SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. __)
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
ENOVA SYSTEMS, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
ENOVA SYSTEMS, INC.
Notice of Annual Meeting of Shareholders
To Be Held December 5, 2002
To the Shareholders of ENOVA SYSTEMS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Annual Meeting") of Enova Systems, Inc., a California corporation (the
"Company"), will be held at 19850 South Magellan Drive, Torrance, California
90502, on Thursday, December 5, 2002, at 9:00 a.m., local time, for the
following purposes:
1. AUTHORIZATION FOR THE BOARD OF DIRECTORS TO EFFECT A
REVERSE STOCK SPLIT IN A RATIO OF ONE-FOR-TWENTY. To authorize the Board of
Directors to effect, any time until the next Annual Meeting of Shareholders, a
reverse stock split of the Company's Common Stock in a ratio of one-for-twenty;
2. AUTHORIZATION FOR THE BOARD OF DIRECTORS TO EFFECT A
REVERSE STOCK SPLIT IN A RATIO OF ONE-FOR-FIFTEEN. To authorize the Board of
Directors to effect, any time until the next Annual Meeting of Shareholders, a
reverse stock split of the Company's Common Stock in a ratio of one-for-fifteen;
3. AUTHORIZATION FOR THE BOARD OF DIRECTORS TO EFFECT A
REVERSE STOCK SPLIT IN A RATIO OF ONE-FOR-TEN. To authorize the Board of
Directors to effect, any time until the next Annual Meeting of Shareholders, a
reverse stock split of the Company's Common Stock in a ratio of one-for-ten;
4. AUTHORIZATION FOR THE BOARD OF DIRECTORS TO EFFECT A
REVERSE STOCK SPLIT IN A RATIO OF ONE-FOR-FIVE. To authorize the Board of
Directors to effect, any time until the next Annual Meeting of Shareholders, a
reverse stock split of the Company's Common Stock in a ratio of one-for-five;
5. AMENDMENT TO ARTICLE III, SECTION 2 OF ENOVA SYSTEMS,
INC.'S BYLAWS TO AMEND THE VARIABLE AUTHORIZED NUMBER OF DIRECTORS. To approve
an amendment to Article III, Section 2 of the Company's Bylaws to change the
variable authorized number of directors from a range of four (4) to seven (7) to
a range of six (6) to nine (9) and to fix the exact number of Board members at
eight (8);
6. ELECTION OF DIRECTORS. To elect Directors of the Company as
more fully described in the attached Proxy Statement to serve until the next
Annual Meeting of Shareholders or until their respective successors are elected
and qualified;
7. SELECTION OF INDEPENDENT AUDITORS. To ratify the
appointment of Moss Adams LLP as the independent auditors for the Company for
the fiscal year ending December 31, 2002; and
8. To transact such other business as may properly come before
the Annual Meeting and any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement which is attached and made a part hereof.
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The Board of Directors has fixed the close of business on October 14,
2002 as the record date for determining the shareholders entitled to notice of
and to vote at the Annual Meeting and any adjournment or postponement thereof.
After careful consideration, the Company's Board of Directors has
approved the proposals and recommends that you vote in favor of each such
proposal.
By Order of the Board of Directors
/s/ Carl D. Perry
Carl D. Perry
Chief Executive Officer
Torrance, California
November 8, 2002
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
READ THE ATTACHED PROXY STATEMENT CAREFULLY. IF YOU DO NOT EXPECT TO ATTEND IN
PERSON, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE
ACCOMPANYING ENVELOPE AS PROMPTLY AS POSSIBLE. IF YOU ATTEND THE ANNUAL MEETING
AND VOTE BY BALLOT, YOUR PROXY WILL BE AUTOMATICALLY REVOKED AND ONLY YOUR VOTE
AT THE ANNUAL MEETING WILL BE COUNTED.
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Mailed to Shareholders on or about November 8, 2002
ENOVA SYSTEMS, INC.
19850 South Magellan Drive
Torrance, California 90502
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PROXY STATEMENT
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For the Annual Meeting of Shareholders
To Be Held on December 5, 2002
The enclosed proxy ("Proxy") is solicited on behalf of the Board of
Directors (the "Board") of Enova Systems, Inc., a California corporation (the
"Company"), for use at the 2002 Annual Meeting of Shareholders to be held on
Tuesday, December 5, 2002 at 9:00 a.m., local time, at the Company's executive
offices located at 19850 South Magellan Drive, Torrance, California 90502, and
at any adjournment thereof.
This Proxy Statement and the accompanying form of Proxy are to be
mailed to the shareholders entitled to vote at the Annual Meeting on or about
November 8, 2002. The specific proposals to be considered and acted upon at the
Annual Meeting are summarized in the accompanying Notice and are described in
more detail in the Proxy Statement. All shareholders of record at the close of
business on October 14, 2002 are entitled to notice of, and to vote at, the
Annual Meeting.
Proxies
If any shareholder does not expect to attend the Annual Meeting in
person, such shareholder may vote by proxy. The shares represented by the
proxies received, properly marked, dated, executed and not revoked will be voted
at the Annual Meeting. Shareholders are urged to specify their choices on the
enclosed proxy card. If a proxy card is signed and returned without choices
specified, in the absence of contrary instructions, the shares of Common Stock,
Series A Convertible Preferred Stock ("Series A Preferred Stock") and Series B
Convertible Preferred Stock ("Series B Preferred Stock"), as the case may be,
represented by such proxy card will be voted "FOR" Proposals 1, 2, 3, 4, 5, 6
and 7. The Company does not know of any other business that will be presented
for action at the Annual Meeting but, if any matter is properly presented, the
proxy holders will vote on such matters in the proxy holders' discretion
Revocability of Proxy
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is exercised by: (i) delivering to the
Company at its executive offices, 19850 South Magellan Drive Torrance,
California 90502 (to the attention of Carl D. Perry, the Company's President), a
written notice of revocation or a duly executed proxy bearing a later date; or
(ii) attending the Annual Meeting and voting in person.
Solicitation
The solicitation of proxies will be conducted by mail and the Company
will bear all attendant costs. These costs will include the expense of preparing
and mailing proxy materials for the Annual Meeting and reimbursements paid to
brokerage firms and others for their expenses incurred in forwarding
solicitation material regarding the Annual Meeting to beneficial owners of the
Company's Common Stock. The Company may conduct further solicitation personally,
telephonically or by facsimile through its officers, directors and regular
employees, none of whom will receive additional compensation for assisting with
the solicitation.
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Record Date and Voting
The close of business on October 14, 2002 has been fixed as the record
date (the "Record Date") for determining the holders of shares of Common Stock,
Series A Preferred Stock, and Series B Preferred Stock of the Company entitled
to notice of and to vote at the Annual Meeting. As of the close of business on
the Record Date, the Company had 345,897,201 shares of Common Stock, 2,824,336
shares of Series A Preferred Stock, and 1,217,196 shares of Series B Preferred
Stock, for an aggregate of 349,938,733 shares, outstanding and entitled to vote
at the Annual Meeting.
The presence at the Annual Meeting of a majority of the shares of
Common Stock, Series A Preferred Stock, and Series B Preferred Stock of the
Company in the aggregate on an as converted basis, or approximately 175,319,305
of these shares on an as converted basis either in person or by proxy, will
constitute a quorum for the transaction of business at the Annual Meeting.
Each outstanding share of Common Stock and Series A Preferred Stock on
the Record Date is entitled to one (1) vote, and each outstanding share of
Series B Preferred Stock on the Record Date is entitled to two (2) votes on all
matters voted on at the Annual Meeting, except that (i) the holders of the
Series B Preferred Stock are voting as a separate class to fill two vacancies
allotted to the Series B Preferred Stock by voting for two (2) directors and
(ii) the holders of the Common Stock and Series A Preferred Stock are voting
together as a single class for the election of five (5) or six (6) directors (as
more fully described below). Cumulative voting may be used in the election of
directors to be elected by the Common Stock and the Series A Preferred Stock,
voting together as a class and in the election of directors elected by the
Series B Preferred Stock. Under cumulative voting, each holder of Common Stock
and Series A Preferred Stock may cast for a single candidate, or distribute
among the candidates as such holder chooses, a number of votes equal to the
number of candidates (five (5) or six (6) at this meeting) multiplied by the
number of shares held by such shareholder. Likewise, each holder of Series B
Preferred Stock may cast for a single candidate or distribute between the two
(2) candidates as such holder chooses, a number of votes equal to the number of
candidate (two (2)) at this meeting multiplied by the number of shares held by
such shareholders. Cumulative voting will apply only to those candidates whose
names have been placed in nomination prior to voting. No shareholder shall be
entitled to cumulate votes unless the shareholder has given notice at the
meeting, prior to the voting, of the shareholder's intention to cumulate the
shareholder's votes. If any one shareholder gives such notice, all shareholders
may cumulate their votes for candidates in nomination, except to the extent that
if a shareholder withholds votes from the nominees, the proxy holders named in
the accompanying form of proxy, in their sole discretion, will vote such proxy
for, and, if necessary, exercise cumulative voting rights to secure the election
of the nominees listed below as directors of the Company.
The Common Stock, Series A Preferred Stock, and Series B Preferred
Stock will vote together as a single class on all matters scheduled to be voted
on at the Annual Meeting, other than: (i) Proposal No. 1, 2, 3 and 4, the
authorization for the Board to effect a one-for-twenty, one-for-fifteen,
one-for-ten or one-for-five reverse stock split, for which the affirmative vote
of a majority of the outstanding Common Stock, voting as a separate class, will
be required in addition to the affirmative vote of a majority of the outstanding
Common Stock, Series A Preferred Stock, and Series B Preferred Stock, voting
together as a single class; and (ii) Proposal No. 6, the election of directors,
for which the Series B Preferred Stock, voting as a separate class, shall vote
to elect two (2) of the directors, and for which the outstanding Common Stock
and Series A Preferred Stock, voting together as a single class, shall vote to
elect the remaining directors.
An affirmative vote of a majority of the issued and outstanding shares
of Common Stock (not just shares present and voting at the meeting), and an
affirmative vote of a majority of the issued and outstanding shares of Common
Stock, Series A Preferred Stock, and Series B Preferred Stock in the aggregate
voting together as a class (not just shares present and voting at the meeting)
is required for approval of Proposal 1, 2, 3 and 4. An affirmative vote of a
majority of the shares of Common Stock, Series A Preferred Stock, and Series B
Preferred Stock, present and voting at the meeting, either in person or by
proxy, is required for approval of Proposal 5 and 7. With respect to the
election of directors (Proposal 6), the nominees receiving the highest number of
affirmative shares entitled to be voted will be declared elected.
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An automated system administered by the Company's Common Stock transfer
agent will tabulate votes of the holders of Common Stock, Series A and Series B
Preferred Stock cast by proxy. An employee of the Company will tabulate votes
cast in person at the Annual Meeting. Abstentions and broker non-votes are each
included in the determination of the number of shares present and voting, and
each is tabulated separately. However, broker non-votes are not counted for
purposes of determining the number of votes cast with respect to a particular
proposal. In determining whether a proposal (other than the election of
directors) has been approved, abstentions are counted as votes against the
proposal and broker non-votes are not counted as votes for or against the
proposal, except broker non-votes will have the effect of a negative vote for
Proposals 1, 2, 3, and 4 since such proposals require the approval of an
affirmative vote of a majority of the outstanding shares of the Company's Common
Stock (not just shares present and voting at the meeting), and an affirmative
vote of a majority of the Common Stock, Series A Preferred Stock, and Series B
Preferred Stock (not just shares present and voting at the meeting). As for the
election of directors (Proposal 6), votes against, votes withheld, abstentions
and broker non-votes will have no legal effect.
The Annual Report of the Company for the year ended December 31, 2001
has been mailed concurrently with the mailing of the Notice of Annual Meeting
and Proxy Statement to all shareholders entitled to notice of and to vote at the
Annual Meeting. The Annual Report is not incorporated into this Proxy Statement
and is not considered proxy soliciting material.
Please mark, date, sign and return the enclosed Proxy in the
accompanying postage-prepaid, return envelope as soon as possible so that, if
you do not attend the Annual Meeting, your shares may be voted.
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MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
PROPOSAL NO. 1
AUTHORIZATION FOR THE BOARD TO
EFFECT A ONE-FOR-TWENTY
REVERSE STOCK SPLIT
General
The Company's shareholders are being asked at this annual meeting to
approve four different reverse stock split proposals. The Board has directed
that each of the reverse stock splits outlined in Proposals 1, 2, 3 and 4 of
this Proxy be submitted to the Company's shareholders for consideration and
action. The Board may subsequently approve and effect, in its sole discretion,
one of the reverse stock splits approved by the shareholders based on its
determination of which reverse stock split will allow adequate additional shares
of Common Stock to be issued for potential future financing and which results in
the greatest marketability and liquidity of the Common Stock.
The Company's shareholders are being asked in Proposal 1 to act upon a
proposal to authorize the Board to effect a reverse stock split in the ratio of
one-for-twenty at any time prior to the next Annual Meeting of Shareholders. At
the last annual meeting, held on November 13, 2001, reverse stock splits
identical to those proposed herein were approved by the shareholders. However,
the Company did not implement any one of these reverse stock splits.
Except as may result from the rounding of fractional shares as
described below, each shareholder will hold the same percentage of Common Stock
outstanding immediately following a one-for-twenty reverse stock split as each
shareholder did immediately prior to a one-for-twenty reverse stock split. If
approved by the shareholders of the Company, one of the four proposed reverse
stock splits would become effective on any date (the "Effective Date") selected
and approved by the Board on or prior to the Company's next Annual Meeting of
Shareholders. If none of the reverse stock splits adopted by the shareholders is
subsequently approved by the Board and effected by such date, the Board will
again seek shareholder approval.
An amendment of the Company's Articles of Incorporation is required
to effect a reverse stock split. The complete text of the form of an amendment
to the Articles of Incorporation for the one-for-twenty reverse stock split is
set forth in Exhibit A to this Proxy Statement; however, such text is subject to
amendment to include such changes as may be required by the California Secretary
of State. If any of the four reverse stock splits set forth in Proposals 1, 2,
3, or 4 is approved by the requisite vote of the Company's shareholders and
thereafter approved by the Board, upon filing of the applicable Amendment to the
Articles with the California Secretary of State on the Effective Date, a reverse
stock split will be effective. For example, if the one-for-twenty reverse stock
split is approved, upon the filing of the one-for-twenty reverse stock split
amendment to the Articles of Incorporation, each share of the Common Stock
issued and outstanding immediately prior thereto (the "Old Common Stock"), will
be, automatically and without any action on the part of the shareholders,
converted into and reconstituted into 1/20th, of a share of the Company's Common
Stock (the "New Common Stock"); provided, however, that no fractional shares of
New Common Stock will be issued as a result of any of the one-for-twenty reverse
stock split. In lieu of any such fractional share interest, each holder of Old
Common Stock who would otherwise be entitled to receive a fractional share of
New Common Stock will receive cash in lieu of such fractional share of New
Common Stock in an amount equal to the product obtained by multiplying (a) the
average of the high-bid and low-asked per share prices of the Common Stock as
reported on the NASDAQ electronic "Bulletin Board" on the Effective Date
(adjusted if necessary to reflect the per share price of the Old Common Stock
without giving effect to the reverse stock splits) by (b) the number of shares
of Old Common Stock held by such holder that would otherwise have been exchanged
for such fractional share interest.
Shortly after the Effective Date, shareholders will be asked to
surrender certificates representing shares of Old Common Stock in accordance
with the procedures set forth in a letter of transmittal to be sent by the
Company. Upon such surrender, a certificate representing the number of shares of
Common Stock each such shareholder is deemed to
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own (after giving effect to the applicable reverse stock split) will be issued
and forwarded to the shareholders (and cash in lieu of any fractional share
interest). However, pending surrender, each certificate representing shares of
Old Common Stock will continue to be valid but will represent the number of
shares of newly issued Common Stock (and cash in lieu of fractional shares of
old Common Stock, as described above) that such shareholder is deemed to own
after giving effect to the reverse stock split. SHAREHOLDERS SHOULD NOT SEND
THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL LETTER.
Purposes of the Proposed Reverse Stock Splits
At the appropriate time, the Board believes any one of the four
proposed reverse stock splits is desirable for several reasons. A reverse stock
split should enhance the acceptability of the Common Stock by the financial
community and the investing public. The reduction in the number of issued and
outstanding shares of Common Stock caused by any one of the four proposed
reverse stock splits is anticipated initially to increase proportionally the per
share market price of the Common Stock. The Board also believes that the
proposed reverse stock splits may result in a broader market for the Common
Stock than that which currently exists. The expected increased price level may
encourage interest and trading in the Common Stock and possibly promote greater
liquidity for the Company's shareholders, although such liquidity could be
adversely affected by the reduced number of shares of Common Stock outstanding
after the Effective Date of any one of the four proposed reverse stock splits.
Additionally, a variety of brokerage house policies and practices tend to
discourage individual brokers within those firms from dealing with lower priced
stocks. Some of those policies and practices pertain to the payment of broker's
commissions and to time consuming procedures that function to make the handling
of lower priced stocks economically unattractive to brokers. In addition, the
structure of trading commissions also tends to have an adverse impact upon
holders of lower priced stock because the brokerage commission on a sale of
lower priced stock generally represents a higher percentage of the sales price
than the commission on a relatively higher priced issue. The four proposed
reverse stock splits could result in a price level for the Common Stock that
will reduce, to some extent, the effect of the above-referenced policies and
practices of brokerage firms and diminish the adverse impact of trading
commissions on the market for the Common Stock. Any reduction in brokerage
commissions resulting from the one of the four proposed reverse stock splits may
be offset, however, in whole or in part, by increased brokerage commissions
required to be paid by shareholders selling "odd lots" created by such reverse
stock splits.
However, there can be no assurance that any or all of these effects
will occur; including, without limitation, that the market price per share of
Common Stock after a reverse stock split will be equal to the applicable
multiple of the market price per share of Old Common Stock before a reverse
stock split, or that such price will either exceed or remain in excess of the
current market price. Further, there is no assurance that the market for the
Common Stock will be improved. Shareholders should note that the Board cannot
predict what effect any one of the four Reverse Stock Split proposals will have
on the market price of the Common Stock.
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Effects of the One-for-Twenty Reverse Stock Split
Contingent upon shareholder and Board approval, one of the four
proposed reverse stock splits will be effected by filing the applicable
Amendment to the Company's Articles of Incorporation and will be effective
immediately upon such filing. The Company reserves the right to forego or
postpone filing a reverse stock split amendment to the Articles if such action
is determined not to be in the best interests of the Company and its
shareholders.
Without any further action on the part of the Company or the
shareholders, after the filing of the applicable Amendment to the Company's
Articles effecting one of the approved reverse stock splits, the shares of Old
Common Stock will be converted into and reconstituted as the appropriate number
of shares of Common Stock resulting from one of the proposed reverse stock
splits (and, where applicable, cash in lieu of such fractional share, as
described above). As a result of paying cash in lieu of fractional shares
resulting from a twenty-for-one reverse stock split, the Company estimates that
the entire interest of approximately 65 shareholders (those holding fewer than
20 shares of Common Stock) will be eliminated pursuant to a one-for-twenty
reverse stock split. Because such transaction would be mandatory, such
shareholders holding fewer than 20 shares who wish to retain their existing
equity interest in the Company would be adversely affected. The Company expects
that approximately 1,775 shares of currently outstanding shares of Common Stock
would result in fractional share interests for which cash would be paid in the
twenty-for-one reverse stock split. Shares of Common Stock no longer outstanding
as a result of the fractional share settlement procedure will be returned to
authorized but unissued shares of the Company.
After giving effect to the settlement of fractional shares of Common
Stock, there will be no material differences between the rights of the shares of
Common Stock outstanding prior to the one-for-twenty reverse stock split and
those outstanding after the one-for-twenty reverse stock split is effected. The
one-for-twenty reverse stock split will, however, result in certain adjustments
to the voting rights and conversion ratios of the Series A Preferred Stock and
the Series B Preferred Stock. Specifically, pursuant to the terms of the
Company's Articles of Incorporation, the one-for-twenty reverse stock split will
result in an adjustment to the voting rights of the Series A Preferred Stock and
the Series B Preferred Stock so that once a reverse stock split is effected, the
relative voting power of such shares to the voting power of the Common Stock and
to the voting power of the other series of outstanding Preferred Stock will be
in the same proportion as existed immediately prior to a one-for-twenty reverse
stock split. For example, under Proposal No. 1, this adjustment would result in
a reduction in the voting power of each share of the Series A Preferred Stock
from one vote per share to 1/20th of a vote per share and a reduction in the
voting power of the Series B Preferred Stock from 2 votes per share to 1/10ths
of a vote per share. Thus, the proportionate voting power of the holders of the
stock of the Company would not be affected. All of the proposed reverse stock
splits will also result in adjustments being made to the conversion ratios of
the Series A Preferred Stock and the Series B Preferred Stock so that such
shares will be convertible into such number of shares of Common Stock that a
holder of such Preferred Stock would have been entitled to receive if such
Preferred Stock were to have been converted into Common Stock immediately prior
to a proposed reverse stock split. For example, under such adjustments, after
the one-for-twenty reverse stock split is made effective, each share of the
Series A Preferred Stock will be convertible into 1/20th of a share of Common
Stock, as compared to one share of Common Stock prior to the one-for-twenty
reverse stock split, and each share of the Series B Preferred Stock will be
convertible into either 1/10ths, of a share of Common Stock, as compared to 2
shares of Common Stock prior to the twenty-for-one reverse stock split. Similar
adjustments will also be made to the conversion ratios and exercise provisions
of the Company's various other outstanding convertible or exercisable
securities.
As proposed hereunder, shareholders have no right under California law
to dissent from a reverse stock split of the Common Stock.
Consummation of a one-for-twenty reverse stock split will not alter the
number of authorized shares of Common Stock which will remain at 500,000,000
shares. As discussed above, proportionate voting rights and other rights of the
holders of Common Stock and Preferred Stock will not be altered by the
one-for-twenty reverse stock split (other than as
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a result of the payment of cash in lieu of fractional shares, as described
above, and other than the change in the number of shares of Common Stock into
which the outstanding shares of Series A Preferred Stock and Series B Preferred
Stock are convertible).
Shareholders should note that certain disadvantages may result from the
adoption of any of the proposed reverse stock splits. In the event either
Proposals 1,2,3 or 4 is approved by the shareholders and one of the approved
reverse stock splits is subsequently approved and effected by the Board, the
number of outstanding shares of Common Stock would be decreased as a result of
the reverse stock split, but the number of authorized shares of Common Stock
would not be so decreased. The Company would therefore have the authority to
issue a greater number of shares of Common Stock following the one-for-twenty
reverse stock split without the need to obtain shareholder approval to authorize
additional shares. Any such additional issuance may have the effect of
significantly reducing the interest of the existing shareholders of the Company
with respect to earnings per share, voting, liquidation value and book and
market value per share.
As of October 18, 2002, the number of issued and outstanding shares of
Old Common Stock was 345,627,000. The following table illustrates the effects of
a one-for-twenty reverse stock split upon the number of shares of Old Common
Stock issued and outstanding, and the number of authorized and unissued shares
of Common Stock (assuming that no additional shares of Old Common Stock are
issued by the Company after the Record Date).
Common Stock Authorized and
Reverse Stock Split Ratio Outstanding(1) Unissued Common Stock(2)
------------------------- -------------- ------------------------
1 for 20 17,281,350 482,718,650
(1) The figures in this table are calculated based on August 10, 2002
issued and outstanding shares of Old Common Stock as reported in the
Company's Form 10Q for the six months ended June 30, 2002, filed with
the Securities and Exchange Commission on or about August 14, 2002.
These figures do not take into account any reduction in the number of
outstanding shares of Common Stock resulting from the procedures for
cashing out fractional shares. In addition, the number of Common Stock
shares outstanding does not include shares of Common Stock issuable
upon exercise or conversion of outstanding options, warrants or
convertible debt but does include the conversion of the Series A and
Series B Preferred Stock
(2) These figures are based on a pre-Reverse Stock Split number of
500,000,000 authorized shares as of August 10, 2002.
8
The Common Stock is currently registered under Section 12(g) of the
Securities Exchange Act of 1934 (the "Exchange Act") and, as a result, the
Company is subject to the periodic reporting and other requirements of the
Exchange Act. The one-for-twenty reverse stock split will not effect the
registration of the Common Stock under the Exchange Act. After the Effective
Date, trades of the New Common Stock will continue to be reported on the NASDAQ
electronic "Bulletin Board" under the Company's symbol "ENVA." The
one-for-twenty reverse stock split will not result in a Rule 13e-3 transaction
as defined under the Exchange Act.
Federal Income Tax Consequences of the Proposed Reverse Stock Splits
The Company has not sought and will not seek an opinion of counsel or a
ruling from the Internal Revenue Service regarding the federal income tax
consequences of the four proposed reverse stock splits. The Company, however,
believes that because the proposed reverse stock splits are not part of a plan
to increase any shareholder's proportionate interest in the assets or earnings
and profits of the Company, all of the proposed reverse stock splits will have
the following federal income tax effects:
1. A shareholder will not recognize gain or loss on the exchange of Old
Common Stock for newly issued Common Stock resulting from a reverse
stock split. In the aggregate, the shareholder's basis in shares of
newly issued Common Stock resulting from a reverse stock split will
equal his basis in shares of Old Common Stock, excluding any basis
attributable to shares of Old Common Stock which the shareholder
surrenders for cash in lieu of a fractional share of newly issued
Common Stock resulting from a reverse stock split.
2. A shareholder's holding period for tax purposes for shares of Common
Stock resulting from a reverse stock split will be the same as the
holding period for tax purposes of the shares of Old Common Stock
exchanged therefor.
3. All of the four proposed reverse stock splits will constitute a
reorganization within the meaning of Section 368(a)(1)(E) of the
Internal Revenue Code or will otherwise qualify for general
nonrecognition treatment, and the Company will not recognize any gain
or loss as a result of any of the proposed reverse stock splits.
4. To the extent a shareholder receives cash from the Company in lieu of a
fractional share of Common Stock resulting from one of the proposed
reverse stock splits, the shareholder will be treated for tax purposes
as though he sold the fractional share to the Company. Such a
shareholder will recognize a gain equal to the excess of (i) his cash
distribution over (ii) his tax basis in the fractional share deemed
sold. The gain will be long-term capital gain if the shareholder's
shares are capital assets in his hands and if he had held his shares
for more than one year before a reverse stock split. If the
shareholder's tax basis in the fractional share deemed sold exceeds his
cash distribution, the shareholder will recognize a loss.
Vote Required for Shareholder Approval of a One-for-Twenty Reverse Stock Split
The approval of this Proposal No. 1 requires the affirmative vote of a
majority of the outstanding shares of Common Stock, voting separately as a
class, and the affirmative vote of a majority of the outstanding shares of
Common Stock, Series A Preferred Stock and Series B Preferred Stock, voting
together as a single class (with both the Common Stock and the Series A
Preferred Stock having one vote per share and the Series B Preferred Stock
having 2 votes per share).
THE BOARD RECOMMENDS A VOTE FOR THE AUTHORIZATION OF THE BOARD
TO AMEND THE ARTICLES OF INCORPORATION
PURSUANT TO THE RESOLUTIONS SET FORTH IN EXHIBIT A TO THIS PROXY STATEMENT TO
EFFECT A ONE-FOR-TWENTY REVERSE STOCK SPLIT
9
PROPOSAL NO. 2
AUTHORIZATION FOR THE BOARD TO
EFFECT A ONE-FOR-FIFTEEN
REVERSE STOCK SPLIT
General
The Company's shareholders are also being asked to act upon a proposal
to authorize the Board to effect a reverse stock split in the ratio of
one-for-fifteen at any time prior to the next Annual Meeting of Shareholders.
Shareholders are being asked to approve four different reverse stock
split proposals. The Board has directed that each of the reverse stock splits
outlined in Proposals 1, 2, 3 and 4 be submitted to the Company's shareholders
for consideration and action. The Board may subsequently approve and effect, in
its sole discretion, one of the reverse stock splits approved by the
shareholders based on its determination of which of them will allow adequate
additional shares of Common Stock to be issued for potential future financing
and which results in the greatest marketability and liquidity of the Common
Stock.
Except as may result from the rounding of fractional shares as
described below, each shareholder will hold the same percentage of Common Stock
outstanding immediately following the one-for-fifteen reverse stock split as
each shareholder did immediately prior to the one-for-fifteen reverse stock
split. If approved by the shareholders and Board of the Company, a reverse stock
split would become effective on any date (the "Effective Date") approved and
selected by the Board on or prior to the Company's next Annual Meeting of
Shareholders. If none of the proposed reverse stock splits is effected by such
date, the Board will again seek shareholder approval.
An amendment of the Company's Articles of Incorporation is required to
effect a reverse stock split. The complete text of the form of an amendment to
the Articles of Incorporation for the one-for-fifteen reverse stock split is set
forth in Exhibit B to this Proxy Statement; however, such text is subject to
amendment to include such changes as may be required by the California Secretary
of State. If any one of the four reverse stock splits set forth in Proposals 1,
2, 3, or 4 is approved by the requisite vote of the Company's shareholders and
thereafter approved by the Board, upon filing of the applicable Amendment to the
Articles with the California Secretary of State on the Effective Date, a reverse
stock split will be effective. For example, if the one-for-fifteen reverse stock
split is approved, upon the filing of the one-for-fifteen reverse stock split
amendment to the Articles of Incorporation each share of the Common Stock issued
and outstanding immediately prior thereto ("Old Common Stock"), will be,
automatically and without any action on the part of the shareholders, converted
into and reconstituted into 1/15th of a share of the Company's Common Stock (the
"New Common Stock"); provided, however, that no fractional shares of New Common
Stock will be issued as a result of the one-for-fifteen reverse stock split. In
lieu of any such fractional share interest, each holder who would otherwise be
entitled to receive a fractional share of New Common Stock will receive cash in
lieu of such fractional share of New Common Stock in an amount equal to the
product obtained by multiplying (a) the average of the high-bid and low-asked
per share prices of the Common Stock as reported on the NASDAQ electronic
"Bulletin Board" on the Effective Date (adjusted if necessary to reflect the per
share price of the Old Common Stock without giving effect to the Reverse Stock
Splits) by (b) the number of shares of Old Common Stock held by such holder that
would otherwise have been exchanged for such fractional share interest.
10
Shortly after the Effective Date, shareholders will be asked to
surrender certificates representing shares of Old Common Stock in accordance
with the procedures set forth in a letter of transmittal to be sent by the
Company. Upon such surrender, a certificate representing the number of shares of
Common Stock each such shareholder is deemed to own (after giving effect to the
applicable reverse stock split) will be issued and forwarded to the shareholders
(and cash in lieu of any fractional share interest). However, pending surrender,
each certificate representing shares of Old Common Stock will continue to be
valid but will represent the number of shares of newly issued Common Stock (and
cash in lieu of fractional shares of old Common Stock, as described above) that
such shareholder is deemed to own after giving effect to the reverse stock
split. SHAREHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE
A TRANSMITTAL LETTER.
Purposes of the Proposed Reverse Stock Splits
For a discussion of the purposes of the reverse splits, see the caption
entitled "Purposes of the Proposed Reverse Stock Splits" in Proposal No. 1.
Effects of the One-for-Fifteen Reverse Stock Split
Contingent upon shareholder and Board approval, one of the four
proposed reverse stock splits will be effected by filing the applicable
Amendment to the Company's Articles of Incorporation and will be effective
immediately upon such filing. The Company reserves the right to forego or
postpone filing a reverse stock split amendment to the Articles if such action
is determined not to be in the best interests of the Company and its
shareholders.
Without any further action on the part of the Company or the
shareholders, after the filing of the applicable Amendment to the Company's
Articles effecting a reverse stock split, the shares of Old Common Stock will be
converted into and reconstituted as the appropriate number of shares of newly
issued Common Stock resulting from a reverse stock split (and, where applicable,
cash in lieu of such fractional share, as described above). As a result of
paying cash in lieu of fractional shares resulting from a one-for-fifteen
reverse stock split, the Company estimates that the entire interest of
approximately 50 shareholders (those holding fewer than 15 shares of Common
Stock) will be eliminated pursuant to such reverse stock split. Because such
transaction would be mandatory, such shareholders holding fewer than 15 shares
who wish to retain their existing equity interest in the Company would be
adversely affected. The Company expects that approximately 1,650 shares of
currently outstanding shares of Common Stock would result in fractional share
interests for which cash would be paid in the one-for-fifteen reverse stock
split. Shares of Common Stock no longer outstanding as a result of the
fractional share settlement procedure will be returned to authorized but
unissued shares of the Company.
After giving effect to the settlement of fractional shares of Common
Stock, there will be no material differences between the rights of the shares of
Common Stock outstanding prior to the one-for-fifteen reverse stock split and
those outstanding after the one-for-fifteen reverse stock split is effected. The
one-for-fifteen reverse stock split will, however, result in certain adjustments
to the voting rights and conversion ratios of the Series A Preferred Stock and
the Series B Preferred Stock. Specifically, pursuant to the terms of the
Company's Articles of Incorporation, the one-for-fifteen reverse stock split
will result in an adjustment to the voting rights of the Series A Preferred
Stock and the Series B Preferred Stock so that once the one-for-fifteen reverse
stock split is effected, the relative voting power of such shares to the voting
power of the Common Stock and to the voting power of the other series of
outstanding Preferred Stock will be in the same proportion as existed
immediately prior to the reverse stock split. For example, under this proposal,
this adjustment would result in a reduction in the voting power of each share of
the Series A Preferred Stock from one vote per share to 1/15th of a vote per
share and a reduction in the voting power of the Series B Preferred Stock from 2
votes per share to 2/15ths of a vote per share. Thus, the proportionate voting
power of the holders of the stock of the Company would not be affected. The
one-for-fifteen reverse stock split will also result in adjustments being made
to the conversion ratios of the Series A Preferred Stock and the Series B
Preferred Stock so that such shares will be convertible into such number of
shares of Common Stock that a holder of such Preferred Stock would have been
entitled to receive if such Preferred Stock were to have been converted into
Common Stock immediately prior to the reverse stock split. For
11
example, under such adjustments, after the one-for-fifteen reverse stock split
is made effective, each share of the Series A Preferred Stock will be
convertible into 1/15th of a share of Common Stock, as compared to one share of
Common Stock prior to the one-for-fifteen reverse stock split, and each share of
the Series B Preferred Stock will be convertible into either 2/15ths, of a share
of Common Stock, as compared to 2 shares of Common Stock prior to the
one-for-fifteen reverse stock split. Similar adjustments will also be made to
the conversion ratios and exercise provisions of the Company's various other
outstanding convertible or exercisable securities.
As proposed hereunder, shareholders have no right under California law
to dissent from a reverse stock split of the Common Stock.
Consummation of the one-for-fifteen reverse stock split will not alter
the number of authorized shares of Common Stock which will remain at 500,000,000
shares. As discussed above, proportionate voting rights and other rights of the
holders of Common Stock and Preferred Stock will not be altered by the
one-for-fifteen reverse stock split (other than as a result of the payment of
cash in lieu of fractional shares, as described above, and other than the change
in the number of shares of Common Stock into which the outstanding shares of
Series A Preferred Stock and Series B Preferred Stock are convertible).
Shareholders should note that certain disadvantages may result from the
adoption of any of the proposed reverse stock splits. In the event either
Proposals 1,2,3 or 4 is approved by the shareholders and one of the approved
reverse stock splits is subsequently approved and effected by the Board, the
number of outstanding shares of Common Stock would be decreased as a result of a
reverse stock split, but the number of authorized shares of Common Stock would
not be so decreased. The Company would therefore have the authority to issue a
greater number of shares of Common Stock following any of the proposed reverse
stock splits without the need to obtain shareholder approval to authorize
additional shares. Any such additional issuance may have the effect of
significantly reducing the interest of the existing shareholders of the Company
with respect to earnings per share, voting, liquidation value and book and
market value per share.
As of October 18, 2002, the number of issued and outstanding shares of
Old Common Stock was 345,627,000. The following table illustrates the effects of
the one-for-fifteen reverse stock split upon the number of shares of Old Common
Stock issued and outstanding, and the number of authorized and unissued shares
of Common Stock (assuming that no additional shares of Old Common Stock are
issued by the Company after the Record Date).
Common Stock Authorized and
Reverse Stock Split Ratio Outstanding(1) Unissued Common Stock(2)
------------------------- -------------- ------------------------
1 for 15 23,041,800 476,958,200
(1) The figures in this table are calculated based on August 10, 2002
issued and outstanding shares of Old Common Stock as reported in the
Company's Form 10Q for the six months ended June 30, 2002, filed with
the Securities and Exchange Commission on or about August 14, 2002.
These figures do not take into account any reduction in the number of
outstanding shares of Common Stock resulting from the procedures for
cashing out fractional shares. In addition, the number of Common Stock
shares outstanding does not include shares of Common Stock issuable
upon exercise or conversion of outstanding options, warrants or
convertible debt but does include the conversion of the Series A and
Series B Preferred Stock
(2) These figures are based on a pre-Reverse Stock Split number of
500,000,000 authorized shares as of August 10, 2002.
12
The Common Stock is currently registered under Section 12(g) of the
Exchange Act and, as a result, the Company is subject to the periodic reporting
and other requirements of the Exchange Act. The one-for-fifteen reverse stock
split will not effect the registration of the Common Stock under the Exchange
Act. After the Effective Date, trades of the New Common Stock will continue to
be reported on the NASDAQ electronic "Bulletin Board" under the Company's symbol
"ENVA." The one-for-fifteen reverse stock split will not result in a Rule 13e-3
transaction as defined under the Exchange Act.
Federal Income Tax Consequences of the Reverse Stock Split
The Company has not sought and will not seek an opinion of counsel or a
ruling from the Internal Revenue Service regarding the federal income tax
consequences of the Reverse Stock Split. For a discussion of the Federal income
tax consequences of a reverse stock split see the caption entitled "Federal
Income Tax Consequences of the Proposed Reverse Stock Splits" under Proposal No.
1.
Vote Required for Shareholder Approval of the One-for-Fifteen Reverse Stock
Split
The approval of Proposal No. 2 requires the affirmative vote of a
majority of the outstanding shares of Common Stock, voting separately as a
class, and the affirmative vote of a majority of the outstanding shares of
Common Stock, Series A Preferred Stock and Series B Preferred Stock, voting
together as a single class (with both the Common Stock and the Series A
Preferred Stock having one vote per share and the Series B Preferred Stock
having 2 votes per share).
THE BOARD RECOMMENDS A VOTE FOR THE AUTHORIZATION OF THE BOARD
TO AMEND THE ARTICLES OF INCORPORATION
PURSUANT TO THE RESOLUTIONS SET FORTH IN EXHIBIT B TO THIS PROXY STATEMENT TO
EFFECT A ONE-FOR-FIFTEEN REVERSE STOCK SPLIT
13
PROPOSAL NO. 3
AUTHORIZATION FOR THE BOARD TO
EFFECT A ONE-FOR-TEN
REVERSE STOCK SPLIT
General
The Company's shareholders are also being asked to act upon a proposal
to authorize the Board to effect a reverse stock split in the ratio of
one-for-ten at any time prior to the next Annual Meeting of Shareholders.
Shareholders are being asked to approve four different reverse stock
split proposals. The Board has directed that each of the reverse stock splits
outlined in Proposals 1, 2, 3 and 4 be submitted to the Company's shareholders
for consideration and action. The Board may subsequently approve and effect, in
its sole discretion, one of the reverse stock splits approved by the
shareholders based on its determination of which of them will allow adequate
additional shares of Common Stock to be issued for potential future financing
and which results in the greatest marketability and liquidity of the Common
Stock.
Except as may result from the rounding of fractional shares as
described below, each shareholder will hold the same percentage of Common Stock
outstanding immediately following all of the reverse stock splits as each
shareholder did immediately prior to a reverse stock split. If approved by the
shareholders of the Company, a reverse stock split would become effective on any
date (the "Effective Date") selected and approved by the Board on or prior to
the Company's next Annual Meeting of Shareholders. If none of the proposed
reverse stock splits is effected by such date, the Board will again seek
shareholder approval.
One of the reverse stock splits approved by shareholders will be
effected by an amendment of the Company's Articles of Incorporation. The
complete text of the form of an amendment to the Articles of Incorporation for
the one-for-ten reverse stock split is set forth in Exhibit C to this Proxy
Statement; however, such text is subject to amendment to include such changes as
may be required by the California Secretary of State. If the reverse stock
splits set forth in Proposals 1, 2, 3, or 4 is approved by the requisite vote of
the Company's shareholders and thereafter approved by the Board, upon filing of
the applicable Amendment to the Articles with the California Secretary of State
on the Effective Date, a reverse stock split will be effective. For example, if
the one-for-ten reversed stock split is approved, upon the filing of the
amendment to the Articles of Incorporation for the one-for-ten reverse split,
each share of the Common Stock issued and outstanding immediately prior thereto
(the "Old Common Stock"), will be, automatically and without any action on the
part of the shareholders, converted into and reconstituted into 1/10th of a
share of the Company's Common Stock (the "New Common Stock"); provided, however,
that no fractional shares of New Common Stock will be issued as a result of the
Reverse Stock Splits. In lieu of any such fractional share interest, each holder
of Old Common Stock who would otherwise be entitled to receive a fractional
share of New Common Stock will receive cash in lieu of such fractional share of
New Common Stock in an amount equal to the product obtained by multiplying (a)
the average of the high-bid and low-asked per share prices of the Common Stock
as reported on the NASDAQ electronic "Bulletin Board" on the Effective Date
(adjusted if necessary to reflect the per share price of the Old Common Stock
without giving effect to the Reverse Stock Splits) by (b) the number of shares
of Old Common Stock held by such holder that would otherwise have been exchanged
for such fractional share interest.
14
Shortly after the Effective Date, shareholders will be asked to
surrender certificates representing shares of Old Common Stock in accordance
with the procedures set forth in a letter of transmittal to be sent by the
Company. Upon such surrender, a certificate representing the number of shares of
Common Stock each such shareholder is deemed to own (after giving effect to the
applicable reverse stock split) will be issued and forwarded to the shareholders
(and cash in lieu of any fractional share interest). However, pending surrender,
each certificate representing shares of Old Common Stock will continue to be
valid but will represent the number of shares of newly issued Common Stock (and
cash in lieu of fractional shares of old Common Stock, as described above) that
such shareholder is deemed to own after giving effect to the reverse stock
split. SHAREHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE
A TRANSMITTAL LETTER.
Purposes of the Reverse Stock Split
For a discussion of the purposes of the reverse splits, see the caption
entitled "Purposes of the Proposed Reverse Stock Splits" in Proposal No. 1.
Effects of the One-for-Ten Reverse Stock Split
Contingent upon shareholder and Board approval, one of the four
proposed reverse stock splits will be effected by filing the applicable
Amendment to the Company's Articles of Incorporation and will be effective
immediately upon such filing. The Company reserves the right to forego or
postpone filing a reverse stock split amendment to the Articles if such action
is determined not to be in the best interests of the Company and its
shareholders.
Without any further action on the part of the Company or the
shareholders, after the filing of the Amendment to the Company's Articles
effecting one of the four the Reverse Stock Splits, the shares of Old Common
Stock will be converted into and reconstituted as the appropriate number of
shares of newly issued Common Stock resulting from a reverse stock split (and,
where applicable, cash in lieu of such fractional share, as described above). As
a result of paying cash in lieu of fractional shares resulting from a
one-for-ten reverse stock split, the Company estimates that the entire interest
of approximately 35 shareholders (those holding fewer than 10 shares of Common
Stock) will be eliminated pursuant to such reverse stock split. Because such
transaction would be mandatory, such shareholders holding fewer than 10 shares
who wish to retain their existing equity interest in the Company would be
adversely affected. The Company expects that approximately 1,250 shares of
currently outstanding shares of Common Stock would result in fractional share
interests for which cash would be paid in the one-for-ten reverse stock split.
Shares of Common Stock no longer outstanding as a result of the fractional share
settlement procedure will be returned to authorized but unissued shares of the
Company.
After giving effect to the settlement of fractional shares of Common
Stock, there will be no material differences between the rights of the shares of
Common Stock outstanding prior to the one-for-ten reverse stock split and those
outstanding after the one-for-ten reverse stock split is effected. The
one-for-ten reverse stock split will, however, result in certain adjustments to
the voting rights and conversion ratios of the Series A Preferred Stock and the
Series B Preferred Stock. Specifically, pursuant to the terms of the Company's
Articles of Incorporation, the one-for-ten reverse stock split will result in an
adjustment to the voting rights of the Series A Preferred Stock and the Series B
Preferred Stock so that once the one-for-ten reverse stock split is effected,
the relative voting power of such shares to the voting power of the Common Stock
and to the voting power of the other series of outstanding Preferred Stock will
be in the same proportion as existed immediately prior to the reverse stock
split. For example, under Proposal No. 3, this adjustment would result in a
reduction in the voting power of each share of the Series A Preferred Stock from
one vote per share to 1/10th of a vote per share and a reduction in the voting
power of the Series B Preferred Stock from 2 votes per share to 1/5th of a vote
per share. Thus, the proportionate voting power of the holders of the stock of
the Company would not be affected. The one-for-ten reverse stock split will also
result in adjustments being made to the conversion ratios of the Series A
Preferred Stock and the Series B Preferred Stock so that such shares will be
convertible into such number of shares of Common Stock that a holder of such
Preferred Stock would have been entitled to receive if such
15
Preferred Stock were to have been converted into Common Stock immediately prior
to the reverse stock split. For example, under such adjustments, after the
one-for-ten reverse stock split is made effective, each share of the Series A
Preferred Stock will be convertible into 1/10th of a share of Common Stock, as
compared to one share of Common Stock prior to the one-for-ten reverse stock
split, and each share of the Series B Preferred Stock will be convertible into
either 1/5th, of a share of Common Stock, as compared to 2 shares of Common
Stock prior to the one-for-ten reverse stock split. Similar adjustments will
also be made to the conversion ratios and exercise provisions of the Company's
various other outstanding convertible or exercisable securities.
As proposed hereunder, shareholders have no right under California law
to dissent from a reverse stock split of the Common Stock.
Consummation of one-for-ten reverse stock split will not alter the
number of authorized shares of Common Stock which will remain at 500,000,000
shares. As discussed above, proportionate voting rights and other rights of the
holders of Common Stock and Preferred Stock will not be altered by the
one-for-ten reverse stock split (other than as a result of the payment of cash
in lieu of fractional shares, as described above, and other than the change in
the number of shares of Common Stock into which the outstanding shares of Series
A Preferred Stock and Series B Preferred Stock are convertible).
Shareholders should note that certain disadvantages may result from the
adoption of the one-for-ten reverse stock split. In the event the one-for-ten
reverse stock split is approved by the shareholders and is subsequently approved
and effected by the Board, the number of outstanding shares of Common Stock
would be decreased as a result of a one-for-ten reverse stock split, but the
number of authorized shares of Common Stock would not be so decreased. The
Company would therefore have the authority to issue a greater number of shares
of Common Stock following the one-for-ten reverse stock split without the need
to obtain shareholder approval to authorize additional shares. Any such
additional issuance may have the effect of significantly reducing the interest
of the existing shareholders of the Company with respect to earnings per share,
voting, liquidation value and book and market value per share.
As of October 18, 2002, the number of issued and outstanding shares of
Old Common Stock was 345,627,000. The following table illustrates the effects of
the one-for-ten reverse stock split upon the number of shares of Old Common
Stock issued and outstanding, and the number of authorized and unissued shares
of Common Stock (assuming that no additional shares of Old Common Stock are
issued by the Company after the Record Date).
Common Stock Authorized and
Reverse Stock Split Ratio Outstanding(1) Unissued Common Stock(2)
------------------------- -------------- ------------------------
1 for 10 34,627,000 465,373,000
(1) The figures in this table are calculated based on August 10, 2002
issued and outstanding shares of Old Common Stock as reported in the
Company's Form 10Q for the six months ended June 30, 2002, filed with
the Securities and Exchange Commission on or about August 14, 2002.
These figures do not take into account any reduction in the number of
outstanding shares of Common Stock resulting from the procedures for
cashing out fractional shares. In addition, the number of Common Stock
shares outstanding does not include shares of Common Stock issuable
upon exercise or conversion of outstanding options, warrants or
convertible debt but does include the conversion of the Series A and
Series B Preferred Stock
(2) These figures are based on a pre-Reverse Stock Split number of
500,000,000 authorized shares as of August 10, 2002.
16
The Common Stock is currently registered under Section 12(g) of the
Exchange Act and, as a result, the Company is subject to the periodic reporting
and other requirements of the Exchange Act. The one-for-ten reverse stock split
will not effect the registration of the Common Stock under the Exchange Act.
After the Effective Date, trades of the New Common Stock will continue to be
reported on the NASDAQ electronic "Bulletin Board" under the Company's symbol
"ENVA." The one-for-ten reverse stock split will not result in a Rule 13e-3
transaction as defined under the Exchange Act.
Federal Income Tax Consequences of the Reverse Stock Split
The Company has not sought and will not seek an opinion of counsel or a
ruling from the Internal Revenue Service regarding the federal income tax
consequences of the Reverse Stock Split. For a discussion of the Federal income
tax consequences of a reverse stock split see the caption entitled "Federal
Income Tax Consequences of the Proposed Reverse Stock Splits" under Proposal No.
1.
Vote Required for Shareholder Approval of the One-for-Ten Reverse Stock Split
The approval of Proposal No. 3 requires the affirmative vote of a
majority of the outstanding shares of Common Stock, voting separately as a
class, and the affirmative vote of a majority of the outstanding shares of
Common Stock, Series A Preferred Stock and Series B Preferred Stock, voting
together as a single class (with both the Common Stock and the Series A
Preferred Stock having one vote per share and the Series B Preferred Stock
having 2 votes per share).
THE BOARD RECOMMENDS A VOTE FOR THE AUTHORIZATION OF THE BOARD
TO AMEND THE ARTICLES OF INCORPORATION
PURSUANT TO THE RESOLUTIONS SET FORTH IN EXHIBIT C TO THIS PROXY STATEMENT TO
EFFECT A ONE-FOR-TEN REVERSE STOCK SPLIT
17
PROPOSAL NO. 4
AUTHORIZATION FOR THE BOARD TO
EFFECT A ONE-FOR-FIVE
REVERSE STOCK SPLIT
General
The Company's shareholders are also being asked to act upon a proposal
to authorize the Board to effect a reverse stock split in the ratio of
one-for-five at any time prior to the next Annual Meeting of Shareholders.
Shareholders are being asked to approve four different reverse stock
split proposals. The Board has directed that each of the reverse stock splits
outlined in Proposals 1, 2, 3 and 4 be submitted to the Company's shareholders
for consideration and action. The Board may subsequently approve and effect, in
its sole discretion, one of the reverse stock splits approved by the
shareholders based on its determination of which of them will allow adequate
additional shares of Common Stock to be issued for potential future financing
and which results in the greatest marketability and liquidity of the Common
Stock.
Except as may result from the rounding of fractional shares as
described below, each shareholder will hold the same percentage of Common Stock
outstanding immediately following all of the reverse stock splits as each
shareholder did immediately prior to a reverse stock split. If approved by the
shareholders of the Company, a reverse stock split would become effective on any
date (the "Effective Date") selected and approved by the Board on or prior to
the Company's next Annual Meeting of Shareholders. If none of the proposed
reverse stock splits is effected by such date, the Board will again seek
shareholder approval
One of the reverse stock splits approved by the shareholders will be
effected by an amendment of the Company's Articles of Incorporation. The
complete text of the form of an amendment to the Articles of Incorporation for
the one-for-five reverse stock split is set forth in Exhibit D to this Proxy
Statement; however, such text is subject to amendment to include such changes as
may be required by the California Secretary of State. If any one of the four
reverse stock splits set forth in Proposals 1, 2, 3, 4 is approved by the
requisite vote of the Company's shareholders and thereafter approved by the
Board, upon filing of the applicable Amendment to the Articles of Incorporation
with the California Secretary of State on the Effective Date, a reverse stock
split will be effective. For example, if the one-for-five reverse stock split is
approved, upon the filing of the one-for-five reverse stock split amendment to
the Articles of Incorporation, each share of the Common Stock issued and
outstanding immediately prior thereto (the "Old Common Stock"), will be,
automatically and without any action on the part of the shareholders, converted
into and reconstituted into 1/5th of a share of the Company's Common Stock (the
"New Common Stock"); provided, however, that no fractional shares of New Common
Stock will be issued as a result of the one-for-five reverse stock split. In
lieu of any such fractional share interest, each holder of Old Common Stock who
would otherwise be entitled to receive a fractional share of New Common Stock
will receive cash in lieu of such fractional share of New Common Stock in an
amount equal to the product obtained by multiplying (a) the average of the
high-bid and low-asked per share prices of the Common Stock as reported on the
NASDAQ electronic "Bulletin Board" on the Effective Date (adjusted if necessary
to reflect the per share price of the Old Common Stock without giving effect to
the Reverse Stock Splits) by (b) the number of shares of Old Common Stock held
by such holder that would otherwise have been exchanged for such fractional
share interest.
Shortly after the Effective Date, shareholders will be asked to
surrender certificates representing shares of Old Common Stock in accordance
with the procedures set forth in a letter of transmittal to be sent by the
Company. Upon such surrender, a certificate representing the number of shares of
Common Stock each such shareholder is deemed to own (after giving effect to the
applicable reverse stock split) will be issued and forwarded to the shareholders
(and cash in lieu of any fractional share interest). However, pending surrender,
each certificate representing shares of Old Common Stock will continue to be
valid but will represent the number of shares of newly issued Common Stock (and
cash in lieu of fractional shares of old Common Stock, as described above) that
such shareholder is deemed to own after giving effect
18
to the reverse stock split. SHAREHOLDERS SHOULD NOT SEND THEIR STOCK
CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL LETTER.
Purposes of the Reverse Stock Split
For a discussion of the purposes of the reverse stock split see the
caption entitled "Purposes of the Proposed Reverse Stock Splits" in Proposal No.
1.
Effects of the One-for-Five Reverse Stock Split
Contingent upon shareholder and Board approval, one of the four reverse
stock splits will be effected by filing the applicable Amendment to the
Company's Articles of Incorporation and will be effective immediately upon such
filing. The Company reserves the right to forego or postpone filing a reverse
stock split amendment to the Articles if such action is determined not to be in
the best interests of the Company and its shareholders.
Without any further action on the part of the Company or the
shareholders, after the filing of the Amendment to the Company's Articles
effecting one of the four the Reverse Stock Splits, the shares of Old Common
Stock will be converted into and reconstituted as the appropriate number of
shares of newly issued Common Stock resulting from a reverse stock split (and,
where applicable, cash in lieu of such fractional share, as described above). As
a result of paying cash in lieu of fractional shares resulting from a
one-for-five reverse stock split, the Company estimates that the entire interest
of approximately 20 shareholders (those holding fewer than 5 shares of Common
Stock) will be eliminated pursuant to such reverse stock split. Because such
transaction would be mandatory, such shareholders holding fewer than 5 shares
who wish to retain their existing equity interest in the Company would be
adversely affected. The Company expects that approximately 1,150 shares of
currently outstanding shares of Common Stock would result in fractional share
interests for which cash would be paid in the one-for-five reverse stock split.
Shares of Common Stock no longer outstanding as a result of the fractional share
settlement procedure will be returned to authorized but unissued shares of the
Company.
After giving effect to the settlement of fractional shares of Common
Stock, there will be no material differences between the rights of the shares of
Common Stock outstanding prior to the one-for-five reverse stock split and those
outstanding after the one-for-five reverse stock split is effected. The
one-for-five reverse stock split will, however, result in certain adjustments to
the voting rights and conversion ratios of the Series A Preferred Stock and the
Series B Preferred Stock. Specifically, pursuant to the terms of the Company's
Articles of Incorporation, the one-for-five reverse stock split will result in
an adjustment to the voting rights of the Series A Preferred Stock and the
Series B Preferred Stock so that once the one-for-five reverse stock split is
effected, the relative voting power of such shares to the voting power of the
Common Stock and to the voting power of the other series of outstanding
Preferred Stock will be in the same proportion as existed immediately prior to
the one-for-five reverse stock split. For example, this adjustment would result
in a reduction in the voting power of each share of the Series A Preferred Stock
from one vote per share to 1/5th of a vote per share and a reduction in the
voting power of the Series B Preferred Stock from 2 votes per share to 2/5ths of
a vote per share. Thus, the proportionate voting power of the holders of the
stock of the Company would not be affected. The one-for-five reverse stock split
will also result in adjustments being made to the conversion ratios of the
Series A Preferred Stock and the Series B Preferred Stock so that such shares
will be convertible into such number of shares of Common Stock that a holder of
such Preferred Stock would have been entitled to receive if such Preferred Stock
were to have been converted into Common Stock immediately prior to the reverse
stock split. For example, under such adjustments, after the one-for-five reverse
stock split is made effective, each share of the Series A Preferred Stock will
be convertible into 1/5th of a share of Common Stock, as compared to one share
of Common Stock prior to the one-for-five reverse stock splits, and each share
of the Series B Preferred Stock will be convertible into either 2/5ths, of a
share of Common Stock, as compared to 2 shares of Common Stock prior to the
reverse stock split. Similar adjustments will also be made to the conversion
ratios and exercise provisions of the Company's various other outstanding
convertible or exercisable securities.
19
As proposed hereunder, shareholders have no right under California law
to dissent from a Reverse Stock Split of the Common Stock.
Consummation of the one-for-five reverse stock split will not alter the
number of authorized shares of Common Stock which will remain at 500,000,000
shares. As discussed above, proportionate voting rights and other rights of the
holders of Common Stock and Preferred Stock will not be altered by the
one-for-five reverse stock split (other than as a result of the payment of cash
in lieu of fractional shares, as described above, and other than the change in
the number of shares of Common Stock into which the outstanding shares of Series
A Preferred Stock and Series B Preferred Stock are convertible).
Shareholders should note that certain disadvantages may result from the
adoption of this Proposal No. 4. In the event this Proposal No. 4 is approved by
the shareholders and is subsequently approved and effected by the Board, the
number of outstanding shares of Common Stock would be decreased as a result of a
one-for-five reverse stock split, but the number of authorized shares of Common
Stock would not be so decreased. The Company would therefore have the authority
to issue a greater number of shares of Common Stock following the one-for-five
reverse stock split without the need to obtain shareholder approval to authorize
additional shares. Any such additional issuance may have the effect of
significantly reducing the interest of the existing shareholders of the Company
with respect to earnings per share, voting, liquidation value and book and
market value per share.
As of October 18, 2002, the number of issued and outstanding shares of
Old Common Stock was 345,627,000. The following table illustrates the effects of
the one-for-five reverse stock split upon the number of shares of Old Common
Stock issued and outstanding, and the number of authorized and unissued shares
of Common Stock (assuming that no additional shares of Old Common Stock are
issued by the Company after the Record Date).
Common Stock Authorized and
Reverse Stock Split Ratio Outstanding(1) Unissued Common Stock(2)
------------------------- -------------- ------------------------
1 for 5 69,125,400 430,876,400
(1) The figures in this table are calculated based on August 10, 2002
issued and outstanding shares of Old Common Stock as reported in the
Company's Form 10Q for the six months ended June 30, 2002, filed with
the Securities and Exchange Commission on or about August 14, 2002.
These figures do not take into account any reduction in the number of
outstanding shares of Common Stock resulting from the procedures for
cashing out fractional shares. In addition, the number of Common Stock
shares outstanding does not include shares of Common Stock issuable
upon exercise or conversion of outstanding options, warrants or
convertible debt but does include the conversion of the Series A and
Series B Preferred Stock
(2) These figures are based on a pre-Reverse Stock Split number of
500,000,000 authorized shares as of August 10, 2002.
20
The Common Stock is currently registered under Section 12(g) of the
Exchange Act and, as a result, the Company is subject to the periodic reporting
and other requirements of the Exchange Act. The one-for-five reverse stock split
will not effect the registration of the Common Stock under the Exchange Act.
After the Effective Date, trades of the New Common Stock will continue to be
reported on the NASDAQ electronic "Bulletin Board" under the Company's symbol
"ENVA." The one-for-five reverse stock split will not result in a Rule 13e-3
transaction as defined under the Exchange Act.
Federal Income Tax Consequences of the Reverse Stock Split
The Company has not sought and will not seek an opinion of counsel or a ruling
from the Internal Revenue Service regarding the federal income tax consequences
of the Reverse Stock Split. For a discussion of the Federal income tax
consequences of a reverse stock split see the caption entitled "Federal Income
Tax Consequences of the Proposed Reverse Stock Splits" under Proposal No. 1.
Vote Required for Shareholder Approval of a One-for-five Reverse Stock Split
The approval of Proposal No. 4 requires the affirmative vote of a
majority of the outstanding shares of Common Stock, voting separately as a
class, and the affirmative vote of a majority of the outstanding shares of
Common Stock, Series A Preferred Stock and Series B Preferred Stock, voting
together as a single class (with both the Common Stock and the Series A
Preferred Stock having one vote per share and the Series B Preferred Stock
having 2 votes per share).
THE BOARD RECOMMENDS A VOTE FOR THE AUTHORIZATION OF THE BOARD
TO AMEND THE ARTICLES OF INCORPORATION
PURSUANT TO THE RESOLUTIONS SET FORTH IN EXHIBIT D TO THIS PROXY STATEMENT TO
EFFECT A ONE-FOR-FIVE REVERSE STOCK SPLIT
21
PROPOSAL NO. 5
AMENDMENT TO ARTICLE III, SECTION 2 OF THE COMPANY'S BYLAWS
TO CHANGE THE VARIABLE AUTHORIZED NUMBER OF DIRECTORS
FROM A RANGE OF FOUR (4) TO SEVEN (7) TO A RANGE OF SIX (6) TO NINE (9)
AND TO FIX THE EXACT NUMBER OF BOARD MEMBERS AT EIGHT (8)
The first two sentences of Section 2 of Article III of the Bylaws of
the Company provide that the authorized number of directors of the Company shall
not be less than four (4), nor more than seven (7) and that, until changed, the
authorized number of directors is fixed at four (4). As permitted under the
Company's Bylaws, the Board had previously changed the fixed number of
authorized number of members of the Board of Directors to fix the exact number
at seven (7), the current number of Board members. The Board of Directors
recently adopted a resolution proposing to amend, and declaring the advisability
of amending, the first two sentences of Section 2 of Article III of the
Company's Bylaws to change the variable number of the authorized number of
members of the Board of Directors from the range of four (4) to seven (7)
members to a range of six (6) to nine (9) members and to fix the exact number of
members within that range at eight (8) until such time as the number is changed
by the Board or the shareholders of the Company to another fixed number within
that range. The text of the proposed amendment is set forth in Exhibit E to this
Proxy Statement. The Board believes this proposal will allow the Board more
flexibility and to meet more frequently when desired. The Board directed that
this proposed amendment be considered at the Annual Meeting of Shareholders on
December 5, 2002. In the event that this Proposal 5 is approved by the
shareholders, Article III, Section 2 of the Company's Bylaws will be deemed to
be amended to read as set forth in Exhibit E to this Proxy Statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
AMENDMENT TO ARTICLE III, SECTION 2 OF THE COMPANY'S BYLAWS
TO CHANGE THE VARIABLE AUTHORIZED NUMBER OF DIRECTORS
FROM A RANGE OF FOUR(4) TO SEVEN (7) TO A RANGE OF SIX (6) TO NINE (9)
AND TO FIX THE EXACT NUMBER OF BOARD MEMBERS AT EIGHT (8)
22
PROPOSAL NO. 6
ELECTION OF DIRECTORS
Assuming Proposal 5 described above is approved by the shareholders at
the Annual Meeting, a slate of eight (8) Directors will be presented for
election at the Annual Meeting, each of whom will serve until the next annual
meeting of shareholders or until a successor is elected or appointed and
qualified or until the Director's earlier resignation or removal. In the event
that Proposal 5 is not approved by the shareholders of the Company at the Annual
Meeting, a slate of seven (7) directors will be presented for election at the
Annual Meeting, each of whom shall serve until the next annual meeting of
shareholders or until a successor is elected or appointed and qualified or until
the Director's earlier resignation or removal. The Company's Articles of
Incorporation provide that the holders of the Series B Preferred Stock are
entitled, voting as a separate class, to elect two members of the Board. The
holders of the Common Stock and Series A Preferred Stock, voting together as a
single class, are entitled to elect the balance of the authorized members of the
Board. Two (2) nominees have been nominated for election by the holders of the
Series B Preferred Stock and six (6) nominees will be elected by the holders of
the Common Stock and Series A Preferred Stock or, if Proposal 5 is not approved
by the shareholders of the Company at the Annual Meeting, five (5) nominees will
be elected by the holders of the Common Stock and the Series A Preferred Stock.
The Series B Preferred Stock proxy holders will vote, as a separate
class, the proxies received by them to elect as the Series B nominees Donald H.
Dreyer and John J. Micek III. If Proposal 5 is approved by the shareholders at
the Annual Meeting, the Common Stock and Series A Preferred Stock proxy holders
will vote, as a single class, the proxies received by them to elect as their six
(6) nominees Malcolm R. Currie, Ph.D., Carl D. Perry, Anthony Rawlinson, Edwin
O. Riddell, James M. Strock and John R. Wallace. If Proposal 5 is not so
approved, the nominees of the Common Stock and the Series A Preferred Stock will
be each of the persons named in the preceding sentence except John R. Wallace.
With respect to any proposed nominee, if that nominee is unable or declines to
serve as a Director at the time of the Annual Meeting, the proxies will be voted
for any nominee designated by the proxy holders to fill such vacancy. However,
it is not expected that any nominee will be unable or will decline to serve as a
Director. If shareholders nominate persons other than the Company's nominees for
election as Directors, the Common Stock, Series A Preferred Stock, and Series B
Preferred Stock proxy holders may vote all proxies received by them in
accordance with cumulative voting if invoked to assure the election of as many
of the Company's nominees as possible. The term of office of each person elected
as a Director will continue until the next annual meeting of shareholders or
until the Director's successor has been elected or appointed or until the
Director's earlier resignation or removal.
Currently, the Company's Bylaws provided that the authorized number of
Directors is not less than four (4) nor more than seven (7), with the exact
number in this range as established from time to time by the Board of Directors.
The number of Directors on the Board is currently fixed at seven (7). Assuming
approval of Proposal 5, the exact number of authorized directors will be deemed
fixed at eight (8). Certain information about the nominees for the Board of
Directors is furnished below.
Proposed Common Stock and Series A Preferred Stock Nominees:
Malcolm R. Currie, Ph.D, Director. Dr. Currie was re-elected to the
Board of Directors in 1999. Dr. Currie had served as a Director of the Company
from 1995 through 1997. Since 1994, he has served as Chairman of Electric
Bicycle Co., a developer of electric bicycles. From 1986 until 1992, Dr. Currie
served as Chairman and Chief Executive Officer of Hughes Aircraft Co., and from
1985 until 1988, he was the Chief Executive Officer of Delco Electronics. His
career in electronics and management has included research with many patents and
papers in microwave and millimeter wave electronics, laser, space systems, and
related fields. He has led major programs in radar, commercial satellites,
communication systems, and defense electronics. He served as Undersecretary of
Defense for Research and Engineering, the Defense Science Board, and currently
serves on the Boards of Directors of UNOCAL, Investment Company of America, and
LSI Logic. He is President of the American Institute of Aeronautics and
Astronautics, and is a Member of the Board of Trustees of the University of
Southern California.
23
Carl D. Perry, Chief Executive Officer, President and Director. Mr.
Perry served as a Director and as an Executive Vice President of the Company
from July 1993 until November 1997. In November 1997, Mr. Perry was elected as
Chairman of the Board and Chief Executive Officer of the Company, and was
elected President in June 1999. In July 1999, Mr. Perry resigned his position as
Chairman of the Board to allow Mr. Anthony Rawlinson to become Chairman. Mr.
Perry continues as Chief Executive Officer and President and as a Director.
Prior to joining the Company, he was an international aerospace and financial
consultant from 1989 to 1993. Mr. Perry served as Executive Vice President of
Canadair Ltd., Canada's largest aerospace corporation, from 1984 to 1989, where
he conducted strategic planning, worldwide marketing, and international joint
ventures. From 1979 to 1983, Mr. Perry served as Executive Vice President of the
Howard Hughes Helicopter Company, now known as Boeing Helicopter Company, where
he was responsible for general management, worldwide business development, and
international operations.
Anthony Rawlinson, Chairman of the Board. Mr. Rawlinson was appointed
Chairman of the Board in July 1999. Since 1996, Mr. Rawlinson has been Managing
Director of the Global Value Investment Portfolio Management Pte. Ltd., a
Singapore based International Fund Management Company managing discretionary
equity portfolios for institutions, pension funds and clients globally. Mr.
Rawlinson has more than twenty years experience in international fund
management. Mr. Rawlinson is a specialist in analysis and investment in high
technology companies. From 1996 to 1999, Mr. Rawlinson was Chairman of IXLA
Ltd., an Australian public company in the field of PC photography software and
its wholly-owned subsidiary, photohighway.com. Mr. Rawlinson is currently
Chairman of Matrix Oil NL, an Australian publicly listed company. Mr. Rawlinson
is also a director of Cardsoft, Inc., a high technology software company with
secure java based solutions for mobile phones and handheld devices.
Edwin O. Riddell, Director. Mr. Riddell has served as a Director of the
Company since June 1995. From March 1999 to the present, Mr. Riddell has been
President of CR Transportation Services, a consultant to the electric vehicle
industry. From January 1991 to March 1999, Mr. Riddell has served as Manager of
the Transportation Business Unit in the Customer Systems Group at the Electric
Power Research Institute in Palo Alto, California, and from 1985 until November
1990, he served with the Transportation Group, Inc. as Vice President,
Engineering, working on electric public transportation systems. From 1979 to
1985, he was Vice President and General Manager of Lift U, Inc., the leading
manufacturer of handicapped wheelchair lifts for the transit industry. Mr.
Riddell has also worked with Ford, Chrysler, and General Motors in the area of
auto design (styling), and has worked as a member of senior management for a
number of public transit vehicle manufacturers. Mr. Riddell has been a member of
the American Public Transportation Association's (APTA) Member Board of
Governors for over 15 years, and has served on APTA's Board of Directors. Mr.
Riddell was also Managing Partner of the U.S. Advanced Battery Consortium.
James M. Strock, Director. Mr. Strock was elected a Director in July
2000. From 1991-1997, Mr. Strock served in Governor Pete Wilson's cabinet as
California's first Secretary for Environmental Protection. He led an
organization with an annual budget of more than $800 million with 4,000
employees. The Agency includes many of the world's leading environmental
improvement programs relating to air and water quality, toxics and pesticide
regulation, and solid waste. From 1989 until 1991, Mr. Strock served in
President Bush's subcabinet as Assistant Administrator for Enforcement (chief
law enforcement officer) of the U.S. Environmental Protection Agency. Currently,
he is principal of James Strock and Co., a San Francisco firm providing
management consulting, communications and dispute resolution services. Mr.
Strock is a graduate of Harvard College and Harvard Law School, and is a member
of the Council on Foreign Relations. He is the author of Reagan on Leadership:
Executive Lessons from the Great Communicator, and Theodore Roosevelt on
Leadership: Executive Lessons from the Bully Pulpit.
John R. Wallace, Director. Mr. Wallace retired from the Ford Motor
Company in 2002, and is currently serving as a consultant to the Company for
fuel cell and hybrid electric vehicle strategy. Prior to his retirement, he was
executive director of TH!NK Group. He has been active in Ford Motor Company's
alternative fuel vehicle programs since 1990, serving first as: Director,
Technology Development Programs; then as Director, Electric Vehicle Programs;
Director, Alternative Fuel Vehicles and finally Director, Environmental
Vehicles. He is past Chairman of the Board of Directors of TH!NK Nordic; he is
past chairman of the United States Advanced Battery Consortium; Co-Chairman of
the Electric Vehicle Association of the Americas, and past Chairman of the
California Fuel Cell Partnership. He served as Director of Ford's Electronic
Systems Research Laboratory, Research Staff, from 1988 through 1990. Prior to
joining
24
Ford Research Staff, he was president of Ford Microelectronics, Inc., in
Colorado Springs. His other experience includes work as program manager with
Intel Corporation. He also served as Director, Western Development Center, for
Perkin-Elmer Corporation and as President of Precision Microdesign, Inc.
Proposed Series B Preferred Stock Nominees:
Donald H. Dreyer, Director. Mr. Dreyer was elected a Director of the
Company in January 1997. Mr. Dreyer is President and CEO of Dreyer & Company,
Inc., a consultancy in credit, accounts receivable and insolvency services,
which was established in 1990. Mr. Dreyer has served as Chairman of the Board of
Credit Managers Association of California during the 1994 to 1995 term and
continues to serve as a member of the Advisory Committee of that organization.
Mr. Dreyer is currently the co-Chair of the Creditors Committees' Subcommittee
of the American Bankruptcy Institute and is a member of the Western Advisory
Committee of Dun & Bradstreet, Inc.
John J. Micek III, Director. Mr. Micek was elected a Director of the
Company in April 1999. Mr. Micek served as the Company's Vice President, General
Counsel and Secretary from March 1994 to March 1997. Mr. Micek is currently
Managing Director of Silicon Prairie Partners, LP. He also is a practicing
attorney specializing in corporate finance and business development in Palo
Alto, CA. He is a Board Member of Universal Warranty and also sits on the boards
of Burst.com and Pelion Systems, Inc.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE ELECTION OF THE NOMINEES NAMED ABOVE
25
Directors, Nominees and Executive Officers
The following table sets forth certain information with respect to the
Directors, Nominees and Executive Officers of the Company:
Directors, Nominees and Executive Officers
Name Age Position
Anthony Rawlinson 47 Chairman of the Board
Carl D. Perry 70 President, Chief Executive Officer,
Acting Chief Financial Officer and
Secretary
Malcolm R. Currie, Ph.D. (2) 72 Director
Donald H. Dreyer (1) 65 Director
John J. Micek III (1) 49 Director
Edwin O. Riddell (2) 60 Director
James M. Strock 46 Director
John R. Wallace 54 Director
----------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Relationships Among Directors or Executive Officers
There are no family relationships among any of the Directors or
Executive Officers of the Company.
Meetings and Committees of the Board of Directors
During the twelve months ended December 31, 2001, the Board of
Directors met five times. No Director attended fewer than 75% of the aggregate
of the total number of meetings of the Board, plus the total number of all
meetings of committees of the Board on which he served. The Board currently has
two committees: the Compensation Committee and the Audit Committee.
The Compensation Committee held two meetings in the year ended December
31, 2001. The Compensation Committee currently consists of Mr. Edwin Riddell and
Dr. Malcolm Currie. Its functions are to establish and apply the Company's
compensation policies with respect to the Company's Executive Officers, and to
administer the Company's stock option plans.
The Audit Committee held four meetings in 2001. The Audit Committee
currently consists of Messrs. Donald H. Dreyer and John J. Micek III, each of
whom is independent as defined in Rule 4200(a)(15) of the NASD's listing
standards. The Audit Committee recommends engagement of the Company's
independent auditors and is primarily responsible for approving the services
performed by the Company's independent auditors and for reviewing and evaluating
the Company's accounting principles and its system of internal accounting
controls.
26
The Board of Directors has adopted a written charter for the Audit
Committee, a copy of which was attached as Exhibit E to the Proxy Statement for
the Annual Shareholders Meeting held on November 5, 2001.
Compensation of Directors
Directors who are employees of the Company do not receive any
compensation for their services as Directors. All Directors are reimbursed for
expenses incurred in connection with attending Board and committee meetings.
In September 1999, the Company's Board of Directors unanimously
approved a compensation package for outside directors consisting of the
following. For each meeting attended in person, each outside director shall
receive $1,000 in cash and $2,000 of stock valued on the date of the meeting at
the average of the closing ask and bid prices; for each telephonic Board
meeting, each outside director shall receive $250 in cash and $250 of stock
valued on the date of the meeting at the average of the closing ask and bid
prices; for each meeting of a Board committee attended in person , the committee
chairman shall receive $500 in cash and $500 of stock valued on the date of the
meeting at the average of the closing ask and bid prices. All Directors are
reimbursed for expenses incurred in connection with attending Board and
committee meetings.
As of September 30, 2002, 1,706,584 shares had been issued under this
directors' compensation plan.
Certain Relationships and Related Transactions
The following are certain transactions entered into between the Company
and its officers, directors and principal shareholders and their affiliates
since January 1, 2001
Jagen Pty, Ltd. And Anthony Rawlinson
In May 2001, Jagen Pty, Ltd, a majority shareholder of Enova Systems,
exercised warrants to purchase 41,666,666 shares of Enova Systems' common stock
for $2,500,000. Additionally, in July 2001, Anthony Rawlinson, chairman of Enova
Systems, exercised warrants for 8,333,334 shares of Enova common stock for
$500,000.
In June 2002, Jagen Pty, Ltd. purchased 20,000,000 shares of common
stock at $0.10 in a private placement for a total cash purchase price of
$2,000,000. Jagen represented that it was an accredited investor under the
definition set forth by the Securities and Exchange Commission. The Company
relied on Rule 506 of Regulation D and Section 4(2) of the Securities Act for
the exemption from registration of the sale of such shares.
A fee of $205,500 was paid in conjunction with a private placement
funding to The Global Value Investment Portfolio Management Pte Ltd, a Singapore
Company which is substantially owned by two affiliated parties; Anthony
Rawlinson, Chairman of the Board of our Company and Borl partnership, owned by
Boris Liberman Family Trusts, which is also affiliated with Jagen Pty Ltd., a
large shareholder in Enova Systems.
John J. Micek III
In June 2002, Silicon Prairie Partners, LP, a limited partnership in
which John J. Micek III is the general partner, purchased 1,000,000 shares of
common stock at $0.10 in a private placement for a total cash purchase price of
$100,000. Silicon Prairie represented that it was an accredited investor under
the definition set forth by the Securities and Exchange Commission. The Company
relied on Rule 506 of Regulation D and Section 4(2) of the Securities Act for
the exemption from registration of the sale of such shares.
27
James M. Strock
The Company has entered into a consulting agreement with
jamesstrock.com, a corporation wholly owned by James M. Strock, wherein the
Company retains Mr. Strock's services for a minimum monthly retainer of $3,000
plus reasonable expenses. During 2001, the Company paid Mr. Strock $44,754 for
consulting services and expenses.
John R. Wallace
The Company has entered into a consulting agreement with John R.
Wallace wherein the Company will compensate Mr. Wallace at the rate of $1,500
per day plus reasonable expenses for consulting services rendered. Mr. Wallace
will not be compensated per this agreement when acting in the capacity of
director of the Company. During 2001, Mr. Wallace did not receive any
compensation for consulting services.
The Company believes that the transactions described above were made on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. The above referenced transactions were approved by a
majority of the disinterested members of the Board of Directors. All future
transactions between the Company and its officers, directors, principal
shareholders and affiliates will be approved by a majority of the Board of
Directors, including, where appropriate, a majority of the disinterested,
nonemployee directors on the Board of Directors, and, where appropriate, will be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
28
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of October 15,
2002, by (i) each shareholder known to the Company to own beneficially more than
5% of the Company's Common Stock; (ii) each of the Company's Directors and
nominees for Director; (iii) the Chief Executive Officer and all other Executive
Officers of the Company; and (iv) all Executive Officers, Directors and nominees
for Director of the Company as a group. Except as indicated in the footnotes to
this table and subject to applicable community property laws, the persons named
in the table, based on information provided by such persons, have sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
-------------------------------------- ------------------------------ ----------------------------- ------------------
Name Shares Percentage of Shares Voting
Beneficially Owned (1) Beneficially Owned (2) Percentage (3)
-------------------------------------- ------------------------------ ----------------------------- ------------------
Jagen, Pty., Ltd. 145,000,000 36.55% 41.29%
9 Oxford Street, South
Ybarra 3141
Melbourne, Victoria
Australia
-------------------------------------- ------------------------------ ----------------------------- ------------------
Carl D. Perry 11,200,500 (4) 2.81% 2.85%
c/o Enova Systems, Inc.
19850 South Magellan Drive
Torrance, CA 90502
-------------------------------------- ------------------------------ ----------------------------- ------------------
Citibank N.A. 31,405,754 7.92% 8.94%
111 Wall Street, 8th Floor
New York, NY 10043
-------------------------------------- ------------------------------ ----------------------------- ------------------
Anthony N. Rawlinson 25,244,568 6.36% 7.19%
c/o Enova Systems, Inc.
19850 South Magellan Drive
Torrance, CA 90502
-------------------------------------- ------------------------------ ----------------------------- ------------------
John J. Micek III 1,288,080(5) * *
-------------------------------------- ------------------------------ ----------------------------- ------------------
Edwin O. Riddell 472,204 * *
-------------------------------------- ------------------------------ ----------------------------- ------------------
Dr. Malcolm Currie 361,575 * *
-------------------------------------- ------------------------------ ----------------------------- ------------------
Donald H. Dreyer 248,342 * *
-------------------------------------- ------------------------------ ----------------------------- ------------------
James M. Strock 91,815 * *
-------------------------------------- ------------------------------ ----------------------------- ------------------
John R. Wallace 0 * *
-------------------------------------- ------------------------------ ----------------------------- ------------------
Delphi Delco Electronics 1,278,720(6) * *
-------------------------------------- ------------------------------ ----------------------------- ------------------
Jean Schulz 1,329,111(7) * *
-------------------------------------- ------------------------------ ----------------------------- ------------------
All directors and executive 38,907,084 (8) 9.81% 10.90%
officers as a group
(7 persons)
-------------------------------------- ------------------------------ ----------------------------- ------------------
* Indicates less than 1%
29
(1) Number of Common Stock shares includes Series A Preferred Stock, Series
B Preferred Stock and Common Stock shares issuable pursuant to stock
options, warrants and other securities convertible into Common Stock
beneficially held by the person or class in question which may be
exercised or converted within 60 days after October 15, 2002.
(2) The percentages are based on the number of shares of Common Stock,
Series A Preferred Stock and Series B Preferred Stock owned by the
shareholder divided by the sum of: (i) the total Common Stock
outstanding, (ii) the Series A Preferred Stock owned by such
shareholder; (iii) the Series B Preferred Stock owned by such
shareholder; and (iv) Common Stock issuable pursuant to warrants,
options and other convertible securities exercisable or convertible by
such shareholder within sixty (60) days after October 15, 2002.
(3) The percentages are based on the number of shares of Common Stock,
Series A Preferred Stock and/or Series B Preferred Stock owned by the
shareholder divided by the sum of: (i) the total Common Stock
outstanding, (ii) the total Series A Preferred Stock outstanding and
(iii) the total Series B Preferred Stock outstanding. This percentage
calculation has been included to show more accurately the actual voting
power of each of the shareholders, since the calculation takes into
account the fact that the outstanding Series A Preferred Stock and
Series B Preferred Stock are entitled to vote together with the Common
Stock as a single class on certain matters to be voted upon by the
shareholders.
(4) Includes 1,200,000 shares of Common Stock issuable pursuant to stock
options issued under an employee stock option plan exercisable at a
price of $0.10 per share. The option exercise price, for Mr. Perry's
and other employees under the 1996 Stock Option Plan, was reset to
$0.10 per share from $0.30 per share on August 19, 1998 at the
direction of the Board of Directors.
(5) Includes 500,000 shares of Common Stock issued to Silicon Prairie
Partners, LP, a limited partnership in which John J. Micek III is the
general partner.
(6) The number of shares shown represents the ownership of 639,360 shares
of Series B Preferred Stock, each of which is convertible into two
shares of Common Stock. These 639,360 shares represent more than 5% of
the outstanding shares of Series B Preferred Stock.
(7) The number of shares shown represents the ownership of 1,329,111 shares
of Series A Preferred Stock, each of which is convertible into one
share of Common Stock. These 1,329,111 shares represent more than 5% of
the outstanding shares of Series A Preferred Stock.
(8) Includes 1,200,000 shares of Common Stock issuable pursuant to stock
options exercisable at price of $.10 per share and 500,000 shares of
Common Stock issued to Silicon Prairie Partners, LP, a limited
partnership in which John J. Micek III is the general partner.
30
PROPOSAL NO. 6
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Moss Adams LLP has served as the Company's independent auditors since 1996, and
has been appointed by the Board to continue as the Company's independent
auditors for the Company's year ending December 31, 2002. In the event that
ratification of this selection of auditors is not approved by a majority of the
shares of Common Stock, Series A Preferred Stock, and Series B Preferred Stock
voting at the Annual Meeting in person or by proxy, management will review its
future selection of auditors.
A representative of Moss Adams LLP is expected to be present at the
Annual Meeting. The representative will have an opportunity to make a statement
and will be able to respond to appropriate questions.
During 2001, Moss Adams LLP billed the Company the following amounts
for the following services:
Audit Fees: $69,210
Financial Information Systems Design and Implementation Fees: $ 0
All Other Fees: $ 0
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION
OF THE APPOINTMENT OF MOSS ADAMS LLP AS THE COMPANY'S INDEPENDENT AUDITORS
FOR THE YEAR ENDING DECEMBER 31, 2002.
31
Audit Committee Report on the Audited Financial Statements and Independent
Auditors
The Audit Committee meets quarterly to discuss the quarterly reviewed and
annual audited financial statements of the Company. The Audit Committee held
four meetings in 2001. Management and the independent auditors are present at
all Audit Committee meetings to discuss the financial statements, the results of
audits and reviews, and the auditor's management report.
The Audit Committee has reviewed and discussed with the independent
auditors the matters required to be discussed by SAS 61. The Audit Committee has
received the written disclosures and the letter from the independent accountants
required by Independence Standards Board Standard No.1 and has discussed with
the independent accountant the independent accountant's independence.
Based on the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors meeting that was held March 19, 2002 that
the audited financial statements be included in the Company's Annual Report on
Form 10-K for the last fiscal year for filing with the Commission.
Submitted by the Audit Committee,
Donald H. Dreyer
John J. Micek III
32
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary Compensation Table
The following table sets forth all compensation earned by the Company's Chief
Executive Officer and each of the other most highly compensated executive
officers of the Company whose annual salary and bonus exceeded $100,000 for the
years ended December 31, 2001, 2000 and 1999 (collectively, the "Named Executive
Officers"). Mr. Carl D. Perry is the sole executive officer of the Company whose
salary currently exceeds $100,000.
Name and Principal Position Summary Compensation Table
--------------------------- ---------------------------------------------------------------
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards
Securities
Underlying
Salary Bonus Options/SARs
Year ($) ($) (#)
---- ----- ----- ---
Carl D. Perry (1) 2001 158,392 30,000 --
Chief Executive Officer 2000 128,170 -- --
And President 1999 75,000 -- --
(1) Mr. Perry was elected as Chief Executive Officer in November 1997. Mr.
Perry's current salary is $150,000 per year as approved by the Board of
Directors in September 2000.
Option Grants/SAR Grants
The following table sets forth certain information with respect to
stock options granted during 2001 to the Named Executive Officer. In accordance
with the rules of the Securities and Exchange Commission, also shown below is
the potential realizable value over the term of the option (the period from the
grant date to the expiration date) based on assumed rates of stock appreciation
of 5% and 10%, compounded annually, calculated based on the average of the
high-bid and low-ask prices of the Common Stock on December 31, 2001. These
amounts are based on certain assumed rates of appreciation and do not represent
the Company's estimate of future stock price. Actual gains, if any, on stock
option exercises will be dependent on the future performance of the Common
Stock.
No grants of stock options or stock appreciation rights ("SARs") were
made during the twelve month period ended December 31, 2001 to the Named
Executive Officer or any other Executive Officer.
Aggregated Option/SAR Exercises in 2001
and Option Values at December 31, 2001
Number of Securities
Aggregate Underlying Unexercised Value of Unexercised
Option/SAR Options/SARs at In-the-Money Options at
Exercises in 2001 December 31, 2001 December 31, 2001 (1)
----------------- ----------------- ---------------------
Shares Value
Acquired on Realized
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ---------- ----------- ------------- ----------- -------------
Carl D. Perry -- -- 1,200,000 0 $ 72,000 $ --
(1) Calculated on the basis of the average of the high-bid and low-ask
prices of the Common Stock on December 31, 2001 of $0.16 per share,
minus the exercise price.
33
Compensation Committee Interlocks and Insider Participation
The Compensation Committee currently consists of Edwin O. Riddell and
Malcolm R. Currie, PhD.
Compensation Committee Report on Executive Compensation
Compensation Policy. The Company's Compensation Policy as established
by the Compensation Committee is that executive officers' total annual cash
compensation should vary with the performance of the Company and that long-term
incentives awarded to such officers should be aligned with the interest of the
Company's shareholders. The Company's executive compensation program is designed
to attract and retain executive officers who will contribute to the Company's
long-term success, to reward executive officers who contribute to the Company's
financial performance and to link executive officer compensation and shareholder
interests through the 1993 Plan and the 1996 Plan. The terms and conditions of
these plans were more fully discussed in the Company's Form S-1 Registration
Statement filed with the SEC on July 26, 2002.
Compensation of the Company's executive officers consists of two
principal components: salary and long-term incentive compensation consisting of
stock option grants.
Base Salary and Bonus. Base salary and bonus of the Chief Executive
Officer as established are determined by a subjective assessment of the
executive officer's performance, in light of the officer's responsibilities and
position with the Company and the Company's performance during prior periods. In
evaluating overall Company performance, the primary focus is upon financial
performance for the relevant annual period measured by operating income. Base
salaries are reviewed periodically and from time to time by the Compensation
Committee and adjusted appropriately. Incentive compensation is reviewed
periodically and from time to time by the Compensation Committee and adjusted
accordingly.
Long-term Incentive Compensation. The Company believes that option
grants (i) align executive interests with shareholder interests by creating a
direct link between compensation and shareholder return, (ii) give executives a
significant, long-term interest in the Company's success, and (iii) help retain
key executives in a competitive market for executive talent.
The Company's 1993 Plan and 1996 Plan authorize the Committee to grant
stock options to employees and consultants, including executives. Currently,
option grants will only be made under the 1996 Plan and will be made from time
to time to executives whose contributions have or will have a significant impact
on the Company's long-term performance. The Company's determination of whether
option grants are appropriate each year is based upon individual performance
measures established for each individual. Options are not necessarily granted to
each executive during each year. Options granted to executive officers typically
vest in equal monthly installments over a period of five years and expire either
five or ten years from the date of grant. No stock options were granted to the
Named Executive Officer during fiscal 2001.
Compensation of Chief Executive Officer. In determining the
compensation of Carl D. Perry, the Chief Executive Officer, the Board of
Directors considered the expense to replace an executive of Mr. Perry's caliber.
The Board therefore established a compensation package for 2001 consisting of an
annual salary of $150,000 plus a bonus to be determined based on the performance
of the Company. The Compensation Committee believes that Mr. Perry's dedication,
commitment and experience have been vitally important to the successful and
ongoing growth of the Company. Mr. Perry's overall compensation for the year
ended December 31, 2001 consisted of base salary and bonus In determining Mr.
Perry's compensation, the Compensation Committee evaluated Mr. Perry's personal
performance, the performance of the Company and Mr. Perry's long-term commitment
to the success of the Company. The Committee believes that the salary paid to
Mr. Perry in 2001 was appropriate based on the financial condition of the
Company.
Compensation Policy Regarding Deductibility. The Company is required to
disclose its policy regarding qualifying executive compensation for
deductibility under Section 162(m) of the Internal Revenue Code which provides
that, for purposes of the regular income tax and the alternative minimum tax,
the otherwise allowable deduction for compensation paid or accrued with respect
to a covered employee of a publicly-held corporation is limited to $1 million
per year. For the fiscal year ended December 31, 2001, no executive officer of
the Company received in excess of $1 million in compensation from the Company.
The 1996 Plan is structured so that any compensation deemed paid to an executive
officer when he exercises an outstanding option under the Plan, with an exercise
price equal to the fair market value of the option shares on the grant date,
will qualify as performance-based compensation which will not be subject to the
$1 million limitation. The Compensation Committee currently
34
intends to limit the dollar amount of all other compensation payable to the
Company's executive officers to no more than $1 million.
Submitted by the Compensation Committee:
Edwin O. Riddell
Malcolm R. Currie, PhD.
35
Stock Performance Graph
The graph below compares the cumulative total shareholder return on our
Common Stock with the cumulative total return on the Standard & Poor's Small
Capitalization 600 Index and an index of peer companies selected by us. A group
of five other electric vehicle companies comprise the peer group index.(1)
The period shown commences on December 31, 1996, and ends on December
31, 2001, the end of our last fiscal year. The graph assumes an investment of
$100 on December 31, 1996 and the reinvestment of any dividends. The comparisons
in the graph below are based upon historical data and are not indicative of, nor
intended to forecast, future performance of our Common Stock.
[The following table was depicted as a line chart in the printed material]
ENOVA SYSTEMS INC
Cumulative Total Return
---------------------------------------------------------------
12/96 12/97 12/98 12/99 12/00 12/01
ENOVA SYSTEMS, INC. 100.00 27.65 18.24 191.18 100.00 88.24
S & P SMALLCAP 600 100.00 125.58 129.01 145.01 162.13 195.17
PEER GROUP 100.00 93.80 77.86 139.78 122.96 77.90
1) Companies included in the peer group index are Amerigon, Inc. (ARGN),
Electric Fuel Corp. (EFCX), Energy Conversion Devices, Inc. (ENER),
Unique Mobility (UQM), and Valence Technology, Inc. (VLNC).
36
Employment Agreements
Carl D. Perry, Chief Executive Officer of the Company, has no
employment agreement and is an "at will" employee with the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires persons who own more than
10% of the Company's Common Stock and the Company's directors and executive
officers (collectively, "Reporting Persons") to file reports of ownership and
changes in ownership of the Company's equity securities to the Securities and
Exchange Commission. Copies of these reports are also required to be delivered
to the Company.
The Company believes, based solely on its review of the copies of such
reports received or written representations from certain Reporting Persons, that
during fiscal 2001, all Reporting Persons complied with all applicable filing
requirements.
SHAREHOLDER PROPOSALS
To be considered for presentation to the annual meeting of the
Company's shareholders to be held in 2003, a shareholder proposal must be
received by Carl D. Perry, Chief Executive Officer, Enova Systems, Inc., 19850
South Magellan Drive, Torrance, California, no later than July 7, 2003. If a
shareholder intends to present a proposal at the annual meeting to be held in
2003 but does not seek inclusion of the proposal in the proxy statement for that
meeting, the proxy holders for that meeting will be entitled to exercise their
discretionary authority on that proposal if the Company does not have notice of
the proposal by September 30, 2003.
OTHER MATTERS
The Board of Directors knows of no other business which will be
presented at the Annual Meeting. If any other business is properly brought
before the Annual Meeting, it is intended that proxies in the enclosed form will
be voted in respect thereof in accordance with the judgment of the persons
voting the proxies.
It is important that the proxies be returned promptly and that your
shares be represented. Shareholders are urged to mark, date, execute and
promptly return the accompanying proxy card in the enclosed envelope.
By Order of the Board of Directors,
/s/ Carl D. Perry
------------------
Carl D. Perry
President and Chief Executive Officer
November 8, 2002
Torrance, California
37
EXHIBIT A
FORM OF ONE-FOR-TWENTY REVERSE STOCK SPLIT RESOLUTIONS
RESOLVED, that, prior to the Company's next Annual Meeting of
Shareholders, on the condition that no other amendment to the Company's
Certificate of Incorporation shall have been filed prior to such annual meeting
effecting a reverse stock split of the Common Stock, Article III of the Restated
and Amended Certificate of Incorporation of Enova Systems, Inc. be amended by
the addition of the following text immediately following the first paragraph of
Article III:
"On the effective date of this amendment to the Restated and
Amended Certificate of Incorporation (the "Effective Date"), each one
(1) share of Common Stock issued and outstanding immediately prior to
the Effective Date shall automatically be converted into and
reconstituted as 1/20th of a share of Common Stock (the "Reverse Stock
Split"). No fractional shares of Common Stock shall be issued upon the
Reverse Stock Split. In lieu thereof, each beneficial shareholder whose
shares of Common Stock are not evenly divisible by twenty will receive
a cash payment therefor in an amount equal to the product obtained by
multiplying (i) the average of the high bid and low asked per share
prices of the Common Stock as reported on the NASDAQ electronic
"Bulletin Board" on the Effective Date (adjusted if necessary to
reflect the per share price of the Common Stock without giving effect
to the conversion and reconstitution of the Common Stock effected
hereby) by (ii) the number of shares of Common Stock held by such
holder that would otherwise have been exchanged for such fractional
share of Common Stock."
FURTHER RESOLVED, that at any time prior to the filing of the foregoing
amendment to the Company's Restated and Amended Certificate of Incorporation
effecting the Reverse Stock Split, notwithstanding authorization of the proposed
amendment by the stockholders of the Company, the Board of Directors may abandon
such proposed amendment without further action by the stockholders.
38
EXHIBIT B
FORM OF ONE-FOR-FIFTEEN REVERSE STOCK SPLIT RESOLUTIONS
RESOLVED, that, prior to the Company's next Annual Meeting of
Shareholders, on the condition that no other amendment to the Company's
Certificate of Incorporation shall have been filed prior to such annual
meeting effecting a reverse stock split of the Common Stock, Article III of
the Restated and Amended Certificate of Incorporation of Enova Systems, Inc.
be amended by the addition of the following text immediately following the
first paragraph of Article III:
"On the effective date of this amendment to the Restated and
Amended Certificate of Incorporation (the "Effective Date"),
each one (1) share of Common Stock issued and outstanding
immediately prior to the Effective Date shall automatically be
converted into and reconstituted as 1/15th of a share of
Common Stock (the "Reverse Stock Split"). No fractional shares
of Common Stock shall be issued upon the Reverse Stock Split.
In lieu thereof, each beneficial shareholder whose shares of
Common Stock are not evenly divisible by twenty will receive a
cash payment therefor in an amount equal to the product
obtained by multiplying (i) the average of the high bid and
low asked per share prices of the Common Stock as reported on
the NASDAQ electronic "Bulletin Board" on the Effective Date
(adjusted if necessary to reflect the per share price of the
Common Stock without giving effect to the conversion and
reconstitution of the Common Stock effected hereby) by (ii)
the number of shares of Common Stock held by such holder that
would otherwise have been exchanged for such fractional share
of Common Stock."
FURTHER RESOLVED, that at any time prior to the filing of the foregoing
amendment to the Company's Restated and Amended Certificate of Incorporation
effecting the Reverse Stock Split, notwithstanding authorization of the proposed
amendment by the stockholders of the Company, the Board of Directors may abandon
such proposed amendment without further action by the stockholders.
39
EXHIBIT C
FORM OF ONE-FOR-TEN REVERSE STOCK SPLIT RESOLUTIONS
RESOLVED, that, prior to the Company's next Annual Meeting of
Shareholders, on the condition that no other amendment to the Company's
Certificate of Incorporation shall have been filed prior to such annual meeting
effecting a reverse stock split of the Common Stock, Article III of the Restated
and Amended Certificate of Incorporation of Enova Systems, Inc. be amended by
the addition of the following text immediately following the first paragraph of
Article III:
"On the effective date of this amendment to the Restated and
Amended Certificate of Incorporation (the "Effective Date"), each one
(1) share of Common Stock issued and outstanding immediately prior to
the Effective Date shall automatically be converted into and
reconstituted as 1/10th of a share of Common Stock (the "Reverse Stock
Split"). No fractional shares of Common Stock shall be issued upon the
Reverse Stock Split. In lieu thereof, each beneficial shareholder whose
shares of Common Stock are not evenly divisible by twenty will receive
a cash payment therefor in an amount equal to the product obtained by
multiplying (i) the average of the high bid and low asked per share
prices of the Common Stock as reported on the NASDAQ electronic
"Bulletin Board" on the Effective Date (adjusted if necessary to
reflect the per share price of the Common Stock without giving effect
to the conversion and reconstitution of the Common Stock effected
hereby) by (ii) the number of shares of Common Stock held by such
holder that would otherwise have been exchanged for such fractional
share of Common Stock."
FURTHER RESOLVED, that at any time prior to the filing of the foregoing
amendment to the Company's Restated and Amended Certificate of Incorporation
effecting the Reverse Stock Split, notwithstanding authorization of the proposed
amendment by the stockholders of the Company, the Board of Directors may abandon
such proposed amendment without further action by the stockholders.
40
EXHIBIT D
FORM OF ONE-FOR-FIVE REVERSE STOCK SPLIT RESOLUTIONS
RESOLVED, that, prior to the Company's next Annual Meeting of
Shareholders, on the condition that no other amendment to the Company's
Certificate of Incorporation shall have been filed prior to such annual meeting
effecting a reverse stock split of the Common Stock, Article III of the Restated
and Amended Certificate of Incorporation of Enova Systems, Inc. be amended by
the addition of the following text immediately following the first paragraph of
Article III:
"On the effective date of this amendment to the Restated and Amended
Certificate of Incorporation (the "Effective Date"), each one (1) share
of Common Stock issued and outstanding immediately prior to the
Effective Date shall automatically be converted into and reconstituted
as 1/5th of a share of Common Stock (the "Reverse Stock Split"). No
fractional shares of Common Stock shall be issued upon the Reverse
Stock Split. In lieu thereof, each beneficial shareholder whose shares
of Common Stock are not evenly divisible by twenty will receive a cash
payment therefor in an amount equal to the product obtained by
multiplying (i) the average of the high bid and low asked per share
prices of the Common Stock as reported on the NASDAQ electronic
"Bulletin Board" on the Effective Date (adjusted if necessary to
reflect the per share price of the Common Stock without giving effect
to the conversion and reconstitution of the Common Stock effected
hereby) by (ii) the number of shares of Common Stock held by such
holder that would otherwise have been exchanged for such fractional
share of Common Stock."
FURTHER RESOLVED, that at any time prior to the filing of the foregoing
amendment to the Company's Restated and Amended Articles of Incorporation
effecting the Reverse Stock Split, notwithstanding authorization of the proposed
amendment by the shareholders of the Company, the Board of Directors may abandon
such proposed amendment without further action by the shareholders.
41
EXHIBIT E
The first two sentence of Section 2 of Article III of the Bylaws of Enova
Systems, Inc. are amended to read in their entirety as follows:
"The authorized number of directors of the corporation shall be not less than
six (6) nor more than nine (9). The exact number of authorized directors shall
be eight (8) until changed, within the limits specified above, by an amendment
to this Section 2, duly adopted by the board of directors or by the
shareholders.