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Long-Term And Short-Term Notes
9 Months Ended
Sep. 30, 2011
Long-Term And Short-Term Notes [Abstract] 
Long-Term And Short-Term Notes

 NOTE 9- LONG-TERM AND SHORT-TERM DEBT AND NOTES

 

8% Senior Convertible Notes

 

On January 12, 2011, the Company entered into a Senior Secured Convertible Note and Warrant Purchase Agreement (the "Agreement") with China Electric Vehicle Corporation ("CEVC"), a British Virgin Island company whose sole shareholder is Cathaya Capital, L.P., a Cayman Islands exempted limited partnership ("Cathaya").  Priscilla Lu is the chairman of the board of directors of ZAP, a managing partner of Cathaya and a director of CEVC.

 

 Pursuant to the Agreement, (i) CEVC purchased from the Company a Senior Secured Convertible Note (the "Note") in the principal amount of US$19 million, as amended, (ii) the Company issued to CEVC a warrant (the "Warrant") exercisable for two years for the purchase up to 20,000,000 shares of the Company's Common Stock at $0.50 per share, as amended  (iii) the Company, 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) the Company, 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) the Company and CEVC entered into a Security Agreement that secures the Note with all of the Company's assets other than those assets specifically excluded from the lien created by the Security Agreement.

 

                The Note matures on February 12, 2012, accrues interest at a rate per annum of 8%, and is convertible upon the option of CEVC at any time, into (a) shares of Jonway capital stock owned by ZAP at a conversion rate of 0.003743% of shares of Jonway capital stock owned by ZAP for each $1,000 principal amount of the Note being converted or (b) shares of ZAP common stock at a conversion rate of 4,435 shares of common stock for each $1,000 principal amount of the Note being converted. Upon conversion, any accrued interest on the Note may be waived. Effective March 31, 2011, the Company and ZAP entered into an amendment to the Note and Warrant to remove certain price-based anti-dilution features.

 

Since the value of the common stock into which the above-mentioned note is converted is greater than the proceeds for such issuance, a beneficial conversion feature totaling $19 million was recorded and is amortized over 13 months. We amortized $4.4 million and $12.5 million of the beneficial conversion feature the three and nine months ended September 30, 2011, respectively.

 

                In addition, the Company recorded $1 million in accrued interest through the first nine months ended September 30, 2011 related to this note.

 

 The Company accounts for derivative instruments and debt instruments in accordance with the interpretative guidance of ASC 815, "Derivatives and Hedging", which codified SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), EITF 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock," APB No. 14, "Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants," EITF 98-5, "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios" ("EITF 98-5"), and EITF 00-27, "Application of Issue No. 98-5 to Certain Convertible Instruments" ("EITF 00-27"), and associated pronouncements related to the classification and measurement of warrants and instruments with conversion features. It is necessary for the Company to make certain assumptions and estimates to value derivatives and debt instruments.

  

Short Term Debt and Notes

 

              In the third quarter of 2011, we were approved to borrow up to an aggregate of US$6.2 million from the Taizhou Branch of China Merchants Bank and US$10 million from the Taizhou Branch of Everbright Bank of China, for a total of US$16.2 million through our  majority-owned subsidiary, Jonway. Although we have been approved for the credit lines, there are no legal obligations or rights to the credit lines until we execute agreements with the respective lenders to borrow funds under the credit lines. When drawn down, the credit lines will be secured by lands owned by Jonway and guaranteed by Jonway Group.

 

In July 2011, Jonway was approved for a credit line in the aggregate amount of RMB40 million (which as of September 30, 2011 is approximately US$6.2 million) from the Taizhou Branch of China Merchants Bank. On August 11, 2011, Jonway entered into a Credit Agreement with the Taizhou Branch of China Merchants Bank for a revolving short term bank loan in the aggregate amount of RMB21 million (which as of September 30, 2011 is approximately US$3.2 million). The loans issuable under the Credit Agreement are secured by a Maximum Amount Mortgage Contract by and between Jonway and China Merchants Bank dated August 11, 2011 in which land use rights over two parcels of land owned by Jonway at Sanmen, Jian Tiao Town, Da Tang Village, Shang Peng Factory have been pledged as security for the loans.

 

On September 15, 2011, Jonway was also approved for another credit line in the aggregate amount of RMB64.5 million (which as of September 30, 2011 is approximately US$10 million) from the Taizhou Branch of Everbright Bank of China. Jonway has not entered any agreements to borrow funds under this credit line.

 

               Jonway intends to utilize the credit lines to expand its electric vehicle business as well as other future vehicle models.  This includes on-going working capital needs, electric vehicle production equipment requirements, testing, homologation and new EV product molds. These credit lines will also be used to support the company's expansion plans, with emphasis on its electric vehicle production line facilities in China. The credit will also help advance new electric vehicle initiatives, launch new strategic global sales and marketing operations, bolster infrastructure, and finance working capital.

 

               As of September 30, 2011, ZAP had $9.5 million in short term debt and notes, of which $3.2 million is a loan from a bank in China with an interest rate of 7.22% per annum due on August 18, 2012. Also included is another short term bank loan of $1.6 million with an interest rate of 14.47% per annum which was paid on November 1, 2011In addition, there was $4.6 million in bank acceptance notes payable to Jonway suppliers for spare parts. These bank acceptance notes are usually within 6 months from issuance.