SETTLEMENT AGREEMENT
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THIS SETTLEMENT AGREEMENT (the "Agreement"), is made and entered into
as of June 27, 2001, by and between Xxxxxxxx.xxx, a California corporation
("ZAP"), Ridgewood Zap, LLC, a Delaware limited liability company ("Ridgewood"),
and certain specified holders of ZAP Series A Preferred Stock (the holders are
listed on the signature page hereof and referred to herein as "Shareholders");
with reference to the following facts:
RECITALS
A. Ridgewood currently owns 1,250,237 shares of ZAP common stock. These
shares represent more than 10% of the outstanding shares of ZAP. Ridgewood
represents that it has held these shares for more than two (2) years.
B. ZAP, Ridgewood, and the Shareholders are engaged in a dispute
concerning the agreed-upon terms of conversion of those certain shares of Series
A-1 and Series A-2 Convertible Preferred Stock issued and sold by ZAP to the
Shareholders pursuant to the Transaction Agreements (as that term is defined in
the June 2000 Securities Purchase Agreement relating to the sale of the Series
A-1 and Series A-2 Convertible Preferred Stock). The Series A-1 and the Series
A-2 Convertible Preferred Stock are sometimes referred to as the "Preferred
Stock."
C. The purpose of this Settlement Agreement is to provide the terms on
which such dispute shall be resolved and to confirm the terms of the Transaction
Agreements.
AGREEMENT
NOW THEREFORE, in consideration of the above-referenced facts and the
mutual covenants set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. Recitals and Representations. All of the above recitals and
representations are true and correct, and each of them is incorporated by this
reference into the Agreement.
2. Purchase of Ridgewood's Shares. ZAP will purchase from Ridgewood Six
Hundred Twenty-five Thousand One Hundred Eighteen (625,118) shares of ZAP common
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stock. Immediately following such purchase, Ridgewood will hold less than ten
percent (10%) of the then outstanding shares of ZAP.
(a) Terms of Purchase. The purchase price for such shares shall be One
Million Five Hundred Thousand Dollars ($1,500,000).
(b) The Note. Payment shall be reflected by a six percent (6%)
promissory note (the "Note"). Interest shall be payable semi-annually. Principal
shall be due as follows: the first installment of Five Hundred Thousand Dollars
($500,000) shall be paid to Ridgewood no later than twelve (12) months following
the date of execution of this Agreement; the second installment of Five Hundred
Thousand Dollars ($500,000) shall be paid to Ridgewood no later than eighteen
(18) months from the date of execution of this Agreement; and the final
installment of Five Hundred Thousand Dollars ($500,000) shall be paid to
Ridgewood no later than twenty-four (24) months following the date of execution
of this Agreement. The amount of the Note may be reduced or increased as
provided in Section 4(f) below.
3. Resignations of Xxxxxx Xxxxxxx and Xxxxxxx Xxxxxx. Ridgewood shall
cause its designees, Mr. Xxxxxx Xxxxxxx and Mr. Xxxxxxx Xxxxxx to resign any and
all positions each of them holds as an officer and/or director of ZAP
immediately upon the issuance of the Note. The date on which both (i) Ridgewood
has less than 10% of the outstanding ZAP shares and (ii) Xxxxxxx and Xxxxxx are
no longer officers and/or directors of ZAP is referred to as the "Ridgewood
Date." The "Clearance Date" is the first day of the first calendar month which
is at least 3 months after the Ridgewood Date."
4. Remaining Shares.
(a) Purchase. On the terms provided herein, beginning on the Clearance
Date, each of the Shareholders hereby agrees to purchase from Ridgewood, and
Ridgewood shall sell to the Shareholders, on the terms described below, a number
of shares of ZAP common stock equal to (x) the remaining balance of Ridgewood's
Six Hundred Twenty-five Thousand One Hundred Nineteen (625,119) shares of common
stock (the "Remaining Shares"), multiplied by (y) the percentage set forth next
to such Shareholder's name on the signature page hereof (the "Shareholder's
Percentage"). Each Shareholder shall be obligated to purchase from Ridgewood
such number of shares (the "Allocated Remaining Shares"), and no Shareholder
shall purchase from Ridgewood more than such Shareholder's Allocated Remaining
Shares.
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(b) Escrow. The Remaining Shares together with appropriate executed
transfer documentation to enable the stock to be transferred to the Shareholders
as they are purchased shall be placed in escrow with Xxxxxxx & Prager, LLP (the
"Escrow Agent"). At the request of the Escrow Agent, Ridgewood will provide
additional executed transfer documentation for such purpose. Except as provided
in this Agreement, Ridgewood covenants not to sell any of the Remaining Shares
without the Shareholders' prior written consent in each instance.
(c) Purchase Schedule. Beginning on the Clearance Date and continuing
as long as the Shareholder's obligation to purchase the Allocated Remaining
Shares remains in effect, each Shareholder shall purchase all or a portion of
the Allocated Remaining Shares each month. Such purchases shall be effected
subject to the following procedures and standards:
(i) The aggregate purchase price to be paid by each
Shareholder for purchases of all or a portion of each Shareholder's
Allocated Remaining Shares in each month (the "Cash Purchase Price")
shall be equal to the greater of (x) One Hundred Thousand Dollars
($100,000) multiplied by the Shareholder's Percentage or (y) one-half
(1/2) of the Stated Value of the Preferred Stock converted by such
Shareholder in the prior calendar month./1 Each calendar month is an
independent unit; that is, after the month preceding the Clearance
Date, the next period will commence on the Clearance Date, and the
period after that will begin on first day of the following month.
(ii) Each Shareholder shall deposit the Shareholders' Cash
Purchase Price in cleared funds in an account designated by the Escrow
Agent no later than the first business day of the relevant month.
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1 Example (for each Shareholder): If during the month period ending on the date
immediately before the Clearance Date, the Shareholder converted Preferred Stock
having a Stated Value of Four Hundred Thousand Dollars ($400,000) multiplied by
the Shareholder's Percentage, then during the month starting on the Clearance
Date, the Cash Purchase Price shall be shall be Two Hundred Thousand Dollars
($200,000) multiplied by the Shareholder's Percentage, not One Hundred Thousand
Dollars ($100,000) multiplied by the Shareholder's Percentage. If the total
amount converted during that prior month is not more than Two Hundred Thousand
Dollars ($200,000) multiplied by the Shareholder's Percentage, then the Cash
Purchase Price purchase in the next month shall remain at One Hundred Thousand
Dollars ($100,000) multiplied by the Shareholder's Percentage. In no event shall
the Cash Purchase Price in any one calendar month amount be less than One
Hundred Thousand Dollars ($100,000) multiplied by the Shareholder's Percentage,
unless the Per Share Price (defined below) multiplied by the balance of the
Allocated Remaining Shares being acquired by such Shareholder is less than such
amount.
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(iii) The twenty day trading period starting with the first
trading day of each month (the "First Day") is referred to as the
"Computation Period." The closing of each month's purchase shall occur
on the first business day after the last day of the Computation Period.
(iv) The purchase price per share (the "Per Share Price")
shall be ninety-one percent (91%) of the lowest Closing Bid Price (as
defined below) of ZAP common stock during the Computation Period;
provided, however, that if the lowest Closing Bid Price of ZAP common
stock during the Computation Period should be Twelve Dollars ($12) or
more, then the purchase price per share shall be ninety-three percent
(93%) thereof. The "Closing Bid Price" for any trading day shall be the
closing bid price for that day as reported by Bloomberg LP or if that
service is not then reporting the relevant information regarding the
Common Stock of ZAP, a comparable reporting service of national
reputation selected by the Shareholders and reasonably acceptable to
Ridgewood.
(v) The Allocated Remaining Shares purchased at each closing
shall be the Shareholder's Cash Purchase Price divided by the
applicable Per Share Price.
(vi) Notwithstanding the foregoing, in any given month the
aggregate Cash Purchase Price payable by a Shareholder shall not exceed
the amount equal to the number of Allocated Remaining Shares remaining
to be purchased by the Shareholder hereunder, multiplied by the
applicable Per Share Price, even if such amount is less than the amount
specified in Section 4(c)(i) hereof.
(d) Escrow Agent Provisions. Additional provisions regarding the Escrow
Agent and the mechanics of the closing of the purchases contemplated by this
Section are attached hereto as Exhibit 2 (the "Escrow Instructions"). By signing
this Agreement, each of Ridgewood and each of the Shareholders, subject to
acceptance by the Escrow Agent, agrees to all of the terms and conditions of,
and becomes a party to, the Escrow Instructions, all of the provisions of which
are incorporated herein by this reference as if set forth in full.
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(e) Expiration of Purchase Obligation. Each Shareholder's obligation
under this Section 4 shall expire on the earliest to occur of (i) the date on
which such Shareholder has purchased all of such Shareholder's Allocated
Remaining Shares; (ii) the date on which Ridgewood no longer owns any of the
Remaining Shares; (iii) the second anniversary of the execution of this
Agreement; or (iv) the date on which the shares of ZAP are not traded on any of
the NASDAQ Bulletin Board, SmallCap or National Markets.
(f) Adjustment to ZAP Note. If the aggregate amount paid by the
Shareholders for the Remaining Shares exceeds One Million Five Hundred Thousand
Dollars ($1,500,000), then the principal amount of the Note shall be reduced by
such excess. Notwithstanding the preceding sentence, if the aggregate amount
paid by the Shareholders for the Remaining Shares is less than One Million Five
Hundred Thousand Dollars ($1,500,000), then the principal amount of the Note
shall be increased by the amount of such shortfall and such increase shall be
amortized by ZAP at the rate of $100,000 per month (plus applicable interest)
commencing the first day of the first calendar month after such increase.
5. Outstanding Conversions. Prior to the execution of this Agreement,
each of the Shareholders had submitted to ZAP certain Notices of Conversion of
Preferred Stock which have not yet been honored by ZAP, as scheduled below (the
"Prior Conversions"). Upon the execution of this Agreement by all of the
signatories identified below, ZAP will issue to the Shareholders certificates
for the Stated Value (plus accrued dividends to the date of such issuance) of
the Prior Conversions of Series A-1 and/or Series A-2 Convertible Preferred
Stock converted by such notices, utilizing the Conversion Price specified
therein. ZAP agrees that it will honor all further conversions of Series A-1
and/or Series A-2 Convertible Preferred Stock in accordance with the terms of
the Transaction Agreements, including, without limitation, the Certificate of
Determination of Rights and Preferences of the Series A-1 Convertible Preferred
Stock and Series A-2 Convertible Preferred Stock of Xxxxxxxx.Xxx as filed with
the Secretary of State of California on or about June 27, 2000 (a copy of which
was attached as Exhibit 4.1 to Registration Statement on Form S-3 filed by ZAP
with the Securities and Exchange Commission on August 17, 2000; the "Certificate
of Determination").
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PRIOR CONVERSIONS: CONVERSIONS MADE PRIOR TO THE EXECUTION
OF THIS AGREEMENT OPEN AS OF THE DATE HEREOF:
Shareholder Notice Date Stated Value Series
The Endeavour Capital Investment
Fund S.A. 5/8/2001 $150,000 A-2
The Endeavour Capital Investment
Fund S.A. 5/8/2001 $155,000 A-2
Xxxxxxx Trust Reg. 5/1/2001 $60,000 A-1
Xxxxxxx Trust Reg. 5/3/2001 $50,000 A-1
Xxxxxxx Trust Reg. 5/8/2001 $100,000 A-1
Esquire Trade & Finance 5/1/2001 $60,000 A-1
Esquire Trade & Finance 5/3/2001 $50,000 A-1
Esquire Trade & Finance 5/8/2001 $100,000 A-1
6. Release. All of the parties, and each of them (including ZAP; the
Shareholders; Ridgewood, Xx. Xxxxxxx and Xx. Xxxxxx), on behalf of themselves
and their respective affiliates, hereby mutually release each other party and
their affiliates from all liabilities to the releasing party, and each of them;
provided, however, that such releases shall not affect (i) the ongoing rights
of, or any outstanding or accrued obligations of ZAP to, the Shareholders with
respect to outstanding Preferred Stock and to the Transaction Agreements, except
as provided in the last sentence of this Section 6; or (ii) any indemnification
or contribution rights of Ridgewood or its designees or affiliates under ZAP's
certificate of incorporation or bylaws or under existing agreements between
Ridgewood and ZAP. Anything in the immediately preceding provisions to the
contrary notwithstanding, the releases from each Shareholder to ZAP shall,
subject only to ZAP's compliance with the provisions of the second sentence of
Section 5 hereof regarding ZAP's honoring of the Prior Conversions, include a
release as to damages, penalties or other liabilities with respect to any late
delivery payments which may be due to the relevant Shareholder with respect to
conversions of Preferred Stock submitted by such Shareholder on or before May
31, 2001, and shall include a release from any and all claims for damages,
penalties, and/or attorneys' fees relating to those conversions contained in
that lawsuit set forth in Section 7 below.
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7. Dismissal of Lawsuit. Upon the execution of this Agreement, all
claims asserted by Xxxxxxx Trust Reg. and Esquire Trade & Finance (the
"Plaintiffs") in the lawsuit pending against ZAP in the United States District
Court for the Southern District of New York shall be promptly dismissed, without
prejudice, by the Plaintiffs.
8. Covenants.
(a) Ridgewood and the Shareholders. Ridgewood will not, nor will it
permit any of its designees or affiliates to become affiliates of ZAP or to
raise, directly or through any other party or derivatively, any claims against
or with respect to ZAP or the Shareholders regarding the Shareholders, their
holdings or transactions with respect to ZAP shares or their rights with respect
to the conversion, exercise or any other terms of the Preferred Stock or any
Warrants they may hold. In addition, Ridgewood and each of the Shareholders
agree that the terms of their respective agreements hereunder, including, but
not limited to the provisions of this paragraph (a), shall not be affected by a
default, if any, by ZAP in its obligations to Ridgewood or to the Shareholders
hereunder or otherwise.
(b) ZAP. ZAP hereby confirms, acknowledges and warrants to, and agrees
with, each of the Shareholders that
(i) ZAP consents to the terms of their transaction with
Ridgewood and will honor transfers made thereunder. In furtherance of
the foregoing, and not in limitation thereof, ZAP acknowledges that,
upon the First Day (as that term is defined in Section 4(c)(iii)
hereof) of each Computation Period, the Shareholder shall be deemed the
holder for all purposes (including, but not limited to, the sale
thereof), even prior to the issuance of certificates in the
Shareholder's name, of a number of shares of ZAP common stock equal to
the Cash Purchase Price paid by such Shareholder, divided by the
applicable Per Share Price determined in accordance with the provisions
of Section 4 hereof (which Per Share Price, may be recomputed on a
daily basis during the Computation Period).
(ii) ZAP will honor the terms of the Transaction Agreements,
including, but not necessarily limited to, honoring Notices of
Conversion, as written. In furtherance of the foregoing, and not in
limitation thereof, ZAP acknowledges that (x) the determination of the
Conversion Price for each conversion shall be determined as
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provided in the Certificate of Determination and that such formula is
based on the terms annexed hereto as Exhibit 1 (which are excerpted
from the Certificate of Determination), (y) there is no price
(howsoever denominated) specified as the minimum Conversion Price or
the floor price for the Conversion Price, and (z) in the event that
delivery of Conversion Certificates for any conversions submitted after
the date hereof is made after the Delivery Date (as those terms are
defined in the Certificate of Determination), the provisions of
Sections B(5) and (6) of Article III of the Certificate of
Determination shall apply.
(iii) ZAP will promptly issue one or more appropriate press
releases and/or file any necessary or appropriate documentation with
the Securities and Exchange Commission to (x) correct the filing as an
exhibit to a registration statement (such as the registration statement
on Form S-3 filed on March 7, 2001) of a document purporting to be the
Certificate of Determination of the Preferred Stock in form other than
that filed as Exhibit 4.1 to the S-3 Registration Statement filed with
the SEC on or about August 17, 2000 and (y) reflect that there is no
dispute between ZAP and the Shareholders regarding the formula for
determining the Conversion Price for Preferred Stock.
(iv) ZAP agrees that the following provision shall apply to
the enforcement by a Shareholder of such Shareholder's rights hereunder
or under any of the Transaction Agreements (it being understood that
ZAP and the Shareholder may be referred to by other defined terms in
any of the Transaction Agreements, but that this provision shall apply
as if the correct defined terms were used in the following text):
ZAP and the Shareholder acknowledge and agree that irreparable
damage would occur in the event that any provision of this
Agreement were not performed in accordance with its specific
terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or
injunctions, without the necessity to post a bond, to prevent
or cure breaches of the provisions of this Agreement and to
enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which any of them may
be entitled by law or equity; provided, however that ZAP, upon
receipt of a Notice of Conversion, may not fail or refuse to
deliver the stock certificates and the related legal opinions,
if any, based on any claim that the Shareholder has violated
any provision hereof or for any other reason, unless ZAP has
first obtained a court order directing it not to deliver said
stock certificates.
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(v) The provisions of this subparagraph (b) or any
other obligations or agreements of ZAP to the Shareholders
hereunder or under the Transaction Agreements shall not be
affected by any claim by Ridgewood against any one or more of
the Shareholders hereunder.
(c) Shareholders. The Shareholders hereby to
commit to an equity line of credit of up to Three
Million Dollars ($3,000,000) for ZAP on substantially
the same terms, subject to final documentation, that
were previously discussed in the latter half of the
year 2000. A summary of such terms is annexed hereto
as Exhibit 3. The Shareholders obligations to execute
the agreements reflecting such equity line of credit
contemplated by this subparagraph (c) shall expire on
the close of business on July 31, 2001, unless
extended by the Shareholders.
9. Miscellaneous Provisions.
(a) Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of New York
or the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions.
(b) Obligations Several. The obligations of each of the Shareholders
under this Agreement and each of the Transaction Agreements is several to such
Shareholder. No Shareholder is liable for the obligations of any other
Shareholder.
(c) Partial Invalidity. If any provision of this Agreement is found to
be invalid or unenforceable by any court or other lawful forum, such provision
shall be ineffective only to the extent that it is in contravention of
applicable laws without invalidating the remaining provisions of this Agreement,
unless such invalidity or unenforceability would defeat an essential business
purpose of this Agreement.
(d) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall
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constitute one and the same instrument. This Agreement shall be deemed signed
and delivered upon the exchange by facsimile transmission (fax) of signed
counterparts, but the parties thereafter shall exchange original counterpart
signature pages.
(e) Attorneys Fees. Should any party to this Agreement institute any
action or proceeding arising out of this Agreement, the substantially prevailing
party in any such action or proceeding shall be entitled to receive from the
other party or parties to such action or proceeding all costs and expenses,
including reasonable attorneys' fees, incurred by the substantially prevailing
party in connection with such action or proceeding. The determination of which
party is the "substantially prevailing party," shall be made by the court or
arbitrator, as applicable, at the time of the action or proceeding, as the case
may be. Notwithstanding the foregoing, attorneys' fees incurred in enforcing any
judgment are recoverable as a separate item and such agreement of the parties is
intended to be severable from the other provisions of this Agreement and is
intended to survive any judgment and is not to be deemed merged into any
judgment.
(f) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding on the parties to this Agreement and on their respective
heirs, devisees, successors and assigns.
(g) Warranty of Authority. Each of the signatories hereto represents
and warrants their authority to sign this Agreement and bind the respective
parties hereto.
(h) Nonadmission of Liability. The parties hereto specifically
acknowledge that nothing herein constitutes an admission of liability with
respect to any of the issues referred to or in connection with the matters
herein.
(i) Modification of Agreement. No supplement, modification, waiver or
amendment with respect to this Agreement shall be binding unless executed in
writing by all parties hereto.
(j) Entire Agreement. This Agreement supercedes and integrates all
prior Agreements, both verbal and written between the parties and it may not be
amended except in writing signed by the parties.
(k) Continuing Effect. Except to the extent, if any, specifically
provided herein, nothing in this Agreement shall be deemed to amend or otherwise
modify any of the
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Transaction Agreements, each of which remains in full force and effect (except
and limited to the extent so specifically provided herein).
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EVIDENCING their agreement to the above terms and conditions, the
parties have executed this Agreement as of the date first set forth above.
SHAREHOLDERS:
THE ENDEAVOUR CAPITAL
XXXXXXXX.XXX INVESTMENT FUND S.A. (60%)
By: ______________________ By: ______________________
Name: Xxxx Xxxxx Name: Xxxxxx Xxxxxxxxx
Its: Chief Executive Officer Its:
RIDGEWOOD ZAP, LLC ESQUIRE TRADE & FINANCE (20%)
By: ______________________ By: ______________________
Name: Xxxxxx Xxxxxxx Name: ____________________
Its: Chairman Its: _______________________
Solely as to Paragraph 6: XXXXXXX TRUST REG. (20%)
By: ______________________
_______________________________ Name: ____________________
Xxxxxx Xxxxxxx, an individual Its: _______________________
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Xxxxxxx Xxxxxx, an individual
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