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Exhibit
10.3
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Security
Agreement dated August 6, 2009
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SECURITY AGREEMENT
This Security Agreement (as amended, restated,
modified or otherwise supplemented from time to time, this “
Security Agreement ”), dated as of August 6, 2009, is
executed by ZAP, a California corporation (together with its
successors and assigns, “ Debtor ”), in favor of
Cathaya Capital, L.P., a Cayman Islands exempted limited
partnership, as secured party (together with its successors and
assigns, “ Secured Party ”).
RECITALS
A. Debtor
and Secured Party have executed a Securities Purchase Agreement,
dated as of the date hereof (as amended, restated, modified or
otherwise supplemented from time to time, the “ Securities
Purchase Agreement ”).
B. Pursuant
to the Securities Purchase Agreement, Debtor has executed a Secured
Convertible Promissory Note, dated as of the date hereof (as
amended, modified or otherwise supplemented from time to time, the
“ Note ”) in the principal amount of up to ten
million dollars ($10,000,000.00) in favor of Secured
Party.
C. In
order to induce Secured Party to extend the credit evidenced by the
Note, Debtor has agreed to enter into this Security Agreement and
to grant Secured Party the security interest in the Collateral
described below.
AGREEMENT
NOW, THEREFORE, in consideration of the above
recitals and for other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, Debtor hereby agrees
with Secured Party as follows:
1. Definitions and
Interpretation . When used in this Security
Agreement, the following terms have the following respective
meanings:
“ Account Debtor ” shall mean
a Person who is obligated under an Account or any Chattel Paper,
Document, Instrument, General Intangible or Supporting Obligation
in respect thereof or relating thereto.
“ Account ” shall mean
“account” as defined in the UCC, and all rights to
payment, whether or not earned by performance, for goods or other
property sold, leased, licensed, assigned or otherwise disposed of,
or services rendered or to be rendered, including, without
limitation all such rights constituting or evidenced by any General
Intangible, together with all of Debtor’s rights, if any, in
any goods or other property giving rise to such right to
payment.
“ Applicable Law ” shall mean
all laws, rules, regulations and binding governmental guidelines
applicable to the Person, conduct, transaction, agreement or matter
in question, including all
applicable
statutory law, common law and equitable principles, and all
provisions of constitutions, treaties, statutes, rules,
regulations, orders, rulings and decrees of Governmental
Authorities having jurisdiction over such Person.
“ Bankruptcy Code ” shall
mean Title 11 of the United States Code.
“ Chattel Paper ” shall mean
all “chattel paper” as defined in Article 9 of the
UCC.
“ Collateral ” has the
meaning given to that term in Section 2 hereof.
“ Commercial Tort Claim ”
shall have the meaning given to such term in Article 9 of the
UCC.
(a) Copyrights,
whether or not published or registered under the Copyright Act of
1976, 17 U.S.C. Section 101 et seq., as the same shall be amended
from time to time and any predecessor or successor statute thereto
(the “ Copyright Act ”), and applications for
registration of copyrights, and all works of authorship and other
intellectual property rights therein, including without limitation,
copyrights for computer programs, source code and object code
databases and related materials and documentation, and (i) all
renewals, revisions, derivative works, enhancements, modifications,
updates, new releases and other revisions thereof, (ii) all income,
royalties, damages and payments now and hereafter due and/or
payable with respect thereto, including without limitation,
payments under all licenses entered into in connection therewith
and damages and payments for past or future infringements thereof,
(iii) the right to sue for past, present and future infringements
thereof and (iv) all of Debtor’s rights corresponding thereto
throughout the world;
(b) Rights
under or interests in any copyright license agreements with any
other party, whether Debtor is a licensee or licensor under any
such license agreement and the right to use the foregoing in
connection with the enforcement of the Secured Party’s rights
under the Transaction Documents; and
(c) Copyrightable
materials now or hereafter owned by Debtor, including without
limitation, all tangible property embodying the copyright described
in clause (a) hereof or such copyrightable materials, and all
tangible property covered by the licenses described in clause (b)
hereof.
“ Deposit Account ” shall
mean “deposit account” as defined in Article 9 of the
UCC.
“ Document ” shall
mean“document” as defined in Article 9 of the
UCC.
“ Equipment ” shall mean all
“equipment” as defined in Article 9 of the
UCC.
“ Event of Default ” has the
meaning given to that term in the Note.
“ Financed Receivables ”
shall mean all receivables against which advances are made to
Debtor under the Note.
“ General Intangible ” shall
mean “general intangible” as defined in Article 9 of
the UCC.
“ Goods ” shall mean all
“goods” as defined in Article 9 of the UCC.
“ Governmental Authority ”
shall mean any federal, state, provincial, territorial, municipal,
foreign or other governmental department, agency, commission,
board, bureau, court, tribunal, instrumentality, political
subdivision, or other entity or officer exercising executive,
legislative, judicial, regulatory or administrative functions for
or pertaining to any government or court, in each case whether
associated with the United States, a state, district or territory
thereof, Canada, or a province or territory thereof, or any other
foreign entity or government.
“ Insolvency Proceeding ”
shall mean any case or proceeding commenced by or against a Person
under any state, provincial, territorial, federal or foreign law
for, or any agreement of such Person to, (a) the entry of an order
for relief under the Bankruptcy Code, or the commencement of any
proceeding under any other insolvency, debtor relief or debt
adjustment law; (b) the appointment of a receiver, interim
receiver, receiver-manager, monitor, trustee, liquidator,
administrator, conservator or other custodian for such Person or
any part of its Property under any bankruptcy or insolvency law; or
(c) an assignment or trust mortgage for the benefit of creditors
under any bankruptcy or insolvency law.
“ Instrument ” shall mean
“instrument” as defined in Article 9 of the
UCC.
“ Intellectual Property
” means all intellectual and similar property of every
kind and nature now owned or hereafter acquired by Debtor,
including inventions, designs, Patents, Copyrights, Trademarks,
trade secrets, domain names, confidential or proprietary technical
and business information, know-how, methods, processes, drawings,
specifications or other data or information and all memoranda,
notes and records with respect to any research and development,
software and databases and all embodiments or fixations thereof
whether in tangible or intangible form or contained on magnetic
media readable by machine together with all such magnetic media and
related documentation, registrations and franchises, and all
additions, improvements and accessions to, and books and records
describing or used in connection with, any of the
foregoing.
“ Inventory ” shall mean: (i)
all “inventory” as defined in Article 9 of the UCC and
(ii) all goods held for sale or lease or to be furnished under
contracts of service or so leased or furnished, all raw materials,
work in process, finished goods, and materials used or consumed in
the manufacture, packing, shipping, advertising, selling, leasing,
furnishing or production of such inventory or otherwise used or
consumed in Debtor’s business; all goods in which Debtor has
an interest in mass or a joint or other interest or right of any
kind; and all goods which are returned to or repossessed by Debtor,
all computer programs embedded in any goods and all accessions
thereto and products thereof (in each case, regardless of whether
characterized as inventory under the UCC).
“ Investment Property ” means
“investment property” as defined in Article 9 of the
UCC.
“ Letter-of-Credit Right ”
means “letter-of-credit right” as defined in Article 9
of the UCC.
“ Patents ” means all (a)
letters patent, design patents, utility patents, inventions and
trade secrets, all patents and patent applications in the United
States Patent and Trademark Office, and interests under patent
license agreements, including without limitation, the inventions
and improvements described and claimed therein, (b) licenses
pertaining to any patent whether Debtor is licensor or licensee,
(c) income, royalties, damages and payments now and hereafter due
and /or payable under and with respect thereto, including without
limitation, damages and payments for past, present or future
infringements, (d) rights to sue for past, present and future
infringements thereof, (e) rights corresponding thereto throughout
the world in all jurisdictions in which such patents have been
issued or applied for and (f) the reissues, divisions,
continuations, renewals, extensions and continuations-in-part of
any of the foregoing.
“ Proceeds ” shall mean all
“proceeds” as defined in Article 9 of the
UCC.
“ Property ” shall mean any
interest in any kind of property or asset, whether real, personal
or mixed, or tangible or intangible.
“ Supporting Obligations ”
shall mean all “supporting obligations” as defined in
Article 9 of the UCC.
“ Trademarks ” means all (a)
trademarks, trademark registrations, interest under trademark
license agreements, trade names, trademark applications, service
marks, business names, trade styles, designs, logos and other
source or business identifiers for which registrations have been
issued or applied for in the United States Patent and Trademark
Office or in any other office or with any other official anywhere
in the world or which are used in the United States or any state,
territory or possession thereof, or in any other place, nation or
jurisdiction anywhere in the world, (b) licenses pertaining to any
such mark whether Debtor is licensor or licensee, (c) all income,
royalties, damages and payments for past, present or future
infringements thereof, (d) rights to sue for past, present and
future infringements thereof, (e) rights corresponding thereto
throughout the world, (f) all product specification documents and
production and quality control manuals used in the manufacture of
products sold under or in connection with such marks, (g) all
documents that reveal the name and address of all sources of supply
of, and all terms of purchase and delivery for, all materials and
components used in the production of products sold under or in
connection with such marks, (h) all documents constituting or
concerning the then current or proposed advertising and promotion
by Debtor, their subsidiaries or licensees of products sold under
or in connection with such marks, including without limitation, all
documents that reveal the media used or to be used and the cost for
all such advertising conducted within the described period or
planned for such products and (i) renewals and proceeds of any of
the foregoing.
“ UCC ” means the Uniform
Commercial Code as in effect in the State of California from time
to time.
All capitalized
terms not otherwise defined herein shall have the respective
meanings given in the Securities Purchase Agreement.
2. Grant of
Security Interest . As security for the Obligations,
Debtor hereby pledges to Secured Party and grants to Secured Party
a security interest of first priority in all right, title and
interests of Debtor in and to the following property, whether now
existing or hereafter from time to time acquired (collectively, the
“ Collateral ”):
(c) all
Commercial Tort Claims listed on Schedule B .
(d) all
Deposit Accounts and cash;
(g) all
General Intangibles;
(j) all
Intellectual Property;
(l) all
Investment Property;
(m) all
Letter-of-Credit rights;
(n) all
accessions to, substitutions for, and all replacements, products,
and cash and non-cash Proceeds of the foregoing, including Proceeds
of and unearned premiums with respect to insurance policies, and
claims against any Person for loss, damage or destruction of any
Collateral; and
(o) all
books and records (including customer lists, files, correspondence,
tapes, computer programs, print-outs and computer records)
pertaining to the foregoing.
Notwithstanding the foregoing, the Collateral
shall not include account number xxxxxx or account number xxxxxxx
maintained by Debtor at North Coast Bank or account number xxxxx
maintained by Debtor at Bank of America, N.A.; provided ,
that (i) as of the date hereof, the aggregate balances of such
accounts does not exceed $1,026,000 and (ii) after the date hereof,
Debtor does not deposit additional amounts in such accounts other
than the proceeds from that certain Subscription Agreement dated
June 9, 2009 by and between the Debtor and The Banks Group, LLC and
that certain Subscription Agreement dated June 9, 2009 by and
between the Debtor and The Banks Development Trust, such proceeds
not to exceed an aggregate amount in excess of $1,000,000;
provided , further , however , that if at any
time the cash held in such accounts is used for purposes other for
the Debtor’s general and administrative expenses, this
paragraph shall not apply and such accounts shall constitute
Collateral.
3. Representations
and Warranties . Debtor represents and warrants to
Secured Party that:
(a) Collateral.
(i) Debtor is the owner of the Collateral (or, in
the case of after-acquired Collateral, at the time Debtor acquires
rights in the Collateral, will be the owner thereof) and that no
other Person has (or, in the case of after-acquired Collateral, at
the time Debtor acquires rights therein, will have) any right,
title, claim or interest (by way of Lien or otherwise) in, against
or to the Collateral, other than Permitted Liens; (ii) upon
the filing of UCC-1 financing statements in the appropriate filing
offices and execution of a control agreement with respect to each
Deposit Account, Secured Party has (or in the case of
after-acquired Collateral, at the time Debtor acquires rights
therein, will have) a first priority perfected security interest in
the Collateral to the extent that a security interest in the
Collateral can be perfected by such filing or execution of such
control agreement, except for Permitted Liens; (iii) other than
financing statements filed in favor of Secured Party, no effective
UCC-1 financing statement, fixture filing or other instrument
similar in effect under any Applicable Law covering all of any part
of the Collateral is on file in any filing or recording office
except for (x) financing statements for which proper termination
statements have been delivered to Secured Party and (y) financing
statements filed in connection with Permitted Liens; (iv) all
inventory related to Accounts has been (or, in the case of
hereafter produced inventory, will be) produced in compliance with
applicable laws, including the Fair Labor Standards Act;
iv) all accounts receivable and payment intangibles are
genuine and enforceable against the party obligated to pay the
same; (v) the originals of all documents evidencing all accounts
receivable and payment intangibles of Debtor and the only
original
books of
account and records of Debtor relating thereto are, and will
continue to be, kept at the chief executive office of Debtor set
forth on Schedule B or at such other locations as Debtor may
establish in accordance with Section 4(d), and (f) all information
set forth in Schedule A and Schedule B hereto is true
and correct.
(b) Accounts
. With respect to each Account,
(i) such Account
represents valid, binding and enforceable obligations of the
Account Debtor or other Persons obligated thereon;
(ii) such Account is
genuine and in all respects what it purports to be, and is not
evidenced by a judgment;
(iii) such Account
arises out of a an undisputed, completed and bona fide sale
and delivery of goods in the ordinary course of business consistent
with past practices, and substantially in accordance with any
purchase order, contract or other document relating
thereto;
(iv) such Account is
for a sum certain, maturing as stated in the invoice or purchase
order covering such sale, a copy of which has been furnished to
Secured Party;
(v) such Account is
not subject to any offset, Lien (other than Secured Party’s
Lien) deduction, defense, dispute, counterclaim or other adverse
condition except as arising in the ordinary course of business and
disclosed to Secured Party or as contemplated by clause (vii)
below, and it is absolutely owing by the Account Debtor, without
contingency in any respect;
(vi) no purchase order,
agreement, document or Applicable Law restricts grants of security
interests in such Account to Secured Party (unless under Applicable
Law the restriction is ineffective), and Debtor is the sole payee
or remittance party shown on the invoice;
(vii) no extension,
compromise, settlement, modification, credit, deduction or return
has been authorized with respect to the Account, except discounts
or allowances granted in the ordinary course of business consistent
with past practices for prompt payment that are reflected on the
face of the invoice related thereto and in the reports submitted to
Secured Party hereunder;
(viii) to the best of
Debtor’s knowledge, (x) there are no facts or circumstances
that are reasonably likely to impair the enforceability or
collectability of such Account; (y) the Account Debtor had the
capacity to contract when the Account arose, continues to meet
Debtor’s customary credit standards, is solvent,
is generally paying its debts as they become due
(except to the extent that such Account Debtor has established
adequate reserves therefor in accordance with GAAP), is not
contemplating or subject to an Insolvency Proceeding, and has not
failed, or suspended or ceased doing business; and (z) there are no
proceedings or actions threatened in writing or pending against any
Account Debtor that could reasonably be expected to have a material
adverse effect on the Account Debtor’s financial
condition;
(ix) to the best of
Debtor’s knowledge, all Accounts comply in all material
respects with all Applicable Laws concerning form, content and
manner of preparation and execution, including, where applicable,
any federal or state consumer credit laws;
(x) Debtor has not
assigned any of its rights under the Account except as provided in
this Security Agreement or as set forth in or permitted by the
other Transaction Documents;
(xi) all statements
made, all unpaid balances and all other information in the books
and records and other documentation pertaining to the Account are
in all material respects true and correct and what they purport to
be; and
(xii) the originals of
all documents evidencing all accounts receivable and payment
intangibles of Debtor and the only original books of account and
records of Debtor relating thereto are, and will continue to be,
kept at the chief executive office of Debtor set forth on
Schedule B or at such other locations as Debtor may
establish in accordance with Section 4(d), and all information set
forth in Schedule B hereto is true and correct.
(c) Inventory
Relating to Accounts . Except for Inventory relating
to Accounts that is in transit or as disclosed to Secured Party in
writing prior to the date hereof, (i) no bailee, warehouseman or
similar Person has possession of Inventory relating to Accounts and
owned by Debtor and (ii) no Inventory relating to Accounts and
owned by Debtor has been consigned to any Person or is held by such
Debtor pursuant to a sale or return, sale on approval or similar
arrangement.
(d) Intellectual
Property . (i) Debtor does not own any patents,
trademarks, copyrights or mask works registered in, or the subject
of pending applications in, the Patent and Trademark Office or the
Copyright Office or any similar offices or agencies in any other
country or any political subdivision thereof, other than those
described on Schedule A hereto; (ii) Debtor has,
except for Permitted Liens, the sole, full and unencumbered right,
title and interest in and to the trademarks shown on
Schedule A and the goods and services covered by the
registrations thereof and, to the extent registered, such
registrations are valid and enforceable and in full force and
effect; (iii) Debtor has, except for Permitted Liens, the sole,
full and unencumbered right, title and interest in and to each of
the patents shown on Schedule A and the registrations
thereof are valid and enforceable and in full force and effect;
(iv) Debtor has, except for Permitted Liens, the sole, full and
unencumbered right, title and interest in and to each of the
copyrights shown on Schedule A and according to the
records of the Copyright Office, each of said copyrights is valid
and enforceable and in full force and effect; (v) Debtor has,
except for Permitted Liens, the sole, full and encumbered right,
title and interest in and to the mask works shown on
Schedule A and according to the records of the
Copyright Office, each of said mask works is valid and enforceable
and in full force and effect; (vi) there is no claim by any third
party that any patents, trademarks, copyrights or mask works are
invalid and unenforceable or do or may violate the rights of any
Person; (vii) all licenses (other than non-exclusive licenses to
end-users) of patents, trademarks, copyrights, mask works and trade
secrets which Debtor has granted to any Person are set forth in
Schedule A hereto; (viii) Debtor has obtained from each
employee who may be considered the inventor o
