Exhibit 10.4

 

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Agreement”) is
entered into on March 30, 2016 (the “Effective Date”) between SOLAR SOLUTIONS
AND DISTRIBUTION, LLC, a Colorado limited liability company with offices located
at 8450 East Crescent Parkway, Suite 200, Greenwood Village, CO 80111-2816
(“Lender”), and REAL GOODS SOLAR, INC., a Colorado corporation (“RGS”), RGS
FINANCING, INC., a Colorado corporation (“RGSF”), REAL GOODS ENERGY TECH, INC.,
a Colorado corporation (“Real Goods Energy”), ALTERIS RENEWABLES, INC., a
Delaware corporation (“Alteris”) and REAL GOODS SYNDICATED, INC., a Delaware
corporation (“Syndicated”), MERCURY ENERGY, INC., a Delaware corporation
(“Mercury”), REAL GOODS SOLAR, INC. – MERCURY SOLAR, a New York corporation
(“Mercury Solar”), ELEMENTAL ENERGY, LLC, a Hawaii limited liability company
(“Elemental”), and SUNETRIC MANAGEMENT LLC, a Delaware limited liability company
(“Sunetric”, and together with RGS, RGSF, Real Goods Energy, Alteris,
Syndicated, Mercury, Mercury Solar and Elemental, individually and collectively,
jointly and severally, the “Borrower”), and provides the terms on which Lender
shall lend to Borrower and Borrower shall repay Lender. This Agreement replaces
in its entirety that certain Loan and Security Agreement dated as of December
19, 2011, as amended by a certain First Loan Modification Agreement, dated as of
August 28, 2012, as further amended by a certain Second Loan Modification and
Reinstatement Agreement, dated as of November 13, 2012, as further amended by a
certain Third Loan Modification Agreement, dated as of March 27, 2013, as
further amended by a certain Joinder and Fourth Loan Modification Agreement,
dated as of September 26, 2013, as further amended by a certain Fifth Loan
Modification Agreement, dated as of November 5, 2013, as further amended by a
certain Joinder and Sixth Loan Modification Agreement, dated as of June 6, 2014,
as further amended by a certain Seventh Loan Modification and Waiver Agreement,
dated as of November 19, 2014, as further amended by a certain Eighth Loan
Modification Agreement, dated as of January 30, 2015, as further amended by a
certain Ninth Loan Modification and Agreement, dated as of March 16, 2015, and
as further amended by a certain Tenth Loan Modification and Waiver Agreement,
dated as of November 6, 2015, by and between Lender and Borrower, and as further
amended by that certain Loan Modification and Waiver Agreement dated January 19,
2016, and as further amended by that certain Waiver and Consent Agreement dated
January 19, 2016, and as further amended by that certain Loan Modification and
Waiver Agreement dated February 4, 2016 (as amended, the “Prior Loan
Agreement”). The parties agree as follows:

 

1ACCOUNTING AND OTHER TERMS

 

Accounting terms not defined in this Agreement shall be construed following
GAAP. Calculations and determinations must be made following GAAP. Capitalized
terms not otherwise defined in this Agreement shall have the meanings set forth
in Section 13. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meaning provided by the Code to the extent such terms
are defined therein.

 

 

 

 

2LOAN AND TERMS OF PAYMENT

 

2.1          Promise to Pay. Borrower hereby unconditionally promises to pay
Lender the outstanding principal amount of all Credit Extensions and accrued and
unpaid interest thereon as and when due in accordance with this Agreement.

 

2.1.1Revolving Advances.

 

(a)          Availability. Subject to the terms and conditions of this
Agreement, and to deduction of Reserves, Lender shall fund into the Lender
Account an amount equal to the Availability Amount. Borrower shall request
Advances from the Lender Account into an account of Borrower maintained pursuant
to the terms hereof, by submitting a borrowing request to Lender in accordance
with Section 3.4 hereof. Subject to the terms and conditions set forth herein,
upon reciept of each borrowing request, Lender shall instruct the bank or
financial institution where the Lender Account is located to fund the requested
Advance into the specified Account in accordance with Section 2.5 and Section
3.4; provided however that Lender shall not be required to authorize any Advance
in excess of the Availability Amount. Amounts borrowed under the Revolving Line
may be repaid, and prior to the Revolving Line Maturity Date, reborrowed,
subject to the applicable terms and conditions precedent herein. Borrower shall
submit with each borrowing request a Transaction Report in accordance with
Section 3.4 executed by a Responsible Officer. Borrower will submit a
Transaction Report each week independent of whether or not Borrower is making a
borrowing request.

 

(b)          Termination; Repayment. The Revolving Line terminates on the
Revolving Line Maturity Date, when the principal amount of all Advances, the
unpaid interest thereon, and all other Obligations relating to the Revolving
Line shall be immediately due and payable.

 

(c)          Advances on the Effective Date. On February 9th, 2016, the Solar
Solutions Receivable Amount became an Advance hereunder, and is considered paid
in full for the purposes of the Exclusive Master Supply Agreement by and between
RGS and Lender dated as of April 29, 2015. Any Advances made pursuant to the
terms hereof prior to the Effective Date which remain unpaid on the Effective
Date shall continue to be Advances hereunder.

 

(d)          Certain Required Payments. Notwithstanding anything herein to the
contrary, Borrower shall make the following required payments on the Revolving
Line:

 

Date  Payment Amount        May 15, 2016  $167,513.41         June 15, 2016 
$167,513.40         July 15, 2016  $335,026.81         September 15, 2016 
$335,026.81         November 15, 2016  $335,026.81         January 15, 2017 
$335,026.81 

 

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If any date listed above, is not a Business Day such amount shall be due on the
next Business Day. Prior to the Revolving Line Maturity Date, such amouts may be
reborrowed, subject to the applicable terms and conditions precedent herein.

 

2.2Overadvances.

 

(a)          If, at any time, the sum of the outstanding principal amount of any
Advances exceeds the lesser of either the Revolving Line or the Borrowing Base
(such excess amount being an “Overadvance”), Borrower shall immediately pay to
Lender in cash such Overadvance. Without limiting Borrower’s obligation to repay
Lender any amount of the Overadvance, Borrower agrees to pay Lender interest on
the outstanding amount of any Overadvance, on demand, at the Default Rate. To
the extent an Overadvance occurs as a result of Borrower’s failure to repay the
outstanding principal amount of any Advances at the time the Revolving Line is
reduced (as set forth in the Revolving Line definition), at Lender’s election,
(a) within five business days the Overadvance shall be repaid, subject to
compliance with applicable rules of the Nasdaq Stock Market set forth in Section
2.2(b), with an issuance of shares of Borrower’s Class A common stock, par value
$0.0001, using a per share conversion price of ninety percent (90%) of the per
share closing price on the day of such Overadvance, or (b) Lender shall permit
Borrower to sell certain Collateral, including leasing assets of RGSF, with such
sale proceeds used to repay the Overadvance.

 

(b)          Notwithstanding anything to the contrary contained herein, Borrower
shall have no obligation to issue shares of Borrower’s Class A common stock
under Section 2.2(a) until Borrower makes such notices and receives such
approvals required by Nasdaq Stock Market, including those required by Listing
Rule 5250 and Listing Rule 5635. Borrower and Lender acknowledge that Borrower
shall have no obligation to seek shareholder approval in the event the
additional issuances of Borrower’s Class A common stock under and in connection
with this agreement would trigger the shareholder approval requirements of
Listing Rule 5635.

 

2.3Payment of Interest on the Credit Extensions.

 

(a)          Interest Rate.

 

(i)          Advances. Subject to Section 2.3(b), the principal amount
outstanding under the Revolving Line shall accrue interest at a floating per
annum rate equal to the greater of (i) the Prime Rate plus three percentage
points (3.00%) and (ii) seven percent (7.00%) which interest shall in any event
be payable monthly, in arrears, in accordance with Section 2.3(f) below.

 

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(ii)         Default Rate. Immediately upon the occurrence and during the
continuance of an Event of Default, Obligations shall bear interest at a rate
per annum which is four percentage points (4.00%) above the rate that is
otherwise applicable thereto (the “Default Rate”) unless Lender otherwise elects
from time to time in its sole discretion to impose a smaller increase. Fees and
expenses which are required to be paid by Borrower pursuant to the Loan
Documents (including, without limitation, Lender Expenses) but are not paid when
due shall bear interest until paid at a rate equal to the highest rate
applicable to the Obligations. Payment or acceptance of the increased interest
rate provided in this Section 2.3(b) is not a permitted alternative to timely
payment and shall not constitute a waiver of any Event of Default or otherwise
prejudice or limit any rights or remedies of Lender.

 

(b)          Adjustment to Interest Rate. Changes to the interest rate of any
Credit Extension based on changes to the Prime Rate shall be effective on the
effective date of any change to the Prime Rate and to the extent of any such
change.

 

(c)          Computation; 360-Day Year. In computing interest, the date of the
making of any Credit Extension shall be included and the date of payment shall
be excluded; provided, however, that if any Credit Extension is repaid on the
same day on which it is made, such day shall be included in computing interest
on such Credit Extension. Interest shall be computed on the basis of a 360-day
year for the actual number of days elapsed.

 

(d)         [Reserved]

 

(e)          Interest Payment Date. Unless otherwise provided, interest is
payable monthly on the last calendar day of each month, provided that if such
date is not a Business Day such amount shall be due on the next Business Day.

 

(f)           Payment; Interest Computation. Interest is payable monthly on the
last calendar day of each month, provided that if such date is not a Business
Day such amount shall be due on the next Business Day. In computing interest on
the Obligations, all Payments received after 2:00pm Mountain time on any day
shall be deemed received on the next Business Day. Lender shall not, however, be
required to credit Borrower’s account for the amount of any item of payment
which is unsatisfactory to Lender in its good faith business judgment.

 

2.4Fees.    Borrower shall pay to Lender:

 

(a)          Loan Conversion and Initiation Fee. Borrower shall pay Lender a
one-time loan initiation fee, which shall be fully earned and payable
immediately after the execution of this Agreement. Such fee will include any
legal fees over the $25,000 already agreed to by Borrower in Section 3.1(e) and
any other direct and labor expenses incurred by Lender during the loan
initiation phase.

 

(b)          Unused Revolving Line Facility Fee. A fee (the “Unused Revolving
Line Facility Fee”), payable quarterly, in arrears, on a calendar year basis, in
an amount equal to two percent (2.00%) per annum of the average unused portion
of the Revolving Line dedicated and placed in an account for the purpose of
funding the Loan. The unused portion of the Revolving Line, for purposes of this
calculation, shall equal the difference between (x) the Revolving Line amount
(as it may be reduced from time to time) and (y) the average for the period of
the daily closing balance of the Revolving Line outstanding. Borrower shall not
be entitled to any credit, rebate or repayment of any Unused Revolving Line
Facility Fee previously earned by Lender pursuant to this Section
notwithstanding any termination of the Agreement or the suspension or
termination of Lender’s obligation to make loans and advances hereunder.

 

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(c)          Collateral Exam Fees. Borrower shall pay Lender fees in connection
with any collateral exams, audits or inspections conducted by or on behalf of
Lender at the current rates established from time to time by Lender as its
collateral exam fees (which fees are currently $1,000 per day per collateral
examiner), together with all actual out-of-pocket costs and expenses incurred in
conducting any collateral examination or inspection. Lender agrees to conduct
such examinations, audits and inspections no more than once per quarter.

 

(d)          Loan and Collateral Administration Fees. Borrower shall pay Lender
a monthly loan administration and collateral monitoring labor fee of Four
Thousand Dollars ($4000) per month, which fee shall be due and payable monthly
in arrears on the first day of the month and on the termination of this
Agreement.

 

(e)          Lender Expenses. All Lender Expenses (including reasonable
attorneys’ fees and expenses for documentation and negotiation of this
Agreement) incurred through and after the Effective Date taking into account any
limitations on those expenses set forth herein, when due.

 

2.5Payments; Application of Payments and Advances to Accounts.

 

(a)          All payments (including prepayments) to be made by Borrower under
any Loan Document shall be made in immediately available funds in Dollars,
without setoff or counterclaim, before 2:30 PM Mountain time on the date when
due. Payments of principal and/or interest received after 2:30 PM Mountain time
are considered received at the opening of business on the next Business Day.
When a payment is due on a day that is not a Business Day, the payment shall be
due the next Business Day, and additional fees or interest, as applicable, shall
continue to accrue until paid.

 

(b)          Borrower shall have no right to specify the order or the accounts
to which Lender shall allocate or apply any payments required to be made by
Borrower to Lender or otherwise received by Lender under this Agreement when any
such allocation or application is not specified elsewhere in this Agreement.

 

(c)          Temporary Transition of Sunetric Accounts. As of the Effective
Date, the Sunetric Operating Account (defined below) shall be structured, and
Borrower’s obligations with respect to the Sunetric Operating Account, are as
follows:

 

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(i)          all of Sunetric’s receivables shall be deposited into its operating
account at Bank of Hawaii (“BH”) (Account # XXXXXX3760) (the “Sunetric Operating
Account”);

 

(ii)         Sunetric and Lender shall enter into a Deposit Account Control
Agreement with BH for the Sunetric Operating Account in a form reasonably
acceptable to Borrower and Lender, in accordance with the terms hereof;

 

(iii)        Sunetric shall grant Lender online access to view the Sunetric
Operating Account;

 

(iv)        By 10:30 AM HST of each business day, Sunetric shall transfer all
Daily Deposits out of the Sunetric Operating Account and into the dedicated
account established by Lender at Wells Fargo Bank (Account # XXXXX5793) (the
“Lender Account”). The Lender Account may only be used for activity related to
this Agreement and Lender shall at all times maintain a balance in the Lender
Account that equals or exceeds the undrawn portion of the Revolving Line. Lender
shall in no event provide a security interest or other Lien in, or otherwise
give a third party control of, the LenderAccount to any Person, and Lender
acknowledges and agrees that all amounts deposited into the Lender Account in
excess of the amounts owed to Lender on the Revolving Line shall be held in
trust on behalf of Borrower until such amounts are transferred to the WF ZBA
Account (defined below), or such other deposit account as instructed by Borrower
in writing.

 

The temporary transition of accounts as described above shall not be changed or
terminated unless Borrower and Lender each agree to any changes in writing.

 

(d)          Permanent Collateral Accounts. As of the Effective Date, the
permanent collateral accounts shall be structured, and Borrower’s obligations
with respect to such accounts, shall be as set forth below:

 

(i)  Borrower has established a restricted “one way” account at Wells Fargo Bank
(“WF”) with account number ending 8478 (“the “WF Collateral Account”), and the
WF Collateral Account shall allow deposits and transfers only to the Lender
Account;

 

(ii)  all of Borrower’s receivables shall be deposited into the WF Collateral
Account;

 

(iii)  intentionally omitted;

 

(iv)  Borrower and Lender shall enter into a Deposit Account Control Agreement
with WF for the WF Collateral Account in a form reasonably acceptable to
Borrower and Lender, in accordance with the terms hereof;

 

(v)  each business day, all funds in the WF Collateral Account shall
automatically transfer to the Lender Account;

 

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(vi)  funds transferred to the Lender Account shall be applied and transferred
by Lender on the same day as follows: (A) first, to repay any outstanding
Advances on the Revolving Line, and (B) second, all amounts in excess of the
then current Advances on the Revolving Line, shall be transferred to the zero
balance account established by Borrower at WF (the "WF ZBA Account"), or such
other account as instructed by Borrower to Lender in writing on the same day the
such amounts are transferred from the WF Collateral Account to the Lender
Account. The parties acknowledge that Borrower would not have entered into this
arrangement without Lender’s agreement to hold any amounts in excess of the
Advances made against the Revolving Line deposited into the Lender Account in
trust on Borrower’s behalf, to transfer such excess amounts to the WF ZBA
Account as provided herein, and to deliver Advances to Borrower in accordance
herewith. Accordingly, the parties acknowledge and agree that Borrower shall be
entitled to specific performance and other equitable relief by way of injunction
with respect of a breach by Lender of these provisions, without any requirement
to post a bond in connection therewith.

 

(e)          Sunetric Collateral Accounts. Notwithstanding anything in
Subsection 2.5(d), within fifteen (15) days of the Effective Date, Sunetric
shall establish a permanent, restricted, one-way collateral account with BH and
all Sunetric Accounts receivable shall be deposited into such account (the
“Sunetric Collateral Account”) or directly into the Lender Account. The Sunetric
Collateral Account shall be a zero balance account and shall allow deposits and
transfers only to the Lender Account, and:

 

(i)          Sunetric and Lender shall enter into a Deposit Account Control
Agreement with BH for the Sunetric Collateral Account in a form reasonably
acceptable to Sunetric and Lender, in accordance with the terms hereof;

 

(ii)  each business day, all funds in the Sunetric Collateral Account shall
automatically transfer to the Lender Account;

 

(iii) funds transferred to the Lender Account directly or from the Sunetric
Collateral Account shall be applied and transferred by Lender on the same day as
that they were transferred to the Lender Account as follows: (A) first, to repay
any outstanding Advances on the Revolving Line, and (B) second, all amounts in
excess of the then current Advances on the Revolving Line, shall be transferred
to the zero balance account established by Borrower at WF (the "WF ZBA
Account"), or such other account as instructed by Borrower to Lender in writing
on the same day the such amounts are transferred from the WF Collateral Account
to the Lender Account. The parties acknowledge that Borrower would not have
entered into this arrangement without Lender’s agreement to hold any amounts in
excess of the Advances made against the Revolving Line deposited into the Lender
Account in trust on Borrower’s behalf, to transfer such excess amounts to the WF
ZBA Account as provided herein, to deliver Advances to Borrower in accordance
herewith, and to post the Letter of Credit as described below. Accordingly, the
parties acknowledge and agree that Borrower shall be entitled to specific
performance and other equitable relief by way of injunction with respect of a
breach by Lender of these provisions, without any requirement to post a bond in
connection therewith.

 

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(f)  Lender Collateral Account. Lender established a collateral account at WF
(the “Lender Collateral Account”) and funded it up to the Revolving Line amount
less all outstanding Advances. Lender agrees to maintain a balance in the Lender
Collateral Account equal to the Revolving Line minus outstanding Advances during
the term of this Agreement.

 

2.6          Transfers from Future Financings. Borrower agrees to instruct the
escrow agent in Borrower’s upcoming financing to make payments to Lender in
accordance with Section 2.1.1(d) above unless the applicable payment has
previously been made by Borrower and in connection therewith Lender consents to
Borrower issuing up to $12,000,000 in convertible notes(the “Note Financing”)
with principal and interest payments payable either (a) with Borrower’s Class A
Common Stock or (b) from the collateral account established to hold the
unreleased proceeds from the Note Financing.

 

3CONDITIONS OF LOANS

 

3.1          Conditions Precedent to Amendment and Restatement. Lender’s
obligation to close on the amendment and restatement of this Agreement is
subject to the condition precedent that Lender shall have received, in form and
substance satisfactory to Lender, such documents, and completion of such other
matters, as Lender may reasonably deem necessary or appropriate, including,
without limitation:

 

(a)          duly executed signature pages to the Loan Documents;

 

(b)          authorizing resolutions of each Borrower authorizing and approving
the Loan Documents;

 

(c)          the Perfection Certificates of each Borrower, together with the
duly executed signature pages thereto in the form previously delivered to
Lender;

 

(d)          a legal opinion of Borrower’s counsel, substantially in the form
attached hereto as Exhibit B, with regard to existence and authorization of the
Loan Documents with regard to each Borrower and the perfection of Lender’s
security interest upon the filing of the UCC-1 Financing Statements, in the form
and substance reasonably acceptable to Lender, in its discretion (parties
acknowledge that for purposes of this Agreement, Lender's discretion shall be
the reasonable discretion of a private, non-banking lender, acting in good
faith), dated as of the Effective Date; and

 

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(e)          payment of the $25,000 transaction fee which Borrower may borrow
under the Loan.

 

(f)          Lender and Borrower shall amend that certain Exclusive Master
Supply Agreement between Borrower and Lender dated April 29, 2015 to provide
that each invoice shall be due immediately upon Borrower’s receipt of such
invoice. Such amendment shall be executed within seven (7) days of the date of
the Effective Date.

 

3.2          Conditions Precedent to all Credit Extensions. Lender’s obligation
to make each Credit Extension, is subject to the following conditions precedent:

 

(a)          except as otherwise provided in Section 3.4, timely receipt of an
executed Transaction Report;

 

(b)          the representations and warranties in this Agreement shall be true,
accurate, and complete in all material respects on the date of the Transaction
Report and on the Funding Date of each Credit Extension; provided, however, that
such materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date, and no Default or Event of Default shall
have occurred and be continuing or result from the Credit Extension. Each Credit
Extension is Borrower’s representation and warranty on that date that the
representations and warranties in this Agreement remain true, accurate, and
complete in all material respects; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring
to a specific date shall be true, accurate and complete in all material respects
as of such date; and

 

(c)          in Lender’s reasonable discretion there has not been a Material
Adverse Change.

 

3.3           Covenant to Deliver. Borrower agrees to deliver to Lender each
item required to be delivered to Lender under this Agreement as a condition
precedent to any Credit Extension. Borrower expressly agrees that a Credit
Extension made prior to the receipt by Lender of any such item shall not
constitute a waiver by Lender of Borrower’s obligation to deliver such item, and
the making of any Credit Extension in the absence of a required item shall be in
Lender’s sole discretion.

 

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3.4           Procedures for Borrowing; Advances. Subject to the prior
satisfaction of all other applicable conditions to the making of an Advance set
forth in this Agreement, to obtain an Advance, Borrower shall notify Lender
(which notice shall be irrevocable) by electronic mail, facsimile, or telephone
by 2:30 pm Mountain time on any Business Day that is a Monday or Wednesday.
Together with any such electronic or facsimile notification, Borrower shall
deliver to Lender by electronic mail or facsimile a completed Transaction Report
executed by a Responsible Officer or his or her designee. Lender may rely on any
telephone notice given by a person whom Lender believes is a Responsible Officer
or designee. Subject to the terms and conditions set forth herein, upon reciept
of each borrowing request, Lender shall provide an instruction to the bank or
financial institution where the Lender Account is located to fund the requested
Advance into the specified WF ZBA Account or, in the case of a requested Advance
for Sunetric, directly to the Sunetric Operating Account, by close of business
the following Business Day. While Advances may be allocated for payment to
specified Borrowers, the Availability Amount shall be determined for all
Borrowers in the aggregate and not in any case on an individual basis. Lender
may make Advances under this Agreement based on instructions from a Responsible
Officer or his or her designee or without instructions if the Advances are
necessary to meet Obligations which have become due. Borrower may only request
two (2) advances per week and no individual Borrower may make a separate request
for Advance.

 

4CREATION OF SECURITY INTEREST

 

4.1          Grant of Security Interest. Borrower hereby grants Lender, to
secure the payment and performance in full of all of the Obligations, a
continuing security interest in, and pledges to Lender, the Collateral, wherever
located, whether now owned or hereafter acquired or arising, and all proceeds
and products thereof.

 

If this Agreement is terminated, Lender’s Lien in the Collateral shall continue
until the Obligations (other than inchoate indemnity obligations) are satisfied
in full, and at such time, Lender shall, at Borrower’s sole cost and expense,
terminate its security interest in the Collateral and all rights therein shall
revert to Borrower. In the event all Obligations (other than inchoate indemnity
obligations), are satisfied in full, and this Agreement is terminated, Lender
shall terminate the security interest granted herein.

 

4.2          Priority of Security Interest. Borrower represents, warrants, and
covenants that the security interest granted herein is and shall at all times
continue to be a first priority perfected security interest in the Collateral
(subject only to Permitted Liens that expressly have superior priority to
Lender’s Lien under this Agreement). If Borrower shall acquire a commercial tort
claim, Borrower shall promptly notify Lender in a writing signed by Borrower of
the general details thereof and grant to Lender in such writing a security
interest therein and in the proceeds thereof, all upon the terms of this
Agreement, with such writing to be in form and substance reasonably satisfactory
to Lender.

 

4.3          Authorization to File Financing Statements. Borrower hereby
authorizes Lender to file financing statements, without notice to Borrower, with
all appropriate jurisdictions to perfect or protect Lender’s interest or rights
hereunder, including a notice that any disposition of the Collateral, by either
Borrower or any other Person, may be deemed to violate the rights of Lender
under the Code. Such financing statements may indicate the Collateral as “all
assets of the Debtor” or words of similar effect, or as being of an equal or
lesser scope, or with greater detail, all in Lender’s discretion.

 

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5REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

5.1          Due Organization; Authorization; Power and Authority. Borrower and
each of its Subsidiaries are duly existing and in good standing as a Registered
Organization in its jurisdiction of formation and each is qualified and licensed
to do business and each is in good standing in any jurisdiction in which the
conduct of each of its business or its ownership of property requires that it be
qualified except where the failure to do so could not reasonably be expected to
have a material adverse effect on Borrower’s business. In connection with this
Agreement, Borrower has delivered to Lender completed certificates each signed
by Borrower, entitled “Perfection Certificate”. Borrower represents and warrants
to Lender that (a) Borrower’s exact legal name is that indicated on the
Perfection Certificate and on the signature page hereof; (b) Borrower is an
organization of the type and is organized in the jurisdiction set forth in the
Perfection Certificate; (c) the Perfection Certificate accurately sets forth
Borrower’s organizational identification number or accurately states that
Borrower has none; (d) the Perfection Certificate accurately sets forth
Borrower’s place of business, or, if more than one, its chief executive office
as well as Borrower’s mailing address (if different than its chief executive
office); (e) Borrower (and each of its predecessors) has not, in the past five
(5) years, changed its jurisdiction of formation, organizational structure or
type, or any organizational number assigned by its jurisdiction; and (f) all
other information set forth on the Perfection Certificate pertaining to Borrower
and each of its Subsidiaries is accurate and complete (it being understood and
agreed that Borrower may from time to time update certain information in the
Perfection Certificate after the Effective Date to the extent permitted by one
or more specific provisions in this Agreement). If Borrower is not now a
Registered Organization but later becomes one, Borrower shall promptly notify
Lender of such occurrence and provide Lender with Borrower’s organizational
identification number.

 

The execution, delivery and performance by Borrower of the Loan Documents to
which it is a party have been duly authorized, and do not (i) conflict with any
of Borrower’s organizational documents, (ii) contravene, conflict with,
constitute a default under or violate any material Requirement of Law, (iii)
contravene, conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority by
which Borrower or any of its Subsidiaries or any of their property or assets may
be bound or affected, (iv) require any action by, filing, registration, or
qualification with, or Governmental Approval from, any Governmental Authority
(except such Governmental Approvals which have already been obtained and are in
full force and effect or (v) constitute an event of default under any material
agreement by which Borrower is bound. Borrower is not in default under any
agreement to which it is a party or by which it is bound in which the default
could reasonably be expected to have a material adverse effect on Borrower’s
business.

 

5.2          Collateral. Borrower has good title to, has rights in, and the
power to transfer each item of the Collateral upon which it purports to grant a
Lien hereunder, free and clear of any and all Liens except Permitted Liens.
Borrower has no deposit accounts other than the deposit accounts described in
the Perfection Certificate delivered to Lender in connection herewith, or of
which Borrower has given Lender notice and taken such actions as are necessary
to give Lender a perfected security interest therein. The Accounts are bona
fide, existing obligations of the Account Debtors.

 

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The Collateral is not in the possession of any third party bailee (such as a
warehouse) except as otherwise provided in the Perfection Certificate. None of
the components of the Collateral shall be maintained at locations other than as
provided in the Perfection Certificate or as permitted pursuant to Section 7.2.
In the event that Borrower, after the date hereof, intends to store or otherwise
deliver any portion of the Collateral to a bailee, then Borrower will first
receive the written consent of Lender and such bailee must execute and deliver a
bailee agreement in form and substance satisfactory to Lender in its sole
discretion.

 

All Inventory is in all material respects of good and marketable quality, free
from material defects.

 

Borrower is the sole owner of the Intellectual Property which it owns or
purports to own except for (a) non-exclusive licenses granted to its customers
in the ordinary course of business, (b) over-the-counter software that is
commercially available to the public, and (c) material Intellectual Property
licensed to Borrower and noted on the Perfection Certificate. Each Patent which
it owns or purports to own and which is material to Borrower’s business is valid
and enforceable, and no part of the Intellectual Property which Borrower owns or
purports to own and which is material to Borrower’s business has been judged
invalid or unenforceable, in whole or in part. To the best of Borrower’s
knowledge, no claim has been made that any part of the Intellectual Property
violates the rights of any third party except to the extent such claim would not
have a material adverse effect on Borrower’s business.

 

Except as noted on the Perfection Certificate, Borrower is not a party to, nor
is it bound by, any Restricted License.

 

5.3          Accounts Receivable. For any Eligible Account in any Borrowing Base
Certificate, all statements made and all unpaid balances appearing in all
invoices, instruments and other documents evidencing such Eligible Accounts are
and shall be true and correct and all such invoices, instruments and other
documents, and all of Borrower’s Books are genuine and in all respects what they
purport to be. Whether or not an Event of Default has occurred and is
continuing, Lender may, after consultation and reasonable notice to the
Borrower, notify any Account Debtor owing Borrower money of Lender’s security
interest in such funds and verify the amount of such Eligible Account. All sales
and other transactions underlying or giving rise to each Eligible Account shall
comply in all material respects with all applicable laws and governmental rules
and regulations. Borrower has no knowledge of any actual or imminent Insolvency
Proceeding of any Account Debtor whose accounts are Eligible Accounts in any
Borrowing Base Certificate. To the best of Borrower’s knowledge, all signatures
and endorsements on all documents, instruments, and agreements relating to all
Eligible Accounts are genuine, and all such documents, instruments and
agreements are legally enforceable in accordance with their terms.

 

5.4          Litigation. Except as previously disclosed to Lender, there are no
actions or proceedings pending or, to the knowledge of the Responsible Officers,
threatened in writing by or against Borrower or any of its Subsidiaries
involving more than, Seventy Five Thousand Dollars ($75,000), individually, or
One Hundred and Fifty Thousand ($150,000) in the aggregate and which are not
otherwise covered by Borrower's insurance carriers.

 

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5.5          Financial Condition. All consolidated financial statements for
Borrower and any of its Subsidiaries delivered to Lender fairly present in all
material respects Borrower’s consolidated financial condition and Borrower’s
consolidated results of operations. There has not been any material
deterioration in Borrower’s consolidated financial condition since the date of
the most recent financial statements submitted to Lender.

 

5.6          Solvency. The fair salable value of Borrower’s assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities.
After the transactions in this Agreement and the closing of the Note Financing,
Borrower will not be left with unreasonably small capital after the transactions
in this Agreement; and Borrower will be able to pay its debts (including trade
debts) as they mature.

 

5.7          Regulatory Compliance. Borrower is not an “investment company” or a
company “controlled” by an “investment company” under the Investment Company Act
of 1940, as amended. Borrower is not engaged as one of its important activities
in extending credit for margin stock (under Regulations X, T and U of the
Federal Reserve Board of Governors). Borrower has complied in all material
respects with the Federal Fair Labor Standards Act. Neither Borrower nor any of
its Subsidiaries is a “holding company” or an “affiliate” of a “holding company”
or a “subsidiary company” of a “holding company” as each term is defined and
used in the Public Utility Holding Company Act of 2005. Borrower has not
violated any laws, ordinances or rules, the violation of which could reasonably
be expected to have a material adverse effect on its business. None of
Borrower’s or any of its Subsidiaries’ properties or assets has been used by
Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous
Persons, in disposing, producing, storing, treating, or transporting any
hazardous substance other than legally. Borrower and each of its Subsidiaries
have obtained all consents, approvals and authorizations of, made all
declarations or filings with, and given all notices to, all Governmental
Authorities that are necessary to continue their respective businesses as
currently conducted.

 

5.8          Subsidiaries; Investments. Borrower does not own any stock,
partnership interest or other equity securities except for Permitted
Investments.

 

5.9          Tax Returns and Payments; Pension Contributions. Borrower has
timely filed all required tax returns and reports, and Borrower has timely paid
all foreign, federal, state and local taxes, assessments, deposits and
contributions owed by Borrower. Borrower may defer payment of any contested
taxes, provided that Borrower (a) in good faith contests its obligation to pay
the taxes by appropriate proceedings promptly and diligently instituted and
conducted, (b) notifies Lender in writing of the commencement of, and any
material development in, the proceedings, (c) posts bonds or takes any other
steps required to prevent the Governmental Authority levying such contested
taxes from obtaining a Lien upon any of the Collateral that is other than a
“Permitted Lien”. Borrower is unaware of any claims or adjustments proposed for
any of Borrower’s prior tax years which could result in additional taxes
becoming due and payable by Borrower. Borrower has paid all amounts necessary to
fund all present pension, profit sharing and deferred compensation plans in
accordance with their terms, and Borrower has not withdrawn from participation
in, and has not permitted partial or complete termination of, or permitted the
occurrence of any other event with respect to, any such plan which could
reasonably be expected to result in any liability of Borrower, including any
liability to the Pension Benefit Guaranty Corporation or its successors or any
other governmental agency.

 

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5.10        Use of Proceeds. Borrower shall use the proceeds of the Credit
Extensions solely as working capital to fund its general business requirements
and not for personal, family, household or agricultural purposes.

 

5.11        Full Disclosure. No written representation, warranty or other
statement of Borrower in any certificate or written statement given to Lender,
as of the date such representation, warranty, or other statement was made, taken
together with all such written certificates and written statements given to
Lender, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained in the certificates or
statements not misleading (it being recognized by Lender that the projections
and forecasts provided by Borrower in good faith and based upon reasonable
assumptions are not viewed as facts and that actual results during the period or
periods covered by such projections and forecasts may differ from the projected
or forecasted results).

 

5.12        Definition of “Knowledge.” For purposes of the Loan Documents,
whenever a representation or warranty is made to Borrower’s knowledge or
awareness, to the “best of” Borrower’s knowledge, or with a similar
qualification, knowledge or awareness means the actual knowledge, after
reasonable investigation, of the Responsible Officers and their immediate
subordinates.

 

5.13        Designated Senior Indebtedness. The Loan Documents and all of the
Obligations shall be deemed “Designated Senior Indebtedness” or a similar
concept thereof for purposes of any Indebtedness of the Borrower.

 

6AFFIRMATIVE COVENANTS

 

Borrower shall do all of the following:

 

6.1Government Compliance.

 

(a)          Maintain its and all its Subsidiaries’ legal existence and good
standing in their respective jurisdictions of formation and maintain
qualification in each jurisdiction in which the failure to so qualify would
reasonably be expected to have a material adverse effect on Borrower’s business
or operations. Borrower shall comply, and have each Subsidiary comply, with all
laws, ordinances and regulations to which it is subject, the noncompliance with
which could have a material adverse effect on Borrower’s business.

 

(b)          Obtain all of the Governmental Approvals necessary for the
performance by Borrower of its obligations under the Loan Documents to which it
is a party and the grant of a security interest to Lender in all of its
property. Borrower shall promptly provide copies of any such obtained
Governmental Approvals to Lender.

 

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6.2Financial Statements, Reports, Certificates.

 

(a)          Borrower shall provide Lender with the following:

 

(i)          (A) the prior month end reconciled Transaction Report monthly,
within twenty (20) days after the end of each month, and (B) upon each request
for a Credit Extension, a Transaction Report;

 

(ii)         within twenty (20) days after the end of each month, (A) monthly
accounts receivable aging’s, aged by invoice date, (B) monthly accounts payable
agings, aged by invoice date, and outstanding or held check registers, if any,
and (C) monthly reconciliations of accounts receivable agings (aged by invoice
date), transaction reports and general ledger,

 

(iii)        as soon as available, and in any event within thirty (30) days
after the end of each month, monthly unaudited consolidating financial
statements;

 

(iv)        within thirty (30) days after the end of each month, (A) monthly
Deferred Revenue report, (B) monthly Lender statements, in form and substance
acceptable to Lender, in its reasonable discretion, for each Lender account of
Borrower maintained at a financial institution other than Lender and/or Lender’s
Affiliates, and (C) schedules of assets related to third-party construction and
financing arrangements (including, without limitation, such construction and
financing arrangements involving Finco or any Subsidiary of Finco), including a
list of any performance bonds;

 

(v)         within thirty (30) days after the end of each month a monthly
Compliance Certificate signed by a Responsible Officer, certifying that as of
the end of such month, Borrower was in full compliance with all of the terms and
conditions of this Agreement, and setting forth calculations showing compliance
with the financial covenants set forth in this Agreement and such other
information as Lender shall reasonably request, including, without limitation, a
statement that at the end of such month there were no held checks;

 

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

 

(vii)       within five (5) days of delivery, copies of all statements, reports
and notices made available to Borrower’s security holders or to any holders of
Subordinated Debt;

 

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

 

 15 

 

 

(ix)         a prompt report of any legal actions pending or threatened in
writing against Borrower or any of its Subsidiaries that could result in damages
or costs to Borrower or any of its Subsidiaries of, individually Fifty Thousand
Dollars ($50,000) individually, or Seventy Five Thousand Dollars ($75,000) in
the aggregate and which are not otherwise covered by Borrower's insurance
carriers;

 

(x)          on last Business Day of each month, a cash flow forecast for
Borrower, prepared with weekly detail and otherwise in form and substance
acceptable to Lender, in its reasonable discretion.

 

(b)          Borrower shall provide Lender with prompt written notice of (i) any
material change in the composition of the Intellectual Property, (ii) the
registration of any Copyright (including any subsequent ownership right of
Borrower in or to any Copyright), Patent or Trademark not previously disclosed
to Lender, or (iii) Borrower’s knowledge of an event that materially adversely
affects the value of the Intellectual Property.

 

6.3Accounts Receivable.

 

(a)          Schedules and Documents Relating to Accounts. Borrower shall
deliver to Lender transaction reports and schedules of collections, as provided
in Section 6.2, on Lender’s standard forms; provided, however, that Borrower’s
failure to execute and deliver the same shall not affect or limit Lender’s Lien
and other rights in all of Borrower’s Accounts, nor shall Lender’s failure to
advance or lend against a specific Account affect or limit Lender’s Lien and
other rights therein. If requested by Lender, Borrower shall furnish Lender with
copies (or, at Lender’s request, originals) of all contracts, orders, invoices,
and other similar documents, and all shipping instructions, delivery receipts,
bills of lading, and other evidence of delivery, for any goods the sale or
disposition of which gave rise to such Accounts. In addition, Borrower shall
deliver to Lender, on its request, the originals of all instruments, chattel
paper, security agreements, guarantees and other documents and property
evidencing or securing any Accounts, in the same form as received, with all
necessary endorsements, and copies of all credit memos.

 

(b)          Disputes. Borrower shall promptly notify Lender of all disputes or
claims relating to Accounts. Borrower may forgive (completely or partially),
compromise, or settle any Account for less than payment in full, or agree to do
any of the foregoing so long as (i) Borrower does so in good faith, in a
commercially reasonable manner, in the ordinary course of business, in
arm’s-length transactions, and reports the same to Lender in the regular reports
provided to Lender; (ii) no Default or Event of Default has occurred and is
continuing; and (iii) after taking into account all such discounts, settlements
and forgiveness, the total outstanding Advances will not exceed the Availability
Amount.

 

(c)          Collection of Accounts. Borrower shall have the right to collect
all Accounts, unless and until a Default or an Event of Default has occurred and
is continuing. Borrower shall cause all payments on, and proceeds of, Accounts
to be deposited directly by the applicable Account Debtor into an account of
Borrower pursuant to the terms hereof. Whether or not an Event of Default has
occurred and is continuing, Borrower shall immediately deliver all payments on
and proceeds of Accounts into an account of Borrower pursuant to the terms
hereof, which after the occurrence and during the continuance of an Event of
Default, may be applied pursuant to the terms of Section 9.4 hereof.

 

 16 

 

 

(d)          Returns. Provided no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower, Borrower
shall promptly (i) determine the reason for such return, (ii) issue a credit
memorandum to the Account Debtor in the appropriate amount, and (iii) provide a
copy of such credit memorandum to Lender, upon request from Lender. In the event
any attempted return occurs after the occurrence and during the continuance of
any Event of Default, Borrower shall immediately notify Lender of the return of
the Inventory.

 

(e)          Verification. Lender may, from time to time, after consultation and
reasonable notice to the Borrower, verify directly with the respective Account
Debtors the validity, amount and other matters relating to the Accounts, either
in the name of Borrower or Lender or such other name as Lender may choose.

 

(f)          No Liability. Lender shall not be responsible or liable for any
shortage or discrepancy in, damage to, or loss or destruction of, any goods, the
sale or other disposition of which gives rise to an Account, or for any error,
act, omission, or delay of any kind occurring in the settlement, failure to
settle, collection or failure to collect any Account, or for settling any
Account in good faith for less than the full amount thereof, nor shall Lender be
deemed to be responsible for any of Borrower’s obligations under any contract or
agreement giving rise to an Account. Nothing herein shall, however, relieve
Lender from liability for its own gross negligence or willful misconduct.

 

6.4           Remittance of Proceeds. Borrower agrees that it will maintain all
proceeds of Collateral into an account of Borrower pursuant to the terms hereof.
Nothing in this Section limits the restrictions on disposition of Collateral set
forth elsewhere in this Agreement.

 

6.5           Taxes; Pensions; Withholding. Timely file, and require each of its
Subsidiaries to timely file, all required tax returns and reports and timely
pay, and require each of its Subsidiaries to timely pay, all foreign, federal,
state and local taxes, assessments, deposits and contributions owed by Borrower
and each of its Subsidiaries, except for deferred payment of any taxes contested
pursuant to the terms of Section 5.9 hereof, and shall deliver to Lender, on
demand, appropriate certificates attesting to such payments, and pay all amounts
necessary to fund all present pension, profit sharing and deferred compensation
plans in accordance with their terms.

 

6.6           Access to Collateral; Books and Records. At reasonable times, on
one (1) Business Days’ notice (provided no notice is required if an Event of
Default has occurred and is continuing), Lender, or its agents, shall have the
right to inspect the Collateral and the right to audit Borrower’s Books. The
foregoing inspections and audits shall be at Borrower’s expense, and the charge
therefor shall be $850 per day (or such higher amount as shall represent
Lender’s then-current standard charge for the same), plus reasonable
out-of-pocket expenses. Lender agrees to conduct such inspections and audits no
more than once per quarter.

 

 17 

 

 

6.7           Insurance. Keep its business and the Collateral insured for risks
and in amounts standard for companies in Borrower’s industry and location and as
Lender may reasonably request. Insurance policies shall be in a form, with
companies, and in amounts that are satisfactory to Lender. All property policies
shall have a lender’s loss payable endorsement showing Lender as a lender loss
payee and waive subrogation against Lender. All liability policies shall show,
or have endorsements showing, Lender as an additional insured. All policies (or
their respective endorsements) shall provide that the insurer shall give Lender
30 day notice of a material change or cancellation for underwriting reasons; 45
days for non-renewal; and 10 days for cancellation for non-payment. At Lender’s
request, Borrower shall deliver certified copies of policies and evidence of all
premium payments. If Borrower fails to obtain insurance as required under this
Section 6.7 or to pay any amount or furnish any required proof of payment to
third persons and Lender, Lender may make all or part of such payment or obtain
such insurance policies required in this Section 6.7, and take any action under
the policies Lender deems prudent.

 

6.8           Transfers from Future Financings. Borrower shall instruct the
escrow agent in any additional financings to make payments to Lender in
accordance with Section 2.1.1(d).

 

6.9Financial Covenant.

 

Maintain at all times, subject to periodic reporting as described below, on a
consolidated basis with respect to Borrower, unless otherwise indicated:

 

(a)          Liquidity. Borrower shall maintain at all times, certified monthly
by Borrower, the sum of (i) Qualified Cash plus (ii) the unused Availability
Amount in an amount equal to or greater than One Hundred Thousand Dollars
($100,000).

 

6.10Protection of Intellectual Property Rights.

 

(a)          (i) Protect, defend and maintain the validity and enforceability of
its Intellectual Property; (ii) promptly advise Lender in writing of material
infringements of its Intellectual Property; and (iii) not allow any Intellectual
Property material to Borrower’s business to be abandoned, forfeited or dedicated
to the public without Lender’s written consent.

 

(b)          Provide written notice to Lender within ten (10) days of entering
or becoming bound by any Restricted License (other than over-the-counter
software that is commercially available to the public). Borrower shall take such
steps as Lender requests to obtain the consent of, or waiver by, any person
whose consent or waiver is necessary for (i) any Restricted License to be deemed
“Collateral” and for Lender to have a security interest in it that might
otherwise be restricted or prohibited by law or by the terms of any such
Restricted License, whether now existing or entered into in the future, and (ii)
Lender to have the ability in the event of a liquidation of any Collateral to
dispose of such Collateral in accordance with Lender’s rights and remedies under
this Agreement and the other Loan Documents.

 

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

 

6.11       Litigation Cooperation. From the date hereof and continuing through
the termination of this Agreement, make available to Lender, without expense to
Lender, Borrower and its officers, employees and agents and Borrower’s Books, to
the extent that Lender may deem them reasonably necessary to prosecute or defend
any third-party suit or proceeding instituted by or against Lender with respect
to any Collateral or relating to Borrower.

 

6.12       Creation/Acquisition of Subsidiaries. Notwithstanding and without
limiting the negative covenant contained in Section 7.3 hereof, in the event
Borrower or any Subsidiary creates or acquires any Subsidiary, Borrower and such
Subsidiary shall promptly notify Lender of the creation or acquisition of such
new Subsidiary and, at Lender’s request, in its sole discretion, take all such
action as may be reasonably required by Lender to cause each such Subsidiary to,
in Lender’s sole discretion, become a co-Borrower or Guarantor under the Loan
Documents and grant a continuing pledge and security interest in and to the
assets of such Subsidiary (substantially as described on Exhibit A hereto); and
Borrower shall grant and pledge to Lender a perfected security interest in the
stock, units or other evidence of ownership of each Subsidiary.

 

6.13       Further Assurances. Execute any further instruments and take further
action as Lender reasonably requests to perfect or continue Lender’s Lien in the
Collateral or to effect the purposes of this Agreement. Borrower shall deliver
to Lender, within five (5) days after the same are sent or received, copies of
all correspondence, reports, documents and other filings with any Governmental
Authority regarding compliance with or maintenance of Governmental Approvals or
Requirements of Law or that could reasonably be expected to have a material
effect on any of the Governmental Approvals or otherwise on the operations of
Borrower or any of its Subsidiaries.

 

 19 

 

 

6.14Intentionally deleted.

 

7NEGATIVE COVENANTS

 

Borrower shall not do any of the following without Lender’s prior written
consent:

 

7.1          Dispositions. Convey, sell, lease, transfer, assign, or otherwise
dispose of (collectively, “Transfer”), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, except for Transfers (a)
of Inventory in the ordinary course of business; (b) of worn out or obsolete
Equipment; (c) in connection with Permitted Liens and Permitted Investments; and
(d) involving Finco or any Subsidiary of Finco; provided that proceeds of any
such sale or disposition are deposited into a Collateral Account.

 

7.2          Changes in Business, Management, Ownership, or Business Locations.
(a) Engage in or permit any of its Subsidiaries (other than Finco or any
Subsidiary of Finco, for which this Section 7.2 shall be inapplicable) to engage
in any business other than the businesses currently engaged in by Borrower and
such Subsidiary, as applicable, or reasonably related thereto; or (b) liquidate
or dissolve; or (ii) enter into any transaction or series of related
transactions in which the stockholders of Borrower who were not stockholders
immediately prior to the first such transaction own more than 51% of the voting
stock of Borrower immediately after giving effect to such transaction or related
series of such transactions (other than by the sale of Borrower’s equity
securities in a public offering or to venture capital investors so long as
Borrower identifies to Lender the venture capital investors prior to the closing
of the transaction and provides to Lender a description of the material terms of
the transaction).

 

Borrower shall not, without at least thirty (30) days prior written notice to
Lender: (1) add any new offices or business locations (unless such new offices
or business locations contain less than Ten Thousand Dollars ($10,000) in
Borrower’s assets or property), (2) change its jurisdiction of organization, (3)
change its organizational structure or type, (4) change its legal name, or (5)
change any organizational number (if any) assigned by its jurisdiction of
organization.

 

7.3          Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries (other than Finco or any Subsidiary of Finco, for which this
Section 7.3 shall be inapplicable) to merge or consolidate, with any other
Person, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person without the
prior written consent of the Lender, which consent shall not be unreasonably
withheld. A Subsidiary may merge or consolidate into Borrower.

 

7.4          Indebtedness. Create, incur, assume, or be liable for any
Indebtedness, or permit any Subsidiary (other than Finco or any Subsidiary of
Finco, for which this Section 7.4 shall be inapplicable) to do so, other than
Permitted Indebtedness.

 

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7.5          Encumbrance. Create, incur, allow, or suffer any Lien on any of its
property or assign or convey any right to receive income, including the sale of
any Accounts, or permit any of its Subsidiaries (other than Finco or any
Subsidiary of Finco, for which this Section 7.5 shall be inapplicable) to do so,
except for Permitted Liens, permit any Collateral not to be subject to the first
priority security interest granted herein, or enter into any agreement,
document, instrument or other arrangement (except with or in favor of Lender)
with any Person which directly or indirectly prohibits or has the effect of
prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging,
granting a security interest in or upon, or encumbering any of Borrower’s or any
Subsidiary’s Intellectual Property, except as is otherwise permitted in Section
7.1 hereof and the definition of “Permitted Liens” herein.

 

7.6          Maintenance of Collateral Accounts. Maintain any account of
Borrower except pursuant to the terms hereof for any period of thirty (30) days
or more.

 

7.7          Distributions; Investments. (a) Pay any dividends or make any
distribution or payment or redeem, retire or purchase any capital stock; or (b)
directly or indirectly make any Investment (including, without limitation, any
additional Investment in any Subsidiary) other than Permitted Investments, or
permit any of its Subsidiaries (other than Finco or any Subsidiary of Finco for
which this Section 7.7 shall be inapplicable) to do so.

 

7.8          Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower, except
for transactions (i) contemplated by Finco or any Subsidiary of Finco pursuant
to the terms and conditions of lease or purchase agreements, and (ii) that are
in the ordinary course of Borrower’s business, upon fair and reasonable terms
that are no less favorable to Borrower than would be obtained in an arm’s length
transaction with a non-affiliated Person.

 

7.9          Subordinated Debt. (a) Make or permit any payment on any
Subordinated Debt, except under the terms of the subordination, intercreditor,
or other similar agreement to which such Subordinated Debt is subject, or (b)
amend any provision in any document relating to the Subordinated Debt which
would increase the amount thereof or adversely affect the subordination thereof
to Obligations owed to Lender. Notwithstanding the foregoing, Lender agrees that
Borrower may make principal and interest payments due under the securities
issued in the Note Financing and that such payments will have first priority
during the term of this Agreement provided that Borrower shall satisfy such
payments either (a) with Borrower’s Class A Common Stock, or (b) from the
collateral account established to hold the unreleased proceeds from the Note
Financing.

 

7.10        Compliance. Become an “investment company” or a company controlled
by an “investment company”, under the Investment Company Act of 1940, as
amended, or undertake as one of its important activities extending credit to
purchase or carry margin stock (as defined in Regulation U of the Board of
Governors of the Federal Reserve System), or use the proceeds of any Credit
Extension for that purpose; fail to meet the minimum funding requirements of
ERISA, permit a Reportable Event or non-exempt Prohibited Transaction, as
defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards
Act or violate any other law or regulation, if the violation could reasonably be
expected to have a material adverse effect on Borrower’s business, or permit any
of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from
participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any present pension, profit
sharing and deferred compensation plan which could reasonably be expected to
result in any liability of Borrower, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental agency.

 

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8EVENTS OF DEFAULT

 

Any one of the following shall constitute an event of default (an “Event of
Default”) under this Agreement:

 

8.1          Payment Default. Borrower fails to (a) make any payment of
principal or interest on any Credit Extension within three (3) Business Days
after such amounts are due and payable, or (b) pay any other Obligations within
three (3) Business Days after such Obligations are due and payable (which three
(3) Business Day cure period shall not apply to payments due on the Revolving
Line Maturity Date). During the cure period, the failure to make or pay any
payment specified under clause (a) or (b) hereunder is not an Event of Default
(but no Credit Extension will be made during the cure period);

 

8.2Covenant Default.

 

(a)          Borrower fails or neglects to perform any obligation in Sections
6.2, 6.4, 6.5, 6.6, 6.7, 6.8, 6.9, or 6.11, or violates any covenant in Section
7; or

 

(b)          Borrower fails or neglects to perform, keep, or observe any other
term, provision, condition, covenant or agreement contained in this Agreement or
any Loan Documents, and as to any default (other than those specified in this
Section 8) under such other term, provision, condition, covenant or agreement
that can be cured, has failed to cure the default within ten (10) days after the
occurrence thereof; provided, however, that if the default cannot by its nature
be cured within the ten (10) day period or cannot after diligent attempts by
Borrower be cured within such ten (10) day period, and such default is likely to
be cured within a reasonable time, then Borrower shall have an additional period
(which shall not in any case exceed thirty (30) days) to attempt to cure such
default, and within such reasonable time period the failure to cure the default
shall not be deemed an Event of Default (but no Credit Extensions shall be made
during such cure period). Cure periods provided under this section shall not
apply, among other things, to financial covenants or any other covenants set
forth in clause (a) above;

 

8.3Material Adverse Change. A Material Adverse Change occurs;

 

8.4Attachment; Levy; Restraint on Business.

 

(a)          (i) The service of process seeking to attach, by trustee or similar
process, any funds of Borrower or of any entity under the control of Borrower
(including a Subsidiary) on deposit or otherwise maintained with Lender or any
Lender Affiliate, or (ii) a notice of lien or levy is filed against any of
Borrower’s assets by any government agency, and the same under subclauses (i)
and (ii) hereof are not, within ten (10) days after the occurrence thereof,
discharged or stayed (whether through the posting of a bond or otherwise);
provided, however, no Credit Extensions shall be made during any ten (10) day
cure period; or

 

 22 

 

 

(b)          (i) any material portion of Borrower’s assets is attached, seized,
levied on, or comes into possession of a trustee or receiver, or (ii) any court
order enjoins, restrains, or prevents Borrower from conducting any material part
of its business;

 

8.5           Insolvency. (a) Borrower is unable to pay its debts (including
trade debts) as they become due or otherwise becomes insolvent; (b) Borrower
begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun
against Borrower and not dismissed or stayed within thirty (30) days (but no
Credit Extensions shall be made while of any of the conditions described in
clause (a) exist and/or until any Insolvency Proceeding is dismissed);

 

8.6           Other Agreements. There is, under any agreement to which Borrower
or any Guarantor is a party with a third party or parties, (a) any default
resulting in a right by such third party or parties, whether or not exercised,
to accelerate the maturity of any Indebtedness in an amount individually or in
the aggregate in excess of One Hundred Thousand Dollars ($100,000); or (b) any
default by Borrower or any Guarantor, the result of which could have a material
adverse effect on Borrower’s or any Guarantor’s business;

 

8.7           Judgments. One or more final judgments, orders, or decrees for the
payment of money in an amount, individually or in the aggregate, of at least
Fifty Thousand Dollars ($50,000) individually, or at least One Hundred and Fifty
Thousand Dollars ($150,000), in the aggregate (and in each case, not covered by
independent third-party insurance as to which liability has been accepted by
such insurance carrier) shall be rendered against Borrower and the same are not,
within ten (10) days after the entry thereof, discharged or execution thereof
stayed or bonded pending appeal, or such judgments are not discharged prior to
the expiration of any such stay (provided that no Credit Extensions will be made
prior to the discharge, stay, or bonding of such judgment, order, or decree);

 

8.8           Misrepresentations. Borrower or any Person acting for Borrower
makes any representation, warranty, or other statement now or later in this
Agreement, any Loan Document or in any writing delivered to Lender or to induce
Lender to enter this Agreement or any Loan Document, and such representation,
warranty, or other statement is incorrect in any material respect when made;

 

8.9           Subordinated Debt. Any document, instrument, or agreement
evidencing any Subordinated Debt shall for any reason be revoked or invalidated
or otherwise cease to be in full force and effect, any Person shall be in breach
thereof or contest in any manner the validity or enforceability thereof or deny
that it has any further liability or obligation thereunder, or the Obligations
shall for any reason be subordinated or shall not have the priority contemplated
by this Agreement or the Subordination Agreement;

 

8.10         Guaranty. (a) Any guaranty of any Obligations terminates or ceases
for any reason to be in full force and effect; (b) any Guarantor does not
perform any obligation or covenant under any guaranty of the Obligations; (c)
any circumstance described in Sections 8.3, 8.4, 8.5, 8.7, or 8.8. occurs with
respect to any Guarantor, (d) the liquidation, winding up, or termination of
existence of any Guarantor; or (e) (i) a material impairment in the perfection
or priority of Lender’s Lien in the collateral provided by Guarantor or in the
value of such collateral or (ii) a material adverse change in the general
affairs, management, results of operation, condition (financial or otherwise) or
the prospect of repayment of the Obligations occurs with respect to any
Guarantor; or

 

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8.11         Governmental Approvals. Any Governmental Approval shall have been
(a) revoked, rescinded, suspended, modified in an adverse manner or not renewed
in the ordinary course for a full term or (b) subject to any decision by a
Governmental Authority that designates a hearing with respect to any
applications for renewal of any of such Governmental Approval or that could
result in the Governmental Authority taking any of the actions described in
clause (a) above, and such decision or such revocation, rescission, suspension,
modification or non-renewal (i) has, or could reasonably be expected to have, a
Material Adverse Change, or (ii) adversely affects the legal qualifications of
Borrower or any of its Subsidiaries to hold such Governmental Approval in any
applicable jurisdiction and such revocation, rescission, suspension,
modification or non-renewal could reasonably be expected to affect the status of
or legal qualifications of Borrower or any of its Subsidiaries to hold any
Governmental Approval in any other jurisdiction.

 

9LENDER’S RIGHTS AND REMEDIES

 

9.1          Rights and Remedies. While an Event of Default occurs and continues
Lender may, without notice or demand, do any or all of the following:

 

(a)          declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Lender);

 

(b)          stop advancing money or extending credit for Borrower’s benefit
under this Agreement or under any other agreement between Borrower and Lender;

 

(c)          [Reserved]

 

(d)          terminate any foreign exchange forward contracts;

 

(e)          demand, sue for, or collect any Account and settle or adjust
disputes and claims directly with Account Debtors for amounts on terms and in
any order that Lender considers advisable, notify any Person owing Borrower
money of Lender’s security interest in such funds, and verify the amount of such
account;

 

(f)          make any payments and do any acts it considers necessary or
reasonable to protect the Collateral and/or its security interest in the
Collateral. Borrower shall assemble the Collateral if Lender requests and make
it available as Lender designates. Lender may enter premises where the
Collateral is located, take and maintain possession of any part of the
Collateral, and pay, purchase, contest, or compromise any Lien which appears to
be prior or superior to its security interest and pay all expenses incurred.
Borrower grants Lender a license to enter and occupy any of its premises,
without charge, to exercise any of Lender’s rights or remedies;

 

(g)          apply to the Obligations any (i) balances and deposits of Borrower
it holds, or (ii) any amount held by Lender owing to or for the credit or the
account of Borrower;

 

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(h)         ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral. Lender is hereby granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower’s labels, Patents, Copyrights, mask works, rights of use of any name,
trade secrets, trade names, Trademarks, and advertising matter, or any similar
property as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with
Lender’s exercise of its rights under this Section, Borrower’s rights under all
licenses and all franchise agreements inure to Lender’s benefit;

 

(i)           place a “hold” on any account maintained with Lender and/or
deliver a notice of exclusive control, any entitlement order, or other
directions or instructions pursuant to any Control Agreement or similar
agreements providing control of any Collateral;

 

(j)          demand and receive possession of Borrower’s Books; and

 

(k)          exercise all rights and remedies available to Lender under the Loan
Documents or at law or equity, including all remedies provided under the Code
(including disposal of the Collateral pursuant to the terms thereof).

 

9.2          Power of Attorney. Borrower hereby irrevocably appoints Lender as
its lawful attorney-in-fact, exercisable upon the occurrence and during the
continuance of an Event of Default, to: (a) endorse Borrower’s name on any
checks or other forms of payment or security; (b) sign Borrower’s name on any
invoice or bill of lading for any Account or drafts against Account Debtors; (c)
settle and adjust disputes and claims about the Accounts directly with Account
Debtors, for amounts and on terms Lender determines reasonable; (d) make,
settle, and adjust all claims under Borrower’s insurance policies; (e) pay,
contest or settle any Lien, charge, encumbrance, security interest, and adverse
claim in or to the Collateral, or any judgment based thereon, or otherwise take
any action to terminate or discharge the same; and (f) transfer the Collateral
into the name of Lender or a third party as the Code permits. Borrower hereby
appoints Lender as its lawful attorney-in-fact to sign Borrower’s name on any
documents necessary to perfect or continue the perfection of Lender’s security
interest in the Collateral regardless of whether an Event of Default has
occurred until all Obligations have been satisfied in full and Lender is under
no further obligation to make Credit Extensions hereunder. Lender’s foregoing
appointment as Borrower’s attorney in fact, and all of Lender’s rights and
powers, being coupled with an interest, are irrevocable until all Obligations
have been fully repaid and performed and Lender’s obligation to provide Credit
Extensions terminates.

 

9.3          Protective Payments. If Borrower fails to obtain the insurance
called for by Section 6.7 or fails to pay any premium thereon or fails to pay
any other amount which Borrower is obligated to pay under this Agreement or any
other Loan Document, Lender may obtain such insurance or make such payment, and
all amounts so paid by Lender are Lender Expenses and immediately due and
payable, bearing interest at the then highest rate applicable to the
Obligations, and secured by the Collateral. Lender will make reasonable efforts
to provide Borrower with notice of Lender obtaining such insurance at the time
it is obtained or within a reasonable time thereafter. No payments by Lender are
deemed an agreement to make similar payments in the future or Lender’s waiver of
any Event of Default.

 

 25 

 

 

9.4           Application of Payments and Proceeds. If an Event of Default has
occurred and is continuing, Lender may apply any funds in its possession,
whether from Borrower account balances, payments, proceeds realized as the
result of any collection of Accounts or other disposition of the Collateral, or
otherwise, to the Obligations in such order as Lender shall determine in its
sole discretion. Any surplus shall be paid to Borrower or to other Persons
legally entitled thereto; Borrower shall remain liable to Lender for any
deficiency. If Lender, in its good faith business judgment, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Lender shall have the option, exercisable
at any time, of either reducing the Obligations by the principal amount of the
purchase price or deferring the reduction of the Obligations until the actual
receipt by Lender of cash therefor.

 

9.5           Lender’s Liability for Collateral. So long as Lender complies with
commercially reasonable practices for a non-banking lender regarding the
safekeeping of the Collateral in the possession or under the control of Lender,
Lender shall not be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the
value of the Collateral; or (d) any act or default of any carrier, warehouseman,
bailee, or other Person. Borrower bears all risk of loss, damage or destruction
of the Collateral.

 

9.6           No Waiver; Remedies Cumulative. Lender’s failure, at any time or
times, to require strict performance by Borrower of any provision of this
Agreement or any other Loan Document shall not waive, affect, or diminish any
right of Lender thereafter to demand strict performance and compliance herewith
or therewith. No waiver hereunder shall be effective unless signed by the party
granting the waiver and then is only effective for the specific instance and
purpose for which it is given. Lender’s rights and remedies under this Agreement
and the other Loan Documents are cumulative. Lender has all rights and remedies
provided under the Code, by law, or in equity. Lender’s exercise of one right or
remedy is not an election and shall not preclude Lender from exercising any
other remedy under this Agreement or other remedy available at law or in equity,
and Lender’s waiver of any Event of Default is not a continuing waiver. Lender’s
delay in exercising any remedy is not a waiver, election, or acquiescence.

 

9.7           Demand Waiver. Borrower waives demand, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of accounts,
documents, instruments, chattel paper, and guarantees held by Lender on which
Borrower is liable.

 

 26 

 

 

9.8           Borrower Liability. Each Borrower may, acting singly, request
Credit Extensions hereunder. Each Borrower hereby appoints the other as agent
for the other for all purposes hereunder, including with respect to requesting
Credit Extensions hereunder. Each Borrower hereunder shall be jointly and
severally obligated to repay all Credit Extensions made hereunder, regardless of
which Borrower actually receives said Credit Extension, as if each Borrower
hereunder directly received all Credit Extensions. Each Borrower waives (a) any
suretyship defenses available to it under the Code or any other applicable law,
and (b) any right to require Lender to: (i) proceed against any Borrower or any
other person; (ii) proceed against or exhaust any security; or (iii) pursue any
other remedy. Lender may exercise or not exercise any right or remedy it has
against any Borrower or any security it holds (including the right to foreclose
by judicial or non-judicial sale) without affecting any Borrower’s liability.
Notwithstanding any other provision of this Agreement or other related document,
each Borrower irrevocably waives all rights that it may have at law or in equity
(including, without limitation, any law subrogating Borrower to the rights of
Lender under this Agreement) to seek contribution, indemnification or any other
form of reimbursement from any other Borrower, or any other Person now or
hereafter primarily or secondarily liable for any of the Obligations, for any
payment made by Borrower with respect to the Obligations in connection with this
Agreement or otherwise and all rights that it might have to benefit from, or to
participate in, any security for the Obligations as a result of any payment made
by Borrower with respect to the Obligations in connection with this Agreement or
otherwise. Any agreement providing for indemnification, reimbursement or any
other arrangement prohibited under this Section shall be null and void. If any
payment is made to a Borrower in contravention of this Section, such Borrower
shall hold such payment in trust for Lender and such payment shall be promptly
delivered to Lender for application to the Obligations, whether matured or
unmatured.

 

10NOTICES

 

All notices, consents, requests, approvals, demands, or other communication
(collectively, “Communication”), other than Advance requests made pursuant to
Section 3.4, by any party to this Agreement or any other Loan Document must be
in writing and be delivered or sent by facsimile at the addresses or facsimile
numbers listed below. Lender or Borrower may change its notice address by giving
the other party written notice thereof. Each such Communication shall be deemed
to have been validly served, given, or delivered: (a) upon the earlier of actual
receipt and three (3) Business Days after deposit in the U.S. mail, registered
or certified mail, return receipt requested, with proper postage prepaid; (b)
upon transmission, when sent by facsimile transmission (with such facsimile
promptly confirmed by delivery of a copy by personal delivery or United States
mail as otherwise provided in this Section 10); (c) one (1) Business Day after
deposit with a reputable overnight courier with all charges prepaid; or (d) when
delivered, if hand-delivered by messenger, all of which shall be addressed to
the party to be notified and sent to the address or facsimile number indicated
below. Advance requests made pursuant to Section 3.4 must be in writing and may
be in the form of electronic mail, delivered to Lender by Borrower at the e-mail
address of Lender provided below and shall be deemed to have been validly
served, given, or delivered when sent (with such electronic mail promptly
confirmed by delivery of a copy by personal delivery or United States mail as
otherwise provided in this Section 10). Lender or Borrower may change its
address, facsimile number, or electronic mail address by giving the other party
written notice thereof in accordance with the terms of this Section 10.

 

If to Borrower:Real Goods Solar, Inc.

833 West South Boulder Road

Louisville, CO 80027 Attention: Dennis Lacey, CEO

E-mail: dennis.lacey@rgsenergy.com

With a copies to

Alan Fine, Principal Financial Officer

Alan.fine@rgsfinancing.com             and

Paul Anderson, General Counsel,

Paul.anderson@rgsenergy.com

 

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If to Lender:Solar Solutions and Distribution, LLC

8450 East Crescent Parkway, Suite 200,

Greenwood Village, CO 80111-2816_

Attention: DJ Alemayehu, Managing Director

dj@soldist.com

 

11CHOICE OF LAW, VENUE, JURY TRIAL WAIVER

 

Colorado law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Lender each submit to the exclusive jurisdiction
of the State and Federal courts in Colorado; provided, however, that nothing in
this Agreement shall be deemed to operate to preclude Lender from bringing suit
or taking other legal action in any other jurisdiction to realize on the
Collateral or any other security for the Obligations, or to enforce a judgment
or other court order in favor of Lender. Borrower expressly submits and consents
in advance to such jurisdiction in any action or suit commenced in any such
court, and Borrower hereby waives any objection that it may have based upon lack
of personal jurisdiction, improper venue, or forum non conveniens and hereby
consents to the granting of such legal or equitable relief as is deemed
appropriate by such court. Borrower hereby waives personal service of the
summons, complaints, and other process issued in such action or suit and agrees
that service of such summons, complaints, and other process may be made by
registered or certified mail addressed to Borrower at the address set forth in
Section 10 of this Agreement and that service so made shall be deemed completed
upon the earlier to occur of Borrower’s actual receipt thereof or three (3) days
after deposit in the U.S. mails, proper postage prepaid. NOTWITHSTANDING
ANYTHING TO THE CONTRARY SET FORTH HEREINABOVE, LENDER SHALL SPECIFICALLY HAVE
THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN
THE COURTS OF ANY OTHER JURISDICTION WHICH LENDER DEEMS NECESSARY OR APPROPRIATE
IN ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE LENDER’S RIGHTS
AGAINST BORROWER OR ITS PROPERTY.

 

TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND LENDER EACH
WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF
OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

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12GENERAL PROVISIONS

 

12.1        Termination Prior to Maturity Date. This Agreement may be terminated
prior to the Revolving Line Maturity Date by Borrower, effective three (3)
Business Days after written notice of termination is given to Lender or if
Lender’s obligation to fund Credit Extensions terminates pursuant to the terms
of Section 2.1.1(b). Notwithstanding any such termination, Lender’s lien and
security interest in the Collateral shall continue until Borrower fully
satisfies its Obligations. Upon payment in full of the Obligations and at such
time as Lender’s obligation to make Credit Extensions has terminated, Lender
shall release its liens and security interests in the Collateral and all rights
therein shall revert to Borrower.

 

12.2        Successors and Assigns. This Agreement binds and is for the benefit
of the successors and permitted assigns of each party. Borrower may not assign
this Agreement or any rights or obligations under it without Lender’s prior
written consent (which may be granted or withheld in Lender’s discretion).
Lender has the right, without the consent of or notice to Borrower, to sell,
transfer, assign, negotiate, or grant participation in all or any part of, or
any interest in, Lender’s obligations, rights, and benefits under this Agreement
and the other Loan Documents. Notwithstanding the foregoing, each Borrower
consents to the assignment of this Agreement to Lender and confirms and agrees
that such assignment complies fully with the requirements of the this Agreement
regarding assignment and that neither SVB nor Lender need to obtain any consents
from, or take any further action with respect to, Borrower to effectuate such
assignment, and if any such consents or further action are or were required,
each of the Borrowers waives all such requirements.

 

12.3        Indemnification. Borrower agrees to indemnify, defend and hold
Lender and its directors, officers, employees, agents, attorneys, or any other
Person affiliated with or representing Lender (each, an “Indemnified Person”)
harmless against: (a) all obligations, demands, claims, and liabilities
(collectively, “Claims”) claimed or asserted by any other party in connection
with the transactions contemplated by the Loan Documents; and (b) all losses or
expenses (including Lender Expenses) in any way suffered, incurred, or paid by
such Indemnified Person as a result of, following from, consequential to, or
arising from transactions between Lender and Borrower contemplated by the Loan
Documents (including reasonable attorneys’ fees and expenses), except for Claims
and/or losses directly caused by such Indemnified Person’s gross negligence or
willful misconduct.

 

12.4        Time of Essence. Time is of the essence for the performance of all
Obligations in this Agreement.

 

12.5        Correction of Loan Documents. Lender may correct patent errors and
fill in any blanks in the Loan Documents consistent with the agreement of the
parties.

 

12.6        Severability of Provisions. Each provision of this Agreement is
severable from every other provision in determining the enforceability of any
provision.

 

12.7        Amendments in Writing; Waiver; Integration. No purported amendment
or modification of any Loan Document, or waiver, discharge or termination of any
obligation under any Loan Document, shall be enforceable or admissible unless,
and only to the extent, expressly set forth in a writing signed by the party
against which enforcement or admission is sought. Without limiting the
generality of the foregoing, no oral promise or statement, nor any action,
inaction, delay, failure to require performance or course of conduct shall
operate as, or evidence, an amendment, supplement or waiver or have any other
effect on any Loan Document. Any waiver granted shall be limited to the specific
circumstance expressly described in it, and shall not apply to any subsequent or
other circumstance, whether similar or dissimilar, or give rise to, or evidence,
any obligation or commitment to grant any further waiver. The Loan Documents
represent the entire agreement about this subject matter and supersede prior
negotiations or agreements. All prior agreements, understandings,
representations, warranties, and negotiations between the parties about the
subject matter of the Loan Documents merge into the Loan Documents.

 

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12.8        Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, is an original, and all taken together, constitute
one Agreement.

 

12.9        Survival. All covenants, representations and warranties made in this
Agreement continue in full force until this Agreement has terminated pursuant to
its terms and all Obligations (other than inchoate indemnity obligations and any
other obligations which, by their terms, are to survive the termination of this
Agreement) have been paid in full and satisfied. The obligation of Borrower in
Section 12.3 to indemnify Lender shall survive until the statute of limitations
with respect to such claim or cause of action shall have run.

 

12.10      Confidentiality. In handling any confidential information, Lender
shall exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (a) to Lender’s
Subsidiaries or Affiliates (such Subsidiaries and Affiliates, together with
Lender, collectively, “Lender Entities”); (b) to prospective transferees or
purchasers of any interest in the Credit Extensions (provided, however, Lender
shall commercially reasonable efforts to obtain any prospective transferee’s or
purchaser’s agreement to the terms of this provision); (c) as required by law,
regulation, subpoena, or other order; (d) to Lender’s regulators or as otherwise
required in connection with Lender’s examination or audit; (e) as Lender
considers appropriate in exercising remedies under the Loan Documents; and (f)
to third-party service providers of Lender so long as such service providers
have executed a confidentiality agreement with Lender with terms no less
restrictive than those contained herein. Confidential information does not
include information that is either: (i) in the public domain or in Lender’s
possession when disclosed to Lender, or becomes part of the public domain after
disclosure to Lender; or (ii) disclosed to Lender by a third party if Lender
does not know that the third party is prohibited from disclosing the
information.

 

Lender Entities may use the confidential information for reporting purposes and
the development and distribution of databases and market analyses so long as
such confidential information is aggregated and anonymized prior to
distribution, unless otherwise expressly permitted by Borrower. The provisions
of the immediately preceding sentence shall survive the termination of this
Agreement.

 

12.11      Attorneys’ Fees, Costs and Expenses. In any action or proceeding
between Borrower and Lender arising out of or relating to the Loan Documents,
Lender shall be entitled to recover its reasonable attorneys’ fees and other
costs and expenses incurred, in addition to any other relief to which it may be
entitled.

 

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12.12      Right of Set Off. Borrower hereby grants to Lender, a lien, security
interest and right of set off as security for all Obligations to Lender, whether
now existing or hereafter arising upon and against all deposits, credits,
collateral and property, now or hereafter in the possession, custody,
safekeeping or control of Lender or any entity under the control of Lender
(including a Lender subsidiary) or in transit to any of them. At any time after
the occurrence and during the continuance of an Event of Default, without demand
or notice, Lender may set off the same or any part thereof and apply the same to
any liability or obligation of Borrower even though unmatured and regardless of
the adequacy of any other collateral securing the Obligations. ANY AND ALL
RIGHTS TO REQUIRE LENDER TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY
OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF
SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE
HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

 

12.13      Electronic Execution of Documents. The words “execution,” “signed,”
“signature” and words of like import in any Loan Document shall be deemed to
include electronic signatures or the keeping of records in electronic form, each
of which shall be of the same legal effect, validity and enforceability as a
manually executed signature or the use of a paper-based recordkeeping systems,
as the case may be, to the extent and as provided for in any applicable law,
including, without limitation, any state law based on the Uniform Electronic
Transactions Act.

 

12.14      Captions. The headings used in this Agreement are for convenience
only and shall not affect the interpretation of this Agreement.

 

12.15      Construction of Agreement. The parties mutually acknowledge that they
and their attorneys have participated in the preparation and negotiation of this
Agreement. In cases of uncertainty this Agreement shall be construed without
regard to which of the parties caused the uncertainty to exist.

 

12.16      Relationship. The relationship of the parties to this Agreement is
determined solely by the provisions of this Agreement. The parties do not intend
to create any agency, partnership, joint venture, trust, fiduciary or other
relationship with duties or incidents different from those of parties to an
arm’s-length contract.

 

12.17      Third Parties. Nothing in this Agreement, whether express or implied,
is intended to: (a) confer any benefits, rights or remedies under or by reason
of this Agreement on any Persons other than the express parties to it and their
respective permitted successors and assigns; (b) relieve or discharge the
obligation or liability of any Person not an express party to this Agreement; or
(c) give any Person not an express party to this Agreement any right of
subrogation or action against any party to this Agreement.

 

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12.18      No Novation. Borrower and Lender hereby agree that, effective upon
the execution and delivery of this Agreement by each such party, the terms and
provisions of the Prior Loan Agreement) shall be and hereby are superseded in
their entirety by the terms and provisions of this Agreement. Nothing herein
contained shall be construed as a substitution or novation of the obligations of
Borrower outstanding under the Prior Loan Agreement or instruments securing the
same, which obligations shall remain in full force and effect, except to the
extent that the terms thereof are modified hereby or by instruments executed
concurrently herewith. Nothing expressed or implied in this Agreement shall be
construed as a release or other discharge of any Borrower from any of the
Obligations or any liabilities under the Prior Loan Agreement or any of the
security agreements, pledge agreements, mortgages, guaranties or other Loan
Documents executed in connection therewith. Each Borrower hereby (i) confirms
and agrees that each Loan Document to which it is a party is, and shall continue
to be, in full force and effect and is hereby ratified and confirmed in all
respects except that on and after the Effective Date all references in any such
Loan Document to the “Loan and Security Agreement”, the “Loan Agreement” the
“Agreement”, “thereto”, “thereof”, “thereunder” or words of like import
referring to the Prior Loan Agreement shall mean the Prior Loan Agreement as
superseded by this Agreement; and (ii) confirms and agrees that to the extent
that the Prior Loan Agreement or any Loan Document executed in connection
therewith purports to assign or pledge to the Lender, or to grant to the Lender
a security interest in or lien on, any collateral as security for the
Obligations of Borrower or any guarantor from time to time existing in respect
of the Prior Loan Agreement, such pledge, assignment or grant of the security
interest or lien is hereby ratified and confirmed in all respects and shall
remain effective as of the first date it became effective.

 

12.19.      Waiver and Release. Each of the Borrowers hereby acknowledges and
agrees that as of the date hereof it has no offsets, defenses, causes of action,
suits, damages, claims, or counterclaims against Lender, or their respective
officers, directors, employees, attorneys, representatives, shareholders,
predecessors, successor, and assigns (collectively, the “Released Parties”) with
respect to, in connection with, or arising from, this Agreement, the other Loan
Documents, the Assignment, any contracts, promises, commitments or other
agreements to provide, arrange for, or obtain loans or other financial
accommodations to or for Borrowers, or otherwise, and that if any of the
Borrowers now has, or ever did have, any offsets, defenses, causes of action,
suits, damages, claims, or counterclaims against one or more of the Released
Parties, whether known or unknown, at law or in equity, from the beginning of
the world through this date and through the time of execution of this Agreement,
all of them are hereby expressly WAIVED, and each of the Borrowers hereby
RELEASES the Released Parties from any liability therefor.

 

13DEFINITIONS

 

13.1        Definitions. As used in the Loan Documents, the word “shall” is
mandatory, the word “may” is permissive, the word “or” is not exclusive, the
words “includes” and “including” are not limiting and the singular includes the
plural. As used in this Agreement, the following capitalized terms have the
following meanings:

 

“Account” is any “account” as defined in the Code with such additions to such
term as may hereafter be made, and includes, without limitation, all accounts
receivable and other sums owing to Borrower.

 

“Account Debtor” is any “account debtor” as defined in the Code with such
additions to such term as may hereafter be made.

 

 32 

 

 

“Advance” or “Advances” means an advance (or advances) under the Revolving Line
into an account of Borrower.

 

“Affiliate” is, with respect to any Person, each other Person that owns or
controls directly or indirectly the Person, any Person that controls or is
controlled by or is under common control with the Person, and each of that
Person’s senior executive officers, directors, partners and, for any Person that
is a limited liability company, that Person’s managers and members.

 

“Agreement” is defined in the preamble hereof.

 

“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the
result of the amount available under the Borrowing Base; minus (c) the
outstanding principal balance of any Advances.

 

“Borrower” is defined in the preamble hereof.

 

“Borrower’s Books” are all Borrower’s books and records including ledgers,
federal and state tax returns, records regarding Borrower’s assets or
liabilities, the Collateral, business operations or financial condition, and all
computer programs or storage or any equipment containing such information.

 

“Borrowing Base” is (a) 75% of Eligible Accounts for all Borrowers, as
determined by Lender from Borrower’s most recent Borrowing Base Certificate,
plus (b) up to 75% of Eligible Inventory purchased from Lender for all Borrowers
and up to 25% of Eligible Inventory purchased from third parties for all
Borrowers, as determined by Lender from Borrower’s most recent Borrowing Base
Certificate, provided, however, that Lender may decrease the foregoing
percentages in its good faith business judgment based on events, conditions,
contingencies, or risks which, as determined by Lender, may adversely affect the
Collateral. The Borrowing Base shall be reduced by $12,292 until the tax liens
filed in California are released. The Borrowing Base shall not be separately
calculated for any individual Borrower.

  

“Borrowing Base Certificate” is that certain certificate included within each
Transaction Report.

 

“Borrowing Resolutions” are, with respect to any Person, those resolutions
adopted by such Person’s board of directors or other appropriate body and
delivered by such Person to Lender approving the Loan Documents to which such
Person is a party and the transactions contemplated thereby, together with a
certificate executed by its secretary on behalf of such Person certifying that
(a) such Person has the authority to execute, deliver, and perform its
obligations under each of the Loan Documents to which it is a party, (b) that
attached as Exhibit A to such certificate is a true, correct, and complete copy
of the resolutions then in full force and effect authorizing and ratifying the
execution, delivery, and performance by such Person of the Loan Documents to
which it is a party, (c) the name(s) of the Person(s) authorized to execute the
Loan Documents on behalf of such Person, together with a sample of the true
signature(s) of such Person(s), and (d) that Lender may conclusively rely on
such certificate unless and until such Person shall have delivered to Lender a
further certificate canceling or amending such prior certificate.

 

 33 

 

 

“Business Day” is any day that is not a Saturday, Sunday or a day on which
Lender is closed or, in the case of Sunetric, a Hawaiian bank holiday.

 

“Cash Equivalents” means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or any agency or any State
thereof having maturities of not more than one (1) year from the date of
acquisition; (b) commercial paper maturing no more than one (1) year after its
creation and having the highest rating from either Standard & Poor’s Ratings
Group or Moody’s Investors Service, Inc., (c) Lender’s certificates of deposit
issued maturing no more than one (1) year after issue; and (d) money market
funds at least ninety-five percent (95%) of the assets of which constitute Cash
Equivalents of the kinds described in clauses (a) through (c) of this
definition.

 

“Code” is the Uniform Commercial Code, as the same may, from time to time, be
enacted and in effect in the State of Colorado; provided that, to the extent
that the Code is used to define any term herein or in any Loan Document and such
term is defined differently in different Articles or Divisions of the Code, the
definition of such term contained in Article or Division 9 shall govern;
provided further, that in the event that, by reason of mandatory provisions of
law, any or all of the attachment, perfection, or priority of, or remedies with
respect to, Lender’s Lien on any Collateral is governed by the Uniform
Commercial Code in effect in a jurisdiction other than the State of Colorado,
the term “Code” shall mean the Uniform Commercial Code as enacted and in effect
in such other jurisdiction solely for purposes of the provisions thereof
relating to such attachment, perfection, priority, or remedies and for purposes
of definitions relating to such provisions.

 

“Collateral” is any and all properties, rights and assets of Borrower described
on Exhibit A.

 

“Collateral Account” means the WF Collateral Account.

 

“Commodity Account” is any “commodity account” as defined in the Code with such
additions to such term as may hereafter be made.

 

“Communication” is defined in Section 10.

 

“Compliance Certificate” is that certain certificate in the form attached hereto
as Exhibit C.

 

“Contingent Obligation” is, for any Person, any direct or indirect liability,
contingent or not, of that Person for (a) any indebtedness, lease, dividend,
letter of credit or other obligation of another such as an obligation, in each
case directly or indirectly guaranteed, endorsed, co made, discounted or sold
with recourse by that Person, or for which that Person is directly or indirectly
liable; (b) any obligations for undrawn letters of credit for the account of
that Person; and (c) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but “Contingent
Obligation” does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under any guarantee or other support arrangement.

 

 34 

 

 

“Control Agreement” is any control agreement entered into among the depository
institution at which Borrower maintains a Deposit Account or the securities
intermediary or commodity intermediary at which Borrower maintains a Securities
Account or a Commodity Account, Borrower, and Lender pursuant to which Lender
obtains control (within the meaning of the Code) over such Deposit Account,
Securities Account, or Commodity Account.

 

“Copyrights” are any and all copyright rights, copyright applications, copyright
registrations and like protections in each work or authorship and derivative
work thereof, whether published or unpublished and whether or not the same also
constitutes a trade secret.

 

“Credit Extension” is any Advance or other extension of credit by Lender for
Borrower’s benefit under this Agreement.

 

“Default” means any event which with notice or passage of time or both, would
constitute an Event of Default.

 

“Default Rate” is defined in Section 2.3(b).

 

“Deferred Revenue” is all amounts received or invoiced in advance of performance
under contracts and not yet recognized as revenue.

 

“Deposit Account” is any “deposit account” as defined in the Code with such
additions to such term as may hereafter be made.

 

“Domestic Subsidiary” is any Subsidiary organized under the laws of the United
States or any state or territory thereof or the District of Columbia.

 

“Dollars,” “dollars” or use of the sign “$” means only lawful money of the
United States and not any other currency, regardless of whether that currency
uses the “$” sign to denote its currency or may be readily converted into lawful
money of the United States.

 

“Dollar Equivalent” is, at any time, (a) with respect to any amount denominated
in Dollars, such amount, and (b) with respect to any amount denominated in a
Foreign Currency, the equivalent amount therefor in Dollars as determined by
Lender at such time on the basis of the then-prevailing rate of exchange in San
Francisco, California, for sales of the Foreign Currency for transfer to the
country issuing such Foreign Currency.

 

“Effective Date” is defined in the preamble hereof.

 

 35 

 

 

“Eligible Accounts” are Accounts which arise in the ordinary course of
Borrower’s business that meet all Borrower’s representations and warranties in
Section 5.3 and shall expressly include:

 

    Maximum Days Since
Invoice Date   % Eligible           1. Residential, small commercial, and large
commercial customers of Borrower, other than those Accounts listed in numbers
2-6 below.  

<90 days

 

>90 days

 

100%

 

0%

          2. Commercial Retention for the Stockton School District Project  

N/A

 

> later of 7/31/16 or 270 days

 

> later of 9/30/16 or 360 days

 

100%

 

50%

 

0%

          3. Specific commercial receivables – Stockton Unified School District
 

N/A

 

> later of 7/31/16 or 270 days

 

 

> later of 9/30/16 or 360 days

 

100%

 

50%

 

0%

         

4. Specific commercial receivable – Kona Resort

 

N/A

 

> 180

 

> 270

 

> 360

 

100%

 

50%

 

20%

 

0%

          5. State Rebates  

<=120 days

 

> 120 days

 

>270

 

>360

 

100%

 

80%

 

40%

 

0%

          6. State related Lease/Loan Programs   < 120 days   100%           7.
Only for Items 5 & 6     Cross-age   80%           8. Accounts with respect to
the lease portfolio owned or originated by  Finco   N/A   3%

 

 36 

 

 

Lender reserves the right at any time and from time to time after the Effective
Date after consultation with the Borrower and upon thirty (30) days’ advance
notice to Borrower, to adjust any of the criteria set forth below and to
establish new criteria in its good faith business judgment. Without limiting the
fact that the determination of which Accounts are eligible for borrowing is a
matter of Lender’s good faith judgment, the requirements listed above and the
following (“Minimum Eligibility Requirements”) are the minimum requirements for
an Account to be an Eligible Account. Unless Lender agrees otherwise in writing,
Eligible Accounts shall not include:

 

(a)          Accounts for which the Account Debtor is Borrower’s Affiliate,
officer, employee, or agent;

 

(b)          Accounts, which are not State Rebates or State Lease or Loan
Programs, or other Accounts specifically addressed in the chart above, owing
from an Account Debtor, in which fifty percent (50%) or more of the Accounts
have not been paid within ninety (90) days (one hundred twenty (120) days for
rebate accounts of the Borrowers, as approved by Lender, on a case-by-case
basis), of invoice date;

 

(c)          [Reserved]

 

(d)          [Reserved]

 

(e)          Accounts owing from an Account Debtor which does not have its
principal place of business in the United States unless such Accounts are
otherwise Eligible Accounts and the Lender approves of in writing;

 

(f)           Accounts owing from an Account debtor in which Lender does not
have a first priority, perfected security interest or other enforceable Lien;

 

(g)          Accounts billed and/or payable outside of the United States
(sometimes called foreign invoiced accounts);

 

(h)          Accounts owing from an Account Debtor to the extent that Borrower
is indebted or obligated in any manner to the Account Debtor (as creditor,
lessor, supplier or otherwise - sometimes called “contra” accounts, accounts
payable, customer deposits or credit accounts);

 

(i)           Accounts owing from an Account Debtor which is a United States
government entity or any department, agency, or instrumentality thereof unless
Borrower has assigned its payment rights to Lender and the assignment has been
acknowledged under the Federal Assignment of Claims Act of 1940, as amended;

 

 37 

 

 

(j)           Accounts for demonstration or promotional equipment, or in which
goods are consigned, or sold on a “sale guaranteed”, “sale or return”, “sale on
approval”, or other terms if Account Debtor’s payment may be conditional;

 

(k)          Accounts owing from an Account Debtor where goods or services have
not yet been rendered to the Account Debtor (sometimes called memo billings or
pre-billings);

 

(l)           Accounts owing from an Account Debtor the amount of which may be
subject to withholding based on the Account Debtor’s satisfaction of Borrower’s
complete performance (but only to the extent of the amount withheld; sometimes
called retainage billings);

 

(m)         Accounts subject to trust provisions, subrogation rights of a
bonding company, or a statutory trust;

 

(n)          Accounts owing from an Account Debtor that has been invoiced for
goods that have not been shipped to the Account Debtor unless Lender, Borrower,
and the Account Debtor have entered into an agreement acceptable to Lender in
its sole discretion wherein the Account Debtor acknowledges that (i) it has
title to and has ownership of the goods wherever located, (ii) a bona fide sale
of the goods has occurred, and (iii) it owes payment for such goods in
accordance with invoices from Borrower (sometimes called “bill and hold”
accounts);

 

(o)          Accounts for which the Account Debtor has not been invoiced;
provided that, Accounts for which Account Debtors have entered into contractual
arrangements providing for payments thereunder but are not invoiced in the
Borrower’s ordinary course of business shall not be excluded under this
subsection;

 

(p)          Accounts that represent non-trade receivables or that are derived
by means other than in the ordinary course of Borrower’s business;

 

(q)          [Reserved];

 

(r)           Accounts arising from chargebacks, debit memos or other payment
deductions taken by an Account Debtor;

 

(s)          Accounts arising from product returns and/or exchanges (sometimes
called “warranty” or “RMA” accounts);

 

(t)           Accounts in which the Account Debtor disputes liability or makes
any claim (but only up to the disputed or claimed amount), or if the Account
Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out
of business;

 

(u)          Accounts owing from an Account Debtor with respect to which
Borrower has received Deferred Revenue (but only to the extent of such Deferred
Revenue); provided that, Accounts that are otherwise Eligible Accounts that
contain Deferred Revenue related to milestone billings, percentage of completion
based contracts or prepaid maintenance shall not be excluded herefrom;

 

 38 

 

 

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

 

(w)          Accounts for which Lender in its good faith business judgment
determines collection to be doubtful, including, without limitation, accounts
represented by “refreshed” or “recycled” invoices; and

 

(x)           other Accounts Lender deems ineligible in the exercise of its good
faith business judgment.

 

“Eligible Inventory” means Inventory, except Inventory that is obsolete,
damaged, contaminated, discontinued, slow moving (based on Lender’s industry
knowledge and sole discretion), in transit, fabricated parts, consigned,
supplies and packaging, subject to any prior security interest, purchased or
manufactured pursuant to a license agreement, stored at any location comprising
less than five percent (5%) of the total inventory, acquired in the ordinary
course of Borrower’s business. Lender reserves the right at any time and from
time to time after the Effective Date after consultation with the Borrower and
upon thirty (30) days’ advance notice to Borrower, to adjust any of the criteria
or to establish new criteria in its good faith business judgment for Eligible
Inventory.

 

“Equipment” is all “equipment” as defined in the Code with such additions to
such term as may hereafter be made, and includes without limitation all
machinery, fixtures, goods, vehicles (including motor vehicles and trailers),
and any interest in any of the foregoing.

 

“ERISA” is the Employee Retirement Income Security Act of 1974, and its
regulations.

 

“Event of Default” is defined in Section 8.

 

“Finco” means RGS Financing, Inc.

 

“Foreign Currency” means lawful money of a country other than the United States.

 

“Foreign Subsidiary” is any Subsidiary which is not a Domestic Subsidiary.

 

“Funding Date” is any date on which a Credit Extension is made to or for the
account of Borrower which shall be a Business Day.

 

“GAAP” is generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other Person as
may be approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination.

 

 39 

 

 

“General Intangibles” is all “general intangibles” as defined in the Code in
effect on the date hereof with such additions to such term as may hereafter be
made, and includes without limitation, all Intellectual Property, claims, income
and other tax refunds, security and other deposits, payment intangibles,
contract rights, options to purchase or sell real or personal property, rights
in all litigation presently or hereafter pending (whether in contract, tort or
otherwise), insurance policies (including without limitation key man, property
damage, and business interruption insurance), payments of insurance and rights
to payment of any kind.

 

“Governmental Approval” is any consent, authorization, approval, order, license,
franchise, permit, certificate, accreditation, registration, filing or notice,
of, issued by, from or to, or other act by or in respect of, any Governmental
Authority.

 

“Governmental Authority” is any nation or government, any state or other
political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central Lender or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government, any securities exchange and any selfregulatory
organization.

 

“Guarantor” is any present or future guarantor of the Obligations.

 

“Guaranty” is any present or future agreement pursuant to which any Guarantor
agrees to guaranty the Obligations of Borrower to Lender.

 

“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of
property or services, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) lease obligations required to be treated
as capital lease obligations under GAAP as of the Effective Date, and (d)
Contingent Obligations.

 

“Indemnified Person” is defined in Section 12.3.

 

“Insolvency Proceeding” is any proceeding by or against any Person under the
United States bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

 

“Intellectual Property” means all of Borrower’s and Guarantor’s right, title,
and interest in and to the following:

 

(a)          its Copyrights, Trademarks and Patents;

 

(b)          any and all trade secrets and trade secret rights, including,
without limitation, any rights to unpatented inventions, know-how, operating
manuals;

 

(c)          any and all source code;

 

(d)          any and all design rights which may be available to a Borrower;

 

 40 

 

 

(e)          any and all claims for damages by way of past, present and future
infringement of any of the foregoing, with the right, but not the obligation, to
sue for and collect such damages for said use or infringement of the
Intellectual Property rights identified above; and

 

(f)          all amendments, renewals and extensions of any of the Copyrights,
Trademarks or Patents.

 

“IP Agreement” is each of (i) that certain Intellectual Property Security
Agreement executed and delivered by certain of the Borrower to Lender dated as
of the Fourth Loan Modification Effective Date and (ii) that certain
Intellectual Property Security Agreement executed and delivered by certain of
the Borrower to Lender dated as of the Sixth Loan Modification Effective Date.

 

“IRS” means the Internal Revenue Service of the United States of America.

 

“Inventory” is all “inventory” as defined in the Code in effect on the date
hereof with such additions to such term as may hereafter be made, and includes
without limitation all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products, including without
limitation such inventory as is temporarily out of Borrower’s custody or
possession or in transit and including any returned goods and any documents of
title representing any of the above, but excluding any inventory subject to a
purchase money security interest or a secured interest prior to Lender’s, except
to the extent Lender gives prior written approval.

 

“Investment” is any beneficial ownership interest in any Person (including
stock, partnership interest or other securities), and any loan, advance or
capital contribution to any Person.

 

“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security
interest or other encumbrance of any kind, whether voluntarily incurred or
arising by operation of law or otherwise against any property.

 

“Lender” is defined in the preamble hereof.

 

“Lender Account” is defined in Section 2.5(b)(vi).

 

“Lender Expenses” are all audit fees and expenses, costs, and expenses
(including reasonable attorneys’ fees and expenses) for preparing, amending,
negotiating, administering, defending and enforcing the Loan Documents
(including, without limitation, those incurred in connection with appeals or
Insolvency Proceedings).

 

“Loan Documents” are, collectively, this Agreement, any Guaranty, any Security
Agreement, the Perfection Certificate, any Warrant, the Subordination Agreement,
the IP Agreement, any subordination agreement, any note, or notes or guaranties
executed by Borrower or any Guarantor, and any other present or future agreement
between Borrower and any Guarantor and/or for the benefit of Lender with respect
to Indebtedness, all as amended, restated, or otherwise modified.

 

 41 

 

 

“Material Adverse Change” is (a) a material impairment in the perfection or
priority of Lender’s Lien in the Collateral or in the value of such Collateral;
(b) a material adverse change in the business, operations, or condition
(financial or otherwise) of Borrower; (c) a material impairment of the prospect
of repayment of any portion of the Obligations or (d) Lender determines, based
upon information available to it and in its reasonable judgment, that there is a
reasonable likelihood that Borrower shall fail to comply with one or more of the
financial covenants in Section 6 during the next succeeding financial reporting
period.

 

“Minimum Eligibility Requirements” is defined in the defined term “Eligible
Accounts”.

 

“Obligations” are Borrower’s obligation to pay when due any debts, principal,
interest, Lender Expenses and other amounts Borrower owes Lender now or later,
under this Agreement, or the Loan Documents, including, without limitation,
including interest accruing after Insolvency Proceedings begin and debts,
liabilities, or obligations of Borrower assigned to Lender, and to perform
Borrower’s duties under the Loan Documents.

 

“Operating Documents” are, for any Person, such Person’s formation documents, as
certified with the Secretary of State of such Person’s state of formation on a
date that is no earlier than 30 days prior to the Effective Date, and, (a) if
such Person is a corporation, its bylaws in current form, (b) if such Person is
a limited liability company, its limited liability company agreement (or similar
agreement), and (c) if such Person is a partnership, its partnership agreement
(or similar agreement), each of the foregoing with all current amendments or
modifications thereto.

 

“Patents” means all patents, patent applications and like protections including
without limitation improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same.

 

“Payment” means all checks, wire transfers and other items of payment received
by Lender (including proceeds of Accounts and payment of all the Obligations in
full) for credit to Borrower’s outstanding Credit Extensions.

 

“Perfection Certificate” is defined in Section 5.1.

 

“Permitted Indebtedness” is:

 

(a)          Borrower’s Indebtedness to Lender under this Agreement and the
other Loan Documents;

 

(b)          Indebtedness existing on the Effective Date and shown on the
Perfection Certificate;

 

(c)          Subordinated Debt;

 

 42 

 

 

(d)          unsecured Indebtedness to trade creditors and with respect to
surety bonds and similar obligations incurred in the ordinary course of
business;

 

(e)          capital lease obligations in an aggregate amount not to exceed Five
Hundred Thousand Dollars ($500,000); and

 

(f)           the notes issued in the Note Financing.

 

(g)          extensions, refinancings, modifications, amendments and
restatements of any items of Permitted Indebtedness (a) through (e) above,
provided that the principal amount thereof is not increased or the terms thereof
are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.

 

“Permitted Investments” are:

 

(a)          Investments shown on the Perfection Certificate and existing on the
Effective Date;

 

(b)          Cash Equivalents,

 

(c)          Investments consisting of the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
Borrower’s business;

 

(d)          Investments consisting of deposit accounts in which Lender has a
perfected security interest;

 

(e)          Investments (i) by Borrower in Subsidiaries not to exceed Fifty
Thousand Dollars ($50,000) in the aggregate in any fiscal year and (ii) by
Subsidiaries in other Subsidiaries not to exceed Fifty Thousand Dollars
($50,000) in the aggregate in any fiscal year or in Borrower;

 

(f)           Investments consisting of (i) travel advances and employee
relocation loans and other employee loans and advances in the ordinary course of
business, and (ii) loans to employees, officers or directors relating to the
purchase of equity securities of Borrower or its Subsidiaries pursuant to
employee stock purchase plans or agreements approved by Borrower’s board of
directors;

 

(g)          Investments (including debt obligations) received in connection
with the bankruptcy or reorganization of customers or suppliers and in
settlement of delinquent obligations of, and other disputes with, customers or
suppliers arising in the ordinary course of business; and

 

(h)          Investments of RGS in Finco; and

 

(i)           Investments consisting of notes receivable of, or prepaid
royalties and other credit extensions, to customers and suppliers who are not
Affiliates, in the ordinary course of business; provided that this paragraph (h)
shall not apply to Investments of Borrower in any Subsidiary.

 

 43 

 

 

“Permitted Liens” are:

 

(a)          Liens existing on the Effective Date and shown on the Perfection
Certificate or arising under this Agreement and the other Loan Documents;

 

(b)          Liens for taxes, fees, assessments or other government charges or
levies, either (i) not due and payable or (ii) being contested in good faith and
for which Borrower maintains adequate reserves on its Books, provided that no
notice of any such Lien has been filed or recorded under the Internal Revenue
Code of 1986, as amended, and the Treasury Regulations adopted thereunder;

 

(c)          purchase money Liens (i) on Equipment acquired or held by Borrower
incurred for financing the acquisition of the Equipment securing no more than
Fifty Thousand Dollars ($50,000) in the aggregate amount outstanding, or (ii)
existing on Equipment when acquired, if the Lien is confined to the property and
improvements and the proceeds of the Equipment;

 

(d)          Liens of carriers, warehousemen, suppliers, or other Persons that
are possessory in nature arising in the ordinary course of business so long as
such Liens attach only to Inventory, securing liabilities in the aggregate
amount not to exceed Fifty Thousand Dollars ($50,000) and which are not
delinquent or remain payable without penalty or which are being contested in
good faith and by appropriate proceedings which proceedings have the effect of
preventing the forfeiture or sale of the property subject thereto;

 

(e)          Liens to secure payment of workers’ compensation, employment
insurance, old-age pensions, social security and other like obligations incurred
in the ordinary course of business (other than Liens imposed by ERISA);

 

(f)           Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase;

 

(g)          leases or subleases of real property granted in the ordinary course
of business, and leases, subleases, non-exclusive licenses or sublicenses of
property (other than real property or Intellectual Property) granted in the
ordinary course of Borrower’s business, if the leases, subleases, licenses and
sublicenses do not prohibit granting Lender a security interest;

 

(h)          non-exclusive license of Intellectual Property granted to third
parties in the ordinary course of business; and

 

(i)           Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.4 or 8.7.

 

(j)           Liens in favor of other financial institutions arising in
connection with Borrower’s deposit and/or securities accounts held at such
institutions, provided that Lender has a perfected security interest in the
amounts held in such deposit and/or securities accounts;

 

 44 

 

 

(k)          Liens in favor of Finco;

 

(l)          any lien for which Lender has taken as reserve on the Borrowing
Base, it being acknowledged and agreed that Lender will put a $12,292 reserve on
the Borrowing Base calculation with respect to the tax liens filed in California
until such filings shall be released; and

 

(m)          Liens on any other control accounts set up for the proceeds of the
Note Financing not yet required to be released to Borrower.

 

(n)          other Liens not described above arising in the ordinary course of
business and not having or not reasonably likely to have a material adverse
effect on Borrower and its Subsidiaries taken as a whole and not having any
priority over the Lien in favor of Lender.

 

“Person” is any individual, sole proprietorship, partnership, limited liability
company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.

 

“Prime Rate” shall be the most recently published “prime rate” by the Wall
Street Journal.

 

“Prior Loan Agreement” is defined in the recitals hereto.

 

“Qualified Cash” as of any date of determination, the Borrower’s unrestricted
cash and unrestricted Cash Equivalents held at Lender or at financial
institutions in the United States in which Lender has perfected its security
interest in such cash and Cash Equivalents with an appropriate Control
Agreement, in favor of Lender, and in form and substance acceptable to Lender,
in its discretion.

 

“Registered Organization” is any “registered organization” as defined in the
Code with such additions to such term as may hereafter be made.

 

“Requirement of Law” is as to any Person, the organizational or governing
documents of such Person, and any law (statutory or common), treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.

 

“Reserves” means, as of any date of determination, such amounts as Lender may
from time to time establish and revise in good faith reducing the amount of
Advances, which would otherwise be available to Borrower under the lending
formulas: (a) to reflect events, conditions, contingencies or risks which, as
determined by Lender in good faith, do or may affect (i) the Collateral or any
other property which is security for the Obligations or its value (including
without limitation any increase in delinquencies of Accounts), (ii) the assets
or business of Borrower or any guarantor, or (iii) the security interests and
other rights of Lender in the Collateral (including the enforceability,
perfection and priority thereof); or (b) to reflect Lender’s good faith belief
that any collateral report or financial information furnished by or on behalf of
Borrower or any guarantor to Lender is or may have been incomplete, inaccurate
or misleading in any material respect; or (c) in respect of any state of facts
which Lender determines in good faith constitutes an Event of Default or may,
with notice or passage of time or both, constitute an Event of Default.

 

 45 

 

 

“Responsible Officer” is any of the Chief Executive Officer, President,
Principal Financial Officer and Controller of Borrower.

 

“Restricted License” is any material license or other agreement with respect to
which Borrower is the licensee (a) that prohibits or otherwise restricts
Borrower from granting a security interest in Borrower’s interest in such
license or agreement or any other property, or (b) for which a default under or
termination of could interfere with the Lender’s right to sell any Collateral.

 

“Revolving Line” is an Advance or Advances in an amount (a) initially, not to
exceed Five Million Dollars ($5,000,000) outstanding at any time, (b) at any
time after October 1, 2016, not to exceed Four Million Dollars ($4,000,000)
outstanding at any time, and (c) at any time after December 31, 2016, not to
exceed Three Million Dollars ($3,000,000).

 

“Revolving Line Maturity Date” is March 31, 2017.

 

“SEC” shall mean the Securities and Exchange Commission, any successor thereto,
and any analogous Governmental Authority.

 

“Security Agreement” is any present or future agreement pursuant to which any
Person agrees to grant Lender a lien on such Person’s assets as security for the
repayment of the Obligations of Borrower owed to Lender.

 

“Securities Account” is any “securities account” as defined in the Code with
such additions to such term as may hereafter be made.

 

“Solar Solutions Receivable Amount” means $1,675,134.05 as of February 4, 2016.

 

“Subordination Agreement” is the collective reference each subordination,
intercreditor or similar agreement entered into by Lender and any creditor of
Borrower.

 

“Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of
Borrower’s now or hereafter indebtedness to Lender (pursuant to subordination,
intercreditor, or other similar agreement in form and substance satisfactory to
Lender entered into between Lender and the other creditor), on terms acceptable
to Lender.

 

“Subsidiary” is, as to any Person, a corporation, partnership, limited liability
company or other entity of which shares of stock or other ownership interests
having ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such corporation,
partnership or other entity are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more intermediaries,
or both, by such Person. Unless the context otherwise requires, each reference
to a Subsidiary herein shall be a reference to a Subsidiary of Borrower or
Guarantor.

 

 46 

 

 

“Trademarks” means any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Borrower connected with
and symbolized by such trademarks.

 

“Transaction Report” is the Lender’s standard reporting package provided by
Lender to Borrower.

 

“Transfer” is defined in Section 7.1.

 

“Unused Revolving Line Facility Fee” is defined in Section 2.4(d).

 

“Warrant” means any warrant executed by Lender and Borrower.

 

[Signature page follows.]

 

 47 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the Effective Date.

 

BORROWER

 

REAL GOODS ENERGY TECH, INC.   REAL GOODS SYNDICATED, INC.       By:     By:  
Name: Dennis Lacey   Name: Dennis Lacey       Title: Chief Executive Officer  
Title: Chief Executive Officer       REAL GOODS SOLAR, INC.   ALTERIS
RENEWABLES, INC.       By:     By:   Name: Dennis Lacey   Name: Dennis Lacey    
  Title: Chief Executive Officer   Title: Chief Executive Officer       MERCURY
ENERGY, INC.   ELEMENTAL ENERGY, LLC       By:     By:   Name: Dennis Lacey  
Name: Dennis Lacey       Title: Chief Executive Officer   Title: Chief Executive
Officer

 

 48 

 

 

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

 

RGS FINANCE, INC.         By:     Name:           Title:    

 

LENDER:

 

SOLAR SOLUTIONS AND DISTRIBUTION, LLC

 

By:     Name:     Title:    

 

 49 

 

 

EXHIBIT A

 

COLLATERAL DESCRIPTION

 

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

 

All goods, Accounts (including health-care receivables), Equipment, Inventory,
contract rights or rights to payment of money, leases, license agreements,
franchise agreements, General Intangibles, commercial tort claims, documents,
instruments (including any promissory notes), chattel paper (whether tangible or
electronic), cash, deposit accounts, fixtures, letters of credit rights (whether
or not the letter of credit is evidenced by a writing), securities, and all
other investment property, supporting obligations, and financial assets, whether
now owned or hereafter acquired, wherever located; and all Borrower’s Books
relating to the foregoing, and any and all claims, rights and interests in any
of the above and all substitutions for, additions, attachments, accessories,
accessions and improvements to and replacements, products, proceeds and
insurance proceeds of any or all of the foregoing.

 

For the avoidance of doubt, “Collateral” excludes Bank of Hawaii account #
Account #0091-364239 and any other control accounts set up for the proceeds of
the Note Financing not yet required to be released to Borrower.

 

 50 

 

 

EXHIBIT B

 

OPINION OF BORROWER’S COUNSEL

 

 

 

 

March ___, 2016

 

Solar Solutions and Distribution, LLC

8450 East crescent Parkway, Suite 200

Greenwood Village, CO 80111-2816

 

Ladies and Gentlemen:

 

We have acted as special counsel to Real Goods Energy Tech, Inc., a Colorado
corporation, Alteris Renewables, Inc., a Delaware corporation, Real Goods
Syndicated, Inc., a Delaware corporation, Mercury Energy, Inc., a Delaware
corporation, Real Goods Solar, Inc. – Mercury Solar, a New York corporation,
Sunetric Management LLC, a Delaware limited liability company, Real Goods Solar,
Inc., a Colorado corporation and RGS Financing, Inc., a Colorado corporation
(collectively, the “Opinion Parties”), in connection with the execution and
delivery of the Amended and Restate Loan and Security Agreement, dated as of the
date hereof (the “Loan Agreement”) by and among the Opinion Parties and Solar
Solutions and Distribution, LLC, a Colorado limited liability company
(“Lender”). We have also acted as special counsel on a limited basis to
Elemental Energy, LLC, a Hawaii limited liability company (“Elemental Energy”),
in connection with the Loan Agreement. This opinion is being delivered to you
pursuant to Section 3.1(d) of the Loan Agreement. Capitalized terms used and not
otherwise defined herein shall have the respective meanings assigned to them in
the Loan Agreement.

 

For the purpose of rendering this opinion letter, we have examined originals, or
copies certified or otherwise identified to our satisfaction as being true
copies, of the following records, documents, instruments and certificates, each
dated as of the date hereof except as otherwise noted:

 

(i)the Loan Agreement;

 

(ii)the UCC financing statements in the forms attached hereto as Exhibit A, to
be filed in the office of the Secretary of State of Colorado, the Secretary of
State of California, the Secretary of State of Delaware, the Secretary of State
of Hawaii, and the Secretary of State of New York (collectively, the “Filing
Offices”), listing Lender, as secured party (collectively, the “Financing
Statements”);

 

(iii)the certificates of formation and articles of incorporation, as applicable,
and limited liability company agreements and bylaws, as applicable, of each of
the Opinion Parties, each as amended to date (collectively, the “Governing
Documents”);

 

(iv)the Certificates of Good Standing issued by the office of the Secretary of
State of Colorado, California, Delaware, Hawaii and New York, as applicable,
with respect to the good standing of each of the Opinion Parties on such date
(collectively, the “Good Standing Certificates”);

 

(v)such limited liability company or corporate records, proceedings, minutes,
consents, actions and resolutions of the Opinion Parties as we have deemed
necessary as a basis for the opinions expressed below, including, without
limitation, the resolutions of the members, managers, and board of directors, as
applicable, of each of the Opinion Parties authorizing and approving the
execution and delivery of the Transaction Document (as defined below) to which
it is a party, the performance by each of the Opinion Parties of its obligations
thereunder and the consummation of the transactions contemplated thereby (the
“Transactions”); and

 

(vi)the certificate, dated of even date herewith, of an officer, manager or
member, or an officer of a manager or member, as applicable, of each of the
Opinion Parties, with respect to certain factual matters and any other
certificates delivered by or on behalf of any of the Opinion Parties in
connection with the closing of the Transactions (collectively, the
“Certificates”).

 

 

 

 

Solar Solutions and Distributions, LLC

March __, 2016

Page 2

 

The document listed in subparagraphs (i) above is hereinafter referred to as the
“Transaction Document.”

 

We have made such legal and factual examinations and inquiries as we have deemed
necessary or appropriate for purposes of this opinion letter, except where a
statement is qualified as to knowledge or awareness, in which case we have made
no or limited inquiry as specified below. Without limitation of the rest of this
paragraph, we are not generally familiar with the business, records,
transactions or activities of the Opinion Parties. Our knowledge of the
business, records, transactions and activities of the Opinion Parties is limited
to the information that has been brought to our attention by officers, managers
and members, as the case may be, and other representatives of the Opinion
Parties or by those matters, records and agreements revealed to us by the
Opinion Parties in response to our inquiries. While nothing has come to our
attention which has led us to conclude that such information, taken as a whole,
is materially inaccurate, we make no representation concerning the scope or
adequacy of such review or such inquiries except to the extent we have deemed
necessary or appropriate to render the opinions set forth herein, or concerning
the accuracy or completeness of the responses to such inquiries. We have been
furnished with, and with your consent have relied upon, certificates, including,
without limitation, the Certificates, and assurances of the officers, managers
and members, as the case may be, and other representatives of the Opinion
Parties, and of public officials, as we have deemed necessary for the purpose of
rendering the opinions set forth herein. As to questions of fact material to our
opinions, we have also relied upon the statements of fact and the
representations and warranties as to factual matters contained in the documents
we have examined; however, except as otherwise expressly indicated, we have not
been requested to conduct, nor have we undertaken, any independent investigation
to verify the content or veracity thereof or to determine the accuracy of any
statement, and no inference as to our knowledge of any matters should be drawn
from the fact of our representation of the Opinion Parties.

 

Without limiting the generality of the foregoing, in issuing this opinion
letter, we have, with your permission, assumed without independent verification
that (i) all authorizations, approvals, actions, orders, licenses, permits and
consents of or from, and notices to or filings or registrations with, any
governmental or regulatory authority in any jurisdiction other than the States
of Delaware, Colorado, California and New York, that are required in connection
with the execution and delivery by any person of the Transaction Document, the
performance by any party of its obligations thereunder and the consummation of
the Transactions, have been obtained, taken, received or made, and are in full
force and effect; (ii) the statements of fact and all representations and
warranties set forth in the documents we have examined are true and correct as
to factual matters; (iii) each party to the Transaction Document other than the
Opinion Parties has been duly organized, is validly existing and in good
standing under the laws of its jurisdiction of organization and is registered or
qualified to do business in each jurisdiction where required to do so; (iv) each
party to the Transaction Document other than the Opinion Parties has the power
and authority to execute, deliver and perform its obligations under, and has
duly authorized, executed and delivered, the Transaction Document to which it is
a party; (v) the execution and delivery of the Transaction Document by each
party thereto other than the Opinion Parties and the performance by each party
to the Transaction Document other than the Opinion Parties of its obligations
under the Transaction Document do not violate such party’s governing documents
or any applicable law; (vi) except to the extent set forth in numbered opinion
paragraph 4 below, the obligations of each party set forth in the Transaction
Document are its valid and binding obligations, enforceable against such party
in accordance with their respective terms; (vii) each natural person executing
any document has sufficient legal capacity to do so and to enter into and
perform the transactions contemplated thereby; (viii) all documents that we
examined accurately describe and contain the mutual understanding of the parties
thereto and there are no oral or written agreements or understandings, and there
is no course of prior dealing between or among any of the parties, that would in
any manner vary or supplement the terms and provisions of such documents, or of
the relationships set forth therein, or which would constitute a waiver of any
of the provisions thereof by the actions or conduct of the parties or otherwise,
or which would have any effect on the opinions rendered herein; (ix) all
documents submitted to us as originals are authentic, the signatures on all
documents that we have examined are genuine, and all documents submitted to us
as certified, conformed, photostatic, electronic or facsimile copies conform to
the original documents; and (x) all limited liability company and corporate
records made available to us by the Opinion Parties, and all public records we
have reviewed, are accurate and complete.

 

 

 

 

Solar Solutions and Distributions, LLC

March __, 2016

Page 3

 

Whenever a statement herein is qualified by the phrase “to our knowledge” or
“known to us” or a similar phrase, we have, with your consent, advised you
concerning only the conscious awareness of facts in the possession of those
attorneys who are currently members of or associated with this firm and who have
performed legal services on behalf of the Opinion Parties in connection with the
Transactions.

 

As used herein, all references to (i) “Applicable Delaware Law” are to the text
of the Delaware Limited Liability Company Act as in effect on the date hereof,
the Delaware General Corporation Law, and the Delaware UCC (as defined below),
without regard to any regulations with respect thereto or promulgated
thereunder, any judicial or administrative interpretations thereof, or any other
requirements of Delaware law; (ii) “Applicable Colorado Law” are to the text of
the Colorado Revised Statutes as in effect on the date hereof and the Colorado
UCC (as defined below), without regard to any regulations with respect thereto
or promulgated thereunder, any judicial or administrative interpretations
thereof, or any other requirements of Colorado law; (iii) “Applicable New York
Law” are to those laws, statutes, rules and regulations of the State of New
York, including the New York UCC (as defined below), which we, in the exercise
of our customary professional diligence, recognize as being applicable to the
Opinion Parties and the Transactions; (iv) “Applicable California Law” are to
those statutes, rules and regulations of the State of California, including the
California UCC (as defined below) in effect on the date hereof which we, in the
exercise of our customary professional diligence, recognize as being directly
applicable to the Opinion Parties and the Transactions; (v) “Applicable Federal
Law” are to those laws, statutes, rules and regulations of the United States
federal government which we, in the exercise of our customary professional
diligence, recognize as being applicable to the Opinion Parties and the
Transactions; (vi) “Applicable Law” are to Applicable Delaware Law, Applicable
Colorado Law, Applicable New York Law, Applicable California Law and Applicable
Federal Law; (vii) “Governmental Authorities” are to the governmental and
regulatory authorities, bodies, instrumentalities and agencies and the courts of
the States of Delaware, Colorado, New York and California excluding any
political subdivisions and local agencies thereof, having jurisdiction over the
Opinion Parties; (viii) “Applicable Order” are to any order, writ, judgment,
injunction or decree issued by any Governmental Authority under Applicable Law
known to us, without investigation or inquiry (other than of the Opinion
Parties) to be presently in effect and by which any of the Opinion Parties is
bound or to which it is subject; (ix) “Delaware UCC” and sections thereof are to
the Uniform Commercial Code as adopted in the State of Delaware, based solely on
our review of the CCH Secured Transactions Guide (last updated as of [November
17, 2015]) with respect thereto, without regard to any regulations with respect
thereto or judicial or administrative interpretations thereof; and (x) “Colorado
UCC” and sections thereof are to the Uniform Commercial Code as adopted in the
State of Colorado; (xi) “New York UCC” and sections thereof are to the Uniform
Commercial Code as adopted in the State of New York, based solely on our review
of the CCH Secured Transactions Guide (last updated as of [November 17, 2015])
with respect thereto, without regard to any regulations with respect thereto or
judicial or administrative interpretations thereof; (xii) “California UCC” and
sections thereof are to the Uniform Commercial Code as adopted in the State of
California, based solely on our review of the CCH Secured Transactions Guide
(last updated as of [November 17, 2015]) with respect thereto, without regard to
any regulations with respect thereto or judicial or administrative
interpretations thereof; and (xiii) “Hawaii UCC” and sections thereof are to the
Uniform Commercial Code as adopted in the State of Hawaii, based solely on our
review of the CCH Secured Transactions Guide (last updated as of [November 17,
2015]) with respect thereto, without regard to any regulations with respect
thereto or judicial or administrative interpretations thereof.

 

For the avoidance of confusion, we give no opinions with respect to any laws of
the State of Hawaii other than the Hawaii UCC as it relates to opinion paragraph
6.

 

 

 

 

Solar Solutions and Distributions, LLC

March __, 2016

Page 4

 

Notwithstanding any provisions of the Transaction Document or any opinion set
forth herein, we express no opinion as to matters governed by any laws other
than Applicable Law. We do not purport to be experts on, or to express any
opinion with respect to the applicability thereto or to the effect thereon of,
any local law or the laws, rules or regulations of local governmental
departments or local governmental agencies in any jurisdiction. We are not
admitted to practice in the State of Delaware or the State of Hawaii and have
not obtained opinions of counsel admitted in such state with respect to the
opinions set forth herein. We express no opinion herein concerning, and we
assume no responsibility as to laws or judicial decisions related to, or any
orders, consents, filings or other authorizations or approvals as may be
required by, any state securities or “Blue Sky” laws, rules or regulations, or
any federal or state banking, antitrust, environmental, land use, bankruptcy or
insolvency laws, rules or regulations.

 

Based upon the foregoing, and subject to the qualifications, limitations,
exceptions and assumptions set forth herein, we are of the opinion that:

 

1.           Each of the Opinion Parties is validly existing and in good
standing under the laws of the State of its formation.

 

2.           Each of the Opinion Parties has the limited liability company or
corporate power and authority to execute, deliver and perform its obligations
under the Transaction Document to which it is a party.

 

3.           The execution and delivery by each of the Opinion Parties of the
Transaction Document to which it is a party and the performance by such Opinion
Party of its obligations thereunder have been duly authorized by such Opinion
Party.

 

4.           To the extent governed by New York law, the Transaction Document to
which an Opinion Party and Elemental Energy is a party constitutes the valid and
binding obligation of such Opinion Party, enforceable against such Opinion Party
or Elemental Energy in accordance with its terms.

 

5.           To the extent governed by New York law, the Transaction Document
creates a valid security interest in favor of the Lender, in that portion of the
collateral (as defined in the Transaction Document) in which each of the Opinion
Parties and Elemental Energy has rights and which is described in the
Transaction Document and constitutes property in which a security interest can
be granted and created under Article 9 of the New York UCC (such property, the
“Code Collateral”).

 

6.           Each of the Financing Statements is in proper form for filing in
the applicable Filing Office. Upon the proper filing of the Financing Statements
in the applicable Filing Office, the security interests created by the
Transaction Document in the Code Collateral in which each of the Opinion Parties
and Elemental Energy has rights and that is described in the respective
Financing Statements will be perfected to the extent a security interest in such
Code Collateral may be perfected by filing a financing statement in the
applicable Filing Office under the provisions of the Delaware UCC, New York UCC,
Colorado UCC, California, or Hawaii UCC, as applicable.

 

The opinions expressed herein are subject to and further limited by the
following qualifications, exceptions, limitations, restrictions and assumptions:

 

(A)    Our opinion set forth in numbered opinion paragraph 1 above is based
solely upon our review of the Good Standing Certificates, and we have conducted
no other investigation and made no other inquiry, nor have we reviewed any other
records or documents, for purposes of issuing such opinion.

 

(B)     The opinions contained herein are subject to the effect of bankruptcy,
insolvency, reorganization, moratorium, anti-deficiency, and other similar laws
now or hereafter in effect relating to or affecting the enforcement of
creditors’ rights generally, the federal Bankruptcy Code, the Uniform Fraudulent
Transfer Act, and any other laws relating to fraudulent conveyances,
distributions and transfers. In addition, such opinions are subject to the
effect of general principles of equity, including, without limitation, concepts
of materiality, reasonableness, public policy, good faith and fair dealing and
the possible unavailability of specific performance or injunctive relief,
regardless of whether considered in a proceeding in equity or at law, and the
exercise of judicial discretion in accordance with New York court decisions and
statutes.

 

 

 

 

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(C)     To the extent that any opinion herein relates to the enforceability of
any provision in the Transaction Document regarding the choice of New York law
as the law governing the Transaction Document, such opinion is rendered in
reliance upon Section 5-1401 of the New York General Obligations Law and is
subject to the qualification that the enforceability of any such provision may
be limited by public policy considerations of any jurisdiction, other than the
courts of the State of New York, in which enforcement of any such provision, or
of a judgment upon an agreement containing any such provision, is sought.

 

(D)     We express no opinion as to:

 

(i)          any provision (a) requiring that a waiver, consent, discharge or
amendment be in writing in order to be effective, (b) purporting to disavow that
the waiver of the right to enforce a provision on one or more occasions can
constitute a waiver of the right to enforce the same or similar provisions on
other occasions, or (c) to the effect that the failure to exercise or the delay
in exercising rights or remedies will not operate as a waiver of any such rights
or remedies;

 

(ii)         any provision purporting to exculpate, release or indemnify any
party from or against, or waive or otherwise limit liability for, or establish
non-culpability of any lienholder for, any liability, loss or action, regardless
of that party’s own misconduct, negligence or tortious conduct;

 

(iii)        any provision purporting to (a) grant a party the right to collect
attorneys’ fees,

expenses or costs from any other party in any action between or among them which
is ultimately decided in favor of such other party and against the first party,
or (b) consent in advance to the appointment of a receiver;

 

(iv)        any provision providing for exclusive jurisdiction of particular
courts or purporting to waive, alter or limit, or restrict access to (a) legal
or equitable rights and remedies, including, without limitation, competent
jurisdiction, venue, the manner or method of service of process, and objections
to the laying of venue or forum on the basis of forum non conveniens, or (b)
statutory rights, including, without limitation, the waiver or release of, or
the agreement not to assert, setoffs, claims, counterclaims, defenses
(including, without limitation, any applicable statute of limitations), causes
of action, rights or remedies, and the right to receive notice or to be allowed
to cure, reinstate or redeem in the event of default;

 

(v)         any provisions that constitute forum selection clauses in the
federal courts or the courts of any state other than New York State courts;

 

(vi)        any provision that (a) liquidates damages for the breach of a
contract, or (b) provides for the payment of a penalty; or

 

(vii)       the enforceability of any document or provision in any document
which is referred to in the Transaction Document or incorporated by reference
therein, which is not set forth in its entirety therein (other than another
Transaction Document).

 

(E)      We express no opinion as to:

 

(i)           title to any collateral in which a security interest is granted,
the nature or extent of the rights, title or interest of the applicable Opinion
Parties in or to any of the Code Collateral, or the priority of any security
interest created or purported to be created in the Code Collateral by the
Security Agreement or, to the extent that the enforceability of any security
interest is dependent upon the priority thereof, the enforceability of such
security interest;

 

 

 

 

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(ii)          the creation of any Lien on any collateral to which Article 9 of
the New York UCC does not apply;

 

(iii)         the perfection of any Lien on any Code Collateral with respect to
which a security interest cannot be perfected by the filing of a financing
statement under the Delaware UCC, Colorado UCC, California UCC, Hawaii UCC, or
New York UCC, as applicable;

 

(iv)        any provision that purports to (a) continue or reinstate any
security interest after all Obligations have been paid in full, or (b) waive any
provision referred to in Sections 1–302 and 9–602 of the New York UCC;

 

(v)         any Lien on Code Collateral consisting of claims against any
government or governmental agency (including, without limitation, the United
States of America or any state thereof or any agency or department of the United
States of America or state thereof), or the perfection thereof;

 

(vi)        the perfection of any Lien on copyrights, patents, trademarks,
service marks or other intellectual property of the Opinion Parties, or the
proceeds thereof, other than under the Delaware UCC, Colorado UCC, California
UCC, Hawaii UCC, or New York UCC, as applicable;

 

(vii)       the ability of the Lender to recover any deficiency following the
disposition of the Code Collateral to the extent such remedy is limited by
Section 9–626 of the New York UCC;

 

(viii)      any Lien on Code Collateral consisting of commercial tort claims or
cooperative interests (as such terms are defined in Section 9–108(e)(1) and (3)
of the New York UCC), or the perfection thereof; or

 

(ix)         any purported grant of a security interest using overbroad or
supergeneric terms, such as “all other property,” “all assets” or the like,
which are ineffective in accordance with Section 9–108(c) of the New York UCC
(although we note that such descriptions are permitted with respect to
collateral descriptions in the Financing Statements in accordance with Section
9–504 of the Delaware UCC).

 

(F)     We have assumed that:

 

(i)           with respect to the attachment of the security interest of Lender
in the Code Collateral, value has been given within the meaning of Section
9–203(b)(1) of the New York UCC, the relevant Opinion Parties have sufficient
rights to grant a security interest in such Code Collateral or the power to
transfer rights therein to a secured party within the meaning of Section
9–203(b)(2) of the New York UCC, and one of the conditions set forth in Section
9–203(b)(3) of the New York UCC has been met;

 

(ii)          the Financing Statements will be properly filed and indexed by the
applicable Filing Office; and

 

(iii)         none of the Code Collateral consists or will consist of consumer
goods, equipment used in farming operations, farm products, crops, timber,
minerals and the like (including, without limitation, oil and gas) or accounts
or general intangibles resulting from the sale thereof.

 

The opinions expressed herein are based upon Applicable Law in effect and the
facts in existence as of the date of this opinion letter. In delivering this
opinion letter to you, we assume no obligation, and we advise you that we shall
make no effort, to update the opinions set forth herein, to conduct any inquiry
into the continued accuracy of such opinions, or to apprise any addressee hereof
or its counsel or assignees of any facts, matters, transactions, events or
occurrences taking place, and of which we may acquire knowledge, after the date
of this opinion letter, or of any change in any Applicable Law or any facts
occurring after the date of this opinion letter, which may affect the opinions
set forth herein. No opinions are offered or implied as to any matter, and no
inference may be drawn, beyond the strict scope of the specific issues expressly
addressed by the opinions herein.

 

 

 

 

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This opinion letter is solely for your benefit, information and use in
connection with the closing of the Transactions as required by Section 3.1(e) of
the Loan Agreement. This opinion letter may not be relied upon or used for any
other purpose, or relied upon, quoted from or referred to by, or circulated or
furnished to, any other Person for any purpose without our prior written consent
in each instance, except that, subject to all qualifications, exceptions,
limitations, restrictions and assumptions set forth herein, (i) any successor by
merger or acquisition or permitted assign that becomes a secured party under the
Loan Agreement in accordance with the express provisions thereof may rely on
this opinion letter as if it were an addressee hereof on this date, and (ii) you
may furnish a copy of this opinion letter (A) in connection with any judicial or
arbitration process, (B) to any governmental, regulatory or other authority
having jurisdiction over you, and (C) to independent auditors and attorneys for
Lender; provided that, in each of the foregoing cases, the delivery of a copy of
this opinion letter to any such Person shall not constitute a re-issuance or
reaffirmation of any of the opinions set forth in this opinion letter as of any
date after the date hereof.

 

Very truly yours,

 

 

 

 

 

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Exhibit A

 

Financing Statements

 

[Attached]

 

 

 

 

EXHIBIT C

 

COMPLIANCE CERTIFICATE

 

TO: LENDER Date:  

 

FROM:REAL GOODS SOLAR, INC. ET. AL.

 

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

 

 52 

 

 

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

 

Reporting Covenant   Required   Complies           Monthly financial statements
with  Compliance Certificate   Monthly within 30 days   Yes    No          
10-Q, 10-K and 8-K   Within 5 days after filing with SEC   Yes    No          
Annual Audited Financial Statements   FYE within 120 days               A/R &
A/P Agings   Monthly within 20 days   Yes    No           Transaction Reports  
Weekly and with each request for a Credit Extension   Yes    No          
Projections   Within 20 days of board approval (no later than 60 days
after  FYE)   Yes    No           Daily/Weekly Cash Flow Projections     On the
last Business Day of each month   Yes    No           Deferred Revenue Report,
Schedule of Assets with respect to 3rd party construction and financing
arrangement (including performance bonds and bank statements)   Monthly within
30 days s   Yes    No           Electronic viewing access to_________________
Account   Ongoing   Yes    No

 

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

_____________________________________________________________________________________

 

Financial Covenant  Required   Actual  Complies             Maintain at all
times (unless otherwise indicated), measured as indicated below:              
          Liquidity  $100,000   $______  Yes    No

 

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

 

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

 

 53 

 

 

         

 

REAL GOODS ENERGY TECH, INC., et al. LENDER USE ONLY

 

  Received by:    

By:____ 

    AUTHORIZED SIGNER

Name:__

  Date:  

Title:___

  Verified:    

 

    AUTHORIZED SIGNER

 

  Date:             Compliance Status:    Yes    No

 

 54 

 

 

Schedule 1 to Compliance Certificate

 

Financial Covenants of Borrower

 

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

 

Dated: ____________________

 

I.Liquidity. (Section 6.9(a)).

 

Required: Maintain at all times, certified monthly by Borrower, the sum of (i)
Qualified Cash plus (ii) the unused Availability Amount in an amount equal to or
greater than One Hundred Thousand Dollars ($100,000).

 

Actual:

 

A. Qualified Cash $_______       B. Unused Availability Amount $_______       C
LIQUIDITY (line A plus line B) $_______

 

Is line C equal to or greater than $100,000?

 

No, not in compliance     Yes, in compliance