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Exhibit 10.16  

 
 

EMPLOYMENT AGREEMENT    
    

        This Employment Agreement, dated as of March 11, 2002, is by and between Key Production Company, Inc., a Delaware corporation (the "Employer"), and
Richard S. Dinkins (the "Employee"). 

RECITALS  

        The Employer has determined that it is in the best interests of the Employer and its stockholders to employ the Employee as Director of Human Resources of the
Employer, and the Employee is willing to accept such employment on the terms and conditions described below. 

AGREEMENT  

        In consideration of and subject to the agreements, terms and conditions contained herein, the parties hereto agree as follows: 

ARTICLE I

EMPLOYMENT  

        Section 1.1.    Employment of the Employee.    The Employer hereby employs the
Employee, and the Employee hereby accepts employment by the Employer, upon the terms and conditions hereinafter set forth. The term "Period of Employment" as used herein shall mean the period from
March 11, 2002, until the first to occur of the end of the term of this Agreement as provided in Section 1.2 or the date of the Employee's termination as provided herein. 

        Section 1.2.    Term.    The term of this Agreement shall be three years. 

        Section 1.3
    Commencement of Duties.    The Employee shall commence his duties as an employee of the
Employer on March 11, 2002. 

ARTICLE II

DUTIES  

        Section 2.1.     Duties.    During the Period of Employment, the Employee shall,
subject to the authority of the President and Chief Executive Officer of the Employer, be employed as Director of Human Resources, with such duties, responsibilities and authority as are consistent
with such office, and with such additional responsibilities and duties as may be reasonably assigned to him by the President and Chief Executive Officer, which in each case he shall faithfully and
diligently perform. 

        Section 2.2.    Time to be Devoted to Employment, Etc.    Except for vacations, which in no event shall be less
than four paid weeks each year, and absences due to temporary illness or disability, the Employee shall devote his full time, attention and energies on a full-time basis to the business of
the Employer. Nothing in this Agreement, however, shall preclude the Employee from devoting reasonable periods to (a) engaging in charitable and community activities or (b) managing his
personal investments. 

ARTICLE III

COMPENSATION  

        Section 3.1.     Base Salary.    The Employer shall pay to the Employee a base salary
equal to $10,333.33 monthly or $124,000.00 annually (the "Base Salary"), payable semi-monthly in arrears. The Base Salary may be adjusted as determined by the President and Chief
Executive Officer, but shall not be decreased below the Base Salary in existence immediately prior to such adjustment. 

        Section 3.2.    Annual Incentive Bonuses.    The Employee shall be eligible for incentive bonuses as approved
by the Employer's Board of Directors (the "Board"). 

        Section 3.3.    Reimbursement for Expenses.    The Employer shall reimburse the Employee for all reasonable and
necessary travel expenses and other reasonable disbursements made by him for or on 

 

behalf
of the Employer in the performance of his duties hereunder on the Employer's business, upon presentation by the Employee to the Employer of appropriate vouchers. 

        Section 3.4.    Incidental Benefits.    The Employer shall provide life insurance coverage for the Employee in
a face amount equal to two times his annual salary, a covered parking space and relocation benefits in accordance with the Relocation Benefit Summary attached hereto as Exhibit A. 

        Section 3.5.    Employee Benefit Plans.    During the Period of Employment, the Employee and his immediate
family shall be entitled to participate in employee benefit plans. The Employer has established, and the Employee shall be eligible to participate in, a health and dental plan, a long-term
disability plan, a deferred compensation plan, an income continuance plan, and a 401(k) plan with an Employer matching contribution of at least four percent of the Employee's Base Salary (subject to
any limitations on such contributions imposed by the Internal Revenue Code of 1986 or the Employee Retirement Income Security Act of 1974). 

ARTICLE IV

DISABILITY OR DEATH OF THE EMPLOYEE  

        Section 4.1.     Disability.    If the Employee is incapacitated or disabled by
accident, sickness or otherwise so as to render him mentally or physically incapable of performing the services required to be performed by him under this Agreement for a period of 90 consecutive days
or for a total of 120 days in any twelve-month period, the Employer may, at its option, if payments to the Employee have commenced under the Employer's long-term disability plan, at
that time or any time thereafter, terminate the Period of Employment immediately (provided that both such disability and payments under the Employer's long-term disability plan shall have
continued to the time of termination) upon giving him notice to that effect. Until the Employer shall have terminated the Employee's employment in accordance with the foregoing, the Employee shall be
entitled to receive his compensation, pursuant to Article III notwithstanding any such physical or mental disability. Nothing herein shall limit the Employee's right to receive any amounts to
be paid to the Employee under any disability or employee benefit plan of the Employer, if any, or under any other disability insurance policy or plan covering the Employee. 

        Section 4.2.    Death.    If the Employee dies during the Period of Employment, his employment, his employment
hereunder and the Period of Employment shall terminate on the date of his death. 

ARTICLE V

TERMINATION FOR CAUSE  

        Section 5.1.     Termination for Cause.    The Employer may, by summary notice in
writing, terminate the Period of Employment for cause. For the purposes of this Agreement, the term "cause" shall mean: 

        (a)   a
serious breach or any continued default by the Employee in the substantial performance of his duties under this Agreement (other than resulting from his disability)
for a 30-day period after a demand for substantial performance is delivered to the Employee by the Employer, which demand specifies and identifies the manner in which the Employee has not
substantially performed his duties. 

        (b)   misconduct
by the Employee which is injurious to himself or the Employer, provided that conduct will not be deemed misconduct if it was engaged in by the Employee in
good faith in the belief that it was in, or not opposed to, the interests of the Employer, or was engaged in at the direction of the President and Chief Executive Officer or the Board; or 

        (c)   the
intentional commission by the Employee of either: 

          (i)  a
business crime the intended purpose of which was to enrich the Employee at the expenses of the Employer; or 

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         (ii)  a
felony of which the Employee is convicted or to which he pleads guilty or nolo contendere. 

ARTICLE VI

TERMINATION WITHOUT CAUSE  

        Section 6.1.     Employer Termination.    The Employer may terminate the Period of
Employment without cause at any time by giving the Employee 30 days prior written notice. Upon the expiration of such 30-day period, the Period of Employment shall terminate. 

        Section 6.2      Employee Termination.    For purposes of this Agreement, the Period of
Employment shall be
deemed to have been terminated without cause if the Employee resigns under any of the following conditions: 

        (a)   upon
the continued default (including a material reduction in the duties, responsibilities and authority of the Employee as set forth in Article II) by the
Employer in the substantial performance of its obligations hereunder for a 30-day period after a demand for substantial performance is delivered to the Employer by the Employee, which
demand specifies and identifies the manner in which the Employer has not substantially performed its obligations; or 

        (b)   upon
the Employee being directed by the President and Chief Executive Officer or the Board to engage in any activity which the Employee, based upon written advice of
competent legal counsel, believes would constitute criminal activity, provided that the Employee gives notice to the Employer providing it with a copy of the written advice of his legal counsel and
the Employer does not, within five business days after its receipt of such notice, withdraw its request that the Employee engage in the activity in question. 

ARTICLE VII

EFFECT OF TERMINATION OF PERIOD OF EMPLOYMENT  

        Section 7.1.     Termination for Cause or Voluntarily.    Upon termination of the
Period of Employment pursuant to Article V, or by the Employee (except under the conditions set forth in Section 6.2), neither the Employee nor his beneficiaries or estate shall have any
further rights or claims against the Employer under this Agreement except to receive: 

        (a)   the
unpaid portion of the Employee's Base Salary provided for in Section 3.1, computed on a pro-rata basis to the date of termination; 

        (b)   reimbursement
for any expenses for which the Employee shall not have theretofore been reimbursed as provided in Section 3.3; and 

        (c)   any
benefits, including the right to continued coverage under the Employer's health plans, which are mandated by law for terminated employees. 

        Section 7.2      Termination for Death, Disability or Without Cause.    Upon the termination
of the Period of
Employment pursuant to Articles IV or VI, neither the Employee nor his beneficiaries or estate shall have any further rights or claims against the Employer under this Agreement except to receive: 

        (a)   compensation
at the then applicable Base Salary rate through the term of this Agreement as provided in Section 1.2, provided that any payments described in this
paragraph (a) shall be reduced by any payments to the Employee under the Employer's long term disability plan; 

        (b)   reimbursement
for any expenses for which the Employee shall not have theretofore been reimbursed as provided in Section 3.3; and 

        (c)   any
benefits, including the right to continued coverage under the Employer's health plans, which are mandated by law for terminated employees. 

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        Section 7.3.    Other Employer Obligations.    The provisions of this Article VII shall in no way limit
any rights or claims which the Employee may have by virtue of any other agreements entered into with Employer. 

ARTICLE VIII

CHANGE OF CONTROL  

        Section 8.1.     Change of Control.    If the Employee continues as an employee of the
Employer after the term of this Agreement, as provided in Section 1.2, and if during the period of such extended employment the Employee is terminated without cause following a "Change in
Control" (as defined below), the Employee shall be entitled to immediate payment of an amount equal to twice the Employee's annual salary at the rate in effect when the Change in Control occurs. The
term "Change in Control" as used herein means the occurrence, after the date of this Agreement, of any of the following: 

        (a)   the
acquisition by any person or group of beneficial ownership of securities (including securities convertible into or exchangeable for or options or other rights to
acquire securities) of the Employer, representing in the aggregate 25% or more of the combined voting power of all securities of the Employer entitled to vote in the election of directors, without the
prior approval of the acquisition resulting in such person or group acquiring such percentage by at least two-thirds of the directors of the Employer who are not affiliates or associates
of such person or group; 

        (b)   during
any period of up to 24 consecutive months, commencing after the date of this Agreement, individuals who at the beginning of such 24-month period were
directors of the Employer ceasing for any reason to constitute two-thirds of the total number of directors of the Employer unless the individuals serving as new or replacement directors
were nominated by at least a majority of the directors of the Employer in office immediately prior to such period; 

        (c)   the
adoption of any plan or proposal to liquidate or dissolve the Employer; or 

        (d)   any
merger or consolidation of the Employer unless thereafter (I) directors of the Employer immediately prior thereto continue to constitute at least
two-thirds of the directors of the surviving entity or transferee or (ii) the Employer's securities continue to represent or are converted into securities that represent more than
80% of the combined voting power of the surviving entity or transferee. 

        As
applicable, all terms used in this definition of "Change of Control" shall be given their meanings as used in Section 13(d) of the Securities Exchange Act of 1934 as in effect
on the date of this Agreement or Rule 13d-3 or Rule 12b-2 issued thereunder as in effect on the date of this Agreement. 

ARTICLE IX

CONFIDENTIALITY  

        Section 9.1.    Confidentiality.    The Employee shall not make use of or otherwise
reveal any trade secret or confidence of the Employer, including any information about the Employer or its business which is not generally available to the public including, but not limited to, any
such information involving planning, analysis or strategy, or any investor, financial, legal, geological, geophysical or other proprietary information. Upon termination of employment, the Employee
shall promptly surrender all documents, maps, records, data and other information representing, reflecting or containing trade secrets or confidences. The provisions of this Article IX shall
survive for a period of three years after the end of the Period of Employment. 

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ARTICLE X

ARBITRATION  

        Section 10.1.    Arbitration.    If a dispute arises between the Employer and the
Employee as to the interpretation of this Agreement, the Employer and the Employee agree to submit the matter to binding arbitration in accordance with the Center for Public Resources Rules for
Non-Administered Arbitration of Business Disputes, as modified herein, by a sole arbitrator, in Denver, Colorado, selected in accordance with the provisions of Section 11.2. The
arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. 1-16, and judgment upon the award rendered by the arbitrator may be entered by any court having
jurisdiction thereof. 

        Section 10.2.    Selection of Arbitrator.    The parties shall have 10 days from the date when written
notice is provided to either party by the other party of a request for arbitration to agree upon a mutually acceptable neutral person not affiliated with either of the parties to act as arbitrator. If
no arbitrator has been selected within such time, the parties agree jointly to request the Center for Public Resources or another mutually agreed-upon organization to supply within
10 days a list of potential arbitrators with qualifications as specified by the parties in the joint request. Within five days of receipt of the list, the parties shall independently rank the
proposed candidates, shall simultaneously exchange rankings, and shall select as the arbitrator the individual receiving the highest combined ranking who is available to serve. 

        Section 10.3.    Cost of Arbitration.    The costs of arbitration shall be apportioned between the Employer and
the Employee as determined by the arbitrator in such manner as the arbitrator deems reasonable taking into account the circumstances of the case, the conduct of the parties during the proceeding and
the result of the arbitration. 

ARTICLE XI

MISCELLANEOUS  

        Section 11.1.    Necessary Acts.    All parties to this Agreement shall perform any and
all acts as well as execute any and all documents that may be reasonably necessary to fully carry out the provisions and intent of this Agreement. 

        Section 11.2.    Notices.    All notices, demands, requests or other communications required or permitted by
this Agreement or by law to be served on, given to or delivered to any party hereto by any other party to this Agreement shall be in writing and shall be deemed duly served, given, received and
delivered (a) on the date of service if served personally on the party to whom notice is given, (b) on the day of transmission if sent via facsimile transmission to the facsimile number
given below, provided telephone confirmation of receipt is obtained promptly after completion of transmission, (c) on the business day
after delivery to an overnight courier service or the Express Mail service maintained by the United States Postal Service, provided receipt of delivery has been confirmed, or (d) five days
after being sent by registered or certified mail, provided receipt of delivery is confirmed, first-class postage prepaid, properly addressed to the respective parties as follows: 

	If to the Employer:	 	707 Seventeenth Street, Suite 3300

Denver, CO 80202
	

If to the Employee:	
 	

8016 Monrovia

Lenexa, KS 66215

or
to such other address as may be designated by any such addressees by a notice given in conformity herewith. 

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        Section 11.3.    Binding on Successors.    This Agreement shall inure to the benefit of and be binding on the
parties hereto and on each of their respective heirs, executors, administrators, personal representatives, successors and assignees. 

        Section 11.4.    Choice of Law and Forum.    This Agreement shall be construed and governed by the laws,
commercial usages and customs of the State of Colorado, without giving effect to the principles of conflict of laws thereof. In the event that any dispute, action, proceeding or litigation arises
between the parties based on or arising out of this Agreement, or any agreement or instrument delivered pursuant to this Agreement, subject to the arbitration provisions of Article X the
parties agree to submit themselves to and irrevocably consent to the jurisdiction of the courts of the State of Colorado, and any federal court located in the State of Colorado. 

        Section 11.5.    Headings.    The headings of the articles and sections of this Agreement have been inserted
solely for convenience of reference and shall in no way restrict or modify any of the terms or provisions hereof. 

        Section 11.6.    Sole and Only Agreement.    This Agreement and the agreements referred to herein constitute
the only agreements of the parties hereto relating to the subject matter hereof. Any prior agreements, promises, negotiations or representations concerning the subject matter of this Agreement not
expressly set forth in this Agreement shall have no force or effect. 

        Section 11.7.    Amendment and Extension.    This Agreement may not be amended or extended except by an
instrument in writing signed on behalf of each of the parties hereto. 

        Section 11.8.    Severability.    Should any provision or portion of this Agreement be held unenforceable or
invalid for any reason, the remaining provisions and portions of this Agreement shall be unaffected by such holding, unless to do so would alter substantially the intended effect of this Agreement or
cause a substantial hardship for any party hereto. 

        Section 11.9.    Counterparts.    This Agreement may be executed in counterparts, each of which shall be deemed
an original, but all of which taken together shall constitute one and the same agreement. 

        The
parties have duly executed this Agreement as of the date first written above. 

	 	 	EMPLOYER:
	

 	
 	

KEY PRODUCTION COMPANY, INC.
	

 	
 	

By:	

/s/  F. H. MERELLI      
 F. H. Merelli, Chairman of the Board, President and Chief Executive Officer
	

 	
 	

EMPLOYEE:
	

 	
 	

By:	

/s/  RICHARD S. DINKINS      
 Richard S. Dinkins

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EMPLOYMENT AGREEMENTEXHIBIT 10.1
                                                                    ------------

                          MUTUAL TERMINATION AGREEMENT
                          ----------------------------

         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 September 1, 2005, and at any time after the Registration
         Statement is declared effective, the Registration Statement ceases to
         remain continuously effective and available for use by the Buyer as to
         any of the Warrant Shares, the Signing Shares or the Commitment Shares,
         then at any time the Holder may, by providing notice thereof to the
         Company along with the Warrant Exercise Form, elect to exercise the
         Warrant for a number of Warrant Shares determined in accordance with
         the following formula:
<PAGE>

                  X = Y(A-B)
                      ------
                         A

                  Where:
                  X = The number of Warrant Shares to be issued to the Holder.
                  Y = The number of Warrant Shares purchasable under this
                      Warrant (at the date of such exercise).
                  A = The fair market value of one share of Common Stock (or
                      other security for which the Warrant is then exercisable
                      at the date of such exercise).
                  B = Exercise Price (as adjusted to the date of such exercise).

         For purposes of this Section 2.4, the "fair market value" per share
         shall be the closing sale price of the Common Stock for the one Trading
         Day immediately prior to the notice of exercise of the Warrant.

         4.       WAIVER OF LIQUIDATED DAMAGES; AMENDMENT TO THE REGISTRATION
                  RIGHTS AGREEMENT.

         The Buyer hereby waives its rights to collect any liquidated damages
through the date hereof for the Company's failure to file the Registration
Statement. The Company shall not accrue any additional liquidated damages for
its failure to file the Registration Statement. Section 2 (a) of the
Registration Rights Agreement is hereby amended and restated in its entirety as
follows:

                  a.   Mandatory Registration. The Company shall use its best
         efforts to file with the SEC the Registration Statement as soon as
         practicable. The Investor and its counsel shall have a reasonable
         opportunity to review and comment upon such registration statement or
         amendment to such registration statement and any related prospectus
         prior to its filing with the SEC. Investor shall furnish all
         information reasonably requested by the Company for inclusion therein.
         The Company shall use its best efforts to have the Registration
         Statement or amendment declared effective by the SEC at the earliest
         possible date. The Company shall use best efforts to keep the
         Registration Statement effective pursuant to Rule 415 promulgated under
         the 1933 Act and available for sales of all of the Registrable
         Securities at all times until the earlier of (i) the date as of which
         the Investor may sell all of the Registrable Securities without
         restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or
         successor thereto) or (ii) the date on which the Investor shall have
         sold all the Registrable Securities (the "Registration Period"). The
         Registration Statement (including any amendments or supplements thereto
         and prospectuses contained therein) shall not contain any untrue
         statement of a material fact or omit to state a material fact required
         to be stated therein, or necessary to make the statements therein, in
         light of the circumstances in which they were made, not misleading The
         Company shall not file another registration statement registering
         securities of the Company until a Registration Statement registering
         the Warrant Shares, the Signing Shares and the Commitment Shares has
         been filed with the SEC.
<PAGE>

         5.       MISCELLANEOUS.

         (a)      Governing Law; Jurisdiction; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of Illinois,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Illinois or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of
Illinois. Each party hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in the City of Chicago, for the
adjudication of any dispute hereunder or under the other Transaction Documents
or in connection herewith or therewith, or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR
ANY TRANSACTION CONTEMPLATED HEREBY.

         (b)      Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.

         (c)      Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.

         (d)      Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.

         (e)      Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one Trading Day after
deposit with a nationally
<PAGE>

recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:

                  If to the Company:

                  ZAP
                  501 Fourth Street
                  Santa Rosa, California 95401
                  Telephone:        707-525-8658
                  Facsimile:        707-525-8692
                  Attention:        President

                  If to the Buyer:
                  Fusion Capital Fund II, LLC
                  222 Merchandise Mart Plaza, Suite 9-112
                  Chicago, IL 60654
                  Telephone:        312-644-6644
                  Facsimile:        312-644-6244
                  Attention:        Steven G. Martin

or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) Trading Days prior to the effectiveness of such
change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, and recipient facsimile number or (C) provided by a nationally recognized
overnight delivery service, shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from a nationally recognized overnight delivery
service in accordance with clause (i), (ii) or (iii) above, respectively.

         (f)      Publicity; Non-Disclosure. The Company agrees to issue the
press release set forth on Exhibit A hereto by no later than 9:00 am Eastern
Time, February 24, 2005. The Company also agrees to file with the SEC the Report
on Form 8-K set forth on Exhibit B hereto by no later than 5:00 pm Eastern Time,
February 23, 2005. Both the Buyer and the Company hereby unconditionally agree
that without the prior written consent of the other party, neither party shall
issue any other press release or make any other public disclosure of any kind
whatsoever with respect to (i) the other party, its employees, its managers, or
any of its affiliates, (ii) the Purchase Agreement or the transactions
contemplated under the Purchase Agreement, (iii) this Agreement, and (iv) the
termination of the Purchase Agreement. In addition, the both the Buyer and the
Company unconditionally agree that without the prior written consent of the
other party, neither party shall make any other written or verbal communication
of any kind whatsoever with respect to (i) the other party, its employees, its
managers, or any of its affiliates, (ii) the Purchase Agreement or the
transactions contemplated under the Purchase Agreement, (iii) this Agreement,
and (iv) the termination of the Purchase Agreement.

         (g)      Rule 144. With a view to making available to the Buyer the
benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the Buyer to sell any of its
shares of Common Stock to the public without registration ("Rule 144"), the
Company agrees to fully cooperate in the prompt removal of
<PAGE>

restrictive legend from any Common Stock share certificates delivered to the
Company by the Buyer together with an opinion of Buyer's counsel in customary
form that registration is not required under the Securities Act of 1933 or
similar state laws in compliance with Rule 144.

         (h)      Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns. The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Buyer, including
by merger or consolidation. The Buyer may not assign its rights or obligations
under this Agreement.

         (i)      No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

         (j)      Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement.

         (k)      No Strict Construction. The language used in this Agreement is
the language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party.

         (l)      Changes to the Terms of this Agreement. This Agreement and any
provision hereof may only be amended by an instrument in writing signed by the
Company and the Buyer. The term "Agreement" and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or supplemented.

         (m)      Failure or Indulgence Not Waiver. No failure or delay in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.

         (n)      Entire Agreement. This Agreement supersedes all other prior
oral or written agreements between the Buyer, the Company, their affiliates and
persons acting on their behalf with respect to the matters discussed herein, and
this Agreement, the other Transaction Documents and the instruments referenced
herein contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. The Company and
the Buyer acknowledge and agree that they have not relied on, in any manner
whatsoever, any representations or statements, written or oral, other than as
expressly set forth in this Agreement.

                                     * * * *
<PAGE>

         IN WITNESS WHEREOF, the Buyer and the Company have caused this Mutual
Termination Agreement to be duly executed as of the date first written above.

                                    THE COMPANY:
                                    ------------

                                    ZAP, A CALIFORNIA CORPORATION

                                    By: /s/ Steven Schneider
                                        ---------------------------
                                    Name:   Steven Schneider
                                    Title:  Chief Executive Officer

                                    BUYER:
                                    ------

                                    FUSION CAPITAL FUND II, LLC
                                    BY: FUSION CAPITAL PARTNERS, LLC
                                    BY: SGM HOLDINGS CORP.

                                    By: /s/ Steven G. Martin
                                        ---------------------------
                                    Name:   Steven G. Martin
                                    Title:  President

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