0001299933-11-003615.txt : 20111219 0001299933-11-003615.hdr.sgml : 20111219 20111216180221 ACCESSION NUMBER: 0001299933-11-003615 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20111216 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Unregistered Sales of Equity Securities ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20111219 DATE AS OF CHANGE: 20111216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENOVA SYSTEMS INC CENTRAL INDEX KEY: 0000922237 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 953056150 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-33001 FILM NUMBER: 111267579 BUSINESS ADDRESS: STREET 1: 1560 WEST 190TH STREET CITY: TORRANCE STATE: CA ZIP: 90501 BUSINESS PHONE: 3105272800 MAIL ADDRESS: STREET 1: 1560 WEST 190TH STREET CITY: TORRANCE STATE: CA ZIP: 90501 FORMER COMPANY: FORMER CONFORMED NAME: US ELECTRICAR INC DATE OF NAME CHANGE: 19940425 8-K 1 htm_43797.htm LIVE FILING Enova Systems, Inc. (Form: 8-K)  

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

     
Date of Report (Date of Earliest Event Reported):   December 16, 2011

Enova Systems, Inc.
__________________________________________
(Exact name of registrant as specified in its charter)

     
California 1-33001 95-3056150
_____________________
(State or other jurisdiction 		_____________
(Commission 		______________
(I.R.S. Employer
of incorporation) File Number) Identification No.)
      
1560 West 190th Street, Torrance, California   90501
_________________________________
(Address of principal executive offices) 		  ___________
(Zip Code)
     
Registrant’s telephone number, including area code:   310-527-2800

Not Applicable
______________________________________________
Former name or former address, if changed since last report

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

On December 15, 2011, Enova entered into a Warrant and Common Stock Purchase Agreement (the "Purchase Agreement") with Anthony Low-Beer and ALB Private Investments LLC, each of whom is an accredited investor, pursuant to which Purchase Agreement such investors agreed to purchase up to 3,000,000 shares of Enova’s common stock ("Common Stock") at $0.15 per share for an aggregate purchase price of $450,000, together with warrants to purchase up to an equal number of shares of the Company’s common stock. Pursuant to the terms of the Purchase Agreement, Enova is permitted to sell an aggregate of up to 15,000,000 shares of common stock (the "Investor Shares") at $0.15 per share and Warrants to Purchase Common Stock (the "Warrants") to acquire up to an equal number of shares of common stock (the "Warrant Shares") (the "Warrants; Warrant Shares; and, with the Investor Shares, collectively, the "Securities"). As not all of the Investor Shares authorized for sale had been subscribed for as of December 15, 2011, Enova may continue to negotiate with previously contacted accredited investors and may add one or more of such accredited investors as additional purchasers under the Purchase Agreement (any such purchaser is sometimes referred to herein as "Investor").

The closing of the sale of the Securities is contingent on, among other things, the approval by the shareholders of the Company of the issuance of the Investor Shares and Warrants pursuant to the Purchase Agreement in accordance with NYSE Amex rules and listing of the Investor Shares and Warrant Shares with NYSE Amex (subject to official notice of issuance). Because the closing is subject to various conditions, there can be no assurance that the closing will occur. Additionally, there is no assurance that all 15,000,000 Investor Shares and accompanying Warrants will be subscribed for by Investors.

The Purchase Agreement may be terminated (a) by consent of the parties, (b) by the vote of a majority of the Investors if the Company has breached any representation or warranty or any material covenant, (c) by the Company as to any Investor if the Investor has breached any representation, warranty or any material breach of any covenant, or (d) by either the Company or the Investors purchasing a majority of the Investor Shares (as to all Investors) if the closing has not occurred on, or prior to, December 30, 2011.

The Warrants will be exercisable for an equal number of shares of Common Stock as the Investor Shares and will be subject to appropriate adjustment for stock splits, combinations, reclassifications and the like. The Warrants will be exercisable for a period of five years, with earlier termination in the case of certain extraordinary transactions and earlier call by Enova as set forth below. The Warrants will be exercisable at the option of the holder at a price equal to the volume weighted average price of the Company’s common stock for the twenty trading days immediately prior to the date of the closing of the sale of the Investor Shares (the "Exercise Price"). The Warrants will further provide that if, for a twenty (20) consecutive trading day period, the average of the closing bid and asked prices of the Common Stock quoted in the Over-The-Counter market or the last reported sale price of the Common Stock or the closing price quoted on the NYSE Amex or any other U.S. exchange on which the Common Stock is listed, whichever is applicable (or such other reference reasonably relied upon by the Company if not so published), is greater than or equal to two times the Exercise Price with at least an average of ten thousand (10,000) shares traded per day (appropriately adjusted for stock splits, combinations, reclassifications and the like) during such period (the "Early Termination Event"), then, on the 10th calendar day following written notice from the Company notifying the Warrant holders of the Early Termination Event, any holder who has not, by such date, elected to exercise its Warrants for cash, such Warrants will be deemed automatically exercised on such 10th calendar day pursuant to the cashless/net exercise provisions under the Warrants.

Merriman Capital, Inc. ("Merriman") has acted as the sole placement agent for the offering pursuant to the Purchase Agreement. At closing, Merriman will be paid a cash fee equal to ten percent of the gross proceeds received from the sale of the Investor Shares, less $100,000 which is payable to a third-party.

Under the terms of the Purchase Agreement, Enova is obligated to enter into a Registration Rights Agreement with each of the Investors no later than the closing of the sale of the Investor Shares. The Registration Rights Agreement will require the Company to file with the SEC a registration statement to cover the resale of the Investor Shares and Warrant Shares covered by the Registration Rights Agreement no later than thirty days of the closing of the sale of the Investor Shares. If not all of the Investor Shares and Warrant Shares may be sold on a delayed or continuous basis under the provisions of Rule 415 under the Securities 1933 Act, the Registration Rights Agreement will provide that such shares will be removed from the registration statement and/or the Investors will agree to such restrictions and limitations on the registration and resale of such shares as the SEC may require to assure the Company’s compliance with the requirements of said Rule 415. The Company will have certain customary obligations with respect to the required registration statement. The Investors will be required to provide the Company with certain information to assist in the registration of the Investor Shares and Warrant Shares. The Registration Rights Agreement will contain customary indemnification and contribution provisions.

Each of the committed Investors is (and all other Investors will be required to represent that it is) an "accredited investor" (as such term is defined under Regulation D promulgated by the Securities and Exchange Commission ("SEC")). The Securities are expected to be sold in a transaction exempt from the registration requirements under Section 5 of the Securities Act of 1933, as amended (the "Securities Act"), pursuant to Section 4(2) thereof and in reliance upon Rule 506 of Regulation D promulgated by the SEC.

This Current Report on Form 8-K does not constitute an offer of any securities for sale. The securities to be sold pursuant to the Purchase Agreement have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

Enova intends to seek approval of the issuance of the maximum number of Investor Shares and Warrant Shares at the Annual Meeting of Shareholders currently scheduled for December 30, 2011, and intends to send to shareholders a Proxy Statement relating thereto when available. Enova advises each of its shareholders to read the Proxy Statement when it becomes available because it will contain important information. Once the Proxy Statement is available, shareholders can get the Proxy Statement and any relevant documents for free at the SEC’s web site or free of charge by writing to Enova Systems, Inc., 1560 West 190th Street, Torrance, California 90501, Attention: Chief Financial Officer and requesting a copy thereof.

The Purchase Agreement, the form of Warrant and the form of Registration Rights Agreement are filed with this report as Exhibits 99.1, 99.2 and 99.3, respectively, and are incorporated herein by reference. The foregoing summary of terms is qualified in its entirety by such agreements.





Item 3.02 Unregistered Sales of Equity Securities.

The information contained in Item 1.01 above is incorporated by reference in response to this Item 3.02.





Item 9.01 Financial Statements and Exhibits.

Exhibits.

99.1 Purchase Agreement

99.2 Form of Warrant

99.3 Form of Registration Rights Agreement





SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

         
    Enova Systems, Inc.
          
December 16, 2011   By:   /s/ Michael Staran
       
        Name: Michael Staran
        Title: Chief Executive Officer

Exhibit Index


     
Exhibit No.   Description
 
99.1
  Purchase Agreement
99.2
  Form of Warrant
99.3
  Form of Registration Rights Agreement
EX-99.1 2 exhibit1.htm EX-99.1 EX-99.1

WARRANT AND COMMON STOCK PURCHASE AGREEMENT

This WARRANT AND COMMON STOCK PURCHASE AGREEMENT is dated for reference purposes as of December 15, 2011 (the “Effective Date”) by and between Enova Systems, Inc., a California corporation (the “Company”), and the several purchasers identified from time to time in the attached Exhibit A and who become parties hereto at the election of the Company on, or before, December 30, 2011, as such date may be mutually extended by the Majority Purchasers (as defined below) and the Company (each such party, individually, a “Purchaser” and collectively, the “Purchasers”).

NOW, THEREFORE, in consideration of the mutual agreements, representations, warranties and covenants herein contained, the parties hereto agree as follows:

1. Definitions. As used in this Agreement, the following terms shall have the following respective meanings:

(a) "Affiliate” of a party means any corporation or other business entity controlled by, controlling or under common control with such party. For this purpose “control” shall mean direct or indirect beneficial ownership of fifty percent (50%) or more of the voting or income interest in such corporation or other business entity.

(b) "Agreement” means this Warrant and Common Stock Purchase Agreement.

(c) "Closing Date” means the date set forth in Section 2.4.

(d) “Company’s Knowledge” means the actual knowledge of the Company’s executive officers.

(e) “Confidential Information” means trade secrets, confidential information and know-how (including but not limited to ideas, formulae, compositions, processes, procedures and techniques, research and development information, computer program code, performance specifications, support documentation, drawings, specifications, designs, business and marketing plans, and customer and supplier lists and related information).

(f) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and all of the rules and regulations promulgated thereunder.

(g) “Intellectual Property” means all of the following: (i) patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice); (ii) trademarks, service marks, trade dress, trade names, corporate names, logos, slogans and Internet domain names, together with all goodwill associated with each of the foregoing; (iii) copyrights and copyrightable works; (iv) registrations, applications and renewals for any of the foregoing; and (v) proprietary computer software (including but not limited to data, data bases and documentation).

(h) “Lien” means any lien, charge, claim, encumbrance, security interest, right of first refusal, preemptive right or other restrictions of any kind.

(i) "Majority Purchasers” shall mean (x) before the Closing, Purchasers which, at any given time, have agreed to purchase more than fifty percent (50%) of the Shares (as defined in Section 2.3 below) and (y) after the Closing, Purchasers (or transferees thereof) which, at any given time, own in the aggregate a majority of the Shares and right to acquire the Warrant Shares that have not been resold pursuant to an effective registration statement under the Securities Act or Rule 144 under the Securities Act.

(j) “Material Adverse Effect” means a material adverse effect on the assets, liabilities, results of operations, condition (financial or otherwise), business, and prospects of the Company taken as a whole.

(k) “Material Contract” means any contract of the Company that has been filed or was required to have been filed as an exhibit to the SEC Reports pursuant to Item 601(b)(4) or Item 601(b)(10) of Regulation S-K

(l) "Operative Agreements” shall mean the Registration Rights Agreement and Warrants together with this Agreement.

(m) “Person” means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein.

(n) "Registration Rights Agreement” shall mean that certain Registration Rights Agreement in form and substance attached hereto as Exhibit C, dated as of the Closing Date (as defined below), among the Company and the Purchasers.

(o) "SEC” shall mean the Securities and Exchange Commission.

(p) "Securities Act” shall mean the Securities Act of 1933, as amended, and all of the rules and regulations promulgated thereunder.

2. Purchase and Sale of Shares.

2.1 Purchase and Sale. Subject to and upon the terms and conditions set forth in this Agreement, the Company agrees to issue and sell to each Purchaser, and each Purchaser, severally, hereby agrees to purchase from the Company, at the Closing (as defined below), the number of shares of Common Stock set forth opposite the name of such Purchaser under the heading “Number of Shares to be Purchased” on Exhibit A hereto, at a purchase price of $0.15 per share. The total purchase price payable by each Purchaser for the number of shares of Common Stock that such Purchaser is hereby agreeing to purchase is set forth opposite the name of such Purchaser under the heading “Purchase Price” on Exhibit A hereto.

2.2 Purchase of Warrants. In addition, subject to the terms and conditions of this Agreement, each Purchaser agrees, severally, to purchase and the Company agrees to sell and issue to each Purchaser, a five-year Warrant in form and substance attached hereto as Exhibit B to acquire one (1) share of the Company’s Common Stock at an exercise price equal to the twenty (20) trading day volume weighted average closing price of the Company’s Common Stock on the NYSE Amex immediately preceding the Closing Date (the “Exercise Price”) for each share of Common Stock acquired pursuant to Section 2.1 above (the “Warrant”). No fractional shares shall be issued under the Warrants (any fractional shares shall be rounded down to the nearest whole number).

2.3 Definitions. The shares of Common Stock to be sold to the Purchasers pursuant to this Agreement are hereinafter referred to as the “Shares.” The Warrants to purchase Common Stock to be sold hereunder are hereinafter referred to as the “Warrants.” The total amount of Common Stock and other securities issuable upon conversion of the Warrants are hereinafter referred to as the “Conversion Stock.” The Shares, the Warrants and the Conversion Stock are hereinafter collectively referred to as the “Securities.”

2.4 Closing. The purchase and sale of the Shares and Warrants shall take place at the offices of Reed Smith, LLP, 101 2nd Street, 20th Floor, San Francisco, CA 94105 (or remotely via the exchange of documents and signatures) at 10:00 A.M., on December 30, 2011, or at such other time and place as the Company and the Majority Purchasers mutually agree upon in writing (which time and place are designated as the “Closing”). Within five (5) business days after the Closing, the Company shall deliver to each Purchaser purchasing Shares and Warrants at the Closing a certificate representing the Shares and a corresponding Warrant, registered in the name of such Purchaser, which such Purchaser is purchasing against delivery to the Company by such Purchaser of a cashiers check or wire transfer in the aggregate amount of the Purchase Price therefor payable to the Company’s order as identified on Exhibit A.

3. Representations and Warranties of the Company. Except as otherwise described or disclosed in the SEC Filings (as defined below), including any documents incorporated by reference therein or exhibits referenced or attached thereto, the Company hereby represents and warrants to each of the Purchasers as follows immediately prior to the Closing:

3.1 Organization, Good Standing and Qualification, NYSE Amex Listing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to carry on its business as now conducted and to own or lease its properties. The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property makes such qualification or leasing necessary unless the failure to so qualify has not had and could not reasonably be expected to have a Material Adverse Effect. The Company is close to falling below the minimum continued listing standards of the NYSE Amex set forth in Section 1003(a) (iii) of the NYSE Amex Company Guide as more fully described on Schedule 3.1.

3.2 Authorization. The Company has full power and authority and, except for approval of the Proposal by its shareholders as contemplated in Section 5.1(g) and any action required by the Company to list the Shares and Warrant Shares on NYSE Amex or AIM of the London Stock Exchange, has taken all requisite action on the part of the Company, its officers, directors and shareholders necessary for (i) the authorization, execution and delivery of the Operative Agreements, (ii) the authorization of the performance of all obligations of the Company hereunder or thereunder, and (iii) the authorization, issuance (or reservation for issuance) and delivery of the Shares. The Operative Agreements constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors’ rights generally and to general equitable principles.

3.3 Capitalization. Schedule 3.3 sets forth as of the date hereof (a) the authorized capital stock of the Company; (b) the number of shares of capital stock issued and outstanding; (c) the number of shares of capital stock issuable pursuant to the Company’s stock plans; and (d) the number of shares of capital stock issuable and reserved for issuance pursuant to securities exercisable for, or convertible into or exchangeable for any shares of capital stock of the Company. All of the issued and outstanding shares of the Company’s capital stock have been duly authorized and validly issued and are fully paid, nonassessable and free of pre-emptive rights and were issued in full compliance with applicable state and federal securities law and any rights of third parties. No Person is entitled to pre-emptive or similar statutory or contractual rights with respect to any securities of the Company. There are no outstanding warrants, options, convertible securities or other rights, agreements or arrangements of any character under which the Company is or may be obligated to issue any equity securities of any kind and except as contemplated by this Agreement. The issuance and sale of the Shares and Warrants hereunder will not obligate the Company to issue shares of Common Stock or other securities to any other Person (other than the Purchasers) and will not result in the adjustment of the exercise, conversion, exchange or reset price of any outstanding security.

3.4 Valid Issuance. The Shares and Warrants have been duly and validly authorized and, when issued and paid for pursuant to this Agreement, will be validly issued, fully paid and nonassessable, and shall be free and clear of all Liens (other than those created by the Purchasers), except for restrictions on transfer set forth in the Operative Agreements or imposed by applicable securities laws.

3.5 Consents. Except for approval of the Proposal by its shareholders as contemplated in Section 5.1(g), the execution, delivery and performance by the Company of the Operative Agreements and the offer, issuance and sale of the Shares and Warrants require no consent of, action by or in respect of, or filing with, any Person, governmental body, agency, or official other than (i) those that have been obtained and are in full force and effect and (ii) filings that have been made pursuant to applicable state securities laws and post-sale filings pursuant to applicable state and federal securities laws which the Company undertakes to file within the applicable time periods.

3.6 Delivery of SEC Filings. The Company has made available to the Purchasers through the EDGAR system, true and complete copies of the Company’s most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (the “10-K”), and all other reports filed by the Company pursuant to the Exchange Act since the filing of the 10-K and prior to the date hereof, as amended to date (collectively, the “SEC Filings”). To the Company’s Knowledge, the SEC Filings are the only filings required of the Company pursuant to the Exchange Act for such period.

3.7 Use of Proceeds. The net proceeds of the sale of the Shares and exercise of the Warrants hereunder shall be used by the Company only for working capital and general corporate purposes and shall not be used for the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and prior practices).

3.8 No Material Adverse Change. Since September 30, 2011, except as identified and described in the SEC Filings, there has not been to the Company’s Knowledge:

(i) any change in the consolidated assets, liabilities, financial condition or operating results of the Company from that reflected in the financial statements included in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, except for changes in the ordinary course of business which have not had and could not reasonably be expected to have a Material Adverse Effect, individually or in the aggregate;

(ii) any declaration or payment of any dividend, or any authorization or payment of any distribution, on any of the capital stock of the Company, or any redemption or repurchase of any securities of the Company;

(iii) any material damage, destruction or loss, whether or not covered by insurance to any assets or properties of the Company;

(iv) any waiver, not in the ordinary course of business, by the Company of a material right or of a material debt owed to it;

(v) any satisfaction or discharge of any Lien by the Company, except in the ordinary course of business and which is not material to the assets, properties, financial condition, operating results or business of the Company taken as a whole (as such business is presently conducted and as it is proposed to be conducted);

(vi) any change or amendment to the Company’s Amended and Restated Articles of Incorporation or Amended and Restated Bylaws, or material change to any material contract or arrangement by which the Company is bound or to which any of their respective assets or properties is subject;

(vii) any material labor difficulties or labor union organizing activities with respect to employees of the Company;

(viii) any material transaction entered into by the Company other than in the ordinary course of business;

(ix) the loss of the services of any key employee, or material change in the composition or duties of the senior management of the Company;

(x) the loss or threatened loss of any customer which has had or could reasonably be expected to have a Material Adverse Effect; or

(xi) any other event or condition of any character that has had or could reasonably be expected to have a Material Adverse Effect.

3.9 SEC Filings; S-3 Eligibility.

(a) At the time of filing thereof, to the Company’s Knowledge, the SEC Filings complied as to form in all material respects with the requirements of the Exchange Act and did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.

(b) The Company is eligible to use Form S-3 to register the Registrable Securities (as such term is defined in the Registration Rights Agreement) for sale by the Purchasers as contemplated by the Registration Rights Agreement, subject to such limitations as to amounts of Shares and/or Warrant Shares as may be imposed by the SEC and applicable rules and regulations.

3.10 No Conflict, Breach, Violation or Default. The execution, delivery and performance of the Operative Agreements by the Company and the consummation by the Company of the transactions contemplated hereby or thereby including the issuance and sale of the Shares and Warrants will not conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under (i) the Company’s Amended and Restated Articles of Incorporation or the Company’s Amended and Restated Bylaws, both as in effect on the date hereof (true and complete copies of which have been made available to the Purchasers through the EDGAR system), (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any Material Contract or (iii) to the Company’s Knowledge, any statute, rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company’s assets or properties.

3.11 Tax Matters. The Company has timely filed all tax returns required to have been filed by the Company with all appropriate governmental agencies and timely paid all taxes shown thereon or otherwise owed by it. To the Company’s Knowledge, the charges, accruals and reserves on the books of the Company in respect of taxes for all fiscal periods are adequate in all material respects, and there are no material unpaid assessments against the Company nor, to the Company’s Knowledge, any basis for the assessment of any additional taxes, penalties or interest for any fiscal period or audits by any federal, state or local taxing authority except for any assessment which is not material to the Company. To the Company’s Knowledge, all taxes and other assessments and levies that the Company is required to withhold or to collect for payment have been duly withheld and collected and paid to the proper governmental entity or third party when due. There are no tax liens or claims pending or, to the Company’s Knowledge, threatened against the Company or any of its assets or property.

3.12 Title to Properties. To the Company’s Knowledge, the Company has good and marketable title to all real properties and all other properties and assets owned by it, in each case free from liens, encumbrances and defects that would materially affect the value thereof or materially interfere with the use made or currently planned to be made thereof by them; and the Company holds any leased real or personal property under valid and enforceable leases whose breach would otherwise cause a Material Adverse Effect to the Company.

3.13 Certificates, Authorities and Permits. To the Company’s Knowledge, the Company possesses adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by it except those that the failure to possess have not had and could not reasonably be expected to have a Material Adverse Effect, and the Company has not received any written notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company, could reasonably be expected to have a Material Adverse Effect.

3.14 Labor Matters.

(a) The Company is not a party to or bound by any collective bargaining agreements or other agreements with labor organizations. The Company has not to its Knowledge violated in any material respect any laws, regulations, orders or contract terms, affecting the collective bargaining rights of employees, labor organizations or any laws, regulations or orders affecting employment discrimination, equal opportunity employment, or employees’ health, safety, welfare, wages and hours.

(b) (i) There are no labor disputes existing, or to the Company’s Knowledge, threatened, involving strikes, slow-downs, work stoppages, job actions, disputes, lockouts or any other disruptions of or by the Company’s employees, (ii) there are no unfair labor practices or petitions for election pending or, to the Company’s Knowledge, threatened before the National Labor Relations Board or any other federal, state or local labor commission relating to the Company’s employees, (iii) no demand for recognition or certification heretofore made by any labor organization or group of employees is pending with respect to the Company and (iv) to the Company’s Knowledge, the Company enjoys good labor and employee relations with its employees and labor organizations.

(c) To the Company’s Knowledge, the Company is, and at all times has been, in compliance with all applicable laws respecting employment (including laws relating to classification of employees and independent contractors) and employment practices, terms and conditions of employment, wages and hours, and immigration and naturalization except for such instances of noncompliance as have not had and could not reasonably be expected to have a Material Adverse Effect. There are no claims pending against the Company before the Equal Employment Opportunity Commission or any other administrative body or in any court asserting any violation of Title VII of the Civil Rights Act of 1964, the Age Discrimination Act of 1967, 42 U.S.C. §§ 1981 or 1983 or any other federal, state or local Law, statute or ordinance barring discrimination in employment.

(d) The Company is not a party to, or bound by, any employment or other contract or agreement that contains any severance, termination pay or change of control liability or obligation, including, without limitation, any “excess parachute payment,” as defined in Section 280G(b) of the Internal Revenue Code.

(e) Each of the Company’s employees is a Person who is either a United States citizen or a permanent resident entitled to work in the United States. To the Company’s Knowledge, the Company has no liability for the improper classification by the Company of such employees as independent contractors or leased employees prior to the Closing.

3.15 Intellectual Property.

(a) To the Company’s Knowledge, all Intellectual Property of the Company is currently in compliance with all legal requirements (including timely filings, proofs and payments of fees) and is valid and enforceable except for such instances of noncompliance as have not had and could not reasonably be expected to have a Material Adverse Effect. To the Company’s Knowledge, no Intellectual Property of the Company which is necessary for the conduct of Company’s business as currently conducted has been or is now involved in any cancellation, dispute or litigation, and, to the Company’s Knowledge, no such action is threatened. To the Company’s Knowledge, no patent of the Company has been or is now involved in any interference, reissue, re-examination or opposition proceeding.

(b) To the Company’s Knowledge, all of the licenses and sublicenses and consent, royalty or other agreements concerning Intellectual Property which are necessary for the conduct of the Company’s business as currently conducted to which the Company is a party or by which any of its assets are bound (other than  generally commercially available, non-custom, off-the-shelf software application programs having a retail acquisition price of less than $10,000 per license) (collectively, “License Agreements”) are valid and binding obligations of the Company and, to the Company’s Knowledge, enforceable in accordance with their terms, except (x) for such instances of noncompliance as have not had and could not reasonably be expected to have a Material Adverse Effect, (y) to the extent that enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the enforcement of creditors’ rights generally, and, to the Company’s Knowledge, there exists no event or condition which will result in a material violation or breach of or constitute (with or without due notice or lapse of time or both) a default by the Company under any such License Agreement which breach would cause a Material Adverse Effect.

(c) To the Company’s Knowledge, the conduct of the Company’s business as currently conducted does not infringe or otherwise impair or conflict with (collectively, “Infringe”) any Intellectual Property rights of any third party or any confidentiality obligation owed to a third except for such instances of Infringement as have not had and could not reasonably be expected to have a Material Adverse Effect, and, to the Company’s Knowledge, the Intellectual Property and Confidential Information of the Company which are necessary for the conduct of Company’s business as currently conducted is not being Infringed by any third party. There is no litigation or order pending or outstanding or, to the Company’s Knowledge, threatened or imminent, that seeks to limit or challenge the ownership, use, validity or enforceability of any Intellectual Property or Confidential Information of the Company.

(e) The consummation of the transactions contemplated hereby and by the other Operative Agreements will not result in the alteration, loss, impairment of or restriction on the Company’s ownership or right to use any of the Intellectual Property or Confidential Information which is necessary for the conduct of Company’s business as currently conducted.

(f) The Company has taken reasonable steps to protect the Company’s rights in its Intellectual Property and Confidential Information.

3.16 Environmental Matters. The Company to its Knowledge is not in violation of any statute, rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, “Environmental Laws”), owns or operates any real property contaminated with any substance that is subject to any Environmental Laws, is liable for any off-site disposal or contamination pursuant to any Environmental Laws, or is subject to any claim relating to any Environmental Laws, which violation, contamination, liability or claim has had or could reasonably be expected to have a Material Adverse Effect; and, to the Company’s Knowledge, there is no pending or threatened investigation that might lead to such a claim.

3.17 Litigation. There are no pending actions, suits or proceedings against or affecting the Company or any of its properties; and to the Company’s Knowledge, no such actions, suits or proceedings are threatened or contemplated. Neither the Company, nor any director or officer thereof, is or has been the subject of any action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty that is material or that is otherwise required to be disclosed in the SEC Filings. There has not been, and to the Company’s Knowledge, there is not pending or contemplated, any investigation by the SEC involving the Company or any current director or officer of the Company. The SEC has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company under the Securities Act or the Exchange Act.

3.18 Financial Statements. The financial statements of the Company included in each SEC Filing comply in all material respects with applicable accounting requirements and the rules and regulations of the SEC with respect thereto as in effect at the time of filing (or to the extent corrected by a subsequent restatement) and present fairly, in all material respects, the consolidated financial position of the Company as of the dates shown and its consolidated results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with United States generally accepted accounting principles (“GAAP”) applied on a consistent basis during the periods involved (except as may be disclosed therein or in the notes thereto, and, in the case of quarterly financial statements, as permitted by Form 10-Q under the Exchange Act). Except as set forth in the financial statements of the Company included in the SEC Filings filed prior to the date hereof , the Company has not incurred any liabilities, contingent or otherwise, except those incurred in the ordinary course of business, consistent (as to amount and nature) with past practices since the date of such financial statements which have had or could reasonably be expected to have a Material Adverse Effect.

3.19 Insurance Coverage. The Company maintains in full force and effect insurance coverage that is customary for comparably situated companies for the business being conducted and properties owned or leased by the Company, and the Company reasonably believes such insurance coverage to be adequate against all liabilities, claims and risks against which it is customary for comparably situated companies to insure.

3.20 Brokers and Finders. No Person will have, as a result of the transactions contemplated by the Operative Agreements, any valid right, interest or claim against or upon the Company for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Company, other than as described in Schedule 3.20.

3.21 No Directed Selling Efforts or General Solicitation. Neither the Company nor any Person acting on its behalf has conducted any “general solicitation” or “general advertising” (as those terms are used in Regulation D) in connection with the offer or sale of any of the Shares or Warrants.

3.22 No Integrated Offering. Neither the Company nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, at any time within the past six months, made any offers or sales of any Company security or solicited any offers to buy any security, under circumstances that would adversely affect reliance by the Company on Section 4(2) for the exemption from registration for the transactions contemplated hereby or would require registration of the Shares under the Securities Act.

3.23 Private Placement. The offer and sale of the Shares and Warrants to the Purchasers as contemplated hereby is exempt from the registration requirements of the Securities Act.

3.24 Questionable Payments. Neither the Company nor, to the Company’s Knowledge, any of its current directors, officers, employees, agents or other Persons acting on behalf of the Company at the Company’s direction and authorization, has on behalf of the Company or in connection with its business: (a) used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (b) made any direct or indirect unlawful payments to any governmental officials or employees from corporate funds; (c) established or maintained any unlawful or unrecorded fund of corporate monies or other assets; (d) made any false or fictitious entries on the books and records of the Company; or (e) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment of any nature.

3.25 Internal Controls. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences, where such failure to maintain would cause a Material Adverse Effect. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that material information relating to the Company is made known to the certifying officers by others within those entities, particularly during the period in which the Company’s most recently filed periodic report under the Exchange Act, as the case may be, is being prepared. The Company’s certifying officers have evaluated the effectiveness of the Company’s controls and procedures as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no significant changes in the Company’s internal controls (as such term is defined in Item 308 of Regulation S-K) or, to the Company’s Knowledge, any other factors that could significantly affect the Company’s internal controls that would cause a Material Adverse Effect.

3.26 Disclosures. Neither the Company nor any Person acting on its behalf has provided the Purchasers or their agents or counsel with any information that constitutes or might constitute material, non-public information, other than the terms of the transactions contemplated hereby. The written materials delivered to the Purchasers in connection with the transactions contemplated by the Operative Agreements do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading.

3.27 Investment Company. The Company is not required to be registered as, and is not an Affiliate of, and immediately following the Closing will not be required to register as, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

4. Representations and Warranties of the Purchasers. Each Purchaser severally for itself, and not jointly with the other Purchasers, represents and warrants to the Company as follows:

4.1 Authorization. All action on the part of such Purchaser and, if applicable, its officers, directors and shareholders necessary for the authorization, execution, delivery and performance of the Operative Agreements and the consummation of the transactions contemplated therein has been taken. When executed and delivered by the Company and such Purchaser, each of the Operative Agreements will constitute the legal, valid and binding obligation of such Purchaser, enforceable against such Purchaser in accordance with its terms, except as such may be limited by bankruptcy, insolvency, reorganization or other laws affecting creditors’ rights generally and by general equitable principles. Such Purchaser has all requisite power to enter into each of the Operative Agreements and to carry out and perform its obligations under the terms of the Operative Agreements. Such Purchaser has the knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Securities and has the ability to bear the economic risks of an investment in the Securities for an indefinite period of time. Furthermore, the Purchaser acknowledges that the Company has made no representations or warranties except as set for in this Agreement or the Registration Rights Agreement.

4.2 Purchase Entirely for Own Account. Such Purchaser is acquiring the Securities being purchased by it hereunder for investment, for its own account, and not for resale or with a view to distribution thereof in violation of the Securities Act. Such Purchaser has not entered into an agreement or understanding with any other party to resell or distribute such Securities.

4.3 Purchaser Status; Etc. Such Purchaser certifies and represents to the Company that it is an “Accredited Purchaser” as defined in Rule 501 of Regulation D promulgated under the Securities Act and was not organized for the purpose of acquiring the Securities. Such Purchaser’s financial condition is such that it is able to bear the risk of holding the Securities for an indefinite period of time and the risk of loss of its entire investment. Subject to the truth and accuracy of the representations and warranties of the Company set forth in Section 3 of this Agreement (as modified by any Schedule or the SEC Filings), such Purchaser has received, reviewed and considered all information it deems necessary in making an informed decision to make an investment in the Securities and has been afforded the opportunity to ask questions of and receive answers from the management of the Company concerning this investment and has sufficient knowledge and experience in investing in companies similar to the Company in terms of the Company’s stage of development so as to be able to evaluate the risks and merits of its investment in the Company.

4.4 Securities Not Registered. Such Purchaser understands that the Securities have not been registered under the Securities Act, by reason of their issuance by the Company in a transaction exempt from the registration requirements of the Securities Act, and that the Securities must continue to be held by such Purchaser unless a subsequent disposition thereof is registered under the Securities Act or is exempt from such registration. The Purchaser understands that the exemptions from registration afforded by Rule 144 (the provisions of which are known to it) promulgated under the Securities Act depend on the satisfaction of various conditions, and that, if applicable, Rule 144 may afford the basis for sales only in limited amounts.

4.5 No Conflict. The execution and delivery of the Operative Agreements by such Purchaser and the consummation of the transactions contemplated thereby will not conflict with or result in any violation of or default by such Purchaser (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to a loss of a material benefit under (i) any provision of the organizational documents of such Purchaser, (ii) any material agreement or instrument, permit, franchise, or license or (iii) any judgment, order, statute, law, ordinance, rule or regulations, applicable to such Purchaser or its respective properties or assets.

4.6 Brokers. Such Purchaser has not retained, utilized or been represented by any broker or finder in connection with the transactions contemplated by this Agreement.

4.7 Consents. All consents, approvals, orders and authorizations required on the part of such Purchaser in connection with the execution, delivery or performance of this Agreement and the consummation of the transactions contemplated herein have been obtained and are effective as of the Closing Date.

4.8 No Intent to Effect a Change of Control/Prohibited Transactions. Such Purchaser has no present intent to change or influence the control of the Company within the meaning of Rule 13d-1 of the Exchange Act. Since the earlier of (a) such time as such Purchaser was first contacted by the Company or any other Person acting on behalf of the Company regarding the transactions contemplated hereby or (b) thirty (30) days prior to the date hereof, neither such Purchaser nor any Affiliate of such Purchaser which (x) had knowledge of the transactions contemplated hereby, (y) has or shares discretion relating to such Purchaser’s investments or trading or information concerning such Purchaser’s investments, including in respect of the Shares or Warrants, or (z) is subject to such Purchaser’s review or input concerning such Affiliate’s investments or trading (collectively, “Trading Affiliates”) has, directly or indirectly, effected or agreed to effect any short sale, whether or not against the box, established any “put equivalent position” (as defined in Rule 16a-1(h) under the Exchange Act) with respect to the Company’s Common Stock, granted any other right (including, without limitation, any put or call option) with respect to the Company’s Common Stock or with respect to any security that includes, relates to or derived any significant part of its value from the Company’s Common Stock or otherwise sought to hedge its position in the Shares or Warrants (each, a “Prohibited Transaction”). Prior to the earliest to occur of (i) the termination of this Agreement, or (ii) the Closing Date, such Purchaser shall not, and shall cause its Trading Affiliates not to, engage, directly or indirectly, in a Prohibited Transaction. Such Purchaser acknowledges that the representations, warranties and covenants contained in this Section 4.8 are being made for the benefit of the Purchasers as well as the Company and that each of the other Purchasers shall have an independent right to assert any claims against such Purchaser arising out of any breach or violation of the provisions of this Section 4.8.

5. Conditions Precedent.

5.1 Conditions to the Obligation of the Purchasers to Consummate the Closing. The obligation of each Purchaser to consummate the Closing and to purchase and pay for the Securities being purchased by it pursuant to this Agreement is subject to the satisfaction of the following conditions precedent:

(a) The representations and warranties of the Company contained herein shall be true and correct on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date (it being understood and agreed by each Purchaser that, in the case of any representation and warranty of the Company contained herein which is not hereinabove qualified by application thereto of a materiality standard, such representation and warranty need be true and correct only in all material respects in order to satisfy as to such representation or warranty the condition precedent set forth in the foregoing provisions of this Section 5.1(a)).

(b) The Registration Rights Agreement shall have been executed and delivered by the Company.

(c) The Company shall not have been adversely affected in any material way prior to the Closing Date; and the Company shall have performed all obligations and conditions herein required to be performed or observed by the Company on or prior to the Closing Date.

(d) No proceeding challenging this Agreement or the transactions contemplated hereby, or seeking to prohibit, alter, prevent or materially delay the Closing, shall have been instituted before any court, arbitrator or governmental body, agency or official and shall be pending.

(e) The purchase of and payment for the Securities by the Purchasers shall not be prohibited by any law or governmental order or regulation. All necessary consents, approvals, licenses, permits, orders and authorizations of, or registrations, declarations and filings with, any governmental or administrative agency or of any other person with respect to any of the transactions contemplated hereby shall have been duly obtained or made and shall be in full force and effect.

(f) All instruments and corporate proceedings in connection with the transactions contemplated by this Agreement to be consummated at the Closing shall be satisfactory in form and substance to such Purchaser.

(g) The Company shall have obtained any and all consents, permits, approvals, registrations and waivers (including, without limitation, approval of the Proposal (as defined below) by its shareholders in accordance with applicable law and the applicable requirements of the NYSE Amex or AIM of the London Stock Exchange) necessary or appropriate for consummation of the purchase and sale of the Shares, Warrants and the consummation of the other transactions contemplated by the Operative Agreements, all of which shall be in full force and effect. Promptly following the execution and delivery of this Agreement, the Company shall take all action necessary to call a meeting of its shareholders (the “Shareholders Meeting”), which shall occur not later than December 30, 2011, as may be extended by the mutual Agreement of the Company and the Majority Purchasers (the “Stockholders Meeting Deadline”), for the purpose of seeking approval of the Company’s shareholders for the issuance and sale to the Purchasers of the Shares and Warrants not to exceed 15,000,000 Shares and a corresponding number of Warrant Shares (or such lesser number as the Company shall determine) (the “Proposal”). In connection therewith, the Company will promptly prepare and file with the SEC proxy materials (including a proxy statement and form of proxy) for use at the Shareholders Meeting and, after receiving and promptly responding to any comments of the SEC thereon, shall promptly mail such proxy materials to holders of record of the Company’s voting equity securities as of the record date for the Shareholders Meeting. Each Purchaser shall promptly furnish in writing to the Company such information relating to such Purchaser and its investment in the Company as the Company may reasonably request for inclusion in the Proxy Statement. The Company will comply in all material respects with Section 14(a) of the Exchange Act and the rules promulgated thereunder in relation to any proxy statement (as amended or supplemented, the “Proxy Statement”) and any form of proxy to be sent to the shareholders of the Company in connection with the Shareholders Meeting, and the Proxy Statement shall not, on the date that the Proxy Statement (or any amendment thereof or supplement thereto) is first mailed to shareholders or at the time of the Shareholders Meeting, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein not false or misleading, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies or the Shareholders Meeting which has become false or misleading. If the Company should discover at any time prior to the Shareholders Meeting, any event relating to the Company or any of its Affiliates that is required to be set forth in a supplement or amendment to the Proxy Statement, in addition to the Company’s obligations under the Exchange Act, the Company will promptly inform the Purchasers thereof. The failure to hold the Shareholder Meeting on, or before, December 30, 2011, as a result of any SEC review or comments to the Proxy Statement shall permit either the Company or the Majority Purchasers to terminate this Agreement upon written notice to the other party without any further liability or obligation to consummate the Closing.

(h) No stop order or suspension of trading shall have been imposed by NYSE Amex, the London Stock Exchange, the SEC or any other governmental or regulatory body with respect to public trading in the Company’s Common Stock.

5.2 Conditions to the Obligation of the Company to Consummate the Closing. The obligation of the Company to consummate the Closing and to issue and sell to each of the Purchasers the Securities to be purchased by it at the Closing is subject to the satisfaction of the following conditions precedent:

(a) The representations and warranties contained herein of such Purchaser shall be true and correct on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date (it being understood and agreed by the Company that, in the case of any representation and warranty of each Purchaser contained herein which is not hereinabove qualified by application thereto of a materiality standard, such representation and warranty need be true and correct only in all material respects in order to satisfy as to such representation or warranty the condition precedent set forth in the foregoing provisions of this Section 5.2(a)).

(b) The Registration Rights Agreement shall have been executed and delivered by each Purchaser.

(c) Each Purchaser shall have performed all obligations and conditions herein required to be performed or observed by such Purchaser on or prior to the Closing Date.

(d) No proceeding challenging this Agreement or the transactions contemplated hereby, or seeking to prohibit, alter, prevent or materially delay the Closing, shall have been instituted before any court, arbitrator or governmental body, agency or official and shall be pending.

(e) The sale of the Securities by the Company shall not be prohibited by any law or governmental order or regulation. All necessary consents, approvals, licenses, permits, orders and authorizations of, or registrations, declarations and filings with, any governmental or administrative agency or of any other person with respect to any of the transactions contemplated hereby shall have been duly obtained or made and shall be in full force and effect.

(f) The Company shall have obtained on, or before, December 30, 2011, any and all consents, permits, approvals, registrations and waivers (including, without limitation, approval of the Proposal by its shareholders in accordance with applicable law and the applicable requirements of the NYSE Amex or AIM of the London Stock Exchange) necessary or appropriate for consummation of the purchase and sale of the Shares, Warrants and the consummation of the other transactions contemplated by the Operative Agreements, all of which shall be in full force and effect..

(g) All instruments and corporate proceedings in connection with the transactions contemplated by this Agreement to be consummated at the Closing shall be satisfactory in form and substance to the Company, and the Company shall have received counterpart originals, or certified or other copies of all documents, including without limitation records of corporate or other proceedings, which it may have reasonably requested in connection therewith.

(h) No stop order or suspension of trading shall have been imposed by NYSE Amex, the London Stock Exchange, the SEC or any other governmental or regulatory body with respect to public trading in the Company’s Common Stock.

6. Transfer, Legends.

6.1 Securities Law Transfer Restrictions.

(a) [SECTION INTENTIONALLY LEFT BLANK.].

(b) Each Purchaser understands that the Securities have not been registered under the Securities Act or any state securities laws. In that connection, such Purchaser is aware of Rule 144 under the Securities Act and the restrictions imposed thereby. Such Purchaser will not engage in hedging or other similar transactions which would include, without limitation, effecting any short sale or having in effect any short position (whether or not such sale or position is against the box and regardless of when such position was entered into) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to the Securities or with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from the Common Stock of the Company.

(c) Each Purchaser acknowledges that no action has been or will be taken in any jurisdiction outside the United States by the Company that would permit an offering of the Securities, or possession or distribution of offering materials in connection

(d)

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with the issue of Securities, in any jurisdiction outside of the United States where action for that purpose is required. Each Purchaser outside the United States will comply with all applicable laws and regulations in each foreign jurisdiction in which it purchases, offers, sells or delivers Securities or has in its possession or distributes any offering material, in all cases at its own expense.

6.2 Legends. Each certificate requesting any of the Securities shall be endorsed with the legends substantially as set forth below, and each Purchaser covenants that, except to the extent such restrictions are waived by the Company, it shall not transfer the securities represented by any such certificate without complying with the restrictions on transfer described in this Agreement, the Operative Agreements and the legends endorsed on such certificate:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SAID ACT AND, IF REQUESTED BY THE COMPANY, UPON DELIVERY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THE PROPOSED TRANSFER IS EXEMPT FROM SAID ACT.”.

7. Termination; Liabilities Consequent Thereon. This Agreement may be terminated and the transactions contemplated hereunder abandoned at any time prior to the Closing only as follows:

(a) at any time by mutual agreement of the Company and the Majority Purchasers; or

(b) by the Majority Purchasers, if there has been any breach of any representation or warranty or any material breach of any covenant of the Company contained herein and the same has not been cured within 5 calendar days after written notice thereof (it being understood and agreed by each Purchaser that, in the case of any representation or warranty of the Company contained herein which is not hereinabove qualified by application thereto of a materiality standard, such representation or warranty will be deemed to have been breached for purposes of this Section 7.1(b) only if such representation or warranty was not true and correct in all material respects at the time such representation or warranty was made by the Company); or

(c) by the Company with respect to a certain Purchaser, if there has been any breach of any representation, warranty or any material breach of any covenant of such Purchaser contained herein and the same has not been cured within 5 calendar days after written notice thereof (it being understood and agreed by the Company that, in the case of any representation and warranty of such Purchaser contained herein which is not hereinabove qualified by application thereto of a materiality standard, such representation or warranty will be deemed to have been breached for purposes of this Section 7.1(c) only if such representation or warranty was not true and correct in all material respects at the time such representation or warranty was made by such Purchaser).

(d) By either the Company or the Majority Purchasers (as to all Purchasers) if the Closing has not occurred on, or prior to, December 30, 2011.

Any termination pursuant to this Section 7 shall be without liability on the part of any party, unless such termination is the result of a material breach of this Agreement by a party to this Agreement, in which case such breaching party shall remain liable for such breach notwithstanding any termination of this Agreement.

8. Miscellaneous Provisions.

8.1 Public Statements or Releases. None of the Purchasers to this Agreement shall make, issue, or release any announcement, whether to the public generally, or to any of its suppliers or customers or any other party, with respect to this Agreement, the Operative Agreements or the transactions provided for herein, or make any statement or acknowledgment of the existence of, or reveal the status of, this Agreement, the Operative Agreements or the transactions provided for herein, without the prior written consent of the Company, which consent shall not be unreasonably withheld or delayed, provided, that nothing in this Section 8.1 shall prevent any of the Purchasers hereto from making such public announcements as may be required by law or the applicable rules or regulations of any securities exchange or securities market, but to the extent not inconsistent with such obligations, it shall provide the Company with an opportunity to review and comment on any proposed public announcement before it is made.

8.2 Further Assurances. Each party agrees to cooperate fully with the other party and to execute such further instruments, documents and agreements and to give such further written assurances, as may be reasonably requested by the other party to better evidence and reflect the transactions described herein and contemplated hereby, and to carry into effect the intents and purposes of this Agreement and the Operative Agreements.

8.3 Rights Cumulative. Each and all of the various rights, powers and remedies of the parties shall be considered to be cumulative with and in addition to any other rights, powers and remedies which such parties may have at law or in equity in the event of the breach of any of the terms of this Agreement. The exercise or partial exercise of any right, power or remedy shall neither constitute the exclusive election thereof nor the waiver of any other right, power or remedy available to such party.

8.4 Pronouns. All pronouns or any variation thereof shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the person, persons, entity or entities may require.

8.5 Notices. Unless otherwise provided, any notice required or permitted under this Warrant shall be given in writing and shall be deemed effectively given as hereinafter

2

described (i) if given by personal delivery, then such notice shall be deemed given upon such delivery, (ii) if given by telex or telecopier, then such notice shall be deemed given upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed given upon the earlier of (A) receipt of such notice by the recipient or (B) three days after such notice is deposited in first class mail, postage prepaid, and (iv) if given by an internationally recognized overnight air courier, then such notice shall be deemed given one Business Day after delivery to such carrier. All notices shall be addressed to the party to be notified at the address as follows, or at such other address as such party may designate by ten days’ advance written notice to the other party:

If to the Company:

Enova Systems, Inc.

1560 West 190th Street

Torrance, California 90501

Attention: John Micek (or the current CFO)

Fax: (310) 755-6173

With a copy to:

ReedSmith LLP

101 Second Street, Suite 2000

San Francisco, California 94105

Attention: Donald C. Reinke, Esq.

Fax: (415) 391-8269

If to a Purchaser:

to the respective address for such Purchaser set forth on the signature pages hereto or such other address as the Purchaser in question shall notify the Company in writing pursuant to this Section 8.5.

8.6 Captions. The captions and paragraph headings of this Agreement are solely for the convenience of reference and shall not affect its interpretation.

8.7 Severability. Should any part or provision of this Agreement be held unenforceable or in conflict with the applicable laws or regulations of any jurisdiction, the invalid or unenforceable part or provisions shall be replaced with a provision which accomplishes, to the extent possible, the original business purpose of such part or provision in a valid and enforceable manner, and the remainder of this Agreement shall remain binding upon the parties hereto.

8.8 Governing Law; Injunctive Relief.

(a) This Agreement shall be governed by and construed in accordance with the internal and substantive laws of the State of California and without regard to any conflicts of laws concepts which would apply the substantive law of some other jurisdiction. Venue for all purposes hereunder shall be in the applicable state or federal court located within the State of California.

(b) Each of the parties hereto acknowledges and agrees that damages will not be an adequate remedy for any material breach or violation of this Agreement if such material breach or violation would cause immediate and irreparable harm (an “Irreparable Breach”). Accordingly, in the event of a threatened or ongoing Irreparable Breach, each party hereto shall be entitled to seek, equitable relief of a kind appropriate in light of the nature of the ongoing or threatened Irreparable Breach, which relief may include, without limitation, specific performance or injunctive relief; provided, however, that if the party bringing such action is unsuccessful in obtaining the relief sought, the moving party shall pay the non-moving party’s reasonable costs, including attorney’s fees, incurred in connection with defending such action. Such remedies shall not be the parties’ exclusive remedies, but shall be in addition to all other remedies provided in this Agreement.

8.9 Amendments. Any term of this Agreement hereunder may be amended, waived or terminated (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company, and the Majority Purchasers. Any such amendment, waiver or termination effected in accordance with this Section 8.9 shall be binding upon the Company, each Purchaser and each transferee of any of the Securities. Each Purchaser acknowledges that by the operation of this Section 8.9, the Majority Purchasers will have the right and power to diminish or eliminate certain rights of the Purchaser under this Agreement. The foregoing shall not limit or otherwise affect a Purchaser’s right to waive any of such Purchaser’s rights hereunder with respect to itself without obtaining the consent of any other Purchaser.

8.10 Exculpation. Each Purchaser acknowledges that it is not relying upon any person, entity or corporation, other than the Company and its officers and directors, in making its investment or decision to invest in the Company. The obligations of each Purchaser hereunder are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser hereunder. Nothing contained herein, and no action taken by any Purchaser pursuant hereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated hereunder. Each Purchaser shall be entitled to independently protect and enforce its rights hereunder, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose except to the extent of any amendment, waiver or termination in accordance with Section 8.9 above. Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of this Agreement. The Company has elected to provide all Purchasers with the same terms and forms of Operative Agreements for the convenience of the Company and not because it was required or requested to do so by the Purchasers. Each Purchaser agrees that no Purchaser nor the respective controlling persons, officers, directors, partners, agents, or employees of any Purchaser shall be liable to any other Purchaser for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the Securities or the Operative Agreements.

8.11 Waiver. No waiver of any term, provision or condition of this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or be construed as, a further or continuing waiver of any such term, provision or condition or as a waiver of any other term, provision or condition of this Agreement.

8.12 Expenses. Each party will bear its own costs and expenses in connection with this Agreement.

8.13 Assignment. The rights and obligations of the parties hereto shall inure to the benefit of and shall be binding upon the authorized successors and permitted assigns of each party. Neither party may assign its rights or obligations under this Agreement or designate another person (i) to perform all or part of its obligations under this Agreement or (ii) to have all or part of its rights and benefits under this Agreement, in each case without the prior written consent of the other party, provided, however, that a Purchaser may assign its rights hereunder with respect to any Securities transferred in accordance with Section        of the Registration Rights Agreement. In the event of any assignment in accordance with the terms of this Agreement, the assignee shall specifically assume and be bound by the provisions of this Agreement by executing and agreeing to an assumption agreement reasonably acceptable to the other party.

8.14 Survival. The respective representations and warranties given by the parties hereto, and the other covenants and agreements contained herein, shall survive the Closing Date and the consummation of the transactions contemplated herein for a period of one year, without regard to any investigation made by any party.

8.15 Counterpart. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

8.16 Entire Agreement. This Agreement, the Warrants and the Registration Rights Agreement constitute the entire agreement between the parties hereto respecting the subject matter hereof and supersede all prior agreements, negotiations, understandings, representations and statements respecting the subject matter hereof, whether written or oral. No modification, alteration, waiver or change in any of the terms of this Agreement shall be valid or binding upon the parties hereto unless made in accordance with Section 8.9 above.

[Signature Page to Follow]

IN WITNESS WHEREOF, the parties hereto have executed this Warrant and Common Stock Purchase Agreement effective as of the Effective Date.

ENOVA SYSTEMS, INC.

By: /S/MICHAEL STARAN
Name: Michael Staran
Title: President & CEO


THE PURCHASER’S SIGNATURE TO THIS AGREEMENT SHALL AS OF THE CLOSING ALSO CONSTITUTE THE PURCHASER’S
SIGNATURE TO THE REGISTRATION RIGHTS AGREEMENT AND THE PURCHASER’S WARRANT.

AGREED AND ACCEPTED:

PURCHASER:

[Signature]

[Print Name]

[Title (if not an individual)IN WITNESS WHEREOF, the parties hereto have executed this Warrant and Common Stock Purchase Agreement effective as of the Effective Date.

ENOVA SYSTEMS, INC.

By:
Name: Michael Staran
Title: President & CEO

THE PURCHASER’S SIGNATURE TO THIS AGREEMENT SHALL AS OF THE CLOSING ALSO CONSTITUTE THE PURCHASER’S SIGNATURE TO THE REGISTRATION RIGHTS AGREEMENT AND THE PURCHASER’S WARRANT.

AGREED AND ACCEPTED:

PURCHASER:

/S/ANTHONY LOW-BEER

[Signature]

Anthony Low-Beer

[Print Name]

[Title (if not an individual)IN WITNESS WHEREOF, the parties hereto have executed this Warrant and Common Stock Purchase Agreement effective as of the Effective Date.

ENOVA SYSTEMS, INC.

By:
Name: Michael Staran
Title: President & CEO

THE PURCHASER’S SIGNATURE TO THIS AGREEMENT SHALL AS OF THE CLOSING ALSO CONSTITUTE THE PURCHASER’S SIGNATURE TO THE REGISTRATION RIGHTS AGREEMENT AND THE PURCHASER’S WARRANT.

AGREED AND ACCEPTED:

PURCHASER:

/S/ALB PRIVATE INVESTMENTS LLC

By: FRANCIS A. MLYNARCZYK, JR.

[Signature]

ALB PRIVATE INVESTMENTS LLC

By: Francis A. Mlynarczyk, Jr.

[Print Name]

Manager

[Title (if not an individual)S.NEXT

3 EX-99.2 3 exhibit2.htm EX-99.2 EX-99.2

“THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS (A) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR LAWS COVERING SUCH SECURITIES, OR (B) THE HOLDER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE CORPORATION, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND ANY FURTHER QUALIFICATION REQUIREMENTS UNDER APPLICABLE STATE LAW.”

No. 2011 —        Date: December   , 2011

WARRANT TO PURCHASE COMMON STOCK
OF
ENOVA SYSTEMS, INC.

This certifies that, for value received,        (“Holder”) is entitled, subject to the terms and conditions set forth below, to purchase from ENOVA SYSTEMS, INC., a California corporation (the “Company”),        shares [TO BE DETERMINED PURSUANT TO SECTION 2.2 OF THE PURCHASE AGREEMENT] of the Company’s Common Stock (the “Warrant Shares”) at an exercise price of      [TO BE DETERMINED PURSUANT TO SECTION 2.2 OF THE PURCHASE AGREEMENT] per share (the “Exercise Price”). The number, character and Exercise Price of the Warrant Shares are subject to adjustment as provided below and all references to “Warrant Shares” and “Exercise Price” herein shall be deemed to include any such adjustment or series of adjustments. This Warrant is issued pursuant to Section 2 of that certain Warrant and Common Stock Purchase Agreement between the Company and certain “Purchasers” thereunder, dated for reference purposes as of December 15, 2011 (the “Purchase Agreement”), pursuant to which such Purchasers including the Holder, purchased this Warrant and Common Stock shares of the Company. The holder of this Warrant is also subject to certain restrictions, and entitled to certain rights, as set forth in the Registration Rights Agreement, dated for reference purposes as of December   , 2011 (the “Registration Rights Agreement”)

This Warrant is one of a duly authorized series of Warrants of the Company (which are identical except for the variations necessary to express the identification numbers, names of the holder, number of shares issuable upon exercise thereof and Warrant issue dates) issued in connection with the Purchase Agreement and designated for reference purposes as “Series 2011 Common Stock Warrants.” The term “Common Stock Warrant” as used herein shall also mean this Common Stock Warrant, and any Common Stock Warrants delivered in substitution or exchange therefor as provided herein.

This Common Stock Warrant is subject to the following terms and conditions:

1. Term of Common Stock Warrant; Securities Covered by Common Stock Warrant. Subject to the terms and conditions set forth herein, this Common Stock Warrant shall be exercisable, in whole or in part (or only in whole upon an Early Termination Event as set forth in Section 11) , on any business day during the period (the “Exercise Period”) commencing on the Closing Date (as defined in the Purchase Agreement) and ending on the first to occur of (a) the fifth anniversary date of the Closing Date; or (b) the last business day immediately prior to the day of closing of the Company’s sale of all or substantially all of its assets or the acquisition of the Company by another entity by means of merger, share exchange, tender offer or other transaction as a result of which the shareholders of the Company immediately prior to such acquisition possess less than 50% of the voting power of the acquiring entity immediately following such acquisition, and thereafter shall be void and of no further force or effect thereafter.

2. Exercise of Common Stock Warrant.

(a) Cash Exercise. This Common Stock Warrant may be exercised by the Holder during the Exercise Period by (i) the surrender of this Common Stock Warrant to the Company, with the Notice of Exercise annexed hereto duly completed and executed on behalf of the Holder, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company) and (ii) the delivery of payment to the Company, for the account of the Company, by cash, wire transfer of immediately available funds to a bank account specified by the Company, or by certified or bank cashier’s check, in an amount equal to the Exercise Price multiplied by the number of Warrant Shares for which this Common Stock Warrant is being exercised as specified in the Notice of Exercise, such payment to be made in lawful money of the United States of America. The Company agrees that such Warrant Shares shall be deemed to be issued to the Holder as the record holder of such Warrant Shares as of the close of business on the date on which this Common Stock Warrant shall have been exercised and surrendered and payment made for the Warrant Shares as aforesaid. A stock certificate or certificates for the Warrant Shares specified in the Notice of Exercise shall be delivered to the Holder as promptly as practicable, and in any event within five (5) business days, thereafter. If this Common Stock Warrant shall have been exercised only in part and has not otherwise expired, the Company shall, at the time of delivery of the stock certificate or certificates, deliver to the Holder a new Common Stock Warrant evidencing the right to purchase the remaining Warrant Shares, which new Common Stock Warrant shall in all other respects be identical with this Common Stock Warrant. No adjustments shall be made on Warrant Shares issuable on the exercise of this Common Stock Warrant for any dividends or distributions paid or payable to holders of record of any capital stock of the Company prior to the date as of which the Holder shall be deemed to be the record holder of such Warrant Shares.

(b) Net Issue Exercise. In the event the Company has exercised its Early Termination Right (as defined in Section 11 below) and the Holder has not exercised its rights to exercise this Warrant in full for cash pursuant to Section 2(a) above as provided in Section 11 below on, or prior to, the Early Termination Date (as defined in Section 11), then this Common Stock Warrant shall be automatically converted on the Early Termination Date as follows whereby the Company shall issue to the Holder a number of shares in full satisfaction of all rights under this Warrant computed using the following formula:

X = Y (A-B) A

      Where X = the number of shares to be issued to Holder under this Section 2(b) and Section 11 below;

      Y = the number of Warrant Shares otherwise purchasable under this Common Stock Warrant as of the Early Termination Date (as adjusted to the date of such calculation);

      A = the Fair Market Value (determined in the manner provided in Section 2(c) below) of one share of the Warrant Shares subject to this Common Stock Warrant as of the Early Termination Date;

      B = the Exercise Price (as adjusted to the date of such calculation).

(c) Fair Market Value. For purposes of the above calculation, “Fair Market Value” of one share of Warrant Shares shall be the average of the closing bid and asked prices of the Common Stock quoted in the Over-The-Counter market or the last reported sale price of the Common Stock or the closing price quoted on the NYSE Amex or any other U.S. exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of The Wall Street Journal (or such other reference reasonably relied upon by the Company if not so published), for the twenty (20) trading days prior to the date as of which the fair market value is being determined; provided, however, that if no Common Stock is then quoted or listed, the fair market value of one share of Warrant Shares shall be determined by the Board of Directors of the Company in good faith within ten (10) calendar days of (x) the date of the Company’s receipt of Notice of Exercise or (y) the Early Termination Date, as applicable, based upon an arm’s length transaction between a willing buyer and a willing seller and determined without reference to any discount for minority interest or restrictions on transfer and such determination shall be promptly provided to the Holder. Such determination by the Board of Directors shall be binding on the Holder.

(d) This Common Stock Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of such exercise or automatic conversion, as applicable, and the person entitled to receive the shares of Warrant Shares issuable upon such exercise or automatic conversion, as applicable, shall be treated for all purposes as the holder of record of such shares as of the close of business on such date. As promptly as practicable on or after such date and in any event within five (5) business days (or fifteen (15) calendar days if the Fair Market Value is determined by the Board of Directors) thereafter, the Company at its expense shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of shares issuable upon such exercise; provided, however, that until Holder has delivered the Warrant to the Company, the Company shall have no obligation to deliver share certificates to Holder and such applicable delivery requirement shall not have commenced.

3. No Fractional Shares or Scrip/Minimum Exercise. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Common Stock Warrant. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Exercise Price multiplied by such fraction (after aggregating all shares issuable upon exercise thereof). In no event shall this Warrant be exercised for less than 25% of the Warrant Shares or, if less, the Warrant Shares remaining to be exercised hereunder.

4. Replacement of Common Stock Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Common Stock Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement and security reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Common Stock Warrant, the Company at its expense shall execute and deliver, in lieu of this Common Stock Warrant, a new Common Stock Warrant of like tenor and amount.

5. Rights of a Stockholder. Subject to Section 10 of this Common Stock Warrant, the Holder shall not be entitled to vote or receive dividends or be deemed the holder of Warrant Shares for any purpose, and nothing contained herein shall be construed to confer upon the Holder, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Common Stock Warrant shall have been exercised as provided herein and then only as to the shares for which this Common Stock Warrant has been so exercised.

6. Transfer of Common Stock Warrant.

(a) Common Stock Warrant Register. The Company will maintain a register (the “Common Stock Warrant Register”) containing the names and addresses of the Holder or Holders. Any Holder of this Common Stock Warrant or any portion thereof may change such Holder’s address as shown on the Common Stock Warrant Register by written notice to the Company requesting such change. Any notice or written communication required or permitted to be given to the Holder may be delivered or given by mail to such Holder as shown on the Common Stock Warrant Register and at the address shown on the Common Stock Warrant Register. Until this Common Stock Warrant is transferred on the Common Stock Warrant Register of the Company, the Company may treat the Holder as shown on the Common Stock Warrant Register as the absolute owner of this Common Stock Warrant for all purposes, notwithstanding any notice to the contrary.

(b) Common Stock Warrant Agent. The Company may, by written notice to the Holder, appoint an agent for the purpose of maintaining the Common Stock Warrant Register referred to in Section 6(a) above, issuing the Common Stock Warrant Shares or other securities then issuable upon the exercise of this Common Stock Warrant, exchanging this Common Stock Warrant, replacing this Common Stock Warrant or any or all of the foregoing. Thereafter, any such registration, issuance, exchange or replacement, as the case may be, shall be made at the office of such agent.

(c) Transferability and Nonnegotiability of Common Stock Warrant. This Common Stock Warrant may not be transferred or assigned in whole or in part without compliance with all applicable federal and state securities laws by the transferor and the transferee (including the delivery of investment representation letters, legal opinions and market standoff agreements reasonably satisfactory to the Company, if such are requested by the Company) and compliance with the requirements set forth in Section 6(d) below. Subject to the provisions of this Common Stock Warrant, title to this Common Stock Warrant may be transferred by endorsement (by the Holder executing the Assignment Form annexed hereto) and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery. This Common Stock Warrant and Warrant Shares are subject to certain lock-up provisions and restrictions on short sales, put options and similar instruments set forth in the Purchase Agreement and Registration Rights Agreement.

(d) Exchange of Common Stock Warrant Upon a Transfer. On surrender of this Common Stock Warrant for exchange, properly endorsed on the Assignment Form and subject to the provisions of this Common Stock Warrant with respect to compliance with the Act and applicable state securities laws and with the limitations on assignments and transfers and contained in this Section 6, the Company at its expense shall issue to or on the order of the Holder a new Common Stock Warrant or Common Stock Warrants of like tenor, in the name of the Holder or as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, for the number of shares issuable upon exercise hereof.

(e) Compliance with Securities Laws.

(i) The Holder of this Common Stock Warrant, by acceptance hereof, acknowledges that this Common Stock Warrant and the Warrant Shares to be issued upon exercise hereof are being acquired solely for the Holder’s own account and not as a nominee for any other party, and for investment, and that the Holder will not offer, sell or otherwise dispose of this Common Stock Warrant or any Warrant Shares to be issued upon exercise hereof except under circumstances that will not result in a violation of the Act or any applicable state securities laws. Holder hereby represents and warrants that such Holder is an “accredited investor” as such term is defined under Regulation D promulgated by the Securities and Exchange Commission. Upon exercise of this Common Stock Warrant, the Holder shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that Holder remains an accredited investor and the Warrant Shares so purchased are being acquired solely for the Holder’s own account and not as a nominee for any other party, for investment, and not with a view toward distribution or resale. Any transferee of this Common Stock Warrant shall represent the same as condition to such transfer and any subsequent exercise thereof.

(ii) This Common Stock Warrant and all Warrant Shares issued upon exercise hereof shall be stamped or imprinted with a legend in substantially the following form (in addition to any legend required by state securities laws and the Purchase Agreement):

“THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS (A) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR LAWS COVERING SUCH SECURITIES, OR (B) THE HOLDER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THE SECURITIES REASONABLY SATISFACTORY TO THE CORPORATION, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND ANY FURTHER QUALIFICATION REQUIREMENTS UNDER APPLICABLE STATE LAW.”

7. Reservation of Stock. The Company covenants that during the Exercise Period, the Company will reserve from its authorized and unissued Warrant Shares a sufficient number of shares to provide for the issuance of Warrant Shares upon the exercise of this Common Stock Warrant. The Company further covenants that all shares issued upon the exercise of rights represented by this Common Stock Warrant and payment of the Exercise Price, in the amount and otherwise all as set forth herein, shall be free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously or otherwise specified herein).

8. Notices. Unless otherwise provided, any notice required or permitted under this Warrant shall be given in writing and shall be deemed effectively given as hereinafter described (i) if given by personal delivery, then such notice shall be deemed given upon such delivery, (ii) if given by telex or telecopier, then such notice shall be deemed given upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed given upon the earlier of (A) receipt of such notice by the recipient or (B) three days after such notice is deposited in first class mail, postage prepaid, and (iv) if given by an internationally recognized overnight air courier, then such notice shall be deemed given one Business Day after delivery to such carrier. All notices shall be addressed to the party to be notified at the address as follows, or at such other address as such party may designate by ten days’ advance written notice to the other party:

If to the Company:

Enova Systems, Inc.
1560 West 190th Street
Torrance, California 90501
Attention: John Micek (or the current CFO)
Fax: (310) 755-6173

With a copy to:

ReedSmith LLP
101 Second Street, Suite 2000
San Francisco, California 94105
Attention: Donald C. Reinke, Esq.
Fax: (415) 391-8269

If to a Purchaser:

to the respective address for such Purchaser set forth on the signature pages hereto as such address may be changed by such Purchaser upon written notice to the Company pursuant to the notice requirements of this Section 8.

9. Amendments. Any term of this Common Stock Warrant hereunder may be amended, waived or terminated (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company, and the holders of at least a majority in interest of the Warrant Shares then exercisable under all Series 2011 Common Stock Warrants. Any amendment, waiver or termination effected in accordance with this Section 9 shall be binding upon the Company, each of the Holders and each transferee of the Common Stock Warrants (and of any securities into which this Warrant is convertible). The Holder acknowledges that by the operation of this Section 9, the holders of a majority in interest of the Warrant Shares then exercisable under all Series 2011 Common Stock Warrants will have the right and power to diminish or eliminate certain rights of the Holder under this Warrant. The foregoing shall not limit or otherwise affect the Holder’s right to waive any of such Holder’s rights hereunder with respect to itself without obtaining the consent of any other holders of Series 2011 Common Stock Warrants.

10. Adjustments. The Exercise Price and the number of shares purchasable hereunder are subject to adjustment from time to time as follows:

(a) Reclassification, etc. If the Company, at any time while this Common Stock Warrant or any portion thereof is exercisable and remains outstanding and unexpired, by reclassification of securities or otherwise, shall change any of the securities as to which purchase rights under this Common Stock Warrant exist into the same or a different number of securities of any other class or classes, this Common Stock Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the purchase rights under this Common Stock Warrant immediately prior to such reclassification or other change and the Exercise Price therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 10.

(b) Split, Subdivision or Combination of Shares. If the Company, at any time while this Common Stock Warrant or any portion thereof is exercisable and remains outstanding and unexpired, shall split, subdivide or combine the outstanding shares of Warrant Shares into a different number of shares of Warrant Shares, then (i) in the case of a split or subdivision, the Exercise Price for such securities shall be proportionately decreased and the Warrant Shares issuable upon exercise of this Common Stock Warrant shall be proportionately increased, and (ii) in the case of a combination, the Exercise Price for such Warrant Shares shall be proportionately increased and the securities issuable upon exercise of this Common Stock Warrant shall be proportionately decreased. If the Warrant Shares are convertible into any other stock or securities of the Company, then if all of the outstanding Warrant Shares should be converted at any time prior to the Expiration Date into shares of the Company’s Common Stock or other stock or securities of the Company then (i) this Common Stock Warrant immediately shall become exercisable for that number of shares of such stock or securities (subject to further adjustment as herein provided) which would have been received if this Common Stock Warrant had been exercised in full and the Warrant Shares received thereupon had been simultaneously converted immediately prior to such event, (ii) the Exercise Price hereunder shall be appropriately adjusted and (iii) all references herein to Warrant Shares shall be automatically deemed amended to be references to the stock or securities into which the Warrant Shares was converted.

(c) Adjustments for Dividends in Stock or Other Securities or Property. If, while this Common Stock Warrant or any portion hereof is exercisable and remains outstanding and unexpired, the holders of Warrant Shares (or any shares of stock or securities at the time receivable upon exercise of this Common Stock Warrant) shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, capital stock or any other securities that are at any time directly or indirectly convertible into or exchangeable for capital stock of the Company, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend, then and in each case, this Common Stock Warrant shall represent the right to acquire, in addition to the number of shares of the security receivable upon exercise of this Common Stock Warrant, and without payment of any additional consideration therefor, the amount of such capital stock and other securities that the Holder would hold on the date of such exercise had it been the holder of record of such capital stock as of the date on which the holders of capital stock received or became entitled to receive such capital stock or other securities.

(d) No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 10 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder against impairment.

11. Early Exercise/Termination. If (a) for a twenty (20) consecutive trading day period from and after the date hereof but prior to the expiration of this Warrant, the average of the closing bid and asked prices of the Common Stock quoted in the Over-The-Counter market or the last reported sale price of the Common Stock or the closing price quoted on the NYSE Amex or any other U.S. exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of The Wall Street Journal (or such other reference reasonably relied upon by the Company if not so published) is greater than or equal to two times the Exercise Price and (b) for each of those twenty (20) consecutive trading days at least an average of Ten Thousand (10,000) shares of the Common Stock are traded per day (appropriately adjusted for stock splits, combinations, reclassifications and the like) during such period (the “Early Termination Event”), then on the 10th calendar day following written notice from the Company notifying Holder of the Early Termination Event, if Holder has not elected to exercise this Warrant in full for all then unexercised Warrant Shares for cash pursuant to Section 2(a) above on or prior to such 10th calendar day, this Warrant shall be deemed automatically exercised on such 10th calendar day (the “Early Termination Date”) pursuant to the cashless/net exercise provisions under Section 2(b) above (the “Early Termination Right”); provided, however, that until Holder has complied with the Warrant delivery and any other obligations under Section 2(d), the Company shall have no obligation to deliver share certificates.

12. Miscellaneous.

(a) This Common Stock Warrant and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California without regard to the conflict of law provisions thereof. Any dispute arising in relation to this Common Stock Warrant shall be resolved and venue shall be established in the competent courts within the State of California.

(b) In the event of a dispute with regard to the interpretation of this Common Stock Warrant, the prevailing party may collect the cost of attorney’s fees, litigation expenses or such other expenses as may be incurred in the enforcement of the prevailing party’s rights hereunder.

(c) This Common Stock Warrant shall be exercisable as provided for herein, except that in the event that the expiration date of this Common Stock Warrant shall fall on a day other than a business day, the expiration date for this Common Stock Warrant shall be extended to 5:00 p.m. Eastern standard time or Eastern Daylight Savings time, as applicable, on the first business day following such day. For all purposes of this Common Stock Warrant, a business day shall mean any day, other than a Saturday or a Sunday, upon which banks are open for business in California.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

1

IN WITNESS WHEREOF, ENOVA SYSTEMS, INC. has caused this Common Stock Warrant to be executed as of the date first above written.

Number of Warrant Shares:       

COMPANY:

ENOVA SYSTEMS, INC.

a California corporation

 
By:     
Mike Staran
President and Chief Executive Officer
AGREED AND ACCEPTED:
HOLDER:

[Signature]

[Print Name]

[Title (if not an individual)]

2

NOTICE OF EXERCISE

To: ENOVA SYSTEMS, INC.

(1) The undersigned hereby:

elects to purchase        shares of Warrant Shares (as defined in the attached Common Stock Warrant) of ENOVA SYSTEMS, INC. pursuant to the terms of the attached Common Stock Warrant, and tenders herewith payment of the purchase price for such shares in full; or

elects to exercise the conversion right features under Section 2(b) of the attached Common Stock Warrant with respect to        shares of Warrant Shares of ENOVA SYSTEMS, INC. pursuant to the terms of such Common Stock Warrant.

(2) In exercising this Common Stock Warrant, the undersigned hereby confirms and acknowledges the undersigned’s warranties and representations under the Purchase Agreement (or if a transferee of the of this Common Stock Warrant, confirms and acknowledges the same) and that the shares of Warrant Shares (and any securities issuable upon conversion thereof) are being acquired solely for the account of the undersigned and not as a nominee for any other party, or for investment, and that the undersigned will not offer, sell or otherwise dispose of any such shares of Warrant Shares except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any applicable state securities laws.

(3) Please issue a certificate or certificates representing said shares of Warrant Shares in the name of the undersigned:

    (Name)

    (Name)

ASSIGNMENT FORM

FOR VALUE RECEIVED, the undersigned registered owner of this Common Stock Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under this Common Stock Warrant, with respect to the number of shares of Warrant Shares (as defined in the this Common Stock Warrant) set forth below:

                 
Name of Assignee   Address   No. of Shares

and does hereby irrevocably constitute and appoint the Secretary of the Company to make such transfer on the books of ENOVA SYSTEMS, INC. maintained for such purpose, with full power of substitution in the premises.

The undersigned also represents that, by assignment hereof, the Assignee acknowledges that this Common Stock Warrant and the shares of stock to be issued upon exercise hereof or conversion thereof are being acquired for investment and that the Assignee will not offer, sell or otherwise dispose of this Common Stock Warrant or any shares of stock to be issued upon exercise hereof or conversion thereof except under circumstances which will not result in a violation of the Securities Act of 1933, as amended, or any applicable state securities laws. Further, the Assignee has acknowledged that upon exercise of this Common Stock Warrant, the Assignee shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, the representations and warranties under the Purchase Agreement made by the original Holder hereof and that the shares of stock so purchased are being acquired for investment and not with a view toward distribution or resale.

Dated:

Signature of Holder

The undersigned hereby agrees to be bound by the terms of the attached Common Stock Warrant on this        day of       , 201      .

ASSIGNEE:

[Name]

By:
Title:

3 EX-99.3 4 exhibit3.htm EX-99.3 EX-99.3

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (the “Agreement”) is made and entered into as of December      , 2011 by and among Enova Systems, Inc., a California corporation (the “Company”), and the Purchasers set forth on the signature pages affixed hereto (each a “Purchaser” and collectively the “Purchasers”). This Agreement is being executed and delivered in connection with the transactions contemplated by that certain Warrant and Common Stock Purchase Agreement among the Company and the Purchasers (the “Purchase Agreement”). Capitalized terms used herein have the respective meanings ascribed thereto in the Purchase Agreement unless otherwise defined herein.

The parties hereby agree as follows:

1. Certain Definitions.

As used in this Agreement, the following terms shall have the following meanings:

“Purchasers” means each Purchaser or each Purchaser’s permitted transferee pursuant to Section 7(c) who becomes a subsequent holder of all of Purchaser’s Registrable Securities.

“Common Stock” means the Company’s common stock, no par value (together with any securities into which such shares may be reclassified, whether by merger, charter amendment or otherwise.

“Prospectus” means (i) the prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus, and (ii) any “free writing prospectus” as defined in Rule 405 under the 1933 Act.

“Register,” “registered” and “registration” refer to a registration made by preparing and filing a Registration Statement or similar document in compliance with the 1933 Act (as defined below), and the declaration or ordering of effectiveness of such Registration Statement or document.

“Registrable Securities” means (i) the Shares and Warrant Shares and (ii) any other securities issued or issuable with respect to or in exchange for Registrable Securities, whether by merger, charter amendment or otherwise, other than any Cut Back Shares (as defined in Section 2(d) below) ; provided, that, a security shall cease to be a Registrable Security with respect to any Purchaser upon (A) a sale pursuant to a Registration Statement or Rule 144 under the 1933 Act, or (B) such security becoming eligible for sale without restriction by such Purchaser pursuant to Rule 144, or (C) following the one year anniversary date of the Closing Date (the “Anniversary Date”), at such time that an Early Termination Event under Section 11 of the Warrant has occurred, whether prior to, on, or after such Anniversary Date, or (D) upon consummation of a Reorganization (as defined in Section 7(d) below .

“Registration Statement” means any registration statement of the Company filed under the 1933 Act that covers the resale of any of the Registrable Securities pursuant to the provisions of this Agreement, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference in such Registration Statement.

“SEC” means the U.S. Securities and Exchange Commission.

“1933 Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“1934 Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

2. Registration.

(a) Registration Statement. Subject to subsection 2(d) below regarding “Cut Back Shares” (as defined below), no later than thirty (30) days after the Closing Date, the Company shall use its commercially reasonable efforts to prepare and file with the SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then available to the Company, on such form of registration statement as is then available to effect a registration for resale of the Registrable Securities), covering the resale of all of the Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415 so long as Rule 415 is available for offers and sales of the Registrable Securities (the “Registration”). Subject to any SEC comments and subject to any change in applicable law, rule, regulation or legal or regulatory interpretation occurring prior to the time of filing, such Registration Statement shall include the plan of distribution attached hereto as Exhibit A.

(b) Expenses. The Company will pay all expenses associated with the Registration, including filing and printing fees, the Company’s counsel and accounting fees and expenses, costs associated with clearing the Registrable Securities for sale under applicable state securities laws and listing fees, but excluding discounts, commissions, fees of underwriters, selling brokers, dealer managers or similar securities industry professionals with respect to the Registrable Securities being sold.

(c) Effectiveness.

(i) The Company shall use commercially reasonable efforts to cause the Registration Statement to be declared effective as soon as practicable. The Company shall notify the Purchasers as promptly as practicable (which may be accomplished by email) after any Registration Statement is declared effective and shall simultaneously provide the Purchasers with copies of any related Prospectus to be used in connection with the sale or other disposition of the securities covered thereby.

(ii) For not more than sixty (60) consecutive days or for a total of not more than ninety (90) days in any twelve (12) month period, the Company may suspend the use of any Prospectus included in any Registration Statement contemplated by this Section in the event that the Company determines in good faith that such suspension is necessary to (A) delay the disclosure of material non-public information concerning the Company, the disclosure of which at the time is not, in the good faith opinion of the Company, in the best interests of the Company or (B) amend or supplement the affected Registration Statement or the related Prospectus so that such Registration Statement or Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the case of the Prospectus in light of the circumstances under which they were made, not misleading (an “Allowed Delay”).

(d) Rule 415; Cutback Notwithstanding anything else to the contrary set forth in this Agreement or the Purchase Agreement, if at any time the SEC takes the position or the Company reasonably believes on the advice of counsel that the offering of some or all of the Registrable Securities in a Registration Statement is not eligible to be made on a delayed or continuous basis under the provisions of Rule 415 under the 1933 Act or requires any Purchaser to be named as an “underwriter”, the Company shall (i) remove from the Registration Statement such portion of the Registrable Securities (the “Cut Back Shares”) and/or (ii) agree to such restrictions and limitations on the registration and resale of the Registrable Securities as the SEC may require to assure the Company’s compliance with the requirements of Rule 415 (collectively, the “SEC Restrictions”). Any cut-back imposed on the Purchasers pursuant to this Section 2(d) shall be allocated among the Purchasers on a pro rata basis, unless the SEC Restrictions otherwise require a different allocation (and with respect to any Purchaser the removal of such additional Registrable Securities as may be required to avoid “underwriter” status of such Purchaser in the Company’s opinion upon the advice of counsel unless such Purchaser consents to being named an “underwriter” in the Registration), or the Company and the Majority Purchasers mutually otherwise agree.

3. Company Obligations. Subject to the provisions of Sections 2(c)(ii) and 2(d) above, the Company will use commercially reasonable efforts during the Effectiveness Period (as defined below) to effect the registration of the Registrable Securities in accordance with the terms hereof, and pursuant thereto the Company will, as expeditiously as commercially reasonable during the Effectiveness Period:

(a) use commercially reasonable efforts to cause such Registration Statement to become effective and to remain continuously effective for a period that will terminate upon the earlier of (i) the date on which all Registrable Securities covered by such Registration Statement as amended from time to time, have been sold, (ii) the date on which all Registrable Securities covered by such Registration Statement may be sold without restriction pursuant to Rule 144 (or any successor or additional rule), (iii) following the one year anniversary date of the Closing Date (the “Anniversary Date”), at such time that an Early Termination Event under Section 11 of the Warrant has occurred, whether prior to, on, or after such Anniversary Date and (iv) consummation of a Reorganization (collectively, the “Effectiveness Period”) and advise the Purchasers in writing when the Effectiveness Period has expired;

(b) prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement and the Prospectus as may be necessary to keep the Registration Statement effective for the Effectiveness Period and to comply with the provisions of the 1933 Act and the 1934 Act with respect to the distribution of all of the Registrable Securities covered thereby;

(c) use commercially reasonable efforts to register or qualify in connection with the Registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions requested by the Majority Purchasers and do any and all other commercially reasonable acts or things necessary or advisable to enable the distribution in such jurisdictions of the Registrable Securities covered by the Registration Statement; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (i) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(c), (ii) subject itself to general taxation in any jurisdiction where it would not otherwise be so subject but for this Section 3(c), or (iii) file a general consent to service of process in any such jurisdiction;

(d) use commercially reasonable efforts to cause all Registrable Securities covered by a Registration Statement to be listed on each U.S. securities exchange, interdealer quotation system or other market in the U.S. on which similar securities issued by the Company are then listed;

(e) use commercially reasonable efforts to comply with all applicable rules and regulations of the SEC under the 1933 Act and the 1934 Act, including, without limitation, Rule 172 under the 1933 Act, file any final Prospectus, including any supplement or amendment thereof, with the SEC pursuant to Rule 424 under the 1933 Act, promptly inform the Purchasers in writing if, at any time during the Effectiveness Period, the Company does not satisfy the conditions specified in Rule 172 and, as a result thereof, the Purchasers are required to deliver a Prospectus in connection with any disposition of Registrable Securities and take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities hereunder; and

(f) unless waived in writing by the Majority Purchasers, with a view to making available to the Purchasers the benefits of Rule 144 (or its successor rule), the Company covenants and agrees that until the earlier to occur of (x) the Shares and Warrant Shares are no longer Registrable Securities or (y) until the Effectiveness Period has terminated to: (i) make and keep public information available, as those terms are understood and defined in Rule 144 while the Company is subject to the reporting requirements of the 1934 Act or 1933 Act, until the earlier of (A) six months after such date as all of the Registrable Securities may be sold without restriction by the holders thereof pursuant to Rule 144 or any other rule of similar effect or (B) such date as all of the Registrable Securities shall have been resold; and (ii) file with the SEC in a timely manner all reports and other documents required of the Company under the 1934 Act so long as the Company is required under SEC rules and regulations to file reports under the 1934 Act..

4. Obligations of the Purchasers.

(a) Each Purchaser shall furnish in writing to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it, as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. At least five (5) Business Days prior to the first anticipated filing date of any Registration Statement, the Company shall notify each Purchaser of the information the Company requires from such Purchaser if such Purchaser elects to have any of the Registrable Securities included in the Registration Statement. An Purchaser shall provide such information to the Company at least two (2) Business Days prior to the first anticipated filing date of such Registration Statement if such Purchaser elects to have any of the Registrable Securities included in the Registration Statement.

(b) Each Purchaser, by its acceptance of the Registrable Securities agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of a Registration Statement hereunder, unless such Purchaser has notified the Company in writing of its election to exclude all of its Registrable Securities from such Registration Statement.

(c) Each Purchaser agrees that, upon receipt of any notice from the Company of either (i) the commencement of an Allowed Delay pursuant to Section 2(c)(ii) or (ii) the happening of an event pursuant to Section 3(e) hereof, such Purchaser will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities, until the Purchaser is advised by the Company that such dispositions may again be made.

5. Indemnification.

(a) Indemnification by the Company. The Company will indemnify and hold harmless each Purchaser and its Affiliates and their respective officers, directors, trustees, managers, members, employees and agents, successors and assigns, and each other person, if any, who controls such Purchaser within the meaning of the 1933 Act, and the officers, directors, partners, members, managers, shareholders, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, against any and all losses, claims, damages, costs, or liabilities, joint or several (including, without limitation, reasonable costs of preparation and investigation and reasonable, documented attorney’s fees), to which they may become subject under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement or omission or alleged omission of any material fact contained in any Registration Statement, any preliminary Prospectus or final Prospectus, or any amendment or supplement thereof; (ii) any blue sky application or other document executed by the Company specifically for that purpose or based upon written information furnished by the Company filed in any state or other jurisdiction in order to qualify any or all of the Registrable Securities under the securities laws thereof (any such application, document or information herein called a “Blue Sky Application”); (iii) the omission or alleged omission to state in a Blue Sky Application a material fact required to be stated therein or necessary to make the statements therein not misleading; (iv) any violation by the Company or its agents of any rule or regulation promulgated under the 1933 Act applicable to the Company or its agents and relating to action or inaction required of the Company in connection with such registration; or (v) any failure to register or qualify the Registrable Securities included in any such Registration Statement in any state where the Company or its agents has affirmatively undertaken or agreed in writing that the Company will undertake such registration or qualification on an Purchaser’s behalf and will reimburse such Purchaser, and each such officer, director or member and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by such Purchaser or any such controlling person in writing specifically for use in such Registration Statement or Prospectus.

(b) Indemnification by the Purchasers. Each Purchaser agrees, severally but not jointly, to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its directors, officers, employees, shareholders and each person who controls the Company (within the meaning of the 1933 Act) against any losses, claims, damages, liabilities and expense (including reasonable attorney fees) resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in the Registration Statement or Prospectus or preliminary Prospectus or amendment or supplement thereto or necessary to make the statements therein not misleading, to the extent, but only to the extent that such untrue statement or omission is contained in any information regarding such Purchaser furnished in writing by such Purchaser to the Company specifically for inclusion in such Registration Statement or Prospectus or amendment or supplement thereto. In no event shall the liability of an Purchaser be greater in amount than the dollar amount of the proceeds (net of all expense paid by such Purchaser in connection with any claim relating to this Section 6 and the amount of any damages such Purchaser has otherwise been required to pay by reason of such untrue statement or omission) received by such Purchaser upon the sale of the Registrable Securities included in the Registration Statement giving rise to such indemnification obligation.

(c) Conduct of Indemnification Proceedings. Any person entitled to indemnification hereunder shall (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided that any person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such person unless (a) the indemnifying party has agreed to pay such fees or expenses, or (b) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such person or (c) in the reasonable judgment of any such person, based upon written advice of its counsel, a conflict of interest exists between such person and the indemnifying party with respect to such claims (in which case, if the person notifies the indemnifying party in writing that such person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such person); and provided, further, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations hereunder, except to the extent that such failure to give notice shall materially adversely affect the indemnifying party in the defense of any such claim or litigation. It is understood that the indemnifying party shall not, in connection with any proceeding in the same jurisdiction, be liable for fees or expenses of more than one separate firm of attorneys at any time for all such indemnified parties. No indemnifying party will, except with the consent of the indemnified party (which shall not be unreasonably withheld or delayed), consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation.

(d) Contribution. If for any reason the indemnification provided for in the preceding paragraphs (a) and (b) is unavailable to an indemnified party or insufficient to hold it harmless, other than as expressly specified therein, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations. No person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the 1933 Act shall be entitled to contribution from any person not guilty of such fraudulent misrepresentation. In no event shall the contribution obligation of a holder of Registrable Securities be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such holder in connection with any claim relating to this Section 6 and the amount of any damages such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission) received by it upon the sale of the Registrable Securities giving rise to such contribution obligation.

7. Miscellaneous.

(a) Amendments and Waivers. Any term of this Agreement hereunder may be amended, waived or terminated (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company, and the Majority Purchasers. Any such amendment, waiver or termination effected in accordance with this Section 7(a) shall be binding upon the Company, each Purchaser and each transferee of any of the Securities. Each Purchaser acknowledges that by the operation of this Section 7(a), the Majority Purchasers will have the right and power to diminish or eliminate certain rights of the Purchaser under this Agreement. The foregoing shall not limit or otherwise affect a Purchaser’s right to waive any of such Purchaser’s rights hereunder with respect to itself without obtaining the consent of any other Purchaser.

(b) Notices. All notices and other communications provided for or permitted hereunder shall be made as set forth in Section 8.5 of the Purchase Agreement.

(c) Assignment and Transfer by Purchasers. The provisions of this Agreement shall be binding upon and inure to the benefit of each Purchaser and their respective successor and assign in accordance with this Section 7(c). A Purchaser may transfer or assign, in whole but not in part, to one Person, its rights hereunder in connection with the transfer of all of Purchaser’s Registrable Securities by such Purchaser to such Person, provided that such Purchaser complies with all laws applicable thereto and provides written notice of assignment to the Company promptly after such assignment is effected and further provided that such assignee Person becomes a party to this Agreement in writing as reasonably requested in form and substance by the Company at the time of such assignment or transfer.

(d) Assignments and Transfers by the Company. Except in connection with a Reorganization (as defined below), this Agreement may not be assigned by the Company (whether by operation of law or otherwise) without the prior written consent of the Majority Purchasers existing at the time of such assignment. This Agreement to the extent surviving after a Reorganization may be assigned by the Company in connection with a reorganization of the Company whereby the Company is a party to a merger, consolidation, share exchange or similar business combination transaction in which the Company’s equity securities are converted into or exchanged for the equity securities or cash or debt, or any combination thereof, of another Person or the Company sells substantially all of its assets to another Person for cash, debt or equity, or any combination thereof (each, a “Reorganization”).

(e) Benefits of the Agreement. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns pursuant to Section 7(d) any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

(f) Counterparts; Faxes. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may also be executed via facsimile, which shall be deemed an original.

(g) Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

(h) Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof but shall be interpreted as if it were written so as to be enforceable to the maximum extent permitted by applicable law, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties hereby waive any provision of law which renders any provisions hereof prohibited or unenforceable in any respect.

(i) Further Assurances. The parties shall execute and deliver all such further instruments and documents and take all such other actions as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein contained.

(j) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.

(k) Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California without regard to the choice of law principles thereof. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the courts of the State of California for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the transactions contemplated hereby. Each of the parties hereto irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. Each party hereto irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

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IN WITNESS WHEREOF, the parties have executed this Agreement or caused their duly authorized officers to execute this Agreement as of the date first above written.

     
The Company:  
ENOVA SYSTEMS, INC.
   
By:            
Name: John Micek III
Title: Chief Financial Officer
   
AGREED AND ACCEPTED:
   
PURCHASER:

[Signature]

[Print Name]

[Title (if not an individual)]

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Exhibit A

Plan of Distribution
THE FOLLOWING IS QUALIFIED IN ITS ENTIRETY BY THE TERMS AND CONDITIONS SET FORTH IN THE
REGISTRATION RIGHTS AGREEMENT TO WHICH THIS PLAN OF DISTRIBUTION IS ATTACHED. TO THE EXTENT THERE
IS ANY CONFLICT BETWEEN THIS PLAN OF DISTRIBUTION AND THE REGISTRATION RIGHTS AGREEMENT, THE
REGISTRATION RIGHTS AGREEMENT (EXCLUDING FOR THESE PURPOSES REFERENCE TO THE PLAN OF DISTRIBUTION
IN SECTION 2(a) OF THE REGISTRATION RIGHTS AGREEMENT) SHALL CONTROL.

The selling shareholders may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.

The selling shareholders may use any one or more of the following methods when disposing of shares or interests therein:

• ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

• block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;

• purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

• an exchange distribution in accordance with the rules of the applicable exchange;

• privately negotiated transactions;

• short sales effected after the date the registration statement of which this Prospectus is a part is declared effective by the SEC;

• through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

• broker-dealers may agree with the selling shareholders to sell a specified number of such shares at a stipulated price per share; and

• a combination of any such methods of sale.

The aggregate proceeds to the selling shareholders from the sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions, if any. Each of the selling shareholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly or through agents. We will not receive any of the proceeds from this offering.

The selling shareholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act of 1933, provided that they meet the criteria and conform to the requirements of that rule.

The selling shareholders and any underwriters, broker-dealers or agents that participate in the sale of the common stock or interests therein may be “underwriters” within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities Act. Selling shareholders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act.

To the extent required, the shares of our common stock to be sold, the names of the selling shareholders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.

In order to comply with the securities laws of some states, if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the common stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.

We have advised the selling shareholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling shareholders and their affiliates. In addition, to the extent applicable we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling shareholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling shareholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.

We have agreed to indemnify the selling shareholders against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the shares offered by this prospectus.

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