The Board has adopted a Code of Ethics to provide guidance on maintaining the Company’s commitment to being honest and ethical in its business endeavors. The Code of Ethics covers a wide range of business practices, procedures and basic principles regarding corporate and personal conduct and applies to all directors, executives, officers and employees. A copy of the Code of Ethics is available on the ZAP website http://www.zapworld.com or may be obtained by written request submitted to the Corporate Secretary at ZAP, 501 Fourth Street, Santa Rosa,CA 95401. The Company intends to satisfy any disclosure requirements regarding amendments to, or waivers from, any provision of the Code of Ethics by disclosing on the Company’s website, by press release and/or on a current report on Form 8-K.
Selection of New Directors
Directors are elected annually by the shareholders at the Annual Meeting.annual meeting. The Board of Directors proposes a slate of nominees for consideration each year. Between Annual Meetings,annual meetings, the Board of Directors may elect directors to serve until the next Annual Meeting.annual meeting.
Nominees for the Board of Directors should be committed to enhancing long-term shareholder value and must possess a high level of personal and professional ethics, sound business judgment and integrity. The Board of Directors encourages selection of directors who will contribute to ZAP’s overall corporate goals: responsibility to its shareholders, technology leadership, effective execution, high customer satisfaction and superior employee working environment. The Corporate Governance and Nominating Committee will consider qualifiedfrom time to time reviews the appropriate skills and characteristics required of directors, including factors that it seeks in directors such as diversity of business experience, viewpoints and personal background, and diversity of skills in the automotive industry, technology, finance, marketing, legal, international business, financial reporting and other areas that are expected to contribute to an effective Board of Directors. In evaluating potential candidates for possible nominationthe Board of Directors, the Corporate Governance and Nominating Committee considers these factors in the light of the specific needs of the Board of Directors at that time. The brief biographical description of each nominee set forth in the “Business Experience and Qualifications of Nominees” above includes the primary individual experience, qualifications, attributes and skills of each of our directors that led to the conclusion that each director should serve as a member of the Board of Directors at this time.
Neither the Board of Directors nor the Corporate Governance and Nominating Committee has a formal policy with regard to the consideration of diversity in identifying director nominees; however, the Board of Directors and the Corporate Governance and Nominating Committee believe that it is essential that the directors represent diverse viewpoints. The goal of the Corporate Governance and Nominating Committee is to ensure that our Board of Directors possesses a variety of perspectives and skills derived from high-quality business and professional experience. The Corporate Governance and Nominating Committee seeks to achieve a balance of knowledge, experience and capability on our Board of Directors. To this end, the Corporate Governance and Nominating Committee seeks nominees with the highest professional and personal ethics and values, an understanding of our business and industry, diversity of business experience and expertise, a high level of education, broad-based business acumen, and the ability to think strategically. Although the Corporate Governance and Nominating Committee uses these and other criteria to evaluate potential nominees, we have no stated minimum criteria for nominees. The Corporate Governance and Nominating Committee does not use different standards to evaluate nominees depending on whether they are submittedproposed by our directors and management or by our shareholders. To date, we have not paid any third parties to assist us in this process.
In recommending candidates for election to the Board of Directors, the Corporate Governance and Nominating Committee is responsible for considering nominees recommended by directors, officers, employees, shareholders and others, using the same criteria to evaluate all candidates. The Corporate Governance and Nominating Committee is responsible for reviewing each candidate’s qualifications, including whether a candidate possesses any of the specific qualities and skills desirable in certain members of the Board of Directors and in accordance with the Company’s bylawscommittee’s charter. Evaluations of candidates generally involve a review of background materials, internal discussions and policies regarding director nominations. Any shareholder nominations will be evaluated usinginterviews with selected candidates as appropriate. Upon selection of a qualified candidate, the same criteria set forthCorporate Governance and Nominating Committee is responsible for recommending the candidate for consideration by the full Board of Directors. The Corporate Governance and Nominating Committee has not retained a third-party search firm to assist in the Governance Committee Charter as are applicableidentification or evaluation of director candidates for election to persons nominatedthe Board of Directors at the annual meeting, although it may do so in the future. The Company has not materially changed the procedures by other sources.
which security holders may recommend nominees to the Company’s Board of Directors since it last reported on this matter.
Shareholders wishing to make such a submission may do so by providing all information regarding the nominee that would be required under applicable SEC proxy rules, including (in addition to the information required in the bylaws or by applicable law): (i) the full name and resident address of the nominee; (ii) the age of the nominee; (iii) the principal occupation of the nominee for the past five years; (iv) any current directorship held on public company boards; (v) the number of shares of the Company’s common stockCommon Stock held by the nominee, if any; and (vi) a signed statement of the nominee consenting to serve if elected. In addition, the stockholdershareholder making the nomination and the beneficial owner, if any, on whose behalf the nomination is being made must provide (i) the name and address, as they appear on the ZAP’s books, of such shareholder and such beneficial owner, (ii) the class and number of shares of ZAP that are owned beneficially and of record by such shareholder and such beneficial owner, and (iii) any material interest of the shareholder and/or such beneficial owner in the nominee or the nominee’s election as a director. Such information should be sent to the Corporate Governance and Nominating Committee, c/o Corporate Secretary, ZAP, 501 Fourth Street, Santa Rosa, CA 95401.
In addition to potential director nominees submitted by shareholders, the Governance Committee considers candidates submitted by directors, as well as self-nominations by directors and, from time to time in its sole discretion, it may consider candidates submitted by a third-party search firm hired for the purpose of identifying director candidates. The committee has not retained a third-party search firm to assist in the identification or evaluation of Board member candidates for election to the Board at the Annual Meeting, although it may do so in the future. The Governance Committee investigates potential candidates and their individual qualifications, and evaluates all such candidates, including those submitted by stockholders, using the Board membership criteria set forth in the Committee’s Charter.
No candidates for director nominations were submitted to the Governance Committee by any shareholder in connection with the Annual Meeting.annual meeting. Any shareholder desiring to present a nomination for consideration by the Governance Committee prior to the 2008 Annual Meeting2011 annual meeting must do so in accordance with the Company’s notice procedures, policies and bylaws.
Director Compensation
EXECUTIVE OFFICERS
Set forth below is certainThis section provides information regarding our executive officers, including age, principal occupationthe compensation policies for directors and the date each first became an executive officer.
Name (Age)
| | Present Executive Officers
| | Executive
Officer
Since
|
Gary Starr (51) | | Mr. Starr co-founded ZAP in 1994 and has served as Chairman of the Board of Directors since October 2002. More detailed information regarding Mr. Starr’s business experience is set forth under “Directors.” | | 1994 |
| | | | |
Steven Schneider (46) | | Mr. Schneider has served as Chief Executive Officer since October 2002. More detailed information regarding Mr. Schneider’s business experience is set forth under “Directors.” | | 2002 |
| | | | |
Renay Cude (30) | | Ms. Cude serves as Corporate Secretary of ZAP and President of Voltage Vehicles, ZAP manufacturing and ZAP Rentals. More detailed information regarding Ms. Cude’s business experience is set for under “Directors.” | | 2002 |
amounts paid and securities awarded to directors in fiscal 2010.
| | | | |
William Hartman (59) | | Mr. Hartman was appointed Chief Financial Officer in March 2001. He was engaged with the Company as a financial consultant starting in January 2001. Prior to his engagement at ZAP, Mr. Hartman provided financial and accounting consulting services to various Internet start up companies in the San Francisco Bay Area from 1999 to 2001. Mr. Hartman is a Certified Public Accountant in the State of California with a Masters in Accounting Degree from the State University of New York. He also had previous public accounting experience as an audit manager with Price Waterhouse Coopers in San Francisco. | | 2001 |
| | | | |
Amos Kazzaz (50) | | Mr. Kazzaz was appointed Chief Operating Officer on March 26, 2007. Prior to joining ZAP, Mr. Kazzaz served as Vice President of Cost Management at United Airlines, Inc. where he oversaw United Airline’s operations, process improvement, and cost management. From 2003 to 2006, Mr. Kazzaz served as United Airline’s Vice President of Financial Planning and Analysis during which time he accounted for United Airline’s planning and analysis function and capital budget. From 2002 to 2004, Mr. Kazzaz served as United Airline’s Vice President of the Business Transformation Office, the company’s first enterprise project management office, during which time he was responsible for identifying areas of revenue and cost improvements; concurrently, Mr. Kazzaz served as the Chief Operating Officer at Avolar, a subsidiary of United Airlines. He currently sits on the Boards of Directors of Alliant Credit Union, SkyTech Solutions in India, and Integres. Mr. Kazzaz holds a bachelors degree in International Affairs from the University of Colorado and a Masters in Business Administration from the University of Denver.
| | 2007 |
Family Relationships
ThereDirectors who are no family relationships among anyemployees of our officers or directors.
EXECUTIVE COMPENSATION
Executive Compensation
The following executiveZAP do not receive compensation disclosure reflects all compensation awarded to, earned by or paid to the executive officers belowfrom us for the fiscal year ended December 31, 2006.services they provide as directors. The following table summarizes all compensation for fiscal year 2006 received by our Chief Executive Officer, and the Company’s three most highly compensated executives. Each of these officers is referred to as a “named executive officer.”
Name and principal position | Year | Salary ($) | Bonus ($) | Stock Awards ($) (1) | Option Awards ($) (1) | Non-Equity Incentive Plan Compensation ($) (2) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) |
| | | | | | | | | |
Steven Schneider, CEO Principal Executive Officer | 2006 | 120,000 | — | 17,800 | 419,756 | | | | 557,556 |
Gary Starr, Chairman | 2006 | 120,000 | | 17,800 | 419,756 | | | | 557,556 |
| | | | | | | | | |
William Hartman Principal Financial Officer | 2006 | 115,000 | | 17,800 | 100,000 | | | | 232,800 |
| | | | | | | | | |
Renay Cude Corporate Secretary | 2006 | 78,000 | | 17,800 | 419,756 | | | | 515,556 |
(1) | Stock awards are based on the stock price on the date of issue. Options/warrant awards were calculated using the following assumptions: dividend of 0, rate of 5.12% for warrants and 4.91% for options, expected life of 5 months for warrants and 6.75 years for options, strike price of $1.00 for warrants and $0.91 for options, stock price of $0.91 and volatility of 149.75%. All option and warrant issuances were fully vested at time of issue. |
Employment Agreements
We currently have employment agreements with three of our Named Executive Officers as described below.
Steve Schneider, Chief Executive Officer
WeCompany entered into an employment agreement with Steve Schneider on October 1, 2003. The agreement provides that Mr. Schneider will serveeach of the independent directors, Peter Scholl and Mark Abdou pursuant to which they were entitled to receive $30,000 per annum as our Chief Executive Officer through October 1, 2008compensation for services and receive a salary, benefits and options equal$4,000 per annum for each committee served. In addition to the highest paid employee of ZAP, butaforementioned, in no event less than $75,000 per year. Mr. Schneider’s current salary is set at $127,000. In addition,2010, the agreement provides that should ZAP become profitable, Mr. Schneider’s salary will automatically be increased by 10% for every $100,000 in profits calculated on a quarterly basis. Mr. Schneider annually receives a grant of stock options or warrants equal to 1% of the outstanding common stock of ZAP at an exercise price equal to 110% of the market price on the date of grant. Mr. Schneideroutside directors also receives all other benefits as are afforded to our employees and a Company car, or a car allowance of $5,000 per year in lieu of a Company car. In the event ZAP terminates his employment without cause, Mr. Schneider iswere entitled to his full salaryreceive $25,000 in shares of Common Stock and an option to purchase up to $60,000 in shares of Common Stock. The outside directors receive an option to purchase up to $18,000 in shares of Common Stock for the remainder of the term of the agreement. Should ZAP elect to terminate Mr. Schneider’s employment in the case of a merger or reclassify Mr. Schneider without cause prior to the expiration of the employment agreement, the Company must retain Mr. Schneider as an employee or consultant for a period of five years for an aggregate salary of $500,000, payable bi-monthly, or make a lump sum payment of $300,000. The agreement automatically renews for successive five year periods unless terminated by either party upon proper notice. On March 30, 2007, The Board of Directors of ZAP did approve the extension of the employment agreement with Mr. Schneider through October 1, 2013.
Gary Starr, Chairman of the Board
We entered into an employment agreement with Gary Starr on October 1, 2003. The agreement provides that Mr. Starr will serve as Chairmaneach committee of the Board of Directors of ZAP through October 1, 2008 and receive a salary, benefits and options equal toon which the highest paid employee of ZAP, but in no event less than $75,000 per year. Mr. Starr’s current salary is set at $127,000. In addition, the agreement provides that should ZAP become profitable, Mr. Starr’s salary will automatically be increased by 10% for every $100,000 in profits, calculated on a quarterly basis. Mr. Starr annually receives a grant of stock options or warrants equal to 1% of the outstanding common stock of ZAP at an exercise price equal to 110% of the market price on the date of grant. Mr. Starr also receives all other benefits as are afforded to our employees and a Company car, or a car allowance of $5,000 per year in lieu of a Company car. In the event ZAP terminates his employment without cause, Mr. Starr is entitled to his full salary for the remainder of the term of the agreement. Should ZAP elect to terminate Mr. Starr’s employment in the case of a merger or reclassify Mr. Starr without cause prior to the expiration of the employment agreement, the Company must retain Mr. Starr as an employee or consultant for a period of five years for an aggregate salary of $500,000, payable bi-monthly, or make a lump sum payment of $300,000. The agreement automatically renews for successive five year periods unless terminated by either party upon proper notice. On March 30, 2007, the Board of Directors of ZAP did approve the extension of the employment agreement with Mr. Starr through October 1, 2013.
Renay Cude, Corporate Secretary
We entered into an employment agreement with Renay Cude on October 1, 2003. The agreement provides that Ms. Cude will serve as Corporate Secretary of ZAP through October 1, 2008 and receive a salary, benefits and options equal to the highest paid non corporate officer-employee of ZAP, but in no event less than $36,000 per year. Ms. Cude’s current salary is set at $78,000. In addition, the agreement provides that should ZAP become profitable, Ms. Cude’s salary will automatically be increased by 10% for every $100,000 in profits, calculated on a quarterly basis. Ms. Cude annually receives a grant of stock options or warrants equal to 1% of the outstanding common stock of ZAP at an exercise price equal to 110% of the market price on the date of grant. Ms. Cude also receives all other benefits as are afforded to our employees and a Company car, or a car allowance of $5,000 per year in lieu of a Company car. In the event ZAP terminates her employment without cause, Ms. Cude is entitled to her full salary for the remainder of the term of the agreement. Should ZAP elect to terminate Ms. Cude’s employment in the case of a merger or reclassify Ms. Cude without cause prior to the expiration of the employment agreement, the Company must retain Ms. Cude as an employee or consultant for a period of five years for an aggregate salary of $250,000, payable bi-monthly, or make a lump sum payment of $150,000. The agreement automatically renews for successive five year periods unless terminated by either party upon proper notice. On March 30, 2007, the Board of Directors of ZAP did approve the extension of the employment agreement with Ms. Cude through October 1, 2013.
The following table sets forth certain information concerning stock option awards granted to our named executive officers.
OPTION AWARDS | STOCK AWARDS |
| | | | | | | | | |
Name | Number of securities underlying unexercised options (#) Exercisable | Number of securities underlying unexercised options (#) Unexercis-able | Equity Incentive Plan Awards: Number of Securities underlying unexercised unearned options (#) | Option exercise price ($) | Option expiration date | Number of shares or units of stock that have not vested (#) | Market value of shares or units of stock that have not vested ($) | Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (#) | Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($) |
| | | | | | | | | |
Steve Schneider (1) | 1,690,786 | — | | 1.00 | 7/1/12 | | | | |
Steve Schneider (2) | 200,000 | | | 0.25 | 7/5/12 | | | | |
Steve Schneider (2) | 486,111 | 13,889 | | 1.26 | 6/23/14 | | | | |
Steve Schneider (2) | 428,877 | 85,775 | | 1.32 | 11/16/14 | | | | |
Steve Schneider (2) | 211,265 | 105,633 | | 0.93 | 6/7/15 | | | | |
Steve Schneider (1) | 355,424 | | | 0.91 | 8/11/16 | | | | |
Gary Starr (1) | 1,470,671 | | | 1.00 | 7/1/12 | | | | |
Gary Starr (2) | 116,667 | | | 1.20 | 12/19/11 | | | | |
Gary Starr (2) | 150,000 | | | 0.25 | 7/5/12 | | | | |
Gary Starr (2) | 486,111 | 13,889 | | 1.26 | 6/23/14 | | | | |
Gary Starr (2) | 428,877 | 85,775 | | 1.32 | 11/16/14 | | | | |
Gary Starr (2) | 211,265 | 105,633 | | 0.93 | 6/7/15 | | | | |
Gary Starr (1) | 355,424 | | | 0.91 | 8/11/16 | | | | |
Renay Cude (1) | 1,525,786 | | | 1.00 | 7/1/12 | | | | |
Renay Cude (1) | 161,700 | | | 0.50 | 12/2/13 | | | | |
Renay Cude (2) | 48,611 | 13,889 | | 1.26 | 6/23/14 | | | | |
Renay Cude (2) | 428,877 | 85,775 | | 1.32 | 11/16/14 | | | | |
Renay Cude (2) | 211,265 | 105,633 | | 0.93 | 6/7/15 | | | | |
Renay Cude (1) | 355,424 | | | 0.91 | 8/11/16 | | | | |
William Hartman (1) | 687,500 | | | 1.00 | 7/1/12 | | | | |
William Hartman (2) | 41,667 | 8,333 | | 1.32 | 11/16/14 | | | | |
William Hartman (2) | 25,000 | | | 1.20 | 12/19/11 | | | | |
William Hartman (2) | 72,917 | 2,083 | | 1.26 | 6/23/14 | | | | |
William Hartman (1) | 100,000 | | | 1.03 | 9/18/16 | | | | |
(1) | The award was fully vested at time of issuance. |
(2) | The award vests equally over 36 months from date of grant. The option has a ten year life. |
Director Compensation
The following director compensation disclosure reflects all compensation awarded to, earned by or paid to theoutside directors below for the fiscal year ended December 31, 2006.serve.
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) |
| | | | | | | |
Raymond F. Byrne (1) | 3,000 | 20,800 | | | | | 23,800 |
Peter H. Scholl (1) | 3,000 | 20,800 | | | | | 23,800 |
(1) | Both independent directors received a stock award with value of $17,800 for their service on the Board and $3,000 for attending Board meetings. Raymond Byrne resigned as a Director in May, 2007. |
Compensation of Directors
Starting in April 2006, all directors received $500 and a grant of $500 of common stock for attendance at each Board meeting and each committee meeting. Directors are also reimbursed for out-of-pocket travel and other expenses incurred in attending Board of Directors and/or committee meetings. Prior to April 2006, we did not provide our directors with cash or other forms
The Compensation Committee establishes all components of compensation although we did reimburse their out-of-pocket expenses. Each Director also received 20,000 sharesfor directors and recommends changes to the Board of common stock in December 2006 as an additional compensation incentive.Directors.
Equity Compensation Plan Information
We have adopted stock incentive plans to provide incentives to attract and retain officers, directors, key employees and consultants. We currently have reserved a total of 15,500,000 shares of our common stock for granting awards, including 1,500,000 shares under our 1999 Incentive Stock Option Plan, 10,000,000 shares under our 2002 Incentive Stock Option Plan, and 4,000,000 shares under our 2006 Incentive Stock Option Plan. All plans were approved by our shareholders. As of December 31, 2006, 643,870 shares of common stock had been issued pursuant to options exercised out of the 2002 plan.
The following table sets forth a description of our equity compensation plans as of December 31, 2006:
Plan Category | | Number of Securities to be issued upon exercise of outstanding options and other rights | | Weighted-average exercise price of outstanding options and other rights | | Number of securities remaining available for future issuance under equity compensation plans, (excluding securities reflected in column (a)) |
| | (a) | | (b) | | (c) |
Equity compensation plans approved by security holders | | | | | | |
| | | | | | |
Equity compensation plans not approved by security holders(1) | | | | | | |
| | | | | | |
| | | | | | |
___________________
The following table provides information as to compensation for services of the directors during fiscal 2010.
Director Compensation
Name | Fees Earned or Paid in Cash ($) __________ | Stock Awards ($) (1) _________ | Option Awards ($) (2) _________ | All Other Compensation ($) _______ | Total ($) ____ |
Steven Schneider | — | — | — | — | — |
Alex Wang (3) | — | — | — | — | — |
Gary Dodd | — | — | — | — | — |
Mark Abdou | 12,000 | 32,000 | 41,040 | — | 85,040 |
Priscilla Lu | — | — | — | — | — |
Peter Scholl | 9,500 | 36,500 | 41,040 | — | 88,040 |
Eqbal Al Yousuf (4) | — | — | — | — | — |
(1) The amounts in the Stock Awards column represent the aggregate grant date fair values, computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, of restricted stock unit awards issued pursuant to the 2008 Equity Compensation Plan. The grant date fair value of these awards is calculated using the closing price of ZAP’s Common Stock on the grant date as if these awards were vested and issued on the grant date. There can be no assurance that these grant date fair values will ever be realized by the non-employee directors. For information regarding the number of unvested restricted stock units held by each non-employee director as of December 31, 2010, see the column “Unvested Restricted Stock Units Outstanding” in the table below.
(2) 228,000 stock options were awarded to non-employee directors in fiscal 2010. For information regarding the number of outstanding stock options held by each non-employee director as of December 31, 2010, see the column “Stock Options Outstanding” in the table below.
(3) | Appointed on October 25, 2010. |
(4) | Resigned on December 30, 2010. |
Shareholder Communications with the Board of Directors
Shareholders may communicate with ZAP’s Board of Directors through ZAP’s Secretary by sending an email to investor@zapworld.com, or by writing to the following address: Board of Directors, c/o Secretary, ZAP, 501 Fourth Street, Santa Rosa, CA 95401. Shareholders also may communicate with ZAP’s Compensation Committee through ZAP’s Secretary by writing to the following address: Compensation Committee, c/o Secretary, ZAP, 501 Fourth Street, Santa Rosa, CA 95401. ZAP’s Secretary will forward all correspondence to the Board of Directors or the Compensation Committee, except for spam, junk mail, mass mailings, product complaints or inquiries, job inquiries, surveys, business solicitations or advertisements, or patently offensive or otherwise inappropriate material. ZAP’s Secretary may forward certain correspondence, such as product-related inquiries, elsewhere within ZAP for review and possible response.
Recommendation of the Board of Directors
The Board of Directors recommends that the shareholders vote FOR the election of each of the nominees listed herein.
STOCK OWNERSHIP
The following table sets forth certain information, as of May 29, 2007, with respect to the holdings of (1) each person who is the beneficial owner of more than five percent of our common stock, (2) each of our directors, (3) the CEO and each Named Executive Officer, and (4) all of our directors and executive officers as a group.PROPOSAL NO. 2
Beneficial ownership of the common stock is determined in accordance with the rules of the Securities and Exchange Commission and includes any shares of common stock over which a person exercises sole or shared voting or investment powers, or of which a person has a right to acquire ownership at any time within 60 days of May 29, 2007. Except as otherwise indicated, and subject to applicable community property laws, the persons named in this table have sole voting and investment power with respect to all shares of common stock held by them. Applicable percentage ownership in the following table is based on 45,908,560 shares of common stock outstanding as of May 29, 2007, plus, for each individual, any securities that individual has the right to acquire within 60 days of May 29, 2007.
Unless otherwise indicated below, the address of each of the principal shareholders is c/o ZAP, 501 Fourth Street, Santa Rosa, California 95401.
| | Name and Address | | Shares Beneficially Owned | | Percentage of Class | |
| | | | | | | |
| | Beneficial Owners of More than 5%: | | | | | |
| | Sunshine 511 Holdings (1) | | 3,300,000 | | 6.7% | |
| | 101 N. Clematis Street, Suite 511 West Palm Beach, Florida 33401 | | | | | |
| | | | | | | |
| | Daka Development Ltd. (2) | | 2,799,136 | | 5.9% | |
| | 8/F Leroy Plaza, Unit C 15 Cheung Shun Street Chung Sha Wan Kin, Hong Kong | | | | | |
| | | | | | | |
| | Fusion Capital Fund II, LLC (3) | | 2,750,000 | | 5.6% | |
| | 222 Merchandise Mart Plaza, Suite 9-112 Chicago, IL 60654 | | | | | |
| | | | | | | |
| | Jeffrey G. Banks (4) | | 6,828,373 | | 13.2% | |
| | c/o The Banks Group, LLC PO Box 10287 Oakland, CA 94610 | | | | | |
| | | | | | | |
| | Current Directors, Nominees and Named Executive Officers: | | | | | |
| | Steven Schneider (5) | | 17,200,628 | | 27.9% | |
| | | | | | | |
| | Gary Starr (6) | | 8,423,792 | | 15.5% | |
| | | | | | | |
| | William Hartman (7) | | 1,057,681 | | 2.1% | |
| | | | | | | |
| | Renay Cude (8) | | 2,927,159 | | 6.1% | |
| | | | | | | |
| | Peter Scholl (9) | | 625,218 | | 1.3% | |
| | | | | | | |
| |
(1) | Represents 3,300,000 warrants to purchase common stock. The address for Sunshine 511 Holdings is 101 N. Clematis Street, Suite 511, West Palm Beach, FL 33401. |
(2) | Includes 2,587,262 warrants to purchase common stock. The managing partner is Raymond Chow. The address for Daka Development is Unit C 8/F Leroy Plaza, 15 Cheung Shun Street, Chung Sha Wan Kin, Hong Kong. |
(3) | Represents 2,750,000 warrants to purchase common stock. Pursuant to the terms of the warrant, Fusion Capital is not entitled to exercise the warrants to the extent such exercise would cause the aggregate number of shares of common stock beneficially owned by Fusion Capital to exceed 9.9% of the outstanding shares of the common stock following such exercise. Steve Martin is the managing partner. The address for Fusion Capital is 222 Merchandise Mart Plaza, Suite 9-112, Chicago, IL 60654. |
(4) | Includes 5,005,000 warrants to purchase common stock. |
(5) | Includes 12,159,266 shares of common stock issuable upon the exercise of various warrants and 1,911,682 shares of stock issuable upon the exercise of stock options. |
(6) | Includes 5,441,160 shares of common stock issuable upon the exercise of various warrants and 1,950,250 shares of stock issuable upon the exercise of stock options. |
(7) | Includes 709,500 shares of common stock issuable upon the exercise of various warrants and 271,181 shares of stock issuable upon the exercise of stock options. |
(8) | Includes 1,525,786 shares of common stock issuable upon the exercise of various warrants and 1,318,472 shares of stock issuable upon the exercise of stock options. |
(9) | Includes 600,000 shares of common stock issuable upon the exercise of various warrants. |
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s officers, directors and persons beneficially owning more than 10% of the outstanding common stock of the Company to file reports of beneficial ownership and changes in beneficial ownership with the Securities and Exchange Commission (“SEC”). Officers, directors, and greater than 10% beneficial owners of common stock are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. The Company believes that during the fiscal year ended December 31, 2006, all officers and directors timely filed an initial statement of beneficial ownership of securities on Form 3. The Company also believes that during the fiscal year ended December 31, 2006, all officers and directors timely filed certain transactions on Form 4s.
As of the date of this Proxy Statement, the Company is not aware of any filings made by 10% beneficial owners of our common stock and believes that all such beneficial owners failed to file Forms 3 and 4.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSGeneral
Property Rental
The Company rents office space, land and warehouse space from its CEO and major shareholder. These properties are used to operate the car outlet and to store inventory. Rental expense was approximately $96,500 and $196,000 for the year ended December 31, 2006 and 2005, respectively.
AUTHORIZATION FOR THE BOARD TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has approved and recommends that the shareholders adopt an amendment to ZAP’s Amended and Restated Articles of Incorporation to increase the total authorized shares of common stock of the Company from 200 million to 400 million. The CompanyZAP is currently authorized to issue 50 million shares of preferred stock, and the proposed amendment will not affect this authorization.
To effect the increase in authorized shares of our common stock, it is proposed that the first paragraph of Article III of our Amended and Restated Articles of Incorporation be amended to read in its entirety as follows:
“The Corporation shall be authorized to issue 400,000,000 shares of Common Stock. Each share of Common Stock shall entitle the holder thereof to one (1) vote on each matter submitted to a vote of the shareholders.”
Outstanding Shares
As of May 29, 2007, 45,908,560 shares of common stock were issued and outstanding, 24 million shares of common stock are reserved for issuance upon exercise of options that are outstanding or reserved for issuance under the Company’s equity incentive plans;6 million shares of common stock are reserved for consulting expenses and 70 million shares of common stock are reserved for issuance upon the exercise of outstanding warrants; and the remaining shares of common stock are reserved for issuance upon the conversion of the convertible debt.
Purpose for the Proposed Amendment
As of May 29, 2007, the Company has 54 million shares of common stock available for general corporate purposes based on the number of shares outstanding and the number of shares reserved for future issuances. As a general matter, the Board of Directors does not believe this is an adequate number of shares to assure that there will be sufficient shares available to respond to future business requiring the issuance of shares, issuances of common stock under the Company’s equity compensation plans, dividends and the issuance of common stock for other general corporate purposes. At present, the Company needs additional capital to continue expanding its current operations. The Company’s primary capital needs are: (i) to purchase Xebra™ vehicles, both sedan and utility trucks from ZAP’s Chinese partner to fulfill the increasing demand for 100% electric vehicles in the United States, and (ii) to continue building our dealer network and expanding ZAP’s market initiatives. ZAP also requires financing to purchase consumer product inventory for the continued roll-out of new products, to add qualified sales and professional staff to execute on ZAP’s business plan, and to expand ZAP’s efforts in the research and development of advanced technology vehicles, such as the ethanol-driven OBVIO! Automobiles and other fuel efficient vehicles. The Company plans to issue additional common stock to obtain equity financing, approval of the proposed amendment to the Articles will allow the Company to act promptly in the event opportunities requiring the issuance of additional shares arise. Failure ofasking the shareholders to approveratify the proposed amendment would adversely affect the Company’s ability to pursue such opportunities.
Certain EffectsAudit Committee’s appointment of the Proposed Amendment
We are not introducing this proposal with the intent that it be utilizedFriedman LLP as a type of anti-takeover device. However, this action could, under certain circumstances, have an anti-takeover effect. For example, if we became the subject of a hostile takeover attempt, we could attempt to obstruct the takeover by issuing shares of common stock, which would have the effect of diluting the voting power of the outstanding shares and increasing the cost of the potential takeover. In addition, the increase in authorized shares, if approved, may have the effect of discouraging a challenge for control or make it less likely that such a challenge, if attempted, would be successful. Our Board of Directors and executive officers have no knowledge of any current effort to obtain control of ZAP or to accumulate large amounts of our common stock, and this proposal is not being presented as an anti-takeover device.
The proposed amendment to the Amended and Restated Articles of Incorporation does not change the terms of the common stock. All shares of common stock, including those now authorized and those that would be authorized by the proposed amendment to our Amended and Restated Articles of Incorporation, are equal in rank and have the same voting rights, the same rights to dividends and the same liquidation rights. Holders of the common stock do not have preemptive rights or appraisal rights. However, shareholders should consider that additional issuances of common stock could have a dilutive effect on the earnings per share, voting power and share holdings of current shareholders.
Authorized shares of common stock may be issued by the Board of Directors from time to time without further shareholder approval, except in situations where shareholder approval is required by state law. Shareholders of the Company have no preemptive right to acquire additional shares of common stock, which means that current shareholders do not have a right to purchase any new issue of shares of common stock in order to maintain their proportionate ownership interest in the Company.
Reserved Shares upon Approval of the Amendment
If this proposal is approved by a majority of the shareholders entitled to vote on this proposal, and after taking into account the reserve requirements described above, we will have 254 million shares of common stock available for general corporate purposes.
Effective Date
If the proposed amendment to the Amended and Restated Articles of Incorporation is approved by shareholders, it would become effective upon the filing of a Certificate of Amendment with the California Secretary of State, which filing would occur promptly after the Annual Meeting.
Vote Required
The affirmative vote of the holders of a majority of the outstanding shares of common stock will be required to approve the authorization of the Board of Directors to increase the authorized common stock by amendment of the Company’s Amended and Restated Articles of Incorporation. As a result, abstentions and broker non-votes, if any, will have the same effect as a vote against this proposal. Brokers may have the authority to vote on this proposal when they have not received instructions from the beneficial owner.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” APPROVAL OF AN AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK.
ROPOSAL NO. 3
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTING FIRM
The Board of Directors, upon the recommendation of its Audit Committee, has ratified the selection of Odenberg, Ullakko, Muranishi & Co. LLP to serve as ourZAP’s independent registered public accounting firm for 2007, subject to ratification by our shareholders. Representatives of Odenberg, Ullakko, Muranishi & Co. LLP will be present at the Annual Meeting to answer questions. They also will have the opportunity to make a statement if they desire to do so.
We are asking our shareholders to ratify the selection of Odenberg, Ullakko, Muranishi & Co. LLP as our independent public accounting firm. Although ratification is not required by our bylaws or otherwise, the Board is submitting the selection of Odenberg, Ullakko, Muranishi & Co. LLP to our shareholders for ratification because we value our shareholders’ views on the Company’s independent public accounting firm and as a matter of good corporate practice.fiscal year ending December 31, 2011. In the event that ourthe shareholders fail to ratify the selection, it will be considered as a direction to the Board of Directors andappointment, the Audit Committee to consider the selection of a different firm.will reconsider this appointment. Even if the selectionappointment is ratified, the Audit Committee, in its discretion, may selectdirect the appointment of a different independent registered public accounting firm subject to ratification by the Board, at any time during the year if itthe Audit Committee determines that such a change would be in ZAP’s and its shareholders’ best interests.
The Company was notified in January 2010 that the best interestsaudit practice of Bagell, Josephs, Levine & Company, LLC, the Company’s independent registered public accounting firm, or BJL, was combined with Friedman LLP, or Friedman, on January 1, 2010. As of the same date, BJL resigned as the independent registered public accounting firm of the Company and, our shareholders.
Vote Required
An affirmative vote of a majoritywith the approval of the votes cast at the Annual Meeting is required for ratification of Odenberg, Ullakko, Muranishi & Co. LLP as our independent accountants for the year ending December 31, 2007. For ratification, this proposal must be approved by a majorityAudit Committee of the votes cast, including abstentions, by persons presentCompany’s Board of Directors, Friedman was engaged as the Company’s independent registered public accounting firm. The Company was notified in January 2010 that the audit practice of Bagell, Josephs, Levine & Company, LLC, the Company’s independent registered public accounting firm at that time, or BJL, had been combined with Friedman LLP, on January 1, 2010. As of the Annual Meeting or represented by proxysame date, BJL resigned as the independent registered public accounting firm of the Company and, entitled to vote onwith the proposal. An abstention from voting on this proposal will haveapproval of the effectAudit Committee of a vote “AGAINST.” Brokers may have the authority to vote on this proposal when they have not received instructions fromCompany’s Board of Directors, Friedman was engaged as the beneficial owner.Company’s independent registered public accounting firm and has audited ZAP’s consolidated financial statements annually since then.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF ODENBERG, ULLAKKO, MURANISHI & CO. LLP AS OUR INDEPENDENT PUBLIC ACCOUNTING FIRM FOR 2007.Principal Accountant Fees and Services
Audit and Non-Audit Fees
Audit and Non-Audit Fees
The following table presentsis a summary of the fees billed to ZAP by Friedman LLP for professional audit services rendered by Odenberg, Ullakko, Muranishi & Co. LLP for the audit of the Company’s annual financial statements for thefiscal years ended December 31, 2006,2010 and December 31, 2005, and2009:
Fee Category _______________________ | Fiscal 2010 Fees __________ | Fiscal 2009 Fees __________ |
Audit Fees | $185,000 | $152,500 |
Audit-Related Fees | — | — |
Tax Fees | — | — |
All Other Fees | — __________ | — __________ |
Total Fees | $185,000 ========== | $152,500 |
Audit Fees. Consists of fees billed for otherprofessional services rendered for the integrated audit of ZAP’s consolidated financial statements and of its internal control over financial reporting, for review of the interim consolidated financial statements included in quarterly reports and for services that are normally provided by Odenberg, Ullakko, Muranishi & Co.Friedman LLP during those periods.
| | 2006 | | | 2005 | |
| | $ | | | | $ | | |
| | | | | | | | |
| | $ | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Total | | $ | 247,000 | | | $ | 230,000 | |
in connection with statutory and regulatory filings or engagements.
Audit-Related Fees. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of ZAP’s consolidated financial statements and are not reported under “Audit Fees.” These services include employee benefit plan audits, accounting consultations in connection with transactions, merger and acquisition due diligence, attest services that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards. (1) | Audit fees include fees invoiced for the audit of the Company’s annual financial statements and the quarterly reviews of these statements, as well as fees for consultation regarding accounting issues and their impact on or presentation in the Company’s financial statements. |
(2) | This category includes fees billed for assurance and related services that are reasonably related to the performance of the audits or reviews of the financial statements and are not reported under “Audit Fees,” and generally consist of fees for due diligence in connection with acquisitions, accounting consultation and audits of employee benefit plans. |
Tax Fees. Consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and international tax compliance, assistance with tax reporting requirements and audit compliance, assistance with customs and duties compliance, value-added tax compliance, mergers and acquisitions tax compliance, and tax advice on international, federal and state tax matters. None of these services were provided under contingent fee arrangements.
All Other Fees. Consists of fees for products and services other than the services reported above. These services included translation of filings and other miscellaneous services. No management consulting services were provided.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm
The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services to be provided by the independent auditors.registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditorsregistered public accounting firm and management are required to report periodically report to the Audit Committee regarding the extent of services provided by the independent auditorsregistered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis.
Audit Committee ReportVote Required
The Audit Committeeaffirmative vote of a majority of the shares of ZAP Common Stock present or represented by proxy and voting at the annual meeting, together with the affirmative vote of a majority of the required quorum, is required for approval of this proposal.
Recommendation of the Board of Directors was composed of two directors through March 2007 whom the Board has determined to be independent under applicable SEC rules. The Audit Committee operates under a written charter adopted by the Board in June 2005 that is available at http://www.zapworld.com.
The primary purpose of the Audit Committee is to assist the Board of Directors in fulfilling its responsibilities with respect to matters involvingrecommends that the accounting, financial reporting and internal control functionsshareholders vote FOR the ratification of the Company. The Audit Committee has sole authorityappointment of Friedman LLP to select the Company’s independent registered public accounting firm.
Management is responsible for preparing the Company’s financial statements so that they comply with generally accepted accounting principles and fairly presents the Company’s financial condition, results of operations and cash flows; issuing financial reports that comply with the requirements of the SEC; and establishing and maintaining adequate internal control structures and procedures for financial reporting. The Audit Committee’s responsibility is to monitor and oversee these processes.
In this context, the Audit Committee has reviewed and discussed the audited financial statements with management and the independent registered public accounting firm. The Audit Committee also has discussed with theserve as ZAP’s independent registered public accounting firm for the mattersfiscal year ending December 31, 2011.
PROPOSAL NO. 3
AMENDMENT TO AMENDED AND RESTATED
ARTICLES OF INCORPORATION TO EFFECT A REVERSE SPLIT OF COMMON STOCK
Overview
Our Board of Directors has unanimously approved an amendment to our Charter to effect a reverse stock split of all outstanding shares of our Common Stock at an exchange ratio ranging from one-for-four (1:4) to one-for-eight (1:8). You are now being asked to vote upon this amendment to our Charter. Should we receive the required shareholder approval, the Board of Directors will have the sole authority to elect, at any time prior to the first anniversary of this annual meeting: (1) whether or not to effect a reverse stock split, and (2) if so, the number of shares of our Common Stock between and including four (4) and eight (8) which will be combined into one share of our Common Stock. The Board of Directors believes that providing the flexibility for the Board of Directors to choose an exact split ratio based on then-current market conditions is in the best interests of ZAP and its shareholders. The Board of Directors is considering listing the Company on The NASDAQ Stock Market, the American Stock Exchange, or another exchange in the U.S. or internationally. In the event that our Common Stock fails to satisfy the minimum bid price listing requirement of such exchange or for other reasons determined by the Board of Directors, the Board of Directors would like to effect a reverse stock split within a range from a minimum ratio of 4-for-1 shares to a maximum of 8-for-1 shares.
The text of the form of proposed amendment to our Charter is attached to this proxy statement as Appendix A. Such form provides that any number of outstanding shares between and including four and eight would be combined into one share of our Common Stock. If approved by the shareholders, and following such approval, the Board of Directors determines that a reverse stock split is in the best interests of ZAP and its shareholders, the reverse stock split will become effective upon filing the amendment with the Secretary of State of the State of California. The amendment will contain the number of shares selected by the Board of Directors within the limits set forth in this proposal to be discussedcombined into one share of our Common Stock. Upon filing of the amendment, the number of our issued and outstanding shares of Common Stock would be reduced in accordance with the split ratio determined by Statementthe Board of Directors.
Except for adjustments that may result from the treatment of fractional shares as described below, each shareholder will hold the same percentage of our outstanding Common Stock immediately following the reverse stock split as such shareholder held immediately prior to the reverse stock split.
Recommendation of the Board of Directors
The Board of Directors recommends that the shareholders vote FOR the amendment to the Company’s Articles of Incorporation to permit the proposed reverse stock split.
Reasons for the Reverse Stock Split
In order for ZAP to be quoted on Auditing Standards No. 61 (Communication with Audit Committees)a national or international exchange, we must satisfy various listing standards established by the listing exchange. The stock split is intended to enable the Common Stock to be at a per-share price high enough that ZAP will be able satisfy the price-bid requirement for listing on a national or international exchange.
The Board of Directors believes that a reverse stock split is desirable and should be approved by shareholders for a number of other reasons, including:
· | Increase in Eligible Investors. A reverse stock split would allow a broader range of institutions to invest in our stock (namely, funds that are prohibited from buying stocks whose price is below a certain threshold), potentially increasing trading volume and liquidity. |
· | Increased Analyst and Broker Interest. A reverse stock split would help increase analyst and broker interest in our stock as their policies can discourage them from following or recommending companies with lower stock prices. Because of the trading volatility often associated with lower-priced stocks, many brokerage houses and institutional investors have adopted internal policies and practices that either prohibit or discourage them from investing in such stocks or recommending them to their customers. Some of those policies and practices may also function to make the processing of trades in lower-priced stocks economically unattractive to brokers. Additionally, because brokers' commissions on transactions in lower-priced stocks generally represent a higher percentage of the stock price than commissions on higher-priced stocks, the current average price per share of our Common Stock can result in individual shareholders paying transaction costs representing a higher percentage of their total share value than would be the case if the share price were substantially higher. |
· | Decrease in Number of Outstanding Shares. As of April 14, 2011, the Company had approximately 218,104,955 shares outstanding. A reverse stock split would reduce the number of our outstanding shares to a level more appropriate for a company with our market capitalization. |
· | Decreased Stock Price Volatility. By potentially increasing our stock price proportionately to the reduction in the number of outstanding shares, a reverse split could decrease price volatility, as small price movements now cause relatively large percentage changes in our stock price. |
Effects of the Reverse Stock Split
Reduction of Shares Held by Individual Shareholders. After the effective date of the proposed reverse stock split, each shareholder will own fewer shares of our Common Stock. However, the proposed reverse stock split will affect all of our shareholders uniformly and will not affect any shareholder's percentage ownership interests in us, except to the extent that the reverse split results in any of our shareholders owning a fractional share as currentlydescribed below. Proportionate voting rights and other rights and preferences of the holders of our Common Stock will not be affected by the proposed reverse stock split (other than as a result of the payment of cash in effect.lieu of fractional shares). For example, a holder of 2% of the voting power of the outstanding shares of Common Stock immediately prior to a reverse stock split would continue to hold 2% of the voting power of the outstanding shares of Common Stock immediately after the reverse stock split. The number of shareholders of record will not be affected by the proposed reverse stock split (except to the extent that any shareholder holds only a fractional share interest and receives cash for such interest after the proposed reverse stock split). However, if the proposed reverse stock split is implemented, it will increase the number of shareholders of ZAP who own "odd lots" of less than 100 shares of our Common Stock. Brokerage commissions and other costs of transactions in odd lots may be higher than the costs of transactions of more than 100 shares of Common Stock.
Increase the proportion of our authorized unissued shares to issued and outstanding shares.The Company’s independent registered public accounting firm also providedproposed reverse stock split will reduce the number of issued and outstanding shares of the Company, while the authorized share number will remain the same, effectively resulting in the Company being able to sell a greater proportion of the Company and these sales could have a dilutive effect on your percentage ownership of the Company.
Regulatory Effects. Our Common Stock is currently registered under Section 12(b) of the Exchange Act, and we are subject to the periodic reporting and other requirements of the Exchange Act. The proposed reverse stock split will not affect the registration of the Common Stock under the Exchange Act or our obligation to publicly file financial and other information with the SEC.
No Going Private Transaction. The Board of Directors does not intend for this transaction to be the first step in a series of plans or proposals of a "going private transaction" within the meaning of Rule 13e-3 of the Exchange Act.
Risks of Proposed Reverse Split
The proposed reverse stock split may not increase our stock price, which would prevent the Company from realizing some of the anticipated benefits of the reverse stock split.
The Board expects that the reverse split will increase the price per share of our Common Stock, which in turn would, among other things, broaden the class of investors who invest in our stock, help increase analyst and broker interest in our stock and allow us to list on a national or international stock exchange. While the Board expects that a reverse stock split of our Common Stock will increase the market price of our Common Stock, the effect of a reverse split upon the market price of our Common Stock cannot be predicted with any certainty. The market price of our Common Stock is primarily driven by other factors unrelated to the number of shares outstanding, including our current and expected future performance, conditions in the automotive industry and stock market conditions generally. Therefore, it is possible that the per share price of our Common Stock after the reverse split will not rise in proportion to the reduction in the number of shares of our Common Stock outstanding resulting from the reverse stock split, which could cause the Company to fail to realize the anticipated benefits of the reverse stock split.
The proposed reverse stock split may decrease the liquidity of our stock.
The liquidity of our Common Stock may be harmed by the proposed reverse split given the reduced number of shares that would be outstanding after the reverse stock split, particularly if the stock price does not increase as a result of the reverse stock split.
Board Discretion to Implement the Reverse Stock Split
If the reverse stock split is approved by our shareholders, it will be effected, if at all, only upon a determination by the Board that a reverse stock split is in the best interests of ZAP and our shareholders. Such determination shall be based upon certain factors, including our then current stock price, the existing and expected marketability and liquidity of our Common Stock, prevailing market conditions, the likely effect on the market price of our Common Stock and desire to meet the listing requirements for a national or international stock exchange. Notwithstanding approval of the reverse stock split by the shareholders, the Board may, in its sole discretion, abandon the proposed amendment to our Charter and determine not to effect the reverse stock split as permitted under the California Corporations Code. If the Board fails to implement the reverse stock split prior to the one year anniversary of this annual meeting of shareholders, shareholder approval again would be required prior to implementing any reverse stock split.
Effective Date
The proposed reverse stock split would become effective on the date of filing of a certificate of amendment to our Charter with the office of the Secretary of State of the State of California. Except as explained below with respect to fractional shares, on the effective date, shares of Common Stock issued and outstanding immediately prior thereto will be combined and converted, automatically and without any action on the part of the shareholders, into new shares of Common Stock in accordance with the reverse stock split ratio determined by the Board within the limits set forth in this proposal and the authorized number of shares of Common Stock will be reduced on a proportional basis to the exchange ratio implemented.
Payment for Fractional Shares
No fractional shares of Common Stock will be issued as a result of the proposed reverse stock split. Instead, shareholders who otherwise would be entitled to receive fractional shares, upon surrender to the exchange agent of such certificates representing such fractional shares, will be entitled to receive cash in an amount equal to the product obtained by multiplying (a) the closing sales price of our Common Stock on the effective date as reported on OTC Bulletin Board by (b) the number of shares of our Common Stock held by such shareholder that would otherwise have been exchanged for such fractional share interest. As of April 25, 2011, 218,668,760 shares of our Common Stock were issued and held of record by approximately 3,637 shareholders. As a result of the reverse stock split, we estimate that cashing out fractional shareholders could reduce the number of shareholders of record to approximately 2,296 (assuming a split ratio of one for six, the mid-point of the range of possible split ratios).
Exchange of Stock Certificates As soon as practicable after the effective date, shareholders will be notified that the reverse split has been effected. Our transfer agent will act as exchange agent for purposes of implementing the exchange of stock certificates for record holders (i.e. shareholders who hold their shares directly in their own name and not through a broker). Record holders of pre-reverse split shares will be asked to surrender to the exchange agent certificates representing pre-reverse split shares in exchange for a book entry with the transfer agent or certificates representing post-reverse split shares in accordance with the procedures to be set forth in a letter of transmittal to be sent by us. No new certificates will be issued to a shareholder until such shareholder has surrendered such shareholder's outstanding certificate(s) together with the properly completed and executed letter of transmittal to the exchange agent. RECORD SHAREHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY CERTIFICATE(S) UNTIL REQUESTED TO DO SO.
For beneficial holders of pre-reverse split shares (i.e., shareholders who hold their shares through a broker), your broker will make the appropriate adjustment to the number of shares held in your account following the effective date of the reverse split.
Accounting Consequences
Per share net income or loss will be increased because there will be fewer shares of our Common Stock outstanding. We do not anticipate that any other accounting consequences, including changes to the amount of stock-based compensation expense to be recognized in any period, will arise as a result of the reverse stock split.
No Appraisal or Dissenter’s Rights
No appraisal or dissenters’ rights are available to shareholders who vote against the reverse stock split under California law or under the Company’s Articles of Incorporation or Bylaws for his or her fractional share that will be cashed out in the reverse stock split. Other rights or actions may be available under California law or federal and state securities laws for shareholders who can demonstrate that they have been damaged by the reverse stock split.
BasedMaterial Federal U.S. Income Tax Consequences of the Reverse Stock Split
The following is a summary of certain material United States federal income tax consequences of the proposed reverse stock split. It addresses only shareholders who hold the pre-reverse split shares and post-reverse split shares as capital assets. It does not purport to be complete and does not address shareholders subject to special rules, such as financial institutions, tax-exempt organizations, insurance companies, dealers in securities, mutual funds, foreign shareholders, shareholders who hold the pre-reverse split shares as part of a straddle, hedge, or conversion transaction, shareholders who hold the pre-reverse split shares as qualified small business stock within the meaning of Section 1202 of the Internal Revenue Code of 1986, as amended (the "Code"), shareholders who are subject to the alternative minimum tax provisions of the Code, and shareholders who acquired their pre-reverse split shares pursuant to the exercise of employee stock options or otherwise as compensation. This summary is based upon current law, which may change, possibly even retroactively. It does not address tax considerations under state, local, foreign, and other laws. Furthermore, we have not obtained a ruling from the Internal Revenue Service or an opinion of legal or tax counsel with respect to the consequences of the reverse stock split. Each shareholder is advised to consult his or her tax advisor as to his or her own situation.
The reverse stock split is intended to constitute a reorganization within the meaning of Section 368 of the Code. Assuming the reverse split qualifies as a reorganization, a shareholder generally will not recognize gain or loss on the above discussions and review with managementreverse stock split, except to the extent of cash, if any, received in lieu of a fractional share interest in the post-reverse split shares. The aggregate tax basis of the post-reverse split shares received will be equal to the aggregate tax basis of the pre-reverse split shares exchanged therefor (excluding any portion of the holder's basis allocated to fractional shares). A shareholder’s holding period of the post-reverse split shares received will include the holding period of the pre-reverse split shares exchanged pursuant to the reverse stock split.
A holder of the pre-reverse split shares who receives cash in lieu of a fractional share of post-reverse split stock will generally recognize gain or loss equal to the difference between the portion of the tax basis of the pre-reverse split shares allocated to the fractional share interest and the independent registered public accounting firm,cash received. Such gain or loss will be a capital gain or loss and will be short term capital gain or loss if the Audit Committee recommended topre-reverse split shares were held for one year or less and long term capital gain or loss if held more than one year. No gain or loss will be recognized by ZAP as a result of the reverse stock split.
Vote Required
The affirmative vote of a majority of the shares of ZAP Common Stock present or represented by proxy and voting at the annual meeting, together with the affirmative vote of a majority of the required quorum, is required for approval of this proposal.
Recommendation of the Board of Directors
The Board of Directors recommends that the auditedshareholders vote FOR the authorization of the Board to effect a reverse stock split.
PROPOSAL NO. 4
AMENDMENT TO AMENDED AND RESTATED
ARTICLES OF INCORPORATION TO INCREASE AUTHORIZED COMMON STOCK
General Description
The following table sets forth a general description of the shares of our Common Stock that are issued or authorized for issuance as of April 14, 2011. Currently, there are 400,000,000 shares of Common Stock authorized. We do not currently have sufficient shares of Common Stock authorized to cover shares of Common Stock outstanding and shares of Common Stock issuable pursuant to the exercise of outstanding stock options, convertible securities and warrants that are currently exercisable.
| Shares of Common Stock Related Thereto |
Shares of Common Stock outstanding | 218,104,955 |
Shares of Common Stock issuable pursuant to the exercise of outstanding stock options, convertible securities, and warrants that are currently exercisable | 186,671,919 |
Shares of Common Stock remaining for issuance pursuant to options issuable under the 2008 Equity Compensation Plan, 2007 Consultant Stock Plan, 2006 Equity Incentive Plan, 2004 Consultant Stock Plan and 2002 Equity Incentive Plan | 12,583,946 |
Common Stock. Because the Company needs to authorize enough shares to outstanding convertible equity and shares reserved for issuance under stockholder-approved equity compensation plans and foresees the need for additional capital raises, the Board of Directors has approved and recommends that the shareholders approve an increase in the number of shares of Common Stock we are authorized to issue.
Unless the shareholders approve an increase in authorized Common Stock, we may not be able to meet all of our contractual obligations with respect to the issuance of Common Stock or accomplish further equity-based financing or acquisitions using our Common Stock. We believe that seeking shareholder approval of an increase in our authorized capitalization to 800,000,000 shares is in the best interests of our shareholders because:
· | it allows us to meet our contractual obligations for issuances under outstanding convertible equity and shares reserved for issuance under stockholder-approved equity compensation plans; |
· | it provides us with significant flexibility for future financing transactions by making a sufficient number of shares of authorized capital available; and |
· | it provides us with significant flexibility for future business acquisition activity, if required. |
Rights of the Common Stock
Each holder of Common Stock is entitled to one vote for each share of Common Stock held on all matters submitted to a vote of shareholders. Cumulative voting for the election of directors is specifically authorized by California law and the Bylaws. Under cumulative voting for the election of directors, upon a proper and timely request by a shareholder, each shareholder is entitled to cast a number of votes equal to the number of shares held multiplied by the number of directors to be elected. The votes may be cast for one or more candidates. Thus, under cumulative voting, a majority of the outstanding shares will not necessarily be able to elect all of the directors, and minority shareholders may be entitled to greater voting power with respect to election of directors than if cumulative voting did not apply.
The Common Stock is not entitled to preemptive rights and is not subject to conversion or redemption. Upon ZAP’s liquidation, dissolution or winding up, the assets legally available for distribution to shareholders, after payment of claims of creditors are distributable ratably among the holders of the Common Stock. Each outstanding share of Common Stock is fully paid and nonassessable.
For the financial information required to be disclosed herein, see the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” found in Item 7 of, and our financial statements be includedalso found in, the Company’s Annual Reportour annual report on Form 10-KSB10-K for the year ended December 31, 20062010, as amended, included in our annual report to shareholders which accompanies this proxy statement and which is available at www.sec.gov.
Proposed Amendment to Charter
The Board of Directors has adopted resolutions authorizing amendments to our Charter, subject to shareholder approval, increasing the number of shares of our authorized Common Stock, which we may issue to 800,000,000, an increase of 400,000,000 shares, as set forth in Appendix B. At the meeting, we will ask our shareholders to consider and approve a motion to amend our Charter in the form set forth in Appendix B.
If this Proposal is approved, we expect to have sufficient Common Stock capitalization to accomplish our corporate goals as expressed below.
Reasons for filing with the SEC.Increase in Authorized Common Stock Described in this Proposal
In the recent past, we have used our authorized but unissued Common Stock for numerous different purposes, including:
· | | The Audit Committeefinancing activities in private placements of our securities, including the Boardissuance of Directors |
| | Peter Scholl |
| | Gary Starr |
| | Raymond Bryne *convertible securities; and |
*Mr. Bryne resigned· | for the issuance of stock upon exercise of options, warrants and/or conversion of convertible debentures. |
The Board of Directors believes that we need a significant amount of authorized capital for ZAP to accomplish its future growth objectives. The Board of Directors from time-to-time considers various financing opportunities and a lack of authorized Common Stock would make equity financing opportunities difficult, if not impossible, to accomplish.
Effect of the Increase In Authorized Common Stock Described in this Proposal
The increase in authorized Common Stock described in this proposal will result in ZAP being able to issue a large number of additional shares of its Common Stock. (The exact number of shares that ZAP will be entitled to issue will depend on whether, and at what ratio, the reverse stock split is accomplished in accordance with Proposal No. 3, if approved.) Subject to fiduciary requirements under the business judgment rule, the Board of Directors may authorize the issuance of additional shares of Common Stock without the need to obtain further shareholder approval. If issued, these shares would greatly affect the percentage interest of our present shareholders by reducing the proportionate voting power of the outstanding shares of Common Stock. As a summary for illustrative purposes only, the following table shows approximately the effect on our Common Stock of the increase in authorized capitalization, based on the number of shares outstanding on April 14, 2011 without assuming approval of Proposal No. 5 increasing the shares authorized under the Plan to 40 million and assuming the completion of the reverse stock split of our outstanding Common Stock in one of the example ratios set forth below:
| Common Stock Prior to Increase in Authorized Capitalization ____________ | Common Stock After Increase in Authorized Capitalization ____________ | Reverse Stock Split Ratio ____________ | Common Stock After Completion of Possible Reverse Stock Split ____________ |
Authorized | 400,000,000 | 800,000,000 | 4 5 6 7 8 | 800,000,000 800,000,000 800,000,000 800,000,000 800,000,000 |
Issued and Outstanding | 218,104,955 | 218,104,955 | 4 5 6 7 8 | 54,526,238 43,620,991 36,350,825 31,157,850 27,263,119 |
Reserved for issuance | 199,255,865 | 199,255,865 | 4 5 6 7 8 | 49,813,966 39,851,173 33,209,310 28,465,123 24,906,983 |
Available for future issuance | 0 | 382,639,180 | 4 5 6 7 8 | 695,659,796 716,527,836 730,439,865 740,377,027 747,829,898 |
In addition, the power to issue a substantial number of shares of Common Stock following the proposed increase in authorized shares could be used by incumbent management to make any change in control of ZAP more difficult. Under certain circumstances, such shares could be used to create voting impediments or to frustrate persons seeking to affect a takeover or otherwise gain control of ZAP. For example, additional shares of Common Stock could be privately placed with purchasers who might side with the Board of Directors in May 2007.opposing a hostile takeover bid or to dilute the stock ownership of a person or entity seeking to obtain control of ZAP.
SOLICITATION OF PROXIES
This solicitationDespite such anti-takeover implications, the increase in authorized shares is being made by mail on behalfnot the result of our knowledge of any specific effort to accumulate our securities or to obtain control of ZAP by means of a merger, tender offer, proxy solicitation in opposition to management, or otherwise. We are not submitting the proposed amendment for the increase in authorized Common Stock to enable us to frustrate any known efforts by another party to acquire a controlling interest in ZAP or to seek Board but may also be made without additional remunerationof Directors representation.
The proposed increase in authorized shares is not a part of any plan by our officers or employees by telephone, telegraph, facsimile transmission, electronic means, personal interview or other similar meansmanagement to adopt a series of communication. The expenseamendments to render the takeover of ZAP more difficult. Management does not presently intend to propose any anti-takeover measures in future proxy solicitations. Except as indicated below, management is not aware of the preparation, printing and mailingexistence of this Proxy Statement andany other provisions currently in the enclosed formCharter or Bylaws having any anti-takeover effects which would impose any burden in excess of proxy and Notice of Annual Meeting, and any additional material relating to the meeting, which may be furnished to shareholdersrequirements imposed by the Board subsequent to the furnishingCalifornia Corporations Code or federal law upon potential tender offerors or others seeking a takeover of this Proxy Statement, has been or will be borne by us. We will reimburse banks and brokers who hold shares in their name or custody, or in the nameZAP.
· | Our Charter provides that the liability of corporate directors for monetary damages has been eliminated to the maximum extent provided by California law. |
· | Our Charter provides that the Company may indemnify its agents to the fullest extent permissible under California law. California law allows indemnification of directors, officers, employees, and agents against liabilities incurred in any proceeding in which an individual is made a party because he was a director, officer, employee, or agent of the company if such person conducted himself in accordance with the applicable standard of care (requiring, among other things, actions taken in good faith in a manner reasonably believed to be in, or at least not opposed to, the best interests of the corporation). The availability of indemnification to directors for liability based upon their actions in choosing to issue shares in an attempt to resist a takeover could influence a director in choosing whether to approve the issuance of Common Stock or preferred stock or in taking other actions to resist a takeover. |
Federal Income Tax Consequences
Existing holders of nominees for others, for their out-of-pocket expenses incurred in forwarding copies of the proxy materials to those persons for whom they hold such shares. To obtain the necessary representation of shareholders at the meeting, supplementary solicitations may be made by mail, telephone or interview by our officers or selected securities dealers. We anticipate that the cost of such supplementary solicitations, if any,Common Stock will not be material.required to recognize any gain or loss for federal income tax purposes resulting from the approval and the completion of the increase in our outstanding Common Stock as described in this proposal.
Vote Required
The affirmative vote of a majority of the shares of ZAP Common Stock presented or represented by proxy and voting at the annual meeting, together with the affirmative vote of a majority of the required quorum, is required for approval of this proposal.
Recommendation of the Board of Directors
The Board of Directors recommends that the shareholders vote FOR the authorization of the Board to effect an increase in authorized Common Stock.
ANNUAL REPORT AND QUARTERLY REPORTPROPOSAL NO. 5
INCREASE TO SHARES ISSUABLE UNDER THE 2008 EQUITY COMPENSATION PLAN
In 2009, with the approval of our stockholders, we adopted the 2008 Equity Compensation Plan, or (the “Plan,”) to promote our long-term growth and profitability by providing our employees, directors and consultants with incentives to improve stockholder value and to contribute to our growth and financial success. In 2009, with the approval of our stockholders, we adopted the 2008 Equity Compensation Plan, or (the “Plan,”) to promote our long-term growth and profitability by providing our employees, directors and consultants with incentives to improve stockholder value and to contribute to our growth and financial success. In April 2011, the Board approved an amendment to the Plan to: (i) increase the number of shares available for awards under the Plan to a total of 40,000,000, (ii) modify the Plan such that it will be in line with 162(m) of the U.S. Internal Revenue Code, and (iii) make other changes to the Plan to reflect best practices (the “Amended Plan”), subject to shareholder approval. Previously, the Board had approved an amendment to the Plan to increase the number of shares available for awards under the Plan by 10,000,000, to an aggregate of 20,000,000 (the “Prior Amendment”). The Board determined that the Amended Plan and the Prior Amendment are in the best interests of the Company and recommends approval by the shareholders.
As of April 14, 2011, awards covering 19,294,000 shares were issued and outstanding under the Plan, with a weighted average exercise price of approximately $0.39 and a weighted average remaining term of approximately 9 years, and no shares of restricted stock. The Board believes that the Amended Plan is necessary to provide us with enough shares to continue our program of equity-based incentive compensation. In order to continue our program of equity-based incentive compensation to attract and retain the personnel necessary for our success and to provide more flexibility to the Compensation Committee, the Board has approved the Amended Plan and recommends approval by our shareholders.
The purpose of the Plan is to encourage certain officers, employees, directors, and consultants of ZAP to acquire and hold stock in ZAP as an added incentive to remain with ZAP and to increase their efforts in promoting the interests of ZAP to enable ZAP to attract and retain capable individuals.
Our Annual ReportThe terms of the Plan provide for the fiscal year ended December 31, 2006granting of stock-based incentives, including incentive stock options, non-qualified stock options, restricted stock and unrestricted stock. Currently, the total number of shares of our Common Stock that may be awarded under the Plan and issued on the exercise of awards is equal to 10,000,000 shares, subject to adjustments in certain circumstances. If this proposal is approved, the total number of shares of our Common Stock that may be awarded under the Plan and issued on the exercise of awards would be 40,000,000 shares, subject to adjustments in certain circumstances. As of April 14, 2011, the approximate number of employees who were eligible to participate in the Plan is 35, the approximate number of non-employee board members who will be eligible to participate in the Plan is 4 and the Quarterly Reportapproximate number of consultants who will be eligible to participate in the Plan is 3.
The material features of the Plan, as proposed to be amended, are summarized below. The following summary does not purport to be complete, and is subject to and qualified in its entirety by reference to the complete text of the Amended Plan, which are included hereto as Appendix C.
General
The total number of shares reserved for issuance under the Plan is 40,000,000. The maximum number of shares that may be issued as stock awards (restricted stock or unrestricted stock) or stock options is 40,000,000.
Shares of common stock issued under the Plan may be authorized but unissued shares, reacquired shares or both. The number of shares considered issued under the Plan equals the number of shares issued upon exercise or settlement of an award.
As of April 14, 2011 the closing price of the Company’s common stock was $0.75 as reported on the OTC Bulletin Board. Because participation and the types of awards under the Plan are discretionary, the benefits or amounts that will be received by any grantee or groups of grantees if the amendment of the Plan is approved are not currently determinable.
The Plan may be terminated by action of the Board of Directors.
Administration. The Compensation Committee will administer the Plan.
Eligibility. Any employee, officer, director or consultant of the Company or any of its subsidiaries is eligible to receive an award under the Plan.
Options. Stock options grants may be either incentive stock options (within the meaning of the Section 422 of the Code) or non-qualified stock options (options that do not qualify as incentive stock options for federal income tax purposes). The exercise price of an option cannot be less than the fair market value of a share as of the grant date. The duration of incentive stock options cannot exceed ten years, or five years if granted to a ten percent Shareholder. If an incentive stock option is granted to an individual ten percent shareholder, the exercise price must be at least 110% of the fair market value on the grant date.
Grantees may exercise their options in whole or in part. The exercise of an option may be paid in cash, in stock, or in a combination of cash and stock.
Other Awards. The Committee may grant stock subject to vesting restrictions (restricted stock) and not subject to vesting restrictions (unrestricted stock).
Adjustments. In the event of a change in capital structure, including but not limited to, any stock dividends, stock split-ups, or consolidations of stock, the Board has the discretion to adjust the maximum number of shares that may be granted under the Plan and the terms of any outstanding award to prevent the dilution or enlargement of benefits intended under the Plan.
Amendment and Termination. The Board of Directors of the Company may at any time and for any reason amend or terminate the Plan, except that no amendment to increase the maximum number of shares under the Plan in the aggregate, materially increase the benefits accruing to the grantees under the Plan, change the class of employees eligible to receive options under the Plan, or modify the eligibility requirements under the Plan will be effective without shareholder approval. Additionally, no termination or amendment may adversely alter or affect the terms of any outstanding awards without the consent of the affected grantee.
Tax Consequences of the Plan
The following discussion of the federal income tax consequences of the Plan is intended to be a summary of applicable federal law as currently in effect. Foreign, state and local tax consequences may differ and laws may be amended or interpreted differently during the term of the Plan or of awards granted thereunder. Because the federal income tax rules governing awards and related payments are complex and subject to frequent change, award holders are advised to consult their individual tax advisors.
Stock Options: Incentive stock options and nonqualified stock options are treated differently for federal income tax purposes. Incentive stock options are intended to comply with the requirements of Section 422 of the Code. Nonqualified stock options do not comply with such requirements.
Only employees can be granted incentive stock options. An optionee is not taxed on the grant or exercise of an incentive stock option. The difference between the exercise price and the fair market value of the shares on the exercise date will, however, be a preference item for purposes of the alternative minimum tax. If an optionee holds the shares acquired upon exercise of an incentive stock option for at least two years following the option grant date
and at least one year following exercise, the optionee’s gain, if any, upon a subsequent disposition of such shares is long-term capital gain. The measure of the gain is the difference between the proceeds received on disposition and the optionee’s basis in the shares (which generally equals the exercise price). If an optionee disposes of stock acquired pursuant to exercise of an incentive stock option before satisfying the one and two-year holding periods described above, the optionee generally will recognize both ordinary income and capital gain in the year of disposition. The amount of the ordinary income will be the lesser of (i) the amount realized on disposition less the optionee’s adjusted basis in the stock (usually the exercise price) or (ii) the difference between the fair market value of the stock on the exercise date and the option price. The balance of the consideration received on such a disposition will be long-term capital gain if the stock had been held for at least one year following exercise of the incentive stock option and otherwise will be short-term capital gain. The Company is not entitled to an income tax deduction on the grant or exercise of an incentive stock option or on the optionee’s disposition of the shares after satisfying the holding period ended March 31, 2007requirement described above. If the holding periods are not satisfied, the Company will be entitled to a deduction in the year the optionee disposes of the shares in an amount equal to the ordinary income recognized by the optionee.
In order for an option to qualify for incentive stock option tax treatment, the grant of the options must satisfy various conditions (e.g., the limitation of $100,000 of stock underlying incentive stock options that may vest in one year) and the option holder must satisfy certain conditions, including exercising the option while an employee or within a short period of time after ceasing to be an employee, and holding the shares acquired upon exercise of the option for a specified period of time. In the event an option intended to be an incentive stock option fails to so qualify, it will be taxed as a nonqualified stock option as described in the next paragraph.
An optionee is not taxed on the grant of a nonqualified stock option. On exercise, however, the optionee recognizes ordinary income equal to the difference between the option price and the fair market value of the shares acquired on the date of exercise. The Company is entitled to an income tax deduction in the year of exercise in the amount recognized by the optionee as ordinary income. Any gain (or loss) on subsequent disposition of the shares is long-term capital gain (or loss) if the shares are held for at least one year following exercise. The Company does not receive a deduction for this gain.
Restricted Stock: Grantees of restricted stock do not recognize income at the time of the grant of such restricted stock. However, when the restricted stock vests, grantees generally recognize ordinary income in an amount equal to the fair market value of the stock at such time, and the Company will receive a corresponding deduction.
Unrestricted Stock: Grantees who are awarded unrestricted common stock will be required to recognize ordinary income in an amount equal to the fair market value of the shares of the common stock on the date of the award, reduced by the amount, if any, paid for such shares. The Company will be entitled to a business expense deduction in the same amount and generally at the same time as the grantee recognizes ordinary income
Tax Withholding: To the extent required by applicable law, a grantee shall be required to satisfy, in a manner satisfactory to the Company, any withholding tax obligations that arise by reason of an award.
Section 162(m) of the Internal Revenue Code. Section 162(m) of the Internal Revenue Code limits publicly-held companies such as the Company to an annual deduction for federal income tax purposes of $1 million for compensation paid to their covered employees. However, performance-based compensation is excluded from this limitation. The Amended Plan is designed to permit the Committee to grant awards that qualify as performance-based for purposes of satisfying the conditions of Section 162(m).
To qualify as performance-based:
(i)the compensation must be paid solely on account of the attainment of one or more pre-established, objective performance goals;
(ii)the performance goal under which compensation is paid must be established by a compensation committee comprised solely of two or more directors who qualify as outside directors for purposes of the exception;
(iii)the material terms under which the compensation is to be paid must be disclosed to and subsequently approved by stockholders of the corporation in a separate vote before payment is made; and
(iv)the compensation committee must certify in writing before payment of the compensation that the performance goals and any other material terms were in fact satisfied.
In the case of compensation attributable to stock options, the performance goal requirement (summarized in (i) above) is deemed satisfied, and the certification requirement (summarized in (iv) above) is inapplicable, if the grant or award is made by the compensation committee; the plan under which the option is granted states the maximum number of shares with respect to which options may be granted during a specified period to an employee; and under the terms of the option, the amount of compensation is based solely on an increase in the value of the common stock after the date of grant.
Under the Amended Plan, one or more of the following business criteria, on a consolidated basis, and/or with respect to specified subsidiaries or business units, where appropriate, are used exclusively by the Committee in establishing performance goals: (i) earnings per share; (ii) revenues or margins; (iii) cash flow; (iv) operating margin; (v) return on net assets, investment, capital, or equity; (vi) economic value added; (vii) direct contribution; (viii) net income; (ix) pretax earnings; (x) earnings before interest and taxes; (xi) earnings before interest, taxes, depreciation and amortization; (xii) earnings after interest expense and before extraordinary or special items; (xiii) operating income; (xiv) income before interest income or expense, unusual items and income taxes, local, state or federal and excluding budgeted and actual bonuses that might be paid under any ongoing bonus plans of the Corporation; (xv) working capital; (xvi) management of fixed costs or variable costs; (xvii) identification or consummation of investment opportunities or completion of specified projects in accordance with corporate business plans, including strategic mergers, acquisitions or divestitures; (xviii) total stockholder return; and (xix) debt reduction.
Business criteria may be measured on an absolute or relative basis and on a GAAP or non-GAAP basis.
Under the Internal Revenue Code, a director is an “outside director” of the Company if he or she is not a current employee of the Company; is not a former employee who receives compensation for prior services (other than under a tax-qualified retirement plan); has not been mailedan officer of the Company; and does not receive, directly or indirectly (including amounts paid to shareholders along with this Proxy Statement. We will, upon written request and without charge, providean entity that employs the director or in which the director has at least a five percent ownership interest), remuneration from the Company in any capacity other than as a director.
The maximum number of shares of Common Stock subject to options or stock appreciation rights that can be granted under the Amended Plan in a calendar year to any person solicited hereunder additional copiesis 10,000,000. The maximum number of shares of Common Stock that can be granted under the Amended Plan to any person, other than pursuant to an option or stock appreciation right, is 10,000,000 per year. The maximum amount that may be paid as a cash-settled Performance-Based Award for a 12 month performance period by any one person is $10,000,000 and the maximum amount that may be paid as a cash-settled Performance-Based Award in respect of a performance period greater than 12 months by any one person is $20,000,000.
Equity Compensation Plan Information
The following table summarizes the options granted under our 2008 Equity Compensation Plan, 2007 Consultant Stock Plan, Amended and Restated 2006 Incentive Stock Plan, 2004 Consultant Stock Plan, and 2002 Incentive Stock Plan as of December 31, 2010. We currently have reserved a total of 45 million shares of our Annual ReportCommon Stock for granting awards, including 10 million shares under our 2002 Incentive Stock Plan, 4 million shares under our 2006 Incentive Stock Plan, 10 million shares under our 2007 Consultant Stock Plan, and 10 million shares under our 2008 Equity Compensation Plan. All plans were approved by our shareholders. The shares covered by outstanding options are subject to adjustment for changes in capitalization stock splits, stock dividends and similar events.
| Equity Compensation Plan Table |
Equity Compensation Plans Approved By Security Holders | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) (in thousands) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under Equity Compensation Plans (excluding securities reflected in column (a)) (c) (in thousands) |
Grants under the 2008 Equity Compensation Plan | 19,294 (1) | $0.37 | 0 |
Grants under the 2007 Consultant Stock Plan | 1,500 | $0.51 | 4,500 |
Grants under the 2006 Incentive Stock Plan | 3,290 | $0.72 | 817 |
Grants under the 2004 Consultant Stock Plan | — | $ — | 1,000 |
Grants under the 2002 Incentive Stock Plan | 2,694 | $0.92 | 6,204 |
Equity Compensation Plans Not Approved by Security Holders | — | — | — |
| ___________ | __________ | __________ |
Total | 26,778 | $0.47 | 13,087 |
(1) Options over 10,000,000 are contingent upon shareholder approval of Proposal No. 5.
New Plan Benefits
Because of the limited number of shares available for issuance under the Stock Incentive Plan as of January 1, 2010, the Board of Directors granted awards that are contingent on Form 10-KSB,stockholder approval of the Amended Plan. If the Amended Plan is not approved, no shares will be issued in connection with those awards and the awards will be cancelled.
The following New Plan Benefits Table contains the number of awards that have been made under the Stock Incentive Plan, but are contingent on stockholder approval of the Amended Plan, to the individuals and groups listed below. Because participation and the types of awards available for grant under the year ended December 31, 2006,Stock Incentive Plan are subject to the discretion of the administrator, the amounts that any participant or group of participants may receive in the future if the Amended Plan is approved, other than the awards set forth in the New Plan Benefits table below, are not currently determinable.
New Plan Benefits in Fiscal Year 2011
Name and Position | | Amended 2008 Plan | | |
| Exercise Price ($) | | Shares underlying option (#) | | |
Steven Schneider, Co-Chief Executive Officer, Secretary and Director | | | | $0.39 | | 8,333,940 | | | |
Priscilla Lu Director | | | | $0.39 | | 5,600,364 | | | |
Executive Officer Group | | | | $0.39 | | 8,333,940 | | | |
Non-Executive Director Group | | | | | | 5,600,364 | | | |
Non-Executive Officer Employee Group | | | | __ | | 0 | | | |
Vote Required
The affirmative vote of a majority of the shares of ZAP Common Stock present or represented by proxy and voting at the annual meeting, together with the affirmative vote of a majority of the required quorum, is required for approval of this proposal.
Recommendation of the Board of Directors
The Board of Directors recommends that the shareholders vote FOR the authorization of the Board to amend and restate the 2008 Equity Compensation Plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information known to ZAP with respect to beneficial ownership of ZAP Common Stock as filed withof April 14, 2011 for (i) each director and nominee, (ii) each holder of 5.0% or greater of ZAP Common Stock, (iii) ZAP’s Co-Chief Executive Officers and the two most highly compensated executive officers other than the Co-Chief Executive Officers and the Chief Financial Officer named in the table entitled “Summary Compensation Table” below (the “named executive officers”), and (iv) all executive officers and directors as a group. Unless otherwise listed below, the address for each investor is the Company’s address: 501 Fourth Street, Santa Rosa, CA 95401.
Beneficial ownership is determined under the rules of the Securities and Exchange Commission. Requests shouldCommission and generally includes voting or investment power with respect to securities. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, to ZAP’s knowledge the persons named in the table below have sole voting and investment power with respect to all shares of Common Stock beneficially owned. In addition, unless otherwise indicated, all persons named below can be addressed to the Investor Relations Department,reached at ZAP, 501 Fourth Street, Santa Rosa, California,CA 95401. Also,The number of shares beneficially owned by each person or group as of April 14, 2011 includes shares of Common Stock that such report may be obtained from our Internet homepage at http://www.zapworld.com.person or group had the right to acquire on or within 60 days after April 14, 2011, including, but not limited to, upon the exercise of options or the vesting of restricted stock units. References to options in the footnotes of the table below include only options to purchase shares outstanding as of April 14, 2011 that were exercisable on or within 60 days after April 14, 2011, and references to restricted stock units in the footnotes of the table below include only restricted stock units outstanding as of April 14, 2011 that would vest and could settle on or within 60 days after April 14, 2011. For each individual and group included in the table below, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of the 218,104,955 shares of Common Stock outstanding on April 14, 2011 plus the number of shares of Common Stock that such person or group had the right to acquire on or within 60 days after April 14, 2011.
Name | Number of Shares Beneficially Owned _________ | Percent Owned ________ |
Goldenstone Worldwide Limited | 30,000,000 | 13.75% |
The Banks Group (1) | 15,048,297 | 6.59% |
Alex Wang | 4,000,000 | 1.83% |
Steven Schneider (2) | 24,139,219 | 10.10% |
Cathaya Capital L.P. (3) | 192,131,788 | 57.3% |
Priscilla Lu (4) | 192,131,788 | 57.3% |
William Hartman (5) | 2,440,841 | 1.1% |
Gary Dodd | | * |
H. Dave Jones | | * |
Mark Abdou | | * |
Peter Scholl | | * |
Benjamin Zhu | 0 | 0% |
Gomen Chong | 0 | 0% |
Georges Penalver | 0 | 0% |
Patrick Sevian | 0 | 0% |
All Directors and Executive Officers as a group (12 persons)(6) | 416,815,873 | |
OTHER MATTERS
We are not aware of any business to be presented for consideration at the meeting, other* Less than that specified in the Notice of Annual Meeting. If any other matters are properly presented at the meeting, it is the intention of the persons named in the enclosed proxy to vote in accordance with their best judgment.one percent.
(1) | Includes warrants to purchase 10,200,000 shares of Common Stock issued to Jeffrey & Banks, an affiliate of the Banks Group. |
SHAREHOLDER PROPOSALS FOR 2008 ANNUAL MEETING
(2) | Includes 12,231,952 shares of Common Stock issuable upon the exercise of various warrants and 8,741,320 shares of Common Stock issuable upon the exercise of stock options that are currently exercisable or will be exercisable within 60 days of April 14, 2011. |
Any shareholder who intends to submit a proposal at the 2008 Annual Meeting of Shareholders and who wishes to have the proposal considered for inclusion in the proxy statement and form of proxy for that meeting must, in addition to complying with the applicable laws and regulations governing submission of such proposals, deliver the proposal to us for consideration no later than December 31, 2007. Rule 14a-4 of the SEC’s proxy rules allows a company to use discretionary voting authority to vote on matters coming
(3) | Includes (a) 84,265,000 shares of Common Stock issuable upon conversion of a promissory note and 20,000,000 shares of Common Stock issuable upon exercise of a warrant held by China Electric Vehicle Corporation, (b) 10,000,000 shares of Common Stock issuable upon the exercise of a warrant and 69,000,000 shares of Common Stock held by Cathaya Capital, L.P., (c) 6,000,000 shares of Common Stock held by Better World International Limited, (d) options to purchase 2,866,788 shares of Common Stock that are currently exercisable or will be exercisable within 60 days of April 14, 2011 held by Dr. Priscilla Marilyn Lu. |
(4) | Dr. Lu is the Chairman of the Board of Directors of ZAP and is also founder and general partner of Cathaya Capital Co., Ltd.., the general partner of Cathaya Capital GP, L.P., which is the general partner of Cathaya Capital L.P., a Cayman Islands exempted limited partnership (“Cathaya”). Cathaya is the sole shareholder of China Electric Vehicle Corporation, a British Virgin Islands Company (“CEVC”). Dr. Lu is also a director of Better World International Limited, a British Virgin Islands company (“Better World”) and Cathaya is the majority shareholder of Better World. Therefore, Ms. Lu’s beneficial ownership could be (a) a promissory note convertible into 84,265,000 shares of Common Stock and a warrant to purchase 20,000,000 shares of Common Stock held by China Electric Vehicle Corporation, (b) 10,000,000 shares of Common Stock issuable upon the exercise of a warrant and 69,000,000 shares of Common Stock held by Cathaya Capital, L.P., (c) 6,000,000 shares of Common Stock held by Better World International Limited, (d) options to purchase 2,866,788 shares of Common Stock that are currently exercisable or will be exercisable within 60 days of April 14, 2011 held by Dr. Priscilla Marilyn Lu. Dr. Lu disclaims ownership of the shares beneficially owned by China Electric Vehicle Corporation, Cathaya Capital, L.P. and Better World International Limited, except to the extent of her pecuniary interest therein. |
before an annual meeting(5) | Includes 829,369 shares of Common Stock issuable upon the exercise of various warrants and 1,003,333 shares of Common Stock issuable upon the exercise of stock options that are currently exercisable or will be exercisable within 60 days of April 14, 2011. |
(6) | Includes shares described in the notes above, as applicable. Also includes 440,018 shares of Common Stock issued to directors and officers and 1,532,219 shares of Common Stock issuable upon the exercise of stock options and warrants that are currently exercisable or will be exercisable within 60 days of April 14, 2011. |
Equity Compensation Plan Information
The following table provides information as of shareholders, ifDecember 31, 2010 with respect to the company doesshares of ZAP Common Stock that may be issued under existing equity compensation plans. ZAP has four Equity Compensation Plans: The 2008 Equity Compensation Plan, the 2007 Consultant Stock Plan, the Amended and Restated 2006 Incentive Stock Plan, and the 2002 Incentive Stock Plan. The Company has 1 million shares authorized for issuance under its 2004 Consultant Stock Plan, but has not have noticeissued any of these options. These Plans provide for the grant of incentive stock options and non-statutory options to employees, directors and consultants to the Company. ZAP granted incentive stock options and non-statutory options at exercise price per share equal to the fair market value per of the matter at least 45 days beforeCommon Stock on the date correspondingof grant. The vesting generally, three years, and exercise provisions were determined by the Board of Directors, with a maximum life from five to the date on which the company first mailed its proxy materials for the prior year’s annual meeting of shareholders or the date specified by an overriding advance notice provision in the company’s bylaws. Our bylaws do not contain such an advance notice provision. Accordingly, for our 2008 Annual Meeting of Shareholders, shareholders’ written notices must be received by us before March 16, 2008 for any proposal a shareholder wishes to bring before the meeting but for which such shareholder does not seek to have a written proposal considered for inclusion in the proxy statement and form of proxy. Such proposals should be sent to Renay Cude, Corporate Secretary, ZAP 501 Fourth Street, Santa Rosa, California 95401.ten years.
| | 2008 Plan | | | 2007 Plan | | | 2006 Plan | | | 2002 Plan | |
| | Number of Shares | | | Weighted Average Exercise Price | | | Number of Shares | | | Weighted Average Exercise Price | | | Number of Shares | | | Weighted Average Exercise Price | | | Number of Shares | | | Weighted Average Exercise Price | |
Outstanding at January 1, 2009 | | | — | | | | — | | | | 1,000 | | | $ | 1.03 | | | | 5,278 | | | $ | 0.93 | | | | 5,388 | | | $ | 0.97 | |
Granted | | | 18,974 | | | $ | 0.37 | | | | 1,560 | | | $ | 0.40 | | | | — | | | | — | | | | — | | | | — | |
Exercised | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Canceled | | | — | | | | — | | | | (1,160 | ) | | | 1.03 | | | | (2,996 | ) | | | 0.93 | | | | (2,592 | ) | | | 0.97 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Outstanding at December 31, 2009 | | | 18,974 | | | $ | 0.37 | | | | 1,400 | | | $ | 0.37 | | | | 2,282 | | | $ | 0.86 | | | | 2,796 | | | $ | 1.08 | |
Plan transfer and adjustments | | | 40 | | | | — | | | | (1,000 | ) | | $ | 0.40 | | | | 1,074 | | | $ | 0.40 | | | | 1 | | | | — | |
Granted | | | 1,260 | | | $ | 0.34 | | | | 1,100 | | | $ | 0.48 | | | | — | | | | — | | | | — | | | | — | |
Exercised | | | (140 | ) | | $ | 0.25 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Canceled | | | (840 | ) | | $ | 0.27 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Outstanding number of shares exercisable and intrinsic value at December 31, 2010 | | | 19,294 | | | $ | 0.37 | | | | 1,500 | | | $ | 0.51 | | | | 3,290 | | | $ | 0.72 | | | | 2,694 | | | $ | 0.92 | |
The weighted average fair value of options granted during the years ended December 31, 2010 and 2009 was $0.80 and $0.37.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
Executive Officers
NOTICE TO BANKS, BROKER-DEALERSOur non-director executive officers as of April 25, 2011 are as follows:
AND VOTING TRUSTEES AND THEIR NOMINEESBenjamin Zhu, 40, has been the Company’s Chief Financial Officer since March 2011. Prior to that, he was the deputy head of finance at BAIC Foton Auto Group, a large commercial vehicle manufacturer, since August 2009. From July 2008 to July 2009, Mr. Zhu served as the CFO of Ready Medicine Group, a drug wholesale and retail business, where he oversaw mergers and acquisitions in China in addition to financial responsibilities. From March 2007 to June 2008, Mr. Zhu was the finance director of Chery Global, one of China’s largest automobile manufacturers. From August 2005 to February 2007, Mr. Zhu was an audit director at Homeworld Hypermarket Group, a large retailer in China, where he helped prepare for the company’s initial public offering. Mr. Zhu also has 9 years of combined experience at the international accounting firms of Deloitte & Touche LLP and PricewaterhouseCoopers LLP. Mr. Zhu obtained a degree in Industry Economics from the Southwest University of Finance and Economics in China in 1993.
H. David Jones, 65, has been the Company’s Chief Operating Officer since April 2010. Prior to that, from September 2008 to April 2010, Mr. Jones was an international consultant to Chevron’s wholly owned contracting organization Cabinda Gulf Oil Company Ltd. in Angola, Africa. From June 2006 to September 2008, Mr. Jones worked at Jones Realty, a real estate company. From June 1994 to June 2006, Mr. Jones held positions in interWAVE Communications, Inc. As Vice President of International Sales and Vice President of Marketing.
Mr. Jones earned a Bachelor of Science degree in Business Administration from Capital University in Columbus, Ohio in 1967, an MBA from Ohio University in Athens, Ohio in 1969, and is a graduate as of 1989 from the Executive Management Program in the School of Organization and Management at Yale University in New Haven, CT.
Summary of Compensation
The following table sets forth the compensation earned by the named executive officers for services rendered in all capacities to ZAP and its subsidiaries for each of the last two or fewer fiscal years during which such individuals served as executive officers. ZAP’s named executive officers for fiscal 2010 include ZAP’s Co-Chief Executive Officers and the two most highly compensated executive officers other than the Co-Chief Executive Officers in fiscal 2010, or the Named Executive Officers.
Please advise us whether other persons areSummary Compensation Table
Name and Principal Position | Fiscal Year | Salary ($) | Bonus ($) | Stock awards ($)(1) | Option awards ($)(2) | Nonequity incentive plan compensation ($) | Nonqualified deferred compensation earnings ($) | All other compensation ($) | Total ($) |
Steven Schneider, Co-Chief Executive Officer and Secretary | 2010 2009 | 240,000 179,000 | — — | — 31,750 | — 3,522,541 | — — | — — | — — | 240,000 3,733,291 |
Alex Wang, Co-Chief Executive Officer (3) | 2010 2009 | 121,448 (4) — | — — | — — | — — | — — | — — | — — | 121,448 — |
H. David Jones, Chief Operations Officer (5) | 2010 2009 | 66,656 — | — — | 40,000 — | 120,000 — | — — | — — | 10,000 (6) — | 236,656 — |
Gary Dodd, President (7) | 2010 2009 | 100,000 58,337 | — 50,000 | 25,000 — | — 318,780 | — — | — — | — — | 125,000 427,117 |
(1) The amounts in the beneficial ownersStock Awards column represent the aggregate grant date fair values, computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, of restricted stock unit awards issued pursuant to the shares2008 Equity Compensation Plan. The grant date fair value of these awards is calculated using the closing price of ZAP’s Common Stock on the grant date as if these awards were vested and issued on the grant date. There can be no assurance that these grant date fair values will ever be realized by the Named Executive Officers.
(2) The fair value of each option and warrant is estimated on the date of grant using the Black-Scholes-Merton option-pricing model with the following weighted-average assumptions:
| 2010 | 2009 |
Dividends | None | None |
Expected volatility | 107.5% to 122.6% | 113.5% – 158.2% |
Risk free interest rate | 1.20% to 2.98% | 2.93% - 3.31% |
Expected life | 5.0 – 5.75 years | 5.0 – 5.75 years |
(3) Mr. Wang was appointed as the Company’s Co-Chief Executive Officer on October 25, 2010.
(4) Mr. Wang’s compensation for which proxies are being solicited from you, and, if so,2010 was RMB 800,000, represented here as the dollar exchange rate at December 31, 2011, paid by Jonway, the Company’s 51% owned subsidiary.
(5) Mr. Jones was appointed as the Company’s Chief Operations Officer on April 19, 2010.
(6) The Company paid $10,000 in 2010 for the rental of an apartment for Mr. Jones in Santa Rosa, California.
(7) Mr. Dodd was appointed as the Company’s President on June 1, 2009.
The Company has no employment agreements with any employee as at December 31, 2010.
The following table shows the number of copiesshares of this Proxy StatementZAP Common Stock covered by exercisable and other soliciting materials you wish to receive in order to supply copies to the beneficial ownersunexercisable stock options held by ZAP’s named executive officers as of the shares.
It is important that proxies be returned promptly, whether or not you expect to attend the Annual Meeting in person. We request that you complete, date and sign the enclosed form of proxy and return it promptly in the envelope provided for that purpose. By returning your proxy promptly you can help us avoid the expense of follow-up mailings to ensure a quorum so that the meeting can be held. Shareholders who attend the meeting may revoke a prior proxy and vote their proxy in person as set forth in this Proxy Statement.
| By Order of the Board of Directors |
| |
| |
| Renay Cude |
| Corporate Secretary |
| |
| Santa Rosa, California |
December 31, 2010.
Outstanding Equity Awards At 2010 Fiscal Year-End
| Option Awards | Stock Awards |
Name | Number of Securities Underlying Unexercised Options (#) Exercisable) | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares of Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock that Have Not Vested ($) |
Steven Schneider, Co-Chief Executive Officer and Secretary | 220,000 550,000 566,117 348,588 572,686 390,966 1,000,000 5,092,963 | 0 0 0 0 0 0 0 3,240,977 | $0.23 $1.15 $1.20 $0.85 $0.94 $0.83 $0.39 $0.39 | 7/5/2012 6/23/2014 11/16/2014 6/7/2015 11/9/2017 8/11/2016 8/9/2014 8/9/2014 | — | — |
Alex Wang, Co-Chief Executive Officer | — | — | — | — | — | — |
H. David Jones, Chief Operations Officer | 88,889 | 312,111 | $0.30 | 4/7/2015 | — | — |
Gary Dodd, President | 1,150,00 | 0 | $0.40 | 5/30/2014 | — | — |
Potential Payments upon Termination or Change in Control
Acceleration of Equity Awards
Each outstanding award to all employees under the 2008 Equity Compensation Plan, the 2006 Incentive Stock Plan, and the 2002 Incentive Stock Plan that is subject to vesting provisions may vest in full and become immediately exercisable upon a change in control or in the event of the named executive officer’s death, terminal illness or long-continued and indefinite illness. The 2007 Consultant Stock Plan and 2004 Consultant Stock Plan do not contain such a provision.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSFinancing Provided to the Company by Cathaya Capital, L.P., Better World International Limited and China Electric Vehicle Corporation, Who Are Affiliated with Dr. Lu, Chairman of the Board of ZAP
Dr. Lu is the Chairman of the Board of Directors of ZAP and is also founder and general partner of Cathaya Capital Co., Ltd.., the general partner of Cathaya Capital GP, L.P., which is the general partner of Cathaya Capital L.P., a Cayman Islands exempted limited partnership (“Cathaya”). Cathaya is the sole shareholder of China Electric Vehicle Corporation, a British Virgin Islands Company (“CEVC”). Dr. Lu is also a director of Better World International Limited, a British Virgin Islands company (“Better World”) and Cathaya is the majority shareholder of Better World.
On August 6, 2009, ZAP entered into a Securities Purchase Agreement with Cathaya (the “2009 Securities Purchase Agreement”), pursuant to which Cathaya purchased 20 million shares of ZAP’s Common Stock at a price of $0.25 per share for an aggregate purchase price of $5 million. In addition warrants were also issued to Cathaya, which grants Cathaya the right to purchase up to 10 million shares of ZAP’s Common Stock at a price of $0.50 per share. The warrants expire on August 6, 2014.
On August 6, 2009, in connection with the 2009 Securities Purchase Agreement, ZAP also entered into a Secured Loan Facility with Cathaya pursuant to a Secured Convertible Promissory Note (the “2009 Note”). The 2009 Note provides for an aggregate principal amount of up to $10 million in advances to be made to ZAP by Cathaya prior to October 1, 2012. The aggregate principal amount of the advances made under the 2009 Note accrues interest at a rate per annum equal to the greater of (i) five percent (5%), or (ii) three percent (3%) plus prime. The aggregate principal amount of each advance made under the 2009 Note plus interest becomes due and payable to Cathaya on the earlier of (i) the two year anniversary of the date such advance was made and (ii) December 31, 2012. The 2009 Note is convertible into shares of ZAP’s Common Stock at a conversion rate, subject to any adjustments called for by the terms of the 2009 Note, of 2,000 shares of Common Stock for each $1,000 principal amount of the 2009 Note being converted. The 2009 Note is secured by the terms and conditions of a security agreement covering all of ZAP’s assets other than those assets specifically excluded from the lien created by the Security Agreement. Cathaya was also issued a warrant granting it the right to purchase up to 6 million shares of ZAP’s Common Stock at a price of $0.50 per share, based on the amount advanced on the 2009 Note and expiring on August 6, 2014. As of April 22, 2011, no amounts have been advanced on the 2009 Note.
Dr. Lu was appointed to ZAP’s Board of Directors on August 6, 2009. In connection with the 2009 Securities Purchase Agreement and Dr. Lu’s appointment to the Board of Directors of ZAP, Dr. Lu was issued a nonstatutory stock option to purchase one million shares of ZAP’s Common Stock that was fully vested and exercisable when granted and a nonstatutory option to purchase 5,600,364 shares of ZAP, which vests in three equal yearly installments starting August 5, 2010.
On January 15, 2010, ZAP entered into a Stock Purchase Agreement with Better World pursuant to which ZAP issued Better World six million shares of ZAP’s Common Stock in exchange for entry into a Distribution Agreement upon the terms set forth in the Stock Purchase Agreement..
On July 9, 2010, Cathaya entered into a securities purchase agreement pursuant to which it purchased forty-four million shares of ZAP’s Common Stock at a price of $0.25 per share for an aggregate purchase price of $11 million.
On November 10, 2010, ZAP entered into a Management Agreement with Cathaya, pursuant to which ZAP issued Cathaya five million shares of its Common Stock in exchange for Cathaya’s prior and ongoing transaction advisory, financial and management consulting services.
On January 12, 2011, ZAP entered into a Senior Secured Convertible Note and Warrant Purchase Agreement (the “CEVC Agreement”) with CEVC. Pursuant to the CEVC Agreement, (i) CEVC purchased from ZAP a Senior Secured Convertible Note (the “CEVC Note”) in the principal amount of US$19 million, (ii) ZAP issued to CEVC a warrant (the “CEVC Warrant”) exercisable for two years for the purchase of up to 20 million shares of ZAP’s Common Stock at $0.50 per share, subject to adjustments as set forth therein, (iii) ZAP, certain investors and CEVC entered into an Amended and Restated Voting Agreement that amended and restated that certain Voting Agreement, dated as of August 6, 2009, (iv) ZAP, certain investors and CEVC entered into an Amended and Restated Registration Rights Agreement that amended and restated that certain Registration Rights Agreement, dated as of August 6, 2009, which grants certain registration rights relating to the Note and the Warrant, and (v) ZAP and CEVC entered into a Security Agreement that secures the Note with all of ZAP’s assets other than those assets specifically excluded from the lien created by the Security Agreement.
The CEVC Note matures 13 months from issuance, accrues interest at a rate per annum of 8%, and is convertible upon the option of CEVC at any time, subject to any adjustments called for by the terms of the Note, into (a) shares of Common Stock of ZAP at a conversion rate of 4,435 shares of capital stock for each $1,000 principal amount of the Note being converted, or (b) the capital stock of Zhejiang Jonway Automobile Co, Ltd. at a conversion rate of 0.003743% of such shares owned by ZAP for each $1,000 principal amount of the Note being converted. Upon such a conversion, any accrued interest on the Note is waived.
ZAP used the proceeds of the CEVC Note to complete the acquisition of 51% of the capital stock of Zhejiang Jonway Automobile Co. Ltd..
Transactions with Al Yousuf LLC, Whose President was a Director of ZAP
ZAP entered into various financing arrangements during the second and third quarter of fiscal 2008 with The Al Yousuf Group, a Dubai-based conglomerate and a shareholder of ZAP. The President of Al Yousuf LLC is Mr. Eqbal Al Yousuf, who was a director of ZAP from 2007 until his resignation on December 30, 2010, and who negotiated the terms and provisions of the financing arrangements.
On July 30, 2008 we received a $10 million financing arrangement from the Al Yousuf Group, a Dubai-based conglomerate to provide future working capital to ZAP and help meet the growing demand for ZAP electric vehicles. The financing arrangement allowed for advances by ZAP commencing on the date of a promissory note (the “AY Note”). The initial outstanding principal sum advanced to ZAP under the AY Note was $1,760,000, which was used to pay off the existing secured note payable on ZAP’s corporate headquarters building. The AY Note matured on February 28, 2010. Interest only payments were due under the AY Note on a monthly basis, commencing on August 30, 2008. All principal and interest due under the AY Note is secured by the corporate headquarters building and land located in Santa Rosa, California.
On September 25, 2009, a complaint captioned Al Yousuf LLC v ZAP (Case No. SW 245950) was filed in the Superior Court for the County of Sonoma. The complaint alleged causes of action for judicial foreclosure and deficiency judgment in connection with a loan agreement with Al Yousuf LLC. In its complaint, Al Yousuf LLC claimed that ZAP has failed to make scheduled payments required under the loan agreement which is secured by real property that serves as ZAP’s principal executive offices. Al Yousuf LLC sought to foreclose on the property that secures the loan agreement and recover their attorneys fees, and obtain such other and further relief as the court may deem just and proper. On March 1, 2010, ZAP filed an offer to settle the complaint with Al Yousuf LLC pursuant to Section 998 of the California Code of Civil Procedure (the “Settlement Offer”), which was accepted by Al Yousuf LLC on April 5, 2010. Pursuant to the terms of the Settlement Offer, ZAP was to (1) pay to Al Yousuf LLC the total combined cash sum of $1,800,000 over a period of two years; (2) transfer the property located at 501 Fourth Street, Santa Rosa, California to Al Yousuf LLC; and (3) transfer the property located at 44720 Main Street, Mendocino, California to Al Yousuf LLC in exchange for ending the litigation.
In addition, ZAP borrowed $760,000 from Portable Energy LLC, a private equity company equally owned by ZAP and Al Yousuf, which amounts were due on demand. On December 27, 2010, ZAP entered into an agreement with Mr. Al Yousuf whereby it repurchased the 50% equity owned by Mr. Al Yousuf in Portable Energy LLC in exchange for 800,000 shares of ZAP common stock, and both parties released claims relating to this matter.
Purchase of Company Owned by ZAP President
In 2009, ZAP’s President and director Gary Dodd incorporated ZAP Motor Manufacturing Kentucky, Inc., a Kentucky corporation, or ZMMK, and applied for a loan from the U.S. Department of Energy under its Advanced Technology Vehicles Manufacturing Incentive Program. In March 2009, ZAP entered into a Manufacturing and Supply Agreement with ZMMK, pursuant to which, conditional upon ZMMK’s receipt of the loan, ZAP would engage ZMMK to manufacture certain of its products. Conditional upon ZMMK’s receipt of the loan, ZAP has the right to purchase a substantial equity ownership interest in ZMMK.
Transactions with Samyang, an Investor in ZAP Whose Vice Chairman is Steven Schneider, our Co-Chief Executive Officer, Secretary and Director
In April 2010, Steven Schneider, the Co-Chief Executive Officer, Secretary and director of ZAP, became the Vice Chairman of Samyang Optics Co., Ltd. (“Samyang”), an investor in ZAP.
On January 27, 2010, ZAP entered into an International Distribution Agreement, pursuant to which ZAP appointed Samyang as the exclusive distributor of certain ZAP electric vehicles, including the Jonway A380 5-door electric sports utility vehicle equipped with ZAP’s electric power train, in the Republic of Korea, as well as providing for negotiations for additional agreements related to the manufacture and assembly of ZAP vehicles by Samyang in Korea. In addition, on January 27, 2010, ZAP and Samyang entered into an initial purchase order pursuant to this agreement for the purchase of one hundred ZAP Jonway UFO electric sports utility vehicles.
ZAP issued subordinated convertible promissory notes to Samyang Optics, Ltd. (“Samyang”) in the principal amount of $5 million out of a total lending facility of $10 million under the note purchase agreement, dated December 31, 2010. On December 14, 2010, Samyang converted the outstanding principal balance of $5 million plus approximately $259,000 in interest into 8,090,369 shares of ZAP common stock.
In connection with the completion of the Samyang investment, on February 24, 2010 ZAP purchased shares of stock of Samyang for an aggregate purchase price of $2 million.
Rental Agreements Related to Steven Schneider, ZAP’s Co-Chief Executive Officer and Director
ZAP rents office space, land and warehouse space from Mr. Steven Schneider, its Co-Chief Executive Officer, Secretary and director. These properties are used to operate the car outlet and to store inventory. Rental expense was approximately $116,000 and $108,000 for the years ended December 31, 2010 and 2009, respectively.
Closing of the Jonway Transaction with Alex Wang as a Director and Co-CEO
Alex Wang is the Chief Executive Officer of Zhejiang Jonway Automobile Co. Ltd. and on October 25, 2010, ZAP appointed Mr. Wang as a director and as a Co-CEO of ZAP. On January 21, 2011, ZAP completed its acquisition of 51% of the capital stock of Zhejiang Jonway Automobile Co. Ltd., pursuant to that Certain Equity Transfer Agreement for the Purchase and Transfer of Certain Equity Interest in Zhejiang Jonway Automobile Co., Ltd. between ZAP and Jonway Group Co. Ltd., dated July 2, 2010.
Joint Venture ZAP Hangzhou
On December 11, 2009, ZAP entered into a Joint Venture Agreement to establish a new U.S.-China company incorporated as ZAP Hangzhou to design and manufacture electric vehicle and infrastructure technology with Holley Group, the parent company of a global supplier of electric power meters and Better World International Limited, a company focused on infrastructure technology and services for electric vehicles. Priscilla Lu, Ph.D, the Chairman of the Board of Directors of ZAP, is also a director and shareholder of Better World International Limited. ZAP and Better World International Limited each have a 37.5% interest in ZAP Hangzhou, and Holley Group owns a 25% interest. The joint venture partners have also funded the initial capital requirements under the agreement for a total of $3 million, of which ZAP’s portion is $1.1 million.
AUDIT COMMITTEE REPORT
The information contained in this report shall not be deemed to be “soliciting material,” to be “filed” with the SEC or be subject to Regulation 14A or Regulation 14C (other than as provided in Item 407 of Regulation S-K) or to the liabilities of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed to be incorporated by reference in future filings with the SEC except to the extent that ZAP specifically incorporates it by reference into a document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934.
The Audit Committee has reviewed and discussed with ZAP’s management and Friedman LLP the audited consolidated financial statements of ZAP contained in ZAP’s Annual Report on Form 10-K for the 2010 fiscal year. The Audit Committee has also discussed with Friedman LLP the matters required to be discussed by SAS No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T.
The Audit Committee has received and reviewed the written disclosures and the letter from Friedman LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and has discussed with Friedman LLP its independence from ZAP.
Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in ZAP’s Annual Report on Form 10-K for its 2010 fiscal year for filing with the Securities and Exchange Commission.
In addition, the Audit Committee has selected Friedman LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2011, and the Board of Directors concurred with such selection. The Audit Committee has recommended to the shareholders that they ratify and approve the selection of Friedman LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2011.
Submitted by the Audit Committee
Peter Scholl, Chairperson
Mark Abdou
SHAREHOLDER PROPOSALS FOR 2012 ANNUAL MEETING OF SHAREHOLDERS
Requirements for Shareholder Proposals to be Considered for Inclusion in ZAP’s Proxy Materials. Shareholders of ZAP may submit proposals on matters appropriate for shareholder action at meetings of ZAP’s shareholders in accordance with Rule 14a-8 promulgated under the Securities Exchange Act of 1934. For such proposals to be included in ZAP’s proxy materials relating to its 2012 Annual Meeting of Shareholders, all applicable requirements of Rule 14a-8 must be satisfied and such proposals must be received by ZAP no later than January 12, 2012. Such proposals should be delivered to ZAP, Attn: Secretary, 501 Fourth Street, Santa Rosa, CA 95401 (and we encourage you to send a copy via email to investor@zapworld.com), with a copy to Hogan Lovells, Attn: Jon Layman, 525 University Avenue 3rd Floor, Palo Alto, CA 94301.
Requirements for Shareholder Proposals to be Brought Before the Annual Meeting. ZAP’s bylaws provide that, except in the case of proposals made in accordance with Rule 14a-8, for shareholder nominations to the Board of Directors or other proposals to be considered at an annual meeting of shareholders, the shareholder must have given timely notice thereof in writing to the Secretary of ZAP. A shareholder’s notice to ZAP’s Secretary must set forth the information required by ZAP’s bylaws and Rule 14a-4 promulgated under the Securities Exchange Act of 1934 with respect to each matter the shareholder proposes to bring before the annual meeting.
In addition, the proxy solicited by the Board of Directors for the 2012 Annual Meeting of Shareholders will confer discretionary authority to vote on (i) any proposal presented by a shareholder at that meeting for which ZAP has not been provided with notice on or prior to March 27, 2012 and (ii) any proposal made in accordance with the bylaw provisions, if the 2012 proxy statement briefly describes the matter and how management’s proxy holders intend to vote on it, if the shareholder does not comply with the requirements of Rule 14a-4(c)(2) under the Securities Exchange Act of 1934.
PROXY SOLICITATION AND COSTS
ZAP will bear the entire cost of this solicitation of proxies, including the preparation, assembly, printing, and mailing of the Notice of Internet Availability of Proxy Materials, this Proxy Statement, the proxy and any additional solicitation material that ZAP may provide to shareholders. Copies of solicitation material will be provided to brokerage firms, fiduciaries and custodians holding shares in their names that are beneficially owned by others so that they may forward the solicitation material to such beneficial owners. Further, the original solicitation of proxies by mail may be supplemented by solicitation by telephone and other means by directors, officers and employees of ZAP. No additional compensation will be paid to these individuals for any such services.
SHAREHOLDERS SHARING THE SAME ADDRESS
The Securities and Exchange Commission has adopted rules that permit companies and intermediaries (such as brokers) to implement a delivery procedure called “householding.” Under this procedure, multiple shareholders who reside at the same address may receive a single copy of our annual report and proxy materials, including the Notice of Internet Availability of Proxy Materials, unless the affected shareholder has provided contrary instructions. This procedure reduces printing costs and postage fees.
Once again this year, a number of brokers with account holders who beneficially own our Common Stock will be “householding” our annual report and proxy materials, including the Notice of Internet Availability of Proxy Materials. A single Notice of Internet Availability of Proxy Materials and, if applicable, a single set of annual report and other proxy materials will be delivered to multiple shareholders sharing an address unless contrary instructions have been received from the affected shareholders. Once you have received notice from your broker that it will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. Shareholders may revoke their consent at any time by contacting the Secretary of the Company at the Company's address.
Upon written or oral request, ZAP will promptly deliver a separate copy of the Notice of Internet Availability of Proxy Materials and, if applicable, a separate set of proxy materials to any beneficial owner at a shared address to which a single copy of any of those documents was delivered. To receive a separate copy of the Notice of Internet Availability of Proxy Materials and, if applicable, a separate set of proxy materials, you may write or call ZAP’s Investor Relations Department at ZAP, 501 Fourth Street, Santa Rosa, CA 95401, Attention: Investor Relations.
Any shareholders who share the same address and currently receive multiple copies of our Notice of Internet Availability of Proxy Materials or annual report and other proxy materials, who wish to receive only one copy in the future, can contact their bank, broker or other holder of record to request information about householding.
FORM 10-K
ZAP WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF ZAP’S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES AND LIST OF EXHIBITS, AND ANY PARTICULAR EXHIBIT SPECIFICALLY REQUESTED. REQUESTS SHOULD BE SENT TO: ZAP, 501 FOURTH STREET, SANTA ROSA, CA 95401, ATTN: INVESTOR RELATIONS. THE ANNUAL REPORT ON FORM 10-K IS ALSO AVAILABLE AT WWW.ZAPWORLD.COM.
OTHER MATTERS
The Board of Directors knows of no other matters to be presented for shareholder action at the annual meeting. However, if other matters do properly come before the annual meeting or any adjournments or postponements thereof, the Board of Directors intends that the persons named in the proxies will vote upon such matters in accordance with their best judgment.
† | You can now vote your shares electronically through the Internet or by mail.BY ORDER OF THE BOARD OF DIRECTORS |
| This eliminates the need to return the proxy card. |
| Your electronic vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed, datedBy: and returned the proxy card./S/ STEVEN SCHNEIDER
Steven Schneider Secretary |
TO VOTE YOUR PROXY BY INTERNET
www.continentalstock.com.
Have your proxy card in hand when you access the above website. You will be prompted to enter the company number, proxy
number and account number to create an electronic ballot. Follow the prompts to vote your shares.43
TO VOTE YOUR PROXY BY MAIL
Mark, sign and date your proxy card below, detach it and return it in the postage-paid envelope provided.
PLEASE DO NOT RETURN THE BELOW CARD IF VOTING ELECTRONICALLY
~ FOLD AND DETACH HERE AND READ THE REVERSE SIDE ~
Appendix A
CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
ZAP
The undersigned, Steven Schneider, hereby certifies that:
1. | He is the duly elected and acting Co-Chief Executive Officer and Secretary of ZAP, a California corporation (the “Corporation”). |
2. | Article III of the Articles of Incorporation of the Corporation is amended to add paragraph (3) below, which will read in full as follows: |
“3. Effective as of 5:00 p.m., Eastern time, on the date this Certificate of Amendment of Amended and Restated Articles of Incorporation is filed with the Secretary of State of the State of California, each [**] shares of the Corporation's Common Stock, issued and outstanding shall, automatically and without any action on the part of the respective holders thereof, be combined and converted into one (1) share of Common Stock of the Corporation. No fractional shares shall be issued and, in lieu thereof, any holder of less than one share of Common Stock shall be entitled to receive cash for such holder's fractional share based upon the closing sales price of the Corporation's Common Stock as reported on OTC Bulletin Board on the date this Certificate of Amendment is filed with the Secretary of State of the State of California. All share numbers in this certificate will assume the split has occurred and reflect post-split numbers."
3. | The foregoing amendment has been approved by the Board of Directors of the Corporation in accordance with Section 902 of the California Corporations Code and the Bylaws of the Corporation. |
4. | The foregoing amendment was approved by the holders of the requisite number of shares of the Corporation in accordance with Section 902 and 903 of the California Corporation Code and the Bylaws of the Corporation. |
5. | The Boardtotal number of Directors recommends aoutstanding shares entitled to vote “FOR” allwith respect to the Director Nominees listed | Please mark
your votes
like this
| x foregoing amendment was [________] shares of Common Stock, which are issued and outstanding. The number of shares of Common Stock voting in favor of the foregoing amendment equaled or exceeded the vote required. The vote required was more than 50% of the outstanding shares of Common Stock. The Corporation has no outstanding preferred shares. |
The undersigned certifies under penalty of perjury under the laws of the State of California, that the matters set forth in this Certificate are true and correct of his own knowledge.
Executed at Santa Rosa, California on [__________].
| | |
| | Write Exceptions Below Steven Schneider |
01 Steven Schneider 02 Gary Starr 03 Renay Cude 04 Peter Scholl | ForCo-Chief Executive Officer and Secretary
|
** By approving this amendment, shareholders will approve the combination of any number of shares of Common Stock between and including four (4) and eight (8) into one (1) share of Common Stock. The Certificate of Amendment filed with the Secretary of State of the State of Delaware will include only that number determined by the Board of Directors to be in the best interests of the Corporation and its shareholders. In accordance with these resolutions, the Board of Directors will not implement any amendment providing for a different split ratio.
Appendix B
CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
ZAP
The undersigned, Steven Schneider, hereby certifies that:
All
o
1. | Withheld
All
o
| For All
Except
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| | He is the duly elected and acting Co-Chief Executive Officer and Secretary of ZAP, a California corporation (the “Corporation”). |
(To withhold authority to vote for any individual nominee, mark “FOR ALL EXCEPT”, and write the nominee’s number in the box provided above to the right.)
The Board of Directors unanimously recommends that you vote “FOR” Proposal No.2, and Proposal No. 3.
2. APPROVAL OF AMENDMENT TO THE COMPANY’S AMENDED AND RESTATED ARTICLES OF INCORPORATION TO INCREASE AUTHORIZED SHARES OF COMMON STOCK: | For
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| Abstain
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| Article III, paragraph (1) of the Amended and Restated Articles of Incorporation (the “Articles of Incorporation”) of the Corporation is amended and restated to read in full as follows: |
“1. Common Stock: The Corporation may issue 800,000,000 shares of Common Stock. Each share of Common Stock shall entitle the holder thereof to one (1) vote on each matter submitted to a vote of the shareholders.”
3. RATIFICATION OF SELECTION OF ODENBURG, ULLAKKO, MURANISHI & CO. LLP AS OUR INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007. | For
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| Abstain
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| The foregoing amendment has been approved by the Board of Directors of the Corporation in accordance with Section 902 of the California Corporations Code and the Bylaws of the Corporation. |
4. | The foregoing amendment was approved by the holders of the requisite number of shares of the Corporation in accordance with Section 902 and 903 of the California Corporation Code and the Bylaws of the Corporation. |
5. | The total number of outstanding shares entitled to vote with respect to the foregoing amendment was [________] shares of Common Stock, which are issued and outstanding. The number of shares of Common Stock voting in favor of the foregoing amendment equaled or exceeded the vote required. The vote required was more than 50% of the outstanding shares of Common Stock. The Corporation has no outstanding preferred shares. |
The undersigned certifies under penalty of perjury under the laws of the State of California, that the matters set forth in this Certificate are true and correct of his own knowledge.
Executed at Santa Rosa, California on [__________].
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Note: Please mark, date and sign this proxy card and return it in the enclosed envelope. Please sign as your name appears on this card. If shares are registered in more than one name, all owners should sign. If signing in a fiduciary or
representative capacity, please give full title and attach evidence of authority. Corporations please sign with corporate name by a duly authorized officer.