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EXHIBIT 10.1
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MUTUAL TERMINATION AGREEMENT
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MUTUAL TERMINATION AGREEMENT (the "Agreement"), dated as of
February
22, 2005, by and between ZAP, a California corporation, (the
"Company"), and
FUSION CAPITAL FUND II, LLC, an Illinois limited liability
company (the
"Buyer").
WHEREAS, the Buyer and the Company mutually desire to terminate
the
Common Stock Purchase Agreement dated as of July 22, 2004, by
and between the
Company and the Buyer (the "Purchase Agreement"). All
capitalized terms used in
this Agreement that are not defined in this Agreement shall have
the meanings
set forth in the Purchase Agreement;
NOW THEREFORE, the Company and the Buyer hereby agree as
follows:
1. RESCISSION OF THE INITIAL PURCHASE; TERMINATION OF THE
PURCHASE AGREEMENT.
The Company and the Buyer hereby rescind the purchase and sale
of the
Initial Purchase Shares. Specifically, immediately upon the
execution of this
Agreement, by both the Company and the Buyer, the Parties shall
do the
following: (A) Buyer shall deliver the $200,000 Initial Purchase
Shares ("IPS")
to its counsel Jenner & Block LLP to hold in trust; (B) the
Company shall wire
transfer $500,000.00 to Buyer upon receipt of notification that
Buyer has
delivered and Jenner & Block LLP has received the IPS
pursuant to subparagraph A
above; and (C) Jenner & Block LLP shall forward the IPS to
the Transfer Agent
for cancellation. Furthermore, the Purchase Agreement, and the
other Transaction
Documents between the Buyer and the Company related to the
Purchase Agreement
(other than this Agreement, the Warrants and that certain
Registration Rights
Agreement between the Company and Buyer dated July 22, 2004, the
"Registration
Rights Agreement") are hereby terminated effective as of the
date hereof and any
and all rights, duties and obligations arising thereunder or in
connection with
the Purchase Agreement, and the Transaction Documents (other
then the Warrants,
the Registration Rights Agreement and this Agreement) are now
and hereafter
fully and finally terminated, provided, however, that (i) the
representations
and warranties of the Buyer and Company contained in Sections 2
and 3 of the
Purchase Agreement, (ii) the indemnification provisions set
forth in Section 8
of the Purchase Agreement, (iii) the agreements and covenants
set forth in
Section 4(h) and Section 11 of the Purchase Agreement, (iv) the
Warrants, and
(v) the Registration Rights Agreement, shall survive such
termination and shall
continue in full force and effect except as expressly amended
hereby,
(collectively, the "Surviving Obligations").
<PAGE>
2. MUTUAL GENERAL RELEASE.
The Company and the Buyer hereby release and forever discharge
each
party hereto and its predecessors, successors and assigns,
employees,
shareholders, partners, managing members, officers, directors,
agents,
subsidiaries, divisions and affiliates from any and all claims,
causes of
actions, suits, demands, debts, dues, accounts, bonds,
covenants, contracts,
agreements, judgments whatsoever in law or in equity, whether
known or unknown,
including, but not limited to, any claim arising out of or
relating to the
transactions described in the Purchase Agreement and Transaction
Documents which
any party hereto had, now has or which its heirs, executors,
administrators,
successors or assigns, or any of them, hereafter can, shall or
may have, against
any party hereto or such parties predecessors, successors and
assigns,
employees, shareholders, partners, managing members, officers,
directors,
agents, subsidiaries, divisions and affiliates, for or by reason
of any cause,
matter or thing whatsoever, whether arising prior to, on or
after the date
hereof. Provided, however, that (i) this Agreement and (ii) the
Surviving
Obligations including, but not limited to, the Registration
Rights Agreement,
shall continue in full force and effect as the legal, valid and
binding
obligation of each party thereto enforceable against each such
party in
accordance with its terms, and no claims arising under or in
connection with
this Agreement or the Surviving Obligations, on or after the
date of this
Agreement, are hereby released.
3. WARRANT EXERCISES; AMENDMENT OF WARRANTS.
The Buyer and the Company agree that none of the Warrants
were
exercised prior to the date hereof. The Company shall
immediately return to the
Buyer the original of the following Warrants previously
delivered by the Buyer
to the Company: Warrant No. 00300, Warrant No. 00034 and Warrant
No. 00301.
Section 2 of each of the five Warrants is hereby amended and
restated in its
entirety as follows:
SECTION 2. EXERCISE OF WARRANT.
2.1 MANNER OF EXERCISE. The Holder may exercise this
Warrant,
in whole or in part, immediately, but not after the Expiration
Date,
during normal business hours on any Trading Day by surrendering
this
Warrant to the Company at the principal office of the
Company,
accompanied by a Warrant Exercise Form in substantially the
form
annexed hereto duly executed by the Buyer and by payment of the
Warrant
Exercise Price for the number of shares of Warrant Shares for
which
this Warrant is then exercisable, either (i) in immediately
available
funds, (ii) by delivery of an instrument evidencing indebtedness
owing
by the Company to the Holder in the appropriate amount, (iii) at
any
time on or after September 1, 2005 by authorizing the Company to
retain
shares of Common Stock which would otherwise be issuable upon
exercise
of this Warrant in accordance with Section 2.4 hereof or (iv) in
a
combination of (i), (ii) or (iii) above, provided, however, that
in no
event shall the Holder be entitled to exercise this Warrant for
a
number of Warrant Shares in excess of that number of Warrant
Shares
which, upon giving effect to such exercise, would cause the
aggregate
number of shares of Common Stock beneficially owned by the
Holder to
exceed 9.9% of the outstanding shares of the Common Stock
following
such exercise.
<PAGE>
For purposes of the foregoing proviso, the aggregate number of
shares
of Common Stock beneficially owned by the Holder shall include
the
number of shares of Common Stock issuable upon exercise of this
Warrant
with respect to which determination of such proviso is being
made, but
shall exclude the shares of Common Stock which would be issuable
upon
(i) exercise of the remaining, unexercised Warrants beneficially
owned
by the Holder and (ii) exercise or conversion of the unexercised
or
unconverted portion of any other securities of the Company
beneficially
owned by the Holder subject to a limitation on conversion or
exercise
analogous to the limitation contained herein. Except as set
forth in
the preceding sentence, for purposes of this paragraph,
beneficial
ownership shall be calculated in accordance with Section 13(d)
of the
Securities Exchange Act of 1934, as amended. The Holder may
waive the
foregoing limitation by written notice to the Company upon not
less
than 61 days prior written notice (with such waiver taking
effect only
upon the expiration of such 61 day notice period).
2.2 WHEN EXERCISE EFFECTIVE. Each exercise of this Warrant
shall be deemed to have been effected on the day on which
all
requirements of Section 2.1 shall have been met with respect to
such
exercise. At such time the person in whose name any certificate
for
shares of Warrant Shares shall be issuable upon such exercise
shall be
deemed for all corporate purposes to have become the Holder of
record
of such shares, regardless of the actual delivery of
certificates
evidencing such shares.
2.3 DELIVERY OF STOCK CERTIFICATES. As soon as practicable
after each exercise of this Warrant, and in any event no later
than 3
days after such exercise, the Company at its expense will issue
Warrant
Shares via credit to the Buyer's account with DTC for the number
of
Warrant Shares to which such Buyer is entitled upon such
Buyer's
submission of the applicable Warrant Exercise Form or, if the
Transfer
Agent is not participating in The DTC Fast Automated
Securities
Transfer Program and DWAC system, issue and surrender to the
address as
specified in the Warrant Exercise Form, a certificate,
registered in
the name of the Buyer or its designee, for the number of shares
of
Common Stock to which the Buyer shall be entitled to upon
such
exercise.
2.4 CASHLESS EXERCISE. In the event that the Registration
Statement (as defined in the Registration Rights Agreement) is
not
declared effective by the SEC on or before September 1, 2005, or
in the
event that the Registration Statement is declared effective by
the SEC
on or before Septem
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