Exhibit 3.1
LAW OFFICES MICHAEL C. FALLON
Michael C. Fallon, SBN 088313
Carolyn A. McBeath, SBN 209960
100 E Street, Suite 220
Santa Rosa, California 95404
Telephone: (707) 546-6770
Facsimile: (707) 546-5775
Attorneys for ZAP
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
(Santa Rosa Division)
In Re: Case No.
02-10482-AJ
ZAP CHAPTER 11
Debtor.
/
DISCLOSURE STATEMENT UNDER 11 U.S.C. 1125
IN SUPPORT OF DEBTOR'S PLAN OF REORGANIZATION
(April 8, 2002)
YOU ARE BEING SENT THIS DISCLOSURE STATEMENT BECAUSE YOU ARE EITHER A CREDITOR
OF ZAP OR AN EQUITY HOLDER IN ZAP. THIS DOCUMENT DESCRIBES A PLAN OF
REORGANIZATION WHICH, WHEN CONFIRMED BY THE BANKRUPTCY COURT, WILL GOVERN HOW
YOUR CLAIM WILL BE PAID, IF YOU ARE A CREDITOR, OR HOW YOUR INTEREST IN ZAP WILL
BE TREATED, IF YOU ARE AN EQUITY HOLDER. ZAP URGES YOU TO REVIEW THE DISCLOSURE
STATEMENT AND THE PLAN OF REORGANIZATION CAREFULLY BEFORE VOTING ON THE PLAN.
DATED: April 8, 2002
Law Offices of Michael C.
Fallon
Attorneys for ZAP
By /s/ Michael C.
Fallon
Michael C. Fallon
TABLE OF CONTENTS
I. Introduction 1
A. Repayment of Creditors/Treatment of Equity Holders 1
B. Creditors Allowed to Vote: Deadline 1
C. Confirmation of the Chapter 11 Plan 2
D. Lack of Objection to the Disclosure Statement 2
E. Representations in the Disclosure Statement 2
II. Background and Financial History 3
A. Background 3
B. Financial History 5
III. The Chapter 11 Filing 5
IV. Post-Petition Events 6
V. Summary of Scheduled Assets and Liabilities 6
VI. Classification of Claims 7
VII. Summary of the Plan of Reorganization 8
VIII. Implementation of the Plan 9
A. Vesting 9
B. ZAP will consummate the proposed acquisitions 10
(1) The Proposed Acquisition of Voltage Vehicles 10
(2) The Proposed Acquisition of RAP Group, Inc. 11
C. Financial Strength of VV and RAP 12
D. Marketing, Sales, and Distribution Plan 12
E. Authorization to Issue Common Stock 13
F. Warrants 13
(i) Series B - Twelve Month Warrants 13
(ii) Series C - Two Year Warrants 13
(iii) Series D - Three Year Warrants 13
(iv) Series K - Acquisition Company Warrants 13
(v) General Terms of all the Warrants 13
G. Creation of Incentive Stock Option Plan (ISO) 14
H. Management 14
IX. Restrictions on Transfer of Common Stock 16
A. Restriction 16
B. Restrictive Legend 16
C. Stop Transfer Order 17
D. Exception to Restriction 17
E. Common Capital Stock Obtained by Exercise of Warrants 17
F. No Fractional Units of Equity 17
X. The Future of the Reorganized Debtor 17
XI. Securities Law Compliance 18
XII. Marketability of the Common Capital Stock 19
XIII. Issuance of Securities Under Section 1145 of the Bankruptcy Code 20
XIV. Risk Factors 20
XV. Tax Consequences 21
XVI. Satisfaction of Claims and Interests 21
XVII. Alternative to the Plan 22
XVIII. Conclusion 24
I.
Introduction
On March 1, 2002, ZAP filed a petition for reorganization under
Chapter 11 of the United States Bankruptcy Code in the Northern District of
California, Santa Rosa Division. This Disclosure Statement has been prepared by
ZAP in connection with the Plan of Reorganization proposed by ZAP to comply with
the provisions of the Bankruptcy Code that require the submission of information
necessary for creditors and equity interest holders to arrive at an informed
decision in exercising their rights to vote for acceptance or rejection of the
Plan of Reorganization. On _______________________ ZAP obtained an order of the
Bankruptcy Court approving this Disclosure Statement for submission to creditors
and equity interest holders.
A. Repayment of Creditors/Treatment of Equity Holders
ZAP proposes to pay the claims of its unsecured creditors by giving
the unsecured creditors .65 shares of common stock in ZAP for every dollar of
debt. The 2,250 ZAP Preferred Shares, originally valued at $1,000 per share,
will be converted to 1,260,000 shares of common stock, and the 6,693,643 shares
of common stock will be converted to 2,231,214 shares of common stock.
Concurrently with the conversion of debt to equity, and the conversion of the
existing equity to equity in what will be the reorganized ZAP, there will then
be a 2:1 reverse split of all of the common stock. All shareholders will also
receive Warrants to purchase shares of common stock in ZAP.
B. Creditors Allowed to Vote: Deadline
Creditors who wish to vote on the Plan should review this Disclosure
Statement and the Plan, complete the enclosed ballot and return it to the Law
Offices of Michael C. Fallon, 100 E Street, Suite 220, Santa Rosa, California
95404, in the enclosed envelope on or before _______________, 2002.
Creditors who hold allowed claims are entitled to vote to accept or
reject the Plan. Ballots received by counsel after the date set forth above
will not be counted in determining whether the Plan should be confirmed. Even
though a creditor may choose to not vote or may vote against the Plan, all
creditors will be bound by the terms of the Plan if the Plan is accepted by the
requisite majorities in each class of creditor and/or is confirmed by the
Court. Creditors who fail to vote will not be counted in determining acceptance
or rejection of the Plan. Allowance of a claim or interest for voting purposes
does not necessarily mean that the claim will be allowed or disallowed for
purposes of distribution under the Plan. Any claim on which an objection has
been or will be made will be allowed only for distribution after determination
by the Court. Such determination may be made after the Plan is confirmed.
C. Confirmation of the Chapter 11 Plan
The Bankruptcy Court will hold a hearing at 10:00 a.m. on
________________ to determine whether the Plan has been accepted by the
requisite number of creditors and whether the other requirements for
confirmation of the Plan have been satisfied.
For the Plan to be deemed accepted by a class of creditors the Plan
must be accepted by creditors that hold at least two-thirds in the dollar amount
and more than one half in the total number of allowed claims within that class.
For purposes of this calculation, only the claims of creditors actually voting
on the Plan will be counted. Under certain circumstances described in 11 U.S.C.
1129(b), the Court may confirm a plan notwithstanding the rejection thereof by
more than one third in amount or one half in number of creditors voting on the
plan in any given class. The Plan Proponent intends to seek confirmation under
11 U.S.C. 1129(b) in the event any class of creditors rejects the Plan.
D. Lack of Objection to the Disclosure Statement
The lack of an objection to the Disclosure Statement by any creditor
or equity holder does not, and will not, operate as a waiver of the creditor's
right to raise any objections to confirmation of the Plan of reorganization.
E. Representations in the Disclosure Statement
ZAP is not able to warrant or represent that the information
contained in this Disclosure Statement is without error, although reasonable
efforts have been made to insure that the information contained herein is
accurate, complete and free from error.
All projections, estimates, and analysis with respect to ZAP's
assets, claims against ZAP, property values, pending or anticipated litigation,
and projections of future cash flow are only ZAP's best estimates, and ZAP
cannot warrant that actual values, results, and recoveries will, in fact, be
consistent with this Disclosure Statement.
Any description of the terms of ZAP's Plan is a summary only, and
you are cautioned to review the terms of the Plan for significant details.
II.
Background and Financial History
A. Background.
ZAP was incorporated under the laws of the State of California, on
September 23, 1994, under its original name, "ZAP Power Systems". The name of
ZAP was changed on May 16, 1999 to ZAPWORLD.COM to reflect ZAP's growth and
entry into internet markets, and then in June of 2001 the name was changed to
ZAP.
ZAP has grown from a single product line to a full line of electric
vehicle products by designing, assembling, manufacturing, and distributing
electric bicycle power kits, electric bicycles and tricycles, electric scooters,
electric motorcycles and other personal electric transportation vehicles.
ZAP was established to provide alternative modes of transportation
as a means of providing relief from the emissions associated with gas powered
vehicles by developing low-cost electric vehicles. ZAP'S objective has been to
leverage its proprietary technology and name recognition to serve potential
markets in the electric bicycle, electric scooter, and other light electric
vehicle transportation industries to become a leader in the emerging light
electric vehicle industry.
Because ZAP's management believed the primary barrier to widespread
use of electric vehicles was the high cost to the consumer, ZAP's activity was
to develop low-cost Zero Air Pollution (or ZAP) electric vehicles, initially
funded from development contracts ZAP secured from both domestic government
agencies and a foreign private entity. ZAP continues to focus its research on
making affordable, cost effective, electric vehicles available to the consumer,
while developing an international distribution network for personal vehicle
products. ZAP is the holder of 14 patents and 9 registered trademarks,
including the brand names ZAP, ZAPPY, Powerbike , and Zero Air Pollution. ZAP
has developed or arranged for the distribution of the following products:
ZAPPY is a stand-up, portable, lightweight scooter featuring a
12-volt battery with a built-in charger and a collapsible frame. Its patented
design includes a unique folding mechanism and proprietary circuitry which
increase efficiency and range of the vehicle.
ZAPPY TURBO - The new ZAPPY TURBO is an improved version of ZAP'S
ZAPPY folding electric scooter. The ZAPPY TURBO'S new electric propulsion system
offers improved acceleration and hill climbing, and has a "hi-performance" mode
that allows the scooter to reach speeds of 19.5 MPH.
SWIMMY - Which was designed to give swimmers and snorkelers a boost
in the open water or to enjoy in a pool. It is as simple as grabbing onto the
handles and pulling a switch for an effortless ride through the water with a
quiet electrical assist. While ZAP already manufactures a Sea Scooter for scuba
divers, the strong interest in this product received thus far, indicates a
demand for a swimming pool version for children and fitness swimmers.
POWERSKI - This Powerful design offers skaters a new form of
transportation, exercise and pure skating fun. The two-wheeled device pulls the
rider like a water skier via two flexible poles that allow a skiing motion. With
a top speed of 15MPH, the POWERSKI can easily turn any paved surface into a
downhill skiing environment. This device was first developed by Electric
Vehicles Systems, an entity purchased by ZAP in the first quarter of 2000.
Powerbike - Which is primarily a mountain bike with a new and
improved electric motor attached. It was designed to appeal to the low-cost mass
merchant.
LEPTON - This electric vehicle is similar to a gas 50cc type scooter
with a top speed of 30 miles per hour. ZAP is a distributor for the Italian
scooter company and expects sales primarily in resort and university Localities.
Microprocessor drive controllers- ZAP is working to develop a series
of low cost proprietary motor controller microprocessors for all of its electric
vehicles, which is believed to increase efficiency and lower costs of operation.
B. Financial History.
ZAP's Annual Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ending December 31, 2000, which was
sent last year to all equity security, is available either upon request at no
charge, or by going to ZAP's web site at www.ZAPWORLD.com.
ZAP's Annual Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ending December 31, 2001, is available
upon request at no charge and will soon be available at ZAP's web site.
III
The Chapter 11 Filing
ZAP began experiencing business and financial difficulties in 2000
when several competitors, ignoring the U.S. patent laws, began manufacturing
"knock offs" of ZAP's products in Asia using low-cost labor and inexpensive
materials. Because the cost to enforce the patent laws was prohibitive, ZAP was
forced to curtail its US manufacturing, to write down its inventory, and to sell
its products at a loss.
At the same time foreign competition was destroying ZAP's place in
the market, certain stock transactions adversely affected the value of the ZAP
stock, thereby severely damaging ZAP's ability to obtain additional debt or
equity financing.
Finally, ZAP was adversely affected by the dramatic downturn in the
Stock Market and the poor worldwide economy following the events of September
11, 2001.
The management of ZAP responded to each of these negative events by
implementing the following changes:
- analyzed the causes for the declines and implemented changes
- consolidated several offices
- reduced staffing from approximately 100 employees to 23 employees
- reduced executive salaries by up to 30%
- developed overseas manufacturing capabilities.
- initiated certain acquisition discussions.
Despite these efforts, management determined it was in the best
interest of the creditors and equity holders to reorganize the financial affairs
of ZAP under the protection of the Bankruptcy Court.
IV
Post-Petition Events
On March 11, 2002, the Office of the United States Trustee appointed
the Official
Unsecured Creditors' Committee, consisting of Sach Jain of Sonel Usha, Inc.,
Chris Linert of International Service Group, Inc., and Jeffrey Baclet of Donner
Corp. ZAP is informed the committee is in process of retaining counsel to
represent the committee.
Applications to employ professionals to assist ZAP through the
reorganization process, including the applications to employ the Law Offices of
Michael C. Fallon as general counsel to ZAP, to employ Lee Polson as special
securities counsel, Douglas Haffer as special litigation counsel, and Grant
Thornton as auditor have either been approved by the court, or are pending.
ZAP's motion for authority to pay post-filing retainers to Lee Polson and Grant
Thornton is pending.
V
Summary of Scheduled Assets and Liabilities
ZAP's personal property as of March 1, 2002, and as listed in its
Bankruptcy Schedules, is comprised of the following:
Financial Accounts $ 397,274
Restricted Financial Accounts 151,243
Joint Venture - Voltage Vehicle 56,000
Accounts Receivable 484,000
Claim against International Service Group 234,800
Patents, copyrights, etc. 300,000
Vehicles 21,782
Computer software, equipment, etc. 94,859
Machinery and equipment 292,210
Inventory, raw materials, etc. 1,310,734
Federal Grant - NASDA 13,151
Leasehold improvements 21,570
Prepaid Expenses 250,608
State of California - Energy Commission 10,000
Total $ 3,638,232
ZAP scheduled the following liabilities
GMAC (1998 Isuzu) $ 6,912
GMAC (1996 Chevy G-Van) $ 428
Lashman Family Partnership $ 154,000
Employee Vacation Pay $ 21,733
Unsecured Creditors $ 4,230,805
ZAP also scheduled numerous Executory Contracts and Unexpired
Leases, many of which will be rejected. Other creditors may include the claims
of the Preferred Shareholders for unpaid dividends and fees.
VI
Classification of Claims
The following is a designation of the classes of claims and the
class of interests provided for in the Plan. Administrative claims, priority
tax claims, and wage claims of the kinds specified in Bankruptcy Code 507(a)(1)
and 507(a)(8) respectively, have not been classified and are excluded from the
following classes in accordance with the provisions of 1123(a)(1) of the
Bankruptcy Code. A claim or interest shall be deemed classified in a different
class to the extent that any remainder of the claim or interest qualifies within
the description of such different class. A claim is in a particular class only
to the extent that the claim is an Allowed Claim in that class.
The Plan establishes seven (7) classes that deal with the claims of
creditors and the interest of equity holders.
Class 1- GMAC - Security Agreement 1998 Isuzu
Class 2- GMAC - Security Agreement 1996 Chevy G-Van
Class 3 - Lashman Family Partnership, Ltd - Unperfected
security interest in Aquatic Propulsion Technology's inventory.
Class 4 - All Unsecured Claims, including creditors that
claim damages from the rejection of an executory contract or unexpired lease,
the deficiency claims of creditors who were previously secured and whose claims
have been determined to be unsecured in whole or in part, and the claim, if
any, of the Preferred Shareholders for allowed unpaid dividends, fees or
penalties. Class 4 will be subdivided for administrative convenience to
establish two subclasses of unsecured creditors:
Class 4.1 - Allowed claims up to $1,000;
Class 4.2 - Allowed claims of $1,001 or greater.
Class 5 - Retained Interest of the Preferred Equity
Security Holders.
Class 6 - Retained Interest of the Equity Security Holders.
Class 7 - International Service Group, Inc.
VII
Summary of the Plan of Reorganization
ZAP proposes to acquire two operating businesses, Voltage Vehicles,
Inc. ("VV") and RAP Group, Inc. ("RAP"), as wholly owned subsidiaries, by
purchasing all the shares of these businesses in exchange for 4,500,000
(post-split) shares of common stock in ZAP, plus Warrants to purchase additional
shares of common stock..
The Allowed Claims in class 4.1, and any creditor that elects to
reduce its claim to $1,000, shall be paid twenty-five percent (25%) of the
Allowed Claim in cash not later than ninety (90) days following the Effective
Date.
The Allowed Claims in Class 4.2 shall receive .65 shares of common
stock in ZAP for every dollar of debt.
The 2,250 ZAP Preferred Shares, originally valued at $1,000 per
share, will be converted to 1,260,000 shares of common stock in ZAP, and the
Preferred Shareholder current Warrants will be converted to the same Warrant
rights that will be given to the common shareholders. Upon confirmation there
will be no Preferred Share holders.
The 6,693,643 shares of common stock will be converted to 2,231,214
shares of the common stock in ZAP. After the conversions, there will then be a
2:1 reverse split of all of the common stock in ZAP.
All shareholders will also receive Warrants to purchase additional
shares of common stock.
All unclassified claims (i.e., chapter 11 claims of administration,
taxing authorities, wage claimants, the Office of the United States Trustee)
will be paid in full either on the day following the day on which the order
confirming the Plan becomes a Final Order, in the case of the taxing authorities
and the Office of the United States Trustee, as soon as practicable after the
order or orders approving chapter 11 claims of administration become Final
Orders. Wage claimants will be paid their accrued vacation pay in the ordinary
course of business.
The secured claims of GMAC will be paid without interruption.
The unperfected secured claim of Lashman Family Partnership, to the
extent the claim is allowed, will be paid as a general unsecured claim.
The claim of International Service Group, Inc. will not be paid
until ZAP's claim against International Service Group, Inc., which is now
pending in the Superior Court, has been resolved.
Summary of Changes in Shareholders' Equity
The following changes in shareholders' equity will occur upon confirmation:
1. Existing shares will be subject to a 1:3 reverse split, reducing
their outstanding shares from 6,942,714 shares to 2,231,214 shares.
2. Existing convertible preferred shares (convertible into 31,417,365
common shares as of March 29, 2002) will be converted to 1,260,000
common shares.
3. Unsecured creditors will receive approximately 3,451,500 shares in
exchange for conversion of $5,310,600 of indebtedness.
4. All of the above shares will be subject to a 1:2 reverse stock split,
resulting in 3,471,357 shares outstanding.
5. Stockholders of the VV and RAP will receive 4,500,000 common shares
(post-split) in exchange for the outstanding shares of VV and RAP.
Upon consummation of these transactions, 7,971,357 common shares
will be outstanding, of which the existing (pre-chapter 11) common shareholders
will own 1,115,607 shares (14%). The unsecured creditors will own 1,725,750
common shares (22%). The former preferred shareholders will own 630,000 shares
(8%). The VV and RAP shareholders will collectively own 4,500,000 shares
(56%). the unsecured creditors, preferred shareholders and VV and RAP
stockholders will also receive warrants as part of the equity units.
VIII
Implementation of the Plan
A. Vesting.
On the Effective Date, all property of the Estate shall be
transferred to, and shall vest in the reorganized ZAP subject to the interests
evidenced by the Security Interest and Liens preserved under the Plan. After
the Effective Date, ZAP may use, lease, license, transfer, sell, refinance,
encumber, hypothecate, dispose of, acquire, and buy property, including payment
of professionals, subject to the terms of this Plan, but free of any other
restriction contained in the Bankruptcy Code or Bankruptcy Rules or Bankruptcy
Local Rules. As of the Effective Date, all property vested in ZAP shall be free
and clear of all Claims of creditors, except the obligations that are imposed or
preserved by this Plan.
B. ZAP will consummate the proposed acquisitions.
On the Effective Date, ZAP will acquire all of the outstanding
equity securities of VV. and RAP in exchange for equity units in ZAP. The
shareholders of VV will receive 500,000 ZAP equity units, and the shareholders
of RAP will receive 4,000,000 units. Each equity unit will consist of one common
share of ZAP, and one each of Series B, C, D and K Warrants to purchase common
shares of ZAP.
(1) The Proposed Acquisition of Voltage Vehicles
VV is a Sonoma County-based Nevada Corporation that has exclusive
distribution contracts for the independent auto dealer network. Its has
distribution contracts that cover the full spectrum of electric vehicles (EV)
and full-performance alternative fuel vehicles (AFV) including automobiles,
motorcycles, bicycles, scooters, personal water craft, hovercraft, neighborhood
electric vehicles (NEV), commercial vehicles and accessories.
VV's development of an independent dealer distribution network
represents the most diverse nationwide offering of independent alternative fuel
manufacturers. VV is the only dealership in America today offering consumers an
emission-free, full-performance vehicle, approved for freeway travel. This
vehicle, the "Solectria Force", is state-of-the-art electric vehicle technology
and emission-free operation in a comfortable and spacious four-door sedan.
In addition to Solectria, VV's emerging new motor vehicle dealer
network features strategic partnerships with major manufacturers of premium
alternative energy products.
Prior to negotiating for the sale of VV to ZAP, VV was in contract
with ZAP that VV the exclusive right to market and distribute ZAP products to
automobile distributors throughout the United States. In May of 2001, VV and
ZAP entered a joint venture agreement to develop new Neighborhood Electric
Vehicles (NEV), and other personal electric vehicles for marketing and
distribution internationally. In August of 2001, VV executed an agreement with
Gorilla, Inc. that gave to VV exclusive rights to distribute Gorilla's zero
emission work carts to the independent auto dealers of America. In August of
2001, VV entered an agreement with Apollo Energy, Inc. that grants VV the
exclusive right to incorporate Apollo's fuel cell technology in VV's auto
manufacturing enterprise. VV currently is engaged in negotiations with several
other businesses that manufacture zero emission products.
On March 26, 2002, ZAP signed an agreement, contingent upon
confirmation of the Plan, to acquire 100% of the common stock of VV through a
stock for stock transaction whereby ZAP will transfer to VV 500,000 (post-split)
shares of ZAP's common stock and Warrants to purchase additional common stock.
(A copy of the acquisition agreement is available upon request).
VV was a subsidiary of Advanced Wireless Systems, Inc. In February
of 2002, the agreement by which Advanced Wireless, Inc. acquired VV was
rescinded by mutual agreement.
(2) The Proposed Acquisition of RAP Group, Inc.
RAP Group (RAP) is a five-year-old Sonoma County-based California
Corporation auto dealer focused on the independent vehicle and alternative
fueled vehicles market. As a VV authorized dealer, RAP is one of the only auto
dealers in the USA authorized to sell a full performance FMVSS certified
electric car. The auto dealership currently markets electric scooters, bikes
and other electric light electric vehicles from its Sonoma County location.
Revenues in 2001 were approximately $6.2 million, with net pre-tax profits of
approximately $400,000.
On March 26, 2002, ZAP signed an Agreement, also contingent upon
confirmation of the Plan, to purchase 100% of the common stock of the RAP Group,
Inc. through a stock for stock transaction involving the issuance of 4,000,000
(post-split) shares of the common stock in ZAP common stock, and Warrants to
purchase additional common stock. (A copy of the acquisition agreement is
available upon request).
RAP was also a subsidiary of Advanced Wireless Systems, Inc, and as
with VV, in February of 2002, the agreement by which Advanced Wireless, Inc.
acquired RAP was rescinded by mutual agreement.
C. Financial Strength of VV and RAP
Attached hereto as Exhibit A and B are unaudited 2001 Financial
Statements for RAP and VV.
D. Marketing, Sales, and Distribution Plan
In 2001, ZAP sold over $500,000 through the Internet; These high
margin, manufacturer direct to retail sales avenues will be continued. ZAP will
also continue to market its electric vehicles through the cost effective, high
margin rental, tourist, and other specialty dealer markets.
ZAP's overall goal is to dominate the personal electric vehicle
industry market by increasing sales through VV, through mass retail
organizations and wholesale distributors both domestically and abroad, by
setting up retail outlet stores that specialize in electric vehicle
transportation as well as franchise stores to assist in the retail arena.
VV will be handling the marketing of ZAP's products, and other
personal electric vehicles, by focusing on the top 1% of the more than 100,000
independent auto dealers in the United States, which will, according to VV
management, be a strong market for ZAP products: It is estimated that in 2002,
VV will bring in 50 new dealers for ZAP's products, with an additional 100
dealers in 2003, that will purchase up to $20,000 in electric vehicle products,
generating $1,000,000 in gross revenues, with $50,000 in pre-tax profits.
ZAP intends to increase its production capability through overseas
contract manufacturers to maximize cost savings and to enable ZAP to focus on
sales and distribution, without the high cost of maintaining a manufacturing
facility that cannot compete with foreign production.
Product improvements, new product introductions, and the expansion
of ZAP's electric outlet network will continue to enlarge ZAP's presence in the
electric vehicle industry; The acquisition and merger with RAP and VV, that
combine resources and management, should reduce its cost of operation.
E. Authorization to Issue Common Stock.
ZAP will be authorized to issue 100,000,000 common shares and
50,000,000 preferred shares.
F. Warrants.
ZAP will be authorized to issue 10 million Series B Warrants, 10
million Series C Warrants, 10 million Series D Warrants and 10 million Series K
warrants.
(i) Series B - Twelve Month Warrants:
One (1) Series B Warrant giving the Warrant Holder, upon the
exercise of each such Warrant, the right to purchase one share of the Common
Capital Stock of ZAP for a period of 365 days, from the date of issuance, at an
exercise price of $1.50 for the first 180 days, $1.75 for the next 90 days, and
$2.00 for the remaining life of the Warrant;
(ii) Series C - Two Year Warrants:
One (1) Series C Warrant giving the Warrant Holder, upon the
exercise of each such Warrant, the right to purchase one share of the Common
Capital Stock of the ZAP for a period of 730 days, from the date of issuance,
at an exercise price of $4.00 for the first 547 days, $4.50 for next 90 days,
and $5.00 for the remaining life of the Warrant.
(iii) Series D - Three Year Warrants:
One (1) Series D Warrant giving the Warrant Holder, upon the
exercise of each such Warrant, the right to purchase one share of the Common
Capital Stock of ZAP for a period of 1,095 days, from the date of issuance, at
an exercise price of $8.00 for the first 730 days, $9.00 for next 190 days, and
$10.00 for the remaining life of the Warrant.
(iv) Series K - Acquisition Company Warrants:
One (1) Series K warrant giving the Warrant Holder, upon the
exercise of each such Warrant the right to purchase one share of the Common
Stock of ZAP for a period of 1,095 days from the date of issuance, at an
exercise price of $1.00 for the life of the warrant. The warrant may be issued
through a net issue exercise formula as defined in the K warrant.
(v) General Terms of all the Warrants:
The Board of Directors of ZAP shall have the right to (a) decrease
the exercise price of the Warrants, (b) increase the life of the Warrants in
which event the exercise price may be increased or (c) make other changes as the
Board of Directors of ZAP deems necessary and appropriate under the
circumstances, provided the changes contemplated do not violate any law.
All Classes of the Warrants may be assigned, sold or transferred by
the holder without restriction. The stock received from the exercise of the
Warrants will be without restriction.
All Classes of the Warrants not exercised, may be redeemed by ZAP
for a price of $0.01 per Warrant upon thirty (30) days written notice to the
holders thereof.
G. Creation of an Incentive Stock Option Plan (ISO):
ZAP is creating through the Plan of Reorganization an Incentive
Stock Option Plan for employees within the meaning of Section 423 of the
Internal Revenue Code of 1986, as amended (the Code). The purpose of the Plan
is to grant options to ZAP employees to purchase shares of Common Stock of ZAP.
The Plan will have option(s) to purchase ten million (10,000,000) shares of
Common Stock at an exercise price equal the closing price on the date issued.
H. Management.
ZAP shall be authorized to have from five (5) to nine (9) members in
size as determined by the Board. At least three members will be independent
directors.
The initial Directors of ZAP shall be Gary Starr, Steven Schneider
and Lee Sannella. Thereafter, the directors shall be elected by the
stockholders. As a part of the Plan, ZAP will create an advisory board
consisting of up to five members. The initial members shall be Mark Kopec and
Garry Garrettson.
(1) Gary Starr has been a director since ZAP's inception in 1994,
and has served as Chief Executive Officer since 2001. Mr. Starr has been
building and driving electric cars for more than 25 years. In addition to
overseeing the marketing of more than 75,000 electric vehicles, Mr. Starr has
invented several solar electric products and conservation devices. He founded
U.S. Electricar's electric vehicle operations in 1983. US Electricar recently
signed a licensing agreement with Hyundai. He has been a member of the
California Environmental Technology Advisory Council and has been a guest
lecturer at Stanford University Graduate School of Business. Mr. Starr has a
B.S. from the University of California at Davis in Environmental Consulting and
Advocacy. Mr. Starr has several publications: Electric Cars: Your Guide to
Clean Motoring, The Shocking Truth of Electric Cars, and The True Cost of Oil.
(2) Steven Schneider is President of Voltage Vehicles, Inc. Between
1978 and 1980. Mr. Schneider worked for Lincoln-Mercury-Renault as a salesman.
From 1980 until 1983 Mr. Schneider was a regional sales manager for Sony
Corporation. From 1983 until 1989 he was Business Manager for Honda of Santa
Rosa and during the same time period he was President of Amnesty Financial,
Inc., a credit consultation company. Between 1989 until 1992 he was a partner
in Empire Auto Brokers. From 1993 until 1998 he was the owner of Redwood Auto
Plaza. Between 1998 and 2001, he was a consultant to the RAP Group, Inc. He
attended Santa Rose Junior College and has graduated from a number of sales,
marketing and psychology training courses.
(3) Lee Sannella, M.D. has been a director since its inception in
1994. Dr. Sannella has been an active researcher in the fields of alternative
transportation, energy, and medicine for more than 25 years, and has been a
founding shareholder in many start-up high technology companies. After
graduating from Yale University, he maintained an active medical practice for
many years in ophthalmology and psychiatry. Dr. Sannella has since retired from
his medical practice.
(4) Mark Kopec, who will be on the advisory board, has since 1993
served as Executive Vice President of Solectria Corporation where he oversees
all sales and marketing activities of Solectria which manufactures electric
automobiles, trucks and other such vehicles. From 1995 until 1997 he managed
sales and marketing activities for C & M Corporation. From 1990 until 1992 he
served as a private consultant to a number of businesses. From 1987 until 1993
Mr. Kopec was a Vice President for Airdrome Teleflex, Inc. During the period
1984 until 1987 he served as regional sales manager for Titeflex Company. From
1982 until 1984, Mr. Kopec was employed as Plant Manager/Controller for Moon
Cutter Company and from 1974 until 1982 he served as Sales Administrator for
Atlas Aero Company. Mr. Kopec received his BS from Arizona State University in
1973. He has completed graduate work at the University of Pennsylvania's
Wharton School of Management (1975 and 1976) He has also completed the
Strategic Management Program at the Harvard University Graduate School of
Business Administration (1995 thru 1997).
(5) Garry Garrettson, who will be on the advisory board, is
President & CEO of ClairVoyante Laboratories, an intellectual property company
developing foundational technology for the flat panel display industry. From
1996-2000 he was President & CEO of Spectrian Corporation (SPCT) and became
working Chairman in 2000. While at Spectrian, the revenues and shareholder
equity tripled, product development cycles were reduced from 24 to 6 months and
the RF power transistor business was spun out and sold for $100M. Prior to his
work with Spectrian, he was President and CEO of Censtor Corporation (1993-96),
Vice President at Seagate Technology (1989-93), Vice President at Control Data
(1986-89), Director at HP Laboratories (1973-86) and an Assistant Professor of
Physics, Naval Postgraduate School (1969-73). Dr. Garrettson was educated at
Stanford University where he received his Ph.D. in 1969.
IX
Restrictions on Transfer of Common Stock
The following restrictions apply to the transfer of the Common Stock
of ZAP to the new equity holders (the original, pre-plan shareholders will
continue to hold unrestricted common stock after the effective date) pursuant
to the Plan:
A. Restriction:The Common Stock shall not be transferable until the
first day of the twelfth (12th) full month following the Effective Date, at
which time twelve percent (12%) of the stock issued pursuant to the plan, pro
rata, or one percent (1%) of the existing outstanding shares of ZAP, whichever
is less, shall be released from the restriction on transfer. On the first day
of the fourth (4th) full month following one year from the Effective Date an
additional twelve percent (12%), pro-rata (or one percent (1%) of the
outstanding shall be released from the restriction set forth herein with a like
release each quarter (90days) thereafter until all of the Common Stock shall no
longer be subject to this restriction.
B. Restrictive Legend: A restrictive legend setting forth the
restriction set forth in the preceding subsection shall be placed on all of the
Common Stock issued pursuant to the provision set forth herein.
C. Stop Transfer Order: ZAP shall issue a "stop transfer order" to
the transfer agent to insure that the restriction is properly enforced.
D. Exception to Restriction: A holder of Common Stock, who has
received his Common Stock pursuant to the terms of this Plan may avoid the
foregoing restriction on transfer by furnishing counsel for ZAP, an opinion
satisfactory to such counsel, to the effect that a transfer of such Common Stock
is exempt from the registration provisions of the Securities Act of 1933, as
amended and any applicable Blue Sky Law other than pursuant to Section 1145 of
the Code and any corresponding provisions of the Securities Act of 1933, as
amended.
E. Common Capital Stock Obtained by Exercise of Warrants: No
restrictions shall apply to the shares of Common Capital Stock obtained through
the exercise of any of the Warrants.
F. No Fractional Units of Equity: No Fractional Units of Equity
shall be issued. Fractions will be rounded to nearest whole number and issued
accordingly.
X
The Future of the Reorganized Debtor
When ZAP filed its Chapter 11 petition, ZAP showed a total
shareholder equity of a negative $924,000. Assuming the Plan is accepted by the
creditors and the equity interest holders on or before June 30, 2002,
shareholder equity on July 1, 2002, will be $6,307,000, which represents a book
projected value of nearly $.85 per share.
Sales are projected for the period ending December 31, 2002, to be
$8,505,000, with ZAP operating at a break even. Management has forecasted that
ZAP will grow at a rapid rate, with profits starting in 2003.
Attached hereto as Exhibit C is a projected balance sheet and a
projected profit and loss statement for ZAP following confirmation of its Plan.
XI
Securities Law Compliance
ZAP's Common Stock has been listed on the Nasdaq SmallCap Market
under the symbol ZAPP since May 22, 2000. On February 14, 2002, ZAP received
a Nasdaq staff determination notice indicating that ZAP's common stock would be
subject to delisting from the Nasdaq National Market System for failure to
comply with Marketplace Rules, which require that ZAP's common stock maintain a
minimum bid price of $1.00. Under this rule, ZAP has until August 13, 2002, to
comply. ZAP may be granted an additional 180 day grace period to demonstrate
compliance under certain circumstances.
On March 1, 2002 , ZAP was suspended from trading on the Nasdaq
SmallCap Market due to the Chapter 11 filing. On March 20, 2002, ZAP resumed
trading under the symbol ZAPPQ.
On March 21, 2002, the listing qualifications section of Nasdaq
notified ZAP that Nasdaq intends to delist ZAP from The Nasdaq Stock Market for
failure to comply with Marketplace Rules 4330(a)(1), 4330(a)(3), 4310(c)(2)(B
and 4310(c)(13). The Nasdaq delisting notice stated their determination was
based on concerns raised by ZAP's recent filing for reorganization under Chapter
11, concerns regarding the residual equity interests of the existing listed
security holders, and ZAP's failure to meet quantitative requirements for
continued Nasdaq listing. The Nasdaq staff noted that ZAP does not meet the
minimum net tangible assets and stockholders equity requirements. In addition,
ZAP has failed to pay $23,335 in listing fees due to Nasdaq dating from the
third quarter of 2001. Finally, the Nasdaq, staff noted that ZAPs bid price
of its common stock had closed below the $1 per share minimum requirements
established by Marketplace Rule 4310(c)(4).
In response to Nasdaq's concern that shareholder equity value has
fallen below Nasdaq's minimum requirements, ZAP notified Nasdaq that ZAP is
currently exploring various strategic alternatives for ZAP, including, among
other things, merging with two private companies as part of its plan of
reorganization.
ZAP intends to continue to file required disclosure documents with
the Securities and Exchange Commission to remain a fully reporting company,
publicly traded company.
XII
Marketability of the Common Capital Stock
There can be no assurance that the Common Capital Stock of ZAP will
continue to be listed and traded on the Nasdaq Small Cap Market, or any other
marketplace, and it is not anticipated that a market will develop anywhere for
the Warrants to purchase the Common Capital Stock of ZAP.
The Plan contemplates that all Warrants, and the shares of common
stock issued from the exercise of those Warrants, will be free trading as exempt
from the Securities Act of 1933 pursuant to Section 1145 of the Bankruptcy
Code. The Plan further contemplates that the common stock issued pursuant to
the Plan will continue to be eligible for secondary trading of securities. The
common stock issued to the original, pre-Plan shareholders of common stock will
continue to be free trading.
As noted above, on the date this Disclosure Statement was filed,
ZAP's common stock was traded on the Nasdaq Small Cap Market. The Nasdaq Stock
Market has notified ZAP that it intends to delist ZAP's stock from Nasdaq as of
April 1, 2002, and ZAP has appealed that decision to a hearing panel of the
Nasdaq Qualifications Committee. There is no assurance that ZAP's appeal will
be successful or that the Reorganized ZAP's stock will, upon Plan confirmation,
be listed for trading on Nasdaq or any other organized securities market. If
Nasdaq delists ZAP's common stock, ZAP expects that its market makers may apply
to qualify ZAP for quotation on the OTC Bulletin Board.
The Plan contemplates that all shares of common stock to be issued
to shareholders of VV and RAP, in the acquisitions of those companies, will be
restricted securities which may not be resold on the open securities markets
unless the shares are first registered under the Securities Act of 1933, or
unless they are sold under some exemption from the registration requirements of
the Securities Act, such as Rule 144 of the Securities and Exchange Commission.
XIII
Issuance of Securities Under Section 1145 of the Bankruptcy Code
Generally, an "issuer" of securities must comply with the stringent
registration and disclosure requirements of the Securities Act with respect to
the issuance of securities. Section 1145 of the Bankruptcy Code exempts Chapter
11 debtors from the requirements of 5 of the Securities Act and from state blue
sky laws the issuance of certificates of indebtedness or securities, and the
offer of a security through any warrant, option, right to subscribe, or
conversion privilege, under a plan of reorganization if the securities are
issued solely or primarily in exchange for claims against, or equity securities
of, the debtor. Section 1145(b) also provides a narrow exemption from the
Securities Act for the resale of securities issued under the reorganization
plan.
Although the Bankruptcy Code contains a "safe harbor" provision
excusing liability under the securities laws for honest errors, and provides
that a person soliciting acceptances of a plan "in good faith" is not liable for
violation of any applicable law, rule or regulation, the management of ZAP has
used its best effort to provide realistic projections of the future business of
ZAP following confirmation of its Plan.
XIV
Risk Factors
Certain significant risk factors are inherent in the consummation of
any plan of reorganization in a Chapter 11 Case. The successful implementation
of ZAP's Plan is dependent upon the ability of the management of ZAP to maintain
a certain level of revenue generated from income to service the cash
requirements of the Plan. Certain other risks are inherent to the Plan
1. There is no assurance that ZAP will be successful in the
implementation of its strategy to increase revenues via the acquisition of VV
and RAP.
2. ZAP has never been profitable, and there is no assurance that
future operations will be profitable. VV has limited operating history and never
been profitable. RAP has been operating profitably for several years.
3. ZAP will compete with many competitors who are larger, more
experienced, who have substantially greater financial resources, and are well
established in the marketplace.
4. ZAP is substantially dependent on its ability to attract new
capital. A shift in the ability to attract such new capital would have a
substantial adverse effect on ZAP's business operations.
XV
Tax Consequences
Stock in a debtor corporation can be exchanged for debt without
substantial tax consequences to a reorganized debtor. Where there is an exchange
of stock for debt, there will be no requirement for tax attribute reduction by
the discharged debtor. This follows from the rule that a corporation can realize
no income and sustain no loss on an exchange of its stock for cash or property.
This rule is not, however, absolute. A debtor corporation will realize debt
discharge income to the extent that the debt discharged exceeds the fair market
value of the stock transferred. It is the opinion of management that the debt
being exchanged for stock pursuant to ZAP's Plan does not exceed what will be
the fair market value of the stock being transferred in ZAP.
Creditors are urged to consult their own tax advisors as to the
consequences to them, under Federal and applicable State and local laws.
XVI
Satisfaction of Claims and Interests
The Plan is intended to deal with all Claims against ZAP of whatever
character, whether or not contingent or liquidated, and whether or not allowed
by the Court. However, only those Claims allowed will receive distributions
under the Plan. All Creditors and other parties in interest who have or assert
Claims in any Class shall, upon Confirmation of the Plan, be deemed to have
acknowledged that their respective Claims are fully satisfied by the
distribution provided herein, each of which Claims, whether known or unknown,
scheduled or unscheduled, filed or unfiled, asserted or assertable, are declared
and shall be, for all purposes, upon the entry of the Order Confirming Plan,
satisfied in full. All Impaired Classes of Claims shall receive the
distributions set forth in the Plan on account of, and in complete satisfaction
of, all such Allowed Claims. Without limiting the foregoing, on the Effective
Date, each Creditor shall be deemed to have waived, relinquished and released
any and all of their rights, Claims, other than as provided for in the Plan.
XVII
Alternative to the Plan
To arrive at a judgment on whether or not to vote for or against the
Plan proposed by ZAP, a Creditor or other party in interest needs to have an
understanding of the consequences of what would happen if the Case was converted
to one under Chapter 7 of the Code. If this case was converted to Chapter 7,
ZAP estimates the Liquidation value of the assets as of March 1, 2002:
Financial Accounts (Unrestricted) $ 82,400
Accounts Receivable 50,000
Patents, copyrights, etc. 30,000
Vehicles 3,849
Computer software, equipment, etc. 5,451
Machinery and equipment 16,070
Inventory, raw materials, etc. 280,529
Total $ 488,299
ZAP made the following assumptions in arriving at the liquidation
value:
1. $151,243 of the $433,643 ZAP had on deposit when the Chapter 11
was filed, are restricted funds. The deposit is restricted because the funds
have been used to secure letters of credit that have been given to ZAP's
overseas manufacturer to secure ZAP's payment of future orders . ZAP assumes
that if the case was converted to Chapter 7, ZAP would default and the letter of
credit would be called.
2. $200,000 of the unrestricted financial accounts will be used to
pay the ongoing expenses of ZAP prior to confirmation (or liquidation if the
Chapter 11 is converted to Chapter 7).
3. Included within the $484,000 of accounts receivable are not less
than $400,000 of very problematic accounts, accounts where ZAP has been advised
it will not receive payment.
4. The inventory, raw materials and work-in-progress have been
reduced on the assumption there would either be a quick sale of theses assets to
a company that acquires assets from bankruptcy estates at pennies on the dollar,
or there would be an auction sale.
5. The patents, copyrights, etc. are valued on ZAP's books at cost,
less depreciation, and does not represent a market value. If the Chapter 11 was
converted, there may not be any value to these assets.
6. ZAP eliminated the claim against International Service Group
because it is too speculative.
ZAP's estimate does not include the administrative costs that must
be paid to the Chapter 7 trustee, his counsel and accountant, and any other
costs that will be incurred through liquidation of the assets.
ZAP's estimate also does not include the potential recovery by a
Chapter 7 trustee of either preferential or fraudulent transfers that may have
occurred prior to the commencement of the Chapter 11 case. However, the initial
review of ZAP's financial affairs does not disclose any avoidable transfers,
with perhaps the exception of one transfer that occurred during the year prior
to the commencement of the Chapter 11 filing. In 2001, ZAP was embroiled in a
dispute with one of its major shareholders, Ridgewood ZAP, that was resolved by
converting Ridgewood ZAP's equity to $3,000,000 of debt. If an action was
brought by a Chapter 7 trustee to avoid that conversion, and if the Bankruptcy
Court found (1) Ridgewood ZAP was an "insider" as that term is defined in the
Bankruptcy Code, and (2) that Ridgewood ZAP's interest was improved by the
conversion, the Bankruptcy Court quite probably would enter judgment
reconverting the debt to equity. If that occurred, the distribution to unsecured
creditors in the hypothetical Chapter 7 discussed here, would improve.
There is approximately $4,500,000 in claims, which includes the
$3,000,000 unsecured claim of Ridgewood ZAP, without considering either the
claims that will follow from the rejection by the Chapter 7 trustee of ZAP's
Executory Contracts and Unexpired Leases, which could add an additional several
hundred thousand dollars in claims, or the potential claims by the Preferred
Shareholders for unpaid fees, dividends and penalties. Assuming Chapter 11 and
Chapter 7 Claims of Administration in the range of $100,000, and assuming the
wage claims will be paid as priority claims before the unsecured creditors, the
unsecured creditors might receive a dividend of between 8% and 10% of their
allowed claims. If the Chapter 7 trustee successfully reconverted the Ridgewood
ZAP debt to equity, the distribution to unsecured creditors would improve to
approximately 15% to 18%. The Preferred and Common stock holders would receive
nothing.
XVIII
Conclusion
According to the management of ZAP, the mergers are expected to
enhance ZAP's financial base by providing access to the two companies' services
and relationships. The move is expected to advance ZAP's goal of becoming a
leading full-service brand in the electric and alternative fuel transportation
industry. Upon completion of the mergers, ZAP plans to step up its role in
building a national distribution network to support its contract manufacturing
for its growing line of products. Under the Plan, all allowed creditor claims,
including pending litigation, will be resolved and its common equity value will
be increased by several million dollars. Equally as important, ZAP will have a
mechanism, through the exercise of Warrants, that will give ZAP the opportunity
to raise essential working capital to successfully meet its projected sale, and
thereby give all shareholders a potential for improving their position.
It should be clear to all creditors and equity holders that if ZAP
is to continue, the Plan proposed by ZAP is the only feasible plan: ZAP requires
immediate, substantial working capital to increase sales and improve its
position in the marketplace, which will come from the merger with Voltage
Vehicle and RAP and the anticipated exercise of Warrants. If the Plan proposed
by ZAP is not promptly confirmed, there will not be a merger, and ZAP will
close. The management of ZAP urges all creditors and equity holders to vote for
the Plan.
Dated: April 8, 2002
/s/ Gary
Starr
Gary Starr, CEO
Exhibits Not Attached.