Zap settles recall suit with $2M in refunds

SANTA ROSA -- Automobile maker Zap (Bulletin Board: ZAAP) reached an agreement in federal court to pay out as much as $2.14 million in refunds to buy back several hundred three-wheeled electric vehicles that were part of 2009 federal recalls.

"Zap and the United States have reached a settlement of all matters arising out of the facts alleged in the complaint," wrote Chuck Schillings, co-chief executive officer of Santa Rosa-based Zap (707-525-8658,, in a July 24 filing with the U.S. Securities & Exchange Commission. When reached by phone last week, he declined to comment beyond what was in the filling.

A District of Columbia federal judge on July 16 approved a deal between Zap and the National Highway Traffic Safety Administration that would settle the agency's May 15 lawsuit that sought $17 million to $21 million in civil penalties for allegedly not complying with a November agency order to offer refunds for recalled vehicles.

Under the settlement, Zap would send refund-offer letters to owners of 691 2008 Xebra sedans and pickups imported to the U.S., offer a $3,100 refund per vehicle then pay to have the vehicles hauled away for salvage, according to the 12-page consent decree signed by judge Rosemary Collyer. Zap must issue refunds by the end of this year or 30 days after receiving a refund request, whichever is later, and declare each a Xebra a "junk motor vehicle" on state title documentation.

Zap also would have to declare any 2008 Xebra vehicles it has "junk" so they couldn't be modified and resold in the U.S., according to the court decree.

The company must also report to the safety administration regularly about the status of the refund on and disposition of each recalled vehicle for three years, according to the settlement agreement.

In the July 24 filing, Mr. Schillings wrote that the refund letters had been sent, as required within five days of the court decree. In its most recent financial report, Zap had current assets of $36 million, including $1.2 million in cash and $16 million in restricted cash, as of March 31.

The agency issued recall notices in 2009 over reported problems with insufficient brakes on the 2008 Zap Xebra, imported from Qingqi Group Motorcycle in China. After a Nov. 13 safety administration hearing over Zap's alleged lack of cooperation with the recall, the agency ordered Zap to offer $3,100 refunds.

In its May lawsuit against Zap, the administration said it was the first time a lawsuit was necessary to enfoce compliance with a recall.

In other Zap news, the company is holding a vote at its Aug. 7 annual shareholder meeting to reduce the number of board seats from seven to five, and nominees for seats don't include former co-CEO Steven Schneider or Mark Abdou but does include current co-CEO Alex Wang, 30, part of the family that owns China-based Jonway Group, according to regulatory filings.

All three were key figures in a board room and legal battles with Chairman Priscilla Lu of major investor Cathaya Capital over control of the company early this year.

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