As filed with the Securities and Exchange
Commission on September 7, 2018
Registration No. 333-____________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
REAL GOODS SOLAR, INC.
(Exact name of registrant as specified
in its charter)
Colorado
(State or other jurisdiction of
incorporation or organization)
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26-1851813
(I.R.S. Employer
Identification No.)
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110 16
th
Street, 3
rd
Floor
Denver, Colorado 80202
(303) 222-8300
(Address, including zip code, and telephone
number, including area code, of registrant’s principal executive offices)
Alan Fine
Real Goods Solar, Inc.
110 16
th
Street, 3
rd
Floor
Denver, Colorado 80202
(303) 222-8300
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
Copy to:
Rikard Lundberg, Esq.
Brownstein Hyatt Farber Schreck, LLP
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
(303) 223-1100
Approximate date of commencement of proposed
sale to the public:
From time to time or at one time after the effective date of this Registration Statement.
If the only securities being registered
on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box.
o
If any of the securities being registered
on this form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than
securities offered only in connection with dividend or interest reinvestment plans, check the following box.
x
If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering.
o
If this Form is a post-effective amendment
filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering.
o
If this Form is a registration statement pursuant
to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant
to Rule 462(e) under the Securities Act, check the following box.
o
If this Form is a post-effective amendment
to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes
of securities pursuant to Rule 413(b) under the Securities Act, check the following box.
o
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer
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þ
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Smaller reporting company
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þ
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Emerging growth company
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¨
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If an emerging growth company, indicate by
check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
¨
CALCULATION OF REGISTRATION FEE
Title of each class of securities to be
registered
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Amount to be
registered (1)
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Proposed
maximum
offering
price per
share
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Proposed
maximum
aggregate
offering price
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Amount of
registration
fee (3)
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Class A common stock, par value $0.0001 per share
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54,647,379
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(2)
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$
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0.43
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(3)
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$
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23,498,372.97
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$
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2,925.55
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(1)
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This Registration Statement also relates to an indeterminate number of shares of the Registrant’s Class A common stock that may be offered or issued to prevent dilution resulting from stock splits, stock dividends or similar transactions in accordance with Rule 416 under the Securities Act of 1933, as amended (the “Securities Act”).
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(2)
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Consists of (a) 135% of the aggregate estimated number of shares of Class A common stock issuable (i) upon conversion of the Registrant’s Series A senior convertible notes due April 9, 2019, which were acquired by certain selling shareholders in a private placement, and issuable from time-to-time under the terms of the Series A senior convertible notes, (ii) upon conversion of the Registrant’s Series B senior secured convertible notes due April 9, 2019, which were acquired by certain selling shareholders in a private placement, and issuable from time-to-time under the terms of the Series B senior secured convertible notes, and (iii) upon the exercise of the Registrant’s Series Q warrants to purchase Class A common stock, which were acquired by certain selling shareholders in a private placement (the Registrant previously registered 51,038,634 shares of Class A common stock issuable under the terms of such convertible notes and warrants and this Registration Statement relates to additional shares of Class A common stock under the terms of such convertible notes and warrants); (b) 128,000 shares of Class A common stock issuable upon the exercise of warrants to purchase Class A common stock, which were acquired by certain selling shareholders in a private placement on January 4, 2018, and (c) 730,160 shares of Class A common stock issuable upon the exercise of warrants to purchase Class A common stock, which were acquired by certain selling shareholders in a private placement on April 9, 2018.
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(3)
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Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(c) under the Securities Act, based upon the average of the high and low prices of the Registrant’s Class A common stock as reported on The Nasdaq Capital Market on September 5, 2018.
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The Registrant hereby amends this registration
statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment
which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act, or until the registration statement shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said section 8(a), may determine.
The information in this
prospectus is not complete and may be changed without notice. The selling shareholders may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell
these securities and the selling shareholders named in this prospectus is not soliciting offers to buy these securities in any
state where the offer or sale of these securities is not permitted.
Subject to completion, dated
September 7, 2018
PRELIMINARY PROSPECTUS
REAL GOODS SOLAR, INC.
54,647,379 shares of Class A common
stock
This prospectus relates to the offer and
sale by the selling shareholders identified in the prospectus, and any of their respective pledgees, donees, transferees, or other
successors in interest of up to 54,647,379 shares of Class A common stock of Real Goods Solar, Inc. The number of shares the selling
shareholders may sell consist of (a) 135% of the aggregate estimated number of shares of Class A common stock issuable (i) upon
conversion of, and from time-to time under the terms of, our Series A senior convertible notes due April 9, 2019 (the “Series
A Notes”), (ii) upon conversion of, and from time-to time under the terms of, our Series B senior secured convertible notes
due April 9, 2019 (the “Series B Notes,” and, together with the Series A Notes, the “Notes”), and (iii)
upon the exercise of our Series Q warrants to purchase Class A common stock; (b) 128,000 shares of Class A common stock issuable
upon the exercise of warrants to purchase Class A common stock, which were acquired by certain selling shareholders in a private
placement on January 4, 2018, and (c) 730,160 shares of Class A common stock issuable upon the exercise of warrants to purchase
Class A common stock, which were acquired by certain selling shareholders in a private placement on April 9, 2018. We previously
registered 51,038,634 shares of Class A common stock issuable under the terms of our Series A Notes, Series B Notes and Series
Q warrants to purchase Class A common stock and this prospectus relates to additional shares of Class A common stock that may be
issuable under the terms of these convertible notes and warrants (and other warrants).
We are filing the registration statement
of which this prospectus is a part at this time to fulfill contractual obligations to do so, as described in this prospectus. We
will not receive any of the proceeds from the sale of the Class A common stock by the selling shareholders.
The selling shareholders and their respective
pledgees, donees, transferees, or other successors in interest may offer the shares of Class A common stock in one or more transactions
at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, at negotiated
prices, or in trading markets for our Class A common stock. Additional information on the selling shareholders, and the times and
manner in which they may offer and sell shares of our Class A common stock under this prospectus, is provided under “Selling
Shareholders” and “Plan of Distribution” in this prospectus.
Our Class A common stock is quoted on The
Nasdaq Capital Market under the symbol “RGSE.” On September 6, 2018, the last reported sale price of our Class A common
stock was $0.42 per share.
Investing in our Class A common stock
involves certain risks. See “Risk Factors” beginning on page 5 of this prospectus for the risks that you should consider.
You should read this entire prospectus carefully before you make your investment decision.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined
if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is _______
__, 2018
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
Except where the context requires otherwise,
in this prospectus the terms “Company,” “our company,” “Real Goods Solar,” “we,”
“us,” “its,” and “our” refer to Real Goods Solar, Inc., a Colorado corporation, and where appropriate,
its direct and indirect subsidiaries.
You should rely only on the information
contained or incorporated by reference in this prospectus. We have not authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent information, you should not rely on it. For further information,
please see the section of this prospectus entitled “Where You Can Find More Information.” The selling shareholders
are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.
You should not assume that the information
appearing in this prospectus is accurate as of any date other than the date on the front cover of this prospectus, regardless of
the time of delivery of this prospectus or any sale of a security. Our business, financial condition, results of operations, and
prospects may have changed since those dates.
This prospectus contains trademarks, tradenames,
service marks, and service names of the Company.
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus and the documents incorporated
by reference herein may contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform
Act of 1995 that involve risks and uncertainties, including statements regarding the Company’s results of operations and
financial positions, and the Company’s business and financial strategies. Forward-looking statements are neither historical
facts nor assurances of future performance. Instead, they provide our current beliefs, expectations, assumptions and forecasts
about future events, and include statements regarding our future results of operations and financial position, business strategy,
budgets, projected costs, and plans and objectives of management for future operations. The words “anticipate,” “believe,”
“plan,” “estimate,” “expect,” “future,” “intend,” “strategy,”
“likely,” “seek,” “may,” “will” and similar expressions as they relate to us are
intended to identify such forward-looking statements. Because forward-looking statements relate to the future, they are subject
to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our
control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements.
Therefore, you should not rely on any of these forward-looking statements.
Important factors that could cause our
actual results and financial condition to differ materially from those indicated in the forward-looking statements include, without
limitation, the following: our history of operating losses; our ability to implement our revenue growth strategy; our ability to
achieve profitability; our ability to generate breakeven cash flow to fund our operations; our success in implementing our plans
to increase future sales, and installations and revenue; rules, regulations and policies pertaining to electricity pricing and
technical interconnection of customer-owned electricity generation such as net energy metering; the continuation and level of government
subsidies and incentives for solar energy; existing and new regulations impacting solar installations including electric codes;
future shortages in supplies for solar energy systems; our failure to timely or accurately complete financing paperwork on behalf
of customers; the adoption and general demand for solar energy; the impact of a drop in the price of conventional energy on demand
for solar energy systems; seasonality of customer demand and adverse weather conditions inhibiting our ability to install solar
energy systems; changing and updating technologies and the issues presented by these new technologies related to customer demand
and our product offering; geographic concentration of revenue from the sale of solar energy systems in Hawaii, California and east
coast states; non-compliance with or loss or suspension of licenses required for installation of solar energy systems; loss of
key personnel and ability to attract necessary personnel; our failure to accurately predict future warranty claims; adverse outcomes
arising from litigation and legal disputes to which we may be subject from time to time; our ability to continue to obtain services
and components from suppliers, installers and other vendors; disruption of our supply chain from equipment manufacturers and potential
shortages of components for solar energy systems; factors impacting the timely installation of solar energy systems; competition;
costs associated with safety and construction risks; continued access to competitive third party financiers to finance customer
solar installations; increases in interest rates and tightening credit markets; our ability to successfully and timely commercialize
POWERHOUSE™ 3.0; the ability to obtain requisite certification of POWERHOUSE™ 3.0; demand for POWERHOUSE™ 3.0;
the adequacy of, and access to, capital necessary to commercialize POWERHOUSE™ 3.0; our ability to satisfy the conditions
and our obligations under the POWERHOUSE™ 3.0 license agreement; our ability to manage supply chain in order to have production
levels and pricing of the POWERHOUSE™ 3.0 shingles to be competitive; our ability to successfully expand our operations and
employees and realize profitable revenue growth from the sale and installation of POWERHOUSE™ 3.0, and to the extent anticipated;
the potential impact of the announcement of our expansion into the POWERHOUSE™ 3.0 business with employees, suppliers, customers
and competitors; our ability to successfully and timely expand our POWERHOUSE™ 3.0 business outside of the United States;
foreign exchange risks associated with the POWERHOUSE™ 3.0 business; intellectual property infringement claims related to
the POWERHOUSE™ 3.0 business; competition in the in-roof solar shingles business; our ability to realize revenue from written
reservations for initial POWERHOUSE™ deliveries; our ability to obtain future written reservations for POWERHOUSE™
deliveries; future cancellations and backlog; our ability to meet customer expectations; risks and liabilities associated with
placing employees and technicians in our customers’ homes and businesses; product liability claims; future data security
breaches, or our inability to protect personally identifiable information or other information about our customers; failure to
comply with the director independence standards of the Securities and Exchange Commission (“SEC”) and the Nasdaq Capital
Market; our inability to maintain effective disclosure controls and procedures and internal control over financial reporting; the
volatile market price of our Class A common stock; the dilutive effect of the conversion of our outstanding convertible notes,
exercise of outstanding warrants and future issuances of stock, options, warrants or other securities and the effect on the market
price of our Class A common stock; our ability to obtain additional financing in the future; our ability to receive cash payments
under the Investor Notes (as defined below); our ability to pay the balance due at maturity of our convertible notes due April
9, 2019 if the holders thereof do not convert them or are not forced to convert; the low likelihood that we will pay any cash dividends
on our Class A common stock for the foreseeable future; compliance with public reporting requirements; anti-takeover provisions
in our organizational documents; the terms of some of our outstanding securities and transaction documents entered into in connection
with past offerings restrict our ability to enter into certain transactions or obtain financing, and could result in our paying
premiums or penalties to the holders of some of our outstanding securities; the disruptive effect and costs associated with threatened
or commenced proxy contests; our ability to meet The Nasdaq Capital Market continued listing requirements; and such other factors
as discussed throughout Part I, Item 1A, Risk Factors and Part II, Item 7, Management’s Discussion and Analysis of Financial
Conditions and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2017 and Part I, Item 2,
Management’s Discussion and Analysis of Financial Conditions and Results of Operations and Part II, Item 1A, Risk Factors
included in our Quarterly Reports on Form 10-Q.
Any forward-looking statement made by us
in this prospectus and the documents incorporated by reference herein is based only on information currently available to us and
speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether
written or oral that may be made from time to time, whether as a result of new information, future developments or otherwise, except
as required by applicable law.
PROSPECTUS SUMMARY
This prospectus summary highlights important
features of this offering and the information included or incorporated by reference in this prospectus. Because it is a summary,
it may not contain all of the information that may be important to you. You should carefully read this entire prospectus, including
the section entitled “Risk Factors.”
Overview of our Company
As of September 29, 2017, we are the exclusive
domestic and international licensee of the POWERHOUSE™ in-roof solar shingle, an innovative and visually stunning solar shingle
system using technology developed by The Dow Chemical Company. The POWERHOUSE™ 1.0 and 2.0 versions used CIGS (copper indium
gallium selenide solar cells) technology which had a high manufacturing cost, resulting in the product not being consumer price
friendly. Conversely, the POWERHOUSE™ 3.0 is being developed with traditional silicon solar cells to increase solar production
and to provide a competitive consumer price point. Under terms of a Technology License Agreement with Dow, we are pursuing final
stages of development of POWERHOUSE™ 3.0 to receive UL certification, after which we will begin to commercialize the product
in North America. Upon achieving UL certification, we will engage third-party manufacturers for production and perform distribution
logistics and services to the home building and roofing industries. Further, we plan on engaging in technological advances in panel
output and expansion of potential customer base from asphalt shingle roofing to alternative roofing systems. Under the Trademark
License Agreement, we will market the POWERHOUSE™ 3.0 product using the Dow name.
We are a residential and business commercial
solar energy engineering, procurement and construction firm. We offer turnkey services, including design, procurement, permitting,
build-out, grid connection, financing referrals and warranty and customer satisfaction activities. Our solar energy systems use
high-quality solar photovoltaic modules. We use proven technologies and techniques to help customers achieve meaningful savings
by reducing their utility costs. In addition, we help customers lower their reliance upon fossil fuel energy sources.
We, including our predecessors, have more
than 39 years of experience in residential solar energy and trace our roots to 1978, when Real Goods Trading Corporation sold the
first solar photovoltaic panels in the United States. We have designed and installed over 25,000 residential and commercial solar
energy systems since our founding.
During 2014, we discontinued our entire
former Commercial segment and sold the assets associated with our catalog business (a portion of the Other segment). As of September
30, 2017, we created a new segment for our POWERHOUSE™ business. As a result, we now operate as four reportable segments:
(1) Residential – the installation of solar energy systems for homeowners, including lease financing thereof, and small
business commercial in the continental United States; (2) Sunetric – the installation of solar energy systems for both
homeowners and business owners (commercial) in Hawaii; (3) POWERHOUSE™ - the manufacturing and sales of solar shingles; and
(4) Other – corporate operations. We believe this structure enables us to more effectively manage our operations and
resources.
Our executive offices are located at 110
16
th
Street, 3
rd
Floor, Denver, CO 80202. Our telephone number is (303) 222-8300. Our website is www.rgsenergy.com.
The information on our website is not intended to be a part of this prospectus, and you should not rely on any of the information
provided there in making your decision to invest in our securities. Our website address referenced above is intended to be an inactive
textual reference only and not an active hyperlink to our website.
Recent Developments
In conjunction with our plans to position
our company for future profitable operations, we have:
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·
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Issued and sold up to $10.75 million of convertible notes and Series Q warrants in April 2018 (the
“April 2018 Offering”). We received gross proceeds of $5.0 million at closing and had received approximately $10.1
million of additional funds since closing as a result of exercises of Series Q warrants and prepayment of Investor Notes (as defined
below), as of September 6, 2018, and may receive up to approximately $3.7 million more in the future upon prepayment of the Investor
Notes and exercises of Series Q warrants, if any. It is our intent to use the proceeds from the April 2018 Offering to (i) finance
UL certification for POWERHOUSE™ and the $2 million license payment to Dow upon achieving UL certification, and (ii) initiate
commercialization of POWERHOUSE™.
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·
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Completed a realignment of our Residential and Sunetric segments, which is expected to reduce our
fixed cost structure below the gross profit line by 30% as compared to 2017 costs, to lower the required amount of future revenue
to achieve break-even, or better, operating results in the future.
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·
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Raised gross proceeds of $1.8 million from an offering of Class A common stock and warrants in January
2018 (the “January 2018 Offering”).
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The Offering
Class A common stock offered
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Up to 54,647,379 shares (consisting of
(a) 135% of the aggregate estimated number of shares of Class A common stock issuable (i) upon conversion of, and from time-to
time under the terms of, our Series A Notes, (ii) upon conversion of, and from time-to time under the terms of, our Series B Notes,
and (iii) upon the exercise of our Series Q warrants to purchase Class A common stock; (b) 128,000 shares of Class A common stock
issuable upon the exercise of warrants to purchase Class A common stock, which were acquired by certain selling shareholders in
connection with our January 2018 Offering; and (c) 730,160 shares of Class A common stock issuable upon the exercise of warrants
to purchase Class A common stock, which were acquired by certain selling shareholders in connection with our April 2018 Offering
(in each case, as further described in this prospectus)).
We previously registered 51,038,634 shares
of Class A common stock issuable under the terms of our Series A Notes, Series B Notes and Series Q warrants to purchase Class
A common stock and this prospectus relates to additional shares of Class A common stock that may be issuable under the terms of
these convertible notes and warrants (and other warrants).
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Class A common stock outstanding
before this offering
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50,090,874 shares as of September 6, 2018
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Class A common stock outstanding
after this offering
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104,738,253 shares (assuming that all of the registered securities are issued pursuant to the terms of the applicable convertible notes and warrants)
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Use of proceeds
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We will not receive any proceeds from the sale of shares of Class A common stock in this offering, but we will receive the exercise price of the applicable warrants if the applicable warrants are exercised (unless exercised by means of a “cashless exercise,” in which case we will not receive any exercise price). See the section entitled “Use of Proceeds.”
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Nasdaq Capital Market symbol
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RGSE
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Risk factors
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You should consider carefully the information set forth in the section entitled “Risk Factors,” beginning on page 5 of this prospectus, in deciding whether or not to invest in our Class A common stock.
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Plan of distribution
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The selling shareholders and their pledgees, donees, transferees, or other successors in interest may offer the shares of Class A common stock in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, at negotiated prices, or in trading markets for our Class A common stock. See the section entitled “Plan of Distribution,” beginning on page 18 of this prospectus for a complete description of the manner in which the shares registered hereby may be distributed.
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RISK FACTORS
An investment in our securities involves
a high degree of risk. Before making an investment decision you should carefully read and consider the risks described below, together
with all of the other information included or incorporated by reference in this prospectus, including, without limitation, the
risk factors in the section entitled “Risk Factors” in our most recent Annual Report on Form 10-K, which is on file
with the SEC. If any of the risks listed in our most recent Annual Report on Form 10-K or any of the following risks actually occur,
our business, financial condition, and/or results of operations could suffer. In that case, the market price of our common stock
offered by this prospectus could decline, and you may lose all or part of your investment. You should read the section entitled
“Special Note Regarding Forward-Looking Statements” above for a discussion of what types of statements are forward-looking
statements, as well as the significance of such statements in the context of this prospectus. Additional risks and uncertainties
that we do not presently know or that we currently deem immaterial may also have a material adverse effect on our business.
The issuance of shares of Class A common
stock upon conversion of our outstanding convertible notes, including the Notes, and exercise of our outstanding warrants could
substantially dilute your investment and could impede our ability to obtain additional financing.
Our outstanding convertible notes, including
the Notes, are convertible into, and our outstanding warrants are exercisable for, shares of our Class A common stock and give
the holders an opportunity to profit from a rise in the market price of our Class A common stock. Conversion or exercise thereof
will result in dilution of the equity interests of our shareholders. In particular, the conversion price of the Notes is subject
to adjustment and a decrease in the conversion price would result in more shares of Class A common stock becoming issuable upon
conversion of the Notes and could result in downward pressure on the price of our Class A common stock. We have no control over
whether the holders will exercise their right to convert their convertible notes or exercise their warrants. We cannot predict
the market price of our Class A common stock at any future date, and therefore, we are unable to accurately forecast or predict
with any certainty the total amount of shares that may be issued under the Notes and outstanding warrants. However, we have estimated
the number of Class A common stock that may be issued under the Notes in the future to be approximately 62.8 million shares and
under outstanding warrants (assuming that only warrants with an exercise price at or below $3.10 will be exercised) to be approximately
9.4 million shares. The actual number of shares to be issued cannot be precisely determined.
If the holders of the Notes do not convert
their Notes into shares of Class A common stock and we are unable to force them to convert, we will have a balance outstanding
at maturity of the Notes.
The Notes are convertible into shares of
our Class A common stock. Note holders are allowed to convert them into shares of Class A common stock at any time. We also will
have the ability to force Note holders to convert upon the occurrence of a certain event. However, we do not expect that Note holders
will convert them voluntarily unless the shares they receive upon conversion are either registered for resale under the Securities
Act or eligible to be resold under Rule 144 promulgated under the Securities Act (“Rule 144”). Further, our ability
to force Note holders to convert them is subject to the satisfaction of certain conditions and we may be unable to satisfy these
conditions.
In the event there is a balance outstanding
at maturity, we would seek to refinance the remaining balance outstanding at that time from either: (i) refinancing of the obligation
with the Note holders, (ii) an offering of securities, or (iii) common stock warrant exercises, including by reducing the exercise
price of common stock warrants to induce conversion. No assurances can be given that should a balance remain on the Notes at maturity
we will be successful in meeting the obligation under the Notes. Should we determine to seek capital from a securities offering,
it will be dilutive to shareholders.
The terms of some of our outstanding
securities and certain transaction documents we have entered into with investors participating in our past offerings could impede
our ability to enter into certain transactions or obtain additional financing and could result in our paying premiums or penalties
to the holders of the Notes and outstanding warrants.
The terms of some of our outstanding securities,
including the Notes and some of our outstanding series of warrants to purchase Class A common stock, prohibit us from entering
into a “fundamental transaction” (as defined in the Notes and such warrants) (including generally, a merger, sale of
all or substantially all of our assets, or permitting a purchase tender or exchange offering resulting in a person or group of
persons owning at least 50% of the outstanding shares of our Class A common stock) unless, among other things, the successor resulting
from the fundamental transaction assumes all of our obligations under the Notes, the applicable warrants and the associated transaction
documents. The terms of the transaction documents we have entered into with investors participating in our past offerings also
contain restrictions on our ability to conduct future securities offerings and incur additional debt.
Further, the Notes and our outstanding
warrants require us to deliver the number of shares of our Class A common stock issuable upon conversion or exercise within a specified
time period. If we are unable to deliver the shares of Class A common stock within the timeframe required, we may be obligated
to reimburse the holder for the cost of purchasing the shares of our Class A common stock in the open market or pay them the profit
they would have realized upon the conversion or exercise and sale of such shares.
We may also be obligated to redeem the
Notes at a premium upon the occurrence of an event of default (as defined in the Notes) or a change of control (as defined in the
Notes). Some of our outstanding warrants also contain features that may require us to repurchase such warrants upon the occurrence
of a change of control.
In addition to the foregoing, we may be
obligated to pay cash penalties under the registration rights agreement we have entered into with the investors in the April 2018
Offering (the “Registration Rights Agreement”). For example, if the registration statement required to be filed under
the Registration Rights Agreement ceases to be effective and available to the selling shareholders under certain circumstances,
we must pay to the selling shareholders, on the occurrence of each such event and on every 30th day thereafter until the applicable
event is cured, an amount in cash equal to 1.0% of the aggregate original principal amount under the Notes on the date of issuance.
On April 27, 2018, we filed a Registration Statement on Form S-3 to register for resale an aggregate of 51,038,634 of Class A common
stock issuable upon conversion of the Notes and exercise of the Series Q warrants. The SEC declared the registration statement
effective on May 4, 2018.
The payments described above we may be
obligated to make may adversely affect our results of operations.
DESCRIPTION OF THE TRANSACTION
January 2018 Offering (January 2018
Placement Agent Warrants)
On January 4, 2018, we closed the January
2018 Offering. Under the terms of the engagement letter dated December 13, 2017 between us and WestPark Capital, Inc. (“WestPark”)
and in connection with WestPark’s acting as placement agent in the January 2018 Offering, we issued and sold to WestPark
for a sum of $100 a warrant to purchase 128,000 shares of Class A common stock at an exercise price of $1.47, and WestPark transferred
such warrant to four of its employees (the “January 2018 Placement Agent Warrants”). The current holders of the January
2018 Placement Agent Warrants are listed in the selling shareholder table included in the section entitled “SELLING SHAREHOLDERS.”
Description of the January 2018 Placement
Agent Warrants
The January 2018 Placement Agent Warrants
became exercisable six months after issuance and will remain exercisable until the fifth anniversary of such date. The initial
and current exercise price of the January 2018 Placement Agent Warrants is $1.47 per share, subject to adjustments for stock splits
and similar events (but not for subsequent issuances of securities; nor is the exercise price subject to a reset). The holder of
the January 2018 Placement Agent Warrants may elect to exercise them through a cashless exercise at any time, regardless of whether
the shares of Class A common stock issuable upon exercise are covered by a registration statement under the Securities Act, in
which case the holder will receive upon such exercise the “net number” of shares of Class A common stock determined
according to the formula set forth in the January 2018 Placement Agent Warrant and we will not receive the exercise price.
A holder may not exercise a January 2018
Placement Agent Warrant and we may not issue shares of Class A common stock under a January 2018 Placement Agent Warrant if, after
giving effect to the exercise or issuance, the holder together with its affiliates would beneficially own in excess of 4.99% of
the outstanding shares of Class A common stock. At the holder’s option, the cap may be increased or decreased to any other
percentage not in excess of 9.99%, except that any increase will not be effective until the 61st day after notice to us.
A holder of a January 2018 Placement Agent
Warrant is entitled to acquire options, convertible securities or rights to purchase our securities or property granted, issued
or sold pro rata to the holders of our Class A common stock on an “as if exercised for Class A common stock” basis.
A holder of a January 2018 Placement Agent Warrant is entitled to receive any non-cash dividend or other distribution of our assets
(or rights to acquire its assets), at any time after the issuance of the January 2018 Placement Agent Warrants, on an “as
if exercised for Class A common stock” basis.
The January 2018 Placement Agent Warrants
prohibit us from entering into transactions constituting a “fundamental transaction” (as defined in the January 2018
Placement Agent Warrants) unless the successor entity assumes all of our obligations under the January 2018 Placement Agent Warrants
in a written agreement approved by the “required holders” of our Series O Warrant issued in our January 2018 Offering.
The definition of “fundamental transactions” includes, but is not limited to, mergers, a sale of all or substantially
all of our assets, certain tender offers and other transactions that result in a change of control.
April 2018 Offering (Notes, Series Q
Warrants and April 2018 Placement Agent Warrants)
On April 9, 2018, we closed the April 2018
Offering, a private placement of Notes and Series Q warrants with two unaffiliated institutional and accredited investors (the
“Investors”), in which we issued and sold to the Investors (i) $10.75 million in principal amount and $10 million funding
amount (reflecting an original issue discount of $750,000) of convertible notes due April 9, 2019, consisting of (A) two Series
A Notes in the aggregate principal amount of $5,750,000 in consideration for aggregate cash payments of $5,000,000, (B) two Series
B Notes in the aggregate principal amount of $5,000,000 for consideration consisting of two secured promissory notes, each issued
and payable by an Investor, in the aggregate principal amount of $5,000,000 (each, an “Investor Note”), and (ii) Series
Q warrants to purchase up to 9,126,984 shares of our Class A common stock, under the terms of the Securities Purchase Agreement,
dated March 30, 2018, among us and the Investors (as amended, the “Purchase Agreement”). The Notes are convertible
into, and the Series Q warrants are exercisable for, shares of our Class A common stock.
The Notes and the Series Q warrants were
issued in physical form separately from each other and may be transferred separately at any time. The Notes and the Series Q warrants
are not listed on any national securities exchange or other trading market, and no trading market for the Notes and the Series
Q warrants is expected to develop.
Under the terms of the engagement letter
dated January 29, 2018 we entered into with WestPark in connection with the April 2018 Offering, we issued and sold to WestPark
for a sum of $100 a warrant to purchase 730,160 shares of Class A common stock at an initial exercise price of $1.12, and WestPark
transferred such warrant to four of its employees (the “April 2018 Placement Agent Warrants” and, together with the
January 2018 Placement Agent Warrants, collectively, the “Placement Agent Warrants”). The current holders of the April
2018 Placement Agent Warrants are listed in the selling shareholder table included in the section entitled “SELLING SHAREHOLDERS.”
Description of the Notes
Principal Amount;
Maturity Date; Interest
The aggregate original principal amount
of the Series A Notes was $5,750,000 and the Series B Notes was $5,000,000. As of September 6, 2018, the aggregate principal amount
of 3,151,544 of the Series B Notes constitutes Restricted Principal (as defined in the Series B Notes). If an Investor prepays
any amount under such Investor’s Investor Note, an equal amount of the Restricted Principal becomes unrestricted principal
under such Investor’s Series B Note. In lieu of initially receiving any original issue discount on the Series B Notes, the
Series B Notes accrue an “Additional OID Amount” (as defined in the Series B Notes) based upon the portion of the principal
of the Series B Notes that becomes unrestricted from time to time, pro rata, which, in the aggregate would result in up to $750,000
of Additional OID Amount payable under the Series B Notes if all of the principal under the Series B Notes becomes unrestricted.
All amounts outstanding under the Notes
mature and will be due and payable on April 9, 2019, the one-year anniversary of the issuance of the Notes. We are not required
to amortize the Notes. The Notes do not incur interest other than upon the occurrence of an event of default, in which case the
Notes bear default interest at 18% per year.
Conversion of the
Notes
The Notes are convertible at any time,
at the option of the holders, into shares of Class A common stock at a conversion price. The initial fixed conversion price was
$1.26 per share, subject to reduction, as described below, and adjustment for stock splits, stock dividends, and similar events.
On July 9, 2018, the conversion price was automatically reset to $0.3223 pursuant to the terms of the Notes. On August 29, 2018,
we agreed with the Note holders to reduce the conversion price further to $0.3067.
Following an event of default under the
Notes, during a specified time period, a Note holder may convert a Note at an Alternate Conversion Price and at a 125% premium.
“Alternate Conversion Price” means the greater of (i) a floor price of $0.194, and (ii) the lower of (A) the conversion
price, and (B) 85% of the price computed as the quotient of (1) the sum of the VWAP (a volume-weighted average price of our Class
A common stock, as defined in the Notes) of the Class A common stock for each of the two trading days with the lowest VWAP of the
Class A common stock during the 20 consecutive trading day period ending and including the date of the delivery by the Note holder
of a conversion notice, divided by (2) two.
We have the right to require Note holders
to convert all, or any part of, their Notes if at any time (i) the VWAP of the Class A common stock exceeds 200% of the conversion
price for 10 consecutive trading days, and (ii) no Equity Conditions Failure (as defined in the Notes) then exists. However, our
ability to force a holder to convert its Notes is limited to each Note holder’s pro rata amount of an amount equal to 20%
of the aggregate dollar trading volume of the Class A common stock during the 20 consecutive trading day period before the date
we provide notice of mandatory conversion to Note holders.
Equity Conditions
The Notes require that certain Equity Conditions
(as defined in the Notes) are met to allow us to take certain actions. Generally, the Equity Conditions include, but are not limited
to, requirements that (i) holders of Notes and Series Q warrants may resell shares of Class A common stock issuable upon conversion
and exercise of the Notes and the Series Q warrants under an effective registration statement or under Rule 144; (ii) the Class
A common stock is listed on an Eligible Market (as defined in the Notes); (iii) certain stock price and volume requirements are
met; (iv) there is no event of default under the Notes; and (v) we have obtained shareholder approval of the issuance of shares
of Class A common stock upon conversion of the Notes and exercise of the Series Q warrants at conversion and exercise prices below
the initial conversion price of the Notes and the initial exercise price of the Series Q warrants, as required under Nasdaq Rule
5635(d), which we obtained on June 21, 2018.
Reduction of the
Conversion Price
The conversion price of the Notes is subject
to reduction as described below.
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If on or after March 30, 2018, we issue or sell, or are deemed to have issued or sold, any shares of Class A common stock or other securities convertible, exercisable or exchangeable for shares of Class A common stock (other than Excluded Securities (as defined in the Notes)) for consideration per share less than the conversion price of the Notes (the “New Issuance Price”), then the conversion price of the Notes will be reduced to the New Issuance Price in accordance with formulas provided in the Notes.
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If we sell Variable Price Securities (as defined in the Notes) after March 30, 2018, a Note holder will have a right to substitute the Variable Price (as defined in the Notes) for the conversion price under the Notes.
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If there occurs any stock split, stock dividend, stock combination recapitalization or other similar transaction involving the Class A common stock and the Event Market Price (as defined in the Notes) is less than the conversion price, then on the 16th trading day after such event, the conversion price shall be reduced (but in no event increased) to the Event Market Price.
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We may at any time, subject to Nasdaq’s approval and with the prior written consent of the Required Holders (as defined in the Purchase Agreement), reduce the conversion price to any amount and for any period of time deemed appropriate by our board of directors.
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The conversion price may also be reduced
in connection with our failure to pay the redemption price in a timely manner, as described below.
Redemption of the
Notes
At any time after the later of (i) 15 days
after the Applicable Date (as defined below) and (ii) the date no Equity Conditions Failure (as defined in the Notes) exists, we
will have the right to redeem all, but not less than all, of the Notes in cash at a price equal to (A) if on or before October
9, 2018, 120% or (B) if after such date, 125%, in each case, of the greater of (1) the amount being redeemed, and (2) the product
of (x) the amount being redeemed divided by the conversion price, multiplied by (y) the greatest closing price of the Class A common
stock on any trading day during the period commencing on the date immediately preceding the date on which we provided notice of
such redemption and ending on the trading day immediately before the date we make the entire redemption payment. “Applicable
Date” means the earlier of (i) the first date on which the resale by the Investors of all the Registrable Securities (as
defined in the Registration Rights Agreement) required to be included on the initial registration statement under the Registration
Rights Agreement is declared effective by the SEC (and each prospectus contained therein is available for use on such date), and
(ii) the first date on which all of the Registrable Securities are eligible to be resold by the Investors under Rule 144, subject
to certain conditions.
If we consummate a Subsequent Placement
(as defined in the Notes), subject to some exceptions, a Note holder will have the right to require that we redeem, in whole or
in part, a portion of the amounts owed by us to such holder under a Note equal to such holder’s pro rata share of 37.5% of
the gross proceeds from such Subsequent Placement in cash at a price calculated as described in the paragraph above.
A Note holder may also require us to redeem
all or a portion of its Note in connection with a transaction that results in a Change of Control (as defined in the Notes) and
upon the occurrence of an event of default, as described below.
If we do not pay the redemption price in
a timely manner, Note holders have the option to cancel such redemption and the principal amount of each Note will then be increased
by an amount equal to the difference between (i) the applicable redemption price minus (ii) the principal portion of the amount
subject to redemption. In addition, the conversion price will be automatically adjusted with respect to each conversion effected
thereafter by a Note holder to the lowest of (i) the conversion price, (ii) the greater of (A) $0.194 and (B) 75% of the lowest
closing bid price of the Class A common stock during the period beginning on and including the date on which the applicable redemption
notice is delivered to us and ending on and including the date on which the applicable redemption notice is voided, and (iii) the
greater of (A) $0.194 and (B) 75% of the quotient of (I) the sum of the five lowest VWAPs of the Class A common stock during the
20 consecutive trading day period ending and including the applicable conversion date divided by (II) five.
Events of Default
The Notes contain customary events of default,
including but not limited to: (i) failure to file or have declared effective by the SEC the applicable registration statement required
by the Registration Rights Agreement within certain time periods or failure to keep the registration statement effective as required
by the Registration Rights Agreement, (ii) failure to maintain the listing of the Class A common stock, (iii) failure to make payments
when due under the Notes, (iv) breaches of covenants, and (iv) bankruptcy or insolvency.
The occurrence of an event of default under
the Notes will trigger default interest and will cause an Equity Condition Failure, which may mean that we will be unable to force
mandatory conversion of the Notes and that Investors may not be required to prepay their Investor Notes under a mandatory prepayment
event.
Following an event of default, Note holders
may require us to redeem all or any portion of their Notes in cash at a conversion price equal to the greater of (i) 125% of the
amount to be redeemed, and (ii) the product of (A) the amount to be redeemed divided by the conversion price, multiplied by (B)
the product of (x) 125% multiplied by (y) the greatest closing sale price of the Class A common stock on any trading day during
the period commencing on the date immediately preceding such event of default and ending on the date we make the entire redemption
payment.
We must immediately redeem the Notes in
cash in an amount equal to 125% multiplied by the amount to be redeemed upon the occurrence of a Bankruptcy Event of Default (as
defined in the Notes).
Fundamental Transactions
and Change of Control
The terms of the Notes prohibit us from
entering into transactions constituting a Fundamental Transaction (as defined in the Notes) unless the successor entity, which
must be a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible Market (as defined in
the Notes), assumes all of our obligations under the Notes and the other transaction documents in a written agreement approved
by each Note holder. The definition of Fundamental Transactions includes, but is not limited to, mergers, a sale of all or substantially
all of our assets, certain tender offers and other transactions that result in a change of control.
Further, in connection with a Change of
Control (as defined in the Notes), upon request of a Note holder, we must redeem all or any portion of such holder’s Note(s)
in cash at a 125% premium in an amount calculated pursuant to a formula set forth in the Notes. The definition of Change of Control
is generally the same as the definition of Fundamental Transaction but excludes certain types of Fundamental Transactions.
Beneficial Ownership
Limitation
A holder may not convert a Note and we
may not issue shares of Class A common stock upon conversion of a Note, if, after giving effect to the conversion, a holder together
with its “attribution parties,” would beneficially own in excess of 4.99% or 9.99%, as elected by each Investor at
closing, of the outstanding shares of our Class A common stock. At each holder’s option, the cap may be increased or decreased
to any other percentage not in excess of 9.99%, except that any increase will not be effective until the 61st day after notice
to us.
Purchase Rights;
Distributions of Assets
The Note holders are entitled to acquire
options, convertible securities or rights to purchase our securities or property granted, issued or sold pro rata to the holders
of our Class A common stock on an “as if converted into Class A common stock” basis. The Note holders are entitled
to receive any dividend or other distribution of our assets (or rights to acquire our assets), at any time after the issuance of
the Notes, on an “as if converted into Class A common stock” basis.
Covenants
We agreed to certain negative covenants
in the Notes, under which we have agreed not to, and to cause our subsidiaries not to, among other things: (i) incur or guarantee,
assume or suffer to exist any indebtedness, other than certain permitted indebtedness, (ii) allow or suffer to exist any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any property or assets of ours or any of our subsidiaries
other than certain permitted liens, (iii) redeem, defease, repurchase, repay or make any payments in respect of, by the payment
of cash or cash equivalents all or any portion of any indebtedness other than the Notes if at the time such payment is due or is
otherwise made or, after giving effect to such payment, an event of default under the Notes has occurred and is continuing, (iv)
redeem, repurchase or declare or pay any cash dividend or distribution on any of our capital stock, (v) sell, lease, license, assign,
transfer, spin off, split off, close, convey or otherwise dispose of any material assets or rights, subject to certain exceptions,
(vi) permit any of our indebtedness to mature or accelerate before the maturity date of the Notes, (vii) make any changes in the
nature of our business nor modify our corporate structure or purpose, (viii) enter into transactions with affiliates, subject to
certain exceptions, or (ix) issue any Notes or any other securities that would cause a breach or default under the Notes or the
Series Q warrants.
We also agreed to certain affirmative covenants
in the Notes, pursuant to which we agreed to and will cause each of our subsidiaries to, among other things: (i) maintain and preserve
ours and its existence, rights and privileges, and become or remain duly qualified and in good standing in each jurisdiction in
which the character of the properties owned or leased or in which the transaction of our business makes such qualification necessary,
(ii) maintain and preserve all properties which are necessary or useful in the proper conduct of our business in good working order
and condition, ordinary wear and tear excepted, and comply at all times with the provisions of all leases to which we are a party
as lessee or under which we occupy property, so as to prevent any loss or forfeiture thereof or thereunder, (iii) maintain all
intellectual property rights that are necessary or material to the conduct of our business, (iv) maintain certain insurance coverage,
(v) at any time at least $1,000,000 in aggregate principal amount of Notes remains outstanding, maintain Available Cash (as defined
in the Notes) as of each fiscal quarter equal to or exceeding $750,000, and (vi) make quarterly announcements of operating results.
Other Terms Specific
to the Series B Notes
If an Investor Note is pledged, assigned
or transferred to any person other than us without the prior written consent of the applicable Investor, including by contract,
operation of law, court order or otherwise (each, a “Prohibited Transfer”) or if any provision of an Investor Note
is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction or other similar
authority, in each case, (i) such Investor Note will be deemed paid in full and will be null and void, and (ii) 75% of the remaining
Restricted Principal of the applicable Series B Note will be automatically cancelled (with the remaining 25% of the Restricted
Principal becoming unrestricted principal).
The Restricted Principal of the Series
B Notes are subject to offset under certain circumstances, as further described below. Upon any offset, the Restricted Principal
under a Series B Note will automatically and simultaneously be reduced, on a dollar-for-dollar basis, in an amount equal to the
principal amount of an Investor’s Investor Note that is cancelled and offset.
Under the terms of the Series B Notes,
we granted a security interest to each Investor in such Investor’s Investor Note to secure our obligations under the applicable
Series B Note. Each Investor perfected its security interest by taking possession of such Investor’s Investor Note at the
closing.
Number of Shares
Issuable Upon Conversion of the Notes
As of September 6, 2018, (i) an aggregate
principal amount of $5,693,700 and an aggregate Additional Amount (as defined in the Series A Notes) of $13,429,248 under the Series
A Notes, and (ii) an aggregate principal amount of $1,036,556 and an aggregate Additional Amount (as defined in the Series B Notes)
of $3,973,630 under the Series B Notes, have been converted into shares of Class A common stock. As of September 6, 2018, an aggregate
of $5,474,662 was outstanding under the Series A Notes and an aggregate of $7,469,635 was outstanding under the Series B Notes.
The following table sets forth the total
number of shares of Class A common stock that would be issued to the Note holders if an aggregate amount of $12,944,297 (which
includes all principal and all possible original issue discount amounts and Additional Amounts that may accrue under the Notes
as of September 6, 2018) is converted into shares of Class A common stock. The following table assumes that: (i) the indicated
conversion price remains the same from September 6, 2018 until the Notes are fully converted, (ii) no interest, Additional Amount
(as defined in the Notes), Late Charges (as defined in the Notes) or any other additional amounts or charges are incurred or accrued
under the Notes after September 6, 2018, (iii) no event of default under the Notes occurs, and (iv) the Investors prepay their
Investor Notes in full before maturity of the Notes. This table is provided for illustrative purposes only, as it is unlikely that
these assumptions will be fully accurate at all relevant times.
Assumed Conversion Price
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Number of Shares of Common Stock Potentially Issuable
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$0.3067 (the current conversion price)
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42,205,078
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$0.25
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51,777,190
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$0.194
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66,723,182
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Description of the Series Q Warrants
Each Series Q warrant was immediately exercisable
and will expire five years from the date of issuance. Initially, only 75% of the shares of Class A common stock issuable upon exercise
of a Series Q warrant may be exercised, which amount increases upon an Investor’s prepayment under such Investor’s
Investor Note. Holders of Series Q warrants will be entitled to use cashless exercise if after the date that is six months after
the closing, at any time, there is no registration statement covering the resale of the shares of Class A common stock issuable
upon exercise of the Series Q warrants.
The initial exercise price of the Series
Q warrants was $1.12, and the current exercise price is $0.3223, subject to further adjustments for stock splits, stock dividends,
and similar events. In addition, the exercise price will be subject to reduction in substantially the same manner as the conversion
price of the Notes as described above under the heading “
Description of the Notes
–
Reduction of the
Conversion Price
.” Unlike with respect to the Notes, a reduction in the exercise price will not result in any additional
shares being issued upon exercise of the Series Q warrants.
A holder may not exercise any of the Series
Q warrants, and we may not issue shares of Class A common stock upon exercise of any of the Series Q warrants if, after giving
effect to the exercise, a holder together with its “attribution parties,” would beneficially own in excess of 4.99%
or 9.99%, as elected by each Investor at closing, of the outstanding shares of our Class A common stock. At each holder’s
option, the cap may be increased or decrease to any other percentage not in excess of 9.99%, except that any increase will not
be effective until the 61st day after notice to us.
The holders of the Series Q warrants are
entitled to receive any dividend or other distribution of our assets (or rights to acquire its assets) at any time after the issuance
of the Series Q warrants, on an “as if exercised for Class A common stock” basis. The holders of the Series Q warrants
are entitled to acquire options, convertible securities or rights to purchase our securities or property granted, issued or sold
pro rata to the holders of our Class A common stock on an “as if exercised for Class A common stock” basis.
The Series Q warrants prohibit us from
entering into transactions constituting a Fundamental Transaction (as defined in the Series Q warrants) unless the successor entity
assumes all of our obligations under the Series Q warrants and the other transaction documents in a written agreement approved
by the Required Holders (as defined in the Series Q warrants). The definition of Fundamental Transactions includes, but is not
limited to, mergers, a sale of all or substantially all of our assets, certain tender offers and other transactions that result
in a change of control. Further, in connection with a Change of Control (as defined in the Series Q warrants), upon request of
a holder of a Series Q warrant, we or the Successor Entity (as defined in the Series Q warrants), as the case may be, shall exchange
a Series Q warrant for consideration equal to the Black Scholes Value (as defined in the Series Q warrants) of such portion of
such Series Q warrant subject to exchange in the form of, at our election, either (i) rights convertible into the Corporate Event
Consideration (as defined in the Series Q warrants) applicable to the change of control event, or (ii) cash. The definition of
Change of Control is generally the same as the definition of Fundamental Transaction but excludes certain types of Fundamental
Transactions.
Further, after the occurrence of an Event
of Default (as defined in the Notes), at the request of a holder of a Series Q warrant, we or the Successor Entity (as defined
in the Series Q warrants), as the case may be, shall purchase such holders Series Q warrant for cash in an amount equal to the
Event of Default Black Scholes Value (as defined in the Series Q warrants.
Description of the April 2018 Placement
Agent Warrants
The April 2018 Placement Agent Warrants
have substantially the same terms as the Series Q warrants other than that the April 2018 Placement Agent Warrants have a cashless
exercise right regardless of whether an effective registration statement registering, or a current prospectus being available for,
the resale of the shares of Class A common stock issuable upon exercise of the April 2018 Placement Agent Warrants.
Additional Terms of the Purchase
Agreement
Under the terms of the Purchase Agreement,
we were obligated to reimburse the lead Investor for costs and expenses incurred in connection with the transaction.
So long as any Notes remain outstanding,
we are prohibited from effecting or entering into an agreement to effect any Subsequent Placement involving a Variable Rate Transaction.
A “Variable Rate Transaction” generally means a transaction in which we or any subsidiary issues or sells (i)(A) any
securities with a conversion, exercise or exchange rate or price that is based upon and/or varies with the trading prices of the
Class A common stock at any time after the initial issuance, or (B) a conversion, exercise or exchange price that is subject to
reset in the future, other than pursuant to certain anti-dilution provisions, or (ii) enters into any agreement whereby we or any
subsidiary may sell securities at a future determined price (other than standard and customary “preemptive” or “participation”
rights).
The Purchase Agreement also provides that,
until the first anniversary of the closing of the April 2018 Offering, the Investors have the right to participate in any future
Subsequent Placement (other than with respect to Excluded Securities) in an amount equal to up to 35% of such Subsequent Placement.
We may not affect a Subsequent Placement during this time without complying with the terms of the participation right set forth
in the Purchase Agreement.
Until the Applicable Date and at any time
thereafter while any registration statement filed under the Registration Rights Agreement is not effective or the prospectus contained
therein is not available for use, or any Current Public Information Failure (as defined in the Registration Rights Agreement) exists,
we may not file any registration statement relating to securities that are not Registrable Securities (as defined in the Registration
Rights Agreement), subject to some exclusions.
We were required to hold a shareholders’
meeting not later than June 30, 2018 to seek approval of the issuance of shares of Class A common stock upon conversion of the
Notes and exercise of the Series Q warrants at conversion and exercise prices below the initial conversion price of the Notes and
the initial exercise price of the Series Q warrants, as required under Nasdaq Rule 5635(d). We obtained such shareholder approval
at our annual shareholders’ meeting on June 21, 2018. We were obligated to reimburse the lead investor’s legal counsel
for its reasonable fees in connection with reviewing the proxy statements relating to such shareholders’ meetings in an amount
not to exceed $10,000.
Registration Rights Agreement
At the closing of the April 2018 Offering,
we entered into the Registration Rights Agreement with the Investors under which we agreed to register for resale the shares of
Class A common stock issuable upon conversion of the Notes and upon exercise of the Series Q warrants plus an additional number
of shares so that the total number of shares of Class A common stock registered equals 200% of the aggregate estimate number of
shares based on (i) the maximum number of shares issuable upon conversion of the Notes (using the Alternate Conversion Price (as
defined in the Notes)) and (ii) the maximum number of shares issuable upon exercise of the Series Q warrants. On August 29, 2018,
this percentage was lowered from 200% to 135%. The Registration Rights Agreement required us to file an initial registration statement
within 30 days after the closing and to have the registration statement declared effective 60 days after the closing, or 90 days
if the registration statement was subject to review by the SEC (if the registration statement is on Form S-1, the time periods
are 90 and 120 days, respectively). On April 27, 2018, we filed a Registration Statement on Form S-3 to register for resale an
aggregate of 51,038,634 of Class A common stock issuable under the terms of the Notes and our Series Q warrants. The SEC declared
the registration statement effective on May 4, 2018.
In addition, under certain circumstances,
we are required to file one or more additional registration statements if the number of shares available under any prior registration
statement is insufficient to cover all of the shares of Class A common stock required to be registered under the terms of the Registration
Rights Agreement. We are filing the registration statement of which this prospectus is a part to satisfy our obligation under the
Registration Rights Agreement.
Under the Registration Rights Agreement,
we are required to pay each Investor cash liquidated damages of 1% of the sum of the aggregate original principal amount stated
in such Investor’s Notes at the closing upon our failure to (i) file the registration statement in the time required, (ii)
have the registration statement declared effective in the time required, (iii) maintain the effectiveness of the registration statement,
or (iv) keep current public information in the marketplace. We are obligated to make such liquidated damages payments upon the
occurrence of one of the described events and every 30 days thereafter until cured (or, in the case of the current public information
failure, until such time that such public information is no longer required pursuant to Rule 144).
We are required to keep the registration
statement effective (and the prospectus contained therein available for use) pursuant to Rule 415 for resales on a delayed or continuous
basis at then-prevailing market prices at all times until the earlier of (i) the date as of which the Investors may sell all of
the Class A common stock issuable pursuant thereto without restriction pursuant to Rule 144, or (ii) the date on which all of the
Class A common stock covered by the registration statement have been sold.
The Registration Rights Agreement also
provides for piggyback registration rights under certain circumstances.
We are obligated to reimburse the lead
investor’s legal counsel for its fees and disbursements in connection with registration, filing or qualification under the
Registration Rights Agreement in an amount not to exceed $10,000 for each such registration, filing or qualification.
USE OF PROCEEDS
We will not receive any proceeds from the
sale of the shares of Class A common stock by the selling shareholders.
The current exercise price of the outstanding
Series Q warrants, which are exercisable into 1,735,317 shares of Class A common stock, is $0.3223 per share. If the Series Q warrants
are fully exercised for cash, we will receive proceeds of approximately $559,293 which we will use for working capital. The current
exercise price of the outstanding January 2018 Placement Agent Warrants, which are exercisable into 128,000 shares of Class A common
stock, is $1.47 per share. If all the January 2018 Placement Agent Warrants are exercised for cash, we will receive proceeds of
approximately $188,160, which we will use for working capital. The current exercise price of the outstanding April 2018 Placement
Agent Warrants, which are exercisable into 730,160 shares of Class A common stock, is $0.3223 per share. If all the April 2018
Placement Agent Warrants are exercised for cash, we will receive proceeds of approximately $235,331, which we will use for working
capital. If the selling shareholders elect to exercise these warrants by means of a “cashless exercise,” we will not
receive any proceeds.
The selling shareholders will pay all underwriting
discounts, selling commissions and expenses incurred by them for brokerage, accounting, tax or legal services or any other expenses
incurred by the selling shareholders in connection with the sale of the shares, if any. We will bear all other costs, fees and
expenses incurred in effecting the registration of the shares covered by this prospectus, including, without limitation, all registration
and filing fees, Nasdaq listing fees and fees and expenses of our counsel and our accountants.
SELLING SHAREHOLDERS
The shares of Class A common stock being
offered by the selling shareholders consist of:
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·
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135% of the aggregate estimated number of shares of Class A common stock issuable
|
|
o
|
upon conversion of, and from time-to-time under the term of, our Series A Notes (calculated using
the Alternate Conversion Price (as defined in the Series A Notes));
|
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o
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upon conversion of, and from time-to-time under the term of, our Series B Notes (calculated using
the Alternate Conversion Price (as defined in the Series B Notes)); and
|
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o
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upon exercise of our Series Q warrants to purchase Class A common stock;
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|
·
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128,000 shares of Class A common stock issuable upon exercise of the January 2018 Placement Agent
Warrants, and
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·
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730,160 shares of Class A common stock issuable upon exercise of the April 2018 Placement Agent
Warrants.
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For additional information regarding the
issuance of the Notes and the warrants described above, see “DESCRIPTION OF THE TRANSACTION” above. We are registering
the shares of Class A common stock in order to permit the selling shareholders to offer the shares for resale from time to time.
Except for the ownership of the Notes, the Series Q warrants and the Placement Agent Warrants or as described in the table below,
the selling shareholders have not had any material relationship with us within the past three years.
The table below lists the selling shareholders
and other information regarding the beneficial ownership (as determined under Section 13(d) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), and the rules and regulations thereunder) of the shares of Class A common stock held
by each of the selling shareholders. The second column lists the number of shares of Class A common stock beneficially owned by
the selling shareholders, based on their respective ownership of shares of Class A common stock, convertible notes and warrants,
as of September 6, 2018, assuming conversion of the convertible notes and exercise of the warrants held by each such selling shareholder
on that date but taking account of any limitations on conversion and exercise set forth therein.
The third column lists the shares of Class
A common stock being offered by this prospectus by the selling shareholders and does not take in account any limitations on (i)
conversion of the Notes set forth therein or (ii) exercise of the Series Q warrants or the Placement Agent Warrants set forth therein.
In accordance with the terms of the Registration
Rights Agreement, this prospectus generally covers the resale of up to 53,789,219 shares of Class A common stock issuable upon
conversion and exercise of, and from time-to-time issuable under the terms of, the Notes and our Series Q warrants to purchase
Class A common stock. Pursuant to agreements entered into with some of the selling shareholders, we are required to register for
resale with the SEC 135% of the aggregate estimated number of shares of Class A common stock issuable upon conversion and exercise
of, and from time-to-time issuable under the term of, the Notes and our Series Q warrants to purchase Class A common stock (calculated
using the Alternate Conversion Price (as defined in the Notes)). We previously registered 51,038,634 shares of Class A common stock
issuable under the terms of the Notes and the Series Q warrants. As of September 6, 2018, the applicable selling shareholders have
not yet exhausted the pool of shares available under the prior registration statement. As a result, the third column consist of
the additional shares of Class A common stock we estimate may be issuable under the terms of the Notes and the Series Q warrants
that were not registered under the prior registration statement, based on 135% of (i) the maximum number of shares of Class A common
stock estimated to be issuable under the Notes determined as if the outstanding Notes were converted in full (without regard to
any limitations on conversion or exercise contained therein solely for the purpose of such calculation) at the Alternate Conversion
Price (as defined in the Notes), and (ii) the maximum number of shares of common stock issuable upon exercise of the Series Q warrants,
calculated as of the trading day immediately preceding the date this registration statement was initially filed with the SEC. Because
the conversion price of the Notes may be adjusted, the number of shares that will actually be issued may be more or less than the
number of shares being offered by this prospectus.
The fourth and fifth columns assume the
sale of all of the shares offered by the selling shareholders pursuant to this prospectus and the prior registration statement
that registered 51,038,634 shares of Class A common stock issuable under the terms of the Notes and the Series Q warrants.
Under the terms of the Notes, the Series
Q warrants and the Placement Agent Warrants, a selling shareholder may not convert the Notes or exercise the Series Q warrants
or the Placement Agent Warrants to the extent (but only to the extent) such selling shareholder or any of its affiliates would
beneficially own a number of shares of our Class A common stock which would exceed 4.99% or 9.99%, as elected by each selling shareholder,
of our outstanding shares.
The number of shares in the second, fourth
and fifth columns reflects these limitations. The selling shareholders may sell all, some or none of their shares in this offering.
See “Plan of Distribution.”
Name of Selling Shareholder
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Number of Shares
of Class A
Common Stock
Owned Prior to
Offering
|
|
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Maximum Number
of Shares of Class
A Common Stock
to be Sold Pursuant
to this Prospectus
|
|
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Number of
Shares of Class
A Common
Stock Owned
After Offering
|
|
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Percentage of
Shares of Class
A Common
Stock Owned
After Offering
(to the extent
greater than 1%)
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Alto Opportunity Fund, SPC – Segregated Master Portfolio B
(1)
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2,630,812
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(2)
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35,796,384
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|
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225,000
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*
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Hudson Bay Master Fund Ltd.
(3)
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5,559,469
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(4)
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17,992,835
|
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|
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3,268,229
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(5)
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3.1
|
%
|
|
|
|
|
|
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WestPark Capital, Inc.
(6)
|
|
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370,442
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(7)
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370,422
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|
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20
|
|
|
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*
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|
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|
|
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|
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|
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Jonathan Blum
(8)
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|
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226,382
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(9)
|
|
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226,369
|
|
|
|
13
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Brandon Ross
(10)
|
|
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226,382
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(11)
|
|
|
226,369
|
|
|
|
13
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Doug Kaiser
(12)
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|
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17,501
|
(13)
|
|
|
17,500
|
|
|
|
1
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Frank Salvatore
(14)
|
|
|
17,501
|
(15)
|
|
|
17,500
|
|
|
|
1
|
|
|
|
*
|
|
* Denotes less than
1%.
(1) Ayrton
Capital LLC, the investment manager to Alto Opportunity Master Fund, SPC – Segregated Master Portfolio B, has discretionary
authority to vote and dispose of the shares held by Alto Opportunity Master Fund, SPC – Segregated Master Portfolio B. Waqas
Khatri is the managing member of Ayrton Capital LLC and in his capacity as director of Alto Opportunity Master Fund, SPC –
Segregated Master Portfolio B, may also be deemed to have investment discretion and voting power over the shares held by Alto Opportunity
Master Fund, SPC – Segregated Master Portfolio B. Mr. Khatri disclaims any beneficial ownership of these shares. The address
of Ayrton Capital, LLC is 222 Broadway,19
th
Floor, New York, NY 10038. One or more entities affiliated with Alto Opportunity
Master Fund, SPC – Segregated Master Portfolio B have participated in prior offerings of our securities.
(2) Consists
of shares of our Class A common stock issuable (i) under the Notes (subject to a 4.99% beneficial ownership limitation; calculated
using the current conversion price of $.03067), and (ii) upon exercise of warrants that are currently exercisable (subject to a
4.99% beneficial ownership limitation), which together represent 4.99% of our outstanding shares of Class A common stock as of
September 6, 2018. Does not include an estimated 28,544,543 additional shares of Class A common stock issuable under the Notes
and upon exercise of warrants (calculated in the manner described in the preceding sentence) because the selling shareholder does
not have the right to receive such shares if the selling shareholder, together with certain attribution parties, would beneficially
own in excess of 4.99% of the outstanding shares of our Class A common stock.
(3) Hudson
Bay Capital Management, LP, the investment manager of Hudson Bay Master Fund Ltd., has voting and investment power over these securities.
Sander Gerber is the managing member of Hudson Bay Capital GP LLC, which is the general partner of Hudson Bay Capital Management,
LP. Each of Hudson Bay Master Fund Ltd. and Sander Gerber disclaims beneficial ownership over these securities. The address of
Hudson Bay Master Fund Ltd. is c/o Hudson Bay Capital Management LP, 777 Third Avenue, 30th Floor, New York, NY 10017. Hudson Bay
Master Fund Ltd. has participated in prior offerings of our securities and is currently a beneficial owner of more than 5% of our
Class A common stock.
(4) Consists
of shares of our Class A common stock issuable (i) under our senior secured convertible notes due on April 1, 2016 (the “2016
Notes”) (subject to a 9.99% beneficial ownership limitation; calculated using a “Conversion Price” (as defined
in the 2016 Notes) of $0.2785, the lowest conversion price resulting from the defined term “Conversion Price” as of
September 6, 2018), (ii) under the Notes (subject to a 9.99% beneficial ownership limitation; calculated using the current conversion
price of $0.3067), and (iii) upon exercise of warrants that are currently exercisable (subject to either a 4.99% or 9.99% beneficial
ownership limitation), which together represent 9.99% of our outstanding shares of Class A common stock as of September 6, 2018.
Does not include an estimated 10,698,938 additional shares of Class A common stock issuable under the 2016 Notes, the Notes and
upon exercise of warrants (calculated in the manner described in the preceding sentence) because the selling shareholder does not
have the right to receive such shares if the selling shareholder, together with certain attribution parties, would beneficially
own in excess of 9.99% (or, with respect to some warrants, 4.99%) of the outstanding shares of our Class A common stock.
(5) Consists
of shares of our Class A common stock issuable (i) under the 2016 Notes (subject to a 9.99% beneficial ownership limitation; calculated
using a “Conversion Price” (as defined in the 2016 Notes) of $0.2785, the lowest conversion price resulting from the
defined term “Conversion Price” as of September 6, 2018), and (ii) upon exercise of warrants that are currently exercisable
(9.99% beneficial ownership limitation).
(6) Richard
Rappaport, in his capacity as Chief Executive Officer of WestPark has voting and investment power over the securities held by WestPark.
Mr. Rappaport disclaims beneficial ownership of the shares of Class A common stock not owned by him. The address of WestPark is
1900 Avenue of the Stars, 3
rd
Floor, Los Angeles, CA 90067. WestPark acted as our placement agent in the January 2018
Offering and the April 2018 Offering and has acted as our placement agent in prior securities offerings.
(7) Consists
of (i) 53,100 shares of our Class A common stock issuable under the January 2018 Placement Agent Warrants, (ii) 317,322 shares
of our Class A common stock issuable under the April 2018 Placement Agent Warrants and (iii) 20 shares of our Class A common stock
issuable under other warrants that are currently exercisable.
(8) Mr.
Blum is an employee of WestPark. His address is WestPark Capital, Inc., 1900 Avenue of the Stars, 3
rd
Floor, Los Angeles,
CA 90067.
(9) Consists
of (i) 32,450 shares of our Class A common stock issuable under the January 2018 Placement Agent Warrants, (ii) 193,919 shares
of our Class A common stock issuable under the April 2018 Placement Agent Warrants and (iii) 13 shares of our Class A common stock
issuable under other warrants that are currently exercisable.
(10) Mr.
Ross is an employee of WestPark. His address is WestPark Capital, Inc., 1900 Avenue of the Stars, 3
rd
Floor, Los Angeles,
CA 90067.
(11) Consists
of (i) 32,450 shares of our Class A common stock issuable under the January 2018 Placement Agent Warrants, (ii) 193,919 shares
of our Class A common stock issuable under the April 2018 Placement Agent Warrants and (iii) 13 shares of our Class A common stock
issuable under other warrants that are currently exercisable.
(12) Mr.
Kaiser is an employee of WestPark. His address is WestPark Capital, Inc., 1900 Avenue of the Stars, 3
rd
Floor, Los Angeles,
CA 90067.
(13) Consists
of (i) 5,000 shares of our Class A common stock issuable under the January 2018 Placement Agent Warrants, (ii) 12,500 shares of
our Class A common stock issuable under the April 2018 Placement Agent Warrants and (iii) 1 share of our Class A common stock issuable
under other warrants that are currently exercisable.
(14) Mr.
Salvatore is an employee of WestPark. His address is WestPark Capital, Inc., 1900 Avenue of the Stars, 3
rd
Floor, Los
Angeles, CA 90067.
(15) Consists
of (i) 5,000 shares of our Class A common stock issuable under the January 2018 Placement Agent Warrants, (ii) 12,500 shares of
our Class A common stock issuable under the April 2018 Placement Agent Warrants and (iii) 1 share of our Class A common stock issuable
under other warrants that are currently exercisable.
PLAN OF DISTRIBUTION
We are registering the shares of Class
A common stock issuable upon conversion of, or otherwise under the terms of, the Notes and exercise of the Series Q warrants and
Placement Agent Warrants to permit the resale of these shares of Class A common stock by the selling shareholders from time to
time after the date of this prospectus. We will not receive any of the proceeds from the sale by the selling shareholders of the
shares of Class A common stock, although we will receive the exercise price of any Series Q warrants and Placement Agent Warrants
not exercised by the selling shareholders on a cashless exercise basis. We will bear all fees and expenses incident to our obligation
to register the shares of Class A common stock.
The selling shareholders may sell all or
a portion of the shares of Class A common stock held by them and offered hereby from time to time directly or through one or more
underwriters, broker-dealers or agents. If the shares of Class A common stock are sold through underwriters or broker-dealers,
the selling shareholders will be responsible for underwriting discounts or commissions or agent’s commissions. The shares
of Class A common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the
sale, at varying prices determined at the time of sale or at negotiated prices. These sales may be effected in transactions, which
may involve crosses or block transactions, pursuant to one or more of the following methods:
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·
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on any national securities exchange or quotation service on which the securities may be listed
or quoted at the time of sale;
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·
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in the over-the-counter market;
|
|
·
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in transactions otherwise than on these exchanges or systems or in the over-the-counter market;
|
|
·
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through the writing or settlement of options, whether such options are listed on an options exchange
or otherwise;
|
|
·
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ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
|
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·
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block trades in which the broker-dealer will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate the transaction;
|
|
·
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purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
|
|
·
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an exchange distribution in accordance with the rules of the applicable exchange;
|
|
·
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privately negotiated transactions;
|
|
·
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short sales made after the date the registration statement is declared effective by the SEC;
|
|
·
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broker-dealers may agree with a selling shareholder to sell a specified number of such shares at
a stipulated price per share;
|
|
·
|
a combination of any such methods of sale; and
|
|
·
|
any other method permitted pursuant to applicable law.
|
The selling shareholders may also sell
shares of Class A common stock under Rule 144, if available, rather than under this prospectus. In addition, the selling shareholders
may transfer the shares of Class A common stock by other means not described in this prospectus. If the selling shareholders effect
such transactions by selling shares of Class A common stock to or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling shareholders
or commissions from purchasers of the shares of Class A common stock for whom they may act as agent or to whom they may sell as
principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess
of those customary in the types of transactions involved). In connection with sales of the shares of Class A common stock or otherwise,
the selling shareholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the
shares of Class A common stock in the course of hedging in positions they assume. The selling shareholders may also sell shares
of Class A common stock short and deliver shares of Class A common stock covered by this prospectus to close out short positions
and to return borrowed shares in connection with such short sales. The selling shareholders may also loan or pledge shares of Class
A common stock to broker-dealers that in turn may sell such shares.
The selling shareholders may pledge or
grant a security interest in some or all of the Notes, Series Q warrants, Placement Agent Warrants or shares of Class A common
stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer
and sell the shares of Class A common stock from time to time pursuant to this prospectus or any amendment to this prospectus under
Rule 424(b)(3) or other applicable provision of the Securities Act amending, if necessary, the list of selling shareholders to
include the pledgee, transferee or other successors in interest as selling shareholders under this prospectus. The selling shareholders
also may transfer and donate the shares of Class A common stock in other circumstances in which case the transferees, donees, pledgees
or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
To the extent required by the Securities
Act and the rules and regulations thereunder, the selling shareholders and any broker-dealer participating in the distribution
of the shares of Class A common stock may be deemed to be “underwriters” within the meaning of the Securities Act,
and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions
or discounts under the Securities Act. At the time a particular offering of the shares of Class A common stock is made, a prospectus
supplement, if required, will be distributed, which will set forth the aggregate amount of shares of Class A common stock being
offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions
and other terms constituting compensation from the selling shareholders and any discounts, commissions or concessions allowed or
re-allowed or paid to broker-dealers.
Under the securities laws of some states,
the shares of Class A common stock may be sold in such states only through registered or licensed brokers or dealers. In addition,
in some states the shares of Class A common stock may not be sold unless such shares have been registered or qualified for sale
in such state or an exemption from registration or qualification is available and is complied with.
There can be no assurance that any selling
shareholder will sell any or all of the shares of Class A common stock registered pursuant to the registration statement, of which
this prospectus forms a part.
The selling shareholders and any other
person participating in such distribution will be subject to applicable provisions of the Exchange Act, and the rules and regulations
thereunder, including, without limitation, to the extent applicable, Regulation M of the Exchange Act, which may limit the timing
of purchases and sales of any of the shares of Class A common stock by the selling shareholders and any other participating person.
To the extent applicable, Regulation M may also restrict the ability of any person engaged in the distribution of the shares of
Class A common stock to engage in market-making activities with respect to the shares of Class A common stock. All of the foregoing
may affect the marketability of the shares of Class A common stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of Class A common stock.
We will pay all expenses of the registration
of the shares of Class A common stock pursuant to the Registration Rights Agreement, estimated to be $38,000 in total, including,
without limitation, SEC filing fees and expenses of compliance with state securities or “blue sky” laws; provided,
however, that a selling shareholder will pay all underwriting discounts and selling commissions, if any. We will indemnify the
selling shareholders against liabilities, including some liabilities under the Securities Act in accordance with the Registration
Rights Agreement or the selling shareholders will be entitled to contribution. We may be indemnified by the selling shareholders
against civil liabilities, including liabilities under the Securities Act that may arise from any written information furnished
to us by the selling shareholder specifically for use in this prospectus, in accordance with the related Registration Rights Agreements
or we may be entitled to contribution.
Once sold under the registration statement,
of which this prospectus forms a part, the shares of Class A common stock will be freely tradable in the hands of persons other
than our affiliates.
LEGAL MATTERS
The validity of the Class A common stock
issuable upon conversion of, or otherwise under the terms of, the Notes and exercise of the Series Q warrants and Placement Agent
Warrants will be passed upon for us by Brownstein Hyatt Farber Schreck, LLP, Denver, Colorado.
EXPERTS
The consolidated financial statements of
Real Goods Solar, Inc. and its subsidiaries, as of and for the year ended December 31, 2016, incorporated in this Prospectus by
reference from the Real Goods Solar, Inc. Annual Report on Form 10-K for the year ended December 31, 2017 have been audited by
Hein & Associates LLP, an independent registered public accounting firm, as stated in their report incorporated herein by reference,
and have been incorporated in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements
of Real Goods Solar, Inc. and its subsidiaries, as of and for the year ended December 31, 2017, incorporated in this
Prospectus by reference from the Real Goods Solar, Inc. Annual Report on Form 10-K for the year ended December 31, 2017 have
been audited by Moss Adams LLP, an independent registered public accounting firm, as stated in their report (which report expresses an unqualified opinion and includes an explanatory paragraph related to going concern
uncertainty) incorporated
herein by reference, and have been incorporated in reliance upon such report and upon the authority of such firm as experts
in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus, which constitutes a part
of a registration statement on Form S-3 that we have filed with the SEC, omits certain of the information set forth in the registration
statement. Accordingly, you should refer to the registration statement and its exhibits for further information with respect to
us and our Class A common stock. Copies of the registration statement and its exhibits are on file at the offices of the SEC. This
prospectus contains statements concerning documents filed as exhibits. For the complete text of any of these documents, we refer
you to the copy of the document filed as an exhibit to the registration statement.
We file annual, quarterly and current reports,
proxy and information statements and other information with the SEC. You may read and copy any materials we file with the SEC at
the SEC’s Public Reference Room in Washington, D.C. at 100 F Street, N.E., Washington, D.C. 20549.
You may obtain information about the operation
of the Public Reference Room by calling the SEC at 1(800) SEC-0330. The SEC also maintains a website that contains information
we file electronically with the SEC, which you can access over the Internet at http://www.sec.gov. We maintain a website at http://www.rgsenergy.com
with information about our company. Information contained on our website or any other website is not incorporated into this prospectus
and does not constitute a part of this prospectus. Our website address referenced above is intended to be an inactive textual reference
only and not an active hyperlink to our website.
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE
The SEC allows us
to “incorporate by reference” into this prospectus the information we file with the SEC, which means that we can disclose
important information to you by referring you to other documents filed separately with the SEC. The information incorporated by
reference is considered part of this prospectus, and any information that we file with the SEC subsequent to this prospectus and
prior to the termination of the offering referred to in this prospectus will automatically be deemed to update and supersede this
information. We incorporate by reference into this prospectus the documents listed below (excluding any portions of such documents
that have been “furnished” but not “filed” for purposes of the Exchange Act unless specifically incorporated
by reference herein or therein):
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•
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Our Annual Report on Form 10-K (including amendments thereto) for the year ended December 31, 2017, filed April 2, 2018;
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•
|
|
Our Quarterly Report on Form 10-Q for the period ended March 31, 2018, filed May 11, 2018, our Quarterly Report on Form 10-Q for the period ended June 30, 2018, filed August 14, 2018, and our Amendment No. 1 to Quarterly Report on Form 10-Q/A for the period ended June 30, 2018, filed August 15, 2018;
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|
•
|
|
Our Current Reports on Form 8-K (including amendments thereto) filed on January 2, 2018 (other than information furnished pursuant to Item 2.02 and Item 7.01 of Form 8-K), January 3, 2018 (other than information furnished pursuant to Item 7.01 of Form 8-K), January 4, 2018 (other than information furnished pursuant to Item 7.01 of Form 8-K), January 25, 2018, February 12, 2018, March 12, 2018, April 2, 2018 (other than information furnished pursuant to Item 2.02 and Item 7.01 of Form 8-K), April 10, 2018, April 24, 2018, June 5, 2018, June 7, 2018 (other than information furnished pursuant to Item 7.01 of Form 8-K), June 21, 2018, June 22, 2018, June 26, 2018, June 28, 2018, July 3, 2018, July 5, 2018, July 6, 2018, July 9, 2018, July 13, 2018, July 16, 2018, July 24, 2018, August 3, 2018, August 7, 2018, August 10, 2018 and August 29, 2018; and
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|
•
|
|
The description of our common stock contained in our registration statement on Form 8-A filed May 5, 2008 including any other amendments or reports filed for the purpose of updating such description (other than any portion of such filings that are furnished under applicable SEC rules rather than filed).
|
We also incorporate
by reference all documents we subsequently file with the SEC (other than information furnished pursuant to Item 2.02 or Item 7.01
of Form 8-K or as otherwise permitted by SEC rules) pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
initial filing of the registration statement of which this prospectus is a part (including prior to the effectiveness of the registration
statement) and prior to the termination of the offering.
This prospectus is
part of a registration statement on Form S-3 that we have filed with the SEC relating to the securities. As permitted by SEC rules,
this prospectus does not contain all of the information included in the registration statement and the accompanying exhibits and
schedules we file with the SEC. We have filed certain legal documents that control the terms of the Class A common stock offered
by this prospectus as exhibits to the registration statement. We may file certain other legal documents that control the terms
of the Class A common stock offered by this prospectus as exhibits to reports we file with the SEC. You may refer to the registration
statement and the exhibits and schedules for more information about us and our securities. The registration statement and exhibits
and schedules are also available at the SEC’s Public Reference Room or through its website.
We will provide, without
charge and upon oral or written request, to each person, including any beneficial owner, to whom a copy of this prospectus has
been delivered, a copy of any of the documents referred to above as being incorporated by reference into this prospectus but not
delivered with it. You may obtain a copy of these filings, at no cost, by writing or calling us at Real Goods Solar, Inc., 110
16
th
Street, 3
rd
Floor, Denver, Colorado 80202, (303) 222-8300. Exhibits to the filings will not be provided,
however, unless those exhibits have been specifically incorporated by reference in this prospectus.
PART II. INFORMATION NOT REQUIRED IN
PROSPECTUS
Item 14. Other Expenses of Issuance
and Distribution
The following expenses incurred in connection
with the sale of the securities being registered will be borne by the registrant. Other than the SEC registration fee, the amounts
stated are estimates.
SEC Registration Fee
|
|
$
|
2,926
|
|
Legal Fees and Expenses
|
|
$
|
25,000
|
|
Accounting Fees and Expenses
|
|
$
|
6,000
|
|
Miscellaneous
|
|
$
|
4,074
|
|
Total
|
|
$
|
38,000
|
|
Item 15. Indemnification of Directors
and Officers
The Colorado Business Corporation Act (the
“CBCA”) generally provides that a corporation may indemnify a person made party to a proceeding because the person
is or was a director against liability incurred in the proceeding if: the person’s conduct was in good faith; the person
reasonably believed, in the case of conduct in an official capacity with the corporation, that such conduct was in the corporation’s
best interests, and, in all other cases, that such conduct was at least not opposed to the corporation’s best interests;
and, in the case of any criminal proceeding, the person had no reasonable cause to believe that the person’s conduct was
unlawful. The CBCA prohibits such indemnification in a proceeding by or in the right of the corporation in which the person was
adjudged liable to the corporation or in connection with any other proceeding in which the person was adjudged liable for having
derived an improper personal benefit. The CBCA further provides that, unless limited by its articles of incorporation, a corporation
shall indemnify a person who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which the person
was a party because the person is or was a director or officer of the corporation, against reasonable expenses incurred by the
person in connection with the proceeding. In addition, a director or officer, who is or was a party to a proceeding, may apply
for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. The CBCA allows a corporation
to indemnify and advance expenses to an officer, employee, fiduciary or agent of the corporation to the same extent as a director.
As permitted by the CBCA, the Company’s
articles of incorporation and bylaws generally provide that the Company shall indemnify its directors and officers to the fullest
extent permitted by the CBCA. In addition, the Company may also indemnify and advance expenses to an officer who is not a director
to a greater extent, not inconsistent with public policy, and if provided for by its bylaws, general or specific action of the
Company’s board of director or shareholders.
The Company has entered into substantively
identical Indemnification Agreements with certain current and former directors and officers (the “Indemnitees”), which
generally provide that, to the fullest extent permitted by Colorado law, the Company shall indemnify such Indemnitee if the Indemnitee
was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that the Indemnitee is or was or has agreed to serve at
the Company’s request as a director, officer, employee or agent of the Company, or while serving as a director or officer
of the Company, is or was serving or has agreed to serve at the Company’s request as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, or by reason of any action
alleged to have been taken or omitted in such capacity or by reason of the imposition upon such officer or director of any federal
and/or state income tax obligation (inclusive of any interest and penalties, if applicable), that is imposed on such officer or
director with respect to income, “phantom income,” rescinded or unconsummated transactions, or any other allegedly
taxable event for which no benefit was received by such officer or director. The indemnification obligation includes, without limitation,
claims for monetary damages against an Indemnitee in respect of an alleged breach of fiduciary duties and generally covers expenses
(including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by an Indemnitee
or on an Indemnitee’s behalf in connection with such action, suit or proceeding and any appeal therefrom, but shall only
be provided if the Indemnitee acted in good faith; and, in the case of conduct in an official capacity with the corporation, if
such conduct was in the Company’s best interests, and, in all other cases, if such conduct was at least not opposed to the
Company’s best interests; and, with respect to any criminal action, suit or proceeding, if the Indemnitee had no reasonable
cause to believe the Indemnitee’s conduct was unlawful.
Section 7-108-402(1) of the CBCA permits
a corporation to include in its articles of incorporation a provision eliminating or limiting the personal liability of directors
to the corporation or its shareholders for monetary damages for any breach of fiduciary duty as a director (except for breach of
a director’s duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation
of law, unlawful distributions, or any transaction from which the director derived improper personal benefit). Further, Section
7-108-402(2) of the CBCA provides that no director or officer shall be personally liable for any injury to persons or property
arising from a tort committed by an employee, unless the director or officer was either personally involved in the situation giving
rise to the litigation or committed a criminal offense in connection with such situation.
As permitted by the CBCA, the Company’s
articles of incorporation provide that the personal liability of the Company’s directors to the Company or its shareholders
is limited to the fullest extent permitted by the CBCA. The Indemnification Agreements described above also provide that the Company’s
indemnification obligation includes, without limitation, claims for monetary damages against the Indemnitee in respect of an alleged
breach of fiduciary duties to the fullest extent permitted by the CBCA.
Section 7-109-108 of the CBCA provides
that a corporation may purchase and maintain insurance on behalf of a person who is or was a director, officer, employee, fiduciary
or agent of the corporation, or who, while a director, officer, employee, fiduciary or agent of the corporation, is or was serving
at the request of the corporation as a director, officer, partner, trustee, employee, fiduciary or agent of another entity or an
employee benefit plan, against liability asserted against or incurred by the person in that capacity or arising from the person’s
status as a director, officer, employee, fiduciary or agent, whether or not the corporation would have power to indemnify the person
against the same liability under the CBCA.
As permitted by the CBCA, the Company’s
bylaws authorize the Company to purchase and maintain such insurance. The Company currently maintains a directors and officers
insurance policy insuring its past, present and future directors and officers, within the limits and subject to the limitations
of the policy, against expenses in connection with the defense of actions, suits or proceedings, and certain liabilities that might
be imposed as a result of such actions, suits or proceedings.
Item 16. Exhibits
The exhibits listed in the exhibit index
immediately following the signature pages are filed as part of this registration statement.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during
any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus
required by Section 10(a)(3) of the Securities Act;
(ii) To reflect in the
prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in
the “Calculation of Registration Fee” table in the effective registration statement;
(iii) To include any
material information with respect to the plan of distribution not previously disclosed in the registration statement or any material
change to such information in the registration statement;
provided, however
, that paragraphs (1)(i), (1)(ii) and (1)(iii)
do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports
filed with or furnished to the SEC by the registrant pursuant to Section 13 or Section 15(d) of the Exchange Act, that are incorporated
by reference in this registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part
of the registration statement.
(2) That, for the purpose
of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from
registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination
of the offering.
(4) That, for the purpose
of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a
registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses
filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first
used after effectiveness.
Provided, however,
that no statement made in a registration statement or prospectus that is part
of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such date of first use.
(5) That, for purposes
of determining any liability under the Securities Act, each filing of the registrant’s annual report pursuant to section
13(a) or section 15(d) of the Exchange Act that is incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(6) Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant
pursuant to the indemnification provisions described herein, or otherwise, the registrant has been advised that in the opinion
of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will
be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing
on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Denver, State of Colorado, on September 7, 2018.
|
REAL GOODS SOLAR, INC.
|
|
|
|
By:
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/s/ Dennis Lacey
|
|
|
Dennis Lacey
|
|
|
Chief Executive Officer
|
POWER OF ATTORNEY
KNOW ALL PEOPLE BY THESE PRESENTS, that
each person whose signature appears below constitutes and appoints Dennis Lacey and Alan Fine, and each of them severally, as his
or her true and lawful attorneys-in-fact and agents, each acting alone with full power of substitution and resubstitution, for
him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including pre-effective
and post-effective amendments) and exhibits to this Registration Statement on Form S-3, and to any registration statement relating
to the same offering of securities that are filed pursuant to Rule 462 of the Securities Act of 1933, as amended, and to file the
same, with all exhibits thereto, and all other documents in connection therewith, with the SEC, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to
be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or theirs or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities
Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Ian Bowles
|
|
Ian Bowles, Chairman of the Company’s Board of Directors
|
|
September 7, 2018
|
|
|
|
|
|
/s/
Dennis Lacey
|
|
Dennis Lacey, Chief Executive Officer, Secretary and Director (Principal Executive Officer)
|
|
September 7, 2018
|
|
|
|
|
|
/s/
Alan Fine
|
|
Alan Fine, Chief Financial Officer and Treasurer (Principal Financial Officer)
|
|
September 7, 2018
|
|
|
|
|
|
/s/
Nicolle Dorsey
|
|
Nicolle Dorsey, Principal Accounting Officer and Controller
|
|
September 7, 2018
|
|
|
|
|
|
/s/
Pavel Bouska
|
|
Pavel Bouska, Director
|
|
September 7, 2018
|
|
|
|
|
|
/s/
Robert L. Scott
|
|
Robert L. Scott, Director
|
|
September 7, 2018
|
EXHIBITS INDEX
Exhibit No.
|
|
Description
|
|
|
|
4.1
|
|
Form of Real Goods Solar Class A common stock Certificate (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Amendment No. 5 to Registration Statement on Form S-1 filed May 2, 2008 (Commission File No. 333-149092))
|
|
|
|
4.2
|
|
Form of Series A Senior Convertible Note issued to the investors under the Securities Purchase Agreement, dated March 30, 2018 (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Current Report on Form 8-K filed April 10, 2018 (Commission File No. 001-34044))
|
|
|
|
4.3
|
|
Form of Series B Senior Secured Convertible Note issued to the investors under the Securities Purchase Agreement, dated March 30, 2018 (Incorporated by reference to Exhibit 4.2 to Real Goods Solar’s Current Report on Form 8-K filed April 10, 2018 (Commission File No. 001-34044))
|
|
|
|
4.4
|
|
Form of Series Q Warrant to Purchase Common Stock issued to the investors under the Securities Purchase Agreement, dated March 30, 2018 (Incorporated by reference to Exhibit 4.3 to Real Goods Solar’s Current Report on Form 8-K filed April 10, 2018 (Commission File No. 001-34044))
|
|
|
|
4.5
|
|
Form of Placement Agent Warrant to Purchase Common Stock issued to WestPark Capital, Inc. (Incorporated by reference to Exhibit 4.1 to Real Goods Solar’s Current Report on Form 8-K filed January 4, 2018 (Commission File No. 001-34044))
|
|
|
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4.6
|
|
Form of Placement Agent Warrant to Purchase Common Stock issued to WestPark Capital, Inc. (Incorporated by reference to Exhibit 4.5 to Real Goods Solar’s Current Report on Form 8-K filed April 10, 2018 (Commission File No. 001-34044))
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5.1†
|
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Opinion of Brownstein Hyatt Farber Schreck, LLP
|
|
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10.1
|
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Securities Purchase Agreement, dated March 30, 2018, among Real Goods Solar, Inc. and the investor parties thereto (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed April 2, 2018 (Commission File No. 001-34044))
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|
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10.2
|
|
Form of Amendment No. 1 to Securities Purchase Agreement, dated April 9, 2018, between Real Goods Solar, Inc. and each of the investors under the Securities Purchase Agreement, dated March 30, 2018 (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed April 10, 2018 (Commission File No. 001-34044))
|
|
|
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10.3
|
|
Registration Rights Agreement, dated April 9, 2018, among Real Goods Solar, Inc. and the investor parties thereto (Incorporated by reference to Exhibit 10.2 to Real Goods Solar’s Current Report on Form 8-K filed April 10, 2018 (Commission File No. 001-34044))
|
|
|
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10.4
|
|
Form of Letter Agreement, dated August 29, 2018, between Real Goods Solar, Inc. and each holder of Series A Senior Convertible Notes and Series B Senior Secured Convertible Notes, in each case due April 9, 2019 (Incorporated by reference to Exhibit 10.1 to Real Goods Solar’s Current Report on Form 8-K filed August 29, 2018 (Commission File No. 001-34044))
|
|
|
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23.1†
|
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Consent of Brownstein Hyatt Farber Schreck, LLP (included in Exhibit 5.1)
|
|
|
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23.2†
|
|
Consent of Moss Adams LLP
|
|
|
|
23.3†
|
|
Consent of Hein & Associates LLP
|
|
|
|
24.1†
|
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Power of Attorney (included on the signature page to this Registration Statement)
|
______________
|
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† Filed herewith