Document:

f8k0210ex10iii_envision.htm

    Exhibit 10.3

     

    ASSET
PURCHASE AGREEMENT

    

    

    This
ASSET PURCHASE AGREEMENT ("Agreement") is made effective the ________day
of
January 2008 ("Effective Date"), between Envision Solar International, Inc., a
California corporation ("Buyer"), and Generating Assets, LLC, a Delaware limited
liability company ("Seller"). Karen Morgan, an individual ("Morgan"), is a party
hereto for the limited purposes of Sections 11.2 and 13.

     

    RECITALS

     

    A.           Seller
operates a business engaged in providing solar financing and development
(the
"Business").

     

    B.           Seller
wishes to sell to Buyer and Buyer wishes to purchase from Seller, on the
terms and
conditions of this Agreement, substantially all of the assets of Seller and the
Business.

     

    C.           All
terms used in this Agreement with initial upper-case letters which are not
defined
within the text of the Agreement itself are defined in Section
14.1.

     

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

     

    AGREEMENT

     

    1. Purchase
and Sale. Subject
to the terms and conditions set forth in this Agreement, Seller hereby sells,
conveys, transfers, assigns and delivers to Buyer, and Buyer purchases from
Seller, all of Seller's right, title, benefits and interest in all rights and
assets used in the operation of the Business including, without limitation, the
rights and assets described in Exhibit A
(collectively, the "Assets"), free and clear of all Liens.

     

    2. Non-assumption
of Liabilities.
Except as provided in Section 2.1, Buyer shall not (i) assume and/or take
the Assets subject to any existing liabilities, accounts payable or other
contracts or obligations; or (ii) be liable in any manner or way for any of the
liabilities, accounts payable, contracts, obligations, claims or demands of or
against Seller arising from Seller's ownership of the Assets or operation of the
Business. Seller shall indemnify, defend and hold Buyer harmless from and
against any of the foregoing.

     

    2.1     Assumed
Liabilities.
Notwithstanding Section 2, Buyer shall assume and be responsible for the
satisfaction of the following obligations and liabilities of
Seller:

    

    2.1.1   All obligations of
Seller under the Assigned Contracts.

     

    2.1.2   All obligations
pursuant to an Engagement Letter with Squire, Sanders
& Dempsey, L.L.P. ("SSD") dated December 4, 2007 attached as Exhibit C (the
"SSD Agreement").

     

    
      
        
        

      

      
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    2.1.3   The payment
obligations referenced in a letter from Morgan to MacKenzie Communications, Inc.
("MacKenzie") dated December 17, 2007, attached as Exhibit D (the
"MacKenzie Agreement").

     

    3.Consideration. The consideration payable
for the Assets ("Purchase

     

    Consideration")
is comprised of the following, which shall be provided at the Closing to
certain

     

    third
parties as specified below:

     

    3.1   The assumption and
performance of the obligations specified in the SSD Agreement.

     

    3.2   The
assumption and performance of the obligations specified in the MacKenzie
Agreement.

     

    3.3   10,000
shares of common stock of Envision ("Envision Shares") issued to the persons
specified in Exhibit
B, subject to their execution of the Investor Acknowledgement
("Acknowledgement") substantially in the form attached as Exhibit E, to be more
specifically allocated as specified in Exhibit
B.

     

    3.4   139,160
Envision Options at an exercise price of $10 per share with a 10-year term, and
29,820, Envision Options at an exercise price of $20 per share with a 2-year
term, issued to the persons specified in Exhibit B, pursuant
to the terms of an Option Agreement substantially in the form attached as Exhibit F, to be more
specifically allocated as specified in Exhibit
B.

     

    3.5           Immediately
available funds of $9,000 to Morgan.

     

    3.6           The
performance of the obligations specified in the Option Agreement attached
as Exhibit G
("Malone Option Agreement").

     

    4.Representations
and Warranties of Seller. As an inducement to Buyer to
enter into this
Agreement, and intending that Buyer shall rely on such representations and
warranties in
connection with the transactions set forth herein, Seller represents and
warrants to Buyer that the
following matters in this Article 4 are true and
accurate.

     

    4.1   Power and
Authority. Seller
has full power and authority and contractual right and authority to enter into
this Agreement and to sell, convey, assign and transfer the Assets, and has
taken all corporate action necessary to authorize the execution and delivery of
this Agreement, the sale of the Assets in accordance with its terms and the
performance of the obligations of Seller hereunder, except as otherwise provided
for herein. This Agreement has been duly executed by an authorized
representative of Seller, and constitutes the legal, valid and binding
obligation of Seller in accordance with its terms, subject to applicable
bankruptcy, insolvency and other laws affecting the rights of creditors
generally.

     

    4.2   Organization. Seller is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Delaware, and has all necessary powers to carry on the
Business as it is now being conducted.

     

    
      
        
        

      

      
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    4.3   Title to
Assets. Seller
has good and assignable title to and interest in the Assets, and the Assets are
not encumbered by any Lien, whether accrued, absolute, contingent, or otherwise,
and whether due or to become due, which Buyer shall or will succeed to by reason
of its purchase of the Assets. Seller shall transfer and assign all of the
Assets to Buyer, free and clear of all Liens. Seller has not interfered with,
infringed upon, misappropriated or otherwise come into conflict with any rights
of third parties in and to any Asset, and has never received any charge,
complaint, claim or notice alleging any such interference, infringement,
misappropriation or violation.

     

    4.4   Intellectual
Property.

     

    4.4.1   Ownership. Seller owns or has the right
to use pursuant to license, sublicense, agreement, or permission all
Intellectual Property necessary for the operation of the Business as currently
conducted and as proposed to be conducted. Each item of Intellectual Property
owned or used by Seller in the Business immediately prior to the Closing will be
owned or available for use by the Buyer on identical terms and conditions
subsequent to the Closing. Seller has taken all necessary action to maintain and
protect each item of Intellectual Property that Seller owns or
uses.

     

    4.4.2   No
Infringement.
Seller has not interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of third
parties, and there has never been any charge, complaint, claim, demand, or
notice alleging any such interference, infringement, misappropriation, or
violation (including any claim that Seller must license or refrain from using
any Intellectual Property rights of any third party). To the Knowledge of
Seller, Buyer will not interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of third
parties as a result of the continued operation of the Businesses as presently
conducted or proposed to be conducted. To the Knowledge of Seller, no third
party has interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of Seller.

     

    4.5   Compliance
with Laws. The
Business had complied with, and is not in violation of, any applicable federal,
state or local statutes, laws or regulations.

     

    4.6   No
Illegal Payments.
Neither Seller nor any manager, director, officer, employee or agent of
Seller, has (a) directly or indirectly given or agreed to give airy illegal
gift, contribution, payment or similar benefit to any supplier, customer,
governmental official or employee or other person who was, is or may be in a
position to help or hinder Seller (or assist in connection with any actual or
proposed transaction) or made or agreed to make any illegal contribution, or
reimbursed any illegal political gift or contribution made by any other person,
to any candidate for federal, state, local or foreign public office which might
subject Seller to any damage or penalty in any civil, criminal or governmental
litigation or proceeding, or (b) established or maintained any unrecorded fund
or asset or made any false entries on any books or records for any
purpose.

     

    4.7   Permits
and Licenses.
Seller has all permits and licenses, if any, required for the conduct of
the Business. Each such permit and license is in full force and effect, and
Seller has not engaged in any activity which would cause or permit revocation or
suspension of any such permit or license, and no action or proceeding looking to
or contemplating the revocation or suspension of any such permit or license is
pending or threatened.

     

    
      
        
        

      

      
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    4.8   Litigation. There is no suit, action,
arbitration, or legal, administrative, or other proceeding, or governmental
investigation pending or, to the Knowledge of Seller, threatened, against or
affecting the Business or Assets. Seller is not in default in relation to the
Business or Assets with respect to any order, writ, injunction, or decree of any
federal, state, local, or foreign court, department, agency, or
instrumentality.

     

    4.9   No
Default. The
consummation of the transaction contemplated by this Agreement will not result
in or constitute any of the following: (i) a default or an event that, with
notice or lapse of time or both, would be a default, breach, or violation of any
lease, license, promissory note, conditional sales contract, commitment,
indenture, mortgage, deed of trust, or other agreement, instrument, or
arrangement to which Seller is a party which would prohibit, interfere, or
otherwise restrict or encumber the free, unrestricted and unabated transfer of
the Assets; or (li) the creation or imposition of any Lien on any of the
Assets.

     

    4.10   Governmental
Consent. No
consent, approval or authorization of or designation, declaration or filing with
any governmental authority on the part of:
Seller is required in connection with the valid execution and delivery of this
Agreement, or the consummation of any transaction contemplated
hereby.?:

     

    4.11   Assigned
Contracts.
Complete and accurate copies of all Assigned Contracts have been provided
to Buyer.

     

    4.11.1   Each
Assigned Contract is legal, valid and in full force and effect, enforceable in
accordance with its terms except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and similar laws relating to
or affecting creditors generally and by the availability of equitable remedies.
To Seller's Knowledge, no other party to any Assigned Contract has taken the
position that any provision of such contract is unenforceable.

     

    4.11.2   Seller
not breached any Assigned Contract, and, to Seller's Knowledge, no other Person
has breached any Assigned Contract.

     

    4.11.3   To
Seller's Knowledge, no event has occurred, and no circumstance
or condition exists, that (with or without notice or lapse of time) will, or
could reasonably be expected to, (A) result in a breach of any of the provisions
of any Assigned Contract, (B) give any Person the right to declare a default or
exercise any remedy under any Assigned Contract, (C) give any Person the right
to accelerate the maturity or performance of any Assigned Contract, or (D) give
any Person the right to cancel, terminate or modify any Assigned
Contract.

     

    4.11.4   Seller
has not received any notice or other communication regarding any actual or
possible breach of any Assigned Contract that has not been resolved. Seller has
not received notice of termination or cancellation of or intent to cancel or
terminate any Assigned Contract.

     

    
      
        
        

      

      
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    4.11.5   Seller has not
waived any of its rights under any Assigned Contract.

     

    4.11.6   No Person
is renegotiating, or has a right pursuant to the terms of any Assigned Contract
to renegotiate any amount paid or payable to Seller under any Assigned Contract
or any other material term or provision of any Assigned Contract.

     

    4.11.7   Each
Assigned Contract will continue to be enforceable, and in full force and effect
on identical terms immediately following the consummation of the Transactions,
and the consummation of the transactions shall not (either alone or upon the
occurrence of additional acts or events) result in any payment or payments
becoming due from Seller to any Person or give any Person the right to terminate
or alter the provisions of such Assigned Contract. The consummation of the
transactions contemplated by this Agreement will not affect any of the Assigned
Contracts in a manner that could reasonably be expected to be materially adverse
to Buyer.

    

    4.12           Negotiation
Rights. With
respect to the Negotiation Rights specified on Exhibit
A:

     

    (a) Seller is
currently actively negotiating a final, complete and legally binding agreement
with the designated party;

     

    (b) Seller
has not received any indication and has no reason to believe that the designated
party is unwilling to enter into a final agreement with Seller; and

     

    (c) Seller
has provided to Buyer all. documents relating to the negotiations, including all
correspondence, copies of emails, term sheets, letters of intent, letter
agreements, and proposals.

     

    4.13   Performance
of Obligations.
With respect to the Business, Seller has performed all material
obligations required to be performed by it to date, and is not in default under
any material contract, agreement, lease, commitment, indenture, mortgage, deed
of trust, or other document to which it is a party.

     

    4.14   Completeness
of Representations.
None of the representations and warranties made by Seller in this Agreement contains or will
contain any untrue statement of a material fact, or omit any material fact, the
omission of which would
be misleading.

     

    4.15   Survival
of Representations.
All representations and warranties of Seller, whether oral or written,
including any representations and warranties in any written statements or
documents delivered or made available to Buyer by Seller, shall survive the
closing of the transactions contemplated by this Agreement.

     

    5. Representations
and Warranties of Buyer.
Buyer represents and warrants to Seller as follows:

     

    
      
        
        

      

      
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    5.1      Power and
Authority. Buyer
has full corporate power and authority and contractual right and authority to
enter into this Agreement and to purchase the Assets, and has taken all
corporate action necessary to authorize the execution and delivery of this
Agreement, the purchase of the Assets in accordance with its terms, and the
performance of the obligations of Buyer hereunder. This Agreement has been duly
executed by an authorized officer of Buyer, and constitutes the legal, valid and
binding obligation of Buyer in accordance with its terms, subject to applicable
bankruptcy, insolvency and other laws affecting the rights of creditors
generally.

     

    5.2     
Completeness
of Representations.
None of the representations and warranties made by Buyer in this
Agreement contains or will contain any untrue statement of a material fact, or
omit any material fact, the omission of which would be misleading.

     

    5.3     
Survival
of Representations.
All representations and warranties of Buyer, whether oral or written,
including any representations and warranties in any written statements or
documents delivered or made available to Seller by Buyer, shall survive the
closing of the transactions contemplated by this Agreement.

    

     

    6. Employees
and Compensation.
Buyer shall have the right, but not the obligation, to employ any or all
of the employees of Seller. Should Buyer employ any of those employees, such
employment shall be on such terms as Buyer may establish. All employees shall be
paid in full through the Effective Date by Seller, including all amounts for
accrued vacation and all other benefits. Seller shall take no action to impede
or interfere withjany efforts by Buyer to employ current employees of Seller.
Seller and Morgan hereby indemnify and hold Buyer harmless from and against any
and all loss or liability in any way connected with (i) amounts due and owing to
Seller's employees as of the Effective Date, whether such amounts be for
compensation or otherwise; and (ii) any past or current unfair labor practices
of Seller as of the Effective Date.

     

    7. Deliveries
by Seller. Upon
the complete execution of this Agreement, Seller shall deliver to
Buyer:

     

    
      	(i)	 	
              An
      executed Assignment of Agreements in the form attached as Exhibit
      H;

               

            
	(ii)	 	
              the
      Investor Acknowledgement in the form of Exhibit D
      executed by each person
      listed in Exhibit
      B;

               

            
	(iii)	 	
              the
      Option Agreement in the form of Exhibit E
      executed by each person listed
      in Exhibit
      B;

               

            
	(iv)	 	
              the
      Malone Option Agreement in the form of Exhibit G
      executed by Charlene
      Malone ("Malone"); and

               

            
	(v)	 	such
      other items required to be delivered by Seller under this
      Agreement.

    

     

    
      
        
        

      

      
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    8.Deliveries
by Buyer. Upon
the complete execution of this Agreement, Buyer shall
deliver to Seller or the party specified:

    
    

     

    
      	(i)	 	
              to
      SSD, the Warrant to Purchase Common Stock in the form included in
      Exhibit C,
      executed by Buyer;

               

            
	(ii)	 	
              the
      Envision Shares to the persons specified in Exhibit B as
      receiving Envision
      Shares;

               

            
	(iii)	 	
              the
      Option Agreements in the form of Exhibit E
      executed by Buyer, to the persons
      specified in Exhibit
      B;

               

            
	(iv)	 	
              the
      Purchase Consideration specified in Section 3.5 to Morgan; and 

               

            
	(v)	 	the
      Malone Option Agreement executed by Buyer to
  Malone.

    

     

    9. Costs and
Expenses. Each
party shall pay its own costs and expenses incurred by such party in connection
with this Agreement and consummating the transactions described
herein.

     

    10.
Indemnity.

     

    10.1   Seller's
Indemnity. Seller
shall indemnify, defend, and hold harmless Buyer, and its successors,
Affiliates, assigns, officers, directors, employees, attorneys and agents,
against and in respect of any and all claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries, and deficiencies, that they or
any of them shall incur ;or
suffer, which arise, result from, or relate to (i) the use of the Assets or
Business operations prior to the Effective Date or (ii) any breach of, or
failure by Seller to perform any of its representations, warranties, covenants,
or agreements contained in this Agreement.

     

    10.2   Buyer's
Indemnity. Buyer
shall indemnify, defend and hold harmless Seller and its Affiliates, assigns,
officers, directors, members, managers, employees, attorneys and agents against,
and in respect of, any and all claims, losses, expenses, costs, obligations and
liabilities that Seller may incur or suffer by reason of (i) Buyer's operation
of the Business following the Effective Date, or (ii) Buyer's breach of or
failure to perform any of the warranties, guarantees, commitments or covenants
contained in this Agreement.

    

     

    11. Seller's
Obligations.

     

    11.1   Change of
Name. Seller
shall not use or employ in any manner the name "Generating Assets, LLC" or any
derivative thereof or name similar thereto, and Seller shall take and cause to
be taken all necessary action to cease the public use of such name. Seller shall
deliver to Buyer such executed documents as may be required to change Seller's
name on that date to another name bearing no similarity to "Generating Assets,
LLC" including but not limited to a name change amendment suitable for filing
with the Delaware Secretary of State. Seller hereby appoints Buyer as its
attorney-in-fact to file all such documents.

     

    
      
        
        

      

      
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    11.2   Covenant
Not to Compete.
Seller and Morgan agree that for a period of five years after the
Effective Date, neither they nor any of their Affiliates shall, directly or
indirectly, (1) own, manage, operate, join, control or participate in the
ownership, management, operation or control of; (2) be employed by; (3) provide
consulting, research and development or other services to; or (4) sell products
to any business, which engages in the development, marketing or sale of products
or services which are competitive with or similar to the Business. In the event
that the provisions of this section are found to exceed the limitation provided
by applicable law, then such provisions shall be reformed to set forth the
maximum limitations permitted. The covenants contained in this section are
intended to be an agreement authorized by Section 16601 of the California
Business and Professions Code. The competition restrictions contained in this
section shall not be deemed or construed to modify, restrict or eliminate any
competition restrictions contained in any other agreement between Buyer or any
Affiliate and Seller, Morgan, or any of their Affiliates. Seller and Morgan
expressly acknowledge that the remedy at law for any breach of the covenants set
forth in this section will be inadequate, and that upon any such breach, or
threatened breach, Buyer shall be entitled as a matter of right to injunctive
relief in any court of competent jurisdiction, in equity or otherwise, and to
enforce the specific performance of the obligations of Seller and Morgan under
this section without the necessity of proving the actual damage to Buyer or the
inadequacy of a legal remedy. The rights conferred upon Buyer by the preceding
sentence shall not be exclusive of, but shall be in addition to, any other
rights or remedies which Buyer may have at law, in equity or
otherwise.

     

    11.3   Assistance
Regarding Negotiations.
Seller shall assist Buyer in its continuation and conclusion of
negotiations with the designated parties with respect to the Negotiation Rights
conveyed by this Agreement. More specifically, Seller shall-facilitate
introductions and meetings between Buyer and such designated parties, shall
recommend to the designated parties that they negotiate final agreements with
Buyer, and shall otherwise support-Buyer in efforts to successfully conclude
such negotiations.

     

    12. Broker's
Fees. Each of the
parties represents that they have dealt with no broker or finder in connection
with any of the transactions contemplated by this Agreement, and, insofar as
they know, no broker or other person is entitled to any commission or finder's
fees in connection with any of these transactions. Seller and Buyer each agree
to indemnify and hold harmless one another against any loss, liability, damage,
cost, claim, or expense incurred by reason of any brokerage, commission, or
finder's fee alleged to be payable because of any act, omission, or statement of
the indemnifying party.

     

    13. Confidential
Information, hi
connection with the ownership and operation of the Business, Seller and Morgan
obtained confidential information relating to the Assets and Assigned Contracts.
Seller and Morgan shall treat such information as confidential, preserve the
confidentiality thereof, not duplicate or use such information and instruct its
employees and all other parties who have had access to such information to keep
confidential and not use such information in a way which is detrimental to Buyer
in its exercise of its rights and enjoyments of the benefits under the Assigned
Contracts. Seller agrees that the foregoing confidentiality covenants are
material terms of this Agreement and a condition concurrent to Buyer's
obligations under this Agreement.

     

    14. Miscellaneous.

     

    14.1   Defined
Terms. For the
purposes of this Agreement, the following words and expressions shall have the
following meanings:

     

    
      
        
        

      

      
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    14.1.1   "Affiliate" means any individual,
partnership, corporation, trust or other entity or association, directly or
indirectly, through one or more intermediaries, controlling, controlled by, or
under common control with the relevant Person. The term "control," as used in
the immediately preceding sentence, means, with respect to a corporation or
limited liability company the right to exercise, directly or indirectly, more
than fifty percent (50%) of the voting rights attributable to the controlled
corporation or limited liability company, and, with respect to any individual,
partnership, trust, other entity or association, the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of the controlled entity.

     

    14.1.2   "Assigned
Contracts" means
the agreements listed in Section (e) of
Exhibit A.

     

    14.1.3   "Intellectual
Property" means
any patents, patent applications, trademarks, tradenames, service marks,
copyrights, and any applications therefore, technology, know-how, trade secrets,
inventory, ideas, algorithms, processes, computer software programs or
applications, and tangible or intangible proprietary information.

     

    14.1.4   "Governmental
Authority" means
any government or political subdivision or regulatory authority, whether
federal, state, local or foreign, or any agency or instrumentality of any such
government or political subdivision or regulatory authofity, or any federal
state, local or foreign court or arbitrator.

     

    14.1.5   "Knowledge
of Seller" or
"Seller's
Knowledge" means
the knowledge of the managers, members and employees of Seller, including
Morgan, who would reasonably be,expected to have such knowledge after
due.inquiry, or that such Persons should have known based upon the facts
available at the time of determination.

     

    14.1.6   "Lien" means any
security deed, mortgage, deed to secure debt, deed of trust, lien, pledge,
assignment, charge, security interest, title retention agreement, negative
pledge, levy, execution, seizure, attachment, garnishment or other encumbrance
of any land in respect of such property, whether or not choate, vested or
perfected.

     

    14.1.7   "Person" means an individual, general
partnership, limited partnership, limited liability company, corporation, trust,
estate, real estate investment trust association or any other
entity.

    

     

    14.2   Successors
and Assigns.
Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon, the successors, assigns,
heirs, executors and administrators of the parties hereto.

     

    14.3   Modification. This Agreement may be
modified or rescinded only by a writing signed by all parties to this Agreement
or by their duly authorized agents.

     

    14.4   Assignment. This Agreement shall not be
assignable, in whole or in part, by either party without the written consent of
the other party, except that (1) Buyer may, without the consent of Seller,
assign its rights and obligations under this Agreement to an Affiliate, provided
that Buyer obtains the Affiliate's written agreement enforceable by Seller to
assume and
perform, from and after the date of such assignment, the terms, conditions, and
provisions imposed by this Agreement upon Buyer, whereupon Buyer shall be
relieved of any future liability under this Agreement; and (2) Seller may,
without the consent of Buyer, assign the benefits of this Agreement, including
its right to payments, but not its obligations.

     

    
      
        
        

      

      
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    14.5   Further
Conveyances. On
and after the Effective Date, and without further consideration or expense to
Buyer, Seller shall execute and deliver such further documents of conveyance and
transfer, and take such other action as Buyer reasonably requests to effectively
convey and transfer to Buyer any of the Assets in accordance with this
Agreement, and will assist Buyer in the exercise of its rights as assignee under
the Assigned Contracts. Seller also shall deliver or cause to be delivered, at
such times and places as reasonably requested by Buyer, such additional
documents as Buyer may reasonably request for the purposes of carrying out this
Agreement.

     

    14.6   No
Waiver. No waiver
of any right under this Agreement shall be deemed effective unless in writing
and signed by the party charged with such waiver, and no waiver of any right
arising from any breach or failure to perform shall be deemed to be a waiver of
any future such right or of any other right arising under this
Agreement.

     

    14.7   Entire
Agreement. This
Agreement constitutes the entire agreement between the parties and supersedes
all prior ■agreements, and understandings, oral and written, between the parties
hereto with respect to the subject matter hereof.

     

    14.8   Exhibits. All attached exhibits and
schedules to which reference is made herein
are hereby-incorporated by this reference.

     

    14.9   Headings;
Construction; Interpretation. Section headings contained
in tins Agreement are included for convenience only and form no part of the
agreement between the parties. When the context so requires and when used in
this Agreement, the singular shall be deemed to include the plural and the
plural shall be deemed to include the singular. This Agreement shall not be
interpreted against a party by virtue of such party's participation in the
drafting of the Agreement or any provisions herein.

     

    14.10   Separability. If any provision of this
Agreement is or becomes or is deemed to be invalid, illegal, or unenforceable in
any jurisdiction, such provision shall be deemed amended to conform to
applicable laws so as to be valid and enforceable or, if it cannot be so amended
without materially altering the intention of the parties, it shall be stricken
and the remainder of this Agreement shall remain in full force and
effect.

     

    14.11   Counterparts. This Agreement may be
executed in any number of counterparts, each of which shall be an original and
all of which together shall constitute but one and the same
document.

     

    14.12   Time of
the Essence. Time
shall be of the essence for all purposes under this Agreement.

    

    14.13   Survival
of Representations, Warranties and Agreement.    The
representations,
warranties, obligations, covenants and agreements of the parties hereto shall in
allevents
survive the close or termination of this Agreement where same is necessary to
effectuate
the intention of the
parties.                                                                                              .
..

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    14.14   Binding
Effect. This
Agreement shall be binding upon and mure to the benefit of Seller and Buyer and
their respective representatives and assigns.

     

    14.15   Notices. Any notice required or
authorized to be given hereunder or any other communications between the parties
provided for under the terms of this Agreement shall be in writing (unless
otherwise provided) and shall, be served personally, or by reputable express
courier sendee or by facsimile transmission addressed to the relevant party at
the address stated below or at any other address provided by that party to the
other as its address for service. Any notice so given personally shall be deemed
to have been served on delivery, any notice so given by express courier service
shall be deemed to have been served two (2) business days after the same shall
have been delivered to the relevant courier, and any notice so given by
facsimile transmission shall be deemed to have been received on dispatch. .In
proving such sendee, it shall be sufficient to produce the receipt of a
reputable courier company showing the correct address of the addressee or prove
that the facsimile transmission was followed by an activity report showing the
correct facsimile number of the party on whom notice is served and. the correct
number of pages transmitted

     

    
      	 	If to. Seller,
      to:	
              Karen
      Morgan

              16
      Baywater Drive

              Danen, CT
      06820

              Fax:
      (203). 656-4375

            
	 	 	 
	 	If to Morgan,
      to:    	
              Karen
      Morga

              16
      Baywater Drive

              Danen,
      CT 06820

              Fax:
      (203) 656-4375

            
	 	 	 
	 	If to Buyer,
      to:    	
              Envision
      Solar International, Inc.

              4225
      Executive Square, Suite 480 

              La
      Jolla, CA 92037 

              Attn:
      Robert L. Noble 

              Fax:(619)
      238-1429

            
	 	 	 
	 	With a copy (which
      shall 	 
	 	
              not
      constitute notice) to:   

            	
              John
      C. O'Neill, 

              Esq.Procopio,
      Cory, Hargreaves & Savitch LLP 

              530
      B Street, Suite 2100 

              San
      Diego, CA 92101 

              Fax:
      (619) 744-5464

            
	 	 	 

    

     

    or to
such other address or to such other person as any party shall designate to the
others for such purpose in the manner hereinabove set forth.

     

    14.16   Arbitration. Any controversy or claim
arising out of or relating to this Agreement, or the breach thereof, shall be
settled by binding arbitration in San Diego, California, before a single,
neutral arbitrator administered by the American Arbitration Association in
accordance with its Commercial Arbitration Rules, and judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    14.17   Attorneys'
Fees. If any
action or arbitration is commenced to enforce or interpret any provision of this
Agreement, the substantially prevailing party shall be entitled to recover from
the other party actual attorneys' fees and costs incurred in connection with
such action, in addition to all other proper relief. Attorneys' fees incurred in
enforcing any judgment are recoverable as a separate item, and this provision
for post-judgment attorneys' fees shall survive any judgment and shall not be
deemed merged into the judgment.

     

    14.18   Remedies
Cumulative. All
remedies provided in this Agreement are cumulative and non-exclusive, and shall
be in addition to any and all other rights and remedies provided by law or in
equity.

     

    14.19   Governing
Law. This
Agreement shall be governed by and construed under the laws of the State of
California, without regard to the conflict of laws principles thereof, as the
same apply to agreements executed solely by residents of California and wholly
to be performed within California.

     

    14.20   Tax
Consequences.
Seller acknowledges that Buyer makes no representations or warranties,
and has provided no advice to Seller with respect to the tax consequences to
Seller of the transactions contemplated by this Agreement. Seller acknowledges
that it has been advised by Buyer to consult its own tax advisor and legal
counsel with respect to the tax aspects of this Agreement.

     

    ///

    ///

    ///

    ///

    ///

    ///

    ///

    ///

    ///

     

    

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

     

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

    

    
 

     

     

    
      
        	 	
                
                  ENVISION
      SOLAR INTERNATIONAL, INC.,

                

              	 
	 	a
      California corporation 	 
	 	 	 	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 
      Robert L. Noble	 
	 	 	Name Robert
      L. Noble 	 
	 	 	Chief
      Executive Officer 	 
	 	 	 	 
	 	 	 	 
	 	GENERATING
      ASSETS, LLC 	 
	 	a
      Delware Limited liability company 	 
	 	 	 	 
	 	 	 	 
	 	By:
      	/s/  Karen Morgan	 
	 	 	Karen
      Morgan 	 
	 	 	Manager	 
	 	 	 
	 	/s/  Karen Morgan	 
	 	Karen
      Morgan, an individual	 
	 	 	
              	 
	 	 	 	 

      

    

    

     

    EXHIBITS

     

    A -
Assets

    B -
Allocation of Shares and Options

    C - SSD
Agreement

    D -
MacKenzie Agreement

    E - Form
of Investor Acknowledgement

    F -
Option Agreement

    G -
Malone Option Agreement

    H -
Assignment of Agreements

     

     

     

    13f8k0210ex10iv_envision.htm

    Exhibit
10.4

     

    CONFIDENTIAL

     

    THIS
WARRANT AND ALL SHARES OF WARRANT STOCK ISSUABLE HEREUNDER, HAVE BEEN AND WILL
BE ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR
HYPOTHECATED WITHOUT REGISTRATION UNDER THE ACT UNLESS EITHER (i) THE COMPANY
HAS RECEIVED AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED IN
CONNECTION WITH SUCH DISPOSITION OR (ii) THE SALE OF SUCH SECURITIES IS MADE
PURSUANT TO RULE 144 PROMULGATED UNDER THE ACT.

     

    WARRANT
TO PURCHASE COMMON STOCK

    OF

    ENVISION
SOLAR INTERNATIONAL, INC.

     

                           

    
      
        	Warrant
      No.___________________________  	 	La Jolla,
      California
	Date of Issuance: January
      11_,
      2008	 	 

      

       

    

     

    THIS
CERTIFIES THAT, for value received, Squire, Sanders & Dempsey L.L.P. or its
permitted registered assigns (the "Holder"), is
entitled, subject to the terms and conditions of this Warrant, at
any

    time or
from time to time after January___________ , 2008 (the "Effective Date"), to
purchase from Envision Solar International,
Inc., a California corporation (the "Company"), the Number
of Shares of Warrant Stock (as defined below) of the Company at an exercise
price equal to $0.01 (the "Exercise Price") per
share. Furthermore, both the Number of Shares of Warrant Stock purchasable upon
exercise of this Warrant and the Exercise Price are subject to adjustment as
provided herein. The Warrant Stock shall automatically expire unless previously
exercised on January 1, 2015 (the "Termination Date").
Except as otherwise provided herein, all defined terms shall have the meanings
ascribed to such terms as set forth in Section 1 hereinbelow.

     

    1.
CERTAIN DEFINITIONS. As used in this Warrant the following terms shall have the
following respective meanings:"Change of Control"
means (i) the sale, lease, exchange or other transfer, directly or indirectly,
of all or substantially all of the assets of Company or its subsidiaries (in one
transaction or in a series of related transactions); (ii) the approval by the
shareholders of the Company of any plan or proposal for the liquidation or
dissolution of the Company; (iii) a merger or consolidation to which the Company
is a party if the shareholders of Company immediately prior to the effective
date of such merger or consolidation have "beneficial ownership" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
immediately following the effective date of such merger or consolidation of
securities of the surviving entity representing 50% or less of the combined
voting power of the surviving entity's then outstanding securities (determined
on a fully diluted basis) ordinarily having the right to vote at elections of
directors; or (iv) the sale or transfer of outstanding securities by the
shareholders of Company to any person if after the sale or transfer such person
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of 50% or more of the combined voting power of
Company's outstanding securities ordinarily having the right to vote at
elections of directors.

    

    "Common Stock" shall
mean the Company's common stock.

    

    "Fair Market Value" of
a share of Warrant Stock as of a particular date shall mean:

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

       

      (a) If traded
on a national securities exchange or the Nasdaq National Market, the Fair Market
Value shall be deemed to be the average of the closing prices of the shares of
the Warrant Stock of the Company on such exchange or market over the five (5)
business days ending immediately prior to the applicable date of
valuation;

    

     

    (b) If
actively traded over-the-counter, the Fair Market Value shall be deemed to be
the average of the closing bid prices over the 30-day period ending immediately
prior to the applicable date of valuation; and

     

    (c) If there
is no active public market, the Fair Market Value shall be determined by the
Board of Directors of the Company in good faith using any reasonable method of
valuation, which determination shall be conclusive and binding on all interested
parties.

     

    "IPO"
shall mean the first firm commitment underwritten public offering of the
Company's Common Stock pursuant to an effective registration statement filed
with the SEC under the Securities Act.

     

    "Number of Shares of Warrant
Stock" and "Number of Shares"
shall mean, subject to the terms hereof, the number or quotient equal to
$8,006.20 divided by the lesser of (a) the price per share sold by the Company
in its next preferred stock, Common Stock or other equity financing of
securities after the Date of Issuance of this Warrant, or (b) SI 0.00 per share.
Notwithstanding the foregoing, the Number of Shares of Warrant Stock (i)
represents the number of shares or securities of Warrant Stock at any time
receivable or issuable upon exercise of this Warrant, and (ii) shall be subject
to adjustment as set forth in this Warrant.

     

    "Registered Holder"
shall mean any Holder in whose name this Warrant is registered upon the books
and records maintained by the Company.

     

    "SEC"
shall mean the U.S. Securities and Exchange Commission.

     

    "Securities Act" shall
mean the Securities Act of 1933, as amended.

     

    "Warrant" shall
include this Warrant and any warrant delivered in substitution or exchange for
this Warrant as provided herein.

     

    "Warrant Stock" shall
mean the Common Stock of the Company and any other securities, including any
securities into which such Warrant Stock has converted, at any time receivable
or issuable upon exercise of this Warrant.

     

    2. [RESERVED].

     

    3. EXERCISE
OF WARRANT

     

    3.1 Payment. Subject to
compliance with the terms and conditions of this Warrant and applicable
securities laws, this Warrant may be exercised, in whole or in part at any time
or from time to time after the Effective Date so long as Holder continues to
serve as legal counsel to the Company, by the delivery (including, without
limitation, delivery by facsimile) of the form of Notice of Exercise attached
hereto as Exhibit 1
(the "Notice of
Exercise"), duly executed by the Holder, at the principal office of the
Company, and as soon as practicable after such date, surrendering

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

       

      (a) this
Warrant at the principal office of the Company (as listed in Section 14 below),
and

    

     

    (b) payment,
(i) in cash (by check) or by wire transfer, (ii) by cancellation by the Holder
of indebtedness of the Company to the Holder; or (lii) by a combination of (i)
and (ii), of an amount equal to the product obtained by multiplying the Number
of Shares of Warrant Stock being purchased upon such exercise by the then
effective Exercise Price (the "Exercise
Amount").

     

    3.2 Net Issue Exercise.
In lieu of the payment methods set forth in Section
3.1(b) above, if the Fair Market Value of one share of Warrant Stock is greater
than the Exercise
Price (at the date of calculation set forth below), the Holder may elect to
exchange all or some of
the Warrant for shares of Warrant Stock equal to the value of the Warrant being
exchanged
on the date of exchange. If Holder elects to exchange this Warrant as provided
in this Section
3.2, the Holder shall tender to the Company, at the principal office of the
Company, the Warrant
for the amount being exchanged, along with a properly endorsed Notice of
Exercise, and the
Company shall issue to the Holder the Number of Shares of the Warrant Stock
computed using the
following formula:

    

     

    X = Y (A-B)

     

    A

    

    Where X =
the Number of Shares of Warrant Stock to be issued to the Holder.

     

    Y = the
Number of Shares of Warrant Stock purchasable under the amount of the Warrant
being
exchanged (as adjusted to the date of such calculation). 

     

    A = the
Fair Market Value of one share of the Warrant Stock. 

     

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

     

    All
references herein to an "exercise" of the Wairant shall include an exchange
pursuant to this Section 3.2.

     

    3.3
IPO. Upon
receipt of a written notice of the Company's intention to raise capital by
selling shares of Common Stock in an IPO (the "IPO Notice"), which
notice shall be delivered to the Holder at least thirty (30) but not more than
sixty (60) days before the anticipated date of the filing with the SEC of the
registration statement for such IPO, the Holder shall promptly notify the
Company whether the Holder will exercise this Warrant. Notwithstanding whether
an IPO Notice has been delivered to the Holder or any other provision of this
Warrant to the contrary, this Warrant shall be deemed exercised on the
consummation of the IPO; the Fair Market Value will be the price at which one
share of Common Stock was sold to the public in the IPO. Ff the Holder has
elected to exercise this Warrant pursuant to this Section and the IPO is not
consummated, then the Holder's exercise of this Warrant shall not be effective
unless the Holder confirms in writing the Holder's intention to go forward with
the exercise of this Warrant.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

       

      3.4
"Easy Sale" Exercise.
In lieu of the payment methods set forth in Section 3.1(b) above, when permitted
by law and applicable regulations (including the rules of Nasdaq and the
National Association of Securities Dealers (the "NASD")), the Holder
may pay the Exercise Amount through a "same day sale" commitment from the Holder
(and if applicable a broker-dealer that is a member of the NASD (an "NASD Dealer")),
whereby the Holder will irrevocably elect to exercise this Warrant and to sell
at least that Number of Shares of Warrant Stock so purchased to pay the Exercise
Amount (and up to all of the shares of Warrant Stock so purchased) and the
Holder (or, if applicable, the NASD Dealer) commits upon sale (or, in the case
of the NASD Dealer, upon receipt) of such shares of Warrant Stock to forward the
Exercise Amount directly to the Company, with any sale proceeds in excess of the
Exercise Amount being for the benefit of the Holder.

    

     

    3.5 Stock Certificates;
Fractional Shares. As soon as practicable on or after the date of
exercise of this Warrant under Section 3.1, 3.2, 3.3 or 3.4 above, as
applicable, the Company
shall issue and deliver to the person or persons entitled to receive the same a
certificate or
certificates for the number of whole shares of Warrant Stock issuable upon such
exercise, together
with cash in lieu of any fraction of a share equal to such fraction of the
current Fair Market
Value of one whole share of Warrant Stock as of the date of exercise of this
Warrant. No fractional
shares or scrip representing fractional shares shall be issued upon an exercise
of this Warrant.

     

    3.6 Partial Exercise; Effective
Date of Exercise. In case of any partial exercise
of this Warrant, the Company shall cancel this Warrant upon surrender hereof and
shall execute
and deliver a new Warrant of like tenor and date for the balance of the shares
of Warrant Stock
purchasable hereunder. This Warrant shall be deemed to have been exercised
immediately prior to
the close of business on the date of its surrender for exercise as provided
above. The person
entitled to receive the shares of Warrant Stock issuable upon exercise of this
Warrant shall be
treated for all puiposes as the holder of record of such shares as of the close
of business on the date the
Holder is deemed to have exercised this Warrant.

     

    4. VALID
ISSUANCE; TAXES. All shares of Warrant Stock issued upon the exercise of this
Warrant shall be validly issued, fully paid and non-assessable, and the Company
shall pay all taxes and other governmental charges that may be imposed in
respect of the issue or delivery thereof.

     

    5. ADJUSTMENT
OF EXERCISE PRICE AND NUMBER OF SHARES. The Number of Shares of Warrant Stock
issuable upon exercise of this Warrant (or any shares of stock or other
securities or property receivable or issuable upon exercise of this Warrant) and
the Exercise Price are subject to adjustment upon occurrence of the following
events:

    

    5.1
Adjustment for Stock Splits.
Stock Subdivisions or Combinations of Shares. If the Company at any time
while this Warrant, or any portion hereof, remains outstanding shall split,
subdivide or combine the shares of Warrant Stock, as to which purchase rights
under this Warrant exist, into a different number of securities of the same
class, the Number of Shares of Warrant Stock issuable upon exercise of this
Warrant shall be proportionately increased and the Exercise Price for such
securities shall be proportionately decreased in the case of a split or
subdivision, and likewise, the Number of Shares of Warrant Stock issuable upon
exercise of this Warrant shall be proportionately decreased and the Exercise
Price proportionately increased in the case of a combination.

     

    5.2
Adjustment for Dividends or
Distributions of Stock or Other Securities or Property. In case the
Company shall make or issue, or shall fix a record date for the determination of
eligible holders entitled to receive, a dividend or other distribution with
respect to the Warrant Stock (or any shares of stock or other securities at the
time issuable upon exercise of the Warrant) payable in (a) securities of the
Company or (b) assets (excluding cash dividends paid or payable solely out of
retained earnings), then, in each such case, the Holder on exercise of this
Warrant at any time after the consummation, effective date or record date of
such dividend or other distribution, shall receive, in addition to the shares of
Warrant Stock (or such other stock or securities) issuable on such exercise
prior to such date, and without the payment of additional consideration
therefor, the securities or such other assets of the Company to which such
Holder would have been entitled upon such date if such Holder had exercised this
Warrant on the date hereof and had thereafter, during the period from the date
hereof to and including the date of such exercise, retained such shares and/or
all other additional stock available by it as aforesaid during such period
giving effect to all adjustments called for by this Section 5.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

       

      5.3 Reclassification. If
the Company, by reclassification of securities or otherwise, shall change any of
the securities as to which purchase rights under this Warrant exist into the
same or a different number of securities of any other class or classes, this
Warrant shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as a result of such change with respect
to the securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefore shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 5. No adjustment shall be made pursuant
to this Section 5.3 upon any conversion or redemption of the Warrant Stock which
is the subject of Section 5.5.

    

     

    5.4 Adjustment for Capita]
Reorganization, Merger or Consolidation. If at any time while this
Warrant, or any portion hereof, is outstanding and unexpired there shall be a
Change of Control, this Warrant shall cease to represent the right to receive
Warrant Stock and shall automatically represent the right to receive upon the
exercise of this Warrant, during the period specified herein and upon payment of
the Exercise Price then in effect, the Number of Shares of stock or other
securities or property offered to the Company's holders of Warrant Stock in
connection with such Change of Control that a holder of shares of Warrant Stock,
deliverable upon exercise of this Warrant would have been entitled to receive in
such Change of Control if this Warrant had been exercised immediately before
such Change of Control, subject to further adjustment as provided in this
Section 5. The foregoing provisions of this Section 5.4 shall similarly apply to
successive reorganizations, consolidations, mergers, sales, and transfers to the
extent that this Warrant is assigned to or assumed by any successor corporation
or entity, whether by operation of law or otherwise, and to the stock or
securities of any other corporation that are at the time receivable upon the
exercise of this Warrant. If the per-share consideration payable to the holder
hereof for shares of Warrant Stock in connection with any such transaction is in
a form other than cash or marketable securities, then the value of such
consideration shall be determined in good faith by the Company's Board of
Directors. In all events, appropriate adjustment (as determined in good faith by
the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Warrant
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Warrant.

     

    5.5 Redemption or Termination of
Warrant Stock. In case all or any portion of the authorized and
outstanding shares of Warrant Stock of the Company are redeemed or converted or
reclassified into other securities or property pursuant to the Company's
Articles or Certificate of Incorporation or otherwise, or the Warrant Stock
otherwise ceases to exist, then, in such case, the Holder of this Warrant, upon
exercise hereof at any time after the date on which the Warrant Stock is so
redeemed or ceases to exist (the "Warrant Stock Termination
Date"), shall receive, subject to the terms of this Warrant, in lieu of
the Number of Shares of Warrant Stock that would have been issuable upon such
exercise immediately prior to the Warrant Stock Termination Date, the securities
or property that would have been received if this Warrant had been exercised in
full and the Warrant Stock received thereupon had been simultaneously converted
immediately prior to the Warrant Stock Termination Date, all subject to further
adjustment as provided in this Warrant. Additionally, the Exercise Price shall
be immediately adjusted to equal the quotient obtained by dividing (x) the
aggregate Exercise Price of the maximum Number of Shares of Warrant Stock for
which this Warrant was exercisable immediately prior to the Warrant Stock
Termination Date by (y) the Number of Shares of Warrant Stock of the Company for
which this Warrant is exercisable immediately after the Warrant Stock
Termination Date, all subject to further adjustment as provided
herein.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    6. CERTIFICATE
AS TO ADJUSTMENTS. In each case of any adjustment in the Exercise Price, or
number or type of shares issuable upon exercise of this Warrant, the Chief
Financial Officer or Controller of the Company shall compute such adjustment in
accordance with the tenns of this Warrant and prepare a certificate setting
forth such adjustment and showing in detail the facts upon which such adjustment
is based, including a statement of the adjusted Exercise Price. After each such
adjustment, the Company shall promptly send (by facsimile and by either first
class mail, postage prepaid or overnight delivery) a copy of each such
certificate to the Holder.

     

    7. LOSS OR
MUTILATION. Upon receipt of evidence reasonably satisfactory to the Company of
the ownership of and the loss, theft, destruction or mutilation of this Warrant,
and of indemnity reasonably satisfactory to it, and (in the case of mutilation)
upon surrender and cancellation of this Warrant, the Company will execute and
deliver in lieu thereof a new Warrant of like tenor as the lost, stolen,
destroyed or mutilated Warrant.

     

    8. RESERVATION
OF WARRANT STOCK. The Company hereby covenants that at all times there shall be
reserved for issuance and delivery upon exercise of this Warrant such Number of
Shares of Warrant Stock or other shares of capital stock of the Company as are
from time to time issuable upon exercise of this Warrant and, from time to time,
will take all steps necessary to amend its Articles or Certificate of
Incorporation to provide sufficient reserves of shares of Warrant Stock issuable
upon exercise of this Warrant. All such shares shall be duly authorized, and
when issued upon such exercise, shall be validly issued, fully paid and
non-assessable, free and clear of all liens, security interests, charges and
other encumbrances or restrictions on sale and free and clear of all preemptive
rights, except encumbrances or restrictions arising under federal or state
securities laws. Issuance of this Warrant shall constitute full authority to the
Company's officers who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for shares of Warrant Stock upon
the exercise of this Warrant.

     

    9. TRANSFER
AND EXCHANGE. Subject to the terms and conditions of this Warrant and compliance
with all applicable securities laws, this Warrant and all rights hereunder may
be transferred to any parent or subsidiary of the Registered Holder, in whole or
in part, on the books of the Company maintained for such purpose at the
principal office of the Company referred to above, by the Registered Holder
hereof in person, or by duly authorized attorney, upon surrender of this Warrant
properly endorsed and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. Upon any permitted partial
transfer, the Company will issue and deliver to the Registered Holder a new
Warrant or Warrants with respect to the shares of Warrant Stock not so
transferred. Each taker and holder of this Warrant, by taking or holding the
same, consents and agrees that when this Warrant shall have been so endorsed,
the person in possession of this Warrant may be treated by the Company, and all
other persons dealing with this Warrant, as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented hereby,
any notice to the contrary notwithstanding; provided, however that until a
transfer of this Warrant is duly registered on the books of the Company, the
Company may treat the Registered Holder hereof as the owner for all
purposes.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    10. RESTRICTIONS
ON TRANSFER. The Holder, by acceptance hereof, agrees that, absent an effective
registration statement filed with the SEC under the Securities Act, covering the
disposition or sale of this Warrant or the Warrant Stock issued or issuable upon
exercise hereof, as the case may be, and registration or qualification under
applicable state securities laws, such Holder will not sell, transfer, pledge,
or hypothecate any or all such Warrants, Warrant Stock, or Common Stock, as the
case may be, unless either (i) the Company has received an opinion of counsel,
in form and substance reasonably satisfactory to the Company, to the effect that
such registration is not required in connection with such disposition or (ii)
the sale of such securities is made pursuant to Rule 144, promulgated pursuant
to the Securities Act.

     

    11. COMPLIANCE
WITH SECURITIES LAWS. By acceptance of this Warrant, the Holder hereby
represents, warrants and covenants that any shares of stock purchased upon
exercise of this Warrant or acquired upon conversion thereof shall be acquired
for investment only and not with a view to, or for sale in connection with, any
distribution thereof; that the Holder has had such opportunity as the Holder has
deemed adequate to obtain from representatives of the Company such information
as is necessary to permit the Holder to evaluate the merits and risks of its
investment in the Company; that the Holder is able to bear the economic risk of
holding such shares of Warrant Stock for an indefinite period; that the Holder
understands that shares of Warrant Stock will not be registered under the
Securities Act (unless otherwise required pursuant to exercise by the Holder of
the registration rights, if any, previously granted to the Holder) and will be
"restricted securities" within the meaning of Rule 144 promulgated under the
Securities Act and that the exemption from registration under Rule 144 will not
be available for at least one year from the date of exercise of this Warrant,
subject to any special treatment by the SEC for exercise of this Warrant
pursuant to Section 3.3, and even then will not be available unless a public
market then exists for the stock, adequate information concerning the Company is
then available to the public, and other terms and conditions of Rule 144 are
complied with; and that all stock certificates representing shares of Warrant
Stock may have affixed thereto a legend substantially in the following
form:

     

    THE
SECURITIES REPRESENTED HEREBY HAVE BEEN ISSUED WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, OFFERED FOR
SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE ACT
UNLESS EITHER (i) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT
REGISTRATION IS NOT REQUIRED IN CONNECTION WITH SUCH DISPOSITION OR (ii) THE
SALE OF SUCH SECURITIES IS MADE PURSUANT TO RULE 144 PROMULGATED UNDER THE
ACT.

     

    12. NO RIGHTS
OR LIABILITIES AS STOCKHOLDERS. This Warrant shall not entitle the Holder to any
voting rights or other rights as a stockholder of the Company.

     

    13. REGISTRATION
AND OTHER RIGHTS. With regard to all shares of Warrant Stock issuable upon
exercise of this Warrant, the Company shall give Holder the opportunity to
obtain the same contractual registration rights granted to other
investors.

     

    14. NOTICES.
Except as may be otherwise provided herein, all notices, requests, waivers and
other communications made pursuant to this Agreement shall be in writing and
shall be conclusively deemed to have been duly given (a) when hand delivered to
the other party; (b) when received if sent by facsimile at the address and
number set forth below; (c) five (5) business days after deposit in the U.S.
mail first class, postage prepaid, registered or certified mail with return
receipt requested and addressed to the other part}' as set forth below; or (d)
the next business day after deposit with a national overnight delivery service,
postage prepaid, addressed to the parties as given below, or designate
additional addresses, for purposes of this section by giving the other party
written notice of the new address in the manner set forth above.

     

     

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    
       

      
        	To Squire. Sanders
      & Dempsey L.L.P.:	 	 To the
      Company:
	
                Attn: Nicholas Unkovic 

                 600 Hansen Way

                Palo Alto,
      California 94303 

                  Fax
      Number: 650-843-8777

                

              	 	Envision
      Solar International, Inc. 

                4225
      Executive Square, Suite 480 

                La
      Jolla, California 92037 

                Fax
      Number: 858-799-459 

                Attn:
      President

              

      

       

    

     

     

    15. TITLES
AND HEADINGS. The titles, captions and headings of this Warrant are included for
ease of reference only and will be disregarded in interpreting or construing
this Warrant. Unless otherwise specifically stated, all references herein to
"sections" and "exhibits" will mean "sections" and "exhibits" to this
Warrant.

     

    16. LAW
GOVERNING. This Warrant shall be governed in all respects by the laws of the
State of California, without regard to principles of conflict of
laws.

     

    17. NO
MPAIRMENT. The Company will not, by amendment of its Articles or Certificate of
Incorporation or bylaws, or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Registered Holder of this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of Warrant Stock
above the amount payable therefor upon such exercise, and (b) will take all such
action as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and non­assessable shares of Warrant Stock upon
exercise of this Warrant.

     

    18. NOTICES
OF RECORD DATE. In case: (a) the Company shall take a record of the holders of
its Common Stock (or other stock or securities at the time receivable upon the
exercise of this Warrant), for the purpose of entitling them to receive any
dividend or other distribution, or any right to subscribe for or purchase any
shares of stock of any class or any other securities or to receive any other
right; (b) of any consolidation or merger of the Company with or into another
corporation, any capital reorganization of the Company, any reclassification of
the capital stock of the Company, or any conveyance of all or substantially all
of the assets of the Company to another corporation in which holders of the
Company's stock are to receive stock, securities or property of another
corporation; (c) of any voluntary dissolution, liquidation or winding-up of the
Company; or (d) of any redemption or conversion of all outstanding Warrant
Stock; then, and in each such case, the Company will mail or cause to be mailed
to the Registered Holder of this Warrant a notice specifying, as the case may
be, (i) the date on which a record is to be taken for the purpose of such
dividend, distribution or right, or (ii) the date on which such event or
transaction is to take place, and the time, if any is to be fixed, as of which
the holders of record of Warrant Stock shall be entitled to exchange their
shares of Warrant Stock for securities or other property deliverable upon such
event or transaction. Such notice shall be delivered at least thirty (30) days
prior to the date therein specified.

     

    19. SEVERABILITY.
If any paragraph, provision or clause of this Warrant shall be found or be held
to be illegal, invalid or unenforceable, the remainder of this Warrant shall be
valid and enforceable and the parties shall use good faith to negotiate a
substitute, valid and enforceable provision that most nearly effects the
parties' intent in entering into this Warrant.

     

    
      20. COUNTERPARTS.
This Warrant may be executed in any number of counterparts, each of which shall
be an original, but all of which together shall constitute one
instrument.

    

     

    21. NO
INCONSISTENT AGREEMENTS. The rights granted to the Holder hereunder do not in
any way conflict with and are not inconsistent with the rights granted to
holders of the Company's securities under any other agreements, except rights
that have been waived.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

       

      IN
WITNESS WHEREOF, the parties hereto have executed this Warrant as of the
Effective Date. 

    

     

     

    
      	SQUIRE, SANDERS & DEMPSEY L.L.P.	 	ENVISION SOLAR INTERNATIONAL,
INC.
	
            	 	
            
	By: /s/
      Nicholas
      Unkovic                            
      	 	By: /s/
      Karen
      Morgan                                        
      
	Name: Nicholas
      Unkovic                            
      	 	Name: Karen
      Morgan                                         
      
	Title:   Partner                                               
      	 	Title: President                                                    
      

    

     

     

    SIGNATURE
PAGE TO PREFERRED STOCK WARRANT 

    ISSUED BY
ENVISION SOLAR INTERNATIONAL, INC. 

    TO
SQUIRE, SANDERS & DEMPSEY L.L.P.

     

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

      EXHIBIT 1

      NOTICE OF
EXERCISE 

      (To be
executed upon exercise of Warrant)

    

    

     

    
      	 ENVISION SOLAR
      INTERNATIONAL, INC. 	 	WARRANT
      NO.________________________

    

     

    The
undersigned hereby irrevocably elects to exercise the right of purchase
represented by this Warrant Certificate for, and to purchase thereunder, the
securities of Envision Solar International, Inc., as provided for therein, and
(check the applicable box):

     

    o Tenders
herewith payment of the exercise price in full in the form of cash or a
certified or official bank check in same-day funds in the amount of
$[____________] for [__________] such securities.

     

    o Elects
the Net Issue Exercise option pursuant to Section 3.2 of the Warrant, and
accordingly requests delivery of a net of [______________] of such securities,
according to the following calculation:

     

    x=y(a-b)       ([_____________])
= [__________]) ([__________]) -
([___________])

           
A                                                                                            ([____________])                                                       

    Where
x
= the Number of Shares of Warrant Stock to be issued to the
Holder.

     

    y =
the Number of Shares of Warrant Stock purchasable under the amount of the
Warrant being
exchanged (as adjusted to the date of such calculation). 

     

    A = the
Fair Market Value of one share of the Warrant Stock. 

     

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

     

    o Elects the Easy Sale
Exercise option pursuant to Section 3.4 of the Warrant, and
accordingly

     

    requests
delivery of a net of [_____________] of such securities.

     

    Please
issue a certificate or certificates for such securities in the name of, and pay
any cash for any fractional share to:

    

    

     

    Signature: 
____________________________________ 

       

       

      Name:      
[____________________________________]

       

       

      Address:
[_____________________________________]

       

       

      Date:      
[______________________________________]

    

     

     

    Note: The
above signature should correspond exactly with the name on the first page of
this Warrant Certificate or with the name of the assignee appearing in the
assignment form below.

     

    If the
number of securities designated above shall not be all the shares purchasable
under this Warrant, a new Warrant Certificate is to be issued in the name of
said undersigned for the balance remaining of the shares purchasable thereunder
rounded up to the next higher whole number of shares.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

      EXHIBIT 2

      ASSIGNMENT

      (To be
executed only upon assignment ofWarrant)

    

    

    

    
    

     

    
      	ENVISION SOLAR
      INTERNATIONAL, INC.     	 	WARRANT
      NO.___________________________        

    

     

    For value
received, [_______________] hereby sells, assigns and transfers unto
[_____________________] the Warrant,
together with all right, title and interest therein, and does hereby irrevocably
constitute and appoint
[ ________________]attorney, to transfer said Warrant on the books of the
withm-named Company with
respect to the Number of Shares ofWarrant Stock set forth below, with full power
of substitution in the premises:

    

     

    
      	
              Name(s)
      of Assignee(s)

            	
              Address

            	
              Warrant
      Stock

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      

    

     

    And if
said Number of Shares of Warrant Stock shall not be all the Warrant Stock
represented by the Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the Warrant Stock registered by said
Warrant.

    

     

    Signature:    
____________________________                                                       

     

     

    Name:          
[____________________________]      

     

     

    Address:     
[____________________________]   

     

     

    Date:            [_____________________________]
               

     

    Notice:
The signature to the foregoing Assignment must correspond to the name as written
upon the face of this security in every particular, without alteration or any
change whatsoever; signature(s) must be guaranteed by an eligible guarantor
institution (banks, stock brokers, savings and loan associations and credit
unions with membership in an approved signature guarantee medallion program)
pursuant to Securities and Exchange Commission Rule 17Ad-15.

     

     

    11

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