 15, 1998, the following was the description of the
Company's 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. 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. This property is listed for sale.
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 has a
lease agreement expiring in 1998 for the 4,800 square foot retail
store in Berkeley, California. The Company has a month to month
lease for the 1,500 square foot Outlet store in Berkeley,
California.
The Company believes that it maintains adequate insurance for its
real and personal property.
Item 3. LEGAL PROCEEDINGS.
On June 1, 1998, the Company was served with a Summons and
Complaint in the matter of Intervention, Inc. v. Real Goods
Trading Corporation in the Superior Court of the State of
California in and for the County of Contra Costa, an action "on
behalf of the general public" seeking an injunction against the
Company under California business and Professions code Section
17200 and also seeking restitution of revenues and attorneys'
fees. The Complaint alleges that the Company has engaged in
unfair or fraudulent business acts or practices and/or unfair,
deceptive, untrue or misleading advertising and unfair
competition in connection with the marketing of the Transonic
CIX TM, the Transonic 1000 TM and the Solar Mosquito Guard TM.
The litigation has just commenced, and the Company is not
able to predict the outcome at this time.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
</PAGE>
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED SHAREOWNER MATTERS
The Company's common stock was listed on the Pacific Stock
Exchange in April 1994 under the symbol RGT. The Company's
common stock was listed on the Nasdaq SmallCap Market in July
1996 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. Effective
January, 1998, the Company's stock was listed on the Chicago
Exchange under the symbol RGT. 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.
TRADING INFORMATION
<TABLE>
<CAPTION>
Fiscal Year Ended March 31
High Low
<S> <C> <C>
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 6 1/8 4-3/4
Second Quarter 6-3/4 4-5/8
Third Quarter 6 4-1/4
Fourth Quarter 5-1/4 4-1/8
</TABLE>
</PAGE>
Item 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
SALES
The Company reported an 8% decrease in net sales to $17,034,000
for fiscal 1998, compared to $18,424,000 for fiscal 1997, which
included the $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.
With the Belize resort sale excluded, net sales for fiscal 1998
increased 3% or $571,000, compared to $16,463,000 from fiscal
997. Excluding the Belize sale, catalog sales decreased to 71% of
net sales, as compared to 73% in the prior year; retail store
sales remained at 17% of net sales, with one store sold and one
store and an outlet store added; renewable energy department
sales grew to 12% of net sales, as compared to 10% in the prior
year.
Catalog sales increased by $61,000 to $12,029,000, compared to
prior year sales of $11,968,000. The Company mailed
approximately the same number of catalogs in fiscal 1998, or
6,417,000 compared to 6,394,000, in the previous year. $496,000
of the Company's catalog sales were attributed to participation
in an inflight magazine, Skymall, and not due to catalog
circulation. The Company is merging its Earth Care catalog into
its Real Goods catalog in fiscal 1999 to consolidate the focus of
catalog efforts.
Retail store sales increased 6% to $2,910,000, compared to
$2,754,000 in the previous fiscal year. The Company sold its Snow
Belt store, and opened an urban demonstration center in Berkeley
California, as well as an urban outlet store adjacent to its
Berkeley store. The Company ended the fiscal year with 14,300
square feet of retail space, and a weighted average of 10,767
square feet of retail space for the fiscal year, compared to a
weighted average of 9,233 square feet for the previous fiscal
year, a 17% increase in retail square feet.
Renewable energy sales increased 21% to $2,041,000, compared to
$1,693,000 in the previous fiscal year excluding the Belize sale.
The Company has continued to pursue leads in the eco-tourism
market, and while it has not realized any sales of the size of
the Belize sale, it attributes a portion of this continued growth
to growth in "eco-tourism" sales. The Company's renewable energy
department is also well positioned to take advantage of
government programs providing prelease incentives for renewable
energy systems, and has done so in the past year. The improved
and expanded Real Goods Renewables catalog also contributed to
the sales increase.
GROSS PROFIT
For fiscal 1998, gross profit amounted to $8,198,000, or 48.1% of
sales, compared to $8,799,000, or 47.8% of sales in the previous
fiscal year. This gross profit is similar to what the Company
has experienced in the past, as fiscal 1997 results were
distorted by the Belize sale. Traditionally, retail and renewable
energy sales have lower margins than catalog sales, and as these
sales increase, the Company's margin will tend to decline.
Catalog sales had a gross profit of $6,287,000 or 52.3% of sales,
compared to $6,373,000 or 53.2% of sales in the previous year.
The Company increased its clearance offerings and new purchase
incentives to inactive buyers in the current year in attempts to
increase sales, recover lost customers and keep its inventory
fresh. Retail store sales had a gross profit of $1,171,000 or
40.2% of sales, compared to $1,096,000 or 39.8% of sales in the
previous year. The Company received more favorable terms with
retail vendors as its buying power increased, which improved
purchase costs. Renewable energy sales had a gross profit of
$687,000 or 33.7% of sales, compared to $1,282,000 or 35% of
sales, including the Belize sale, in the previous year.
OPERATING EXPENSES
Selling, general, and administrative expenses amounted to
$8,562,000 or 50.3% of sales in fiscal 1998, compared to
$8,133,000 or 44% of sales in the prior year, or 49.4% without
the Belize sale. Base sales increased 3%, and operating expenses
increased 5% over the previous year. The Company increased its
advertising expense by $281,000 in the current fiscal year, due
to its presence in the Skymall magazine in an effort to acquire
new customers. Costs for the integration of retail operations
into the Company, including consulting, additional personnel as
well as startup charges for the Berkeley store were expensed in
the fiscal year and contributed to the higher level of expenses
in comparison to sales.
OTHER INCOME AND EXPENSE
In fiscal 1998, interest expense was $95,000 and interest income
was $24,000, resulting in a net interest expense of $71,000. In
the previous fiscal year, interest expense was $103,000 and
interest income was $23,000, for a net expense of $80,000. Due to
the repayment of one loan secured by the Solar Living Center, as
well as lower usage of the line of credit, interest expense
declined by year end. The Company also had higher interest
income due to cash generated by its direct public offering that
commenced in August 1997.
In fiscal 1998, the Company recorded a $30,000 write down of the
land and building in Amherst, Wisconsin to reflect the estimated
net realizable value. In the second quarter, the Company had
recognized a $13,000 loss on the sale of the assets of the Snow
Belt business.
INCOME TAXES
Income taxes as a percentage of pretax income (loss) was a tax
benefit of 33% due to the Company's reported loss, compared to a
tax rate of 38% for the previous year. The Company believes that
the applied tax rate accurately reflects its actual experience.
EARNINGS
The Company had a before tax loss of $478,000 and a net loss of
$322,000 or $0.09 per share. In the previous year, with the
Belize sale, the Company had earnings of $586,000 before tax and
$363,000 net earnings, or $0.11 per share. The current year
loss is only the second loss ever reported by the Company. Lower
catalog revenue per book, an increase in clearance vehicles and
one time offers resulting in a catalog margin decline, the
Company's unsuccessful advertising program, and one time store
opening costs and retail consolidation costs contributed to the
loss. Management has restructured its catalog strategy,
consolidated clearance at the outlet store, and improved
efficiencies for retail to improve profitability.
LIQUIDITY AND CAPITAL RESOURCES
During the fiscal year ended March 31, 1998, cash of $32,000 was
provided by operations. Cash was provided by an increase in
accounts payable of $245,000 as well as deposits of $361,000 (see
Note 9). Cash was used by a increase in inventory of $285,000.
The Company used $441,000 of cash for purchase of property,
equipment and improvements, for both the Berkeley store as well
as the Company's base business needs.
Cash provided by financing activities was increased $1,793,000
from the Company's direct public offering, and decreased by
$596,000 for the repayment of one loan as well as loan payments
(see Note 4).
The net effect of all of the Company's activities was to increase
the Company's cash to $788,000 at the end of the period from
$513,000 at the beginning of the period.
The Company has secured a $1,500,000 line of credit for fiscal
1999 to use for seasonal fluctuations in inventory levels as well
as operating expenses. Management believes that cash flow from
operations together with bank debt financing and existing cash
reserves will be sufficient to fund the Company's operations
through fiscal 1999.
The overall effects of inflation on the Company's business during
the periods discussed were not believed to be material.
</PAGE>
CERTAIN CONSIDERATIONS
Except for the historical information contained in this Annual
Report on Form 10-KSB, the matters discussed in this document
are forward looking statements. These forward looking statements
concern matters that involve risks and uncertainties, including,
but not limited to, those set forth below, that could cause
actual results to differ materially from those in the forward
looking statements. The matters set forth below should be
carefully considered when evaluating the Company's business and
prospects.
A. CATALOG SALES. The mail order industry is susceptible to the
ebb and flow of both retail industry trends and the general
economy. While the Company could be a beneficiary of a trend
which increases the popularity of the Company's products, that
trend could also ebb away. Of approximately 350 products in each
of the Real Goods 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 sales decrease,
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; excessive prospecting can adversely affect operating
results.
B. RETAIL STORES. There are substantial risks in store
retailing, including poor location of retail stores, failing to
identify consumer trends correctly, theft by customers and
employees, inadequate merchandise selection, inadequate financial
controls, and losing customers to competitors. The Company is
experimenting with retail store formats; there can be no
assurance that any of those formats will be profitable, or, if
profitable, replicatable. The Company has only limited
experience with its new urban store format. The Company sold its
Amherst, Wisconsin store in August 1997 due to the store's
failure to achieve the long term strategic objectives which the
Company had for the store.
C. SOLAR LIVING CENTER. The Company's mission is to promote and
inspire an environmentally healthy and sustainable future through
its products, publications and educational demonstrations. The
Company has spent approximately $3,000,000 to acquire the land
for the Solar Living Center, landscape the land and construct it
as a demonstration of many of the principles underlying the
Company's mission and vision. Although the initial response has
been extremely encouraging in both sales and number of visitors,
there can be no assurance that the Solar Living Center, which
opened in May 1996, will fulfill the Company's hopes to increase
the public's awareness of the Real Goods mission, that the
Company will ever realize a suitable return on its investment or
that the Company will not incur a substantial loss from the Solar
Living Center. The Solar Living Center is located on a flood
plain; the building at the Solar Living Center is covered by
flood insurance and is above the 100 year flood mark.
D. SEASONALITY. As with nearly all retail enterprises, the
Company's business is seasonal, and it customarily generates
approximately 40% of its revenues in its third fiscal quarter
which is the last calendar quarter of the year. The Company's
execution in its third quarter is material to its financial
success for a fiscal year. Poor third quarter results in any
given year would adversely impact the Company to a greater
absolute extent than poor results in any other quarter.
E. COMPETITION. In the catalog market, the Company is small
compared to industry leaders. If one or more of the larger
catalog retailers decides either to have an environmental
products section in an existing catalog or to launch a comparable
catalog, the Company's business could be adversely affected. In
addition, if the Company successfully identifies an unmet
consumer need, the idea can be copied quickly by catalog
retailers with greater buying power and greater numbers of
catalogs in circulation. As to its renewable energy market, the
Company believes it operates in a niche presently too technical
and application specific to interest the larger catalogs and 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.
Finally, the options available on the Internet allow potential
customers to obtain certain of the Company's value added services
without a charge, and then purchase their goods more cheaply from
less service oriented vendors.
F. NEW INITIATIVES. The Company has undertaken test programs in
selling via the Internet, as well as a catalog strategy
involving the mailing of discrete catalogs, which may prove to be
productive endeavors; however, there can be no assurance that
they will be successful or, if they appear successful, that they
will continue to be successful.
G. UNCONTROLLABLE EVENTS. The Company is subject to larger
trends and events which are beyond the Company's control. For
instance, a severe recession would decrease consumers' disposable
income and the amounts people spend on non-essential products
such as those the Company offers. If there is a war, earthquake,
fire or similar event, the Company could be adversely impacted.
While the Company carries reasonable insurance considering its
size and economics, such insurance may not fully protect the
Company from events which are beyond the Company's control. Any
long term drop in energy prices could also reduce the
attractiveness of certain of the Company's products;
reciprocally, the Company could benefit from a long term increase
in energy prices.
H. SALES TAXES. In 1992, the United States Supreme Court ruled
that states may not impose taxes on out-of-state direct
marketers, but it suggested that Congress could delegate that
power. To date, there has been no congressional action. The
Company collects sales tax only on sales made in California. If
the Congress does delegate the power to levy a sales tax and
states do levy those taxes, the operations of the Company will
likely be affected substantially because the Company's average
order is relatively high and the combination of sales taxes with
shipping charges may affect consumer buying decisions.
I. DEPENDENCE ON KEY PERSONNEL. The Company is substantially
dependent on the continued services of John Schaeffer, its CEO
and Chairman of the Board. The loss of Mr. Schaeffer's services
for any substantial period of time is certain to have a material
adverse impact on the Company. The Company maintains a
$1,000,000 life insurance policy on Mr. Schaeffer. The Company
does not anticipate acquiring disability insurance on Mr.
Schaeffer.
J. NEW MANAGERS AND PERSONNEL. Subsequent to year end, the
Company has added a new President and a new Retail Director and
is actively recruiting a new Vice President of Merchandising.
There can be no assurance that all of these new executives will
be effective over the long term.
K. DEPENDENCE ON CERTAIN SUPPLIERS, INCLUDING FOREIGN SUPPLIERS.
The Company carries approximately 350 articles in each color
catalog. No more that 5% of the Company's sales arise from a
single product. Approximately 3% of the Company's sales are
generated from products purchased directly from foreign
countries. Accordingly, the Company is subject to both exchange
rate fluctuations and possible disruptions in supplies for those
products. The Company could also be vulnerable because 5% of its
revenues derive from products purchased from a single supplier.
However, there is at least one alternative supplier for each
product in every case, and management believes that any such
effect would be temporary.
L. 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. 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 adversely impact the Company's
catalog growth and profitability. Decreased paper prices result
in lower costs, but other catalog merchants may be encouraged to
expand their mailings. Postage costs are also affected by price
changes by the United States Postal Service and United Parcel
Service. The Company does expect annual increases in United
Parcel Services's charges.
M. CONTROL. Because of his stock ownership position, John
Schaeffer is likely to continue to have the ability to control
the operations and strategy of the Company.
</PAGE>
Item 7. FINANCIAL STATEMENTS.
REAL GOODS TRADING CORPORATION
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 18
FINANCIAL STATEMENT AS OF AND FOR THE YEARS
ENDED MARCH 31, 1998 AND 1997:
Balance Sheets 19
Statements of Operations 20
Statements of Cash Flows 21
Statements of Shareowners' Equity 22
Notes to Financial Statements 23-29
</PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareowners
Real Goods Trading Corporation:
We have audited the accompanying balance sheets of Real Goods
Trading Corporation (the "Company") as of March 31, 1998 and
1997, and the related statements of operations, shareowners '
equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with 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 financial statements present fairly, in all
material respects, the financial position of Real Goods Trading
Corporation as of March 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
[S]DELOITTE & TOUCHE, LLP
Oakland, California
May 8, 1998
<\PAGE>
REAL GOODS TRADING CORPORATION
BALANCE SHEETS
MARCH 31, 1998 AND 1997
(In thousands except share data)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash $1,301 $ 513
Accounts receivable, net of
allowance of $6, respectively 210 169
Inventories 2,336 2,112
Deferred catalog costs, net 439 383
Prepaid expenses 214 112
Total current assets 4,500 3,289
Property, equipment and improvements, net 3,509 3,347
Intangible assets and other assets, net 153 166
Income taxes receivable 167
Total assets $8,329 $6,802
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Accounts payable $ 726 $ 481
Accrued expenses 345 304
Deposits 434 85
Current maturities of long-term debt 17 37
Deferred income taxes 23 13
Other taxes payable 34 48
Total current liabilities 1,579 968
Long-term debt 568 1,143
Total liabilities $2,147 $2,111
Shareowners' equity:
Common stock, no par value: Authorized
10,000,000 shares; issued and
outstanding, 3,857,215 and 3,403,804
shares, respectively 6,065 4,252
Retained earnings 117 439
Total shareowners' equity 6,182 4,691
Total liabilities and
shareowners' equity $8,329 $6,802
</TABLE>
See notes to financial statements
</PAGE>
REAL GOODS TRADING CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1998 AND 1997
(In thousands except share data)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net sales $17,034 $18,424
Cost of sales 8,836 9,625
Gross profit 8,198 8,799
Selling, general and administrative expenses 8,562 8,133
Earnings (loss) from operations (364) 666
Interest income (expense), net (71) (80)
Loss on store disposition (43)
Earnings (loss) before income taxes (478) 586
Income tax benefit (expense) 156 (223)
Net earnings (loss) $ (322) $ 363
Net earnings (loss) per share, basic ($0.09) $0.11
Net earnings (loss) per shares, diluted ($0.09) $0.10
Weighted average shares outstanding,
basic 3,472,257 3,418,089
Weighted average shares outstanding,
diluted 3,472,257 3,554,089
</TABLE>
See notes to financial statements
</PAGE>
REAL GOODS TRADING CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1998 AND 1997
(In thousands)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $(322) $363
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation and amortization 314 283
Loss on disposition of assets 13
Writedown of land and building to net
realizable value 30
Other 30 (27)
Changes in assets and liabilities:
Accounts receivable (56) 9
Inventory (285) 27
Deferred catalog costs (56) 20
Prepaid expenses (102) 285
Income taxes receivable (167)
Accounts payable 245 (94)
Accrued expenses 41 (41)
Other taxes payable (14) 13
Deposits 361 (586)
Net cash provided by operating activities 32 252
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of land, equipment, and
construction in progress (494) (673)
Purchase of other assets (35) (23)
Proceeds from sale of equipment and
other assets 88 11
Net cash used in investing activities (441) (685)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings 2,559
Proceeds from issuance of common stock, net 1,793 13
Repayment of debt (596) (1,780)
Purchase of common stock (115)
Net cash provided by financing activities 1,197 677
Net increase in cash 788 243
Cash at beginning of period 513 270
Cash at end of period $1,301 $ 513
Other cash flow information:
Interest paid 88 99
Income taxes paid 1 233
</TABLE>
See notes to financial statements
</PAGE>
REAL GOODS TRADING CORPORATION
STATEMENTS OF
SHAREOWNERS
' EQUITY
YEARS ENDED MARCH 31, 1998 AND 1997
(In thousands)
<TABLE>
<CAPTION>
Common Stock
Total
Number of Retained Shareowners'
Shares Amount Earnings Equity
<S> <C> <C> <C> <C>
BALANCE, MARCH 31, 1996
3,435 $4,354 $ 76 $4,430
Issuance of common 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
Issuance of common
stock for bonuses 4 20 20
Issuance of common stock
for direct public
offering, net of
offering costs of $598 449 1,793 1,793
Net loss (322) (322)
______ ______ _______ _______
BALANCE, MARCH 31, 1998 3,857 $6,065 $ 117 $6,182
</TABLE>
See notes to 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, four retail stores,
and direct sales of its renewable energy department. The Company
was organized on July 1, 1990.
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.
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, generally eighteen weeks.
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.
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 - In the third quarter of fiscal 1997, the
Company adopted SFAS 128, "Earnings per Share" (" SFAS 128").
SFAS 128 replaces current reporting requirements for earnings
per share "EPS") and requires a dual presentation of basic and
diluted PS. Basic EPS is computed by dividing net income by the
weighted average shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if contracts to
issue common stock were exercised or converted to common stock.
Prior periods have been restated to conform to SFAS 128.
<TABLE>
<CAPTION>
The following is a reconciliation of the Company's basic and
diluted net earnings (loss) per share computations (in thousands
except share data);
Fiscal Year
1998 1997
<S> <C> <C> <C> <C>
Basic earnings (loss)
per share 3,472,257 $(0.09) 3,418,089 $ 0.11
Effect of dilutive
stock options 136,000 $(0.01)
Diluted earnings (loss)
per share 3,472,257 $(0.09) 3,554,089 $0.10
Dilutive stock options were not included for the fiscal year
ending March 31, 1998, as the Company incurred a net loss and the
effect would be antidilutive.
RECLASSIFICATION - Certain reclassifications have been made to
the prior period amounts in order to conform to the March 31,1998
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 Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees."
NEW ACCOUNTING PRONOUNCEMENTS - In June 1997 the Financial
Accounting Standards Board issued two new prouncements,
SFAS No. 130 "Reporting Comprehensive Income" and SFAS
No. 131 "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 130 requires companies to report, by major
components and as a single total, the change in its net assets
during the period from non-owner sources. SFAS No. 131
establishes annual and interim reporting standards for a
company's operating segments and related disclosures about
its products, services, geographic areas and major customers.
Adoption of these new prouncements will not impact the financial
position, results of operations or cash flows of the Company and
any effect will be limited to the form and content of its
disclosures. Both statements are effective for fiscal years
beginning after December 15, 1997.
2. PROPERTY, EQUIPMENT AND IMPROVEMENTS
</TABLE>
<TABLE>
<CAPTION>
Property, equipment and improvements consist of the following at
March 31 (in thousands):
1998 1997
<S> <C> <C>
Land $ 490 $ 490
Land Improvements 782 770
Buildings and leasehold improvements 1,705 1,717
Equipment, furniture and fixtures 1,309 902
Construction in progress 10 10
Total 4,296 3,889
Less accumulated depreciation (787) (542)
Property, equipment and improvements, net $3,509 $3,347
</TABLE>
3. LINE OF CREDIT
In April 1997, the Company entered into a line of credit
agreement for $1,500,000 with National Bank of the Redwoods (the"
Bank"). Borrowings bear interest at 1% over the prime rate, and
interest is payable monthly; additionally the Company pays a loan
fee of .5%. The line is personally guaranteed by the Company's
CEO and majority shareowner. In April 1998 the line of credit
agreement was extended until April 1999. Borrowings bear
interest at 1.5% over the prime rate, and there are no loan fees.
At March 31, 1998 and 1997, no amounts were outstanding on the
Company's line of credit.
The 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. At March 31, 1998 and 1997, the Company was in
compliance with all covenants of the line of credit agreement.
4. DEBT
<TABLE>
<CAPTION>
Long term debt consists of the following at March 31 (in
thousands):
1998 1997
<S> <C> <C>
National Bank of the Redwoods term loan,
interest at prime plus 2%, paid in $ 568
November 1997
Small Business Administration term loan,
interest at 7.77%, payable through
September 2016 583 596
Other 2 16
Total $ 585 $ 1,180
</TABLE>
<TABLE>
<CAPTION>
Principal payments on long-term debt are as follows (in
thousands):
Fiscal Year ending March 31:
<C> <C>
1999 17
2000 16
2001 17
2002 19
2003 20
Thereafter 496
Total $ 585
</TABLE>
5. DISPOSITION OF ASSETS
In August 1997 the Company completed the sale of the non-real
property assets of its Amherst, Wisconsin store to two former
employees for net proceeds of $88,000, and recorded a loss of
$13,000 in exchange for inventory, accounts receivable and fixed
assets of the business. A loss of $13,000 has been recognized in
the September quarter. The Company is seeking to sell the land
and building in which the store was located. At March 31, 1998,
the Company recorded an additional loss of $30,000 on the land
and building to reflect the estimated net realizable value.
6. LEASES
The Company has operating leases for office, warehouse
facilities, the Eugene and Berkeley stores and certain equipment,
which expire from 1998 through 2001. Rental expense for the
years ended March 31, 1998 and 1997 were $188,000 and $158,000,
respectively.
<TABLE>
<CAPTION>
Future minimum annual lease payments under operating leases are
as follows (in thousands):
Fiscal Year ending March 31:
<C> <C>
1999 81
2000 12
2001 5
Total $ 98
</TABLE>
7. INCOME TAXES
<TABLE>
<CAPTION>
Income taxes consist of the following for the years ended March
31(in thousands):
1998 1997
<S> <C> <C>
Current:
Federal $(167) $ 196
State 1 52
Total (166) 248
Deferred 10 (25)
Total provision (benefit) $ (156) $ 223
</TABLE>
<TABLE>
<CAPTION>
The provisions for income taxes for financial reporting purposes
are different from the tax provision computed by applying the
statutory federal income tax rate. The differences for each year
are reconciled as follows (in thousands):
1998 1997
<S> <C> <C>
Federal income taxes at statutory
income tax rate(34%) $ (163) $ 199
State taxes net of federal tax benefit (29) 33
Effect of permanent differences (33) 13
Valuation allowance 76
Other (7) (22)
Provision (benefit) $ (156) $ 223
</TABLE>
<TABLE>
<CAPTION>
The components of the net deferred tax liability at year-end are
as follows (in thousands):
1998 1997
<S> <C> <C>
Deferred tax assets:
Benefit of net operating loss carryforwards $ 76
Stock option compensation 14 14
Reduction in cost of property 11 5
Accrued reserves 23
Other 9 24
110 66
Less valuation allowance (76)
Non-current deferred tax asset $ 34 $ 66
Deferred tax liabilities:
Catalog costs (78) (73)
Accruals 27
Other (6) (6)
Current deferred tax liabilities (57) (79)
Net deferred tax liability $ (23) $ (13)
</TABLE>
Because of the uncertain nature of their ultimate utilization, a
valuation allowance is recorded against the deferred tax assets
associated with the net operating losses. At March 31, 1998, the
Company has available for carryforward approximately $147,000 and
$302,000 of federal and state net operating losses for tax
purposes. The federal and $40,000 of the state net operating
losses will expire in 2013. The remaining state net operating
losses expire in 2003.
8. MAJORITY SHAREOWNER AGREEMENTS
The CEO and majority shareowner has a renewable one-year
employment agreement with the Company which provides for an
annual salary of $72,000.
The CEO and majority shareowner has personally guaranteed the
Company's line of credit agreement.(See Note 3.)
The Company has a split dollar life insurance agreement with its
CEO, 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 net cash value at March 31, 1998 was
$151,000, and is included in other assets.
9.SHAREOWNERS ' EQUITY
On August 11, 1997 the Company commenced a direct public offering
of 1,000,000 shares of newly issued stock and 300,000 shares
offered by a selling shareholder.
Through March 31, 1998, the Company had issued 449,214 new shares
of common stock, generating gross proceeds of $2,391,000, and had
incurred costs of $598,000 related to the direct public offering.
The Company also has $276,000 in deposits for shares that were
unissued on March 31, 1998.
The Company is authorized to repurchase up to $250,000 of common
stock. No stock was repurchased in fiscal 1998. Through March
31, 1998, 9,184 shares had been repurchased and retired at an
average price of $5.34 per share. In fiscal 1997, the Company
also repurchased and retired 30,000 shares of unregistered stock
from its CEO and majority shareowner at a below market price of
$3.33 per share
10. 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, 1998, options to purchase
309,200 shares were outstanding, and 26,100 had been exercised.
The Company has reserved 100,000 shares of common stock for its
Non-Employee Directors' Stock Option Plan (Director's Plan). As
of March 31, 1998, options to purchase 35,000 shares were
outstanding and none had been exercised.
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
(in thousands)
<S> <C> <C>
Outstanding at March 31, 1996 231 $ 5.48
Granted (fair value of $1.90) 249 5.71
Exercised (1) 5.05
Forfeited (211) 5.43
Outstanding at March 31, 1997 268 $ 5.40
Granted (fair value of $1.47) 129 5.23
Forfeited (53) 5.21
Outstanding at March 31, 1998 344 $ 5.37
Shares exercisable at March 31, 1998 180 $ 5.21
Shares available for grant at March 31, 1998 330
Range of exercise prices $5.05 to $7.12
Weighted average remaining contractual life
at March 31, 1998 7.4 years
</TABLE>
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 1998.
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
calculated values. The Company's calculations were made using
the Black-Scholes option pricing model with the following
weighted average assumptions: Expected life, 120 months
following vesting in fiscal 1998, 60 months following
vesting in fiscal 1997; stock volatility, 31.55% in fiscal 1998
and 26.18% in fiscal 1997; risk free interest rate 6% in fiscal
1998 and fiscal 1997; and no dividends during the expected term.
The Company's calculations are based on a multiple option
valuation approach and forfeitures are calculated at a 50%
rate, based on the Company's historical experience. If the
computed fair values of the fiscal 1998 and fiscal 1997 awards
had been amortized to expense over the vesting period of the
awards, pro forma net loss would have been $360,000 or $0.10
per share in fiscal 1998, and the pro forma net earnings would
have been $314,000 or $0.09 per share in fiscal 1997. However,
the impact of outstanding non-vested stock options granted prior
to fiscal 1996 has been excluded from the pro forma calculation;
accordingly, the fiscal 1998 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.
</PAGE>
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Information with respect to this Item is incorporated by
reference to the information set forth under the headings
"General Information Regarding Directors and Executive Officers,"
"Professional Experience of Executive Officers and Directors" and
"Reports Required by Section 16(a)" under the section entitled
"Board of Directors" in the Company's Proxy Statement for the
1998 Annual Meeting of Shareowners.
Item 10. EXECUTIVE COMPENSATION.
Information with respect to this Item is incorporated by
reference to the information set forth under the headings
"Remuneration of Directors," "Compensation of Executive Officers"
and "Employee Contracts, Employment Termination and
Change-in-Control Arrangements" under the section entitled "Board
of Directors" in the Company's Proxy Statement for the 1998
Annual Meeting of Shareowners.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information with respect to this Item is incorporated by
reference to the information set forth in the section entitled
"Security Ownership of Certain Beneficial Owners and Management"
in the Company's Proxy Statement for the 1998 Annual Meeting of
Shareowners.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to this Item is incorporated by
reference to the information set forth under the heading "Certain
Relationships and Related Transactions" under the section
entitled " Board of Directors" in the Company's Proxy Statement
for the 1998 Annual Meeting of Shareowners.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Form 8-K filed dated December 30, 1997
(b) Form 8-K filed dated May 7, 1998
(b) See Index to Exhibits following Signature Page.
</PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on this June 19th day of 1998.
REAL GOODS TRADING CORPORATION
(Registrant)
By:[S]DONNA MONTAG
Donna Montag, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant in the capacities and on the dates
indicated.
Signature Title Date
[S]DONNA MONTAG Chief Financial Officer 6/19/98
Donna Montag
[S]JOHN SCHAEFFER Chief Exectutive Officer 6/19/98
John Schaeffer
[S]STEPHEN MORRIS Director 6/19/98
Stephen Morris
[S]JAMES T. ROBELLO Director 6/19/98
James T. Robello
[S]LINDA FRANCIS Director 6/19/98
Linda Francis
[S]JOHN LENSER Director 6/19/98
John Lenser
[S]BARRY REDER Director 6/19/98
Barry Reder
</PAGE>
Item 13. INDEX TO EXHIBITS.
Exhibit No. Description
3.1* Articles of Incorporation
3.2* Bylaws
10.1* Form of Indemnification Agreement with Directors
10.10**** Lease on 555 Leslie Street, Ukiah, California
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
10.14**** 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
10.18^ Term Loan agreement between the Company and Small Business
Administration, dated June 17, 1996 and certain ancillary
documents.
10.20 Loan Agreement between the Company and National Bank of
the Redwoods dated April 7, 1998 and certain ancillary
documents.
10.21 Asset Sales and Purchase Agreement for Snow Belt.
10.23 Lease of 1324 Tenth St., Berkeley, California.
10.24 Agreement with Ronald Zell.
23.2 Independent Auditors' Consent.
* Incorporated by reference to the Company's Registration
Statement of Form 10-KSB filed with the Securities and
Exchange Commission on October 1, 1993.
** Incorporated by reference to Amendment No. 1 to the
Company's Registration Statement on Form 10-KSB filed
with the Securities and Exchange Commission on December
1,1993.
*** 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.
BUSINESS LOAN AGREEMENT
Borrower: REAL GOODS TRADING CORPORATION
555 LESLIE ST
UKIAH, CA 95482
Lender: National Bank of the Redwoods
Ukiah Office
319 East Perkins
Ukiah, CA 95482
THIS LOAN AGREEMENT between REAL GOODS TRADING
CORPORATION ("Borrower") and National Bank of the Redwoods
("Lender") is made and executed on the following terms and
conditions. Borrower has received prior commercial loans from
Lender or has applied to Lender for a commercial loan or loans
and other financial accommodations, including those which may be
described on any exhibit or schedule attached to this Agreement.
All such loans and financial accommodations, together with all
future loans and financial accommodations from Lender to
Borrower, are referred to in this Agreement Individually as the
"Loan" and collectively as the "Loans". Borrower understands and
agrees that: (a) In granting, renewing, or extending any Loan,
Lender is relying upon Borrower's representations, warranties,
and agreements, as set forth In this Agreement; (b)the granting,
renewing, or extending of any Loan by Lender at all times shall
be subject to Lender's sole judgment and discretion; and (c) all
such Loans shall be and shall remain subject to the following
terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of April 7, 1998, and
shall continue thereafter until all Indebtedness of Borrower to
Lender has been performed in full and the parties terminate this
Agreement in writing.
DEFINITIONS. The following words shall have the following
meanings when used in this Agreement. Terms not otherwise defined
in this Agreement shall have the meanings attributed to such
terms in the Uniform Commercial Code. All references to dollar
amounts shall mean amounts in lawful money of the United States
of America.
Agreement. The word "Agreement" means this Business Loan
Agreement, as this Business Loan Agreement may be amended or
modified from time to time, together with all exhibits and
schedules attached to this Business Loan Agreement from time to
time.
Advance. The word "Advance" means a disbursement of Loan funds
under this Agreement.
Borrower. The word "Borrower" means REAL GOODS TRADING
CORPORATION. The word "Borrower" also includes, as applicable,
all subsidiaries and affiliates of Borrower as provided below in
the paragraph titled "Subsidiaries and Affiliates".
CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
Collateral. The word "Collateral" means and includes without
limitation all property and assets granted as collateral security
for a Loan, whether real or personal property, whether granted
directly or indirectly, whether granted now or in the future, and
whether granted in the form of a security interest, mortgage,
deed of trust, assignment, pledge, chattel mortgage, chattel
trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security
or lien interest whatsoever, whether created by law, contract, or
otherwise. The word "Collateral" includes without limitation all
collateral described below in the section titled "COLLATERAL".
ERISA. The word "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
Event of Default. The words "Event of Default" mean and include
without limitation any of the Events of Default set forth below
in the section titled "EVENTS OF DEFAULT."
Grantor. The word "Grantor" means and includes without limitation
each and all of the persons or entitles granting a Security
Interest in any Collateral for the Indebtedness, including
without limitation all Borrowers granting such a Security
Interest.
Guarantor. The word "Guarantor" means and includes without
limitation each and all of the guarantors, sureties, and
accommodation parties in connection with any Indebtedness.
Indebtedness. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts
and liabilities of Borrower to Lender, or any one or more of
them, as well as all claims by Lender against Borrower, or any
one or more of them; whether now or hereafter existing, voluntary
or involuntary, due or not due, absolute or contingent,
liquidated or unliquidated; whether Borrower may be liable
individually or jointly with others; whether Borrower may be
obligated as a guarantor, surety, or otherwise; whether recovery
upon such Indebtedness may be or hereafter may become barred by
any statute of limitations; and whether such Indebtedness may be
or hereafter may become otherwise unenforceable.
Inventory. The word "Inventory" means all of Borrower's raw
materials, work in process, finished goods, merchandise, parts
and supplies, of every kind and description, and goods held for
sale or lease or furnished under contracts of service in which
Borrower now has or hereafter acquires any right, whether held by
Borrower or others, and all documents of title, warehouse
receipts, bills of lading, and all other documents of every type
covering all or any part of the foregoing. Inventory includes
inventory temporarily out of Borrower's custody or possession and
all returns on Accounts.
Lender. The word "Lender" means National Bank of the Redwoods,
its successors and assigns.
Letter of Credit. The words "Letter of Credit" mean a letter of
credit issued by lender on behalf of Borrower as described below
in the section titled "Letter of Credit Facility."
Line of Credit. The words "Line of Credit" mean the credit
facility described in the Section titled "LINE OF CREDIT" below.
Loan. The word "Loan" or "Loans" means and includes without
limitation any and all commercial loans and financial
accommodations from Lender to Borrower, whether now or hereafter
existing, and however evidenced, including without limitation
those loans and financial accommodations described herein or
described on any exhibit or schedule attached to this Agreement
from time to time.
Note. The word "Note" means and includes without limitation
Borrower's promissory note or notes, if any, evidencing
Borrower's Loan obligations in favor of Lender, as well as any
substitute, replacement or refinancing note or notes therefore.
Permitted Liens. The words "Permitted Liens" mean: (a) liens and
security interests securing Indebtedness owed by Borrower to
Lender; (b) liens for taxes, assessments, or similar charges
either not yet due or being contested in good faith; (c) liens of
materialmen, mechanics, warehousemen, or carriers, or other like
liens arising in the ordinary course of business and securing
obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any
property acquired or held by Borrower in the ordinary course of
business to secure indebtedness outstanding on the date of this
Agreement or permitted to be incurred under the paragraph of this
Agreement titled "Indebtedness and Liens"; (e) liens and security
interests which, as of the date of this Agreement, have been
disclosed to and approved by the Lender in writing; and (f) those
liens and security interests which in the aggregate constitute an
immaterial and insignificant monetary amount with respect to the
net value of Borrower's assets.
Related Document. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, and all other instruments,
agreements and documents. whether now or hereafter existing,
executed in connection with the Indebtedness.
Security Agreement. The words "Security Agreement" mean and
include without limitation any agreements, promises, covenants,
arrangements, understandings or other agreements, whether created
by law, contract, or otherwise, evidencing, governing,
representing, or creating a Security Interest.
Security Interest. The words "Security Interest" mean and include
without limitation any type of collateral security, whether in
the form of a lien, charge, mortgage, deed of trust, assignment,
pledge, chattel mortgage, chattel trust, factor's lien, equipment
trust, conditional sale, trust receipt, lien or title retention
contract. Lease or consignment intended as a security device, or
any other security or lien interest whatsoever, whether created
by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and
Reauthorization Act of 1986 as now or hereafter amended.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from
time to time from the date of this Agreement to the Expiration
Date, provided the aggregate amount of such Advances outstanding
at any time does not exceed the Borrowing Base. Within the
foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under this Agreement as follows.
Conditions Precedent to Each Advance. Lender's obligation to make
any Advance to or for the account of the Borrower under this
Agreement is subject to the following conditions precedent, with
all documents, instruments, opinions, reports, and other items
required under this Agreement to be in form and substance
satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement
and all Related Documents have been duly authorized,
executed, and delivered by the Borrower to Lender.
(b) Lender shall have received such options of counsel,
supplemental opinions, and documents as Lender may
request.
(c) The security interests in the Collateral shall have
been duly authorized, created, and perfected with
first lien priority and shall be in full force and
effect.
(d) All guaranties required by Lender for the Line of
Credit shall have been executed by each Guarantor,
delivered to Lender, and be in full force and effect.
(e) Lender, at its option and for its sole benefit, shall
have conducted an audit of Borrower's inventory, books,
records, and operations and Lender shall be satisfied
as to their condition.
(f) Borrower shall have paid to Lender all fees, costs, and
expenses specified in this Agreement and the Related
Documents as are then due and payable.
(g) There shall not exist at the time of any Advance a
condition which would constitute an Event of Default
under this Agreement, and Borrower shall have delivered
to Lender the compliance certificate called for in the
paragraph below titled "Compliance Certificate."
Making Loan Advances. Advances under the credit facility, as well
as directions for payment from Borrower's accounts, may be
requested orally or in writing subject to the limitations set
forth below. Lender may, but need not, require that all oral
requests be confirmed in writing. Each Advance shall be
conclusively deemed to have been made at the request of and for
the benefit of Borrower (a) when credited to any deposit account
of Borrower maintained with Lender or (b) when advanced in
accordance with the instructions of an authorized person. Lender,
at its option, may set a cutoff time, after which all requests
for Advances will be treated as having been requested on the next
succeeding Business Day.
Mandatory Loan Repayments. If at any time the aggregate principal
amount of the outstanding Advances shall exceed the applicable
Borrowing Base, Borrower, immediately upon written or oral
notice from Lender, shall pay to Lender an amount equal to the
difference between the outstanding principal balance of the
Advances and the Borrowing Base. On the Expiration Date,
Borrower shall pay to Lender in full the aggregate unpaid
principal amount of all Advances then outstanding and all accrued
unpaid interest, together with all other applicable fees, costs
and charges, if any, not yet paid.
Loan Account. Lender shall maintain on its books a record of
account in which Lender shall make entries for each Advance and
such other debits and credits as shall be appropriate in
connection with the credit facility. Lender shall provide
Borrower with periodic statements of Borrower's account, which
statements shall be considered to be correct and conclusively
binding on Borrower unless Borrower notifies Lender to the
contrary within thirty (30) days after Borrower's receipt of any
such statement which Borrower deems to be incorrect.
COLLATERAL. To secure payment of the Line of Credit and
performance of all other Loans, obligations and duties owed by
Borrower to Lender, Borrower (and others, if required) shall
grant to Lender Security Interests in such property and assets as
Lender may require (the "Collateral"), including without
limitation Borrower's present and future inventory. Lender's
Security interests in the Collateral shall be continuing liens
and shall include the proceeds and products of the Collateral,
including without limitation the proceeds of any insurance. With
respect to the Collateral, Borrower agrees and represents and
warrants to Lender:
Perfection of Security Interests. Borrower agrees to
execute such financing statements and to take whatever other
actions are requested by Lender to perfect and continue
Lender's Security Interests in the Collateral. Upon request
of Lender, Borrower will deliver to Lender any and all of
the documents evidencing or constituting the Collateral, and
Borrower will note Lender's interest upon any and all
chattel paper if not delivered to Lender for possession by
Lender. Contemporaneous with the execution of this
Agreement, Borrower will execute one or more UCC financing
statements and any similar statements as may be required by
applicable law, and will file such financing statements and
all such similar statements in the appropriate location or
locations. Borrower hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing
any documents necessary to perfect or continue any Security
Interest. lender may at any time, and without further
authorization from Borrower, file a carbon, photograph,
facsimile, or other reproduction of any financing statement
for use as a financing statement. Borrower will reimburse
Lender for all expenses for the perfection, termination, and
the continuation of the perfection of Lender's security
interest in the Collateral.
Borrower promptly will notify Lender of any change in
Borrower's name including any change to the assumed business
names of Borrower. Borrower also promptly will notify
Lender of any change in Borrower's Social Security Number or
Employer Identification Number. Borrower further agrees to
notify Lender in writing prior to any change in address or
location of Borrower's principal governance office or should
Borrower merge or consolidate with any other entity.
Collateral Records. Borrower does now, and at all times
hereafter shall, keep correct and accurate records of the
Collateral, all of which records shall be available to
Lender or Lender's representative upon demand for inspection
and copying at any reasonable time. With respect to the
Inventory, Borrower agrees to keep and maintain such records
as Lender may require, including without limitation
information concerning Eligible Inventory and records
itemizing and describing the kind, type, quality, and
quantity of inventory, Borrower's Inventory costs and
selling prices, and the daily withdrawals and additions to
Inventory.
Collateral Schedules. Concurrently with the execution and
delivery of this Agreement, Borrower shall execute and
deliver to Lender a schedule of Inventory and Eligible
Inventory, in form and substance satisfactory to the Lender.
Thereafter and at such frequency as Lender shall require,
Borrower shall execute and deliver to Lender such
supplemental schedules of Eligible Inventory specifying the
value thereof, and such other matters and information
relating to Borrower's Inventory as Lender may request.
Representations and Warranties Concerning Inventory. With
respect to the Inventory, Borrower represents and warrants
to Lender: (a) All Inventory represented by Borrower to be
Eligible Inventory for purposes of this Agreement conforms
to the requirements of the definition of Eligible Inventory;
(b) All Inventory values listed on schedules delivered to
Lender will be true and correct, subject to immaterial
variance; (c) The value of Inventory will be determined on
a consistent accounting basis; (d) Except as agreed to the
contrary by Lender in writing, all Eligible Inventory is now
and at all times hereafter will be in Borrower's physical
possession and shall not be held by others on consignment,
sale on approval, or sale or return; (e) Except as
reflected in the Inventory schedules delivered to Lender,
all Eligible Inventory is now and at all times hereafter
will be of good and merchantable quality, free from defects:
(f) Eligible Inventory is not now and will not at any time
hereafter be stored with a bailee, warehouseman or similar
party without Lender's prior written consent, and , in such
event, Borrower will concurrently at the time of bailment
cause any such bailee, warehouseman, or similar party to
issue and deliver to Lender, in form acceptable to Lender,
warehouse receipts in Lender's name evidencing the storage
of Inventory ; and (g) Lender, its assigns, or agents shall
have the right at any time and at Borrower's expense to
inspect and examine the Inventory and to check and test the
same as to quality, quantity, value and condition.
ADDITIONAL CREDIT FACILITIES. In addition to the Line of Credit
facility, the following credit accomodations are either in place
or will be made available to Borrower:
Letter of Credit Facility. Subject to the terms of this
Agreement, Lender will issue commercial letters of credit
(each a "Letter of Credit") on behalf of Borrower to support
Borrower's purchases of Inventory or for other business
purposes agreed to by Lender. At no time, however, shall
the total face amount of all Letters of Credit outstanding,
less any partial draws paid under the Letters of Credit
exceed the sum of $300,000. In addition, at no time, shall
the total face amount of all Letters of Credit outstanding,
less any partial draws paid under the Letters of Credit,
plus the total principal balance of all Acceptances
outstanding exceed the sum of $300,000.
(a) Upon Lender's request, Borrower promptly shall pay to
Lender issuance fees and such other fees, commissions,
costs, and any out-of-pocket expenses charged or incurred by
Lender with respect to any Letter of Credit.
(b) The commitment by Lender to issue Letters of Credit
shall, unless earlier terminated in accordance with the
terms of this Agreement, automatically terminate on the
Expiration Date and no Letter of Credit shall expire on a
date which is thirty (30) days after the Expiration Date.
(c) Each Letter of Credit shall be in form and substance
satisfactory to Lender and in favor of beneficiaries
satisfactory to Lender, provided that Lender may refuse to
issue a Letter of Credit due to the nature of the
transaction or its terms or in connection with any
transaction, where Lender, due to the beneficiary or the
nationality or residence of the beneficiary, would be
prohibited by any applicable law, regulation, or order from
issuing such Letter of Credit. Under no circumstances,
however, will a Letter of Credit exceed on hundred twenty
(120) days from the issue date.
(d) Prior to the issuance of each Letter of Credit, and in
all events prior to any daily cutoff time Lender may have
established for purposes thereof, Borrower shall deliver to
Lender a duly executed form of Lender's standard form of
application for issuance of letter of credit with proper
insertions.
Lender's Rights Upon Default. Upon the occurrence of any
Event of Default, Lender may, at its sole and absolute
discretion and in addition to any other remedies available
to it under this Agreement or otherwise, require Borrower to
pay immediately to Lender, for application against drawings
under any outstanding Letters of Credit, the outstanding
principal amount of any such Letters of Credit which have
not expired. Any portion of the amount so paid to Lender
which is not applied to satisfy draws under any such Letters
of Credit or any other obligations of Borrower to the Lender
shall be repaid to Borrower without interest.
Lender's Costs and Expenses. Borrower shall, upon Lender's
request, promptly pay to and reimburse Lender for all costs
incurred and payments made by Lender by reason of any
future assessment, reserve, deposit or similar requirement
or any surcharge, tax or fee imposed upon Lender or as a
result of Lender's compliance with any directive or
requirement of any regulatory authority pertaining or
relating to any Letter of Credit.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants
to Lender, as of the date of this Agreement, as of the date of
each disbursement of Loan proceeds, as of the date of any
renewal, extension or modification of any Loan, and at all times
any Indebtedness exists:
Organization. Borrower is a corporation which is duly organized,
validly existing, and in good standing under the laws of the
State of California and is validly existing and in good standing
in all states in which Borrower is doing business. Borrower has
the full power and authority to own its properties and to
transact the businesses in which it is presently engaged or
presently proposes to engage. Borrower also is duly qualified as
a foreign corporation and is in good standing in all states in
which the failure to so qualify would have a material adverse
effect on its businesses or financial condition.
Authorization. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to
be executed delivered or performed by Borrower, have been duly
authorized by all necessary action by Borrower, do not require
the consent or approval of any other person, regulatory authority
or governmental body; and do not conflict with, result in a
violation of, or constitute a default under (a) any provision of
its articles of incorporation or organization, or bylaws, or any
agreement or other instrument binding upon Borrower or (b) any
law, governmental regulation, court decree, or order applicable
to Borrower.
Financial Information. Each financial statement of Borrower
supplied to Lender truly and completely disclosed Borrower's
financial condition as of the date of the statement, and there
has been no material adverse change in Borrower's financial
condition subsequent to the date of the most recent financial
statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when
delivered will constitute, legal, valid and binding obligations
of Borrower enforceable against Borrower in accordance with their
respective terms.
Properties. Except as contemplated by this Agreement or as
previously disclosed in Borrower's financial statements or in
writing to Lender and as accepted by Lender, and except for
property tax liens for taxes not presently due and payable,
Borrower owns and has good title to all of Borrower's properties
free and clear of all Security Interests, and has not executed
any security documents or financing statements relating to such
properties. All of Borrowers properties are titled in borrower's
legal name, and Borrower has not used, or filed a financing
statement under, any other name for at least the last five (5)
years.
Hazardous Substances. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as
used in this Agreement, shall have the same meanings as set
forth in the "CERCLA," "SARA," the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq.,
Chapters 6.5 through 7.7 of Division 20 of the California Health
and Safety Code, Section 25100, et seq., or other applicable
state or Federal laws, rules, or regulations adopted pursuant to
any of the foregoing. Except as disclosed to and acknowledged by
Lender in writing, Borrower represents and warrants that: (a)
During the period of Borrower's ownership of the properties,
there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any
hazardous waste or substance by any person on, under, about or
from any of the properties. (b) Borrower has no knowledge of, or
reason to believe that there has been (i) any use, generation,
manufacture, storage, treatment, disposal, release, or threatened
release of any hazardous waste or substance on, under, about or
from the properties by any prior owners or occupants of any of
the properties, or (ii) any actual or threatened litigation or
claims of any kind by any person relating to such matters. (c)
Neither Borrower nor any tenant, contractor, agent or other
authorized user of any of the properties shall use, generate,
manufacture, store, treat, dispose of, or release any hazardous
waste or substance on, under, about or from any of the
properties; and any such activity shall be conducted in
compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation those
laws, regulations and ordinances described above. Borrower
authorizes Lender and its agents to enter upon the properties to
make such inspections and tests as Lender may deem appropriate to
determine compliance of the properties with this section of the
Agreement. Any inspections or tests made by Lender shall be at
Borrower's expense and for Lender's purposes only and shall not
be construed to create any responsibility or liability on the
part of Lender to Borrower or to any other person. The
representations and warranties contained herein are based on
Borrower's due diligence in investigating the properties for
hazardous waste and hazardous substances. Borrower hereby (a)
releases and waives any future claims against Lender for
indemnity or contribution in the event Borrower becomes liable
for cleanup or other costs under any such laws, and (b) agrees to
indemnify and hold harmless Lender against any and all claims,
losses, liabilities, damages, penalties, and expenses which
Lender may directly or indirectly sustain or suffer resulting
from a breach of this section of the Agreement or as a
consequence of any use, generation, manufacture, storage,
disposal, release or threatened release occurring prior to
Borrower's ownership or interest in the properties, whether or
not the same was or should have been known to Borrower. The
provisions of this section of the Agreement, including the
obligation to indemnify, shall survive the payment of the
indebtedness and the termination or expiration of this Agreement
and shall not be affected by Lenders acquisition of any interest
in any of the properties, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation,
administrative proceeding or similar action (including those for
unpaid taxes) against Borrower is pending or threatened, and no
other event has occurred which may materially adversely affect
Borrower's financial condition or properties, other than
litigation, claims, or other events, if any, that have been
disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrowers knowledge, all tax returns and
reports of Borrower that are or were required to be filed, have
been filed, and all taxes, assessments and other governmental
charges have been paid in full, except those presently being or
to be contested by Borrower in good faith in the ordinary course
of business and for which adequate reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security
Agreements, or permitted the filing or attachment of any Security
Interests on or affecting any of the Collateral directly or
indirectly securing repayment of Borrowers Loan and Note, that
would be prior or that may in any way be superior to Lenders
Security Interests and rights in and to such Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements
directly or indirectly securing repayment of Borrowers Loan and
Note and all of the Related Documents are binding upon Borrower
as well as upon Borrowers successors, representatives and
assigns, and are legally enforceable in accordance with their
respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds
solely for business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which
Borrower may have any liability complies in all material respects
with all applicable requirements of law and regulations, and (i)
no Reportable Event nor Prohibited Transaction (as defined in
ERISA) has occurred with respect to any such plan, (ii) Borrower
has not withdrawn from any such plan or initiated steps to do so,
(iii) no steps have been taken to terminate any such plan, and
(iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of
business, or Borrower's Chief executive office, if Borrower has
more than one place of business, is located at 555 LESLIE ST,
UKIAH, CA 95482. Unless Borrower has designated otherwise in
writing this location is also the office or offices where
Borrower keeps its records concerning the Collateral.
Information. All information heretofore or contemporaneously
herewith furnished by Borrower to Lender for the purposes of or
in connection with this Agreement or any transaction contemplated
hereby is, and all information hereafter furnished by or on
behalf of Borrower to Lender will be, true and accurate in every
material respect on the date as of which such information is
dated or certified; and none of such information is or will be
incomplete by omitting to state any material fact necessary to
make such information not misleading.
Survival of Representations and Warranties. Borrower understands
and agrees that Lender, without independent investigation, is
relying upon the above representations and warranties in
extending Loan.
Advances to Borrower. Borrower further agrees that the foregoing
representations and warranties shall be continuing in nature and
shall remain in full force and effect until such time as
Borrowers Indebtedness shall be paid in full, or until this
Agreement shall be terminated in the manner provided above,
whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender
that, while this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material
adverse changes in Borrowers financial condition, and (b) all
existing and all threatened litigation, claims, investigations,
administrative proceedings or similar actions affecting Borrower
or any Guarantor which could materially affect the financial
condition of Borrower or the financial condition of any
Guarantor.
Financial Records. Maintain its books and records in accordance
with generally accepted accounting principles, applied on a
consistent basis, and permit Lender to examine and audit
Borrowers books and records at all reasonable times.
Additional Information. Furnish such additional information and
statements, lists of assets and liabilities, agings of
receivables and payables, inventory schedules, budgets,
forecasts, tax returns, and other reports with respect to
Borrowers financial condition and business operations as Lender
may request from time to time.
Insurance. Maintain fire and other risk insurance, public
liability insurance, and such other insurance as Lender may
require with respect to Borrowers properties and operations, in
form, amounts, coverages and with insurance companies reasonably
acceptable to Lender. Borrower, upon request of Lender, will
deliver to Lender from bme to bme the policies or certificates of
insurance in form satisfactory to Lender, including stipulations
that coverages will not be cancelled or diminished without at
least ten (10) days prior written notice to Lender. Each
insurance policy also shall include an endorsement providing that
coverage in favor of Lender will not be impaired in any way by
any act, omission or default of Borrower or any other person. In
connection with all policies covering assets in which Lender
holds or is offered a security interest for the Loans, Borrower
will provide Lender with such loss payable or other endorsements
as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender,
reports on each existing insurance policy showing such
information as Lender may reasonably request, including without
limitation the following: (a) the name of the insurer; (b) the
risks insured; (c) the amount of the policy; (d) the properties
insured; (e) the then current property values on the basis of
which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In
addition, upon request of Lender (however not more often than
annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash
value or replacement cost of any Collateral. The cost of such
appraisal shall be paid by Borrower.
Guaranties. Prior to disbursement of any Loan proceeds, furnish
executed guarantees of the Loans in favor of Lender, executed by
the guarantor named below. on Lender s forms, and in the amount
and under the conditions spelled out in those guaranties.
Guarantor [S]JOHN C. SCHAEFFER Amount $1,500,000
Other Agreements. Comply with all terms and conditions of all
other agreements, whether now or hereafter existing, between
Borrower and any other party and notify Lender immediately in
writing of any default in connection with any other such
agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrowers
business operations, unless specifically consented to the
contrary by Lender in writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments taxes, governmental charges. Levies and liens, of
every kind and nature, imposed upon Borrower or its properties,
income, or profits, prior to the date on which penalties would
attach, and all lawful claims that, if unpaid, might become a
lien or charge upon any of Borrowers properties, income, or
profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or
claim so long as (a) the legality of the same shall be contested
in good faith by appropriate proceedings, and (b) Borrower shall
have established on its books adequate reserves with respect to
such contested assessment, tax, charge, levy, lien, or claim in
accordance with generally accepted accounting practices.
Borrower, upon demand of Lender, will furnish to Lender evidence
of payment of the assessments, taxes, charges, levies liens and
claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any
assessments taxes, charges, levies, liens and claims against
Borrower properties, income, or profits.
Performance. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related
Documents in a timely manner, and promptly notify Lender if
Borrower learns of the occurrence of any event which constitutes
an Event of Default under this Agreement or under any of the
Related Documents.
Operations. Maintain executive and management personnel with
substantially the same qualifications and experience as the
present executive and management personnel; provide written
notice to Lender of any change in executive and management
personnel; conduct its business affairs in a reasonable and
prudent manner and in compliance with all applicable federal,
state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations,
including without limitation, compliance with the Americans With
Disabilities Act and with all minimum funding standards and other
requirements of ERISA and other laws applicable to Borrower's
employee benefit plans.
Inspection. Permit employees or agents of Lender at any
reasonable time to inspect any and all Collateral for the Loan or
Loans and Borrower's other properties and to examine or audit
Borrower's books, accounts, and records and to make copies and
memoranda of Borrower's books, accounts, and records. If Borrower
now or at any time hereafter maintains any records (including
without limitation computer generated records and computer
software programs for the generation of such records) in the
possession of a third party, Borrower, upon request of Lender,
shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies
of any records it may request, all at Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender,
provide Lender at least annually and at the time of each
disbursement of Loan proceeds with a certificate executed by
Borrowers chief financial officer, or other officer or person
acceptable to Lender, certifying that the representations and
warranties set forth in this Agreement are true and correct as of
the date of the certificate and further certifying that, as of
the date of the certificate, no Event of Default exists under
this Agreement.
Environmental Compliance and Reports. Borrower shall comply in
all respects with all environmental protection federal, state and
local laws, statutes, regulations and ordinances, not cause or
permit to exist, as a result of an intentional or unintentional
action or omission on its part or on the part of any third party,
on property owned and/or occupied by Borrower, any environmental
activity where damage may result to the environment, unless such
environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state
or local governmental authorities, shall furnish to Lender
promptly and in any event within thirty (30) days after receipt
thereof a copy of any notice, summons, lien, citation, directive,
letter or other communication from any governmental agency or
instrumentality concerning any intentional or unintentional
action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the
environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements, instruments, documents and other agreements
as Lender or its attorneys may reasonably request to evidence and
secure the Loans and to perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender
that while this Agreement is in effect, Borrower shall not,
without the prior written consent of Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the
normal course of business and indebtedness to Lender contemplated
by this Agreement, create, incur or assume indebtedness for
borrowed money, including capital leases, (b) except as allowed
as a Permitted Lien, sell, transfer, mortgage, assign, pledge,
lease, grant a security interest in, or encumber any of
Borrower's assets, or (c) sell with recourse any of Borrower's
accounts, except to Lender.
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, (b) cease operations, liquidate, merge, transfer,
acquire or consolidate with any other entity, change ownership,
change its name, dissolve or transfer or sell Collateral out of
the ordinary course of business, (c) pay any dividends on
Borrowers stock (other than dividends payable in its stock),
provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or
would result from the payment of dividends, if Borrower is
a"Subchapter S Corporation" (as defined in the Internal Revenue
Code of 1986, as amended), Borrower may pay cash dividends on its
stock to its shareholders from time to time in amounts necessary
to enable the shareholders to pay income taxes and make estimated
income tax payments to satisfy their liabilities under federal
and state law which arise solely from their status as
Shareholders of a Subchapter S Corporation because of their
ownership of shares of stock of Borrower, or (d) purchase or
retire any of Borrower's outstanding shares or alter or amend
Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or
advance money or assets, (b) purchase, create or acquire any
interest in any other enterprise or entity, or (c) incur any
obligation as surety or guarantor other than in the ordinary
course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make
any Loan to Borrower, whether under this Agreement or under any
other agreement, Lender shall have no obligation to make Loan
Advances or to disburse Loan proceeds if: (a) Borrower or any
Guarantor is in default under the terms of this Agreement or any
of the Related Documents or any other agreement that Borrower or
any Guarantor has with Lender; (b) Borrower or any Guarantor
becomes insolvent, files a petition in bankruptcy or similar
proceedings, or is adjudged a bankrupt; (c) there occurs a
material adverse change in Borrower's financial condition, in the
financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; or (d) any Guarantor seeks, claims
or otherwise attempts to limit, modify or revoke such Guarantor's
guaranty of the Loan or any other loan with Lender.
EXHIBIT "A" - COVENANTS. An exhibit, titled "EXHIBIT "A" -
Covenants," is attached to this Agreement and by this reference
is made a part of this Agreement just as if all the provisions,
terms and conditions of the Exhibit had been fully set forth in
this Agreement.
RIGHT OF SETOFF. Borrower grants to Lender a contractual
possessory security interest in, and hereby assigns, conveys,
delivers, pledges, and transfers to Lender all Borrower's right,
title and interest in and to, Borrowers accounts with Lender
(whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else
and all accounts Borrower may open in the future, excluding
however all IRA and accounts, and all trust accounts for which
the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable
law, to charge or setoff all sums owing on the Indebtedness
against any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an
Event of Default under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment
when due on the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with
or to perform when due any other term, obligation, covenant or
condition contained in this Agreement or in any of the Related
Documents, or failure of Borrower to comply with or to perform
any other term, obligation, covenant or condition contained in
any other agreement between Lender and Borrower.
Default In Favor of Third Parties. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of
any other creditor or person that may materially affect any of
Borrower's property or Borrower's or any Grantor's ability to
repay the Loans or perform their respective obligations under
this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made
or furnished to Lender by or on behalf of Borrower or any Grantor
under this Agreement or the Related Documents is false or
misleading in any material respect at the time made or furnished,
or becomes false or misleading at any time thereafter.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including
failure of any Security Agreement to create a valid and perfected
Security Interest) at any time and for any reason.
Insolvency. The dissolution or termination of Borrower's
existence as a going business, the insolvency of Borrower, the
appointment of a receiver for any part of Borrower's property,
any assignment for the benefit of creditors, any type of creditor
workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure
or forfeiture proceedings whether by judicial proceeding
self-help repossession or any other method by any creditor of
Borrower any creditor of any Grantor against any collateral
securing the Indebtedness, or by any governmental agency. This
includes a garnishment attachment or levy on or of any of
Borrowers deposit accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs
with respect to any Guarantor of any of the Indebtedness or any
Guarantor dies or becomes incompetent or revokes or disputes the
validity of or liability under any Guaranty of the Indebtedness.
Change In Ownership. Any change in ownership of twenty-five
percent (25%) or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's
financial condition or Lender believes the prospect of payment or
performance of the indebtedness is impaired.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall
occur except where otherwise provided in this Agreement or the
Related Documents all commitments and obligations of Lender under
this Agreement or the Related Documents or any other agreement
immediately will terminate (including any obligation to make Loan
Advances or disbursements) and at Lenders option all indebtedness
immediately will become due and payable all without notice of any
kind to Borrower except that in the case of an Event of Default
of the type described in the insolvency subsection above such
acceleration shall be automatic and not optional in addition
Lender shall have all the rights and remedies provided in the
Related Documents or available at law in equity or otherwise.
Except as may be prohibited by applicable law all of Lender's
rights and remedies shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any
remedy shall not exclude pursuit of any other remedy and an
election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender
s right to declare a default and to exercise its rights and
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions
are a part of this Agreement:
Amendments. This Agreement together with any Related Documents
constitutes the entire understanding and agreement of the parties
as to the matters set forth in this Agreement. No alteration of
or amendment to this Agreement shall be effective unless given in
writing and signed by the party or duties sought to be changed or
bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and
accepted by Lender In the State of California. If there is a
lawsuit Borrower agrees upon Lender's request to submit to the
jurisdiction of the courts of Mendocino County the State of
California. This Agreement shall be governed by and construed In
accordance with the laws of the State of California.
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Agreement.
Multiple Parties; Corporate Authority. All obligations of
Borrower under this Agreement shall be joint and several and all
references to Borrower shall mean each and every Borrower. This
means that each of the persons signing below is responsible for
all obligations in this Agreement.
Consent to Loan Participation. Borrower agrees and consents to
Lenders sale or transfer whether now or later of one or more
participation interests in the Loans to one or more purchasers
whether related or unrelated to Lender. Lender may provide
without any limitation whatsoever to any one or more purchasers
or potential purchasers any information or knowledge Lender may
have about Borrower or about any other matter relating to the
Loan and Borrower hereby waives any rights to privacy it may have
with respect to such matters. Borrower additionally waives any
and all notices of sale of participation interests as well as
all notices of any repurchase of such participation interests.
Borrower also agrees that the purchasers of any such
participation interests will be considered as the absolute owners
of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing
the sale of such participation interests. Borrower further waives
all rights of offset or counterclaim that it may have now or
later against Lender or against any purchaser of such a
participation interest and unconditionally agrees that either
Lender or such purchaser may enforce Borrowers obligation under
the Loans irrespective of the failure or insolvency of any holder
of any interest in the Loans. Borrower further agrees that the
purchaser of any such participation interest may enforce its
interests irrespective of any personal Claims or defenses that
Borrower may have against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of
Lenders expenses, including without limitation attorney's fees,
incurred in connection with the preparation, execution,
enforcement, modification and collection of this Agreement or in
connection with the Loans made pursuant to this Agreement. Lender
may pay someone else to help collect the Loans and to enforce
this Agreement, and Borrower will pay that amount. This includes,
subject to any limits under applicable law, Lenders attorneys
fees and Lenders legal expenses, whether or not there is a
lawsuit, including attorney's fees for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment
collection services. Borrower also will pay any court costs, in
addition to all other sums provided by law.
Notices. All notices required to be given under this Agreement
shall be given in writing, may be sent by, and shall be
effective when actually delivered or when deposited with a
nationally recognized overnight courier or deposited in the
United States mail, first class, postage prepaid, addressed to
the party to whom the notice is to be given at the address shown
above. Any party may change its address for notices under this
Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the
party's address. To the extent permitted by applicable law, if
there is more than one Borrower, notice to any Borrower will
constitute notice to all Borrowers. For notice purposes, Borrower
will keep Lender informed at all times of Borrower's current
address(es).
Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to
any person or circumstance, such finding shall not render that
provision invalid or unenforceable as to any other persons or
circumstances. if feasible, any such offending provision shall be
deemed to be modified to be within the limits of enforceability
or validity; however, if the offending provision cannot be so
modified it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and
enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the
context of any provisions of this Agreement makes it appropriate,
including without limitation any representation, warranty or
covenant, the word Borrower as used herein shall include all
subsidiaries and affiliates of Borrower. Notwithstanding the
foregoing however, under no circumstances shall this Agreement be
construed to require Lender to make any Loan or other financial
accommodation to any subsidiary or affiliate of Borrower.
Successors and Assigns. All covenants and agreements contained by
or on behalf of Borrower shall bind its successors and assigns
and shall inure to the benefit of Lender, its successors and
assigns. Borrower shall not, however, have the right to assign
its rights under this Agreement or any interest therein, without
the prior written consent of Lender.
Survival. All warranties, representations, and covenants made by
Borrower in this Agreement or in any certificate or other
instrument delivered by Borrower to Lender under this Agreement
shall be considered to have been relied upon by Lender and will
survive the making of the Loan and delivery to Lender of the
Related Documents, regardless of any investigation made by Lender
or on Lender s behalf.
Time Is of the Essence. Time is of the essence in the performance
of this Agreement.
Waiver. Lender shall not be deemed to have waived any rights
under this Agreement unless such waiver is given in writing and
signed by Lender. No delay or omission on the part of Lender in
exercising any right shall operate as a waiver of such right or
any other right. A waiver by Lender of a provision of this
Agreement shall not prejudice or constitute a waiver of Lender s
right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Borrower, or
between Lender and any Grantor, shall constitute a waiver of any
of Lender's rights or of any obligations of Borrower or of any
Grantor as to any future transactions. Whenever the consent of
Lender is required under this Agreement, the granting of such
consent by Lender in any instance shall not constitute continuing
consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
BUSINESS LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS
AGREEMENT IS DATED AS OF APRIL 7, 1998.
BORROWER: REAL GOODS TRADING CORPORATION
BY: [S]JOHN C. SCHAEFFER
LENDER: National Bank of the Redwoods
[S]JOHN HORNE
BY: Authorized Officer
EXHIBIT "A" - COVENANTS
References in the shaded area are for Lender's use only and do
not limit the applicability of this document to any particular
loan or item.
Borrower: REAL GOODS TRADING CORPORATION
555 LESLIE ST
UKIAH, CA 95482
Lender: National Bank of the Redwoods
Ukiah Office
319 East Perkins
Ukiah, CA 95482
This EXHIBIT "A" - Covenants is attached to and by this reference
is made a part of each Business Loan Agreement or Negative Pledge
Agreement, dated April 7, 1998, and executed in connection with a
Loan or other financial accommodations between National Bank of
the Redwoods and REAL GOODS TRADING CORPORATION.
BORROWER AGREES TO PROVIDE:
Monthly Inventory Valuation Reports due within 30 days of month
end.
Quarterly 10Q Corporate Financial Statements due within
45 days of 6/30, 9/30 and 12/31.
Annual CPA audited FYE Corporate Financial Statements due within
90 days of 3-31/98.
Copy of annual Corporate Tax Return starting with tax return for
3-31-98 due 9-30-98.
Annual Personal Financial Statement for John C. Schaeffer due
2/28/99.
Copy of annual Personal Tax Return or Extension for John C.
Schaeffer starting with 1997 due 4/30/98.
All financial reports required to be provide under this Agreement
shall be prepared in accordance with generally accepted
accounting principles, applied on a consistent basis, and
certified by Borrower as being true and correct.
BORROWER AGREES THAT:
Line of credit to have a zero balance for 30 days after December
31.
Current Ratio must be at least 2.25:1, as measured quarterly.
Debt to Net Worth Ratio not to exceed 1:1, as measured quarterly.
Positive cash flow after operations is required on a rolling four
quarter basis, as determined from the 10Q and CPA fiscal year end
financial statements. This covenant will be measured only as of
the period ended 12/31/98, based on the average cash flow from
operations as taken from each quarter for the prior four
quarters.
Compliance Certificate attached as Exhibit B to be completed and
signed by Borrower and returned with all financial statemetns.
Except as provided above, all computations made to detemine
compliance with the requirements contained in this Agreement
shall be made in accordance with generally accepted accounting
principles, applies on a consistent basis, and certified by
Borrower as being true and correct.
National Bank of the Redwoods will be major depository bank
during term of line.
Liability Insurance coverage must be maintained during term of
linen. Evidence must be furnished to National Bank of the
Redwoods.
Evidence of insurance coverage for Equipment, Inventory and
Fixtures is required and must be maintained during term of line.
National Bank of the Redwoods to be name Loss Payee.
Life insurance policy on John C. Schaeffer to be maintained in a
minimum amount of $1,000,000.
Collateral securing this line of credit: First lien position on
all Borrower's inventory, chattel paper, accounts, equipment,
general intangibles, fixtures, furniture and mailing list;
asssignment of life insurance policy.
THIS EXHIBIT "A" - COVENANTS IS EXECUTED ON APRIL 7, 1998.
BORROWER:
REAL GOODS TRADING CORPORATION
BY:[S]JOHN C. SCHAEFFER, President
LENDER:
National Bank of the Redwoods
BY:[S]JOHN HORNE
Authorized Officer
<PAGE>
PROMISSORY NOTE
Borrower: REAL GOODS TRADING CORPORATION
555 LESLIE ST
UKIAH, CA 95482
Lender: National Bank of the Redwoods
Ukiah Office
319 East Perkins Street
Ukiah, CA 95482
PRINCIPAL AMOUNT: $1,500,000.00 INITIAL RATE: 10.00%
DATE OF NOTE: April 7, 1998
PROMISE TO PAY. REAL GOODS TRADING CORPORATION ("Borrower")
promises to pay to National Bank of the Redwoods ("Lender"), or
order, in lawful money of the United States of America, the
principal amount of One Million Five Hundred Thousand & 00/100
Dollars ($1,500,000.00) or so much as may be outstanding,
together with interest on the unpaid outstanding principal
balance of each advance. Interest shall be calculated from the
date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all
outstanding principal plus all accrued unpaid interest on April
4, 1998. In addition, Borrower will pay regular monthly payments
of accrued unpaid Interest beginning May 4, 1997, and all
subsequent Interest payments are due on the same day of each
month after that. Interest on this Note is computed on a 365/365
simple interest basis; that is, by applying the ratio of the
annual interest rate over the number of days in a year,
multiplied by the outstanding principal balance, multiplied by
the actual number of days the principal balance is outstanding.
Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be
applied first to accrued unpaid interest, then to principal,
and any remaining amount to any unpaid collection costs and late
charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject
to change from time to time based on changes in an independent
index which is The West Coast Edition Of The Wall Street
Journal Prime Rate (the "Index"). The Index is not necessarily
the lowest rate charged by Lender on its loans. If the index
becomes unavailable during the term of this loan, Lender may
designate a substitute index after notice to Borrower. Lender
will tell Borrower the current index rate upon Borrower's
request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more
often than each day the prime rate changes. The index currently
Is 8.500% per annum. The interest rate to be paid to the unpaid
principal balance of this Note will be at a rate of 1.500
percentage point over the index, resulting in an initial rate of
10.00% per annum. NOTICE: Under no circumstances will the
interest rate on this Note be more than the maximum rate allowed
by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid
finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether
voluntary or as a result of default), except as otherwise
required by law. Except for the foregoing, Borrower may pay
without penalty all or a portion of the amount owed earlier than
it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to
make payments of accrued unpaid interest. Rather, they will
reduce the principal balance due.
LATE CHARGE. If a payment is 11 days or more late, Borrower will
be charged 5.000% of the regularly scheduled payment or $75.00,
whichever is less.
LENDER'S RIGHTS. Upon default, Lender may declare the entire
unpaid principal balance on this Note and all accrued unpaid
interest immediately due, without notice, and then Borrower will
pay that amount. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will
pay Lender that amount. This includes, subject to any limits
under applicable law, Lender's attorneys' fees and Lender's legal
expenses whether or not there is a lawsuit, including attorneys'
fees and legal expenses for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services.
Borrower also will pay any court costs, in addition to all other
sums provided by law. This Note has been delivered to Lender and
accepted by Lender in the State of California. If there is
lawsuit, Borrower agrees upon Lender's request to submit to the
jurisdiction of the courts of MENDOCINO County, the State of
California. This Note shall be governed by and construed in
accordance with the laws of the State of California.
RIGHT OF SETOFF. Borrower grants to Lender a contractual
possessory security interest in, and hereby assigns, conveys,
delivers, pledges, and transfers to Lender all Borrower's right,
title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else
and all accounts Borrower may open in the future, excluding
however all IRA and Keogh accounts, and all trust accounts for
which the grant of a security interest would be prohibited by
law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note
against any and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit.
Advances under this Note, as well as directions for payment from
Borrower's accounts, may be requested orally or in writing by
or as provided in this paragraph. Lender may, but need not,
require that all oral requests be confirmed in writing. The
following party or parties are authorized as provided in this
paragraph to request advances under the line of credit until
Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: JOHN SCHAEFFER,
CEO; and DONNA MONTAG, CFO. ANYONE OF THESE PARTIES IS AUTHORIZED
TO REQUEST ADVANCES. Borrower agrees to be liable for all sums
either: (a) advanced in accordance with the instructions of an
authorized person or (b) credited to any of Borrower's accounts
with Lender. The unpaid principal balance owing on this Note at
any time may be evidenced by endorsements on this Note or by
Lender's internal records, including daily computer print-outs.
Lender will have no obligation to advance funds under this Note
if: (a) Borrower or any guarantor is in default under the terms
of this Note or any agreement that Borrower or any guarantor has
with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing
business or is insolvent; (c) any guarantor seeks, claims or
otherwise attempts to limit, modify or revoke such guarantor's
guarantee of this Note or any other loan with Lender; or (d)
Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender.
DEFAULT INTEREST RATE-18.00% PER YEAR. Notwithstanding any other
provisions of this note, Borrower acknowledges that in the event
of 04-07-1998 default, the interest rate applied to this
indebtedness will be increased to 18.00%. Borrower will be
notified in writing, with a copy to all guarantors, that an event
of default has occurred and that failure to cure the default will
result in the application of the default interest rate as of a
certain date. That date will be at least seven (7) calendar days
from the date of notification to the Borrower.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of
its rights or remedies under this Note without losing them.
Borrower and any other person who signs, guarantees or endorses
this Note, to the extent allowed by law, waive any applicable
statute of limitations, presentment, demand for payment, protest
and notice of dishonor. Upon any change in the terms of this
Note, and unless otherwise expressly stated in writing, no party
who signs this Note, whether as maker, guarantor, accommodation
maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for
any length of time) this loan, or release any party or guarantor
or collateral; or impair, fail to realize upon or perfect
Lender's security interest in the collateral; and take any other
action deemed necessary by Lender without the consent of or
notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other
than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE
PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND
ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER: REAL GOODS TRADING CORPORATION
BY:[S]JOHN C. SCHAEFFER
John C. Schaeffer, President
LENDER: National Bank of the Redwoods
BY:[S]JOHN HORNE
Authorized Officer
</PAGE>
COMMERCIAL SECURITY AGREEMENT
Borrower: REAL GOODS TRADING CORPORATION
555 LESLIE ST
UKIAH, CA 95482
Lender: National Bank of the Redwoods
Ukiah Office
319 East Perkins
Ukiah. CA 95482
THIS COMMERCIAL SECURITY AGREEMENT is entered into between REAL
GOODS TRADING CORPORATION (referred to below as "Grantor"), and
National Bank of the Redwoods (referred to below as "Lender").
For valuable consideration, Grantor grants to Lender a security
Interest In the Collateral to secure the Indebtedness and agrees
that Lender shall have the rights stated in this Agreement with
respect to the Collateral, in addition to all other rights which
Lender may have by law.
DEFINITIONS. The following words shall have the following
meanings when used in this Agreement. Terms not otherwise defined
in this Agreement shall have the meanings attributed to such
terms in the Uniform Commercial Code. All references to dollar
amounts shall mean amounts in lawful money of the United States
of America.
Agreement The word "Agreement" means this Commercial
Security Agreement, as this Commercial Security Agreement may be
amended or modified from time to time, together with all exhibits
and schedules attached to this Commercial Security Agreement from
time to time.
Collateral. The word "Collateral" means the following
described properly of Grantor, whether now owned or hereafter
acquired, whether now existing or hereafter arising, and wherever
located:
All Inventory, chattel paper, accounts, equipment, general
intangibles and fixtures, together with the following
specifically described property: Furniture and Mailing List.
In addition, the word "Collateral" includes all the following,
whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
(a) All attachments, accessions, accessories, tools, parts,
supplies, increases, and additions to and all replacements of and
substitutions for any property described above.
(b) All products and produce of any of the property
described in this Collateral section.
(c) All accounts, general intangibles, instruments,
rents, monies, payments, and all other rights, arising out of a
sale, lease, or other disposition of any of the properly
described in this Collateral section.
(d) All proceeds (including insurance proceeds) from the
sale, destruction, loss, or other disposition of any of the
properly described in this Collateral section.
(e) All records and data relating to any of the properly
described in this Collateral section, whether in the form of a
writing, photograph, microfilm, microfiche, or electronic media,
together with all of Grantor's right, title, and interest in and
to all computer software required to utilize, create, maintain,
and process any such records or data on electronic media.
Fixtures are and will be located on the following described real
estate:
PROPERTY LOCATED AT 200 CLARA AVENUE, UKIAH, CALIFORNIA 95482,
MENDOCINO COUNTY; PARCEL NUMBERS' 002-124-10 AND 002-125-02.
HAROLD MADDEN AND BARBARA MADDEN ARE THE RECORD OWNERS OF THE
REAL PROPERTY DESCRIBED ON WHICH THE COLLATERAL IS LOCATED; AND
555 LESLIE ST, UKIAH, CA 95482, MENDOCINO COUNTY, PARCEL NUMBER
002-290-40; RECORD OWNER OF THE REAL PROPERTY DESCRIBED ON WHICH
THE COLLATERAL IS LOCATED IS FOUTZ & SANCHEZ.
Event of Default. The words "Event of Default" mean and
include without limitation any of the Events of Default set forth
below in the section titled "Events of Default.
Grantor. The word "Grantor" means REAL GOODS TRADING
CORPORATION, its successors and assigns.
Guarantor. The word "Guarantor" means and includes without
limitation each and all of the guarantors, sureties, and
accommodation parties in connection with the Indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness
evidenced by the Note, including all principal and interest,
together with all other indebtedness and costs and expenses for
which Grantor is responsible under this Agreement or under any of
the Related Documents.
Lender. The word "Lender" means National Bank of the
Redwoods, its successors and assigns.
Note. The word "Note" means the note or credit agreement
dated April 7, 1998, in the principal amount of $1,500,000.00
from REAL GOODS TRADING CORPORATION to Lender, together with all
renewals of, extensions of, modifications of, refinancings of,
consolidations of and substitutions for the note or credit
agreement.
Related Documents. The words "Related Documents" mean and
include without limitation all promissory notes, credit
agreements, loan agreements, environmental agreements,
guaranties, security agreements, mortgages, deeds of trust,
and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the
Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual
possessory security interest in and hereby assigns, conveys,
delivers, pledges, and transfers all of Grantor's right, title
and interest in and to Grantor's accounts with Lender (whether
checking, savings, or some other account), including all accounts
held jointly with someone else and all accounts Grantor may open
in the future, excluding, however, all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest
would be prohibited by law. Grantor authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all
Indebtedness against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender
as follows:
Perfection of Security Interest Grantor agrees to execute
such financing statements and to take whatever other actions are
requested by Lender to perfect and continue Lender's security
interest in the Collateral. Upon request of Lender, Grantor will
deliver to Lender any and all of the documents evidencing or
constituting the Collateral, and Grantor will note Lender's
interest upon any and all chattel paper if not delivered to
Lender for possession by Lender Grantor hereby appoints Lender as
its irrevocable attorney-in-fact for the purpose of executing any
documents necessary to perfect or to continue the security
interest granted in this Agreement. Lender may at any time, and
without further authorization from Grantor, file a carbon,
photographic or other reproduction of any financing statement or
of this Agreement for use as a financing statement. Grantor will
reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in
the Collateral. Grantor promptly will notify Lender before any
change in Grantor's name including any change to the assumed
business names of Grantor. This is a continuing Security
Agreement and will continue in effect even though all or any part
of the Indebtedness is paid in full and even though for a period
of time Grantor may not be Indebted to Lender.
No Violation. The execution and delivery of this Agreement
will not violate any law or agreement governing Grantor or to
which Grantor is a party, and its certificate or articles of
incorporation and bylaws do not prohibit any term or condition of
this Agreement.
Enforceability of Collateral. To the extent the Collateral
consists of accounts, chattel paper, or general intangibles, the
Collateral is enforceable in accordance with its terms, is
genuine, and complies with applicable laws concerning form,
content and manner of preparation and execution, and all persons
appearing to be obligated on the Collateral have authority and
capacity to contract and are in fact obligated as they appear to
be on the Collateral. At the time any account becomes subject to
a security interest in favor of Lender, the account shall be a
good and valid account representing an undisputed, bona fide
indebtedness incurred by the account debtor, for merchandise held
subject to delivery instructions or theretofore shipped or
delivered pursuant to a contract of sale, or for services
theretofore performed by Grantor with or for the account debtor,
there shall be no setoffs or counterclaims against any such
account; and no agreement under which any deductions or discounts
may be claimed shall have been made with the account debtor
except those disclosed to Lender in writing.
Location of the Collateral. Grantor, upon request of Lender,
will deliver to Lender in form satisfactory to Lender a schedule
of real properties and Collateral locations relating to Grantor's
operations, including without limitation the following: (a) all
real property owned or being purchased by Grantor; (b) all real
property being rented or leased by Grantor; (c) all storage
facilities owned, rented, leased, or being used by Grantor; and
(d) all other properties where Collateral is or may be located.
Except in the ordinary course of its business, Grantor shall not
remove the Collateral from its existing locations without the
prior written consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or
to the extent the Collateral consists of intangible property such
as accounts, the records concerning the Collateral) at Grantor's
address shown above, or at such other locations as are acceptable
to Lender. Some or all of the Collateral may be located at the
real property described above. Except in the ordinary course of
its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the
prior written consent of Lender. To the extent that the
Collateral consists of vehicles, or other titled property,
Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside
the State of California, without the prior written consent of
Lender.
Transactions Involving Collateral. Except for inventory sold
or accounts collected in the ordinary course of Grantor's
business, Grantor shall not sell, offer to sell, or otherwise
transfer or dispose of the Collateral. While Grantor is not in
default under this Agreement, Grantor may sell inventory, but
only in the ordinary course of its business and only to buyers
who qualify as a buyer in the ordinary course of business. A sale
in the ordinary course of Grantor's business does not include a
transfer in partial or total satisfaction of a debt or any bulk
sale. Grantor shall not pledge, mortgage, encumber or otherwise
permit the Collateral to be subject to any lien, security
interest, encumbrance, or charge, other than the security
interest provided for in this Agreement, without the prior
written consent of Lender. This includes security interests even
if junior in right to the security interests granted under this
Agreement. Unless waived by Lender, all proceeds from any
disposition of the Collateral (for whatever reason) shall be held
in trust for Lender and shall not be commingled with any other
funds; provided however, this requirement shall not constitute
consent by Lender to any sale or other disposition. Upon receipt,
Grantor shall immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that it
holds good and marketable title to the Collateral, free and clear
of all liens and encumbrances except for the lien of this
Agreement. No financing statement covering any of the Collateral
is on file in any public office other than those which reflect
the security interest created by this Agreement or to which
Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all
other persons.
Collateral Schedules and Locations. As often as Lender shall
require, and insofar as the Collateral consists of accounts and
general intangibles, Grantor shall deliver to Lender schedules of
such Collateral, including such information as Lender may require
including without limitation names and addresses of account
debtors and agings of accounts and general intangibles. Insofar
as the Collateral consists of inventory and equipment, Grantor
shall deliver to Lender, as often as Lender shall require, such
lists, descriptions, and designations of such Collateral as
Lender may require to identify the nature, extent, and location
of such Collateral. Such information shall be submitted for
Grantor and each of its subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor shall
maintain all tangible Collateral in good condition and repair.
Grantor will not commit or permit damage to or destruction of the
Collateral or any part of the Collateral. Lender and its
designated representatives and agents shall have the right at all
reasonable times to examine, inspect, and audit the Collateral
wherever located. Grantor shall immediately notify Lender of all
cases involving the return, rejection, repossession, loss
or damage of or to any Collateral; of any request for credit or
adjustment or of any other dispute arising with respect to the
Collateral; and generally of all happenings and events affecting
the Collateral or the value or the amount of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all
taxes, assessments and liens upon the Collateral, its use or
operation, upon this Agreement, upon any promissory note or notes
evidencing the Indebtedness, or upon any of the other Related
Documents. Grantor may withhold any such payment or may elect to
contest any lien if Grantor is in good faith conducting an
appropriate proceeding to contest the obligation to pay and so
long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien
which is not discharged within fifteen (15) days, Grantor shall
deposit with Lender cash, a sufficient corporate surety bond or
other security satisfactory to Lender in an amount adequate to
provide for the discharge of the lien plus any interest, costs,
attorneys' fees or other charges that could accrue as a result of
foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final
adverse judgment before enforcement against the Collateral.
Grantor shall name Lender as an additional obligee under any
surety bond furnished in the contest proceedings.
Compliance With Governmental Requirements. Grantor shall
comply promptly with all laws, ordinances, rules and
regulations of all governmental authorities, now or hereafter in
effect, applicable to the ownership, production, disposition, or
use of the Collateral. Grantor may contest in good faith any such
law, ordinance or regulation and withhold compliance during any
proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not
jeopardized.
Hazardous Substances. Grantor represents and warrants that
the Collateral never has been, and never will be so long as this
Agreement remains a lien on the Collateral, used for the
generation, manufacture, storage, transportation, treatment,
disposal, release or threatened release of any hazardous waste or
substance, as those terms are defined in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980,
as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, Pub. L. No.
99-499 ("SARA"), the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801, et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5
through 7.7 of Division 20 of the California Health and Safety
Code, Section 25100, et seq., or other applicable state or
Federal laws, rules, or regulations adopted pursuant to any of
the foregoing. The terms "hazardous waste" and "hazardous
substance" shall also include, without limitation, petroleum and
petroleum by-products or any fraction thereof and asbestos. The
representations and warranties contained herein are based on
Grantor's due diligence in investigating the Collateral for
hazardous wastes and substances.
Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor
becomes liable for cleanup or other costs under any such laws,
and (b) agrees to indemnify and hold harmless Lender against any
and all claims and losses resulting from a breach of this
provision of this Agreement. This obligation to indemnify shall
survive the payment of the Indebtedness and the satisfaction of
this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and
maintain all risks insurance, including without limitation
fire, theft and liability coverage together with such other
insurance as Lender may require with respect to the Collateral,
in form, amounts, coverages and basis reasonably acceptable to
Lender and issued by a company or companies reasonably acceptable
to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations
that coverages will not be cancelled or diminished without at
least ten (10) days' prior written notice to Lender and not
including any disclaimer of the insurer's liability for failure
to give such a notice. Each insurance policy also shall include
an endorsement providing that coverage in favor of Lender will
not be impaired in any way by any act, omission or default of
Grantor or any other person. In connection with all policies
covering assets in which Lender holds or is offered a security
interest, Grantor will provide Lender with such loss payable or
other endorsements as Lender may require. If Grantor at any time
fails to obtain or maintain any insurance as required under this
Agreement, Lender may (but shall not be obligated to) obtain such
insurance as Lender deems appropriate, including if it so chooses
"single interest insurance," which will cover only Lender's
interest in the Collateral.
Application of Insurance Proceeds. Grantor shall promptly
notify Lender of any loss or damage to the Collateral. Lender may
make proof of loss if Grantor fails to do so within fifteen (15)
days of the casualty. All proceeds of any insurance on the
Collateral, including accrued proceeds thereon, shall be held by
Lender as part of the Collateral. If Lender consents to repair or
replacement of the damaged or destroyed Collateral, Lender shall,
upon satisfactory proof of expenditure, pay or reimburse Grantor
from the proceeds for the reasonable cost of repair or
restoration. If Lender does not consent to repair or replacement
of the Collateral, Lender shall retain a sufficient amount of the
proceeds to pay all of the indebtedness, and shall pay the
balance to Grantor. Any proceeds which have not been disbursed
within six (6) months after their receipt and which Grantor has
not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
Insurance Reserves. Lender may require Grantor to maintain
with Lender reserves for payment of insurance premiums, which
reserves shall be created by monthly payments from Grantor of a
sum estimated by Lender to be sufficient to produce, at least
fifteen (15) days before the premium due date, amounts at least
equal to the insurance premiums to be paid. If fifteen (15) days
before payment is due, the reserve funds are insufficient,
Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and
shall constitute a non-interest-bearing account which Lender may
satisfy by payment of the insurance premiums required to be paid
by Grantor as they become due. Lender does not hold the reserve
funds in trust for Grantor, and Lender is not the agent of
Grantor for payment of the insurance premiums required to be paid
by Grantor. The responsibility for the payment of premiums shall
remain Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall
furnish to Lender reports on each existing policy of insurance
showing such information as Lender may reasonably request
including the following: (a) the name of the insurer; (b) the
risks insured; (c) the amount of the policy; (d) the property
insured; (e) the then current value on the basis of which
insurance has been obtained and the manner of determining that
value; and (f) the expiration date of the policy. In addition,
Grantor shall upon request by Lender (however not more often than
annually) have an independent appraiser satisfactory to Lender
determine, as applicable, the cash value or replacement cost of
the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until
default and except as otherwise provided below with respect to
accounts, Grantor may have possession of the tangible personal
property and beneficial use of all the Collateral and may use it
in any lawful manner not inconsistent with this Agreement or the
Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where
possession of the Collateral by Lender is required by law to
perfect Lender's security interest in such Collateral. Until
otherwise notified by Lender, Grantor may collect any of the
Collateral consisting of accounts. At any bme and even though no
Event of Default exists, Lender may exercise its rights to
collect the accounts and to notify account debtors to make
payments directly to Lender for application to the Indebtedness.
If Lender at any time has possession of any Collateral, whether
before or after an Event of Default, Lender shall be deemed to
have exercised reasonable care in the custody and preservation of
the Collateral if Lender takes such action for that purpose
as Grantor shall request or as Lender, in Lender's sole
discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be
deemed to be a failure to exercise reasonable care. Lender shall
not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect,
preserve or maintain any security interest given to secure the
Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due,
Lender may (but shall not be obligated to) discharge or pay any
amounts required to be discharged or paid by Grantor under this
Agreement, including without limitation all taxes, liens,
security interests, encumbrances, and other claims, at any time
levied or placed on the Collateral. Lender also may (but shall
not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid
by Lender for such purposes will then bear interest at the rate
charged under the Note from the date incurred or paid by Lender
to the date of repayment by Grantor. All such expenses shall
become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note
and be apportioned among and be payable with any installment
payments to become due during either (i) the term of any
applicable insurance policy or (ii) the remaining term of the
Note, or (c) be treated as a balloon payment which will be due
and payable at the Note's maturity. This Agreement also will
secure payment of these amounts. Such right shall be in addition
to all other rights and remedies to which Lender may be entitled
upon the occurrence of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an
Event of Default under this Agreement:
Default on Indebtedness. Failure of Grantor to make any
payment when due on the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to
perform any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents or
in any other agreement between Lender and Grantor.
Default In Favor of Third Parties. Should Borrower or any
Grantor default under any loan, extension of credit, security
agreement, purchase or sales agreement, or any other agreement,
in favor of any other creditor or person that may materially
affect any of Borrower's property or Borrower's or any Grantor's
ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement
made or furnished to Lender by or on behalf of Grantor under
this Agreement, the Note or the Related Documents is false or
misleading in any material respect, either now or at the time
made or furnished.
Detective Collateralization. This Agreement or any of the
Related Documents ceases to be in full force and effect
(including failure of any collateral documents to create a valid
and perfected security interest or lien) at any time and for any
reason.
Insolvency. The dissolution or termination of Grantor's
existence as a going business, the insolvency of Grantor, the
appointment of a receiver for any part of Grantor's property, any
assignment for the benefit of creditors, any type of creditor
workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of
foreclosure or forfeiture proceedings, whether by judicial
proceeding, self-help, repossession or any other method, by any
creditor of Grantor or by any governmental agency against the
Collateral or any other collateral securing the Indebtedness.
This includes a garnishment of any of Grantor's deposit accounts
with Lender.
Events Affecting Guarantor. Any of the preceding events
occurs with respect to any Guarantor of any of the Indebtedness
or such Guarantor dies or becomes incompetent.
Adverse Change. A material adverse change occurs in
Grantor's financial condition, or Lender believes the prospect of
payment or performance of the Indebtedness is impaired.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs
under this Agreement, at any time thereafter, Lender shall have
all the rights of a secured party under the California Uniform
Commercial Code. In addition and without limitation, Lender may
exercise any one or more of the following rights and remedies:
Accelerate Indebtedness. Lender may declare the entire
Indebtedness, including any prepayment penalty which Grantor
would be required to pay, immediately due and payable, without
notice.
Assemble Collateral. Lender may require Grantor to deliver
to Lender all or any portion of the Collateral and any and all
certificates of title and other documents relating to the
Collateral. Lender may require Grantor to assemble the Collateral
and make it available to Lender at a place to be designated by
Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the
Collateral. If the Collateral contains other goods not covered by
this Agreement at the time of repossession, Grantor agrees Lender
may take such other goods, provided that Lender makes reasonable
efforts to return them to Grantor after repossession.
Sell the Collateral. Lender shall have full power to sell,
lease, transfer, or otherwise deal with the Collateral or
proceeds thereof in its own name or that of Grantor. Lender may
sell the Collateral at public auction or private sale. Unless the
Collateral threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Lender will give Grantor
reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is
given at least ten (10) days, or such lesser time as required by
state law, before the time of the sale or disposition. All
expenses relating to the disposition of the Collateral, including
without limitation the expenses of retaking, holding, insuring,
preparing for sale and selling the Collateral, shall become a
part of the Indebtedness secured by this Agreement and shall be
payable on demand, with interest at the Note rate from date of
expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law,
Lender shall have the following rights and remedies regarding the
appointment of a receiver: (a) Lender may have a receiver
appointed as a matter of right, (b) the receiver may be an
employee of Lender and may serve without bond, and (c) all fees
of the receiver and his or her attorney shall become part of the
Indebtedness secured by this Agreement and shall be available on
demand, with interest at the Note rate from date of expenditure
until repaid.
Collect Revenues, Apply Accounts. Lender, either itself or
through a receiver, may collect the payments, rents, income, and
revenues from the Collateral. Lender may at any time in its
discretion transfer any Collateral into its own name or that of
its nominee and receive the payments, rents, income, and revenues
therefrom and hold the same as security for the Indebtedness or
apply it to payment of the Indebtedness in such order of
preference as Lender may determine. Insofar as the Collateral
consists of accounts, general intangibles, insurance policies,
instruments, chattel paper, chooses in action, or similar
property, Lender may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the
Collateral as Lender may determine, whether or not Indebtedness
or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose
of mail addressed to Grantor; change any address to which mail
and payments are to be sent; and endorse notes, checks, drafts,
money orders, documents of title, instruments and items
pertaining to payment, shipment, or storage of any Collateral. To
facilitate collection, Lender may notify account debtors and
obligators on any Collateral to make payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of
the Collateral, Lender may obtain a judgment against Grantor for
any deficiency remaining on the Indebtedness due to Lender after
application of all amounts received from the exercise of the
rights provided in this Agreement. Grantor shall be liable for
a deficiency even if the transaction described in this subsection
is a sale of accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights
and remedies of a secured creditor under the provisions of the
Uniform Commercial Code, as may be amended from time to time. In
addition, Lender shall have and may exercise any or all other
rights and remedies it may have available at law, in equity, or
otherwise.
Cumulative Remedies. All of Lender's rights and remedies,
whether evidenced by this Agreement or the Related Documents or
by any other writing, shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any
remedy shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's
failure to perform, shall not affect Lender's right to declare a
default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions
are a part of this Agreement:
Amendments. This Agreement, together with any Related
Documents, constitutes the entire understanding and agreement of
the parties as to the manners set forth in this Agreement. No
alteration of or amendment to this Agreement shall be effective
unless given in writing and signed by the party or parties sought
to be charged or bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender
and accepted by Lender in the State of California. If there is a
lawsuit, Grantor agrees upon Lenders request to submit to the
jurisdiction of the courts of the State of California. This
Agreement shall be governed by and construed in accordance with
the laws of the State of California.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand
all of Lender's costs and expenses, including attorneys' fees and
Lender's legal expenses, incurred in connection with the
enforcement of this Agreement. Lender may pay someone else to
help enforce this Agreement, and Grantor shall pay the costs and
expenses of such enforcement. Costs and expenses include Lenders
attorney's fees and legal expenses whether or not there is a
lawsuit, including attorney's fees and legal expenses for
bankruptcy proceedings (and including efforts to modify or vacate
any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Grantor also shall pay all
court costs and such additional fees as may be directed by the
court.
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Agreement.
Multiple Parties-Corporate Authority. All obligations of
Grantor under this Agreement shall be joint and several, and all
references to Grantor shall mean each and every Grantor. This
means that each of the persons signing below is responsible for
all obligations in this Agreement.
Notices. All notices required to be given under this
Agreement shall be given in writing, may be sent by
telefacsimile, and shall be effective when actually delivered or
when deposited with a nationally recognized overnight courier or
deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for
notices under this Agreement by giving formal written notice to
the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by
applicable law, if there is more than one Grantor, notice to any
Grantor will constitute notice to all Grantors. For notice
purposes, Grantor will keep Lender informed at all times of
Grantors current address(es).
Power of Attorney. Grantor hereby appoints Lender as its
true and lawful attorney-in-fact, irrevocably, with full power of
substitution to do the following: (a) to demand collect receive
receipt for sue and recover all sums of money or other property
which may now or hereafter become due, owing or payable from the
Collateral; (b) to execute sign and endorse any and all claims,
instruments receipts checks drafts or warrants issued in payment
for the Collateral; (c) to settle or compromise any and all
claims arising under the Collateral and in the place and stead of
Grantor to execute and deliver its release and settlement for the
claim and (d) to file any claim or claims or to take any action
or institute or take part in any proceedings, either in its own
name or in the name of Grantor, or otherwise which in the
discretion of Lender may seem to be necessary or advisable. This
power is given as security for the Indebtedness and the authority
hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
Preference Payments. Any monies Lender pays because of an
asserted preference claim in Borrower's bankruptcy will become a
part of the Indebtedness and at Lender s option shall be payable
by Borrower as provided above in the EXPENDITURES BY LENDER
paragraph.
Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to
any person or circumstance such finding shall not render that
provision invalid or unenforceable as to any other persons or
Circumstances. If feasible any such offending provision shall be
deemed to be modified to be within the limits of enforceability
or validity; however if the offending provision cannot be so
modified it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and
enforceable.
Successor Interests. Subject to the limitations set forth
above on transfer of the Collateral this Agreement shall be
binding upon and inure to the benefit of the parties their
successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights
under this Agreement unless such waiver is given in writing and
signed by Lender. No delay or omission on the part of Lender in
exercising any right shall operate as a waiver of such right or
any other right. A waiver by Lender of a provision of this
Agreement shall not prejudice or constitute a waiver of Lenders
right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by
Lender nor any course of dealing between Lender and Grantor shall
constitute a waiver of any of Lender's rights or of any of
Grantor's obligations as to any future transactions. Whenever the
consent of Lender is required under this Agreement the granting
of such consent by Lender in any instance shall not constitute
continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld
in the sole discretion of Lender.
Waiver of Co-obligators Rights. If more than one person is
obligated for the Indebtedness Borrower irrevocably waives
disclaims and relinquishes all claims against such other person
which Borrower has or would otherwise have by virtue of payment
of the Indebtedness or any part thereof specifically including
but not limited to all rights of indemnity contribution or
exoneration.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
COMMERCIAL SECURITY AGREEMENT AND GRANTOR AGREES TO ITS TERMS.
THIS AGREEMENT IS DATED APRIL 7 1998.
GRANTOR:
REAL GOODS TRADING CORPORATION
BY:[S]JOHN C. SCHAEFFER, PRESIDENT
John C. Schaeffer, President
</PAGE>
COMMERCIAL GUARANTY
Borrower: REAL GOODS TRADING CORPORATION
555 LESLIE ST
UKIAH, CA 95482
Lender: National Bank of the Redwoods
Ukiah Office
319 East Perkins
Ukiah, CA 95482
Guarantor: JOHN C. SCHAEFFER
350 N SPRING ST
UKIAH, CA 95482
AMOUNT OF GUARANTY. The principal amount of this Guaranty is One
Million Five Hundred Thousand & 00/100 Dollars ($1,500,000.00).
CONTINUING GUARANTY. For good and valuable consideration, JOHN C.
SCHAEFFER ("Guarantor") absolutely and unconditionally guarantees
and promises to pay to National Bank of the Redwoods ("Lender")
or its order, in legal tender of the United States of America,
the Indebtedness (as that term is defined below) of REAL GOODS
TRADING CORPORATION ("Borrower") to Lender on the terms and
conditions set forth in this Guaranty. The obligations of
Guarantor under this Guaranty are continuing.
DEFINITIONS. The following words shall have the following
meanings when used in this Guaranty:
Borrower. The word "Borrower" means REAL GOODS TRADING
CORPORATION.
Guarantor. The word "Guarantor" means JOHN C. SCHAEFFER.
Guaranty. The word "Guaranty" means this Guaranty made by
Guarantor for the benefit of Lender dated April 7, 1998.
Indebtedness. The word "Indebtedness" is used in its most
comprehensive sense and means and includes any and all of
Borrower's liabilities, obligations, debts, and indebtedness to
Lender, now existing or hereinafter incurred or created,
including, without limitation, all loans, advances, interest,
costs, debts, overdraft indebtedness, credit card indebtedness,
lease obligations, other obligations, and liabilities of
Borrower, or any of them, and any present or future judgments
against Borrower, or any of them; and whether any such
indebtedness is voluntarily or involuntarily incurred, due or not
due, absolute or contingent, liquidated or unliquidated,
determined or undetermined; whether Borrower may be liable
individually or jointly with others, or primarily or secondarily,
or as guarantor or surety; whether recovery on the indebtedness
may be or may become barred or unenforceable against Borrower for
any reason whatsoever; and whether the indebtedness arises from
transactions which may be voidable on account of infancy,
insanity, ultra vires, or otherwise.
Lender. The word "Lender" means National Bank of the
Redwoods, its successors and assigns.
Related Documents. The words "Related Documents" mean and
include without limitation all promissory notes, credit
agreements, loan agreements, environmental agreements,
guaranties, security agreements, mortgages, deeds of trust, and
all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the indebtedness.
MAXIMUM LIABILITY. The maximum liability of Guarantor under this
Guaranty shall not exceed at any one time the sum of the
principal amount of $1,500,000.00, plus all interest thereon,
plus all of Lender's costs, expenses, and attorneys' fees
incurred in connection with or relating to (a) the collection of
the Indebtedness, (b) the collection and sale of any collateral
for the Indebtedness or this Guaranty, or (c) the enforcement of
this Guaranty. Attorneys' fees include, without limitation,
attorneys' fees whether or not there is a lawsuit, and if there
is a lawsuit, any fees and costs for trial and appeals.
The above limitation on liability is not a restriction on the
amount of the Indebtedness of Borrower to Lender either in the
aggregate or at any one time. If Lender presently holds one or
more guaranties, or hereafter receives additional guaranties from
Guarantor, the rights of Lender under all guaranties shall be
cumulative. This Guaranty shall not (unless specifically provided
below to the contrary) affect or invalidate any such other
guaranties. The liability of Guarantor will be the aggregate
liability of Guarantor under the terms of this Guaranty and any
such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty
shall be open and continuous for so long as this Guaranty remains
in force. Guarantor intends to guarantee at all times the
performance and prompt payment when due, whether at maturity or
earlier by reason of acceleration or otherwise, of all
Indebtedness within the limits set forth in the preceding section
of this Guaranty. Accordingly, no payments made upon the
Indebtedness will discharge or diminish the continuing liability
of Guarantor in connection with any remaining portions of the
Indebtedness or any of the Indebtedness which subsequently arises
or is thereafter incurred or contracted. Any married person who
signs this Guaranty hereby expressly agrees that recourse may be
had against both his or her separate property and community
property.
DURATION OF GUARANTY. This Guaranty will take effect when
received by Lender without the necessity of any acceptance by
Lender, or any notice to Guarantor or to Borrower, and will
continue in full force until all Indebtedness incurred or
contracted before receipt by Lender of any notice of revocation
shall have been fully and finally paid and satisfied and all
other obligations of Guarantor under this Guaranty shall have
been performed in full. If Guarantor elects to revoke this
Guaranty, Guarantor may only do so in writing. Guarantor's
written notice of revocation must be mailed to Lender, by
certified mail, at the address of Lender listed above or such
other place as Lender may designate in writing. Written
revocation of this Guaranty will apply only to advances or new
Indebtedness created after actual receipt by Lender of
Guarantor's written revocation. For this purpose and without
limitation, the term "new Indebtedness" does not include
Indebtedness which at the time of notice of revocation is
contingent, unliquidated, undetermined or not due and which later
becomes absolute, liquidated, determined or due. This Guaranty
will continue to bind Guarantor for all Indebtedness incurred by
Borrower or committed by Lender prior to receipt of Guarantor's
written notice of revocation, including any extensions, renewals,
substitutions or modifications of the Indebtedness. All renewals,
extensions, substitutions, and modifications of the Indebtedness
granted after Guarantor's revocation, are contemplated under this
Guaranty and, specifically will not be considered to be new
Indebtedness. This Guaranty shall bind the estate of Guarantor as
to Indebtedness created both before and after the death or
incapacity of Guarantor, regardless of Lender's actual notice of
Guarantor's death. Subject to the foregoing, Guarantor's executor
or administrator or other legal representative may terminate this
Guaranty in the same manner in which Guarantor might have
terminated it and with the same effect. Release of any other
guarantor or termination of any other guaranty of the
Indebtedness shall not affect the liability of Guarantor under
this Guaranty. A revocation received by Lender from any one or
more Guarantors shall not affect the liability of any remaining
Guarantors under this Guaranty. It is anticipated that
fluctuations may occur in the aggregate amount of Indebtedness
covered by this Guaranty, and it is specifically acknowledged and
agreed by Guarantor that reductions in the amount of
Indebtedness, even to zero dollars ($0.00), prior to written
revocation of this Guaranty by Guarantor shall not constitute a
termination of this Guaranty. This Guaranty is binding upon
Guarantor and Guarantor's heirs, successors and assigns so long
as any of the guaranteed Indebtedness remains unpaid and even
though the Indebtedness guaranteed may from time to time be zero
dollars ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender,
either before or after any revocation hereof, without notice or
demand and without lessening Guarantor's liability under this
Guaranty, from time to time: (a) prior to revocation as set forth
above, to make one or more additional secured or unsecured loans
to Borrower, to lease equipment or other goods to Borrower, or
otherwise to extend additional credit to Borrower; (b) to alter,
compromise, renew, extend, accelerate, or otherwise change one or
more times the time for payment or other terms of the
Indebtedness or any part of the Indebtedness, including increases
and decreases of the rate of interest on the indebtedness;
extensions may be repeated and may be for longer than the
original loan term; (c) to take and hold security for the payment
of this Guaranty or the Indebtedness, and exchange, enforce,
waive, subordinate, fail or decide not to perfect, and release
any such security, with or without the substitution of new
collateral; (d) to release, substitute, agree not to sue or deal
with any one or more of Borrower's sureties, endorsers, or other
guarantors on any terms or in any manner Lender may choose;
(e) to determine how, when and what application of payments and
credits shall be made on the Indebtedness; (f) to apply such
security and direct the order or manner of sale thereof,
including without limitation, any nonjudicial sale permitted by
the terms of the controlling security agreement or deed of trust,
as Lender in its discretion may determine; (g) to sell, transfer,
assign, or grant participations in all or any part of the
Indebtedness; and (h) to assign or transfer this Guaranty in
whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents
and warrants to Lender that (a) no representations or agreements
of any kind have been made to Guarantor which would limit or
qualify in any way the terms of this Guaranty; (b) this Guaranty
is executed at Borrower's request and not at the request of
Lender (c) Guarantor has full power right and authority to enter
into this Guaranty; (d) the provisions of this Guaranty do not
conflict with or result in a default under any agreement or other
instrument binding upon Guarantor and do not result in a
violation of any law, regulation court decree or order applicable
to Guarantor; (e) Guarantor has not and will not, without the
prior written consent of Lender sell, lease, assign, encumber,
hypothecate, transfer, or otherwise dispose of all or
substantially all of Guarantor's assets, or any interest therein;
(f) upon Lenders request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender,
and all such financial information which currently has been, and
all future financial information which will be provided to Lender
is and will be true and correct in all material respects and
fairly present the financial condition of Guarantor as of the
dates the financial information is provided; (g) no material
adverse change has occurred in Guarantor's financial condition
since the date of the most recent financial statements provided
to Lender and no event has occurred which may materially
adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or
similar action (including those for unpaid taxes) against
Guarantor is pending or threatened; (i) Lender has made no
representation to Guarantor as to the creditworthiness of
Borrower; and (j) Guarantor has established adequate means of
obtaining from Borrower on a continuing basis information
regarding Borrower's financial condition.
Guarantor agrees to keep adequately informed from such means of
any facts, events, or circumstances which might in any way affect
Guarantor's risks under this Guaranty, and Guarantor further
agrees that, absent a request for information Lender shall have
no obligation to disclose to Guarantor any information or
documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law
Guarantor waives any right to require Lender to (a) make any
presentment protest, demand, or notice of any kind, including
notice of change of any terms of repayment of the Indebtedness,
default by Borrower or any other guarantor or surety, any action
or nonaction taken by Borrower, Lender, or any other guarantor or
surety of Borrower, or the creation of new or additional
Indebtedness; (b) proceed against any person, including Borrower,
before proceeding against Guarantor; (c) proceed against any
collateral for the Indebtedness, including Borrower's collateral,
before proceeding against Guarantor; (d) apply any payments or
proceeds received against the Indebtedness in any order; (e) give
notice of the terms, time, and place of any sale of the
collateral pursuant to the Uniform Commercial Code or any other
law governing such sale; (f) disclose any information about the
Indebtedness, the Borrower, the collateral, or any other
guarantor or surety, or about any action or nonaction of Lender;
or (g) pursue any remedy or course of action in Lender's power
whatsoever.
Guarantor also waives any and all rights or defenses arising by
reason of (h) any disability or other defense of Borrower, any
other guarantor or surety or any other person; (i) the cessation
from any cause whatsoever, other than payment in full, of the
Indebtedness; (j) the application of proceeds of the Indebtedness
by Borrower for purposes other than the purposes understood and
intended by Guarantor and Lender, (k) any act of omission or
commission by Lender which directly or indirectly results in or
contributes to the discharge of Borrower or any other guarantor
or surety, or the Indebtedness, or the loss or release of any
collateral by operation of law or otherwise; (l) any statute of
limitations in any action under this Guaranty or on the
Indebtedness; or (m) any modification or change in terms of the
Indebtedness, whatsoever, including without limitation, the
renewal, extension acceleration, or other change in the time
payment of the Indebtedness is due and any change in the interest
rate, and including any such modification or change in terms
after revocation of this Guaranty on Indebtedness incurred prior
to such revocation.
Guarantor waives all rights and any defenses arising out of an
election of remedies by Lender even though that election of
remedies, such as a nonjudicial foreclosure with respect to
security for a guaranteed obligation, has destroyed Guarantor's
rights of subrogation and reimbursement against Borrower by
operation of Section 580d of the California Code of Civil
Procedure or otherwise.
Guarantor waives all rights and defenses that Guarantor may have
because Borrower's obligation is secured by real property. This
means among other things: (1) Lender may collect from Guarantor
without first foreclosing on any real or personal property
collateral pledged by Borrower. (2) If Lender forecloses on any
real property collateral pledged by Borrower: (A) The amount of
Borrower's obligation may be reduced only by the price for which
the collateral is sold at the foreclosure sale, even if the
collateral is worth more than the sale price. (B) Lender may
collect from Guarantor even if Lender by foreclosing on the real
property collateral, has destroyed any right Guarantor may have
to collect from Borrower. This is an unconditional waiver of any
rights and defenses Guarantor may have because Borrower's
obligation is secured by real property. These rights and defenses
include, but are not limited to, any rights and defenses based
upon Section 580a, 580bl 580dl or 726 of the Code of Civil
Procedure.
Guarantor understands and agrees that the foregoing waivers are
waivers of substantive rights and defenses to which Guarantor
might otherwise be entitled under state and federal law. The
rights and defenses waived include without limitation, those
provided by California laws of suretyship and guaranty,
anti-deficiency laws, and the Uniform Commercial Code. Guarantor
acknowledges that Guarantor has provided these waivers of rights
and defenses with the intention that they be fully relied upon by
Lender. Until all Indebtedness is paid in full, Guarantor waives
any right to enforce any remedy Lender may have against Borrower
or any other guarantor, surety, or other person, and further,
Guarantor waives any right to participate in any collateral for
the Indebtedness now or hereafter held by Lender.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor
warrants and agrees that each of the waivers set forth above is
made with Guarantor's full knowledge of its significance and
consequences and that, under the circumstances, the waivers are
reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or
public policy, such waiver shall be effective only to the extent
permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and
rights of setoff against the moneys, securities or other property
of Guarantor given to Lender by law, Lender shall have, with
respect to Guarantor's obligations to Lender under this Guaranty
and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor
hereby assigns, conveys, delivers, pledges, and transfers to
Lender all of Guarantor's right, title and interest in and to,
all deposits, moneys, securities and other property of Guarantor
now or hereafter in the possession of or on deposit with Lender,
whether held in a general or special account or deposit, whether
held jointly with someone else, or whether held for safekeeping
or otherwise, excluding however all IPA, Keogh, and trust
accounts. Every such security interest and right of setoff may be
exercised without demand upon or notice to Guarantor. No security
interest or right of setoff shall be deemed to have been waived
by any act or conduct on the part of Lender or by any neglect to
exercise such right of setoff or to enforce such security
interest or by any delay in so doing. Every right of setoff and
security interest shall continue in full force and effect until
such right of setoff or security interest is specifically waived
or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees
that the Indebtedness of Borrower to Lender, whether now existing
or hereafter created, shall be prior to any claim that Guarantor
may now have or hereafter acquire against Borrower, whether or
not Borrower becomes insolvent. Guarantor hereby expressly
subordinates any claim Guarantor may have against Borrower, upon
any account whatsoever, to any claim that Lender may now or
hereafter have against Borrower. In the event of insolvency and
consequent liquidation of the assets of Borrower, through
bankruptcy, by an assignment for the benefit of creditors,
by voluntary liquidation, or otherwise, the assets of Borrower
applicable to the payment of the claims of both Lender and
Guarantor shall be paid to Lender and shall be first applied by
Lender to the Indebtedness of Borrower to Lender. Guarantor does
hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy
of Borrower, provided however, that such assignment shall be
effective only for the purpose of assuring to Lender full payment
in legal tender of the Indebtedness. If Lender so requests, any
notes or credit agreements now or hereafter evidencing any debts
or obligations of Borrower to Guarantor shall be marked with a
legend that the same are subject to this Guaranty and shall be
delivered to Lender. Guarantor agrees, and Lender hereby is
authorized, in the name of Guarantor, from time to time to
execute and file financing statements and continuation statements
and to execute such other documents and to take such other
actions as Lender deems necessary or appropriate to perfect,
preserve and enforce its rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions
are a part of this Guaranty:
Integration, Amendment. Guarantor warrants, represents and
agrees that this Guaranty, together with any exhibits or
schedules incorporated herein, fully incorporates the agreements
and understandings of Guarantor with Lender with respect to the
subject manner hereof and all prior negotiations, drafts, and
other extrinsic communications between Guarantor and Lender shall
have no evidentiary effect whatsoever. Guarantor further agrees
that Guarantor has read and fully understands the terms of this
Guaranty; Guarantor has had the opportunity to be advised by
Guarantor's attorney with respect to this Guaranty; the Guaranty
fully reflects Guarantor's intentions and parol evidence is not
required to interpret the terms of this Guaranty. Guarantor
hereby indemnifies and holds Lender harmless from all losses,
claims, damages, and costs (including Lender's attorneys' fees)
suffered or incurred by Lender as a result of any breach by
Guarantor of the warranties, representations and agreements of
this paragraph. No alteration or amendment to this Guaranty shall
be effective unless given in writing and signed by the parties
sought to be charged or bound by the alteration or amendment.
Applicable Law. This Guaranty has been delivered to Lender
and accepted by Lender in the State of California. If there is a
lawsuit, Guarantor agrees upon Lender's request to submit to the
jurisdiction of the courts of Mendocino County, State of
California. This Guaranty shall be governed by and construed in
accordance with the laws of the State of California.
Attorneys' Fees; Expenses. Guarantor agrees to pay upon
demand all of Lender's costs and expenses, including attorneys'
fees and Lender's legal expenses, incurred in connection with the
enforcement of this Guaranty. Lender may pay someone else to help
enforce this Guaranty, and Guarantor shall pay the costs and
expenses of such enforcement. Costs and expenses include Lender's
attorneys' fees and legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (and including efforts to modify or vacate
any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Guarantor also shall pay all
court costs and such additional fees as may be directed by the
court.
Notices. All notices required to be given by either party to
the other under this Guaranty shall be in writing, may be sent by
telefacsimile, and, except for revocation notices by Guarantor,
shall be effective when actually delivered or when deposited with
a nationally recognized overnight courier, or when deposited in
the United States mail, first class postage prepaid, addressed to
the party to whom the notice is to be given at the address shown
above or to such other addresses as either party may designate to
the other in writing. All revocation notices by Guarantor shall
be in writing and shall be effective only upon delivery to Lender
as provided above in the section titled "DURATION OF GUARANTY."
If there is more than one Guarantor, notice to any Guarantor will
constitute notice to all Guarantors. For notice purposes,
Guarantor agrees to keep Lender informed at all times of
Guarantor's current address.
Interpretation. In all cases where there is more than one
Borrower or Guarantor, then all words used in this Guaranty in
the singular shall be deemed to have been used in the plural
where the context and construction so require; and where there is
more than one Borrower named in this Guaranty or when this
Guaranty is executed by more than one Guarantor, the words
"Borrower" and "Guarantor" respectively shall mean all and any
one or more of them. The words "Guarantor," "Borrower," and
"Lender" include the heirs, successors, assigns, and transferees
of each of them. Caption headings in this Guaranty are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Guaranty. If a court of competent
jurisdiction finds any provision of this Guaranty to be invalid
or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to
any other persons or circumstances, and all provisions of this
Guaranty in all other respects shall remain valid and
enforceable. If any one or more of Borrower or Guarantor are
corporations or partnerships, it is not necessary for Lender to
inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to
act on their behalf. and any Indebtedness made or created in
reliance upon the professed exercise of such powers shall be
guaranteed under this Guaranty.
Waiver. Lender shall not be deemed to have waived any rights
under this Guaranty unless such waiver is given in writing and
signed by Lender. No delay or omission on the part of Lender in
exercising any right shall operate as a waiver of such right or
any other right. A waiver by Lender of a provision of this
Guaranty shall not prejudice or constitute a waiver of Lender's
right otherwise to demand strict compliance with that provision
or any other provision of this Guaranty. No prior waiver by
Lender, nor any course of dealing between Lender and Guarantor,
shall constitute a waiver of any of Lender's rights or of any of
Guarantor's obligations as to any future transactions. Whenever
the consent of Lender is required under this Guaranty, the
granting of such consent by Lender in any instance shall
not constitute continuing consent to subsequent instances where
such consent is required and in all cases such consent may be
granted or withheld in the sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE
PROVISIONS OF THIS GUARANTY AND AGREES TO ITS TERMS. IN ADDITION,
EACH GUARANTOR UNDERSTANDS THAT THIS GUARANTY IS EFFECTIVE UPON
GUARANTOR'S EXECUTION AND DELIVERY OF THIS GUARANTY TO LENDER AND
THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE MANNER
SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY
EFFECTIVE. THIS GUARANTY IS DATED APRIL 7, 1998.
GUARANTOR:[S]JOHN C. SCHAEFFER, PRESIDENT
John C. Schaeffer, President
ASSET SALES AND PURCHASE AGREEMENT
THIS AGREEMENT is made this 22nd day of August, 1997, by
and between Real Goods Trading Corporation, a California
corporation with its principal office located at 555 Leslie
Street, Ukiah, California 95482, (hereafter referred to as
"Seller") and Snow Belt Fireplace & Stove Shop, Inc., a Wisconsin
corporation with its principal office located at Amherst,
Wisconsin, (hereafter collectively referred-to as "Buyer").
WHEREAS, Seller currently owns and operates a fireplace,
stove and hearth product retail sales and installation business
at 286 Wilson Street, Amherst, Wisconsin, known as Real Goods -
Snowbelt Hearth and Home Center, a/k/a Real Goods Trading,
Amherst, Wisconsin, a division of Real Goods Trading Corporation
(said business is hereafter referred to as "Snowbelt Business");
and
WHEREAS, Seller wishes to sell to Buyer, and Buyer wishes
to purchase and acquire from Seller, the assets described below
used by Seller in its Snowbelt Business, at the price and upon
the terms hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, and the purchase price to be paid hereunder,
THE PARTIES AGREE AS FOLLOWS:
1. SALE OF THE ASSETS. Buyer agrees to purchase from Seller, and
Seller agrees to sell, assign and transfer to Buyer, on the
closing date (as later defined), all of Seller's rights, title
and interest in and to the following assets, free and clear
of all liens and encumbrances except Seller's security interest
described below:
A. EQUIPMENT AND FIXTURES. The equipment, furniture,
furnishings, trade fixtures and other tangible personal property
described on the attached Exhibit A; together with any equipment,
furniture, furnishings, fixtures and other non-inventory tangible
personal property not listed on Exhibit A that are owned and used
by Seller at the premises of the Snowbelt Business in the
operation of its Snowbelt Business if Exhibit B does not
specifically exclude any of such items.
B. INVENTORY. All stock-in-trade (inventory) and
supplies located at the Snowbelt Business premises on the date of
closing other than those items Seller obtained directly from Real
Goods Trading Corporation, which Buyer shall forthwith pack and
prepare to ship to Real Goods Trading Corporation prior to
closing, freight collect along with excluded displays and
signage. An inventory of all stock-in-trade and supplies shall be
taken on the day preceding the closing by Seller and Buyer. The
purchase price for such inventory shall be pursuant to the
following valuation methodology based upon the book value of the
inventory:
<TABLE>
<CAPTION>
INVENTORY* MULTIPLIER
<C> <C>
Current (up to one year) Inventory 1.10
Over 1 year < 2 years .80
Over 2 years < 3 years .25
Over 3 years old .10
</TABLE>
*Referencing Inventory Purchase Date
C. ACCOUNTS RECEIVABLE. Buyer shall purchase all
accounts receivable from Seller at Seller's current book value.
Buyer shall make payment for such accounts receivable at the time
of closing.
D. VEHICLES. The following described vehicles:
1986 Isuzu Truck VIN #JAMJP7485G9402699
1990 Toyota Track VIN #JT4RN81ROL5054586
E. TRADE NAME. The business name "Snowbelt and/or
Snowbelt Hearth and Home Center" and variations of the same. The
parties acknowledge that the trade name has been used by Seller
but such name has not been registered with the State of
Wisconsin, and it has not been federally registered under
copyright, service mark or trademark laws.
F. BUSINESS RECORDS. All customer lists and addresses,
supplier lists and addresses, deposit files and information, and
any other business lists, files or customer information owned and
used by Seller in the operation of its Snowbelt Business.
Seller's Telephone Number, Fax Number and P.O. Box Number.
G. SELLER'S TELEPHONE NUMBER, FAX NUMBER AND P.O. BOX
NUMBER. Seller's telephone number is (715) 824-3982. Seller's
fax number is (715) 824-5021. Seller's post office box number is
99.
H. SOFTWARE. The software and manuals for software
presently used on site by Seller, including all data files.
I. EXCLUSION. Provided, Seller DOES NOT sell to Buyer,
and Buyer DOES NOT purchase, any of the assets set forth in
Exhibit B.
2. PURCHASE PRICE.
A. AMOUNT. The total purchase price to be paid by the
Buyer to the Seller for all of the assets to be sold and
purchased hereunder (as described above) shall be the sum of
Fifty-Three Thousand Dollars ($53,000.00) plus an amount equal to
Seller's inventory based upon the valuation methodology set forth
above on the date of closing, plus an amount equal to the
accounts receivable purchased by Buyer at Seller's current book
value.
B. ALLOCATION. The purchase price shall be allocated to
the assets in the following manner.
<TABLE>
DESCRIPTION OF ASSET AMOUNT
<C> <C>
Equipment and fixtures $31,700.00
Trade name, customer lists, $20,000.00
Goodwill, ongoing business
and Covenant Not to Compete
Vehicles
1986 Isuzu Truck $ 500.00
1990 Toyota Truck $ 800.00
Inventory determined by formula set
forth at paragraph 1B
Accounts Receivable accounts receivable
purchased by Buyer at
book value
Work in Process determined by formula set
forth in paragraph 7
below
</TABLE>
Each party agrees to file their income tax returns in a manner
consistent with these allocations.
3. PAYMENT OF PURCHASE PRICE
A. The sum of $53,000 plus the amount of accounts
receivable purchased by Buyer and the value of the inventory
shall be paid by BUYER. THIS AMOUNT LESS ANY PORTION OF THE
PURCHASE PRICE FINANCED BY SELLER SHALL BE PAID BY FEDERAL FUNDS
WIRE TRANSFER AT CLOSING.
B. SELLER AGREES TO FINANCE, PURSUANT TO A PROMISSORY
NOTE IN FAVOR OF SELLER, AN AMOUNT NO MORE THAN $10,000 OF THE
PURCHASE price at an annual interest rate on the unpaid balance
of nine and one-half percent (9.5 %) and shall be amortized
(equal payments of principal) over two (2) years by monthly
payments of principal and interest. The note shall. be
collateralized by a general business security agreement against
the business assets.
Buyer will pay a costs of securing its financing and in good
faith will perform all acts necessary to expedite! such
financing, if any.
4. LIABILITIES AND WISCONSIN BULK TRANSFERS.
A. LIABILITIES. Buyer does not expressly or impliedly
assume any of Seller's obligations,; debts, expenses or
liabilities; provided, however, that Buyer shall provide all
appropriate customer service (warranty, repairs, acceptance of
product returns excluding the Real Goods products) so that Seller
shall have no customer relations contacts after the closing with
respect to goods sold prior to the closing date). Seller shall
indemnify and hold Buyer harmless from and against any and all
bills, taxes, claims, actions and expenses incurred by Seller in
the operation of its Snowbelt Business on or prior to the date of
closing. Buyer shall indemnify Seller against any loss or
liability arising from operations of the Snowbelt Business after
the closing date. This indemnification shall include reasonable
actual attorneys' fees arising out of the. foregoing or in
enforcing this indemnification. Buyer shall. assume contracts and
purchase orders related to the Snowbelt Business which are in
the ordinary course of business, but excluding any contracts of
employment agreements, lease agreements or contracted obligations
relating to the purchase of the business by Real Goods Trading
Corporation from Robert and Margaurite Ramlow.
B. WISCONSIN BULK TRANSFERS. The parties are aware of
the Uniform Commercial Code as adopted in Wisconsin, including
that portion thereof known as the "Bulk Transfers Law." Seller
and Buyer agree that in lieu of compliance, with the Wisconsin
Bulk Transfers Law, the Seller shall indemnify and hold Buyer
harmless from and against any and all bills, taxes, claims,
actions, expenses, obligations and liabilities incurred by
Seller on or prior to the; date of closing in connection with
assets sold pursuant to this Agreement. This indemnification
shall include Buyer's reasonable actual attorneys' fees arising
out of the foregoing or in enforcing this indemnification
5. SALES TAX PERMIT. The Seller shall terminate any Wisconsin
Sales or Use Tax Permits which it holds for its Snowbelt Business
and will cease use of any and all such permits toward the purpose
that no sales tax be imposed on the transfer of personal property
included in this sale other'. than with respect to vehicles. In
the event Seller does not properly and timely terminate the use
of its sales or use tax permit(s), then Seller shall be
responsible for any sales tax imposed upon the assets sold
by Seller to Buyer. Seller shall be responsible for payment of
sales tax for the We of the vehicles.
6. PERSONAL PROPERTY
A. PRORATION. Personal property tax shall be prorated
at the time of closing. Proration of personal property taxes
shall be based upon the personal Property taxes for the current
year, if known, otherwise to be based upon the personal property
taxes for the preceding year.
B. BILL OF SALE. Seller shall convey all of the non-real
estate assets to be sold and purchased hereunder by proper and
complete bill of sale, with covenants of warranty transferring
title and possession. For any vehicles purchased hereunder,
Seller shall endorse the title registration for each vehicle so
that Buyer may register the title in Buyer's name.
7. WORK IN PROCESS. Any amounts received by Seller prior to the
closing from customers as prepayments for any undelivered and
unused services as of the date of closing, whether by agreement
or contract, oral or written, shall be transferred to Buyer
by Seller. Buyer shall pay Seller an amount equal to fifty
percent (50%) of the resulting GROSS PROFIT from such accounts
when received by Buyer. For the purpose of this Agreement, GROSS
PROFIT SHALL BE GROSS SALES LESS COST OF GOODS SOLD, AND Cost of
Goods shall be defined as the cost of the merchandise paid to
Seller at closing. Seller shall deliver to Buyer a complete list
of any such customers and all written documents pertaining
thereto. Buyer hereby agrees to honor 4 such agreements.
8. REPRESENTATIONS OF SELLER. Seller has made and does
hereby make the following representations and warranties to
Buyer, which shall be true as of the date of closing as if
such warranties and representations were made at such time:
A. ORGANIZATION. Seller is a corporation duly
organized, validly existing and in good standing under the laws
of the State of California. Seller has all requisite corporate
power and authority to carry on all of its business as the same
is being conducted, and to own or otherwise possess all of its
assets and properties.
B. AUTHORITY. Seller has full corporate power and
authority to execute and deliver this Agreement and to perform
the actions required of it pursuant to this Agreement. The
execution, delivery and performance of this Agreement have been
duly authorized and approved by all required corporate actions of
Seller.
C. VALIDITY. This Agreement when executed and delivered
by Seller will Constitute the valid and binding obligation of
Seller, enforceable in accordance with its terms, except only as
limited by applicable bankruptcy, reorganization on, insolvency
and other similar laws presently or hereafter in force affecting
the enforcement of creditors' rights generally and subject to
general equitable principles limiting the right to obtain
specific performance or other equitable relief.
D. CONFLICT. This Agreement, and the transaction
provided for herein, is not in violation of! Seller's Articles
of Incorporation, By-Laws, or of any contract, agreement or order
to which Seller is a party or is bound.
E. TAX RETURNS AND LIABILITIES. Seller has timely filed
all federal, state, local and other tax returns or reports of
whatever nature required to be filed by Seller with respect to
the Snowbelt Business, all of which returns are accurate, and has
timely paid in full all taxes required to be paid or collected,
and any interest, additional tax or penalties with respect
thereto. All real and personal property taxes, business and
income taxes, and all other taxes, assessments or levies which
the Seller is required by law to pay, withhold or collect, have
been duly paid, withheld or collected or have been accrued on
the books of the Seller to the extent required. There is no
pending or, to the knowledge or information of the Seller,
threatened examination of or litigation or any other proceeding
with respect to any of the tax returns or reports filed by the
Seller.
F. SALES TAXES. Seller is not delinquent in the payment
of its Wisconsin sales and use taxes. Seller has properly and
timely completed its Wisconsin sales tax reports, and Seller will
indemnify and hold Buyer harmless from and against any Wisconsin
sales tax liability imposed upon Seller arising out of Seller's
operation of its Wisconsin business on or prior to the closing.
G. LITIGATION. There is no litigation, governmental
investigation, EEOC claim or proceeding pending, or to the
Seller's knowledge threatened, against or relating to the
Snowbelt Business, nor does the Seller know or have reasonable
grounds to know of any basis for such action, investigation,
claim or proceeding relative to the Snowbelt Business. Seller has
not received a notice requiring it to correct any defective
condition of the Snowbelt Business premises.
H. TITLE AND LIENS. Seller has good and marketable
tide to all of the assets to be sold and purchased hereunder, and
the same shall be transferred at the time of closing free and
clear of all liens, claims and encumbrances except Seller's
security interest, if any.
I. MATERIAL FACTS. No representation or warranty by
Seller in this Agreement or in connection with the transactions
contemplated hereby, contains or will contain any, untrue
statement of material fact, or omits or will omit to state a
material fact necessary to make the statements contained therein
not misleading.
9. REPRESENTATIONS OF BUYER. Buyer has made and does hereby make
the following representations and warranties to Seller, which
shall be true as of the date of closing as if such warranties and
representations were made at such time.
A. VALIDITY. This Agreement when executed and delivered
by Buyer will constitute the valid and binding obligation of
Buyer, enforceable in accordance with its terms, except only as
limited by applicable bankruptcy, reorganization, insolvency and
other similar laws presently or hereafter in force affecting the
enforcement of creditors' rights generally and subject to
general equitable principles limiting the right to obtain
specific performance or other equitable relief.
B. CONFLICT. This Agreement, and the transaction
provided for herein, is not in violation of any contract or
agreement to which Buyer is a party or is bound.
C. LITIGATION. There is no action, suit, proceeding or
investigation of Buyer which is pending or, to the knowledge of
Buyer, threatened which questions the validity or propriety of
this Agreement or any action taken by Buyer in connection
herewith.
D. AS IS CONDITION. As key employees Of the Snowbelt
Business, the shareholders of Buyer have bad an opportunity to
inspect the assets, and Buyer represents and agrees that it shall
accept the assets in an "As Is" condition.
10. COVENANTS OF SELLER
A. CONDUCT OF BUSINESS. From and after the date of
this Agreement, and pending the closing:
1. Seller's Snowbelt Business will be conducted only
in the ordinary course of business, and Seller will not conduct a
"going-out-of-business sale," a "quitting-business sale" or any
similar liquidation or termination of business promotional event.
Buyer acknowledges that Seller has been methodically reducing
inventory and it may continue to do so.
2. Seller will preserve the goodwill of Seller's
employees, suppliers, customers and others having business
relations with the Seller.
3. Seller will order and purchase stock-in-trade
and supplies only in the ordinary course of business, and will
not unreasonably increase or deplete inventory or supply levels.
B. Access to Information. Seller agrees that following
the date of this Agreement and pending the closing it will make
available to Buyer and Buyer's representatives, at reasonable
times, its business records for inspection and verification.
C. Notice of Changes. Seller agrees that between the
date of this agreement and pending the closing, Seller will
promptly give notice to Buyer of the occurrence of any event or
circumstance or the discovery of any inaccuracy, omission or.
mistake, which, in any way, would cause the warranties or
representations made by Seller to be materially changed,
modified, or inaccurate.
D. Maintain Insurance. Following the date of this
Agreement and pending the closing the Seller agrees to use its
best efforts on a commercially reasonable basis to maintain its
insurance protection in full force and effect and not to cancel,
change, or reduce any insurance policies or coverage.
11. CONTINGENCIES. The closing date shall be not later than
August 29, 1997 unless extended by mutual agreement. If the
conditions set forth herein have not been satisfied by that date,
this Agreement shall terminate, In addition, if it is reasonably
apparent to Buyer that a condition is not reasonably likely to be
satisfied by the closing date, Buyer shall so inform Seller and
forthwith release Seller from its obligations hereunder.
A. FINANCING. The obligation of the Buyer to conclude
this transaction is contingent upon Buyer obtaining, from a
reputable financial or lending institution, within 15 days from
the date of Us Agreement a written commitment for a first
mortgage on the business assets in an amount of not less than
seventy percent (70 %) of the purchase price amount described in
paragraph 3A, at an interest rate of not more than ten percent
(10%), for a term of not less than seven (7) years, with payments
amortized over the term of the loan. Buyer shall provide
Seller with a copy of the written commitment within seven (7)
days after Buyer's receipt of it. If this contingency is not
satisfied within the time described above, this Agreement is
voidable at the option of the Buyer.
B. Commercial Lease. The obligation of the Buyer to
conclude this transaction is contingent upon Buyer obtaining an
acceptable lease from Seller for the premises located at
286 Wilson Street, Amherst, Wisconsin, for a period of not less
than six (6) months with an option for Buyer (Lessee) to
terminate such lease upon thirty (30) days written notice. The
monthly rent shall be One Thousand Sixty- One Dollars
($1,061.00). Such lease shall provide that Seller (Lessor) shall
be responsible for the maintenance of said building other than
routine custodial maintenance. Seller shall be responsible for
payment of the real estate taxes and casualty insurance on the
building. Buyer shall be responsible for all utilities furnished
to the premises after the date of closing.
12. COVENANT NOT TO COMPETE. Real Goods Trading Corporation and
its officers, directors and employees agree that they:
A. Will not engage directly or indirectly in the
fireplaces, stove and/or Hearth business or any similar business
for a period of two (2) years following the date of closing,
within Portage, Waupaca or Wood County, Wisconsin, except that
the company's catalogs may contain merchandise similar to the
merchandise currently sold by Real Goods Trading Corporation,
This area is the area where Buyer will carry on its business
operations and from which it will draw customers. The use of the
term "directly or indirectly" by the parties shall mean that Real
Goods Trading Corporation and its officers, directors and
employees shall not engage by direct ownership in a competing
business, shall not have a proprietary interest in a competing
business, and in addition thereto, shall not be an agent,
consultant, volunteer, officer, director, partner, stockholder or
employee, whether for remuneration or otherwise, of a sole
proprietorship, partnership, trust, corporation or in any
other entity engaged in a competing business. Real Goods Trading
Corporation and its officers, directors and employees acknowledge
that the time, area and scope of this covenant and the
restrictions above are reasonable and appropriate.
B. Will riot solicit the customers of the Seller's
Snowbelt Business as of the closing date, sold to Buyer, on
behalf of a competing business, for a period of two (2) years
following the date of closing.
C. Will not disclose or use any trade secrets of the
Seller's Snowbelt Business sold to Buyer without the prior
written consent of Buyer.
D. Will not disclose or use any confidential information
of the Seller's Snowbelt Business sold to Buyer without the prior
written consent of Buyer for a period of three (3) years.
Notwithstanding anything to the contrary contained herein, Seller
may use the information (i) to prepare its financial statements;
(ii) for any litigation; and (3) as mutually agreed.
Should Real Goods Trading Corporation or its officers,
directors or employees violate the terms and conditions of this
covenant, the terms and conditions may be enforced by
injunctional relief. Real Goods Trading Corporation and its
officers, directors and employees agree that compliance with the
covenants contained in this section is necessary to protect the
goodwill and proprietary interest of Seller sold to Buyer and
that a breach of such covenants will result in irreparable and
continuing damage to Buyer. In addition thereto, Buyer shall be
entitled to any and all actual damages incurred as a result
of said breach of these covenants,, including Buyer's actual
attorneys' fees incurred by Buyer in enforcing these covenants,
together with such other and further relief as may be proper.
If any provision hereof is held to be illegal, invalid or
unenforceable under any present or future laws effective during.
the term of these covenants, such provision shall be fully
severable from the covenants; the covenants shall be construed
and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part hereof; and the remaining
provisions shall remain in fall force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement. In lieu of such illegal,
invalid or unenforceable provision there shall be added
automatically and as part hereof, a provision as similar in terms
to such illegal, invalid or unenforceable provision as may be
possible and be legal, valid and enforceable. The obligations and
covenants of Real Goods Trading Corporation and its officers,
directors and employees described above shall survive the closing
of this sale transaction.
13. CLOSING.
A. DATE AND LOCATION. The closing of the transactions
called for in this Agreement shall be held at the office of
Buyer's mortgagee, or at the law office of Anderson, Shannon,
O'Brien, Rice & Bertz, attorneys for the Buyer, at 1257 Main
Street, Stevens Point, Wisconsin on August 29, 1997 unless
extended by mutual agreement, or at such other location and date
as the parties may mutually agree.
B. POSSESSION. Legal and physical possession and
occupancy of the assets described in Section I shall be delivered
to Buyer on the date of closing.
C. DOCUMENTS. The parties shall execute, deliver, file,
and/or record the documents required or called for in this
Agreement.
14. MISCELLANEOUS
A. GOVERNING LAW. This Agreement, and the rights and
obligations of the parties hereto, shall be governed by
and construed in accordance with the laws of the State of
Wisconsin.
B. BINDING AND BENEFIT. This Agreement shall be
binding upon, and shall inure to the benefit of, the parties to
this Agreement and their respective personal and legal
representatives, heirs, successors and permitted assigns.
C. SEVERABILITY. If any provision of this Agreement
shall be, hold invalid, illegal, or unenforceable, the validity,
legality and enforceability of the other provisions shall not be
affected thereby, and there shall be deemed substituted for the
provision at issue a valid, legal and enforceable provision as
similar as possible to the provision at issue.
D. HEADINGS. Section or paragraph headings are included
for a convenience of reference and are not intended to add or
subtract from the terms of this Agreement.
E. NOTICE. Any notice, consent or other communication
given pursuant to this Agreement shall be in writing and shall be
given by personal delivery or mailed to the address of the
appropriate party as set forth in the introductory paragraph of
this Agreement, or such other address as they may designate in
writing, mailed registered or certified mail, return receipt
requested, with postage prepaid. Notices shall be deemed
effective when personally delivered or when deposited in the
United States mail in the manner described above.
F. ENTIRE AGREEMENT. This Agreement contains the
entire agreement between the parties and supersedes any prior
discussions or agreements between the parties relating to the
subject matter.
G. AMENDMENTS. No provision of this Agreement may be
amended except by a written instrument signed by all of the
parties to this Agreement.
H. TIME OF ESSENCE. Time is of the essence in the
performance of this Agreement.
I. EXHIBITS. All exhibits referred to in this Agreement
are attached hereto and incorporated herein by reference.
J. SURVIVAL OF REPRESENTATIONS. The warranties and
representations made herein survive tile closing of this
transaction.
K. ASSIGNMENTS. Buyer may assign 0 or any part of this
contract to a legal entity in which Buyer is the sole owners.
Provided, Buyer shall personally guarantee the payment and
performance of any liabilities of the legal entity, including a
land contract. Otherwise, this Agreement or any part hereof, may
not be assigned by either Party without first obtaining the
written consent of the other party.
L. RISK OF LOSS. In the event the assets to be sold and
purchased hereunder are damaged of destroyed by fire or any other
cause in an amount in excess of $10,000-00 at any time between
the date of the execution of this Agreement and the time of
closing, within five (5) business days after the damage or
destruction,, (i) each party may have the right,- at its
option, to terminate this Agreement, or (ii) Buyer may elect to
have such assets replaced from the proceeds of! insurance payable
by reason of such damage or destruction or elect to receive an
assignment of all insurance proceeds payable by reason of such
damage or destruction and purchase the assets subject to said
damage.
M. EXECUTION OF DOCUMENTS. The respective parties and
their successors will execute any and all instruments,
releases, assignments, and consents which may reasonably be
required in order to carry out the provisions of this Agreement,
N. CONFIDENTIALITY-PUBLICITY. None of the parties shall
issue any press release or other Public I statement concerning
the transactions contemplated by this Agreement without first
providing the other parties with a written copy of the text of
such release or statement and obtaining the consent of the
other parties respecting such release or statement (which consent
shall not be unreasonably withheld). The parties shall keep this
Agreement, the terms hereof, and all documents And information
relating hereto, or furnished pursuant to or in connection with,
this Agreement or the transactions contemplated hereby
confidential, except as may be required by law or, in the case of
Buyer, as may be necessary in the ordinary conduct of the
business by the company after the closing date.
0. NO THIRD PARTY BENEFICIARIES. This Agreement is
solely for the benefit of the parties hereto and no provision of
this Agreement shall be deemed to confer upon other third
parties, any remedy, claim, liability, reimbursement, cause of
action or other right.
P. FACSIMILE SIGNATURES. This Agreement and the other
documents required herein, maybe executed and accepted by signing
the respective documents and transmitting the same by facsimile
transmission to the other parties, and a facsimile signature
shall be as effective as an original signature. Subsequent to the
facsimile execution and acceptance, multiple copies of the
documents shaft be circulated for original signatures, such that
each party promptly receives a true and complete copy with
original signatures.
Q. IDIVIDUAL SIGNATURES. The individuals, John D. Pence
and Philip S. Neff, signing below, agree to be bound by the terms
and conditions contained herein.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
SELLER:
REAL GOODS TRADING CORPORATION
BY:[S]JOHN SCHAEFFER
NAME: JOHN SCHAEFFER
TITLE: PRESIDENT
BUYER:
SNOW BELT FIREPLACE & STOVE SHOP, INC.
BY:[S]JOHN PENCE
NAME: John Pence
TITLE: President
BY:[S]PHILIP S. NEFF
NAME: Philip S. Neff
TITLE: Treasurer
[S]JOHN PENCE
John Pence, Individually
[S]PHILIP S. NEFF
Philip S. Neff, Individually
LEASE BETWEEN
PHILIP WOOD
AND
REAL GOODS TRADING CORPORATION,
a California corporation
</PAGE>
<TABLE>
<CAPTION>
INDEX
SECTION PAGE
<S> <C> <C>
1. PREMISES 1
2. TERM 2
3. RENT: SPECIAL NET LEASE 3
4. USE 5
5. MAINTENANCE, REPAIRS AND ALTERATIONS 7
6. INSURANCE INDEMNITY 9
7. DAMAGE, DESTRUCTION, OBLIGATION TO REBUILD, RENT
ABATEMENT 12
8. REAL PROPERTY TAXES 13
9. UTILITIES 14
10. ASSIGNMENT AND SUBLETTING 14
11. DEFAULTS: REMEDIES 16
12. CONDEMNATION 18
13. OPTION TO EXTEND TERM 19
14. GENERAL PROVISIONS 20
</TABLE>
</PAGE>
LEASE
THIS LEASE (hereinafter the "Lease"), dated, for reference
purposes only, August 31, 1997, is made by and between PHILIP
WOOD (herein called "Landlord") and REAL GOODS TRADING
CORPORATION, a California corporation (herein called "Tenant").
1. PREMISES.
1.1 PREMISES. Landlord hereby leases to Tenant and Tenant
leases from Landlord for the term, at the rental, and on the
terms and conditions herein specified, that certain real property
situated in the City of Berkeley, County of Alameda, State of
California, commonly known as a portion of 1324 Tenth Street, and
particularly described on Exhibit "All attached hereto and
incorporated herein by this reference (the "Premises"). Subject
to the provisions of paragraph 1.3, Tenant shall also have the
right in conjunction with its use of the Premises to non-
exclusive use of the parking described on Exhibit "A-1".
1.2 LANDLORD'S WORK AND CONDITION OF THE PREMISES. The
Premises shall be delivered in its current "As-Is" condition,
broom-clean, except that Landlord, on or before the Commencement
Date, shall install additional lighting in the front 1,400 square
feet of the Premises reasonably satisfactory for Tenant's
use. Tenant shall accept the Premises in its "As-Is" condition,
and Landlord shall have no responsibility for tenant improvements
or the condition of the Premises prior to or at delivery of
possession of the Premises or during the term of this Lease,
except as provided in paragraph 5.2. The Premises shall be deemed
to be in the condition required pursuant to this paragraph 1.2,
except as otherwise specified by Tenant by written notice to
Landlord received within ten (10) days after delivery of
possession of the Premises to Tenant. In the event that any
conditions are noted by Tenant in such written notice, Landlord
shall reasonably repair or remedy any conditions which are not in
compliance with the requirements of this paragraph 1.2, but the
Commencement Date shall not be amended or delayed in any manner
notwithstanding the existence of any such condition or the
pendency of repairs thereof.
1.3 PARKING. Tenant shall have the nonexclusive right in
common with other occupants, invitees, and customers of the
Building of which the Premises are a part to use the parking area
depicted on Exhibit "A-1" (the "parking area,"). Tenant's
employees and contractors shall not park in the parking area.
Tenant shall cause its employees, contractors, and customers to
comply with the requirements of this paragraph. Landlord reserves
the right to redesign, restripe, or alter, from time to time, the
parking area and any landscaping and watering systems located
therein in Landlord's discretion provided that no substantial
reduction of parking available to Tenant shall result. Landlord
shall also have the right to remove portions of any landscaping
and watering systems at any time, and to change or to temporarily
close portions of the parking area in conjunction with the
installation of tenant improvements, entrances, and other
improvements in the adjacent premises owned by Landlord. Landlord
shall have the right to impose rules, post such gates, signs and
directions as Landlord deems prudent in the use of the parking
area, and otherwise regulate use and control access thereto.
1.4 HAZARDOUS SUBSTANCES. Landlord represents and warrants
that, to the best of Landlord's knowledge, there have been no
leaks, spills, releases, discharges, emissions, installation, or
disposal of hazardous or toxic wastes, materials or substances
(as such substances are regulated or may be regulated by any
applicable local, state or federal laws or regulations)
("Hazardous Substances"), occurring on the Premises, except as
set forth in Landlord's disclosure letter dated August 12, 1997,
receipt of which is hereby acknowledged by Tenant. Tenant
acknowledges that Tenant has had the opportunity to fully inspect
the Premises and the underlying soil and groundwater, and to
review the records of all applicable governmental agencies having
jurisdiction over the Premises and the surrounding property, and
accepts the Premises in its current condition.
1.5 SIGNAGE. Tenant, at Tenant's cost, shall design,
install and maintain its signs on the exterior of the Premises in
accordance with the requirements of the City of Berkeley and all
applicable governmental entities having jurisdiction over the
Premises. In the event that Landlord, at Landlord's sole
discretion, installs a monument or common sign, including space
for Tenant names, on the Premises or areas adjacent thereto
during the term of this Lease, Tenant shall have the right, at
Tenant's cost, to proportionate use on said monument or common
sign in conjunction with all other tenants of Landlord within the
buildings of the Premises are a part and/or areas adjacent
thereto leased or subleased by Landlord.
1.6 USE PERMIT. This Lease and all of Landlord and
Tenant's obligations thereunder shall be subject to the condition
precedent that within sixty (60) days of the date of execution of
this Lease the City of Berkeley shall issue a use permit for
Tenant's use within the Premises. Tenant shall at all times from
and after the date of execution of this Lease diligently seek
approval of its application for use permit including but not
limited to the provision of such information, materials and fees
required by the City of Berkeley in conjunction therewith.
2. TERM.
2.1 TERM. The term of this Lease shall commence on
September 15, 1997 (the "Commencement Date"), and shall end at
midnight on September 14, 1998, unless sooner terminated pursuant
to any provision hereof (the "term"). In the event that Landlord
and Tenant execute a lease for alternate space within the real
property of which the Premises are a part which commences prior
to the termination date of this Lease, this Lease shall terminate
upon the commencement date of such lease. The term is subject to
a provision to extend as provided in paragraphs 13.1 and 13.2.
2.2 DELAY IN COMMENCEMENT. Notwithstanding said
Commencement Date, if for any reason Landlord cannot deliver
possession of the Premises on the date provided in paragraph 2.1,
Landlord shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease or the
obligations of Tenant hereunder or extend the term hereof, but in
such case Tenant shall not be obligated to pay rent until
possession of the Premises is tendered to Tenant; provided,
however, that if Landlord shall not have delivered possession of
the Premises within ninety (90) days from the applicable date,
Tenant may, at Tenant's option, by notice in writing to Landlord
within ten (10) days thereafter, cancel this Lease, in which
event the parties shall be discharged from all obligations
hereunder.
3. RENT: SPECIAL NET LEASE.
3.1 BASE RENT FOR MONTHS 1 THROUGH 12. INCLUSIVE. Tenant
shall pay to Landlord as base rent for the Premises monthly
installments of Six Thousand Eight hundred Thirty-Two and
00/100ths Dollars ($6,832.00), in advance on the first day of
each month or part thereof, for the period from the Commencement
Date to and including the end of the twelfth month of the term.
Tenant shall pay to Landlord one-half (1/2) month's rent upon
execution of this Lease which shall be applied to the period from
September 15, 1997 to September 30, 1997, inclusive, and shall
thereafter pay monthly base rent commencing October 1, 1997, and
on the first day of each successive month to and including the
end of the term, except that Tenant shall pay rent for one-half
month on September 1, 1998, effective for the period September 1,
1998 to September 14, 1998, inclusive. Rent shall be payable in
lawful money of the United States to Landlord at the address
stated herein or such other persons or at such other places as
Landlord may designate in writing.
3.2 RENT ADJUSTMENTS FOR THE OPTION TERM. Provided that
the option to extend term provided in paragraphs 13.1 and 13.2 is
duly exercised, the monthly rental provided for in paragraph 3.1
shall be adjusted as described in this paragraph 3.2. Adjustments
to the monthly rental shall be made effective on the commencement
of the second year of the term and on the commencement of the
third, fourth and fifth years of the term to and including the
end of the Option Term.
(a) An adjustment to the monthly rental shall be
made effective on the commencement of the second year of the term
as provided in this Paragraph 3.2(a). The monthly rental for the
Premises shall be adjusted to its full fair market value, at its
highest and best use without reference to the use being made by
any particular proposed tenant, in no event less than the base
monthly rental payable pursuant to paragraph 3.1. Prior to the
end of the first year of the term, Landlord shall give notice to
Tenant of Landlord's determination of the full fair market rental
for the second year of the term. In the event that Tenant
disagrees with Landlord's determination of rent for the second
year of the term, and Landlord and Tenant are unable to agree
upon same after a period of fifteen (15) days, determination of
the fair market rental pursuant to this paragraph 3.1(a) shall be
submitted to arbitration in accordance with the rules of the
American Arbitration Association then applicable in Alameda
County.
(b) Thereafter, further adjustment to the adjusted
monthly rental effective as provided for in paragraph 3.2(a),
above, shall be made, respectively, effective on the commencement
of the third, fourth, and fifth years of the term. The adjustment
provided for in this paragraph 3.2(b) shall be based on the
monthly Consumer Price Index for All Urban Consumers released by
the Bureau of Labor Statistics (San Francisco/Oakland)
(hereinafter called the "Index"). Said adjustments shall be made
as follows: The monthly rental which is payable immediately prior
to the commencement of that year for which said adjustment is
made shall be increased, effective on the commencement of that
succeeding year by a certain percentage (hereinafter called the
"Periodic Adjustment Percentage").
(c) The Periodic Adjustment Percentage applicable to
each succeeding year is the net percentage increase in the Index
in the month immediately prior to said date of adjustment as
compared to like month of the previous year.
(d) If, in the future, the Index shall be changed,
the Index shall be converted in accordance with the conversion
factor published by the United States Department of Labor, Bureau
of Labor Statistics. In the event the Index is discontinued or
revised during the term hereof, such other governmental index or
computation with which it is replaced shall be used in order to
obtain substantially the same result that would be obtained if
said present Index had not been discontinued or revised. In the
event the Index is not replaced with another governmental index
or computation, Landlord and Tenant shall accept comparable
statistics on the purchasing power of the consumer dollar as
published at the time of said discontinuance by a nationally
renowned periodical or recognized authority chosen by the
parties. If the parties cannot agree upon a financial periodical
as the source of comparable statistics after attempting for
twenty (20) days to reach such agreement, the percentage increase
for the ensuing period and the placement index or computation
shall be determined by arbitration according to the rules of the
American Arbitration Association.
(e) Notwithstanding any provision of this Section to
the contrary, in no event shall the monthly rent payable pursuant
to any adjustment be less than the monthly rent payable for the
previous month. If the Index has not been made available to the
public as of the time that an adjustment is to be made, Tenant
shall pay the rent for the prior period until the Index is made
public. When the index is made public, Tenant shall immediately
pay to Landlord the deficiency in rent, if any, between the date
of adjustment and the date that the adjustment can be calculated.
Any acceptance by Landlord of any partial payment or of rent at
the rate due prior to an increase shall not waive Tenant's
obligation and liability to pay such increase. Excess payments,
if any, shall be credited by Landlord to Tenant's next rent
installment.
3.3 RENT. In addition to the base rent provided in
paragraph 3.1, Tenant shall pay any other charges, costs and
expenses which arise or may be required to be paid by Tenant
under the provisions of this Lease during the term hereof, all of
which shall constitute additional rent. Upon the failure of
Tenant to pay any of said costs, charges or expenses, Landlord
shall have the same rights and remedies as otherwise provided in
this Lease for the failure of Tenant to pay base rent. It is the
intention of the parties hereto that this Lease shall not be
terminable for any reason by Tenant, and that Tenant shall in no
event be entitled to any abatement of or reduction of rent
payable under this Lease, except as herein expressly provided.
Any present or future law to the contrary shall not alter this
arrangement by the parties.
4. USE.
4.1 USE. The Premises shall be used and occupied only for
retail and wholesale sales of hardware, building materials,
building supplies, soft goods and books, and related storage and
office uses ancillary thereto, provided that no hazardous waste
or hazardous materials (as defined under federal, State of
California, or County of Alameda or City of Berkeley law,
ordinance, regulation or statute) (hereinafter "Hazardous
Substances") will be used, placed or stored on the Property.
Tenant may allow on the Premises small quantities of cleaning
and/or office supply materials maintained in commercial
containers and used in the ordinary course of retail business,
and such other items as are customarily sold by Tenant or offered
for sale in stores operated by Tenant or those stores similar to
the business conducted by Tenant in the Premises, provided all
applicable laws and regulations on use, storage, sale,
disposal, and disclosure are fully complied with at all times by
Tenant. Tenant shall on request provide to Landlord a complete
inventory of all Hazardous Substances brought onto, maintained,
or present on the Premises, and immediately notify Landlord of
any release of Hazardous Substances on or near the Premises.
Tenant shall indemnify, defend with counsel selected by Landlord,
and hold Landlord harmless from any and all claims arising from
the presence of Hazardous substances on, in, under or about the
Property the presence of which were or allegedly were a result of
Tenant's conduct. without limiting the generality of the
foregoing, this indemnification obligation shall specifically
cover costs incurred in connection with any investigation of site
conditions or any clean-up, remedial, removal, or restoration
work required by any federal, state or local government agency or
political subdivision, or by any third party resulting from the
presence or the suspected presence of Hazardous Substances in,
on, under or about the Premises. Tenant has been advised of the
requirement that commercial tenants negotiate a First Source
Agreement with the City of Berkeley for permanent employment
needs. Notwithstanding any other provision hereof, Tenant's use
shall not violate the use restrictions set forth in the lease for
the space adjacent to the Premises. The Premises shall not at any
time be used for or as a theater; auditorium, meeting hall or
other place of assembly; any sports or entertainment facility;
automobile sales or repairs; bowling alley, pool hall or skating
rink; bar serving alcoholic beverages (except as an incident to a
full kitchen restaurant operation); funeral parlor; massage
parlor; any type of karate, gymnasium, health club or physical
fitness facility; car wash; off track betting establishment;
amusement or game room; a so called "flea market" or other
operation for the sale of used goods (except that Tenant shall be
permitted to sell incidentally used and demonstration merchandise
sold with new merchandise warranties and within its permitted
use); night club, discotheque or dance hall; hotel or other
lodging facilities; offices (except incidental to a retail
operation); school (including, without limitation, trade
school or class sessions of any nature whatsoever except that
Tenant shall be permitted to conduct workshops for customers
regarding use of Tenant's merchandise incidental to Tenant's
business); gun range; any business or use which emits offensive
odors, fumes, dust or vapor, or constitutes a public or private
nuisance, or emits loud noise or sounds which are objectionable,
or creates a fire, explosive or other hazard under the
regulations of the City of Berkeley Fire Protection District or
applicable board of fire insurance underwriters; heavy
manufacturing facility; adult book store or similar store selling
or exhibiting pornographic materials as a substantial part of its
business.
4.2 COMPLIANCE WITH LAW. Tenant shall, at Tenant's
expense, comply promptly with all applicable statutes, laws,
ordinances, rules, regulations, orders, restrictions of record,
and requirements in effect during the term or any part of the
term hereof regulating the condition of the Premises or use
thereof by Tenant, including building and zoning codes, and
environmental and hazardous waste laws and regulations. Tenant
shall not use nor permit the use of the Premises in any manner
that will tend to create waste or a nuisance of, if there shall
be more than one tenant in the building containing the Premises,
shall tend to disturb such other tenants.
5. MAINTENANCE. REPAIRS AND ALTERATIONS.
5.1 TENANT'S OBLIGATIONS. Tenant shall keep in good order,
condition and repair the interior of the Premises and every part
thereof (whether or not such portion of the Premises requiring
repair, or the means of repairing the same are reasonably or
readily accessible to Tenant, and whether or not the need for
such repairs occurs as a result of Tenant's use or wear and tear)
including, without limiting the generality of the foregoing, any
of the following: plumbing, heating, air conditioning,
ventilating, electrical, lighting facilities and equipment within
the interior of the Premises, fixtures, the interior surfaces of
exterior walls, foundations, the interior surfaces of ceilings
and roofs, all surface and structural portions of interior,
non-load-bearing walls, and the floors, windows, doors, plate
glass and skylights located within the Premises.
5.2 LANDLORD'S OBLIGATIONS. Subject to the provisions of
sections 6 and 7 of this Lease, Landlord shall keep the
foundation, structural portions of load bearing walls, roof
(including skylights), the exterior of the building, and the
pipes and utility installations located outside of the Premises
that provide services to the Premises, in good order, condition,
and repair, and in compliance with the requirements of
governmental authorities having jurisdiction over the Premises,
except that nothing herein shall require Landlord to make
modifications, alterations or replacements which become necessary
or desirable by reason of the use of the Premises made by Tenant,
or by the acts or omissions of Tenant's agents, servants,
employees, representatives, contractors or invitees.
Notwithstanding any other provision hereof, Tenant shall pay one
hundred percent (100%) of the cost for repairs, replacement
or maintenance arising from the neglect or intentional acts of
Tenant and/or Tenant's agents, servants, employees,
representatives, contractors, and invitees. Landlord reserves the
right at its sole discretion, from time to time, to make
alterations, additions or improvements in or to the Premises
provided that such alterations, additions or improvements do not
materially interfere with Tenant's access, use and enjoyment of
the Premises. Except to the extent provided herein, Landlord
shall have no obligation, in any manner whatsoever, to repair or
maintain the Premises nor the building of which the Premises are
a part, nor the equipment therein, whether structural or
nonstructural. Tenant expressly waives the benefit of any statute
now or hereinafter in effect which would otherwise afford Tenant
the right to make repairs at Landlord's expense or terminate the
Lease because of Landlord's failure to keep the Premises in good
order, condition and repair. Subject to the notice requirements
of paragraph 13.8, Landlord shall have the right to enter in or
upon the Premises for the purpose of performing any and all acts
of maintenance, repair or replacement, without limitation, and
Tenant shall reasonably cooperate with Landlord and Landlord's
contractors in all work performed in connection therewith. Except
for loss of use proven to arise from Landlord's active negligence
or intentional acts, or as provided in paragraph 7.3, there shall
be no abatement of rent and no liability of Landlord by reason of
injury to or interference with Tenant's business arising from
such maintenance, repair or replacement to the Premises, the
Building of which the Premises are a part, or to fixtures,
appurtenances, or equipment therein.
5.3 SURRENDER. On the last day of the term hereof, or on
any sooner termination, Tenant shall surrender the Premises and
Tenant's Improvements to Landlord broom clean and in good
condition and repair, ordinary wear and tear excepted. Tenant
shall repair any damage to the Premises occasioned by the removal
of Tenant's trade fixtures, furnishings and equipment pursuant to
paragraph 5.5(d), which repair shall include the patching and
filling of holes and repair of structural damage. Notwithstanding
any of the provisions of this Lease, Tenant shall, at Tenant's
expense, remove any alterations made by Tenant during the term of
the Lease and restore the Premises to its original configuration
and condition upon request made by Landlord within ten (10) days
of Tenant's surrender of the Premises.
5.4 LANDLORD'S RIGHTS. If Tenant fails to perform any of
Tenant's obligation under this paragraph 5, Landlord may at its
option (but shall have no obligation or duty to) enter upon the
Premises, after ten (10) days' prior written notice to Tenant,
and put the same in good order, condition and repair, and the
cost thereof together with interest thereon at the rate of ten
percent (10%) per annum from the date of advancement to the date
of repayment shall become due and payable as additional rental to
Landlord together with Tenant's next rental installment.
5.5 ALTERATIONS AND ADDITIONS.
(a) Except for initial installation and construction
of Tenant's Improvements described in paragraph 1.2 hereof,
Tenant shall not make any alterations, improvements, additions,
or utility installations in, on or about the Premises, without
the prior written consent of Landlord, which shall not be
unreasonably withheld. As used in this paragraph 5.5, the term
,,utility Installations" shall mean bus ducting, power panels,
wiring, fluorescent fixtures, space heaters, conduits, air
conditioning equipment and plumbing. Landlord may require that
Tenant remove any or all of said alterations, improvements,
additions or Utility Installations (not including Tenant's
Improvements) at the expiration of the term, and restore the
Premises to their prior condition as improved by the Tenant's
Improvements. Should Tenant make any alterations, improvements,
additions or Utility Installations without the prior approval of
Landlord, Landlord may require that Tenant remove any or all of
the same.
(b) Any alterations, improvements, additions or
Utility Installations in or about the Premises that Tenant shall
desire to make and which require the consent of Landlord shall be
presented to Landlord in written form, with proposed detailed
plans. If Landlord shall give its consent the consent shall be
deemed conditioned upon Tenant acquiring a permit to do so from
appropriate governmental agencies, the furnishing of a copy
thereof to Landlord prior to the commencement of the work and the
compliancy by Tenant of all conditions of said permit in a
prompt, expeditious, and workmanlike manner.
(c) Tenant shall pay, when due, all claims for labor
for materials furnished or alleged to have been furnished to or
for Tenant at or for use in the Premises, which claims are or may
be secured by any mechanics' or materialmen's lien against the
Premises or any interest therein. Tenant shall give Landlord not
less than ten (10) days' notice prior to the commencement of any
work in the Premises, and Landlord shall have the right to post
notices of nonresponsibility in or on the Premises as provided by
law. If Tenant shall, in good faith, contest the validity of any
such lien, claim or demand, then Tenant shall, at its sole
expense defend itself and Landlord against the same and shall pay
and satisfy any such adverse judgment that may be rendered
thereon before the enforcement thereof against Landlord or the
Premises, upon the condition that if Landlord shall require,
Tenant shall furnish to Landlord a surety bond satisfactory to
Landlord in an amount equal to such contested lien, claim or
demand indemnifying Landlord against liability for the same and
holding the Premises free from the effect of such lien or claim.
In addition, Landlord may require Tenant to defend Landlord in
such action if Landlord shall reasonably determine that it is to
its best interest to do so.
(d) Unless Landlord requires their removal, as set
forth in paragraph 5.3, all alterations, improvements, additions
and Utility Installations (whether or not such Utility
Installations constitute trade fixtures of Tenant), which may be
made on the Premises, shall remain upon and become the property
of Landlord at the expiration of the term, to be surrendered with
the Premises at that time. Notwithstanding the provisions of this
paragraph 5.5(d), Tenant's trade fixtures, machinery and
equipment, other than that which is affixed to the Premises so
that it cannot be removed without material unrepaired damages to
the Premises, shall remain the property of Tenant and may be
removed by Tenant subject to the provisions of paragraphs 5.2 and
5.3.
6. INSURANCE INDEMNITY.
6.1 LIABILITY INSURANCE. Tenant shall, at Tenant's
expense, obtain and keep in force during the term of this Lease a
policy or policies of Combined Single Limit, Bodily Injury and
Property Damage Insurance insuring Landlord and Tenant against
any liability arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto
including but not limited to the parking area. Such insurance
shall be a combined single limit policy in an amount not less
than Two Million and 00/100ths Dollars ($2,000,000.00). The
policy shall contain cross liability endorsements and shall
insure performance by Tenant of the indemnity provisions of this
paragraph 6. The limits of said insurance shall not, however,
limit the liability of Tenant hereunder. In the event that the
Premises constitute a part of a larger property said insurance
shall have a Landlord's Protective Liability endorsement attached
thereto. If Tenant shall fail to procure and maintain said
insurance Landlord may, but shall not be required to procure and
maintain the same, but at the expense of Tenant.
6.2 PROPERTY INSURANCE. Landlord shall obtain and keep in
force during the term of this Lease a policy or policies of
insurance insuring Landlord and Tenant covering all loss or
damage to the Premises, in the amount of the full replacement
value thereof, as the same may exist from time to time, and in no
event less than the total amount of promissory notes secured by
liens on the Premises including, but not limited to, perils
included within the classification of fire, extended coverage,
vandalism, malicious mischief, special extended perils (all risk)
and sprinkler leakage. Rental interruption insurance for the
Premises shall be procured if available. In the event that such
rental interruption insurance is not available, Landlord shall so
notify Tenant. At Landlord's election, earthquake coverage shall
be included. Said insurance shall provide for payment of loss
thereunder to Landlord or to the holders of mortgages or deeds of
trust on the Premises. If such insurance coverage has a
deductible clause, Tenant shall be liable for the deductible
amount. If Landlord procures insurance providing coverage as to a
building or improvements of which the Premises are a part, Tenant
shall reimburse Landlord for the equitable portion said expense
that relates to the Premises.
6.3 INSURANCE POLICIES. Insurance required of Tenant under
paragraph 6.1 shall be in the form and issued by companies
reasonably acceptable to Landlord, holding a General
Policyholders Rating of A10 or better as rated by A.M. Best
Insurance Guide, or equivalent rating service. Tenant shall
deliver to Landlord copies of policies of such insurance or
certificates evidencing the existence and amounts of such
insurance with loss payable clauses satisfactory to Landlord. No
such policy shall be cancelable or subject to reduction of
coverage or other modification except after thirty (30) days'
prior written notice to Landlord. Tenant shall, within thirty
(30) days prior to the expiration of such policies, furnish
Landlord with renewals or "binders" thereof. Tenant shall
not do or permit to be done anything which shall cause the
Insurer to assign a higher risk category to the Premises which
increases the cost of the insurance policies referred to in
paragraphs 6.1 or 6.2. If Tenant does or permits to be done
anything which shall increase the costs of said insurance
policies, then Tenant shall forthwith upon Landlord's demand
reimburse Landlord for any additional premiums attributable to
any act or omission or operation of Tenant causing such increase
in the cost of insurance.
6.4 WAIVER OF SUBROGATION. Tenant and Landlord each hereby
waive any and all rights of recovery against the other, or
against the officers, employees, agents and representations of
the other, for loss of or damage of such waiving party or its
property or the property of others under its control to the
extent that such loss or damage is insured against under any
insurance policy in force at the time of such loss or damages.
Tenant shall, upon obtaining the policies of insurance required
hereunder, give notice to the insurance carrier or carriers that
the foregoing mutual waiver of subrogation is contained in this
Lease.
6.5 INDEMNITY. Except for loss proven to arise from
Landlord's active negligence or intentional acts, Tenant shall
indemnify and hold harmless Landlord from and against any and all
claims arising from Tenant's use of the Premises, or from the
conduct of Tenant's business or from any activity, work or things
done, permitted or suffered by Tenant in or about the Premises or
elsewhere and shall further indemnify and hold harmless Landlord
from and against any and all claims arising from any breach or
default in the performance of any obligation on Tenant's part to
be performed under the terms of this Lease, or arising from any
negligence of Tenant, or any of Tenant's agents, contractors, or
employees, and from and against all costs, attorneys, fees,
expenses and liabilities incurred in the defense of any such
claim or any action or proceeding brought thereon; and in case
any action or proceeding be brought against Landlord by reason of
any such claim, Tenant upon notice from Landlord shall defend the
same at Tenant's expense by counsel reasonably satisfactory to
Landlord. Tenant, as a material part of the consideration to
Landlord, hereby assumes all risk of damage to property or injury
to persons, in, upon or about the Premises arising from any cause
and Tenant hereby waives all claims in respect thereof against
Landlord.
6.6 EXCEPTION OF LANDLORD FROM LIABILITY. Tenant hereby
agrees that Landlord shall not be liable for injury to Tenant's
business or any loss of income therefrom or for damage to the
goods, ware, merchandise or other property of Tenant, Tenant's
employees, invitees, customers, or any other person in or about
the Premises, nor shall Landlord be liable for injury to the
person of Tenant, Tenant's employees, agents or contractors,
whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, sprinklers,
wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause whether the said damage or
injury results from conditions arising upon the Premises or upon
portions of the building of which the Premises are a part, or
from other sources or places, and regardless of whether the cause
of such damage or injury or the means of repairing the same is
inaccessible to Tenant. Landlord shall not be liable for any
damages arising from any act or neglect of any if any, of the
building in which the Premises are located.
7. DAMAGE, DESTRUCTION, OBLIGATION TO REBUILD, RENT ABATEMENT.
7.1 DAMAGE AND REPAIR. In the event that the Premises are
damaged or destroyed, partially or totally, from any cause that
is completely covered by insurance, then Landlord shall within a
reasonable time repair, restore and rebuild the Premises (not
including the tenant improvements described in paragraph 1.3
hereof or any fixtures, equipment, inventory or personalty
installed or maintained within the Premises, which shall be
Tenant's sole responsibility) to its condition existing
immediately prior to such damage or destruction and this Lease
shall remain in full force and effect. In the event that the
Premises or part or all of the building of which the Premises are
a part are damaged or destroyed, partially or totally, from any
cause not completely covered by insurance, and the cost of repair
and restoration to Landlord will exceed ten percent (lot) of the
full replacement cost of the Premises or the building of which
the Premises are a part, as the case may be, at the time of such
damage, Landlord shall have the right to terminate this Lease
upon written notice to Tenant given within thirty (30) days
following the event of such damage, unless Tenant (or Tenant
acting in concert with other tenant(s) of the building of which
the Premises are a part) shall, within ten (10) days following
receipt of such notice of termination, give notice to Landlord of
it or their written agreement to pay for the cost of repairs or
restoration of the Premises or building of which the Premises are
a part, as the case may be, to the extent that such cost exceeds
ten percent (lot) of the full replacement cost of the Premises or
the building of which the Premises are a part, as the case may
be, and thereafter make such payment including arrangement for
such security as shall be reasonably required by third party
contractors as a requirement of the performance of such work. As
used herein, the term "covered by insurance" shall mean that
insurance proceeds are payable to Landlord pursuant to the
policies described in this Lease and are actually paid by such
insurer(s), subject to the requirement that Landlord shall make
commercially reasonable efforts to obtain such proceeds in the
event of any breach or delay by such insurer(s) with respect to
payment. Any repair, restoration and rebuilding (all of which are
herein called "repair") provided for herein shall be commenced
within a reasonable time after such damage or destruction has
occurred and shall be diligently pursued to completion, subject
to the requirements of governmental entities having jurisdiction
over such repair and other causes beyond Landlord's reasonable
control.
7.2 INSURANCE PROCEEDS. The proceeds of any insurance
maintained under paragraph 6.2 hereof for fixtures shall be made
available to Landlord for payment of costs and expense of repair.
7.3 ABATEMENT OF RENT. Notwithstanding the partial or
total
destruction of the Premises or any part thereof, except to the
extent that the continuing payment of rent is covered by rental
interruption insurance or other applicable insurance, there shall
be a reasonable abatement of rent and the other obligations of
Tenant hereunder by reason of such damage or destruction.
7.4 DAMAGE NEAR END OF TERM. If the Premises are
substantially or completely destroyed or damaged during the last
six (6) months of the term of this Lease, Landlord or Tenant may
cancel and terminate this Lease by giving written notice to the
other of the election to do so within thirty (30) days after the
date of occurrence of such damage. In such event, the applicable
proceeds of the insurance policy described in paragraph 6.2 shall
be the property of Landlord.
7.5 WAIVER. Tenant waives the provisions of California
Civil Code Sections 1932(2) and 1933(4) which relate to
termination of leases when the thing leased is destroyed and
agrees that such event shall be governed by the terms of this
Lease.
8. REAL PROPERTY TAXES.
8.1 Payment of Taxes. Landlord shall pay the taxes
applicable to the Premises during the term of the Lease. As used
herein, the term "tax" shall include any form of assessment,
license fee, commercial rental tax, levy, penalty, or tax (other
than inheritance or estate taxes), imposed by any authority
having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural,
lighting, drainage or other improvement district thereof, as
against any legal or equitable interest in the Premises or in the
real property of which the Premises are a part, or against
Landlord's right to rent or other income therefrom, or as against
Landlord's business of leasing the Premises or any tax imposed in
substitution, partially or totally, of any tax previously
included within the definition of real property tax, or any
additional tax the nature of which was previously included within
the definition of real property tax.
8.2 JOINT ASSESSMENT. If the Premises are not separately
assessed, the taxes applicable to the Premises shall be deemed to
be an equitable proportion of the real property taxes for all the
land and improvements included within the tax parcel assessed,
such proportion to be determined by Landlord from the respective
valuations assigned in the assessor's work sheets or such other
information as being reasonably available.
8.3 PERSONAL PROPERTY TAXES.
(a) Tenant shall pay prior to delinquency all
taxes assessed against and levied upon trade fixtures,
furnishings, equipment and all other personal property of Tenant
contained in the Premises or elsewhere. When possible, Tenant
shall cause said trade fixtures, furnishings, equipment and all
other personal property to be assessed and billed separately from
the real property of Landlord.
(b) If any of Tenant's said personal property
shall be assessed with Landlord's real property, Tenant shall pay
Landlord the taxes attributable to Tenant not less than ten (10)
days prior to the due date.
9. UTILITIES. Tenant shall pay for all water, gas, heat, light,
power, telephone and other utilities and services supplied to the
Premises, together with taxes thereon. If any such services are
not separately metered to Tenant, Tenant shall pay a reasonable
proportion to be determined by Landlord of all charges jointly
metered with other premises.
10. ASSIGNMENT AND SUBLETTING.
10.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not
voluntarily or by operation of law assign, transfer, mortgage,
sublet, or otherwise transfer or encumber (hereinafter
collectively referred to as an "assignment or sublease," or to
"assign or sublease" as the case may be) all or any part of
Tenant's interest in this Lease or in the Premise, without
Landlord's prior written consent, which shall not be unreasonably
withheld as to a proposed assignee or sublessee that satisfies
the standard set forth in this paragraph 10.1. Except as provided
in paragraph 10.2, consent by Landlord shall be restricted to
persons who in Landlord's good faith determination (i) possess
reputation and character reasonably acceptable to Landlord, (ii)
shall use the Premises in compliance with Section 4 of this
Lease, and for purposes complementary and consistent with the
retail goals of the adjacent space leased by Landlord, and (iii)
have sufficient monetary reserves and creditworthiness to ensure
direct performance of all of Tenant's obligations under the Lease
for the balance of the term. Any attempted assignment or
subletting without such consent shall be void, and shall
constitute a breach of this Lease. If Landlord consents to an
assignment or a sublease and any amounts or consideration are
payable to Tenant in excess of the rent due from Tenant pursuant
to the provisions of this Lease, Tenant shall pay to Landlord
one-half of such amounts or consideration paid to Tenant pursuant
to the provisions of paragraph 10.3 hereof.
10.2 TENANT AFFILIATE. Notwithstanding the provisions of
paragraph 10.1, Tenant may assign or sublet the Premises, or any
portion thereof, without Landlord's consent, only to any
corporation which controls, is controlled by or is under common
control with Tenant, or to any corporation resulting from the
merger or consolidation with Tenant, or to any person or entity
which acquires all the assets of Tenant as a going concern
of the business that is being conducted on the Premises, provided
that said assignee assumes, in full, the obligations of Tenant
under this Lease. Any such assignment shall not, in any way,
affect or limit the liability of Tenant under the terms of this
Lease even if after such assignment or subletting the terms of
this Lease are materially changed or altered without the consent
of Tenant, the consent of whom shall not be necessary.
10.3 CONSIDERATION. If Tenant shall assign or sublet with
consent of Landlord the Premises or any portion thereof, such
assignment or sublease shall be made at the then current fair
market rent for the Premises. One-half of all consideration paid
by the assignee or sublessee to Tenant that exceeds the Rent payable
under this Lease for such portion of the Premises subject to such
assignment or sublease shall be due, owing and payable from
Tenant to Landlord when paid after first crediting for Tenant's
account the actual cost of broker's commissions paid by Tenant with
regard to the assignment or subletting, and the cost, if any, of
improvements made to the Premises by Tenant in order to procure
the assignee or subtenant. For the purpose of this section, the rent
for each square foot of the Premises shall be deemed equal. If
Tenant shall assign or sublet the Premises or any part, Tenant
hereby immediately and irrevocably assigns to Landlord, as
security for Tenant's obligations under this Lease, all consideration
and rent therefrom and Landlord as assignee and as attorney-in-fact
for Tenant, or a receiver for Tenant appointed on Landlord's
application, may collect such consideration and rent and apply it
toward Tenant's obligations under this Lease; except that, until
the occurrence of an act of default by Tenant, Tenant shall have
the right to collect such rent.
10.4 NO RELEASE OF TENANT. Regardless of Landlord's
consent, no subletting or assignment shall release Tenant of
Tenant's obligation or alter the primary liability of Tenant
to pay the rent and to perform all other obligations to be
performed by Tenant hereunder. The acceptance of rent by
Landlord from any other person shall not be deemed to be a
waiver by Landlord of any provision hereof. Consent to one
assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by
any assignee of Tenant or any successor of Tenant, in the
performance of any of the terms hereof, Landlord may proceed
directly against Tenant without the necessity of exhausting
remedies against said assignee. Except for assignment, subleases,
amendments, or modifications by Tenant's affiliate(s) as defined
in paragraph 10.2 hereof, subsequent assignments or subletting of
this Lease or material amendments or modifications to this Lease
with assignees of Tenant shall require consent of Landlord and
Tenant unless Tenant is relieved of liability under this Lease.
10.5 ATTORNEY'S FEES. In the event Tenant shall assign or
sublet the Premises or request the consent of Landlord to any
assignment or subletting, or if Tenant shall request the consent
of Landlord for any act that Tenant proposes to do then Tenant
shall pay Landlord's reasonable attorney's fees incurred in
connection therewith.
11. DEFAULTS: REMEDIES.
11.1 DEFAULTS. The occurrence of any one or more of the
following events shall constitute a material default and breach
of this Lease by Tenant:
(a) The vacating or abandonment of the Premises by
Tenant.
(b) The failure by Tenant to make any payment of
rent or any other payment required to be made by Tenant
hereunder, as and when due, where such failure shall continue for
a period of five (5) days after written notice thereof from
Landlord to Tenant.
(c) The failure by Tenant to observe or perform any
of the covenants, conditions or provisions of this Lease to be
observed or performed by Tenant, other than described in
paragraph (b) above, where such failure shall continue for a
period of thirty (30) days after written notice thereof from
Landlord of Tenant; provided, however, that if the nature of
Tenant's default is such that more than thirty (30) days are
reasonably required for its cure, then Tenant shall not be deemed
to be in default if Tenant commenced such cure within said thirty
(30) day period and thereafter diligently pursues such cure to
completion.
(d) (i) The making by Tenant of any general
assignment, or general arrangement for the benefit of creditors;
(ii) the filing by or against Tenant of a petition to have Tenant
adjudged a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the
case of a petition filed against Tenant, the same is dismissed
within ninety (90) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within sixty
(60) days; or iv) the attachment, execution or other judicial
seizure of substantially all of Tenant's assets located at the
Premises, or of Tenant's interest in this Lease, where such
seizure is not discharged within sixty (60) days.
(e) The discovery by Landlord that any financial
statement given to Landlord by Tenant, any assignee of Tenant,
any subtenant of Tenant, any successor in interest of Tenant or
any guarantor of Tenant's obligations hereunder, and any of them,
are materially false.
11.2 PARKING PROVISION. Notwithstanding any other
provision of this Section 11, it is recognized by Landlord
and Tenant that enforcement by Tenant of the provision for
proportionate use of the parking area by Tenant's customers as
provided in paragraph 1.3 will be difficult to ascertain and
enforce. A failure or breach of the Lease by Tenant that shall
occur through excess use by customers shall not be a default or
ground for exercise of the remedies described in paragraph
11.2(a). The provisions of this paragraph 11.2 shall not extend
to misuse of the parking area by Tenant's employees in violation
of the provisions of paragraph 1.3.
11.3 REMEDIES. In the event of any such material default
or breach by Tenant, Landlord may at any time thereafter, with or
without notice or demand and without limiting Landlord in the
exercise of any right or remedy which Landlord may have by reason
of such default or breach:
(a) Terminate Tenant's right to possession of the
Premises by any lawful means, in which case this Lease shall
terminate and Tenant shall immediately surrender possession of
the Premises to Landlord. In such event Landlord shall be
entitled to recover from Tenant all damages incurred by Landlord
by reason of Tenant's default including, but not limited to, the
cost of recovering possession of the Premises; expenses of
reletting, including reasonable renovation and alteration of
the Premises, reasonable attorney's fees, and any real estate
commission actually paid; the worth at the time of award of
unpaid rent which had been earned at the time of termination; the
worth at the time of the award of the amount by which the unpaid
rent which would have been earned after Termination or until the
time of the award exceeds the amount of such rental loss that
Tenant proves could be reasonably avoided; and that portion of
the leasing commission paid by Landlord applicable to the
unexpired term of this Lease.
(b) Even though Tenant has breached this Lease and
abandoned the Premises, the Lease shall continue in effect for so
long as Landlord does not terminate the Tenant's right to
possession, and Landlord may enforce all his rights and remedies
under the Lease, including the right to recover the rent as it
becomes due under the Lease.
(c) Pursue any other remedy now or hereafter
available to Landlord under the laws or judicial decisions of the
State of California.
11.4 DEFAULT BY LANDLORD. Landlord shall not be in default
unless Landlord fails to perform obligations required of Landlord
under this Lease within a reasonable time, but in no event later
than thirty (30) days after written notice by Tenant to Landlord
and to the holder of any first mortgage or deed of trust covering
the Premises whose name and address shall have theretofore been
furnished to Tenant in writing, specifying wherein Landlord has
failed to perform such obligations; provided, however, that if
the nature of Landlord's obligation is such that more than thirty
(30) days are required for performance then Landlord shall not be
in default if Landlord commences performance within such thirty
(30) day period and thereafter diligently pursues the same to
completion.
11.5 LATE CHARGES. Tenant hereby acknowledges that late
payment by Tenant to Landlord of rent and other sums due
hereunder will cause Landlord to incur costs not contemplated by
this Lease, the exact amount of which will be extremely difficult
to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be
imposed on Landlord by the terms of any mortgage or trust deed
covering the Premises. Accordingly, if any installment of rent or
any other sum due from Tenant shall not be received by Landlord
or Landlord's designee within ten (10) days after such amount
shall be due, Tenant shall pay to Landlord late charge equal to
three percent (3%) of such overdue amount. The parties hereby
agree that such late charge represents a fair and reasonable
estimate of the costs Landlord will incur by reason of late
payment by Tenant. Acceptance of such late charge by
Landlord shall in no event constitute a waiver of Tenant's
default with respect to such overdue amount, nor prevent Landlord
from exercising any of the other rights and remedies granted
hereunder.
12. CONDEMNATION. If the Premises or any portion thereof are
taken under the power of eminent domain, or sold under the threat
of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so
taken as of the date the condemnation authority takes title or
possession, whichever first occurs. If more than ten percent
(10%) of the floor area of the improvements on the Premises, or
more than twenty-five percent (25%) of the land area of the
Premise which is not occupied by any improvements, is taken by
condemnation, or other taking by condemnation occurs which
renders the Premises unsuitable for Tenant's use, Tenant
may, at Tenant's option, to be exercised in writing only within
ten (10) days after Landlord shall have given Tenant written
notice of such taking (or in the absence of such notice, within
ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning
authority takes such possession. If Tenant does not terminate
this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the Premises
remaining, except that the rent and the percentage set forth in
paragraphs 5.1(a), 6.2 and 8.1 shall be reduced in the proportion
that the floor area taken bears to the total floor area of the
building situated on the Premises. Any award for the taking of
all or any part of the Premises under the power of eminent domain
or any payment made under threat of the exercise of such power
shall be the property of Landlord, whether such award shall be
made as compensation for diminution in value of the leasehold or
for the taking of the fee, or as severance damages; provided,
however, that Tenant shall be entitled to any award for loss of
or damage to Tenant's trade fixtures, removable personal
property, and the un-amortized portion of Tenant's improvements
to the Premises, if any, which amortization shall be based upon a
fraction, the numerator of which shall be the remaining unexpired
term of the Lease from the date of such condemnation, and the
denominator of which shall be the period from the date of such
improvement to the expiration of the term of the lease, and any
award for Tenant's loss of business, goodwill, or relocation. In
the event that this Lease is not terminated by reason of such
condemnation, Landlord in connection with such condemnation shall
repair any damage to the Premises caused by such condemnation
except to the extent that Tenant has been reimbursed therefor by
the condemning authority.
13. OPTION TO EXTEND TERM.
13.1 CONDITION PRECEDENT. The option provided in
paragraph 13.2 shall be subject to the condition precedent set
forth in this paragraph 13.1. The provisions of paragraph 13.2
shall be available to Tenant only in the event that Landlord has
not offered Tenant the opportunity to lease an alternate location
within the property of which the Premises are a part on or before
expiration of the term provided in paragraph 2.1 of this Lease.
In the event that Landlord does offer to Tenant such alternate
premises, the provisions of paragraph 13.2 shall be of no force
and effect.
13.2 OPTION TO EXTEND TERM. Tenant is given the option to
extend the base term of this Lease described in paragraph 2.1 for
four (4) years (herein the "Option Term") on all of the terms and
provisions contained in this Lease, by giving notice of exercise
of the option ("Option Notice") to Landlord no less than one
hundred twenty (120) days before the expiration of the term
described in paragraph 2.1; provided that if Tenant has received
a notice of default in its performance of any of the terms and
provisions of this Lease on the date the notice is given or upon
the date the First Option Period is to commence, and has failed
to cure such default (as defined in paragraph 11.1 hereof) as of
such date, said extended term shall not commence and this Lease
shall expire at the end of the unextended term. Time is of the
essence as to notice of exercise of the option.
14. GENERAL PROVISIONS.
14.1 ESTOPPEL CERTIFICATE.
(a) Tenant shall at any time upon not less than
ten (10) days, prior written notice from Landlord execute,
acknowledge and deliver to Landlord a statement in writing (i)
certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification
and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are
paid in advance, if any, and (ii) acknowledging that there are
not, to Tenant's knowledge, any uncured defaults on the part of
Landlord hereunder, or specifying such defaults if any are
claimed. Any such statement may be conclusively relied upon by
any prospective purchaser or encumbrancer of the Premises.
(b) Tenant's failure to deliver such statement
within such time shall be conclusive upon Tenant (i) that this
Lease is in full force and effect, without modification except as
may be represented by Landlord; (ii) that there are not uncured
defaults in Landlord's performance; and (iii) that not more than
one month's rent has been paid in advance, or such failure may be
considered by Landlord as a default by Tenant under this Lease.
(c) If Landlord desires to finance or refinance
the Premises, or any part thereof, Tenant hereby agrees to
deliver to any lender designated by Landlord such information of
Tenant as may be reasonably required by such lender to evaluate
the creditworthiness of Tenant, not including confidential trade
information of Tenant. All such information shall only be
delivered to said Lender upon receipt by Tenant of Lender's
written certification that it shall be deemed confidential and
shall be released to no third parties except as may be required
by law.
14.2 LANDLORD'S LIABILITY. The term "Landlord" as used
herein shall mean only the owner or owners at the time in
question of the Premises. In the event of any transfer of such
title or interest, Landlord herein named (and in case of any
subsequent transfers the then grantor) shall be relieved from and
after the date of such transfer of all liability as respects
Landlord's obligations thereafter to be performed, provided that
any funds in the hands of Landlord or the then grantor at the
time of such transfer, in which Tenant has an interest, shall be
delivered to the grantee. The obligations contained in this Lease
to be performed by Landlord shall, except as aforesaid, be
binding on Landlord's successors and assigns, only during their
respective periods of ownership.
14.3 SEVERABILITY. The invalidity of any provision of
this Lease as determined by a court of competent jurisdiction,
shall in no way affect the validity of any other provision
hereof.
14.4 INTEREST ON PAST DUE OBLIGATIONS. Except as
expressly herein provided, any amount due Landlord not paid when
due shall bear interest at ten percent (10%) per annum from the
date due. Payment of such interest shall not excuse or cure any
default by Tenant under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Tenant
nor on any amounts upon which late charges are paid by Tenant.
14.5 TIME OF ESSENCE. Time is of the essence in the
performance of all obligations to be performed pursuant to this
Lease.
14.6 CAPTIONS. Article and paragraph captions are not a
part hereof.
14.7 INCORPORATION OF PRIOR AGREEMENT; AMENDMENTS. This
Lease contains all agreements of the parties with respect to any
matter mentioned herein. No prior agreement or understanding
pertaining to any such matter shall be effective. This Lease may
be modified only in writing, signed by the parties in interest at
the time of the modification. Except as otherwise stated in this
Lease, Tenant hereby acknowledges that no real estate broker nor
the Landlord or any employees or agents of any of said persons
has made any oral or written warranties or representations to
Tenant relative to the condition or use by Tenant of said
Premises and Tenant acknowledges that Tenant assumes all
responsibility regarding the Occupational Safety Health Act or
the legal use or adaptability of the Premises and the compliance
thereof to all applicable laws and regulations enforced during
the term of this Lease except as otherwise specifically stated in
this Lease.
14.8 NOTICES. Any notice required or permitted to be
given hereunder shall be in writing and may be given by personal
delivery or by certified mail, and if given personally or by
mail, shall be deemed sufficiently given if addressed to Tenant
or to Landlord at the address noted below. Notice by mail shall
be deemed effective forty-eight (48) hours after deposit in the
U.S. Mail. Either party may by notice to the other specify a
different address for notice purposes, except that upon Tenant's
taking possession of the Premises, the Premises shall constitute
Tenant's address for notice purposes. A copy of all notices
required or permitted to be given to Landlord hereunder shall be
concurrently transmitted to such party or parties at such
addresses as Landlord may from time to time hereafter designate
by notice to Tenant.
LANDLORD: TENANT:
Mailing: Prior to the Commencement
Date:
Philip Wood 555 Leslie Street
c/o Wood Properties Ukiah, CA 95482
P.O. Box 7123
Berkeley, CA 94707 On or after the Commencement
Date:
For Personal Delivery: The Premises
Philip Wood
c/o Wood Properties
999 Harrison Street
Berkeley, CA
14.9 WAIVERS. No waiver by Landlord of any provision
hereof shall be deemed to waive of any other provision hereof or
of any subsequent breach by Tenant of the same or any other
provision. Landlord's consent to or approval of any act shall not
be deemed to render unnecessary the obtaining of Landlord's
consent to or approval of any subsequent act by Tenant. The
acceptance of rent hereunder by Landlord shall not be a waiver of
any preceding breach by Tenant of any provision hereof, other
than the failure of Tenant to pay the particular rent so
accepted, regardless of Landlord's knowledge of such preceding
breach at the time of acceptance of such rent.
14.10 HOLDING OVER. If Tenant remains in possession of
the Premises or any part thereof after the expiration of the term
hereof without the express written consent of Landlord, such
occupancy shall be tenancy from month to month at a rental in the
amount of the last monthly rental plus all other charges payable
hereunder, and upon all the terms hereof applicable to a
month-to-month tenancy.
14.11 CUMULATIVE REMEDIES. No remedy or election
hereunder shall be deemed exclusive but shall, wherever possible,
be cumulative with all other remedies at law or in equity.
14.12 BINDING EFFECT; CHOICE OF LAW. Subject to any
provisions hereof restricting assignment or subletting by Tenant,
this lease shall bind the parties, their successors and assigns.
This Lease shall be governed by the laws of the State of
California.
14.13 ATTORNEY'S FEES. If either party named
herein brings an action to enforce the terms hereof or declare
rights hereunder, the prevailing party in any such action, on
trial or appeal, shall be entitled to reasonable attorney's fees
to be paid by the losing party as fixed by the court.
14.14 LANDLORD'S ACCESS. Landlord and Landlord's agents
shall have the right to enter the Premises at reasonable times
for the purpose of inspecting the same, showing the same to
prospective purchasers, or lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises
or to the building of which they are a part as Landlord may deem
necessary or desirable. Reasonable notice shall be deemed to be
Forty Eight (48) hours advance written or telephonic notice
except in cases of emergency, in which event access may be
immediate. Landlord may at any time during the last one hundred
twenty (120) days of the terms hereof place on or about the
Premises any ordinary "For Lease" signs, all without rebate of
rent or liability to Tenant.
14.15 SIGNS AND AUCTIONS. All signs and any auctions
conducted on the Premises shall be related to Tenant's business
and shall be in accordance with all applicable laws and
ordinances.
14.16 MERGER. The voluntary or other surrender of this
Lease by Tenant, or a mutual cancellation thereof, or a
termination by Landlord, shall not work a merger, and shall, at
the option of Landlord, terminate all of any existing
subtenancies or may, at the option of Landlord, operate as an
assignment to Landlord of any or all of such subtenancies or may,
at the option of Landlord, operate as an assignment to Landlord
of any or all of such subtenancies.
14.17 CORPORATE AUTHORITY. If Tenant is a corporation
each individual executing this Lease on behalf of Tenant
represents and warrants that he is duly authorized to execute and
deliver this Lease on behalf of Tenant in accordance with a duly
adopted resolution of the Board of Directors of Tenant or in
accordance with the Bylaws of Tenant, and that this Lease is
binding upon Tenant in accordance with its terms. Tenant shall,
within thirty (30) days after execution of this Lease, deliver to
Landlord a certified copy of a resolution of the Board of
Directors of Tenant authorizing or ratifying the execution of
this Lease.
IN WITNESS WHEREOF, Landlord and Tenant have executed
this Lease the day and year first above written.
LANDLORD: TENANT:
REAL GOODS TRADING CORPORATION
[S]PHILIP WOOD [S]JOHN SCHAEFFER
BY: JOHN SCHAEFFER, President
and Chief Executive Officer
3 May 1998
Dear Ron,
We at Real Goods Trading Corporation are very happy to offer
you the position of President of the Company. This letter sets
forth the material terms of our offer; if you wish to accept our
offer, please sign the enclosed copy of this letter and return it
so we receive it not later than 5pm, 6 May 1998. If we have not
received it by then, the offer will expire at that time. We
apologize for the formality of this letter, but ongoing state and
federal legal developments require us to document the employment
relationship carefully. We would expect that you will begin at
the earliest possible time but not later than 18 May 1998.
1. TITLE. Your title will be President. As such, you will
report to the CEO. Initially the Solar Living Center, Real
Goods Renewables, and certain other aspects of the company
that we have been discussing will report to me as CEO; all
other operations of the company will report to you. Our
responsibilities will be divided up and consistent with the
chart of responsibilities that we will jointly develop over
the next several days. We would expect that over time some
of the responsibilities that I retain will migrate to you.
2. SALARY. Your salary will be at the annual rate of
$120,000, payable bi-weekly in accordance with our normal
payroll procedures. We will make customary withholdings.
The fact that your salary is stated in annual terms
should not be construed to create a minimum employment
term or notice requirement. The compensation committee of
the Board of Directors will review executive salaries at
or about budget time for FY 2000. It is reasonable to
assume that the compensation committee will increase your
salary to not less than $135,000 per year for your second
year of employment.
3. SIGNING BONUS. A signing bonus of $15,000 will be paid
to you in twelve equal installments over the first year
of your employment so long as you are still employed
with Real Goods.
4. STOCK OPTIONS. Our stock option program is
administered by the Compensation Committee of the Board
of Directors. We have agreed to request a grant to
you of options to purchase 120,000 shares of the
Company s common stock upon hire. We expect that the
Compensation Committee of the Board of Directors will
approve this request that will be effective upon hire
date.
5. PERFORMANCE BONUS. So long as the company meets its
budgeted revenue growth plans, we will pay you a
performance bonus based upon operating earnings before
extraordinary items and before income taxes
(hereinafter referred to as OEBIT) for company-wide
financial performance. In the fiscal year ending 31
March 1999, we will pay you 15% of the OEBIT for any
amount over 3% OEBIT but the bonus will be capped at
$40,000. After the cap has been reached you will
receive a bonus of 7.5% on any amount of OEBIT
thereafter. For the fiscal year ending 31 March 2000,
we will pay you 15% of the OEBIT for any amount over
4.5% OEBIT but the bonus will be capped at $60,000
(you will be paid a bonus of 7.5% of any OEBIT over
and above the cap) and for the fiscal year ending 31
March 2001, we will pay you 15% of the OEBIT for any
amount over 6% OEBIT but the bonus will be capped at
$80,000. After the cap has been reached you will
receive a bonus of 7.5% on any amount of OEBIT
thereafter.
6. SEVERANCE. If we terminate your employment for any reason
other than cause within twelve months of your start date,
you will be given three months severance pay. In addition,
if your compensation from your new employment in the next
six months is less than $60,000, then we will pay you at the
end of the six month period the difference between $60,000
and your actual salary for the six month period upon
verification. The severance pay for the six month period
following the first three months is expressly contingent
upon your putting forth your best efforts to secure
employment starting within two weeks after your termination.
7. RELOCATION EXPENSES. We will pay all actual relocation
expenses (costs of mover and transportation) for you and
your wife to move to the Northern California area from
San Diego up to a maximum of $10,000. If you are terminated
for a reason other than cause within twelve months of your
start date, and if you relocate back to the San Diego
area, we will pay up to $5,000 of actual relocation
expenses. Further we will lend you an amount equal to your
real estate commission on the sale of your residence in San
Diego (but not more than $20,000). The amount of that loan
together with 6.5% interest will be forgiven ratably over
the first thirty six months of your employment. If we
terminate your employment for any reason other than cause
then we will forgive the entire balance of the loan. If you
resign from employment, then the balance of the loan becomes
due and payable upon your last day of employment.
8. FRINGE BENEFITS. While there can be no assurance that we
will continue any particular program, we hope to be able to
continue to provide useful fringe benefit programs for our
employees. If you or any member of your family has any
special medical problems which may be "preexisting
conditions" as referred to in the enclosure, please be aware
that insurance coverage for those conditions may not be
available under our plan. If you wish further information
either before or after accepting this position, please let
us know.
9. AT WILL EMPLOYMENT. Your employment is "at will" - there is
no fixed term or minimum term. Either you or we may
terminate your employment at any time for any reason or for
no reason. The only way this "at will" provision can be
modified or amended is in writing signed by the CEO of the
Company specifically addressed to you and specifically
modifying this paragraph.
10. HANDBOOK. The employee handbook, which we are sending to
you, governs the relationship of Real Goods and its
employees. As you know, this type of document is
flexible; we may change it at any time and from time to
time. You and all of our employees will be governed by such
changes as they become effective, which may be with or
without notice.
11. PROPRIETARY INFORMATION OF OTHERS. We are hiring you for
your personal skills and character. We expressly do not
want you to bring with you any property or proprietary
information belonging to a prior employer or any other
person. If you do have any property or proprietary
information belonging to a prior employer, please return it
forthwith and do not use it in your employment with us.
12. CONFIDENTIALITY. As is customary, you have special
responsibilities to protect the confidentiality of our own
confidential and proprietary information and confidential
information which may be provided to us by others. It is a
condition precedent to the effectiveness of your employment
that you sign and return a copy of our standard employee
confidentiality agreement. Please note that if you do
reserve any rights to inventions, you must complete Exhibit
A before returning the agreement to us. By commencing
employment, you agree to execute a document of similar tenor
from time to time in the form provided by us.
13. INS REQUIREMENTS. On your first day of employment, and
possibly from time to time thereafter, you will have to show
us proof of your identity as well as your legal right to
work in the United States as required by the U. S.
Immigration and Naturalization Service. In most cases, your
driver's license and a Social Security card shouldsatisfy
the regulations. (Foreign nationals requiring permission to
work in the United States will be asked to provide documents
appropriate to their individual status.)
14. ARBITRATION. You specifically agree that any disagreement
with respect to termination of your employment or matters
leading up to termination of your employment shall be
subject to binding mandatory arbitration in San Francisco,
California before a single arbitrator, selected in
accordance with the rules of the American Arbitration
Association which rules shall govern the proceedings (except
as otherwise expressly provided herein). The arbitration
shall be conducted in accordance with the California
Arbitration Act, California Code of Civil Procedure Sections
1280 et seq. and the provisions of Section 1283.05 are
expressly incorporated into this arbitration agreement.
Judgment may be entered to enforce any arbitral award by any
court of competent jurisdiction. The prevailing party in
any legal proceeding or arbitration shall be entitled to
recover its reasonable attorneys' fees, costs and
disbursements. We both agree that arbitration is the sole
and exclusive remedy for any disagreement arising out of
such matters.
15. ENTIRE STATEMENT. It is most important that you agree with
us that this letter constitutes the entire statement of our
agreement and that there are no oral agreements or
understandings or any other written agreements which
directly or indirectly affect the employment relationship
between us and you. If there are any, please do not sign
this agreement until you have consulted with our director of
human relations and either modified this agreement to state
those understandings or agreed that there are no such
understandings or agreements. This document is fully
integrated with respect to the at-will component of your
employment.
We apologize again for the legalistic form of this letter;
however, in the current environment, we believe it is best for
both of us to spell things out as clearly and carefully as we
can. Despite these formalities, we really do look forward to
your joining us. If the foregoing is acceptable, please sign and
return the enclosed copy of this letter.
Very truly yours,
Real Goods Trading Corporation
[S] JOHN SCHAEFFER
By: John Schaeffer
Title: CEO
AGREED:
[S]RONALD ZELL
Ronald Zell
Ronald Zell
Print Name
Dated: May 4, 1998
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement No. 333-15991 of Real Goods Trading Corporation on Form
S-8 of our report dated May 8, 1998, appearing in this Annual
Report on Form 10-KSB of Real Goods Trading Corporation for the
year ended March 31, 1998.
[S]DELOITTE & TOUCHE, LLP
Deloitte & Touche LLP
Oakland, California
June 19, 1998
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