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:
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(2) Aggregate number of securities to which transactions applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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ENOVA SYSTEMS, INC.
Notice of Annual Meeting of Shareholders
To Be Held November 13, 2001
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 Tuesday,
November 13, 2001, at 8:30 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. ELECTION OF DIRECTORS. To elect seven (7) Directors of the
Company to serve until the next Annual Meeting of Shareholders or until their
respective successors are elected and qualified;
6. 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, 2001; and
7. 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.
The Board of Directors has fixed the close of business on October 17,
2001 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
October 22, 2001
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.
1
Mailed to Shareholders on or about October 25, 2001
ENOVA SYSTEMS, INC.
19850 South Magellan Drive
Torrance, California 90502
_________________________________
PROXY STATEMENT
__________________________________
For the Annual Meeting of Shareholders
To Be Held on November 13, 2001
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 2001 Annual Meeting of Shareholders to be held on
Tuesday, November 13, 2001 at 8:30 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
October 25, 2001. 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 17, 2001 are entitled to notice of, and to vote at, the
Annual Meeting.
Proxies
If any shareholder is unable to attend the Annual Meeting, such
shareholder may vote by proxy. The enclosed proxy is solicited by the Board. 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 and 6, and will be voted in the proxy holders'
discretion as to other matters that may properly come before the Annual Meeting.
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 17, 2001 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 297,520,941 shares of Common Stock, 2,844,336
shares of Series A Preferred Stock, and 1,217,196 shares of Series B Preferred
Stock, for an aggregate of 303,603,018 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 151,702,584
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, (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) directors, and (iii) cumulative
voting may be used in the election of directors to be elected by the Common
Stock and the Series A 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) at this meeting) multiplied by the number
of shares held by such shareholder. 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. 5, the election of directors,
for which the Series B Preferred Stock, voting as a separate class, shall vote
to elect two (2) of the seven (7) directors, and for which the outstanding
Common Stock and Series A Preferred Stock, voting together as a single class,
shall vote to elect five (5) 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
(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 Proposals 5 (subject to cumulative voting if invoked) and 6.
An automated system administered by the Company's Common Stock transfer
agent will tabulate votes of the holders of Common Stock cast by proxy, and the
Company's Series A and Series B Preferred Stock transfer agent will tabulate
votes of the holders of Series A and Series B Preferred Stock cast by proxy. An
employee of the Company will
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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 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).
The Annual Report of the Company for the year ended December 31, 2000
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 are unable to attend the Annual Meeting, your shares may be voted.
4
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 June 1, 2000, 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 shares of Common Stock
resulting from the applicable reverse stock split will be issued
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and forwarded to the shareholders (and cash in lieu of any fractional share
interest); however, each certificate representing shares of Old Common Stock
will continue to be valid and represent the number of shares of newly issued
Common Stock equal to the number of shares of Old Common Stock (and cash in lieu
of such fractional share, as described above) that such shareholder is entitled
to receive as a consequence of the resulting 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.
6
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 50 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 1,755 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.
7
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 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 August 10, 2001, the number of issued and outstanding shares of
Old Common Stock was 295,890,735. 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 14,794,537 485,205,463
(1) The figures in this table are calculated based on August 10, 2001 issued and
outstanding shares of Old Common Stock as reported in the Company's Form 10Q for
the six months ended June 30, 2001, filed with the Securities and Exchange
Commission on August 14, 2001. 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, 2001.
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.
8
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 shares of Common Stock
resulting from the applicable reverse stock split will be issued and forwarded
to the shareholders (and cash in lieu of any fractional share interest);
however, each certificate representing shares of Old Common Stock will continue
to be valid and represent the number of shares of newly issued Common Stock
equal to the number of shares of Old Common Stock (and cash in lieu of such
fractional share, as described above) that such shareholder is entitled to
receive as a consequence of the resulting 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 1,755 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 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
11
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 August 10, 2001, the number of issued and outstanding shares of
Old Common Stock was 295,890,735. 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 19,726,049 480,273,395
(1) The figures in this table are calculated based on August 10, 2001
issued and outstanding shares of Old Common Stock as reported in the
Company's Form 10Q for the six months ended June 30, 2001, filed with
the Securities and Exchange Commission on or about August 14, 2001.
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, 2001.
12
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-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 shares of Common Stock
resulting from the applicable reverse stock split will be issued and forwarded
to the shareholders (and cash in lieu of any fractional share interest);
however, each certificate representing shares of Old Common Stock will continue
to be valid and represent the number of shares of newly issued Common Stock
equal to the number of shares of Old Common Stock (and cash in lieu of such
fractional share, as described above) that such shareholder is entitled to
receive as a consequence of the resulting 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 1,755 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 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
15
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 August 10, 2001, the number of issued and outstanding shares of
Old Common Stock was 295,890,735. 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 29,589,074 470,410,926
(1) The figures in this table are calculated based on August 10, 2001 issued
and outstanding shares of Old Common Stock as reported in the Company's Form 10Q
for the six months ended June 30, 2001, filed with the Securities and Exchange
Commission on or about August 14, 2001. 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, 2001.
16
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-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 shares of Common Stock
resulting from the applicable reverse stock split will be issued and forwarded
to the shareholders (and cash in lieu of any fractional share interest);
however, each certificate representing shares of Old Common Stock will continue
to be valid and represent the number of shares of newly issued Common Stock
equal to the number of shares of Old Common Stock (and cash in lieu of such
fractional share, as described above) that such shareholder is entitled to
receive as a consequence of the resulting reverse stock split. SHAREHOLDERS
18
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 1,755 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.
As proposed hereunder, shareholders have no right under California law
to dissent from a Reverse Stock Split of the Common Stock.
19
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 August 10, 2001, the number of issued and outstanding shares of
Old Common Stock was 295,890,735. 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 59,178,147 440,821,853
(1) The figures in this table are calculated based on August 10, 2001 issued and
outstanding shares of Old Common Stock as reported in the Company's Form 10Q for
the six months ended June 30, 2001, filed with the Securities and Exchange
Commission on or about August 14, 2001. 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, 2001.
20
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-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
ELECTION OF DIRECTORS
A board of seven (7) Directors will be elected 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. 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
five (5) nominees will be elected by the holders of the Common Stock and Series
A Preferred Stock.
The Series B Preferred Stock proxy holders will vote, as a separate
class, the proxies received by them to elect the Series B nominees named below
to the Board of Directors. The Common Stock and Series A Preferred Stock proxy
holders will vote, as a single class, the proxies received by them to elect the
five (5) nominees named below to the Board of Directors. If a 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 were amended at the last annual
shareholders' meeting to authorize the number of Directors to be 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). Certain information about the
nominees for the Board of Directors is furnished below.
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.
22
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.
23
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 sit 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
24
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 46 Chairman of the Board
Carl D. Perry 68 President, Chief Executive Officer,
Acting Chief Financial Officer and
Secretary
Malcolm R. Currie, Ph.D. (2) 72 Director
Donald H. Dreyer (1) 64 Director
John J. Micek III (1) 49 Director
Edwin O. Riddell (2) 58 Director
James M. Strock 46 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, 2000, 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, 2000. 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 2000. The Audit Committee
currently consists of Messrs. Donald Dreyer and John Micek. 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.
25
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, 2001, 1,329,593 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.
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.
26
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
September 30, 2001, 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; (iii) the Chief Executive Officer and all other Executive
Officers of the Company; and (iv) all Executive Officers and Directors 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.
---------------------------------------------------------------------------------------------------------------------------
5% Shareholders, Directors, Officers and Common Shares Percentage of Common Shares Voting
Directors and Officers as a Group Beneficially Owned (1) Beneficially Owned (2) Percentage (3)
---------------------------------------------------------------------------------------------------------------------------
Jagen, Pty., Ltd. 125,000,000 (4) 36.00% 41.17%
9 Oxford Street, South Yorra 3141
Melbourne, Victoria Australia
------------------------------------------ ----------------------------- ------------------------------ -----------------
Citibank N.A. 31,952,454 9.20% 10.52%
111 Wall Street, 8th Floor
New York, NY 10043
------------------------------------------ ----------------------------- ------------------------------ -----------------
Anthony Rawlinson 25,166,743 (5) 7.25% 8.29%
c/o Enova Systems, Inc.
19850 South Magellan Drive
Torrance, CA 90502
------------------------------------------ ----------------------------- ------------------------------ -----------------
Carl D. Perry 11,200,500 (6) 3.23% 3.29%
c/o Enova Systems, Inc.
19850 South Magellan Drive
Torrance, CA 90502
------------------------------------------ ----------------------------- ------------------------------ -----------------
John J. Micek, III 775,253 (7) * *
------------------------------------------ ----------------------------- ------------------------------ -----------------
Edwin O. Riddell 399,596 * *
------------------------------------------ ----------------------------- ------------------------------ -----------------
Dr. Malcolm Currie 295,513 * *
------------------------------------------ ----------------------------- ------------------------------ -----------------
Donald H. Dreyer 167,738 * *
------------------------------------------ ----------------------------- ------------------------------ -----------------
James M. Strock 24,926 * *
------------------------------------------ ----------------------------- ------------------------------ -----------------
All Directors and executive officers as 38,030,269 (8) 10.98% 7.80%
a group (6 persons)
------------------------------------------ ----------------------------- ------------------------------ -----------------
<FN>
* Indicates less than 1%
(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 September 30, 2001.
(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
27
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 September 30, 2001.
(3) 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 total Series A Preferred Stock outstanding; (iii)
the total Series B Preferred Stock outstanding; and (iv) Common Stock
issuable pursuant to warrants, options and other convertible securities
exercisable or convertible by such shareholder within sixty (60) days
after September 30, 2001. 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 a employee stock option plan exercisable at a
price of $0.10 per share.
(5) Includes 565,000 shares of Common Stock issuable pursuant to stock
options exercisable at a price of $0.10 per share.
(6) Includes 1,765,000 shares of Common Stock issuable pursuant to stock
options exercisable at a price of $0.10 per share.
</FN>
28
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, 2001. 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 2000, Moss Adams LLP billed a total of $75,889 for audit and
review fees for the annual and quarterly financial reports of the Company. No
other compensation was billed or paid to Moss Adams during the year ended
December 21, 2000.
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, 2001.
29
Audit Committee Participation
The Audit Committee currently consists of Donald Dreyer and John Micek,
III.
Audit Committee Charter and duties
The Board of Directors has adopted a written charter for the Audit
Committee and the members of the Audit Committee are independent directors
(Exhibit E). 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.
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 2000. 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 discussed with the independent auditors the matters
required to be discussed by SAS 61 and 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
has recommended to the Board of Directors 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 Dreyer
John Micek, III
30
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, 2000, 1999 and 1998 (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) 2000 110,000 -- --
Chief Executive Officer 1999 75,000 -- --
And President 1998 55,770 -- --
<FN>
(1) Mr. Perry was elected as Chief Executive Officer in November 1997. Mr. Perry's current salary
is $150,000 per year as approved by the Board of Directors in September 2000.
</FN>
Option Grants/SAR Grants
The following table sets forth certain information with respect to
stock options granted during 2000 to the Named Executive Officer. In accordance
with the rules of the Securities and Exchange Commission, also shown below is
the potential realizable value over the term of the option (the period from the
grant date to the expiration date) based on assumed rates of stock appreciation
of 5% and 10%, compounded annually, calculated based on the average of the
high-bid and low-ask prices of the Common Stock on December 31, 2000. These
amounts are based on certain assumed rates of appreciation and do not represent
the Company's estimate of future stock price. Actual gains, if any, on stock
option exercises will be dependent on the future performance of the Common
Stock.
No grants of stock options or stock appreciation rights ("SARs") were
made during the twelve month period ended December 31, 2000 to the Named
Executive Officer or any other Executive Officer.
Aggregated Option/SAR Exercises in 2000
and Option Values at December 31, 2000
Number of Securities
Aggregate Underlying Unexercised Value of Unexercised
Option/SAR Options/SARs at In-the-Money Options at
Exercises in 2000 December 31, 2000 December 31, 2000 (1)
----------------- ----------------- ---------------------
Shares Value
Acquired on Realized
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ --- ----------- ------------- ----------- -------------
Carl D. Perry -- -- 1,200,000 0 $ 393,600 $ --
<FN>
(1) Calculated on the basis of the average of the high-bid and low-ask prices of
the Common Stock on December 31, 2000 of $0.328 per share, minus he exercise
price.
</FN>
31
Compensation Committee Interlocks and Insider Participation
The Compensation Committee currently consists of Edwin Riddell and Dr.
Malcolm Currie.
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.
Compensation of the Company's executive officers consists of two
principal components: salary and long-term incentive compensation consisting of
stock option grants.
Salary. The base salaries for the Company's executive officers are
reviewed annually and set by the Compensation Committee. When setting base
salary levels, in a manner consistent with the Compensation Committee's policy
outlined above, the Committee considers competitive market conditions for
executive compensation, Company performance and individual performance as well
as the Company's current financial condition and available cashflow to sustain
operations.
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 2000.
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 2000 consisting
solely of an annual salary of $150,000. The Committee believes that the salary
paid to Mr. Perry in 2000 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, 2000, 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 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 Riddell
Dr. Malcolm Currie
32
Stock Performance Graph
The graph below compares the cumulative total shareholder return on the
Company's Common Stock with the cumulative total return on the Standard & Poor's
Small Capitalization 600 Index and an index of peer companies selected by the
Company. A group of six other electric vehicle companies comprise the peer group
index.(1)
The period shown commences on January 31, 1995, and ends on December
31, 2000, the end of the Company's last fiscal year. The graph assumes an
investment of $100 on January 1, 1995 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 the Company's
Common Stock.
TOTAL RETURN TO SHAREHOLDERS
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
Cumulative Total Return
----------------------------------------------------------------------
12/95 12/96 12/97 12/98 12/99 12/00
----- ----- ----- ----- ----- -----
ENOVA SYSTEMS, INC. 100.00 50.00 13.82 9.12 95.59 50.56
S & P SMALLCAP 600 100.00 121.32 152.36 156.52 175.93 196.69
PEER GROUP 100.00 80.24 72.89 59.60 108.85 93.62
JANUARY 1, 1995 TO DECEMBER 31, 2000
1) Companies included in the peer group index are Amerigon, Inc. (ARGNA),
Electric Fuel Corp. (EFCX), Electrosource, Inc. (ELSI), Energy Conversion
Devices, Inc. (ENER), Unique Mobility (UQM), and Valence Technology, Inc.
(VLNC).
33
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 the Company's Directors,
executive officers and persons who own more than 10% of the Company's Common
Stock (collectively, "Reporting Persons") to file reports of ownership and
changes in ownership of the Company's Common Stock to the Securities and
Exchange Commission ("SEC"). 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 2000, 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 2002, 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 February 28, 2002.
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
October 23, 2001
Torrance, California
34
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.
35
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.
36
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.
37
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.
38
EXHIBIT E
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
OF ENOVA SYSTEMS, INC.
I. AUTHORITY
The Audit Committee (the Committee) of the Board of Directors (the
Board) of Enova Systems, Inc. (the Company) shall be subject to the bylaws of
the Company, as in effect from time to time.
II. PURPOSE
The purpose of the Committee shall be to provide assistance to the
Board in fulfilling its legal and fiduciary obligations with respect to matters
involving the accounting, auditing, financial reporting and internal control
functions of the Company and its subsidiaries.
The Committee shall oversee the audit efforts of the Company's
independent accountants and, in that regard, shall take such actions as it may
deem necessary to satisfy itself that the Company's auditors are independent of
management. It is the objective of the Committee to maintain free and open means
of communications among the Board, the independent accountants and the financial
and senior management of the Company.
III. COMPOSITION
The Committee shall be comprised of at least three members of the
Board. The members of the Committee and its Chairperson (the Committee
Chairperson) will be appointed by and serve at the discretion of the Board.
Each member of the Committee shall be an independent director within
the meaning of the NASDAQ rules and, as such, shall be free from any
relationship that may interfere with the exercise of his or her independent
judgment as a member of the Committee. Notwithstanding the foregoing, as
permitted by the NASDAQ rules, under exceptional and limited circumstances, one
director who does not meet certain of the criteria for "independence" may be
appointed to the Committee if the Board determines in its business judgment that
membership on the Committee by such person is required by the best interests of
the Company and its stockholders and the Company discloses in the annual proxy
statement the nature of such person's relationship and the reasons for the
Board's determination. All members of the Committee shall be financially
literate at the time of their election to the Committee or shall become
financially literate within a reasonable period of time after their appointment
to the Committee. Financial literacy shall be determined by the Board in the
exercise of its business judgment, and shall include a working familiarity with
basic finance and accounting practices and an ability to read and understand
fundamental financial statements. At least one member of the Committee shall
have past employment experience in finance or accounting, requisite professional
certification in accounting or any other comparable experience or background
which results in the individual's financial sophistication, including being or
having been a chief executive officer, chief financial officer or senior officer
with financial oversight responsibilities. The Board in the exercise of its
business judgment shall determine such qualification.
The Committee shall ensure when required that the Company provides the
NASDAQ, on a one-time basis and then upon any subsequent amendment to the
Committee's charter or upon a change in the composition of the Committee, with
written confirmation regarding:
(1) Any determination that the Board has made regarding the
independence of the Committee members;
(2) The financial literacy of the Committee members;
(3) The determination that at least one of the Committee members has
past employment experience in finance or accounting, requisite
professional certification in accounting or any other comparable
experience or background which results in the individual's
financial sophistication; and
(4) The annual review and reassessment of the adequacy of the
Committee's charter.
39
IV. MEETINGS
The Committee shall hold at least one regular meeting per year and
additional meetings as the Committee Chairperson or Committee deems appropriate.
The Committee shall also meet at least once per year with management, and the
Company's independent accountants in separate executive sessions to discuss any
matters that the Committee or each of these groups or persons believe should be
discussed privately. In addition, the Committee (or the Chairman) should meet or
confer with the independent accountants and management quarterly to review the
Company's periodic financial statements prior to their filing with the
Securities and Exchange Commission (the ASEC@). The Chairman should work with
the Chief Financial Officer and management to establish the agendas for
Committee meetings. The Committee, in its discretion, may ask members of
management or others to attend its meetings (or portions thereof) and to provide
pertinent information as necessary.
V. MINUTES AND REPORTS
Minutes of each meeting of the Committee shall be kept and distributed
to each member of the Committee, members of the Board who are not members of the
Committee and the Secretary of the Company. The Committee Chairperson shall
report to the Board from time to time, or whenever so requested by the Board.
VI. DUTIES AND RESPONSIBILITIES
In carrying out its duties and responsibilities, the Committee's
policies and procedures should remain flexible, so that it may be in a position
to best react or respond to changing circumstances or conditions. The Committee
should review and reassess annually the adequacy of the Committee's charter. The
charter must specify: (1) the scope of the Committee's responsibilities and how
it carries out those responsibilities, (2) the ultimate accountability of the
Company's independent auditors to the Board and the Committee, (3) the
responsibility of the Committee and the Board for the selection, evaluation and
replacement of the Company's independent auditors, and (4) that the Committee is
responsible for ensuring that the Company's independent auditors submit on a
periodic basis to the Committee a formal written statement delineating all
relationships between the independent auditors and the Company and that the
Committee is responsible for actively engaging in a dialogue with the
independent auditors with respect to any disclosed relationships or services
that may impact the objectivity and independence of the independent auditors and
for recommending that the Board take appropriate action to ensure the
independence of the independent auditors.
While there is no blueprint to be followed by the Committee in carrying
out its duties and responsibilities, the Committee shall have full power and
authority to carry out the following:
Selection and Evaluation of Auditors
1. Make recommendations to the Board as to the selection of the firm
of independent public accountants to audit the books and accounts
of the Company and its subsidiaries for each fiscal year;
2. Review and approve the Company's independent auditors' annual
engagement letter, including the proposed fees contained therein;
3. Review the performance of the Company's independent auditors and
make recommendations to the Board regarding the replacement or
termination of the independent auditors when circumstances warrant;
4. Oversee the independence of the Company's independent auditors by,
among other things:
4.1 requiring the independent auditors to deliver to the
Committee on a periodic basis a formal written statement
delineating all relationships between the independent
auditors and the Company; and
4.2 actively engaging in a dialogue with the independent
auditors with respect to any disclosed relationships or
services that may impact the objectivity and independence
of the independent auditors and recommending that the
Board take appropriate action to satisfy itself of the
auditors' independence;
5. Instruct the Company's independent auditors that they are
ultimately accountable to the Committee and the Board, and that the
Committee and the Board are responsible for the selection (subject
to shareholder approval if determined by the Board), evaluation and
termination of the Company's independent auditors;
40
Oversight of Annual Audit and Quarterly Reviews
6. Review and accept, if appropriate, the annual audit plan of the
Company's independent auditors, including the scope of audit
activities, and monitor such plan's progress and results during the
year;
7. Confirm through private discussions with the Company's independent
auditors and the Company's management that no management
restrictions are being placed on the scope of the independent
auditors' work;
8. Review the results of the year-end audit of the Company, including
(as applicable):
8.1 the audit report, the published financial statements, the
management representation letter, the Memorandum Regarding
Accounting Procedures and Internal Control or similar
memorandum prepared by the Company's independent auditors,
any other pertinent reports and management's responses
concerning such memorandum;
8.2 the qualitative judgments of the independent auditors
about the appropriateness, not just the acceptability, of
accounting principle and financial disclosure practices
used or proposed to be adopted by the Company and,
particularly, about the degree of aggressiveness or
conservatism of its accounting principles and underlying
estimates;
8.3 the methods used to account for significant unusual
transactions;
8.4 the effect of significant accounting policies in
controversial or emerging areas for which there is a lack
of authoritative guidance or consensus;
8.5 management's process for formulating sensitive accounting
estimates and the reasonableness of these estimates;
8.6 significant recorded and unrecorded audit adjustments;
8.7 any material accounting issues among management and the
independent auditors; and
8.8 other matters required to be communicated to the Committee
under generally accepted auditing standards, as amended,
by the independent auditors;
9. Review with management and the Company's independent auditors such
accounting policies (and changes therein) of the Company, including
any financial reporting issues which could have a material impact
on the Company's financial statements, as are deemed appropriate
for review by the Committee prior to any interim or year-end
filings with the SEC or other regulatory body;
10. Confirm that the Company's interim financial statements included in
Quarterly Reports on Form 10-Q have been reviewed by the Company's
independent auditors;
41
Oversight of Financial Reporting Process and Internal Controls
11. Review the adequacy and effectiveness of the Company's accounting
and internal control policies and procedures through inquiry and
discussions with the Company's independent auditors and management
of the Company;
12. Reviewwith management the Company's administrative, operational and
accounting internal controls, including controls and security of
the computerized information systems, and evaluate whether the
Company is operating in accordance with its prescribed policies,
procedures and codes of conduct;
13. Reviewwith management and the independent auditors any reportable
conditions and material weaknesses, as defined by the American
Institute of Certified Public Accountants, affecting internal
control;
14. Receive periodic reports from the Company's independent auditors
and management of the Company to assess the impact on the Company
of significant accounting or financial reporting developments
proposed by the Financial Accounting Standards Board or the SEC or
other regulatory body, or any other significant accounting or
financial reporting related matters that may have a bearing on the
Company;
15. Establish and maintain free and open means of communication between
and among the Board, the Committee, the Company's independent
auditors and management;
Other Matters
16. Meet annually with the general counsel, and outside counsel when
appropriate, to review legal and regulatory matters, including any
matters that may have a material impact on the financial statements
of the Company;
17. Prepare a report to be included in each annual proxy statement (or,
if not previously provided during the fiscal year, any other proxy
statement or consent statement relating to the election of
directors) of the Company commencing after December 15, 2000 which
states, among other things, whether:
17.1 the Committee has reviewed and discussed with management
the audited financial statements to be included in the
Company's Annual Report on Form 10-K;
17.2 the Committee has discussed with the Company's independent
auditors the matters that the auditors are required to
discuss with the Committee by Statements on Auditing
Standard No. 61, (as it may be modified or supplemented);
17.3 the Committee has received the written disclosures and the
letter from the Company's independent auditors required by
Independence Standards Board Standard No. 1, as may be
modified or supplemented, and has discussed with the
independent auditors their independence; and
17.4 based on the review and discussions described in
subsections (a), (b) and (c) above, the Committee has
recommended to the Board 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
SEC;
18. Review the Company's policies relating to the avoidance of
conflicts of interest and review past or proposed transactions
between the Company and members of management as well as policies
and procedures with respect to officers' expense accounts and
perquisites, including the use of corporate assets. The Committee
shall consider the results of any review of these policies and
procedures by the Company's independent auditors;
19. Obtain from the independent auditors any information pursuant to
Section 10A of the Securities Exchange Act of 1934;
20. Conduct or authorize investigations into any matters within the
Committee's scope of responsibilities, including retaining outside
counsel or other consultants or experts for this purpose; and
42
21. Perform such other functions and have such other powers as may be
necessary or convenient in the efficient discharge of the
foregoing.
With respect to the duties and responsibilities listed above, the Committee
should:
22. Report regularly to the Board on its activities, as appropriate;
23. Exercise reasonable diligence in gathering and considering all
material information;
24. Understand and weigh alternative courses of conduct that may be
available;
25. Focus on weighing the benefit versus harm to the Company and its
shareholders when considering alternative recommendations or
courses of action;
26. If the Committee deems it appropriate, secure independent expert
advice and understand the expert's findings and the basis for such
findings, including retaining independent counsel, accountants or
others to assist the Committee in fulfilling its duties and
responsibilities; and
27. Provide management and the Company's independent auditors with
appropriate opportunities to meet privately with the Committee.
* * *
While the Committee has the duties and responsibilities set forth in
this charter, the Committee is not responsible for planning or conducting the
audit or for determining whether the Company's financial statements are complete
and accurate and are in accordance with generally accepted accounting
principles. Similarly, it is not the responsibility of the Committee to resolve
disagreements, if any, between management and the independent auditors or to
ensure that the Company complies with all laws and regulations.
*************
ENOVA SYSTEMS, INC.
This Proxy is Solicited on Behalf of the Board of Directors
For the Annual Meeting of Stockholders
November 13, 2001
The undersigned stockholder of common stock and/or series A preferred stock of
ENOVA SYSTEMS, INC., a California corporation, hereby acknowledges receipt of
the Notice of Annual Meeting of Shareholders and Proxy Statement, each dated
October 22, 2001, and the Annual Report on Form 10-K for the year ended December
31, 2000, and hereby appoints Carl D. Perry and John J. Micek, III, or any of
them, proxies, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the 2001 Annual Meeting
of Shareholders of ENOVA SYSTEMS, INC. to be held on Tuesday, November 13, 2001,
at 8:30 a.m., local time at ENOVA SYSTEMS, INC.'s principal executive office
located at 19850 South Magellan Drive, Torrance, California 90502, and at any
adjournment or adjournments thereof, and to vote all shares of Common Stock and
Series A Preferred Stock which the undersigned would be entitled to vote if then
and there personally present, on the matters set forth below.
PROPOSAL 1. To authorize the Board of Directors to effect a reverse stock split
of the Company's Common Stock in a ratio of one-for-twenty at any
time until the next Annual Meeting of Shareholders;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 2. To authorize the Board of Directors to effect a reverse stock split
of the Company's Common Stock in a ratio of one-for-fifteen at any
time until the next Annual Meeting of Shareholders;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 3. To authorize the Board of Directors to effect a reverse stock split
of the Company's Common Stock in a ratio of one-for-ten at any time
until the next Annual Meeting of Shareholders;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 4. To authorize the Board of Directors to effect a reverse stock split
of the Company's Common Stock in a ratio of one-for-five at any
time until the next Annual Meeting of Shareholders;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 5. To elect Anthony Rawlinson, Carl D. Perry, Malcolm R. Currie, Edwin
O. Riddell and James M. Strock as Directors of the Enova Systems,
Inc. to serve until the next Annual Meeting of Shareholders or
until their respective successors are elected and qualified;
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote (except as
indicated) for all nominees listed below
If you wish to withhold authority to vote for any individual nominee, strike
a line through the nominees's name in the following list below:
Anthony Rawlinson, Carl D. Perry, Malcolm R. Currie,
Edwin O. Riddell, James M. Strock
PROPOSAL 7. To ratify the appointment of Moss Adams LLP as the independent
auditors for the Company for the year ending December 31, 2001;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR ALL OF THE PROPOSALS SET FORTH ABOVE AND AS SAID
DEEMED ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
-----------------------------------
Signature
-----------------------------------
Signature
Dated:_________________________2001
This proxy should be marked, dated and
signed by the stockholder(s) exactly
as his or her name appears hereon, and
returned promptly in the envelope
enclosed. Persons signing in a
fiduciary capacity should so indicate.
If shares are by joint tenants or as
community property, both should sign.
ENOVA SYSTEMS, INC.
This Proxy is Solicited on Behalf of the Board of Directors
For the Annual Meeting of Stockholders
November 13, 2001
The undersigned stockholder Series B preferred stock of ENOVA SYSTEMS, INC., a
California corporation, hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement, each dated October 22, 2001, and
the Annual Report on Form 10-K for the year ended December 31, 2000, and hereby
appoints Carl D. Perry and John J. Micek, III, or any of them, proxies, with
full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 2001 Annual Meeting of
Shareholders of ENOVA SYSTEMS, INC. to be held on Tuesday, November 13, 2001, at
8:30 a.m., local time at ENOVA SYSTEMS, INC.'s principal executive office
located at 19850 South Magellan Drive, Torrance, California 90502, and at any
adjournment or adjournments thereof, and to vote all shares of Series B
Preferred Stock which the undersigned would be entitled to vote if then and
there personally present, on the matters set forth below.
PROPOSAL 1. To authorize the Board of Directors to effect a reverse stock
split of the Company's Common Stock in a ratio of one-for-twenty
at any time until the next Annual Meeting of Shareholders;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 2. To authorize the Board of Directors to effect a reverse stock
split of the Company's Common Stock in a ratio of one-for-fifteen
at any time until the next Annual Meeting of Shareholders;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 3. To authorize the Board of Directors to effect a reverse stock
split of the Company's Common Stock in a ratio of one-for-ten at
any time until the next Annual Meeting of Shareholders;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 4. To authorize the Board of Directors to effect a reverse stock
split of the Company's Common Stock in a ratio of one-for-five at
any time until the next Annual Meeting of Shareholders;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 5. To elect Donald Dreyer and John J. Micek, III as Directors of the
Enova Systems, Inc. to serve until the next Annual Meeting of
Shareholders or until their respective successor is elected and
qualified;
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote (except as
indicated) for all nominees listed below:
If you wish to withhold authority to vote for any individual nominee,
strike a line through the nominees's name in the following list below:
Donald Dreyer, John J. Micek, III
PROPOSAL 6. To ratify the appointment of Moss Adams LLP as the independent
auditors for the Company for the year ending December 31, 2001;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR ALL OF THE PROPOSALS SET FORTH ABOVE AND AS SAID
DEEMED ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
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Signature
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Signature
Dated:_________________________2001
This proxy should be marked, dated and
signed by the stockholder(s) exactly
as his or her name appears hereon, and
returned promptly in the envelope
enclosed. Persons signing in a
fiduciary capacity should so indicate.
If shares are by joint tenants or as
community property, both should sign.