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Agreement - ZAP - 5-3-2001

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Agreement - ZAP - 5-3-2001 Powered By Docstoc
					Agreement and Plan of Reorganization By and Among ZAPWORLD.COM, Inc. and Aquatic Propulsion Technology, Inc. Dated as of July 1, 2000

AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and entered into as of June 15, 2000 among ZAPWORLD.COM, Inc., a California corporation doing business at 117 Morris Street, Sebastopol, California 95472 ("ZAPWORLD") and Aquatic Propulsion Technology, Inc., a Bahaman corporation doing business at 984 Southwest 13th Court, Pompano Beach, FL 33069 ("AQUATIC"). RECITALS A. ZAPWORLD and AQUATIC intend to effect a merger (the "Merger") of AQUATIC with and into ZAPWORLD in accordance with this Agreement and California General Corporation Law ("California Law"). Upon consummation of the Merger, AQUATIC will be merged into ZAPWORLD and AQUATIC will cease to exist. B. It is intended that the Merger qualify as a tax-free reorganization within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). C. The Board of Directors of AQUATIC has: (i) determined that the Merger is consistent with and in furtherance of the long-term strategy of AQUATIC and is in the best interests of its Shareholders; (ii) approved this Agreement, the Merger and the other transactions contemplated by this Agreement; and (iii) recommended that the shareholders of AQUATIC adopt and approve the terms of this Agreement, the Merger, and the other transactions contemplated by this Agreement. D. The Shareholders of AQUATIC have approved this Agreement, the Merger and the other transactions contemplated by this Agreement. E. The Board of Directors of ZAPWORLD has approved this Agreement, the Merger and other transactions contemplated by this Agreement. AGREEMENT NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, the parties agree as follows: ARTICLE I THE MERGER 1.1 The Merger. At the Effective Time (as defined in Section 1.2) and subject to and upon the terms and conditions of this Agreement and California Law and in accordance with the applicable provisions of the general corporation law of the Bahamas, AQUATIC shall be merged with and into ZAPWORLD. After the merger, the separate corporate existence of AQUATIC shall cease and ZAPWORLD shall continue as the surviving corporation. The separate corporate existence of ZAPWORLD and all of its rights, privileges, immunities and

franchises, public or private, and all its duties and liabilities as a corporation organized under California law, will continue unaffected by the merger. 1.2 Effective Time. Unless this Agreement is earlier terminated pursuant to Section 8.1, the closing of the Merger (the "Closing") will take place as promptly as practicable, but no later than one (1) business day following satisfaction or waiver of the conditions set forth in Article VI, at the law offices of Evers & Hendrickson, LLP, 155 Montgomery Street, 12th Floor, San Francisco, California 94104, unless another place or time is agreed to by ZAPWORLD and AQUATIC. The date upon which the Closing actually occurs is herein referred to as the "Closing Date." On the Closing Date, the parties hereto shall cause the Merger to be consummated by filing an Agreement of Merger, in substantially the form attached hereto as Exhibit A (the "Agreement of Merger"), with the Secretary of State of the State of California, in accordance with the relevant provisions of California Law (the time of acceptance by the Secretary of State of California of such filing being referred to herein as the "Effective Time"). The parties currently intend that the Closing Date will occur on or prior to July 3, 2000. Each of the parties hereto will use its best efforts to cause the merger to be consummated as soon as practicable following the fulfillment or waiver of the conditions specified in Article VI hereof. 1.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of California Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, power and franchises of AQUATIC shall vest in ZAPWORLD and all debts, liabilities and duties of AQUATIC shall become the debts, liabilities and duties of the ZAPWORLD. 1.4 Articles of Incorporation; Bylaws. The Articles of Incorporation and Bylaws of ZAPWORLD, as in effect immediately prior to the Effective Time, shall remain the Articles of Incorporation and Bylaws, respectively, of ZAPWORLD after the merger of AQUATIC into ZAPWORLD. 1.5 Directors and Officers. The officers and directors of AQUATIC shall no longer hold office immediately after the Effective Time, and the officers and directors of ZAPWORLD before the Effective Time shall be the respective officers and directors of ZAPWORLD after the Effective Time, each to hold office in accordance with the Articles of Incorporation and Bylaws of ZAPWORLD. 1.6 Effect of Merger on AQUATIC Capital Stock. At the Effective Time, all shares of AQUATIC capital stock ("AQUATIC Capital Stock") and any right to acquire any shares of AQUATIC Capital Stock, including any options or warrants issued and outstanding, whether or not vested, shall be cancelled and cease to exist. The owner of each share of AQUATIC Capital Stock will receive eighteen and sixty-five hundredths (18.65) shares of ZAPWORLD.COM common stock. 1.7 Effect of Merger on ZAPWORLD Common Stock. The shares of ZAPWORLD outstanding immediately prior to the Effective Time shall remain issued and outstanding immediately thereafter and shall be unaffected by the transaction described herein. -2-

1.8 Aggregate Shares to be Issued. As consideration for the transactions described herein, ZAPWORLD shall issue to the holders of AQUATIC, shares of ZAPWORLD common stock (the "Common Stock") and twenty thousand dollars ($20,000) in cash to be used for payment toward existing liabilities prior to closing. The aggregate number of shares of Common Stock that ZAPWORLD shall issue to the holders of AQUATIC is one hundred twenty thousand (120,000). 1.9 Allocation and Fractional Shares. (a) Allocation. The allocation of shares of ZAPWORLD Common Stock set forth in this Agreement shall be adjusted to reflect the effect of any stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into ZAPWORLD Common Stock), reorganization, recapitalization or other like change with respect to ZAPWORLD Common Stock occurring after the date hereof and prior to the Effective Time. (b) Fractional Shares. No fraction of a share of ZAPWORLD Common Stock will be issued at the Effective Time, but in lieu thereof, each holder of AQUATIC Stock who would otherwise be entitled to a fraction of a share of ZAPWORLD Common Stock (after aggregating all fractional shares of ZAPWORLD Common Stock to be received by such holder) shall be entitled to receive from ZAPWORLD an amount of cash (rounded to the nearest whole cent) equal to the product of: (i) such fraction, multiplied by; (ii) the average closing price of a share of ZAPWORLD Common Stock as reported on the Nasdaq Small Cap for the 30-day period ending three days prior to the Closing Date or, if any such day there are no sales reported, the average of the closing bid and ask prices for ZAPWORLD Common Stock reported on that date. 1.10 Surrender of Certificates . (a) Exchange Agent. The Corporate Secretary of ZAPWORLD shall serve as the exchange agent (the "Exchange Agent") in the Merger. (b) ZAPWORLD to Provide Common Stock. Promptly after the Effective Time, ZAPWORLD shall make available to the Exchange Agent for exchange in accordance with this Article I, and the aggregate number of shares of ZAPWORLD Common Stock issuable pursuant to Section 1.8, in exchange for all outstanding shares of AQUATIC Common Stock. (c) AQUATIC to Deliver all Its Outstanding Stock. Promptly after the Effective Time, AQUATIC shall deliver to the Exchange Agent all share certificates of AQUATIC Common Stock outstanding as of the Effective Time. 1.11 No Further Ownership Rights in AQUATIC Capital Stock. All shares of AQUATIC Common Stock issued shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of ZAPWORLD Common Stock, and after the Effective Time there shall be no further registration of transfers on the records of AQUATIC of shares -3-

of AQUATIC Common Stock which were outstanding immediately prior to the Effective Time. 1.12 Lost, Stolen or Destroyed Certificates. In the event any certificates evidencing shares of AQUATIC shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed certificates, upon the making of an affidavit of that fact by the holder thereof, such shares of ZAPWORLD Common Stock, if any, as may be required pursuant to Section 1.9; provided, however, that ZAPWORLD may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against ZAPWORLD or the Exchange Agent with respect to the certificates alleged to have been lost, stolen or destroyed. 1.13 Taking of Necessary Action; Further Action. If, at any time after the Effective Time, any such further action is necessary or desirable to carry out the purposes of this Agreement and to vest ZAPWORLD with full right, title and possession to all assets, property, rights, privileges, powers and franchises of AQUATIC, the officers and directors of the ZAPWORLD are fully authorized in the name of AQUATIC to take, and will take, all such lawful and necessary action. ARTICLE II REPRESENTATIONS/WARRANTIES OF AQUATIC AQUATIC hereby represents and warrants to ZAPWORLD, subject to the exceptions disclosed in the disclosure schedules supplied by the AQUATIC to ZAPWORLD, as follows: 2.1 Organization and Qualification. AQUATIC is a corporation duly organized, validly existing and in good standing under the laws of the Bahamas. AQUATIC has the corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. AQUATIC is duly qualified or licensed to do business and is in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified or licensed would have a material adverse effect on the business, assets (including intangible assets), financial condition, results of operations or prospects of the AQUATIC. AQUATIC has delivered a true and correct copy of its Articles of Incorporation and Bylaws, each as amended to date, to ZAPWORLD. Exhibit B lists the Articles of Incorporation and Bylaws of AQUATIC, and all amendments thereto. Such Articles of Incorporation and Bylaws are in full force and effect. AQUATIC is not in violation of any of the provisions of its Articles of Incorporation or Bylaws. 2.2 Subsidiaries. AQUATIC does not have, and has never had, any subsidiaries or affiliated companies and does not otherwise own, and has never otherwise owned, directly or indirectly, any shares of capital stock or any equity, debt or similar interest in or any interest convertible, exchangeable or exercisable for any equity, debt or similar interest in, or control, directly or indirectly, any other corporation, partnership, association, joint venture or other business entity. AQUATIC has not agreed, nor is AQUATIC obligated, to make or be bound -4-

by any written, oral or other agreement, contract, sub-contract, commitment or undertaking of any nature, as of the date hereof or as may hereafter be in effect under which it may become obligated to make, any future investment in or capital contribution to any other entity. 2.3 AQUATIC Capital Structure. (a) Outstanding Stock. The authorized AQUATIC Capital Stock consists entirely of seven thousand (7,000) shares of No Par Common Stock, of which a total of 6,434 are issued and outstanding. The list of shares of AQUATIC Common Stock are now owned and held (and all of which at the Closing will be owned and held) by the list of shareholders in Exhibit "6/1/00." Other than the authorized shares listed above, and listed in Exhibit "1/1/00," there are no other, and there will be no other at Closing, authorized or outstanding shares of AQUATIC Capital Stock. No fractional shares of AQUATIC Capital Stock are, or will at Closing be, issued or outstanding. All issued and outstanding shares of AQUATIC Capital Stock have been duly authorized and validly issued, are fully paid and non-assessable, are not subject to any claim, lien, preemptive right, or right of rescission, and have been offered, issued, sold and delivered by AQUATIC (and, if applicable, transferred) in compliance with all registration or qualification requirements (or applicable exemptions therefrom) of all applicable securities laws, AQUATIC's Articles of Incorporation and other charter documents and all agreements to which AQUATIC is a party. (b) No Options, Warrants or Rights. There are no options, warrants, convertible or other securities, calls, commitments, conversion privileges, preemptive rights or other rights or agreements outstanding to purchase or otherwise acquire (whether directly or indirectly) any shares of AQUATIC's authorized but unissued Capital Stock or any securities convertible into or exchangeable for any shares of AQUATIC's Capital Stock or obligating AQUATIC to grant, issue, extend, or enter into, any such option, warrant, convertible or other security, call, commitment, conversion privilege, preemptive right or other right or agreement, and AQUATIC has no liability for any dividends accrued but unpaid. No person or entity holds or has any option, warrant or other right to acquire any issued and outstanding shares of AQUATIC's Capital Stock from any record or beneficial holder of AQUATIC's shares, with the exception of employee Ted Dixon as previously disclosed to ZAPWORLD. No shares of AQUATIC's Capital Stock are reserved for issuance under any stock purchase, stock option or other benefit plan. As a result of the Merger, ZAPWORLD will be the record and sole beneficial owner of all outstanding AQUATIC's Capital Stock and all rights to acquire or receive any AQUATIC's Capital Stock, whether or not such Capital Stock is outstanding. All options expire, if not exercised immediately prior to the Effective Time. (c) No Voting Arrangements or Registration Rights. There are no voting agreements, voting trusts, rights of first refusal or other restrictions (other than normal restrictions on transfer under applicable securities laws) applicable to any of the AQUATIC Capital Stock. AQUATIC is not under any obligation to register under the 1933 Act or otherwise any of its currently outstanding securities or any securities that may be subsequently issued. -5-

2.4 Authority. AQUATIC has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The requisite shareholder approval has been obtained in accordance with AQUATIC's bylaws, charter provisions and the regulatory requirements of the Bahamas. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of AQUATIC. AQUATIC's Board of Directors has approved the Merger and this Agreement. 2.5 No Conflict. The execution and delivery of this Agreement by the Company does not, and, as of the Effective Time, the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under (any such event, a "Conflict"): (i) any provision of the Articles of Incorporation or Bylaws of AQUATIC; or (ii) any mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to AQUATIC or its properties or assets. 2.6 Consents. No consent, waiver, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other federal, state, county, local or foreign governmental authority, instrumentality, agency or commission ("Governmental Entity") or any third party (so as not to trigger any Conflict), is required by or with respect to AQUATIC in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for: (i) the filing of the Agreement of Merger with the California Secretary of State and (ii) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws. 2.7 Unaudited Asset List. Schedule 2.7 of the Disclosure Schedule sets forth a true and correct list of AQUATIC's unaudited assets as of the Effective Time. Schedule 2.7 is complete and correct in all material respects. 2.8 Liabilities. As of the Effective Time, AQUATIC does not have any liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, known or unknown, matured or unmatured (whether or not required to be reflected in financial statements in accordance with GAAP), except those listed in Schedule 2.8 (the "Liabilities"), and the convertible note in Schedule 2.81 (the "Note"). Five percent (5%) of the ZAPWORLD shares transferred to AQUATIC shareholders will be withheld in escrow for a period of 120 days to ensure that no material, undisclosed liabilities exist. The shares shall be withheld proportionately from each AQUATIC shareholder. For purposes of this paragraph, "material" shall mean undisclosed, aggregate liabilities in excess of five thousand dollars ($5,000). In the event undisclosed liabilities do not exceed five thousand dollars ($5,000), all escrowed shares shall immediately be released to the AQUATIC shareholders upon the expiration of the 120-day period. If undisclosed liabilities exceed five thousand dollars ($5,000), then an equivalent amount of escrowed shares shall be retained by ZAPWORLD and the balance of the shares shall be -6-

released to AQUATIC shareholders. In addition, both John Englander and Tom Furbish, as evidenced in Exhibit C and Exhibit D, respectively, shall jointly and severally guarantee the material accuracy of the representation and warranties in this section 2, and specifically, this section 2.8. 2.9 No Changes. As of the Effective Time, there has not been, occurred or arisen any: (a) amendments or changes to the Articles of Incorporation or Bylaws of AQUATIC as listed in Exhibit B; (b) destruction of, damage to or loss of any material assets listed in Schedule 2.7; (c) split, combination or reclassification of any AQUATIC Capital Stock; (d) sale, lease, license or other disposition of any of the assets of AQUATIC listed in Schedule 2.7. 2.10 Tax and Other Returns and Reports. (a) Definition of Taxes. For the purposes of this Agreement, "Tax," or collectively "Taxes," means any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts and any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity. (b) Tax Returns and Audits. Except as set forth in Schedule 2.10, as of the Effective Time: (i) AQUATIC has prepared and filed all federal, state, local and foreign returns (collectively, "Returns"), estimates, information statements and reports required to be filed ("Returns") relating to any and all Taxes concerning or attributable to AQUATIC or its operations and such Returns are true and correct and have been completed in accordance with applicable law. (ii) AQUATIC has: (a) paid or accrued all Taxes it is required to pay or accrue; and (b) withheld with respect to its employees all federal and state income taxes, FICA, FUTA and other Taxes required to be withheld as of that date. (iii) AQUATIC has not been delinquent in the payment of any Tax nor is there any Tax deficiency outstanding, proposed or assessed against AQUATIC, nor has AQUATIC executed any unexpired waiver of any statute of limitations on or extended the period for the assessment or collection of any Tax. -7-

(iv) No audit or other examination of any Return of AQUATIC by any Tax authority is presently in progress, nor has AQUATIC been notified of any request for such an audit or other examination. (v) AQUATIC has no knowledge of any basis for the assertion of any claim relating or attributable to Taxes that, if adversely determined, would result in any Lien on the assets of AQUATIC. (vi) No adjustment or deficiency relating to any Return filed or required to be filed by AQUATIC has been proposed formally or, to the knowledge of AQUATIC, informally by any Tax authority to AQUATIC or any representative thereof. 2.11 Restrictions on Business Activities. There is no agreement (noncompete or otherwise), commitment, judgment, injunction, order or decree to which AQUATIC is a party or otherwise binding upon AQUATIC which has or reasonably would be expected to have the effect of either: (a) prohibiting or impairing in any material respect: (i) any material business practice of AQUATIC; (ii) any acquisition of property (tangible or intangible) by AQUATIC; or (iii) the conduct of business by AQUATIC. OR (b) after the consummation of the Merger, prohibiting or impairing in any material respect: (i) any material business practice of ZAPWORLD; (ii) any acquisition of property (tangible or intangible) by ZAPWORLD; or (iii) the conduct of business by ZAPWORLD. Without limiting the foregoing, AQUATIC has not entered into any agreement under which AQUATIC is restricted from selling, licensing or otherwise distributing any of its products or services to any class of customers, in any geographic area, during any period of time or in any segment of the market. -8-

2.12 Title to Properties; Absence of Liens and Encumbrances. (a) AQUATIC does not own any real property, nor has it ever owned any real property. Schedule 2.12 sets forth a list of all real property currently leased by AQUATIC, the name of the lessor and the date of the lease and each amendment thereto and, with respect to any current lease, the aggregate annual rental and/or other fees payable under any such lease. All such current leases are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing default or event of default (or event which with notice or lapse of time, or both, would constitute a default). (b) AQUATIC has good and marketable title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any Liens except that security interest retained by the Lashman Family Ltd. Partnership and evidenced by that certain security agreement dated this ____ day of June. (c) All facilities, machinery, equipment, fixtures, vehicles, and other properties owned or leased by AQUATIC are: (i) adequate for the conduct of the business of AQUATIC as currently conducted; and (ii) in good operating condition, regularly and properly maintained, subject to normal wear and tear and reasonably fit and usable for the purposes for which they are being used. 2.13 Intellectual Property. (a) Definitions. For all purposes of this Agreement, the following terms shall have the following respective meanings: (i) Technology" shall mean any or all of the following: (A) works of authorship including, without limitation, computer programs, source code and executable code, whether embodied in software, firmware or otherwise, documentation, designs, files, net lists, records, data and mask works; (B) inventions (whether or not patentable), improvements and technology; (C) proprietary and confidential information, including technical data and customer and supplier lists, trade secrets and know how; (D) databases, data compilations and collections and technical data; (E) logos, trade names, trade dress, trademarks and service marks; (F) World Wide Web addresses, domain names and sites; (G) tools, methods and processes; and (H) all instantiations of the foregoing in any form and embodied in any media. (ii) Intellectual Property Rights" shall mean any or all of the following and all rights in, arising out of, or associated therewith: (A) all United States and foreign patents, utility models and applications therefor and all reissues, divisions, re-examinations, renewals, extensions, provisionals, continuations and continuations-in-part thereof and equivalent or similar rights anywhere in the world in inventions and discoveries including without limitation invention disclosures ("Patents"); (B) all trade secrets and other rights in know-how and confidential or proprietary information; (C) all copyrights, copyrights registrations and applications therefor and all other rights corresponding thereto throughout the -9-

world ("Copyrights"); (D) all industrial designs and any registrations and applications therefor throughout the world; (E) all rights in World Wide Web addresses and domain names and applications and registrations therefor; (F) all trade names, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefor and all goodwill associated therewith throughout the world ("Trademarks"); (G) all computer software including all source code, object code, firmware, development tools, files, records and data, and all media on which any of the foregoing is recorded; and (H) any similar, corresponding or equivalent rights to any of the foregoing anywhere in the world. (iii) AQUATIC Intellectual Property" shall mean any Technology and Intellectual Property Rights including AQUATIC Registered Intellectual Property Rights (as defined below) that are owned (in whole or in part) by or exclusively licensed to AQUATIC. (iv) Registered Intellectual Property Rights" shall mean all United States, international and foreign: (A) Patents, including applications therefore; (B) registered Trademarks, applications to register Trademarks, including intentto-use applications, or other registrations or applications related to Trademarks; (C) Copyrights registrations and applications to register Copyrights; and (E) any other Technology that is the subject of an application, certificate, filing, registration or other document issued by, filed with, or recorded by, any state, government or other public or private legal authority at any time. (b) Schedule 2.13 lists all Registered Intellectual Property Rights owned by, filed in the name of, or applied for, by AQUATIC and lists any proceedings or actions known to AQUATIC before any court, tribunal (including the United States Patent and Trademark Office (the "PTO") or equivalent authority anywhere in the world) related to any of AQUATIC's Registered Intellectual Property Rights or AQUATIC Intellectual Property. (c) There are no facts or circumstances that would render any AQUATIC Intellectual Property invalid or unenforceable. (d) Each item of AQUATIC Intellectual Property is free and clear of any Liens other than the Lashman Family Ltd. Partnership's security interest in the Patents. (e) All AQUATIC Intellectual Property will be fully transferable, alienable or licensable by ZAPWORLD without restriction and without payment of any kind to any third party except the Lashman Family Ltd. Partnership's Security Interest. (f) AQUATIC has not transferred ownership of, or granted any exclusive license of or exclusive right to use, any Technology or Intellectual Property Right. 2.14 Agreements, Contracts and Commitments. Except as set forth in Schedule 2.14, AQUATIC is not currently a party to nor is it currently bound by: (a) any employment or consulting agreement, contract or commitment with any officer, director, employee or member of AQUATIC's Board of Directors, other than those that are terminable by AQUATIC at will; -10-

(b) any bonus, deferred compensation, pension, profit sharing or retirement plans, or any other employee benefit plans or arrangements; (c) any agreement or plan, including, without limitation, any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement; (d) any lease of personal property having a value individually in excess of $500; (e) any agreement of indemnification or guaranty; (f) any agreement, contract or commitment containing any covenant limiting in any respect the right of AQUATIC to engage in any line of business or to compete with any person or granting any exclusive distribution rights; (g) any agreement relating to capital expenditures and involving future payments in excess of $500; (h) any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit; (i) any purchase order or contract involving $500 or more in total payments; (j) any construction contracts; (k) any dealer, distribution, joint marketing (excluding joint marketing agreements: (i) involving financial obligations or liabilities to AQUATIC; or (ii) that do not involve rights to sell AQUATIC Products to end-users), development, content provider, destination site or merchant agreement; (l) any agreement pursuant to which AQUATIC has advanced or loaned any amount to any shareholder of AQUATIC or any director, officer, employee or consultant; (m) any settlement agreement entered into since the AQUATIC's initial incorporation; or (n) any other agreement that involves five hundred dollars ($500) in total payment or more or is not cancelable without penalty within thirty (30) days. AQUATIC has not, and has not received notice that it has, breached, violated or defaulted under, any of the terms or conditions of any agreement, contract or commitment required to be set forth on Schedule 2.14. -11-

2.15 Change of Control Payments. Schedule 2.15 sets forth each plan or agreement pursuant to which any amounts may become payable (whether currently or in the future) to current or former officers, directors or employees of AQUATIC as a result of or in connection with the Merger. 2.16 Interested Party Transactions. Except as set forth in Schedule 2.16, to AQUATIC's knowledge, no officer, director or affiliate (as defined under Regulation C under the Securities Act) of AQUATIC (nor any ancestor, sibling, descendant or spouse of any of such persons, or any trust, partnership or corporation in which any of such persons has or has had an economic interest), has or has had, directly or indirectly: (a) an economic interest in any entity that purchases from or sells or furnishes to, AQUATIC, any goods or services; or (b) a beneficial interest in any contract or agreement set forth in Schedule 2.14; provided, that ownership of no more than one percent of the outstanding voting stock of a publicly traded corporation shall not be deemed an "economic interest in any entity" for purposes of this Section 2.16. There are no receivables of AQUATIC owing by any director, officer, employee or consultant to AQUATIC (or any ancestor, sibling, descendant, or spouse of any such persons, or any trust, partnership, or corporation in which any of such persons has an economic interest). 2.17 Compliance with Laws. AQUATIC is not in material conflict with, or in default or violation in any material respect of any law, rule, regulation, order, judgment or decree applicable to AQUATIC or by which its properties is bound or affected. No investigation or review by any governmental or regulatory body or authority is pending or, to the knowledge of AQUATIC, threatened against AQUATIC. 2.18 Litigation. There is no action, suit or proceeding of any nature pending or to AQUATIC's knowledge threatened against AQUATIC, its properties or any of its officers, directors or employees. There is no investigation pending or, to AQUATIC's knowledge, threatened against AQUATIC, its properties or any of its officers, directors or employees by or before any Governmental Entity. 2.19 Insurance. With respect to the insurance policies and fidelity bonds covering the assets, business, equipment, properties, operations, employees, officers and directors of AQUATIC, there is no claim by AQUATIC pending under any of such policies or bonds as to which coverage has been denied or disputed by the underwriters of such policies or bonds. 2.20 Minute Books. The minute books of AQUATIC made available to ZAPWORLD are the only minute books of AQUATIC and contain an accurate summary of all meetings of directors (or committees thereof) and shareholders or actions by written consent since the time of incorporation of AQUATIC. 2.21 Environmental Matters. (a) For the purposes of this Section 2.21, "Environmental Claim" means any notice, claim, act, cause of action or investigation by any person alleging potential liability (including potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries or penalties) arising out -12-

of, based on or resulting from: (i) the presence, or release into the environment, of any hazardous materials; or (ii) any violation, or alleged violation, of any environmental laws. "Environmental Laws" means all federal, state, local and foreign laws and regulations relating to pollution or the environment (including ambient air, surface water, ground water, land surface or subsurface strata) or the protection of human health and worker safety, including, without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of hazardous materials, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of hazardous materials. "Hazardous Materials" means chemicals, pollutants, contaminants, wastes, toxic substances, radioactive and biological materials, asbestos-containing materials (ACM), hazardous substances, petroleum and petroleum products or any fraction thereof, excluding, however, hazardous materials contained in products typically used for office and janitorial purposes properly and safely maintained in accordance with Environmental Laws. (b) AQUATIC: (i) has obtained all applicable and material permits, licenses and other authorizations that are required under Environmental Laws; (ii) is in compliance with all material terms and conditions of such required permits, licenses and authorizations, and also is in compliance with all other material limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in such laws or contained in any regulation, code, plan, order, decree, judgment, notice or demand letter issued, entered, promulgated or approved thereunder; (iii) is not aware of and has not received notice of any event, condition, circumstance, activity, practice, incident, action or plan that is reasonably likely to interfere with or prevent continued compliance or that would give rise to any common law or statutory liability, or otherwise form the basis of any Environmental Claim with respect to AQUATIC or any person or entity whose liability for any Environmental Claim AQUATIC has retained or assumed either contractually or by operation of law; (iv) has not disposed of, released, discharged or emitted any Hazardous Materials into the soil or groundwater at any properties owned or leased at any time by AQUATIC, or at any other property, or exposed any employee or other individual to any Hazardous Materials or condition in such a manner as would result in any material liability or result in any corrective or remedial action obligation under Environmental Laws; and (v) has taken all actions necessary under Environmental Laws to register any products or materials required to be registered by AQUATIC (or any of its agents) thereunder. No Hazardous Materials are present in, on, or under any properties owned or leased at any time (including both land and improvements thereon) by AQUATIC so as to give rise to any liability or corrective or remedial obligation of AQUATIC under any Environmental Laws. 2.22 Brokers' and Finders' Fees. AQUATIC has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. 2.23 Bank Accounts. Schedule 2.23 constitutes a full and complete list of all the bank accounts and safe deposit boxes of AQUATIC, the number of each such account or box, and the names of the persons authorized to draw on such accounts or to access such boxes. -13-

2.24 Indemnification Obligations. To AQUATIC's knowledge, there is no action, proceeding or other event pending against any officer or director of AQUATIC which would give rise to any indemnification obligation of AQUATIC to its officers and directors under its Articles of Organization, Bylaws or any agreement between AQUATIC and any of such officers or directors. ARTICLE III REPRESENTATIONS/WARRANTIES OF ZAPWORLD ZAPWORLD represents and warrants to AQUATIC as follows: 3.1 Organization of Parent and Merger Sub. ZAPWORLD is a corporation duly organized, validly existing and in good standing under the laws of the State of California. 3.2 Authority. ZAPWORLD has all requisite corporate power and authority to enter into this Agreement and the execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action on the part of ZAPWORLD. No vote of ZAPWORLD's stockholders is required with respect to this Agreement and the transactions contemplated thereby. 3.3 ZAPWORLD Common Stock. The shares of ZAPWORLD Common Stock to be issued pursuant to the Merger will, when issued and delivered in accordance with this Agreement, be duly authorized, validly issued, fully paid and non-assessable and will be issued in compliance with applicable federal and state securities laws; provided, however, that the ZAPWORLD Common Stock to be issued hereunder will be subject to restrictions on transfer under applicable federal and state securities laws. ARTICLE IV SECURITIES ACT COMPLIANCE; REGISTRATION 4.1 Securities Act Exemption. ZAPWORLD Common Stock to be issued pursuant to this Agreement initially will not be registered under the Securities Act in reliance on the exemptions from the registration requirements of Section 5 of the Securities Act set forth in Section 4(2) thereof and is exempt from registration under Section 25102(f) of the California Corporations Code. Prior to the Closing Date, each of AQUATIC's shareholders shall have provided ZAPWORLD such representations, warranties, certifications and additional information as ZAPWORLD may reasonably request to ensure the availability of such exemptions from the registration requirements of the Securities Act. 4.2 Stock Restrictions. In addition to any legend imposed by applicable state securities laws or by any contract which continues in effect after the Effective Time, the certificates representing the shares of ZAPWORLD Common Stock issued pursuant to this Agreement shall bear a restrictive legend (and stop transfer orders shall be placed against the transfer thereof with ZAPWORLD's transfer agent), stating substantially as follows: -14-

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OR HYPOTHECATED EXCEPT IN COMPLIANCE WITH RULE 144 IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT, OR A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION. 4.3 The Company Shareholders' Restrictions Regarding Securities Law Matters. Each shareholder of AQUATIC, by virtue of the Merger and the conversion into ZAPWORLD Common Stock of AQUATIC's Capital Stock held by such shareholder, shall be bound by the following provisions: (a) Such shareholder will not offer, sell, or otherwise dispose of any shares of ZAPWORLD Common Stock except in compliance with the Securities Act and the rules and regulations thereunder; and (b) Such shareholder will not sell, transfer or otherwise dispose of any shares of ZAPWORLD Common Stock unless: (i) such sale, transfer or other disposition is within the limitations of and in compliance with Rule 144 promulgated by the SEC under the Securities Act and the Shareholder furnishes ZAPWORLD with reasonable proof of compliance with such Rule; (ii) in the opinion of counsel, reasonably satisfactory to ZAPWORLD and its counsel, some other exemption from registration under the Securities Act is available with respect to any such proposed sale, transfer, or other disposition of ZAPWORLD Common Stock; or (iii) the offer and sale of ZAPWORLD Common Stock is registered under the Securities Act. ARTICLE V ADDITIONAL AGREEMENTS 5.1 Access to Information. AQUATIC shall afford ZAPWORLD and its accountants, legal counsel and other representatives reasonable access during normal business hours during the period prior to the Effective Time to: (a) all of the properties, books, contracts, commitments and records of AQUATIC; (b) all other information concerning the business, properties, and personnel of AQUATIC as ZAPWORLD may reasonably request; and (c) all key employees of AQUATIC as identified by ZAPWORLD. AQUATIC agrees to provide ZAPWORLD and its accountants, legal counsel and other representatives copies of internal financial statements promptly upon request. -15-

5.2 Confidentiality. All information not previously disclosed to the public which shall have been furnished by AQUATIC or ZAPWORLD to the other party shall not be disclosed prior to the Closing Date to any person other than the party's respective employees, legal counsel, and accountants, in confidence, or used for any purpose other than as contemplated herein without the prior written consent of the other party. 5.3 Consents. AQUATIC shall promptly apply for or otherwise seek and use reasonable commercial efforts to obtain all consents and approvals required to be obtained by it for the consummation of the Merger, including all consents, waivers or approvals under any of the Contracts which are necessary in order to preserve the benefits thereunder for ZAPWORLD, or otherwise in connection with the Merger. 5.4 Legal Conditions to the Merger. ZAPWORLD and AQUATIC will take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on such party with respect to the Merger and will promptly cooperate with and furnish information to any other party hereto in connection with any such requirements imposed upon such other party in connection with the Merger ARTICLE VI CONDITIONS TO THE MERGER 6.1 Conditions to Obligations of AQUATIC. The obligations of AQUATIC to consummate the Merger and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of the representations and warranties of ZAPWORLD contained in this Agreement. 6.2 Conditions to the Obligations of ZAPWORLD. The obligations of ZAPWORLD to consummate the Merger and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of the representations and warranties of AQUATIC contained in this Agreement. ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES 7.1 Survival of Representations and Warranties. (a) All of AQUATIC's representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall terminate not later than 5:00 p.m., California time, the date which is one year following the Closing Date (the "Expiration Date"); provided, however, that the representations and warranties relating or pertaining to any Tax or Returns related to such Tax set forth in Section 2.10 hereof, shall survive until the expiration of all applicable statues of limitations, or extensions thereof, governing each Tax or Returns related to such Tax. -16-

(b) All of ZAPWORLD's representations and warranties contained herein or in any instrument delivered pursuant to this Agreement shall terminate at the Effective Time. ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER 8.1 Termination. Except as provided in Section 8.2 below, this Agreement may be terminated and the Merger abandoned at any time prior to the Closing Date as follows: (a) by mutual written consent duly authorized by the Board of Directors of ZAPWORLD and AQUATIC; (b) by either ZAPWORLD or AQUATIC if: (i) the Closing Date has not occurred by July 3, 2000; (ii) there shall be a final non-appealable order of a federal or state court in effect preventing consummation of the Merger; or (iii) there shall be any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger by any Governmental Entity that would make consummation of the Merger illegal; (c) by ZAPWORLD, if there shall be any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger, by any Governmental Entity, which would: (i) prohibit ZAPWORLD's ownership or operation of any material portion of the business of AQUATIC; or (ii) compel ZAPWORLD to dispose of or hold separate, as a result of the Merger, any portion of the business or assets of AQUATIC; (d) by ZAPWORLD, if it is not in material breach of its obligations under this Agreement and there has been a material breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of AQUATIC and which has not been cured by AQUATIC within 30 days of receipt of notice of the breech; or (e) by AQUATIC if, it is not in material breach of its obligations under this Agreement and there has been a material breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of ZAPWORLD. Where action is taken to terminate this Agreement pursuant to Section 8.1, it shall be sufficient for such action to be authorized by the Board of Directors (as applicable) of the party taking such action. 8.2 Effect of Termination. Any termination of this Agreement under Section 8.1 above will be effective immediately upon the delivery of written notice of the terminating party and this Agreement shall forthwith become void and there shall be no liability on the part of either ZAPWORLD or AQUATIC, or their respective officers or directors (except as set forth in this Section 8.2). Nothing in this Section 8.2 shall relieve any party from liability for any breach of this Agreement. -17-

8.3 Amendment. Except as is otherwise required by applicable law, prior to the Closing, this Agreement may be amended by the parties hereto at any time only by execution of an instrument in writing signed by ZAPWORLD and AQUATIC and approved by the shareholders of the respective companies. 8.4 Extension; Waiver. At any time prior to the Effective Time, ZAPWORLD and AQUATIC may, to the extent legally allowed: (a) extend the time for the performance of any of the obligations of the other party hereto; (b) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto; and (c) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE IX GENERAL PROVISIONS 9.1 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested) or at the time sent via facsimile (with acknowledgment of complete transmission) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice), provided, however, that notices sent by mail will not be deemed given until received: (a) if to ZAPWORLD, to: ZAPWORLD.COM, Inc. 117 Morris Street Sebastopol, California 95472 Attention: Garry Starr, President Telephone:(707) 824-4150 Facsimile:(707) 824-4159 with a copy to: Evers & Hendrickson LLP 155 Montgomery Street, 12th Floor San Francisco, California 94104 Attention: William D. Evers, Esq. Telephone:(415) 772-8100 Facsimile:(415) 772-8101 -18-

(b) if to AQUATIC, to: AQUATIC 984 Southwest 13th Court Pompano Beach, Florida 33069 Attention: John Englander Telephone:(954) 786-9991 with a copy to: Benson, Moyle & Mucci, LLP One Financial Plaza, Suite 1600 Ft. Lauderdale, Florida 33394 Attention: Mark J. Loterstein, Esq. Telephone:(954) 524-6800 Facsimile:(954) 463-6963 and a copy to: Frederick R. M. Smith, Esq. Callenders & Co., Suite C The Regent Centre East Regent Square PO Box F-40132 Freeport, Grand Bahama, Bahamas Telephone: (809) 352-7458 Facsimile: (809) 352-4000 9.2 Expenses. Each party will bear its respective expenses and legal fees incurred with respect to this Agreement, and the transactions contemplated hereby. 9.3 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement. 9.4 Entire Agreement; Assignment. This Agreement, the schedules and Exhibits hereto, and the documents and instruments and other agreements among the parties hereto referenced herein constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. 9.5 Severability. In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. -19-

9.6 Arbitration. Any controversy between ZAPWORLD and AQUATIC involving the construction or application of any of the terms, provisions, or conditions of this Agreement shall, on the written request of either party served on the other, be submitted to mediation before a mediator suitable to both parties. If the parties fail to resolve any such controversy through mediation, such controversy shall, on the written request of either party served on the other, be submitted to arbitration. Arbitration shall comply with and be governed by the provisions of the California Arbitration Act. 9.7 Selection of Arbitrators. ZAPWORLD and AQUATIC shall each appoint one person to hear and determine the dispute. If the two persons so appointed are unable to agree, then those persons shall select a third impartial arbitrator whose decision shall be final and conclusive upon both parties. 9.8 Costs of Arbitration. The costs of arbitration shall be allocated to the losing party or in such proportions as the arbitrators decide. 9.9 Attorneys' Fees and Costs. If any legal action (including mediation and arbitration) is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs, and necessary disbursements in addition to any other relief to which that party may be entitled. This provision shall be construed as applicable to the entire agreement. 9.10 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Each of the parties hereto consents to the jurisdiction and venue of the federal and state courts for San Francisco, California for purposes of any action arising out of this Agreement, and agrees that process may be served upon them in any manner authorized by this Agreement for delivery of notices, and waives any covenants not to assert or plead any objection which they might otherwise have to such jurisdiction and such process. 9.11 Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. (THIS SPACE INTENTIONALLY LEFT BLANK) -20-

WITNESS WHEREOF, ZAPWORLD and AQUATIC have caused this Agreement to be signed by their duly authorized respective officers as of the date first written above. ZAPWORLD.COM, Inc.
/s/ Gary Starr ---------------------------Name: Gary Starr Title: CEO By: /s/ William D. Evers ---------------------------Name: William D. Evers Title: Assistant Secretary By:

Dated:__________________

Dated:__________________

AQUATIC PROPULSION TECHNOLOGY, INC.
/s/ John Englander ---------------------------Name: John Englander Title: President /s/ Tom Furbish ---------------------------Name: Tom Furbish Title: Secretary By: By:

Dated:__________________

Dated:__________________

INDEX OF EXHIBITS
Exhibit --------------Exhibit A Exhibit B Exhibit C Exhibit D Description -------------------------------------------------Agreement of Merger Articles of Incorporation and Bylaws of Aquatic Propulsion Technology, Inc. Guaranty of John Englander Guaranty of Tom Furbish

Exhibit A: Agreement of Merger

Exhibit B: Articles of Incorporation and Bylaws of AQUATIC Previously provided under Tab #1 of the "AQUATIC Due Diligence Materials" loose-leaf binder dated May 23, 2000:

INDEX OF SCHEDULES
Schedule 2.7 2.8 2.10 2.12 2.13 2.14 2.15 2.16 2.23 Description Unaudited Asset List of Aquatic Propulsion Technology, Inc. Liabilities Tax Payments Real Property Leases Intellectual Property Rights Agreements, Contracts and Commitments Change of Control Payments Interested Party Transactions Bank Accounts

Schedule 2.7 A.

Unaudited List of Assets - AQUATIC Aggregate Valuations of Assets were recently provided by means of Combined Balance Sheet in Financial Statements dated April 30, 2000. By June 21, 2000 APT will provide ZAPWORLD with a detailed list of furniture, fixtures, and equipment. On June 30, an inventory of product, work in production, and production components will be taken, certified by a CPA. This will be provided to ZAPWORLD upon completion.

B.

C.

[Balance of Page intentionally left blank.]

Schedule 2.8 1.

Liabilities The liabilities of APT are those trade payables and notes represented on the monthly Financial Statements, which have been provided to ZAPWORLD.COM during the course of the merger discussions. A detailed listing of all accounts payable will be presented as of June 30, 2000 as soon as it is available. APT warrants that there is nothing unusual that has arisen since the last information provided to ZAPWORLD, and that the changes in payables are merely the additions and deletions in accordance with the normal course of business. The only guarantee APT, is that relating to the Lashman Family note which is being assumed directly by ZAPWORLD.COM.

2.

3.

[Balance of Page intentionally left blank.]

Schedule 2.10 1.

Tax Payments APT has not made any domestic retail sales and therefore has not paid Florida Sales tax or the Florida battery disposal tax. (These were all handled through the related company Marine Marketing, LC which is not being acquired.) APT has made all appropriate payroll related tax payments. APT began business during July 1999. Although the company showed a loss for 1999, that return has not yet been filed with the IRS. We filed for an extension to file the IRS #1120F.

2. 3.

[Balance of Page intentionally left blank.]

Schedule 2.12 Real Property Leases The only lease is on the premises at 984 13th Court, Pompano Beach, Florida. A copy of the lease was provided to ZAPWORLD under Tab #23 of the "AQUATIC Due Diligence Materials" loose-leaf binder dated May 23, 2000. [Balance of Page intentionally left blank.]

Schedule 2.13 Intellectual Property Rights The IP is documented under Tab #24 of the "AQUATIC Due Diligence Materials" loose-leaf binder dated May 23, 2000. As background, these assets were acquired as part of the Purchase Agreement between APT and MODE Industries, Inc. dated July 2, 1999. This document can be found under Tab #12 of the above referenced material. [Balance of Page intentionally left blank.]

Schedule 2.14 b)

Agreements, Contracts and Commitments The only employment agreements in force are with Tom Furbish and Ted Dixon. Documentation of Dixon's agreement was provided under Tab #7 of the "Marine Marketing, LC Due Diligence Materials" loose-leaf binder dated May 23, 2000. The only commitment to any APT Board member is the 6-month compensation agreement with "Englander & Associates, Inc." dated May 17, 2000. this was provided under Tab #11 of the "AQUATIC Due Diligence Materials" loose-leaf binder dated May 23, 2000.

c)

As part of his initial hiring, Tom Furbish was offered a potential 10% bonus on his salary, although this was neither formula-based, nor included in any written contract. It was explained that this was to be solely at the company's discretion. The only guaranty is that covering the note to the Lashman Family Limited Partnership, subject to execution by ZAPWORLD.COM. The dealer/distributor agreements were generally provided under Tab #16 of the "AQUATIC Due Diligence Materials" loose-leaf binder dated May 23, 2000: Specifically they can be summarized as: 1. 2. 3. 4. World Rides International: Costa Rica GMH Motorbikes, Ltd. (John Zenios): Cypress Maverick Enterprises, Inc.: Non-exclusive web marketing Peter Bailey of Guam for private label pink dolphins. Noformal contract or special pricing. Correspondence via e-mail only. Sales commission override agreement with Tom Loeb of Ledbetter Sales, Inc. for 7%. Verbal agreement only, without specified duration.

e)

k)

5.

Schedule 2.15

Change of Control Payments

The only payment made to a former Officer or Director of APT is the previously disclosed 6-month agreement with John Englander & Associates, Inc. dated May 17. This actually preceded the merger and was agreed by the shareholders of that date as compensation for Englander's efforts leading up to the merger, its execution, and follow up involvement as necessary. [Balance of Page intentionally left blank.]

Schedule 2.16 Interested Party Transactions There are no interested party transactions that will survive the merger. Previously the shareholders of APT were all involved in a related distribution company, Marine Marketing, LC for non-exclusive marketing of APT products. In accordance with the merger discussions with ZAPWORLD, it was agreed that Marine Marketing will be put into dissolution. Based upon the proposed merger, all sales have been put through APT, effective June 1, 2000. [Balance of Page intentionally left blank.]

Schedule 2.23 1.

Bank Accounts The company has only one account with First Union National Bank, with head office in Jacksonville, Florida. The account is: #2090002778814. In addition, the company has funds in a money market account pledged as security against the real estate lease with Charles Grogan. The account is: #2000007401671.

2.

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AGREEMENT OF MERGER OF ZAPWORLD.COM (a California corporation) AND AQUATIC PROPULSION TECHNOLOGY, INC. (a Bahamian corporation) THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and entered into as of July 1, 2000 by and between Zapworld.com, a California corporation doing business at 117 Morris Street, Sebastopol, California 95472 ("Zapworld") and Aquatic Propulsion Technology, Inc., a Bahamian corporation doing business at 984 Southwest 13th Court, Pompano Beach, FL 33069 ("Aquatic Propulsion"). WHEREAS, the respective Boards of Directors of Zapworld and Aquatic Propulsion, in light of, and subject to, the terms and conditions in that certain Agreement and Plan of Reorganization, dated July 1, 2000, between Zapworld and Aquatic Propulsion (the "Reorganization Agreement"), deem it advisable and in the best interests of each of such corporations and their respective shareholders that Aquatic Propulsion be merged with and into Zapworld. NOW, THEREFORE, in consideration of the mutual agreements and covenants set forth herein, and intending to be legally bound hereby, Zapworld and Aquatic Propulsion hereby agree as follows: ARTICLE I THE MERGER 1.1 The Merger. At the Effective Time (as defined in Section 1.2) and subject to and upon the terms and conditions of this Agreement and California Law, Aquatic Propulsion shall be merged with and into Zapworld. After the merger, the separate corporate existence of Aquatic Propulsion shall cease and Zapworld shall continue as the surviving corporation. 1.2 Effective Time. Unless this Agreement is earlier terminated pursuant to Section 9.1 of the Agreement & Plan of Reorganization, the closing of the Merger (the "Closing") will take place as promptly as practicable, but no later than one (1) business day following satisfaction or waiver of the conditions set forth in Article VI of the Agreement & Plan of Reorganization, at the law offices of Evers & Hendrickson, LLP, 155 Montgomery Street, 12th Floor, San Francisco, California 94104, unless another place or time is agreed to by Zapworld and Aquatic Propulsion. The date upon which the Closing actually occurs is herein referred to as the "Closing Date." On the Closing Date, the parties hereto shall cause the Merger to be consummated by filing this Agreement with the Secretary of State of the State of California, in accordance with the relevant provisions of California Law (the time of acceptance by the Secretary of State of California of such filing being referred to herein as the

"Effective Time"). The parties currently intend that the Closing Date will occur on or prior to July 1, 2000. 1.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of California Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, power and franchises of Aquatic Propulsion shall vest in Zapworld and all debts, liabilities and duties of Aquatic Propulsion shall become the debts, liabilities and duties of the Zapworld. 1.4 Articles of Incorporation; Bylaws. The Articles of Incorporation and Bylaws of Zapworld, as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation and Bylaws, respectively, of Zapworld after the merger of Aquatic Propulsion into Zapworld. 1.5 Directors and Officers. The officers and directors of Aquatic Propulsion shall no longer hold office immediately after the Effective Time, and the officers and directors of Zapworld before the Effective Time shall be the respective officers and directors of Zapworld after the Effective Time, each to hold office in accordance with the Articles of Incorporation and Bylaws of Zapworld. 1.6 Effect of Merger on Aquatic Propulsion Capital Stock. At the Effective Time, all shares of Aquatic Propulsion capital stock ("Aquatic Propulsion Capital Stock") and any right to acquire any shares of Aquatic Propulsion Capital Stock, including any options or warrants issued and outstanding, whether or not vested, shall cease to exist. 1.7 Effect of Merger on Zapworld Common Stock. The shares of Zapworld outstanding immediately prior to the Effective Time shall remain issued and outstanding immediately thereafter and shall be unaffected by the transaction described herein. 1.8 Aggregate Shares to be Issued. As consideration for the transactions described herein, Zapworld shall issue to the holders of Aquatic Propulsion, shares of Zapworld common stock ("Zapworld Common Stock"). The aggregate number of shares of Zapworld Common Stock that Zapworld shall issue to the holders of Aquatic Propulsion is one hundred twenty thousand (120,000). 1.9 Allocation and Fractional Shares. (a) Allocation. The allocation of shares of Zapworld Common Stock set forth in this Agreement shall be adjusted to reflect the effect of any stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into Zapworld Common Stock or Company Capital Stock), reorganization, recapitalization or other like change with respect to Zapworld Common Stock occurring after the date hereof and prior to the Effective Time. (b) Fractional Shares. No fraction of a share of Zapworld Common Stock will be issued at the Effective Time, but in lieu thereof, each holder of Aquatic Propulsion Stock who would otherwise be entitled to a fraction of a share of Zapworld Common Stock -2-

(after aggregating all fractional shares of Zapworld Common Stock to be received by such holder) shall be entitled to receive from Zapworld an amount of cash (rounded to the nearest whole cent) equal to the product of: (i) such fraction, multiplied by; (ii) the average closing price of a share of Zapworld Common Stock as reported on the OTC Bulletin Board for the 30-day period ending three days prior to the Closing Date or, if any such day there are no sales reported, the average of the closing bid and ask prices for Zapworld Common Stock reported on that date. 1.10 Surrender of Certificates. (a) Exchange Agent. The Corporate Secretary of Zapworld shall serve as the exchange agent (the "Exchange Agent") in the Merger. (b) Zapworld to Provide Common Stock. Promptly after the Effective Time, Zapworld shall make available to the Exchange Agent for exchange in accordance with this Article I, a valid check in the amount of $20,000 and the aggregate number of shares of Zapworld Common Stock issuable pursuant to Section 1.8, in exchange for all outstanding shares of Aquatic Propulsion Common Stock. (c) Aquatic Propulsion to Deliver all Its Outstanding Stock. Promptly after the Effective Time, Aquatic Propulsion shall deliver to the Exchange Agent all share certificates of Aquatic Propulsion Common Stock outstanding as of the Effective Time. 1.11 No Further Ownership Rights in Aquatic Propulsion Capital Stock. All shares of Aquatic Propulsion Common Stock issued shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Zapworld Common Stock, and after the Effective Time there shall be no further registration of transfers on the records of the Aquatic Propulsion of shares of Aquatic Propulsion Common Stock which were outstanding immediately prior to the Effective Time. 1.12 Taking of Necessary Action; Further Action. If, at any time after the Effective Time, any such further action is necessary or desirable to carry out the purposes of this Agreement and to vest Zapworld with full right, title and possession to all assets, property, rights, privileges, powers and franchises of Aquatic Propulsion, the officers and directors of Zapworld are fully authorized in the name of Aquatic Propulsion to take, and will take, all such lawful and necessary action. ARTICLE II MISCELLANEOUS 2.1 Termination of Agreement and Plan of Reorganization. Notwithstanding the approval of this Agreement by the shareholders of Aquatic Propulsion, this Agreement shall terminate forthwith in the event that the Reorganization Agreement shall be terminated as therein provided. -3-

2.2 Amendment. This Agreement shall not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 2.3 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which shall constitute one agreement. 2.4 Governing Law. This Agreement shall be governed in all respects, including validity, interpretation and effect by the laws of the State of California. IN WITNESS WHEREOF, the parties have executed this Agreement. Zapworld.com
By: /s/ Gary Starr Name: Gary Starr Title: President By: /s/ William Evers Name: William Evers Title: Assistant Secretary

Aquatic Propulsion Technology, Inc.
By: /s/ John Englander Name: John Englander Title: President By: /s/ Tom Furbish Name: Tom Furbish Title: Secretary

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AGREEMENT AND PLAN OF REORGANIZATION BY AND AMONG Zapworld.com, Inc. emPower Acquisition, Inc. AND EMPower Corporation Dated as of December 17, 1999

CONFIDENTIAL INDEX OF EXHIBITS
Exhibit Description -----------------------------------------------------------------A B C D E Form of Agreement of Merger Priority and Exchange Ratio for Each Class/Series of Company Stock Warrants Form of Legal Opinion of Counsel to the Parent Form of Legal Opinion of Counsel to the Company

Exhibit Exhibit Exhibit Exhibit Exhibit

CONFIDENTIAL INDEX OF SCHEDULES
Schedule 2 2.3(a) 2.3(b) 2.5 2.6 2.7 2.8 2.9 2.10(b) 2.12(a) 2.12(b) 2.13 2.14(b) 2.14(f) 2.14(h) 2.14(i) 2.14(k) 2.15 2.16(a) 2.16(b) 2.17 2.18 2.20 2.21 2.24 2.25(b) 2.25(d) 2.25(g) 2.25(i)(i) 2.25(i)(ii) 2.25(j) 2.25(k) 2.27 2.30 2.31(a) 2.31(b) 2.6 8.2 Description Disclosure Schedule Shareholder List Option and Warrant Holder List Conflicts Governmental and Third Party Consents Company Financials Undisclosed Liabilities No Changes Tax Returns and Audits Leased Real Property Liens on Property Government Authorizations Registered Intellectual Property Rights Intellectual Property In-Licenses Form of Proprietary Information, Confidentiality and Assignment Agreement Third-Party Ownership Rights to Licensed Technology or Intellectual Property Intellectual Property Obligations Product Warranties and Standard Forms of Agreements Agreements, Contracts and Commitments Breaches Change of Control Payments Interested Party Transactions Litigation Insurance Brokers/Finders Fees Employee Benefit Plans and Employees Employee Plan Compliance Post-Employment Obligations Effect of Transaction Excess Parachute Payments Officers, Directors and Employees Labor Bank Accounts Unaccredited and Unsophisticated Shareholders Converted Creditors Consent Acceptance of Partial Payment in Exchange for Debt Consent and Approval of Merger Escrow Schedule

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TABLE OF CONTENTS Page
THE MERGER....................................................................1 The Merger...........................................................1 Effective Time.......................................................2 Effect of the Merger.................................................2 Articles of Organization; Bylaws.....................................2 Directors and Officers...............................................2 Effect of Merger on Company Capital Stock............................2 Effect of Merger on Merger Sub Common Stock..........................3 Aggregate Shares to be Issued........................................3 Allocation of Shares.................................................3 Dissenters' Rights...................................................5 Surrender of Certificates............................................5 No Further Ownership Rights in Company Capital Stock.................7 Lost, Stolen or Destroyed Certificates...............................7 Tax Consequences.....................................................7 Taking of Necessary Action; Further Action...........................7 REPRESENTATIONS/WARRANTIES OF THE COMPANY.....................................8 Organization and Qualification.......................................8 Subsidiaries.........................................................8 Company Capital Structure............................................8 Authority............................................................9 No Conflict.........................................................10 Consents 10 Company Financial Statements........................................10 No Undisclosed Liabilities..........................................10 No Changes..........................................................11 Tax and Other Returns and Reports...................................13 Restrictions on Business Activities.................................14 Title to Properties; Absence of Liens and Encumbrances..............15 Governmental Authorization..........................................16 Intellectual Property...............................................16 Product Warranties; Defects; Liabilities............................20 Agreements, Contracts and Commitments...............................20 Change of Control Payments..........................................22 Interested Party Transactions.......................................22 Compliance with Laws................................................23 Litigation..........................................................23 Insurance...........................................................23 Minute Books........................................................23

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Environmental Matters...............................................23 Brokers' Fees.......................................................24 Employee Matters and Benefit Plans..................................24 Hart-Scott-Rodino Act...............................................29 Bank Accounts.......................................................29 Indemnification Obligations.........................................29 Board Approval......................................................29 Shareholder Sophistication or Accredited Status.....................29 Creditor Consents...................................................29 Representations Complete............................................29 REPRESENTATIONS/WARRANTIES OF PARENT AND MERGER SUB..........................30 Organization of Parent and Merger Sub...............................30 Authority...........................................................30 Parent Common Stock.................................................31 SEC Filings; Parent Financial Statements............................31 No Material Adverse Change..........................................32 Litigation..........................................................32 Brokers' Fees.......................................................32 SECURITIES ACT COMPLIANCE; REGISTRATION......................................32 Securities Act Exemption............................................32 Stock Restrictions..................................................32 The Company Shareholders' Restrictions Regarding Securities Law Matters................................. ..........33 CONDUCT PRIOR TO THE EFFECTIVE TIME..........................................33 Conduct of Business of the Company..................................33 Notices 36 No Solicitation.....................................................36 ADDITIONAL AGREEMENTS........................................................37 Shareholder Approval................................................37 Access to Information...............................................37 Confidentiality.....................................................37 Public Disclosure...................................................38 Consents 38 FIRPTA Compliance...................................................38 Legal Conditions to the Merger......................................38 Best Efforts; Additional Documents and Further Assurances...........38 Notification of Certain Matters.....................................39 Reorganization......................................................39 Blue Sky Laws.......................................................39 Indemnification.....................................................39 Termination of Company Investor Rights..............................40 401(k) Plan.........................................................40 Raising of Additional Capital.......................................40 -ii-

CONDITIONS TO THE MERGER.....................................................40 Conditions to Obligations of Each Party to Effect the Merger........40 Additional Conditions to Obligations of the Company.................41 Additional Conditions to the Obligations of Parent and Merger Sub....................................... .......................42 Consents/Covenants from Creditors...................................43 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW...........................43 Survival of Representations and Warranties..........................43 Escrow Arrangements.................................................43 TERMINATION, AMENDMENT AND WAIVER............................................51 Termination.........................................................51 Effect of Termination...............................................52 Amendment...........................................................52 Extension; Waiver...................................................52 GENERAL PROVISIONS...........................................................52 Notices 52 Expenses 54 Interpretation......................................................54 Counterparts........................................................54 Entire Agreement; Assignment........................................54 Severability........................................................54 Other Remedies......................................................54 Governing Law.......................................................55 Rules of Construction...............................................55 Specific Performance................................................55 Miscellaneous.......................................................55

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AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and entered into as of December __, 1999 among Zapworld.com, Inc. ("Zapworld") a California corporation doing business at 117 Morris Street, Sebastopol, California 95472 ("Parent"), emPower Acquisition, Inc., a California corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), and EMPower Corporation, a Massachusetts corporation ("EMPower") doing business at 210 Broadway, Building 3, 3rd Floor, Everett, Massachusetts 02149 (the "Company"). RECITALS A. Parent, Merger Sub and the Company intend to effect a merger (the "Merger") of Merger Sub with and into the Company in accordance with this Agreement, the California General Corporation Law ("California Law") and the Massachusetts Business Corporation Law ("Massachusetts Law"). Upon consummation of the Merger, the Company will be merged into the Merger Sub and the Company will cease to exist. B. It is intended that the Merger qualify as a tax-free reorganization within the meaning of Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"). C. The Board of Directors of the Company has: (i) determined that the Merger is consistent with and in furtherance of the long-term strategy of the Company and fair to, and in the best interests of, the Company and its shareholders; (ii) approved this Agreement, the Merger and the other transactions contemplated by this Agreement; and (iii) determined to recommend that the shareholders of the Company adopt and approve the principal terms of this Agreement and approve the Merger. D. The respective Boards of Directors of Parent and Merger Sub have approved this Agreement and the Merger. AGREEMENT NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, intending to be legally bound hereby the parties agree as follows: ARTICLE I THE MERGER 1.1 The Merger. At the Effective Time (as defined in Section 1.2) and subject to and upon the terms and conditions of this Agreement, California Law and Massachusetts Law, Merger Sub shall be merged with and into the Company, the separate corporate existence of the Company shall cease and the Merger Sub shall continue as the surviving corporation and as a wholly-owned subsidiary of Parent. The Company as the surviving corporation after the Merger is hereinafter sometimes referred to as the "Surviving Corporation." -1-

1.2 Effective Time. Unless this Agreement is earlier terminated pursuant to Section 9.1, the closing of the Merger (the "Closing") will take place as promptly as practicable, but no later than one (1) business day following satisfaction or waiver of the conditions set forth in Article VII, at the law offices of Evers & Hendrickson, LLP, 155 Montgomery Street, 12th Floor, San Francisco, California 94104, unless another place or time is agreed to by Parent and the Company. The date upon which the Closing actually occurs is herein referred to as the "Closing Date." On the Closing Date, the parties hereto shall cause the Merger to be consummated by filing an Agreement of Merger, in substantially the form attached hereto as Exhibit A (the "Agreement of Merger"), with the Secretary of State of the State of California, in accordance with the relevant provisions of California Law (the time of acceptance by the Secretary of State of California of such filing being referred to herein as the "Effective Time") and with the Secretary of State of the Commonwealth of Massachusetts in accordance with the relevant provisions of Massachusetts Law. The parties currently intend that the Closing Date will occur on or prior to December 31, 1999. 1.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of California Law and Massachusetts Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, power and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation. 1.4 Articles of Organization; Bylaws (a) Unless otherwise determined by Parent prior to the Effective Time, at the Effective Time, the Articles of Organization of the Merger Sub shall be the Articles of Organization of the Surviving Corporation until thereafter amended as provided by law and such Articles. (As used in this Agreement, "Articles of Organization" shall mean the Articles of Organization and/or the Articles of Incorporation). (b) The Bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation until thereafter amended. 1.5 Directors and Officers. The directors of Surviving Corporation immediately after the Effective Time shall be the directors of the Merger Sub, each to hold office in accordance with the Articles of Organization and Bylaws of the Surviving Corporation. The officers of Surviving Corporation immediately after the Effective Time shall be the officers of the Merger Sub, each to hold office in accordance with the Bylaws of the Surviving Corporation. 1.6 Effect of Merger on Company Capital Stock. At the Effective Time, all shares of Company Capital Stock ("Company Capital Stock") and any right to acquire any shares of Company Capital Stock, including any options or warrants issued and outstanding, whether or not vested, shall cease to exist. The Company's Series B Preferred Stock, $0.001 par value ("Series B Preferred Stock"), and each share of the Series D Preferred Stock, $0.001 par -2-

value ("Series D Preferred Stock"), shall become a right to receive shares of Parent Common Stock as provided in Section 1.9 below. 1.7 Effect of Merger on Merger Sub Common Stock. The shares of Merger Sub outstanding immediately prior to the Effective Time shall remain issued and outstanding immediately thereafter and shall be unaffected by the transaction described herein. 1.8 Aggregate Shares to be Issued. As consideration for the transactions described herein, Parent shall issue to the holders of Series B Preferred Stock and Series D Preferred Stock and certain creditors (the "Converted Creditors") of the Company shares of Parent Common Stock. The aggregate number of shares that Parent shall be obligated to issue shall equal the following: T = 525,000 x (5.75/A) Where: T = the total number of shares of Parent Common Stock to be issued. A = the average of the daily closing sales price per share of Parent Common Stock, as quoted on the OTC Bulletin Board, during the ten (10) trading days prior to the Closing, or, if any such day there are no sales reported, the average of the closing bid and ask prices for Parent Common Stock reported on that date. If any of the Company's shareholders demand and perfect their dissenter's rights, the aggregate number of shares of Parent Common Stock to be issued shall be reduced by the number of shares that would have been issued to that shareholder if he, she or it had not demanded and perfected dissenter's rights. 1.9 Allocation of Shares. The shares of Parent Common Stock to be issued pursuant to Section 1.8 shall be allocated among the Converted Creditors and holders of Series B Preferred Stock and Series D Preferred Stock in the manner described in Exhibit B to this Agreement. Each such shareholder shall be entitled to receive a percentage of Parent Common Stock to be allocated to the holder of such series of stock equal to the percentage of the outstanding shares of that series which the shareholder owns. Each Converted Creditor shall be entitled to receive a percentage of the Parent Stock to be allocated to the creditors equal to that set forth in Exhibit B. Holders of Company Common Stock, $0.001 par value ("Company Common Stock"), shall receive no consideration for the cancellation of the Company Common Stock in this Merger. (a) Reduction in Purchase Price - Liabilities. If total liabilities of Company exceed $25,000 as of the Closing Date (excluding claims of the Converted Creditors which are forgiven as of the Closing Date in exchange for receipt of Parent Common Stock), after reduction for all liabilities that have been agreed to be paid in Parent Company Stock or product, the total number of shares of Parent Common Stock issuable will be reduced by one (1) share for each $5.75 by which those liabilities exceed $25,000. -3-

(b) Term of Warrants. In addition to the shares of Parent Common Stock, at the Effective Time, the Warrants to purchase an aggregate of 200,000 shares of Parent Common Stock shall be issued to the holders of Series B Preferred Stock and certain managers of the Company in the manner set forth in Exhibit B to this Agreement. The Warrants shall have an exercise price of $5.75 per share (subject to antidilution adjustments). The Warrants shall be in the form attached hereto as Exhibit C and allocated in the manner described in Exhibit B. The Warrants shall be exercisable beginning upon issuance and continuing until expiration, three (3) years after issuance. (c) Escrow. Parent Common Stock to be issued at the Effective Time pursuant to Section 1.9(a) and (b) hereof (none of which shares of Parent Common Stock shall be unvested, subject to any right of repurchase, risk of forfeiture or other condition in favor of the Surviving Corporation) with a value of $100,000 shall be withheld from the holders of the Series B Preferred Stock and the Series D Preferred Stock and placed in escrow (the "Escrow Amount") pursuant to Article VIII of this Agreement. If claims are made against Parent based on a breach of the representations and warranties by the Company, Parent may apply the shares held in escrow to satisfy these claims. To the extent that claims are not made against the shares held in escrow, Parent Common Stock with a value of $50,000 will be released six (6) months after the Closing Date, and the remainder will be released one (1) year after the Closing Date. This escrow shall not be the only remedy available to Parent for a breach of the representations and warranties made by the Company. For the purpose of this subsection, the value per share shall be deemed to equal the average of the daily closing sales prices per share of Parent Common Stock, as quoted on the OTC Bulletin Board, Nasdaq or any national securities exchange during the ten (10) trading days prior to which the value of the Parent Common Stock is being calculated or, if any such day there are no sales reported, the average of the closing bid and ask prices for Parent Common Stock reported on that date. (d) Cancellation of Parent-Owned and Company-Owned Stock. Each share of Company Capital Stock owned by Merger Sub, Parent, the Company or any direct or indirect wholly-owned subsidiary of Parent or of the Company immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof. (e) Adjustments to Allocation of Shares. The allocation of shares of Parent Common Stock set forth in Exhibit B to this Agreement shall be adjusted to reflect fully the effect of any stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into Parent Common Stock or Company Capital Stock), reorganization, recapitalization or other like change with respect to Parent Common Stock or Company Capital Stock occurring after the date hereof and prior to the Effective Time. (f) Fractional Shares. No fraction of a share of Parent Common Stock will be issued at the Effective Time, but in lieu thereof, each holder of Series B Preferred Stock and Series D Preferred Stock who would otherwise be entitled to a fraction of a share of Parent Common Stock (after aggregating all fractional shares of Parent Common Stock to be received by such holder) shall be entitled to receive from Parent an amount of cash (rounded to the nearest whole cent) equal to the product of: (i) such fraction, multiplied by; (ii) the average closing price of a share of Parent Common Stock as reported on the OTC Bulletin -4-

Board for the 30-day period ending three days prior to the Closing Date or, if any such day there are no sales reported, the average of the closing bid and ask prices for Parent Common Stock reported on that date. 1.10 Dissenters' Rights (a) Notwithstanding any provision of this Agreement to the contrary, any shares of Company Capital Stock held by a holder who has demanded and perfected dissenters' rights for such shares in accordance with Mass. Gen. L. Ann., Ch. 156 and Ch. 156B and who, as of the Effective Time, has not effectively withdrawn or lost such appraisal or dissenters' rights ("Dissenting Shares"), shall not be converted into or represent a right to receive Parent Common Stock pursuant to Section 1.9, but the holder thereof shall only be entitled to such rights as are granted by Massachusetts Law. (b) Notwithstanding the provisions of Section 1.9, if any holder of Dissenting Shares shall effectively withdraw or lose (through failure to perfect or otherwise) his or her appraisal rights, then, as of the later of the Effective Time and the occurrence of such event, such holder's shares shall automatically be converted into and represent only the right to receive the consideration for Parent Common Stock as provided in Sections 1.9(a) and (b), as the case may be, without interest thereon, upon surrender of the certificate representing such shares. (c) The Company shall give Parent: (i) prompt notice of any written demands for appraisal of any shares of Company Capital Stock, withdrawals of such demands, and any other instruments served pursuant to Massachusetts Law and received by the Company; and (ii) the opportunity to participate in all negotiations and proceedings with respect to such demands. The Company shall not, except with the prior written consent of Parent or as required by Massachusetts Law, voluntarily make any payment with respect to any such demands or offer to settle or settle any such demands. 1.11 Surrender of Certificates (a) Exchange Agent. The Corporate Secretary of Parent shall serve as exchange agent (the "Exchange Agent") in the Merger. (b) Parent to Provide Common Stock. Promptly after the Effective Time, Parent shall make available to the Exchange Agent for exchange in accordance with this Article I, the aggregate number of shares of Parent Common Stock issuable pursuant to Section 1.8 and the Agreement of Merger in exchange for outstanding shares of Series B Preferred Stock and Series D Preferred Stock; provided, however, that, on behalf of the holders of Series B Preferred Stock and Series D Preferred Stock, and pursuant to Article VIII hereof, Parent shall deposit into an escrow account a number of shares of Parent Common Stock equal to the Escrow Amount out of the aggregate number of shares of Parent Common Stock otherwise issuable pursuant to Section 1.8. The portion of the Escrow Amount contributed on behalf of each holder of Series B Preferred Stock and Series D Preferred Stock shall be in proportion to the aggregate number of shares of Parent Common Stock which such holder would otherwise be entitled to receive under Section 1.9 by virtue of being an owner of -5-

outstanding shares of Series B Preferred Stock and Series D Preferred Stock as of immediately prior to the Effective Time. (c) Exchange Procedures. Promptly after the Effective Time, the Exchange Agent shall cause to be mailed to each holder of record of a certificate or certificates (the "Certificates"): (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as Parent may reasonably specify); and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificates representing shares of Parent Common Stock. Upon surrender of a Certificate for cancellation (or an appropriate affidavit as provided in Section 1.13 hereof) to the Exchange Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, the holder of such Certificate shall be entitled to promptly receive in exchange therefor a certificate representing the number of whole shares of Parent Common Stock (less the number of shares of Parent Common Stock, if any, to be deposited in the Escrow Fund on such holder's behalf pursuant to Section 1.9(d) and Article VIII hereof), plus cash in lieu of fractional shares in accordance with Section 1.9, to which such holder is entitled pursuant to Section 1.9 and the Agreement of Merger, and the Certificate so surrendered shall forthwith be canceled. As soon as practicable after the Effective Time, and subject to and in accordance with the provisions of Article VIII hereof, Parent shall cause to be distributed to the Escrow Agent (as defined in Article VIII) a certificate or certificates representing that number of shares of Parent Common Stock equal to the Escrow Amount which shall be registered in the name of the Escrow Agent. As set forth in Section 8.2(c)(iii), such shares shall be beneficially owned by the holders on whose behalf such shares were deposited in the Escrow Fund and such shares shall be available to compensate Parent as provided in Article VIII. Until so surrendered, each outstanding Certificate will be deemed from and after the Effective Time, for all corporate purposes, other than the payment of dividends, to evidence the ownership of the number of full shares of Parent Common Stock and the right to receive an amount in cash in lieu of the issuance of any fractional shares in accordance with Section 1.9. (d) Distributions With Respect to Unexchanged Shares. No dividends or other distributions declared or made after the Effective Time with respect to Parent Common Stock with a record date after the Effective Time will be paid to the holder of any unsurrendered Certificate with respect to the shares of Parent Common Stock represented thereby until the holder of record of such Certificate shall surrender such Certificate. Subject to applicable law, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole shares of Parent Common Stock issued in exchange therefor, without interest, at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of Parent Common Stock. (e) Transfers of Ownership. If any certificate for shares of Parent Common Stock is to be issued in a name other than that in which the certificate surrendered in exchange therefor is registered, it will be a condition of the issuance thereof that the certificate so -6-

surrendered will be properly endorsed and otherwise in proper form for transfer and that the person requesting such exchange will have paid to Parent or any agent designated by it any transfer or other taxes required by reason of the issuance of a certificate for shares of Parent Common Stock in any name other than that of the registered holder of the certificate surrendered, or established to the reasonable satisfaction of Parent or any agent designated by it that such tax has been paid or is not payable. (f) No Liability. Notwithstanding anything to the contrary in this Section 1.11, neither the Exchange Agent, the Surviving Corporation or any party hereto shall be liable to a holder of shares of Parent Common Stock or Company Capital Stock or a Converted Creditor for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law. 1.12 No Further Ownership Rights in Company Capital Stock. All shares of Parent Common Stock issued upon the surrender for exchange of shares of Company Capital Stock in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Company Capital Stock, and after the Effective Time there shall be no further registration of transfers on the records of the Surviving Corporation of shares of Company Capital Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Company Stock Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article I. 1.13 Lost, Stolen or Destroyed Certificates. In the event any certificates evidencing shares of Company Capital Stock shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed certificates, upon the making of an affidavit of that fact by the holder thereof, such shares of Parent Common Stock, if any, as may be required pursuant to Section 1.9; provided, however, that Parent may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Parent or the Exchange Agent with respect to the certificates alleged to have been lost, stolen or destroyed. 1.14 Tax Consequences. It is intended by the parties hereto that the Merger shall constitute a reorganization within the meaning of Section 368 of the Code (and this Agreement is intended to constitute a plan of reorganization for purposes of Section 368 of the Code). 1.15 Taking of Necessary Action; Further Action. If, at any time after the Effective Time, any such further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company and Merger Sub, the officers and directors of the Company and Merger Sub are fully authorized in the name of their respective corporations or otherwise to take, and will take, all such lawful and necessary action. -7-

ARTICLE II REPRESENTATIONS/WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Parent and Merger Sub, subject to the exceptions disclosed in the disclosure schedule supplied by the Company to Parent (the "Company Schedules"), (it being understood that the Company has no employees and is no longer conducting business, but is attempting only to pay or reach settlements with its creditors, raise $1 million by the sale of Series D Preferred Stock and prepared to have this Agreement approved by its shareholders, and that all of the representations are qualified by the foregoing, and that none of the foregoing shall constitute a Material Adverse Effect) as follows: 2.1 Organization and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts. The Company has the corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. The Company is duly qualified or licensed to do business and is in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified or licensed would have a material adverse effect on the business, assets (including intangible assets), financial condition, results of operations or prospects of the Company not including any material adverse effect following the date of this Agreement on the business, assets (including intangible assets), financial condition or results of operations or prospects of the Company to the extent attributable to the Merger contemplated by this Agreement or changes in general conditions of the industry in which the Company operates (hereinafter referred to as a "Company Material Adverse Effect"). The Company has delivered a true and correct copy of its Articles of Organization and Bylaws, each as amended to date, to Parent. Such Articles of Organization and Bylaws are in full force and effect. Company is not in violation of any of the provisions of its Articles of Organization or Bylaws. 2.2 Subsidiaries. The Company does not have, and has never had, any subsidiaries or affiliated companies and does not otherwise own, and has never otherwise owned, directly or indirectly, any shares of capital stock or any equity, debt or similar interest in or any interest convertible, exchangeable or exercisable for any equity, debt or similar interest in, or control, directly or indirectly, any other corporation, partnership, association, joint venture or other business entity. Company has not agreed nor is Company obligated to make or be bound by any written, oral or other agreement, contract, sub-contract, commitment or undertaking of any nature, as of the date hereof or as may hereafter be in effect under which it may become obligated to make, any future investment in or capital contribution to any other entity. 2.3 Company Capital Structure (a) Outstanding Stock. The authorized Company Capital Stock consists entirely of 1,000,000 shares of Series B Preferred Stock, $ 0.001 par value per share, of which a total of 348,601 shares are issued and outstanding, 2,000,000 shares of Series C Preferred Stock, $ 0.001 par value per share, of which a total of no shares are issued and -8-

outstanding, 10,000,000 shares of Company Common Stock, $ 0.001 par value per share, of which a total of 1,697,808 are issued and outstanding. All such Company Capital Stock is now owned and held (and all of which at the Closing will be owned and held) only by the Company Shareholders. The Company Capital Stock is held by the persons, with the domicile addresses and in the amount set forth in Schedule 2.3(a). Immediately prior to the Merger, the Company intends to authorize and issue approximately 250,000 shares of its Series D Preferred Stock in order to comply with Section 7.3(g) of this Agreement. Immediately upon issuance, the shares of Series D Preferred Stock will be placed in escrow and will be released only immediately prior to the Effective Time. Other than the Series D Preferred Stock, no other shares of the Company Capital Stock are (or will at Closing be) authorized, issued or outstanding. No fractional shares of the Company Capital Stock are (or will at Closing be) issued or outstanding. All issued and outstanding shares of the Company Capital Stock have been duly authorized and validly issued, are fully paid and non-assessable, are not subject to any claim, lien, preemptive right, or right of rescission, and have been offered, issued, sold and delivered by the Company (and, if applicable, transferred) in compliance with all registration or qualification requirements (or applicable exemptions therefrom) of all applicable securities laws, the Company's Articles of Organization and other charter documents and all agreements to which the Company is a party. (b) No Options, Warrants or Rights. Except as set forth in Schedule 2.3(b), there are no options, warrants, convertible or other securities, calls, commitments, conversion privileges, preemptive rights or other rights or agreements outstanding to purchase or otherwise acquire (whether directly or indirectly) any shares of the Company's authorized but unissued Capital Stock or any securities convertible into or exchangeable for any shares of the Company Capital Stock or obligating the Company to grant, issue, extend, or enter into, any such option, warrant, convertible or other security, call, commitment, conversion privilege, preemptive right or other right or agreement, and the Company has no liability for any dividends accrued but unpaid. No person or entity holds or has any option, warrant or other right to acquire any issued and outstanding shares of the Company Capital Stock from any record or beneficial holder of shares of the Company Capital Stock. No shares of the Company Capital Stock are reserved for issuance under any stock purchase, stock option or other benefit plan. As a result of the Merger, Parent will be the record and sole beneficial owner of all outstanding Company Capital Stock and all rights to acquire or receive any Company Capital Stock, whether or not such Company Capital Stock is outstanding. All options expire, if not exercised immediately prior to the Effective Time. (c) No Voting Arrangements or Registration Rights. There are no voting agreements, voting trusts, rights of first refusal or other restrictions (other than normal restrictions on transfer under applicable securities laws) applicable to any of the Company Capital Stock. The Company is not under any obligation to register under the 1933 Act or otherwise any of its currently outstanding securities or any securities that may be subsequently issued. 2.4 Authority. Subject only to the requisite approval of the Merger and the principal terms of this Agreement by the Company's shareholders, the Company has all requisite corporate power and authority to enter into this Agreement and to consummate the -9-

transactions contemplated hereby. The requisite shareholder approval will be obtained in accordance with the Company bylaws, charter provisions and the regulatory requirements of the Commonwealth of Massachusetts. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company, subject only to the approval of the principal terms of this Agreement and the Merger by the Company's shareholders. The Company's Board of Directors has approved the Merger and this Agreement. This Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company, enforceable in accordance with its terms, subject to the requirement of obtaining Company shareholder approval. 2.5 No Conflict. Except as set forth in Schedule 2.5 of the Disclosure Schedule, subject only to the approval of the principal terms of this Agreement and the Merger by the Company's shareholders, the execution and delivery of this Agreement by the Company does not, and, as of the Effective Time, the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any benefit under (any such event, a "Conflict"): (i) any provision of the Articles of Organization or Bylaws of the Company; or (ii) any mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or its properties or assets. 2.6 Consents. No consent, waiver, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other federal, state, county, local or foreign governmental authority, instrumentality, agency or commission ("Governmental Entity") or any third party (so as not to trigger any Conflict), is required by or with respect to the Company in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for: (i) the filing of the Agreement/Articles of Merger with the California Secretary of State and the Massachusetts Secretary of State; (ii) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws; and (iii) such other material consents, waivers, authorizations, filings, approvals and registrations which are set forth in Schedule 2.6. 2.7 Company Financial Statements. Schedule 2.7 of the Disclosure Schedule sets forth true and correct copies of the Company's unaudited balance sheets as of November 30, 1999 and December 31, 1998 and the related statements of income (loss). The Company Financials are complete and correct in all material respects and have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods indicated and consistent with each other. The Company Financials present fairly the financial condition and operating results of the Company as of the respective dates and during the respective period indicated therein. 2.8 No Undisclosed Liabilities. Except as set forth in Schedule 2.8, the Company does not have any liability, indebtedness, obligation, expense, claim, deficiency, guaranty or -10-

endorsement of any type, whether accrued, absolute, contingent, known or unknown, matured or unmatured (whether or not required to be reflected in financial statements in accordance with GAAP) ("Liabilities"), except for such Liabilities which have been incurred in the ordinary course of the Company's business consistent with past practice. 2.9 No Changes. Except as set forth in Schedule 2.9 of the Disclosure Schedule, since the date of the balance sheet included in the Company interim financials, and through the date of this Agreement, there has not been, occurred or arisen any: (a) transaction by the Company except in the ordinary course of business as conducted on that date and consistent with past practices and except as contemplated by this Agreement; (b) amendments or changes to the Articles of Organization or Bylaws of the Company, except for filing of a Certificate of Designation, Preferences and Rights to establish and authorize the Series D Preferred Stock; (c) capital expenditure or capital commitment by the Company of more than $25,000 in any individual case or $50,000 in the aggregate (other than commitments to pay expenses incurred in connection with this transaction); (d) destruction of, damage to or loss of any material assets, business or customer of the Company (whether or not covered by insurance); (e) work stoppage, labor strike or other labor trouble, or any material action, suit, claim, labor dispute or grievance relating to any labor, safety or discrimination matter involving the Company, including, without limitation, charges of wrongful discharge or other unlawful labor practices or actions; (f) change in accounting methods, principles or practices (including any change in depreciation or amortization policies or rates) by the Company; (g) revaluation in any material respect by the Company of any of its assets, including, without limitation, writing down the value of capitalized inventory or writing off notes or accounts receivable; (h) declaration, setting aside or payment of a dividend or other distribution with respect to any Company Capital Stock, or any direct or indirect redemption, purchase or other acquisition by the Company of any Company Capital Stock, other than repurchases of Company Capital Stock from directors, officers, employees, consultants or other persons performing services for the Company pursuant to agreements under which the Company has the option to repurchase such shares at cost upon the termination of employment or other services; (i) split, combination or reclassification of any Company Capital Stock; -11-

(j) increase in the salary or other compensation payable or to become payable by the Company to any of its officers, directors, employees or advisors, including, but not limited to, the modification of any existing compensation or equity arrangements with such individuals (which modification may include the amendment of any vesting terms related to Company Options held by such individuals), or the declaration, payment or commitment or obligation of any kind for the payment, by the Company, of a bonus or other additional salary or compensation to any such person except for in the ordinary course of the Company's business or as the Company is obligated as of the date hereof; (k) granting of any increase in severance or termination pay or entry into any currently effective employment, severance, termination or indemnification agreement or any agreement the benefits of which are contingent or the terms of which are materially altered upon the occurrence of the Merger; (l) material agreement, contract, covenant, instrument, lease, license or commitment to which the Company is a party or by which it or any of its assets is bound or any termination, extension, amendment or modification of the terms of any agreement, contract, covenant, instrument, lease, license or commitment to which the Company is a party or by which it or any of its assets is bound; (m) sale, lease, license or other disposition of any of the assets or properties of the Company, or creation of any lien or security interest (except for those arising by operation of law and statute) in such assets or properties except in the ordinary course of business and consistent with past practices ("Liabilities"), or such liens or interests which do not materially impair the value or use of such assets or properties; (n) loan by the Company to any person or entity, incurring by the Company of any indebtedness, guaranteeing by the Company of any indebtedness, issuance or sale of any debt securities of the Company or guaranteeing of any debt securities of others, except for advances to employees for travel and business expenses in the ordinary course of business, consistent with past practices; (o) waiver or release of any material right or claim of the Company, including any write-off or other compromise of any account receivable of the Company (other than as required by GAAP); (p) commencement or notice or threat of commencement of any lawsuit or proceeding against or investigation of the Company or its affairs; (q) except as set forth in Schedule 2.3(b) or as contemplated by this Agreement (including the issue of shares of Series D Preferred Stock for cash), issuance or sale by the Company of any Company Capital Stock, or securities exchangeable, convertible or exercisable therefor, or any securities, warrants, options or rights to purchase any of the foregoing or any amendment of any existing equity arrangement; (r) event or condition of any character that has or reasonably would be expected to have a Company Material Adverse Effect; or -12-

(s) agreement by the Company or any officer or employees thereof to do any of the things described in the preceding clauses (a) through (s) (other than negotiations and other actions with Parent and its representatives regarding the transactions contemplated by this Agreement). 2.10 Tax and Other Returns and Reports (a) Definition of Taxes. For the purposes of this Agreement, "Tax," or collectively "Taxes," means any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts and any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity. (b) Tax Returns and Audits. Except as set forth in Schedule 2.10(b): (i) As of the Effective Time, the Company has prepared and filed all federal, state, local and foreign returns, estimates, information statements and reports required to be filed ("Returns") relating to any and all Taxes concerning or attributable to the Company or its operations and such Returns are true and correct and have been completed in accordance with applicable law. (ii) As of the Effective Time, the Company: (a) has paid or accrued all Taxes it is required to pay or accrue; and (b) has withheld with respect to its employees all federal and state income taxes, FICA, FUTA and other Taxes required to be withheld as of that date. (iii) The Company has not been delinquent in the payment of any Tax nor is there any Tax deficiency outstanding, proposed or assessed against the Company, nor has the Company executed any unexpired waiver of any statute of limitations on or extended the period for the assessment or collection of any Tax. (iv) No audit or other examination of any Return of the Company by any Tax authority is presently in progress, nor has the Company been notified of any request for such an audit or other examination. (v) The Company has no liabilities for unpaid federal, state, local or foreign Taxes which have not been accrued or reserved against in the Company Financials, whether asserted or unasserted, contingent or otherwise, and the Company has not incurred any liability for Taxes since the date of the Interim Financials other than in the ordinary course of business consistent with past practice. (vi) The Company has provided to Parent copies of all foreign, federal and state income and all state sales and use Returns for all periods since the date of Company's Organization. -13-

(vii) There are (and as of immediately following the Effective Time there will be) no liens, pledges, charges, claims, restrictions on transfer, mortgages, security interests or other encumbrances of any sort (collectively, "Liens") on the assets of the Company relating to or attributable to Taxes, other than Liens for Taxes not yet due and payable as of such date. (viii) The Company has no knowledge of any basis for the assertion of any claim relating or attributable to Taxes that, if adversely determined, would result in any Lien on the assets of the Company. (ix) None of the Company's assets are treated as "tax-exempt use property" within the meaning of Section 168(h) of the Code. (x) There is no contract, agreement, plan or arrangement to which the Company is a party, including but not limited to the provisions of this Agreement, covering any employee or former employee of the Company that, individually or collectively, could give rise to the payment of any amount that would not be deductible by the Company as an expense under applicable law pursuant to Section 280G, 404 or 162(m) of the Code. (xi) The Company has not filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by the Company. (xii) The Company is not a party to a tax sharing, indemnification or allocation agreement nor does the Company owe any amount under any such agreement. The Company has not been a member of an affiliated group (within the meaning of Section 1504(a) of the Code) filing a consolidated income tax return. (xiii) The Company is not, and has not been at any time, a "United States real property holding corporation" within the meaning of Section 897(c)(2) of the Code. (xiv) No adjustment or deficiency relating to any Return filed or required to be filed by the Company has been proposed formally or, to the knowledge of the Company, informally by any Tax authority to the Company or any representative thereof. (xv) The Company has not distributed the stock of any corporation in a transaction satisfying the requirements of Section 355 of the Code. (xvi) The foregoing notwithstanding, there will be a cancellation of indebtedness income when Parent Common Stock is issued to Converted Creditors. 2.11 Restrictions on Business Activities. There is no agreement (noncompete or otherwise), commitment, judgment, injunction, order or decree to which the Company is a party or otherwise binding upon the Company which has or reasonably would be expected to have the effect of: -14-

(a) prohibiting or impairing in any material respect: (i) any material business practice of the Company; (ii) any acquisition of property (tangible or intangible) by the Company; or (iii) the conduct of business by the Company OR (b) after the consummation of the Merger, prohibiting or impairing in any material respect: (i) any material business practice of Parent; (ii) any acquisition of property (tangible or intangible) by Parent; or (iii) the conduct of business by Parent. Without limiting the foregoing, the Company has not entered into any agreement under which the Company is restricted from selling, licensing or otherwise distributing any of its products or services to any class of customers, in any geographic area, during any period of time or in any segment of the market. 2.12 Title to Properties; Absence of Liens and Encumbrances (a) The Company does not own any real property, nor has it ever owned any real property. Schedule 2.12(a) sets forth a list of all real property currently leased by the Company, the name of the lessor and the date of the lease and each amendment thereto and, with respect to any current lease, the aggregate annual rental and/or other fees payable under any such lease. All such current leases are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing default or event of default (or event which with notice or lapse of time, or both, would constitute a default). To the knowledge of the Company, the operations of the Company on such real property do not violate any applicable building code, zoning requirement, or classification or pollution control ordinance or statute relating to such operations, and such non-violation is not dependent, in any instance, on so-called non-conforming use exceptions. (b) The Company has good and marketable title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its tangible properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any Liens (as defined in Section 2.10(b)(vii)), except as reflected in the Company Financials or in Schedule 2.12(b) and except for Liens for taxes not yet due and payable and such imperfections of title and encumbrances, if any, which do not materially impair the value, or materially interfere with the present use, of such property and assets. -15-

(c) All facilities, machinery, equipment, fixtures, vehicles, and other properties owned or leased by the Company are: (i) adequate for the conduct of the business of the Company as currently conducted; and (ii) in good operating condition, regularly and properly maintained, subject to normal wear and tear and reasonably fit and usable for the purposes for which they are being used, except where a failure to be in such condition would not have a Company Material Adverse Effect. (d) Except for the sharing of Company Customer Information (as defined herein) with any marketing or other strategic partner where such sharing would not, upon the termination or expiration of such relationship, have a Company Material Adverse Effect, the Company has not sold or otherwise released for distribution any of its customer files and other customer information relating to the Company's current and former customers (the "Company Customer Information"). No person other than the Company possesses any claims or rights with respect to use of the Company Customer Information. 2.13 Governmental Authorization. Schedule 2.13 accurately lists each material consent, license, permit, grant or other authorization issued to the Company by a Governmental Entity: (a) pursuant to which the Company currently operates or holds any interest in any of its material properties; or (b) which is required for the operation of its business or the holding of any such interest (herein collectively called "Company Authorizations"). The Company Authorizations are in full force and effect and constitute all Company Authorizations required to permit the Company to operate or conduct its business or hold any interest in its properties or assets. The Company is in compliance in all material respects with the terms of each Company Authorization. 2.14 Intellectual Property (a) Definitions. For all purposes of this Agreement, the following terms shall have the following respective meanings: (i) "Technology" shall mean any or all of the following: (A) works of authorship including, without limitation, computer programs, source code and executable code, whether embodied in software, firmware or otherwise, documentation, designs, files, net lists, records, data and mask works; (B) inventions (whether or not patentable), improvements and technology; (C) proprietary and confidential information, including technical data and customer and supplier lists, trade secrets and know how; (D) databases, data compilations and collections and technical data; (E) logos, trade names, trade dress, trademarks and service marks; (F) World Wide Web addresses, domain names and sites; (G) tools, methods and processes; and (H) all instantiations of the foregoing in any form and embodied in any media. (ii) "Intellectual Property Rights" shall mean any or all of the following and all rights in, arising out of, or associated therewith: (A) all United States and foreign patents, utility models and applications therefor and all reissues, divisions, re-examinations, renewals, extensions, provisionals, continuations and continuations-in-part thereof and equivalent or similar rights anywhere in the world in inventions and discoveries -16-

including without limitation invention disclosures ("Patents"); (B) all trade secrets and other rights in know-how and confidential or proprietary information; (C) all copyrights, copyrights registrations and applications therefor and all other rights corresponding thereto throughout the world ("Copyrights"); (D) all industrial designs and any registrations and applications therefor throughout the world; (E) all rights in World Wide Web addresses and domain names and applications and registrations therefor; (F) all trade names, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefor and all goodwill associated therewith throughout the world ("Trademarks"); (G) all computer software including all source code, object code, firmware, development tools, files, records and data, and all media on which any of the foregoing is recorded; and (H) any similar, corresponding or equivalent rights to any of the foregoing anywhere in the world. (iii) "Company Intellectual Property" shall mean any Technology and Intellectual Property Rights including the Company Registered Intellectual Property Rights (as defined below) that are owned (in whole or in part) by or exclusively licensed to the Company. (iv) "Registered Intellectual Property Rights" shall mean all United States, international and foreign: (A) Patents, including applications therefor; (B) registered Trademarks, applications to register Trademarks, including intentto-use applications, or other registrations or applications related to Trademarks; (C) Copyrights registrations and applications to register Copyrights; and (E) any other Technology that is the subject of an application, certificate, filing, registration or other document issued by, filed with, or recorded by, any state, government or other public or private legal authority at any time. (v) For all purposes in this Section 2.14, the term "Company" shall be deemed to refer to both Company and any of its subsidiaries. (b) Schedule 2.14(b) lists all Registered Intellectual Property Rights owned by, filed in the name of, or applied for, by the Company and lists any proceedings or actions known to the Company before any court, tribunal (including the United States Patent and Trademark Office (the "PTO") or equivalent authority anywhere in the world) related to any of the Company Registered Intellectual Property Rights or Company Intellectual Property. (c) There are no facts or circumstances that would render any Company Intellectual Property invalid or unenforceable. Without limiting the foregoing, there are no materials, facts or circumstances, including any information or fact that would constitute prior art, that would render any of the Company Registered Intellectual Property Rights invalid or unenforceable, or would adversely effect any pending application for any Company Registered Intellectual Property Right, and the Company has not misrepresented, or failed to disclose, and has no knowledge of any misrepresentation or failure to disclose, any fact or circumstances in any application for any Company Registered Intellectual Property Right that would constitute fraud or a misrepresentation with respect to such application or that would otherwise affect the validity or enforceability of any Company Registered Intellectual Property Right. -17-

(d) Each item of Company Intellectual Property is free and clear of any Liens except for non-exclusive licenses granted to end-user customers in the ordinary course of business. The Company is the exclusive owner or exclusive licensee of all Company Intellectual Property. Without limiting the foregoing: (i) the Company is the exclusive owner of all Trademarks used by it in connection with the operation or conduct of the business of the Company, including the sale, licensing, distribution or provision of any products or services by the Company; (ii) the Company owns exclusively, and has good title to, all Copyrights that are products of the Company or which the Company otherwise purports to own; and (iii) to the extent that any Patents would otherwise be infringed by any product or services of the Company, such Patents constitute Company Intellectual Property. (e) All Company Intellectual Property will be fully transferable, alienable or licensable by Surviving Corporation and/or Parent without restriction and without payment of any kind to any third party. (f) With the exception of "shrink-wrap" or similar widely available commercially available end-user business software, Schedule 2.14(f) describes all Company Technology that has been developed or created by any third party for the Company in connection with the use or development of Company Products (as defined below) and identifies the related agreements. In connection with all Company Technology, the Company either: (i) has obtained ownership of, and is the exclusive owner of; or (ii) has obtained a license to all such third party's Intellectual Property Rights in such Technology that is sufficient for the conduct of the Company's business as currently conducted and as proposed to be conducted. The Company is not in breach of nor has the Company failed to perform under, any of the foregoing contracts, licenses or agreements (except for such breaches or failures to perform which are curable or waivable without cost or expense) and, to the Company's knowledge, no other party to any such contract, license or agreement is in breach thereof or has failed to perform thereunder. With respect to widely available commercially available end-user business software, all used by the Company and its employees of such software is pursuant to valid licenses, and there is no unauthorized use of third-party software by the Company or its employees in the course of their employment responsibilities. (g) All employees of the Company and consultants or other third parties engaged by the Company for the purpose of developing Company Intellectual Property have entered into a valid and binding written agreement with the Company sufficient to vest title in the Company of all Technology, including all accompanying Intellectual Property Rights, created by such employee in the scope of his or her employment with the Company. (h) The Company has, and enforces, a policy requiring each employee, consultant and contractor to execute a proprietary information, confidentiality and assignment agreement, substantially in the form attached hereto as Schedule 2.14(h), and all current and former employees, consultants and contractors of the Company have executed such an agreement. (i) Except as set forth in Schedule 2.14(i), no person who has licensed Technology or Intellectual Property Rights to the Company has ownership rights or license -18-

rights to improvements made by the Company in such Technology or Intellectual Property Rights. (j) The Company has not transferred ownership of, or granted any exclusive license of or exclusive right to use, or authorized the retention of any exclusive rights to use or joint ownership of, any Technology or Intellectual Property Right that is or was Company Intellectual Property, to any other person. (k) Schedule 2.14(k) lists all material contracts, licenses and agreements between the Company and any other person wherein or whereby the Company has agreed to, or assumed, any obligation or duty to warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or incur any obligation or liability or provide a right of rescission with respect to the infringement or misappropriation by the Company or such other person of the Intellectual Property Rights of any person other than the Company. (l) There are no contracts, licenses or agreements between the Company and any other person with respect to Company Intellectual Property under which there is any dispute regarding the scope of such agreement, or performance under such agreement, including with respect to any payments to be made or received by the Company thereunder. (m) To the knowledge of the Company, the operation of the business of the Company as it was most recently conducted (none is presently conducted) by the Company, including but not limited to the design, development, use, import, branding, advertising, promotion, marketing, manufacture and sale of the products, technology or services (including products, technology or services currently under development) of the Company does not and will not when conducted by Parent and/or Surviving Corporation in substantially the same manner following the Closing, infringe or misappropriate any Intellectual Property Right of any person, violate any right of any person (including any right to privacy or publicity) or constitute unfair competition or trade practices under the laws of any jurisdiction, and the Company has not received notice from any person claiming that such operation or any act, product, technology or service (including products, technology or services currently under development) of the Company infringes or misappropriates any Intellectual Property Right of any person or constitutes unfair competition or trade practices under the laws of any jurisdiction (nor does the Company have knowledge of any basis therefor). (n) To the Company's knowledge, no person is infringing or misappropriating any Company Intellectual Property Right. (o) No Company Intellectual Property or service of the Company is subject to any proceeding or outstanding decree, order, judgment or settlement agreement or stipulation that restricts in any manner the use, transfer or licensing thereof by the Company or may affect the validity, use or enforceability of such Company Intellectual Property. (p) No: (i) product, technology, service or publication of the Company; (ii) material published or distributed by the Company; or (iii) conduct or statement of the Company constitutes obscene material, a defamatory statement or material, false advertising or otherwise violates in any material respect any law or regulation. -19-

(q) Neither this Agreement nor the transactions contemplated by this Agreement, including the assignment to Parent or Surviving Corporation, by operation of law or otherwise, of any contracts or agreements to which the Company is a party, will result in: (i) either Parent's or the Surviving Corporation's granting to any third party any right to or with respect to any Technology or Intellectual Property Right owned by, or licensed to, either of them; (ii) either the Parent's or the Surviving Corporation's being bound by, or subject to, any non-compete or other restriction on the operation or scope of their respective businesses; or (iii) either the Parent's or the Surviving Corporation's being obligated to pay any royalties or other amounts to any third party in excess of those payable by the Company, Parent or Surviving Corporation, respectively, prior to the Closing. (r) All of the Company's products (including products currently under development): (i) will record, store, process, calculate and present calendar dates falling on and after (and if applicable, spans of time including) January 1, 2000, and will calculate any information dependent on or relating to such dates in the same manner, and with the same functionality, data integrity and performance, as the products record, store, process, calculate and present calendar dates on or before December 31, 1999, or calculate any information dependent on or relating to such dates (collectively, "Year 2000 Compliant"); and (ii) will lose no functionality with respect to the introduction of records containing dates falling on or after January 1, 2000. All of the Company's mission critical Information Technology (as defined below) has been tested or certified by a third party to be Year 2000 Compliant, meaning that it will not cause an interruption in the ongoing operations of the Company's business on or after January 1, 2000. For purposes of the foregoing, the term "Information Technology" shall mean and include all software, hardware, firmware, telecommunications systems, network systems, embedded systems and other systems, components and/or services (other than general utility services including gas, electric, telephone and postal) that are owned or used by the Company in the conduct of its business, or purchased by the Company from third party suppliers. 2.15 Product Warranties; Defects; Liabilities. Each Company product manufactured, sold, licensed, leased or delivered by the Company in connection with its Company's business as presently conducted (the "Company Products") has been in all material respects in conformity with all applicable contractual commitments and all applicable express and implied warranties. The Company does not have any current material liability or obligation for replacement or repair thereof except liabilities or obligations incurred in the ordinary course of business consistent with past practice which do not have a Material Adverse Effect on the Company. No Company Product is subject to any guaranty, warranty or other indemnity except as provided in the applicable standard terms and conditions of sale, license or lease or such guaranty, warranty or other indemnity that is implied or imposed by applicable law. Schedule 2.15 includes a copy of the standard terms and conditions of sale, license or lease for each of the Company Products and copies of the Company's standard forms of merchant agreements, and professional services agreements. 2.16 Agreements, Contracts and Commitments. Except as set forth in Schedule 2.16(a), the Company is not currently a party to nor is it currently bound by: -20-

(a) any collective bargaining agreements; (b) any employment or consulting agreement, contract or commitment with any officer, director, employee or member of the Company's Board of Directors, other than those that are terminable by the Company at will; (c) any bonus, deferred compensation, pension, profit sharing or retirement plans, or any other employee benefit plans or arrangements; (d) any employment or consulting agreement with an employee or individual consultant or salesperson or consulting or sales agreement, under which a firm or other organization provides services to the Company; (e) any agreement or plan, including, without limitation, any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement; (f) any fidelity or surety bond or completion bond; (g) any lease of personal property having a value individually in excess of $25,000; (h) any agreement of indemnification or guaranty; (i) any agreement, contract or commitment containing any covenant limiting in any respect the right of Company to engage in any line of business or to compete with any person or granting any exclusive distribution rights; (j) any agreement relating to capital expenditures and involving future payments in excess of $20,000; (k) any agreement, contract or commitment currently in force relating to the disposition or acquisition by Company after the date of this Agreement of assets in excess of $25,000 not in the ordinary course of business, or pursuant to which Company has any material ownership interest in any corporation, partnership, joint venture or other business enterprise, (l) any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit, including guaranties referred to in clause (h) hereof; (m) any purchase order or contract involving $25,000 or more; (n) any construction contracts; (o) any dealer, distribution, joint marketing (excluding joint marketing agreements: (i) involving financial obligations or liabilities to the Company; or (ii) that do not -21-

involve rights to sell Company Products to end-users), development, content provider, destination site or merchant agreement; (p) any agreement pursuant to which the Company has granted or may be obligated to grant in the future, to any party a source-code license or option or other right to use or acquire source-code, including any agreements which provide for source code escrow arrangements; (q) any sales representative, original equipment manufacturer, value added, remarketer or other agreement for distribution of the Company's products or services or the products or services of any other person or entity; (r) any agreement pursuant to which the Company has advanced or loaned any amount to any shareholder of the Company or any director, officer, employee or consultant other than business travel advances in the ordinary course of business consistent with past practice; (s) any settlement agreement entered into since the Company's initial incorporation; or (t) any other agreement that involves $25,000 or more or is not cancelable without penalty within thirty (30) days. The Company has not, and has not received notice that it has, breached, violated or defaulted under, any of the terms or conditions of any agreement, contract or commitment required to be set forth on Schedule 2.16(a), Schedule 2.14(f) or Schedule 2.14(k) (any such agreement, contract or commitment, a "Contract"), nor has the Company breached, violated or defaulted under any Contract. Each Contract is in full force and effect and, except as otherwise disclosed in Schedule 2.16(b) and to the Company's knowledge, is not subject to any material default thereunder by any party obligated to the Company pursuant thereto. 2.17 Change of Control Payments. Schedule 2.17 sets forth each plan or agreement pursuant to which any amounts may become payable (whether currently or in the future) to current or former officers, directors or employees of the Company as a result of or in connection with the Merger. 2.18 Interested Party Transactions. Except as set forth in Schedule 2.18, to the Company's knowledge, no officer, director or affiliate (as defined under Regulation C under the Securities Act) of the Company (nor any ancestor, sibling, descendant or spouse of any of such persons, or any trust, partnership or corporation in which any of such persons has or has had an economic interest), has or has had, directly or indirectly: (a) an economic interest in any entity that purchases from or sells or furnishes to, the Company, any goods or services; or (b) a beneficial interest in any contract or agreement set forth in Schedule 2.16(a), Schedule 2.14(f) or Schedule 2.14 (k); provided, that ownership of no more than one percent of the outstanding voting stock of a publicly traded corporation shall not be deemed an "economic interest in any entity" for purposes of this Section 2.18. There are no receivables of the Company owing by any director, officer, employee or consultant to the Company (or -22-

any ancestor, sibling, descendant, or spouse of any such persons, or any trust, partnership, or corporation in which any of such persons has an economic interest), other than advances in the ordinary and usual course of business for reimbursable business expenses (as determined in accordance with the Company's established employee reimbursement policies and consistent with past practice) or promissory notes of certain employees of the Company in connection with the exercise of Company Options under the Option Plan. 2.19 Compliance with Laws. The Company is not in material conflict with, or in default or violation in any material respect of any law, rule, regulation, order, judgment or decree applicable to Company or by which its properties is bound or affected. No investigation or review by any governmental or regulatory body or authority is pending or, to the knowledge of Company, threatened against Company, nor has any governmental or regulatory body or authority indicated an intention to conduct the same. 2.20 Litigation. There is no action, suit or proceeding of any nature pending or to the Company's knowledge threatened against the Company, its properties or any of its officers, directors or employees, nor, to the knowledge of the Company, is there any reasonable basis therefor. There is no investigation pending or, to the Company's knowledge, threatened against the Company, its properties or any of its officers, directors or employees by or before any Governmental Entity. Schedule 2.20 sets forth, with respect to any pending or threatened action, suit, proceeding or investigation, the forum, the parties thereto, the subject matter thereof and the amount of damages claimed or other remedy requested. No Governmental Entity has at any time challenged or questioned the legal right of the Company to conduct its operations as presently or previously conducted. 2.21 Insurance. With respect to the insurance policies and fidelity bonds covering the assets, business, equipment, properties, operations, employees, officers and directors of the Company, there is no claim by the Company pending under any of such policies or bonds as to which coverage has been denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid and the Company is otherwise in material compliance with the terms of such policies and bonds. The Company has no knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. All policies of insurance applicable to the Company are listed in Schedule 2.21. The Company maintains, and has maintained, policies of insurance of the kinds, and in the amounts, reasonable and customary or companies of a similar size in business. 2.22 Minute Books. The minute books of the Company made available to Parent are the only minute books of the Company and contain an accurate summary of all meetings of directors (or committees thereof) and shareholders or actions by written consent since the time of incorporation of the Company. 2.23 Environmental Matters. The Company: (a) has obtained all applicable and material permits, licenses and other authorizations that are required under Environmental Laws; (b) is in compliance with all material terms and conditions of such required permits, licenses and authorizations, and also is in compliance with all other material limitations, -23-

restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in such laws or contained in any regulation, code, plan, order, decree, judgment, notice or demand letter issued, entered, promulgated or approved thereunder; (c) is not aware of and has not received notice of any event, condition, circumstance, activity, practice, incident, action or plan that is reasonably likely to interfere with or prevent continued compliance or that would give rise to any common law or statutory liability, or otherwise form the basis of any Environmental Claim with respect to the Company or any person or entity whose liability for any Environmental Claim the Company has retained or assumed either contractually or by operation of law; (d) has not disposed of, released, discharged or emitted any Hazardous Materials into the soil or groundwater at any properties owned or leased at any time by the Company, or at any other property, or exposed any employee or other individual to any Hazardous Materials or condition in such a manner as would result in any material liability or result in any corrective or remedial action obligation under Environmental Laws; and (e) has taken all actions necessary under Environmental Laws to register any products or materials required to be registered by the Company (or any of its agents) thereunder. No Hazardous Materials are present in, on, or under any properties owned or leased at any time (including both land and improvements thereon) by the Company so as to give rise to any liability or corrective or remedial obligation of the Company under any Environmental Laws. For the purposes of this Section 2.23, "Environmental Claim" means any notice, claim, act, cause of action or investigation by any person alleging potential liability (including potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries or penalties) arising out of, based on or resulting from: (i) the presence, or release into the environment, of any Hazardous Materials; or (ii) any violation, or alleged violation, of any Environmental Laws. "Environmental Laws" means all federal, state, local and foreign laws and regulations relating to pollution or the environment (including ambient air, surface water, ground water, land surface or subsurface strata) or the protection of human health and worker safety, including, without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of Hazardous Materials, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials. "Hazardous Materials" means chemicals, pollutants, contaminants, wastes, toxic substances, radioactive and biological materials, asbestos-containing materials (ACM), hazardous substances, petroleum and petroleum products or any fraction thereof, excluding, however, Hazardous Materials contained in products typically used for office and janitorial purposes properly and safely maintained in accordance with Environmental Laws. 2.24 Brokers' Fees. Except as set out in Schedule 2.24, the Company has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. 2.25 Employee Matters and Benefit Plans (a) Definitions. The following terms shall have the meanings set forth below: -24-

(i) "Affiliate" shall mean any other person or entity under common control with the Company within the meaning of Section 414(b), (c), (m) or (o) of the Code and the regulations thereunder; (ii) "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended; (iii) "Company Employee Plan" shall refer to any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, deferred compensation, performance awards, stock or stock-related awards, fringe benefits or other employee benefits or remuneration of any kind, whether written or otherwise, funded or unfunded, including without limitation, each "employee benefit plan," within the meaning of Section 3(3) of ERISA which is or has been maintained, contributed to, or required to be contributed to, by the Company or any Affiliate for the benefit of any Employee (as defined below), or with respect to whether the Company has or may have any liability or obligation; (iv) "DOL" shall mean the United States Department of Labor. (v) "Employee" shall mean any current, former, or retired employee, officer, director or consultant of the Company or any Affiliate; (vi) "Employee Agreement" shall refer to each management, employment, severance, consulting, relocation, repatriation, expatriation, visa, work permit or other agreement, contract or understanding between the Company or any Affiliate and any Employee; (vii) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended; (viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as amended; (ix) "IRS" shall mean the Internal Revenue Service; (x) "Multiemployer Plan" shall mean any "Pension Plan" (as defined below) which is a "multiemployer plan," as defined in Section 3(37) of ERISA; and (xi) "Pension Plan" shall refer to each Company Employee Plan which is an "employee pension benefit plan," within the meaning of Section 3(2) of ERISA. (b) Schedule. Schedule 2.25(b) contains an accurate and complete list of each Company Employee Plan and each Employee Agreement, whether or not accrued, under each Company Employee Plan or Employee Agreement. The Company does not have any plan or commitment to establish any new Company Employee Plan or Employee Agreement, to modify any Company Employee Plan or Employee Agreement (except to the extent required by law or to conform any such Company Employee Plan or Employee Agreement to the -25-

requirements of any applicable law, in each case as previously disclosed to Parent in writing, or as required by this Agreement), or to enter into any Company Employee Plan or Employee Agreement, nor does it have any intention or commitment to do any of the foregoing. (c) Documents. The Company has provided to Parent: (i) correct and complete copies of each Company Employee Plan and each Employee Agreement including, without limitation, all amendments thereto, all related trust documents and written interpretations thereof; (ii) the most recent annual actuarial valuations, if any, prepared for each Company Employee Plan; (iii) the three most recent annual reports (Series 5500 and all schedules and financial statements attached thereto), if any, required under ERISA or the Code in connection with each Company Employee Plan or related trust; (iv) if the Company Employee Plan is funded, the most recent annual and periodic accounting of Company Employee Plan assets; (v) the most recent summary plan description together with the most recent summary(ies) of material modifications thereto, if any, required under ERISA with respect to each Company Employee Plan; (vi) all IRS determination, opinion, notification and advisory letters and rulings relating to Company Employee Plans and copies of all applications and correspondence to or from the IRS, DOL or any other governmental agency with respect to any Company Employee Plan; (vii) all material written agreements and contracts relating to each Company Employee Plan, including, but not limited to, administrative service agreements, group annuity contracts and group insurance contracts; (viii) all communications material to any Employee or Employees relating to any Company Employee Plan and any proposed Company Employee Plans, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events which would result in any material liability to the Company; (ix) all correspondence to or from any governmental agency relating to any Company Employee Plan; (x) all COBRA forms and related notices; (xi) all policies pertaining to fiduciary liability insurance covering the fiduciaries of for each Company Employee Plan; (xii) all discrimination tests for each Company Employee Plan for the most recent plan year; and (xiii) all registration statements, annual reports (Form 11-K and all attachments thereto) and prospectuses prepared in connection with each Company Employee Plan. (d) Employee Plan Compliance. Except as set forth in Schedule 2.25(d): (i) the Company has performed in all respects all obligations required to be performed by it under, is not in default or violation of, and has no knowledge of any default or violation of any other party to, each Company Employee Plan, and each Company Employee Plan has been established and maintained in all respects in accordance with its terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA and the Code; (ii) each Company Employee Plan intended to qualify under Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the Code has either received a favorable determination, opinion, notification or advisory letter from the IRS with respect to each such Company Employee Plan as to its qualified status under the Code, including all amendments to the Code effected by the Tax Reform Act of 1986 and subsequent legislation, or has a period of time remaining under applicable Treasury regulations or IRS pronouncements in which to apply for such a letter and make any amendments necessary to obtain a favorable determination as to the qualified status of each such Company Employee Plan; (iii) no "prohibited transaction," within the meaning of Section 4975 of the Code or -26-

Sections 406 and 407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has occurred with respect to any Company Employee Plan; (iv) there are no actions, suits or claims pending, or, to the knowledge of the Company, threatened or anticipated (other than routine claims for benefits) against any Company Employee Plan or against the assets of any Company Employee Plan; (v) each Company Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance with its terms, without liability to the Company, Parent or any of its Affiliates (other than ordinary administration expenses typically incurred in a termination event); (vi) there are no audits, inquiries or proceedings pending or, to the knowledge of the Company or any Affiliates, threatened by the IRS or DOL with respect to any Company Employee Plan; and (vii) neither the Company nor any Affiliate is subject to any penalty or tax with respect to any Company Employee Plan under Section 501(i) of ERISA or Section 4975 through 4980 of the Code. (e) Pension Plans. Neither the Company nor any Affiliate has ever maintained, established, sponsored, participated in, or contributed to, any Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code. (f) Multiemployer Plans. At no time has the Company or any Affiliate contributed to or been requested to contribute to any Multiemployer Plan. (g) No Post-Employment Obligations. Except as set forth in Schedule 2.25(g), no Company Employee Plan provides, or reflects or represents any liability to provide, life insurance, health or other employee benefits to any person upon his or her retirement or termination of employment for any reason, except as may be required by statute, and the Company has never represented, promised or contracted (whether in oral or written form) to any Employee (either individually or to Employees as a group) that such Employee(s) or any other person would be provided with life insurance, health or other employee welfare benefits upon their retirement or termination of employment, except to the extent required by statute. (h) COBRA. Neither the Company nor any Affiliate has, prior to the Effective Time, violated any of the health care continuation requirements of COBRA, the requirements of FMLA, the requirements of the Women's Healthcare Cancer Rights Act, the requirements of the Newborns' and Mothers' Health Protection Act of 1996 or any similar provisions of state law applicable to its Employees which could reasonably be expected to result in material liability to the Company. (i) Effect of Transaction (i) Except as provided in Section 1.9 of this Agreement or as set forth in Schedule 2.25(i)(i), the execution of this Agreement and the consummation of the transactions contemplated hereby will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any Company Employee Plan, Employee Agreement, trust or loan that will or may result in any payment (whether of -27-

severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any Employee. (ii) Except as set forth in Schedule 2.25(i)(ii), no payment or benefit which will or may be made by the Company or any of its respective affiliates with respect to any Employee resulting from the transactions contemplated by this Agreement or otherwise will be characterized as a "parachute payment", within the meaning of Section 280G(b) (2) of the Code. (j) Employment Matters. Schedule 2.25(j) lists all current officers, directors and employees of the Company. The Company: (i) is in compliance in all respects with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours, in each case, with respect to Employees (including any immigration laws with respect to the same); (ii) has withheld all amounts required by law or by agreement to be withheld from the wages, salaries and other payments to Employees; (iii) is not liable for any arrears of wages or any taxes or any penalty for failure to comply with any of the foregoing; and (iv) is not liable for any payment to any trust or other fund or to any governmental or administrative authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for Employees (other than routine payments to be made in the normal course of business and consistent with past practice). There are no pending, threatened or reasonably anticipated claims or actions against the Company under any workers compensation policy or long-term disability policy. Each person who is acting or has acted as a consultant to the Company is acting or acted as an "independent contractor" and could not, based on the facts and circumstances of his consultancy, reasonably be deemed to be or have been "employed" with the Company. Schedule 2.25(j) also sets forth all outstanding offers of employment, whether written or oral, made to any employee or prospective employee, which offer has not been rejected by the offeree. (k) Labor. No work stoppage or labor strike against the Company is pending, or, to the Company's knowledge, threatened. To the Company's knowledge there are no activities or proceedings of any labor union to organize any Employees. Except as set forth in Schedule 2.25(k), there are no actions, suits, claims, labor disputes or grievances pending, or, to the knowledge of the Company, threatened relating to any labor, safety or discrimination matters involving any Employee, including, without limitation, charges of unfair labor practices or discrimination complaints, which, if adversely determined, would, individually or in the aggregate, result in any liability to the Company. The Company has not engaged in any unfair labor practices within the meaning of the National Labor Relations Act. Except as set forth in Schedule 2.25(k), the Company is not presently, nor has it been in the past, a party to, or bound by, any collective bargaining agreement or union contract with respect to Employees and no collective bargaining agreement is being negotiated by the Company. (l) No Interference or Conflict. No shareholder, officer, employee or consultant of the Company is obligated under any contract or agreement subject to any judgment, decree or order of any court or administrative agency that would materially -28-

interfere with such person's efforts to promote the interests of the Company or that would materially interfere with the Company's business. 2.26 Hart-Scott-Rodino Act. The Company: (i) is the "ultimate parent entity" of the Company as defined in 16 C.F.R. 801.1, and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"); (ii) is not a manufacturer as defined by the HSR Act; and (iii) does not hold total assets worth $10,000,000 or more as shown on its most recent regularly prepared balance sheet (including unaudited statements), and did not have net sales of $10,000,000 or more in its last fiscal year and therefore is not a $10 million person under the HSR Act. 2.27 Bank Accounts. Schedule 2.27 constitutes a full and complete list of all the bank accounts and safe deposit boxes of the Company, the number of each such account or box, and the names of the persons authorized to draw on such accounts or to access such boxes. 2.28 Indemnification Obligations. To the Company's knowledge, there is no action, proceeding or other event pending against any officer or director of the Company which would give rise to any indemnification obligation of Company to its officers and directors under its Articles of Organization, Bylaws or any agreement between the Company and any of such officers or directors. 2.29 Board Approval. The Board of Directors of the Company has, as of the date of this Agreement: (a) approved and deemed advisable, subject to shareholder approval, this Agreement and the transactions contemplated hereby; (b) determined that the Merger is in the best interests of the shareholders of Company; and (c) recommended that the shareholders of Company approve the principal terms of this Agreement and approve the Merger. 2.30 Shareholder Sophistication or Accredited Status Except as set forth in Schedule 2.30, all shareholders of Company are accredited investors (as defined in Rule 501 of the Securities Act of 1933), or sophisticated (as defined in Rule 506 of the Securities Act of 1933) in financial and business matter or employs a representative who is sophisticated. 2.31 Creditor Consents. All creditors of the Company shall have signed an agreement either: (a) waiving their right to other compensation (as provided in Schedule 2.31(a)); or (b) indicating that they will accept payment of $0.33 for every dollar owed as payment if full for all debts due and owing from the Company (as provided in Schedule 2.31(b)), provided, however, liabilities will not exceed $25,000 pursuant to Section 5.1(r). 2.32 Representations Complete. None of the representations or warranties made by the Company (as modified by the Company Schedules), nor any statement made in any Schedule or certificate furnished by the Company pursuant to this Agreement, or furnished in or in connection with documents mailed or delivered to the shareholders of the Company in connection with soliciting their consent to the principal terms of this Agreement and the -29-

Merger (to the extent that such documents were prepared by or include information provided by the Company), such documentation (when read together) contains or will contain at the Effective Time, any untrue statement of a material fact, or omits or will omit at the Effective Time to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading, provided that it is agreed that the proxy statement need not comply with the proxy rules of the United States Securities and Exchange Commission and that the representation as to "omissions" will not impose any requirement greater than applicable law. ARTICLE III REPRESENTATIONS/WARRANTIES OF PARENT AND MERGER SUB Parent and Merger Sub represent and warrant to the Company as follows: 3.1 Organization of Parent and Merger Sub. Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of California. Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of California. Each of Parent and Merger Sub has the corporate power to own its properties and to carry on its business as now being conducted and is duly qualified to do business and is in good standing in each jurisdiction in which the failure to be so qualified would have a material adverse effect on the business, assets (including intangible assets), financial condition or results of operations of Parent not including: (i) any material adverse effect following the date of this Agreement on the business, assets (including intangible assets), financial condition or results of operations of Parent to the extent attributable to the Merger contemplated by this Agreement; (ii) changes in general conditions of the industry in which Parent operates; or (iii) any reduction in the trading price of Parent's Common Stock as reported on the OTC Bulletin Board (hereinafter referred to as a "Parent Material Adverse Effect") Parent or Merger Sub respectively or the ability of either to consummate the transactions contemplated hereby. 3.2 Authority. Parent and Merger Sub have all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Parent and Merger Sub. No vote of Parent stockholders is required with respect to this Agreement and the transactions contemplated thereby. This Agreement has been duly executed and delivered by Parent and Merger Sub respectively and constitutes the valid and binding obligations of Parent and Merger Sub, enforceable in accordance with its terms. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby and thereby will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a benefit or rights under: (a) any provision of the Articles of Organization or Bylaws of Parent or the Articles of Organization or Bylaws of Merger Sub; or (b) any mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, franchise, license, judgment, order, -30-

decree, statute, law, ordinance, rule or representation applicable to Parent or on which Parent's business, financial condition, operations or prospects is substantially dependent. No consent, approval, waiver, order or authorization of, or registration, declaration or filing with, any Governmental Entity, is required by or with respect to Parent or Merger Sub in connection with the execution, delivery and performance of this Agreement by Parent and Merger Sub or the consummation by Parent and Merger Sub of the transactions contemplated hereby except for: (a) the filing of the Agreement of Merger with the Secretary of State of the State of California and with the Secretary of State of the Commonwealth of Massachusetts; and (b) such consents, approvals, order, authorizations, registrations, declarations and filings as may be required under applicable state and federal securities laws. 3.3 Parent Common Stock. The shares of Parent Common Stock to be issued pursuant to the Merger will, when issued and delivered in accordance with this Agreement, be duly authorized, validly issued, fully paid and nonassessable and will be issued in compliance with applicable federal and state securities laws; provided, however, that the Parent Common Stock to be issued hereunder will be subject to restrictions on transfer under applicable federal and state securities laws. 3.4 SEC Filings; Parent Financial Statements (a) Parent has filed all forms, reports, registration statements and documents required to be filed by Parent with the SEC and has made available to the Company such forms, reports, and documents in the form filed with the SEC. All such required forms, reports and documents (including those that Parent may file subsequent to the date hereof until the closing) are referred to herein as the "Parent SEC Reports;" provided that any Parent SEC Report shall be deemed to include all amendments to such report through the date hereof. As of their respective filing dates (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing), the Parent SEC Reports: (i) complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Parent SEC Reports; and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) Each of the consolidated financial statements of Parent (including, in each case, the notes thereto), included in the Parent SEC Reports (the "Parent Financial Statements"), including each Parent SEC Report filed after the date hereof until the Closing: (i) complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto; (ii) was prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated; and (iii) fairly presented the consolidated financial position of Parent and its subsidiaries on the respective dates thereof and the consolidated results of Parent's operations and cash flows for the periods indicated (subject, in the case of unaudited financial statements, to audit adjustments). There has been no change in Parent's accounting policies except as described in the notes to the Parent Financial Statements. -31-

3.5 No Material Adverse Change. Since the date of the balance sheet included in the Parent's most recently filed report on Form 10-Q, Parent has conducted its business in the ordinary course and there has not occurred any material adverse change in the financial condition, liabilities, assets or business of Parent. For purposes of this section, a reduction in the trading price of Parent's Common Stock, as reported by the OTC Bulletin Board, changes in economic conditions or changes in the industry and markets in which the Parent competes shall not constitute a material adverse change, whether occurring at any time or from time to time. 3.6 Litigation. Except as disclosed in Parent SEC Reports, there are no suits, claims, actions or proceedings, pending or, to the knowledge of Parent, threatened against, or relating to or affecting Parent or Merger-Sub or any of their subsidiaries, before any Governmental Entity that seeks to enjoin or restrain the consummation of the transactions contemplated by this Agreement or which reasonably be expected either singularly or in the aggregate to be material to Parent or its financial condition. 3.7 Brokers' Fees. Neither Parent nor Merger-Sub has incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. ARTICLE IV SECURITIES ACT COMPLIANCE; REGISTRATION 4.1 Securities Act Exemption. The Parent Common Stock to be issued pursuant to this Agreement initially will not be registered under the Securities Act in reliance on the exemptions from the registration requirements of Section 5 of the Securities Act set forth in Section 4(2) thereof. Prior to the Closing Date, each of the Company's shareholders shall have provided Parent such representations, warranties, certifications and additional information as Parent may reasonably request to ensure the availability of such exemptions from the registration requirements of the Securities Act. 4.2 Stock Restrictions. In addition to any legend imposed by applicable state securities laws or by any contract which continues in effect after the Effective Time, the certificates representing the shares of Parent Common Stock issued pursuant to this Agreement shall bear a restrictive legend (and stop transfer orders shall be placed against the transfer thereof with Parent's transfer agent), stating substantially as follows: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OR HYPOTHECATED EXCEPT IN COMPLIANCE WITH RULE 144 IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, OR AN OPINION OF COUNSEL, -32-

SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT, OR A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION. 4.3 The Company Shareholders' Restrictions Regarding Securities Law Matters. Each shareholder of the Company, by virtue of the Merger and the conversion into Parent Common Stock of the Company Capital Stock held by such shareholder, shall be bound by the following provisions: (a) Such shareholder will not offer, sell, or otherwise dispose of any shares of Parent Common Stock except in compliance with the Securities Act and the rules and regulations thereunder. (b) Such shareholder will not sell, transfer or otherwise dispose of any shares of Parent Common Stock unless: (i) such sale, transfer or other disposition is within the limitations of and in compliance with Rule 144 promulgated by the SEC under the Securities Act and the Shareholder furnishes Parent with reasonable proof of compliance with such Rule; (ii) in the opinion of counsel, reasonably satisfactory to Parent and its counsel, some other exemption from registration under the Securities Act is available with respect to any such proposed sale, transfer, or other disposition of Parent Common Stock; or (iii) the offer and sale of Parent Common Stock is registered under the Securities Act. ARTICLE V CONDUCT PRIOR TO THE EFFECTIVE TIME 5.1 Conduct of Business of the Company. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement pursuant to its terms or the Effective Time, the Company agrees (except to the extent that Parent shall otherwise consent in writing) to carry on its business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted, to pay its debts and Taxes when due, to pay or perform other obligations when due, and, to the extent consistent with such business, to use all commercially reasonable efforts consistent with past practice and policies to preserve its present business organization, keep available the services of its present officers and key employees and preserve its relationships with customers, suppliers, distributors, licensors, licensees and others having business dealings with it, all with the goal of preserving unimpaired its goodwill and ongoing businesses at the Effective Time provided that it is understood that the Company is no longer conducting business and does not plan to conduct business prior to the effectiveness of the Merger. The Company shall promptly notify Parent of any materially adverse event involving or affecting the Company or its business of which it becomes aware. In addition, except as permitted by the terms of this Agreement, without the prior written consent of Parent, during the period from the date of this Agreement and continuing -33-

until the earlier of the termination of this Agreement pursuant to its terms or the Effective Time, Company shall not do any of the following (except as contemplated by this Agreement): (a) Waive any stock repurchase rights, accelerate, amend, or change the period of exercisability of any outstanding Company Options or Company Common Stock subject to vesting, or reprice Company Options granted under the Option Plan or authorize cash payments in exchange for any such options; (b) Except in the ordinary course of business, modify, amend or terminate any material contract or agreement to which the Company is a party or waive, release or assign any material rights or claims thereunder; (c) Transfer or license to any person or entity or otherwise extend, amend or modify any rights to the Company Intellectual Property Rights (other than pursuant to non-exclusive end-user licenses granted to customers of the Company in the ordinary course of business, provided that no such license shall: (i) contain any right of refund to the license (other than refusal rights consistent with established past practices); or (ii) involve the transfer of product(s) to any person or entity in violation of applicable U.S. export laws and regulations) or enter into grants to future patent rights; (d) Except in the ordinary course of business, enter into or amend any agreements pursuant to which any other party is granted marketing, distribution or similar rights with respect to any products of the Company; (e) Amend or otherwise modify (or agree to do so), except in the ordinary course of business, or violate the terms of, any of the Contracts; (f) Commence any litigation except to enforce its rights hereunder or under any agreements related hereto; (g) Declare, set aside or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any Company Capital Stock, or split, combine or reclassify any Company Capital Stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for any Company Capital Stock; (h) Purchase, redeem or otherwise acquire, directly or indirectly, any Company Capital Stock, except repurchases of unvested shares at cost in connection with the termination of the employment relationship with any employee or consultant pursuant to the term set forth in the applicable stock option or purchase agreements in effect on the date hereof; (i) Except for the issuance of Series D Preferred Stock contemplated by this Agreement, issue, grant, deliver, sell, pledge or authorize, or otherwise encumber or propose to do any of the foregoing, any Company Capital Stock or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue any such shares or other convertible securities (except for the issuance of Series D Preferred Stock, and the issuance of any Company Capital Stock upon -34-

exercise or conversion of presently outstanding Company Options, warrants or Preferred Stock, or the grant of stock options to new employees pursuant to outstanding written offers of employment); (j) Cause or permit any amendments to its Bylaws or Articles of Organization, except in connection with the issuance of Series D Preferred Stock; (k) Acquire or agree to acquire by merging or consolidating with, or by purchasing any assets or equity securities of, or by any other manner, any business or any corporation, partnership, association, joint venture or other business organization or division thereof, or otherwise acquire or agree to acquire outside of the ordinary course of business any assets in any amount which are material, individually or in the aggregate, to the Company's business, or in the ordinary course of business in an amount in excess of $25,000 in the case of a single transaction or in excess of $50,000 in the aggregate; (l) Sell, lease, license, encumber or otherwise dispose of any properties or assets except equipment leases, nonexclusive end-user licenses of Company Products, sales of inventory in the ordinary course of business consistent with past practice or except for the sale, lease or disposition (other than through licensing) of a property or assets which are not material, individually or in the aggregate, to the business of Company; (m) Incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities of Company, or enter into any "keep well" or other agreement to maintain any financial statement condition of any third party other than in connection with the financing of ordinary course trade payables consistent with past practice; (n) Grant any severance or termination pay: (i) to any director or officer; or (ii) to any other employee except payments made pursuant to written agreements outstanding on the date hereof and as disclosed in the Company Schedules, or adopt any new severance plan; (o) Adopt or amend any employee benefit plan, or enter into any employment contract, extend employment offers, pay or agree to pay any special bonus or special remuneration to any director or employee, or increase the salaries or wage rates of its employees, except as consistent with the ordinary course of the Company consistent with past practice. (p) Effect or agree to effect, including by way of hiring or involuntary termination, any change in the Company's directors, officers or key employees; (q) Revalue any of its assets, including without limitation, writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business, or except as required by GAAP, make any change in accounting methods, principles or practices; -35-

(r) Pay, discharge or satisfy, in an amount in excess of $25,000 (in any one case) or $50,000 (in the aggregate), any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business of liabilities reflected or reserved against in the Company Financial Statements (or the notes thereto) or that arose in the ordinary course of business or expenses consistent with the provisions of this Agreement incurred in connection with any transaction contemplated hereby; (s) Make or change any material election in respect of Taxes, adopt or change any accounting method in respect of Taxes, enter into any closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes; (t) Enter into any strategic alliance, joint development or joint marketing agreement; (u) Commence a lawsuit other than: (i) for the routine collection of bills; (ii) in such cases where the Company, in good faith, determines that failure to commence suit would result in the material impairment of a valuable aspect of its business, provided that it consults with Parent prior to the filing of such a suit; or (iii) for a breach of this Agreement; (v) Materially reduce the amount of any insurance coverage provided by or fail to renew any existing insurance policies; (w) Engage in any action that could reasonably be expected to cause the Merger to fail to qualify as a "reorganization" under Section 368(a)(2)(D) of the Code, whether or not otherwise permitted by the provisions of this Article V; or (x) Take, or agree in writing or otherwise to take, any of the actions described in Sections 5.1(a) through (y) above. 5.2 Notices. The Company shall give all notices and other information required to be given to the employees of the Company, any collective bargaining unit representing any group of employees of the Company and any applicable government authority under the WARN Act, the National Labor Relations Act, the Code, the Consolidated Omnibus Budget Reconciliation Act and any other applicable law in connection with the transaction provided for in this Agreement. 5.3 No Solicitation. Until the earlier of the Effective Time or the date of termination of this Agreement pursuant to the provisions of Section 9.1 hereof, neither the Company nor will the Company permit any of its officers, directors, agents, representative or affiliates to directly or indirectly, take any of the following actions with any party other than Parent and its designees: (a) solicit, encourage, initiate or participate in any negotiations or discussions with respect to, any offer or proposal to acquire all, substantially all or a significant portion of the Company's business, properties or technologies or any portion of the Company Capital Stock (whether or not outstanding) whether by merger, purchase of assets, tender offer or otherwise, or effect any such transaction; (b) disclose any non-public -36-

information to any person concerning the Company's business, technologies or properties or afford to any person or entity access to its properties, technologies, books or records; (c) assist or cooperate with any person to make any proposal to purchase all or any part of the Company Capital Stock or assets; or (d) enter into any agreement with any person providing for the acquisition of all or any significant portion of the Company (whether by way of merger, purchase of assets, tender offer or otherwise). In addition to the foregoing, if the Company receives, prior to the Effective Time or the termination of this Agreement, any offer, proposal, or request relating to any of the above, the Company shall immediately notify Parent thereof, including information as to the identity of the offeror or the party making any such offer or proposal and the specific terms of such offer or proposal, as the case may be, and such other information related thereto as Parent may reasonably request. The parties hereto agree that irreparable damage would occur in the event that the provisions of this Section 5.3 were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed by the parties that Parent shall be entitled to seek an injunction or injunctions to prevent breaches of the provisions of this Section 5.3 and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which Parent may be entitled to at law or in equity. It is understood that Company directors may take such action as is required to discharge their fiduciary duties. ARTICLE VI ADDITIONAL AGREEMENTS 6.1 Shareholder Approval. The Company shall, as promptly as practicable after the date hereof and in accordance with Massachusetts Law and the Company's Articles of Organization and Bylaws, seek to obtain the approval of the Company's shareholders of the principal terms of this Agreement and the Merger. The Company shall ensure that the shareholder approval is solicited in compliance with Massachusetts Law and the Articles of Organization and Bylaws of the Company. The Company agrees to use its best efforts and to take all action reasonably necessary or advisable to secure the necessary votes required by Massachusetts Law to effect the Merger. 6.2 Access to Information. The Company shall afford Parent and its accountants, legal counsel and other representatives reasonable access during normal business hours during the period prior to the Effective Time to: (a) all of the properties, books, contracts, commitments and records of the Company; (b) all other information concerning the business, properties, and personnel of the Company as Parent may reasonably request; and (c) all key employees of the Company as identified by Parent. The Company agrees to provide Parent and its accountants, legal counsel and other representatives copies of internal financial statements promptly upon request. No information or knowledge obtained in any investigation pursuant to this Section 6.3 shall affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the parties to consummate the Merger. 6.3 Confidentiality. All information not previously disclosed to the public which shall have been furnished by the Company or Parent to the other party shall not be disclosed -37-

prior to the Closing Date to any person other than the party's respective employees, legal counsel, and accountants, in confidence, or used for any purpose other than as contemplated herein. In the event that the sale of the Assets shall not be consummated, all such information, including any schedule, analysis or other documents prepared by Seller or Buyer, which shall be in writing, shall remain confidential. The parties acknowledge that disclosure by a party of such information except as permitted hereunder may result in substantial harm to the other party. 6.4 Public Disclosure. Unless otherwise required by law (including, without limitation, securities laws), prior to the Effective Time, no disclosure (whether or not in response to an inquiry) of the subject matter of this Agreement shall be made by any party hereto (other than disclosures to the Company's Board or to Company shareholders pursuant to Section 6.2) unless approved by Parent and the Company prior to release, provided that such approval shall not be unreasonably withheld. 6.5 Consents. The Company shall promptly apply for or otherwise seek and use reasonable commercial efforts to obtain all consents and approvals required to be obtained by it for the consummation of the Merger, including all consents, waivers or approvals under any of the Contracts which are necessary in order to preserve the benefits thereunder for the Surviving Corporation and otherwise in connection with the Merger. All of such consents and approvals are set forth in Schedule 2.6. 6.6 FIRPTA Compliance. On the Closing Date, the Company shall deliver to Parent a properly executed statement in a form reasonably acceptable to Parent for purposes of satisfying Parent's obligations under Treasury Regulation Section 1.1445-2(c)(3). 6.7 Legal Conditions to the Merger. Each of Parent, Merger Sub and the Company will take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on such party with respect to the Merger and will promptly cooperate with and furnish information to any other party hereto in connection with any such requirements imposed upon such other party in connection with the Merger. Each party will take all reasonable actions to obtain (and will cooperate with the other parties in obtaining) any consent, authorization, order or approval of or any registration, declaration or filing with, or an exemption by, any Governmental Entity, or other third party, required to be obtained or made by such party or its subsidiaries in connection with the Merger or the taking of any action contemplated thereby or by this Agreement. 6.8 Best Efforts; Additional Documents and Further Assurances. Subject to the terms and conditions of this Agreement, each of the parties agrees to use its best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger and the other transactions contemplated by this Agreement, including using best efforts to accomplish the following: (a) the taking of all acts reasonably necessary to cause the conditions precedent set forth in Article VI to be satisfied; (b) the obtaining of all necessary actions or nonactions, waivers, consents, approvals, orders and authorizations from -38-

Governmental Entities required hereunder and the making of all necessary registrations, declarations and filings (including registrations, declarations and filings with Governmental Entities, if any) and the taking of all reasonable steps as may be necessary to avoid any suit, claim, action, investigation or proceeding by any Governmental Entity; (c) the obtaining of all necessary consents, approvals or waivers from third parties; (d) the defending of any suits, claims, actions, investigations or proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated hereby, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed; and (e) the execution or delivery of any additional instruments reasonably necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement. 6.9 Notification of Certain Matters. The Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company, of: (a) the occurrence or non-occurrence of any event which is likely to cause any representation or warranty of the Company and Parent or Merger Sub, respectively, contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Effective Time except as contemplated by this Agreement; and (b) any failure of the Company or Parent, as the case may be, to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 6.10 shall not limit or otherwise affect any remedies available to the party receiving such notice or affect the representations, warranties, covenants or agreements of the parties or conditions to the obligation of the parties under this Agreement. 6.10 Reorganization. It is the intent of the Company, Parent, Merger Sub and the Surviving Corporation that this Merger qualifies as a tax-free reorganization under Section 368(a)(2)(D) of the Code, and the Company, Parent, Merger Sub and the Surviving Corporation covenant and agree not to take any actions inconsistent with such intent, and each hereby agrees to use best efforts to cause the Merger to qualify as a tax-free reorganization under Section 368(a)(2)(D) of the Code. Parent and the Surviving Corporation agree not to take any action following the Effective Time that could reasonably be expected to cause the Merger to fail to constitute a "reorganization" under Section 368(a)(2)(D) of the Code. This Section 6.10 shall survive the consummation of the Merger at the Effective Time. 6.11 Blue Sky Laws. Parent shall take such steps as may be necessary to comply with the securities and blue sky laws of all jurisdictions which are applicable to the issuance of the Parent Common Stock pursuant hereto. The Company shall use reasonable good faith efforts to assist Parent as may be necessary to comply with the securities and blue sky laws of all jurisdictions which are applicable in connection with the issuance of Parent Common Stock pursuant hereto. 6.12 Indemnification (a) From and after the Effective Time, Parent will, and will cause the Surviving Corporation to fulfill and honor in all respects the indemnification and other obligations of the Company pursuant to the Company's Articles of Organization or Bylaws as -39-

each is in effect on the date hereof (the persons to be indemnified pursuant to the provisions referred to in this Section 6.17 shall be referred to herein as, collectively, the "Indemnified Parties"). (b) This Section 6.13 shall survive consummation of the Merger at the Effective Time, is intended to be for the benefit of, and enforceable by, the Company, Parent, the Surviving Corporation and each Indemnified Party and such Indemnified Party's heirs and representatives, and shall be binding on all successors and assigns of Parent and the Surviving Corporation. 6.13 Termination of Company Investor Rights. The Company shall terminate as of the Closing of all Company investor rights granted by the Company to its shareholders and in effect prior to the Closing, including but not limited to rights of co-sale, voting, registration, first refusal, board observation or information or operational covenants. 6.14 401(k) Plan. The Company agrees to terminate the 401(k) plan of the Company (if there is a 401(k) plan) and all other Company employee plans immediately prior to the Effective Time in a manner reasonably acceptable to Parent, unless Parent, in its sole and absolute discretion, agrees to sponsor and maintain such plans by providing the Company with written notice of such election prior to the Effective Time. 6.15 Raising of Additional Capital.. The Company agrees that it will use its best efforts to raise no less than $1,000,000 in cash from the sale of its Series D Preferred Stock by no later than December 17, 1999 (the "Series D Offering"). The Company shall conduct the Series D Offering in accordance with all applicable state and federal securities laws, and shall take all required steps to assure that the offer and sale of the Series D Preferred Stock is exempt from the registration requirements of the Act pursuant to Section 4(2) of the Act. The Company shall place the proceeds received from the offering of the Series D Preferred Stock into a separate escrow account maintained with the law firm of Evers & Hendrickson, LLP, counsel to Parent, and such proceeds shall not be released from the escrow until: (i) immediately prior to the Closing, at which time the proceeds will be released to the Company; or (ii) as of such time as this Agreement is terminated, in which case the proceeds shall be returned to investors. The Company agrees that it shall retain no less than $1,000,000 of proceeds received from the Series D Offering ("Retained Amount") once the funds have been released from escrow, and that it shall not pay the Retained Amount to any creditor, shareholder or other person whatsoever (or enter into any commitment to do so) prior to or as of the Effective Time. ARTICLE VII CONDITIONS TO THE MERGER 7.1 Conditions to Obligations of Each Party to Effect the Merger. The respective obligations of each party to this Agreement to effect the Merger shall be subject to the satisfaction at or prior to the Closing of the following conditions: -40-

(a) Shareholder Approval. The principal terms of this Agreement, the Merger and the transactions contemplated hereby shall have been approved and adopted by the shareholders of the Company by the requisite vote under applicable law and the Company's Articles of Organization. (b) No Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Merger shall be in effect. Nor shall there be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Merger, which makes the consummation of the Merger illegal. (c) Closing Date Payment Schedule. Parent and the Company shall each have reviewed and approved, which approval shall not be unreasonably withheld, a schedule (the "Closing Date Payment Schedule") reflecting, as of the Effective Time: (i) for each holder of Series B Preferred Stock and Series D Preferred Stock and each Converted Creditor, the number of shares of Series B Preferred Stock and Series D Preferred Stock held or the amount of the claim being converted (as the case may be), the aggregate number of shares of Parent Common Stock payable to such holder or creditor in the Merger, the number of such shares payable promptly after the Effective Time (in accordance with Section 1.9) and payable into the Escrow Fund (as defined in Section 8.2(a)), and the amount of cash payable to such holder for any fractional shares; and (ii) for each holder of Series B Preferred Stock and certain managers of the Company, the number of Warrants to purchase shares of Parent Common Stock, the number of shares of Parent Common Stock issuable upon exercise (in accordance with Section 1.9), and the per share exercise price. 7.2 Additional Conditions to Obligations of the Company. The obligations of the Company to consummate the Merger and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, exclusively by the Company: (a) Representations and Warranties. The representations and warranties of Parent and Merger Sub contained in this Agreement shall be true and correct on and as of the Effective Date, except for changes contemplated by this Agreement or which do not have a Parent Material Adverse Effect and except for those representations and warranties which address matters only as of a particular date (which shall remain true and correct as of such date), with the same force and effect as if made on and as of the Closing Date, and the Company shall have received a certificate to such effect signed on behalf of Parent by a duly authorized officer of Parent. (b) Agreements and Covenants. Parent and Merger Sub shall have performed or complied (which performance or compliance shall be subject to Parent's or Merger Sub's ability to cure as provided in Section 9.1(e) below) in all material respects with all covenants, obligations and conditions of this Agreement required to be performed or complied with by them on or prior to the Closing Date, and the Company shall have received a certificate to such effect signed by a duly authorized officer of Parent. -41-

(c) Legal Opinion. The Company shall have received a legal opinion from Evers & Hendrickson, LLP, counsel to Parent, in substantially the form attached hereto as Exhibit D. 7.3 Additional Conditions to the Obligations of Parent and Merger Sub. The obligations of Parent and Merger Sub to consummate the Merger and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, exclusively by Parent: (a) Representations and Warranties. The representations and warranties of the Company contained in this Agreement shall be true and correct on and as of the Effective Time, except for changes contemplated by this Agreement or which do not have a Company Material Adverse Effect (taking into account the provisions of the first paragraph of Article II) and except for those representations and warranties which address matters only as of a particular date (which shall remain true and correct as of such date), with the same force and effect as if made on and as of the Effective Time (subject, however, to the requirement that Section 2.3(c) and the provisions of Section 2.3(a) and (b) that address the outstanding capital stock of the Company and the reserves of stock set aside for outstanding options, warrants and other capital commitments shall be true and accurate without regard to the Material Adverse Effect qualification); and Parent and Merger Sub shall have received a certificate to such effect signed on behalf of the Company by the President and Chief Financial Officer of the Company; (b) Agreements and Covenants. The Company shall have performed or complied (which performance or compliance shall be subject to the Company's ability to cure as provided in Section 9.1(d) below) in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date, and Parent and Merger Sub shall have received a certificate to such effect signed by the President and Chief Financial Officer of the Company; (c) Third Party Consents. Parent shall have been furnished with evidence satisfactory to it that the Company has obtained the consents, approvals and waivers set forth in Schedule 2.6 where the failure to obtain such consents, approval and waivers would have a Company Material Adverse Effect. (d) Legal Opinion. Parent shall have received a legal opinion from Ropes & Gray, legal counsel to the Company, in substantially the form attached hereto as Exhibit E. (e) Termination of Company Investor Rights. Parent shall have been furnished evidence reasonably satisfactory to it that all investor rights granted by the Company to its shareholders and in effect prior to the Closing, including but not limited to rights of co-sale, voting, registration, first refusal, board observation or information or operational covenants, shall have terminated as of the Closing. (f) Escrow Schedule. The Company shall have executed and delivered to Parent the Escrow Schedule (as defined in Section 8.2 hereof). -42-

(g) Raise $1,000,000. The Company shall have raised $1,000,000 in cash from the sale of Series D Preferred stock in accordance with Section 6.15. (h) Liabilities Must Not Exceed $50,000. Total liabilities of Company must not exceed $50,000, after excluding Converted Creditors who have agreed to be paid in Parent Common Stock. 7.4 Consents/Covenants from Creditors. All of the Converted Creditors shall have executed agreements, in a form reasonable to the Company, acknowledging their waiver and release of the Company from all liability for all amounts owed in exchange for the receipt of Parent Common Stock and the status of such creditors as accredited investors or the sophistication of such creditors with respect to their acquisition of Parent Company Stock. All other creditors of the Company shall have signed agreements either: (1) waiving their rights to other compensation; or (b) indicating that they will accept payment of $0.33 for every dollar owed as payment if full for all debts due and owing from the Company. ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW 8.1 Survival of Representations and Warranties. All of the Company's representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall terminate not later than 5:00 p.m., California time, the date which is one year following the Closing Date (the "Expiration Date"); provided, however, that the representations and warranties relating or pertaining to any Tax or Returns related to such Tax set forth in Section 2.10 hereof, shall survive until the expiration of all applicable statues of limitations, or extensions thereof, governing each Tax or Returns related to such Tax. All of the Parent's and Sub's representations and warranties contained herein or in any instrument delivered pursuant to this Agreement shall terminate at the Effective Time. 8.2 Escrow Arrangements (a) Escrow Fund. At the Effective Time the holders of Series B Preferred Stock and Series D Preferred Stock will be deemed to have received and deposited with the Escrow Agent (as defined below) the Escrow Amount (plus any additional shares as may be issued upon any stock split, stock dividend or recapitalization effected by Parent after the Effective Time) without any act of any shareholder. As soon as practicable after the Effective Time, the Escrow Amount, without any act of any holder, will be deposited with The Pacific Bank, 100 Montgomery Street, San Francisco, California 94104 (or other institution acceptable to Parent and the Securityholder Agent (as defined in Section 8.2(g) below)) as Escrow Agent (the "Escrow Agent"), such deposit to constitute an escrow fund (the "Escrow Fund") to be governed by the terms set forth herein. The portion of the Escrow Amount contributed on behalf of each shareholder of Company shall be in proportion to the aggregate Parent Common Stock which such holder would otherwise be entitled under Sections 1.9(a) and (b) and shall be in the respective share amounts and percentages listed opposite each such Company's shareholder's names listed in a schedule to be executed by the Company and -43-

delivered to Parent at Closing (the "Escrow Schedule"). All shares of Parent Common Stock contributed to the Escrow Fund shall not be unvested or subject to any right of repurchase, risk of forfeiture or other condition in favor of the Surviving Corporation. The Escrow Fund shall be available to compensate Parent and its affiliates (including the Surviving Corporation) for any claims, losses, liabilities, damages, deficiencies, costs and expenses, including attorneys' fees and expenses, and expenses of investigation and defense (hereinafter individually a "Loss" and collectively "Losses") incurred by Parent, its officers, directors, or affiliates (including the Surviving Corporation) directly or indirectly as a result of: (i) any inaccuracy or breach of a representation or warranty of the Company contained herein (or in any certificate, instrument, schedule or document attached to this Agreement and delivered by the Company in connection with the Merger) of the shareholders of the Company made in any instrument executed by the shareholders in connection with the transactions contemplated hereby; (ii) any failure by the Company or its shareholders to perform or comply with any covenant contained herein or in any agreement or instrument contemplated hereby; and (iii) any legal or other fees and expenses, interest, fees or penalties related thereto. Parent may not receive any shares from the Escrow Fund, however, unless and until Officer's Certificates (as defined in Section 8.2(d) below) identifying Losses, the aggregate amount of which exceed $50,000, have been delivered to the Escrow Agent as provided in paragraph (e) and such amount is determined pursuant to this Article VIII to be payable; in such case, Parent may recover shares from the Escrow Fund equal in value to all indemnified Losses in excess of the $50,000 threshold for which there is no objection or any objection had been resolved in accordance with the provisions of this Article VIII. (b) Escrow Period; Distribution upon Termination of Escrow Periods. Subject to the following requirements, the Escrow Fund shall be in existence immediately following the Effective Time and shall terminate upon the earlier of: (i) the date on which Parent has received audited financial statements together with a report thereon from Parent's independent auditors covering the combined results of Parent and Company for the first fiscal year of Parent ending after the Closing Date; or (ii) at 5:00 p.m., California time, on the Expiration Date (the "Escrow Period"); provided, however, that the Escrow Period shall not terminate with respect to such amount (or some portion thereof), that together with the aggregate amount remaining in the Escrow Fund is necessary in the reasonable judgment of Parent, subject to the objection of the Securityholder Agent and the subsequent arbitration of the matter in the manner provided in Section 8.2(f) hereof, to satisfy any unsatisfied claims concerning facts and circumstances existing prior to the termination of such Escrow Period specified in any Officer's Certificate delivered to the Escrow Agent prior to termination of such Escrow Period. As soon as all such claims have been resolved, as evidenced by written memorandum of the Securityholder Agent and Parent, the Escrow Agent shall deliver to the shareholders of the Company the remaining portion of the Escrow Fund not required to satisfy such claims. Deliveries of Escrow Amounts to the shareholders of the Company pursuant to this Section 8.2(b) shall be made in proportion to their respective original contributions to the Escrow Fund (as set forth on the Escrow Schedule). At all times during the Escrow Period, the former holders of Series B Preferred Stock and Series D Preferred Stock shall be deemed to be the record holders of their respective amounts of the Parent Common Stock comprising the Escrow Amount. -44-

(c) Protection of Escrow Fund (i) The Escrow Agent shall hold and safeguard the Escrow Fund during the Escrow Period, shall treat such fund as a trust fund in accordance with the terms of this Agreement and not as the property of Parent and shall hold and dispose of the Escrow Fund only in accordance with the terms hereof. (ii) Any shares of Parent Common Stock or other equity securities issued or distributed by Parent (including shares issued upon a stock split or stock dividend) ("New Shares") in respect of Parent Common Stock in the Escrow Fund which have not been released from the Escrow Fund shall be added to the Escrow Fund and become a part thereof. New Shares issued in respect of shares of Parent Common Stock which have been released from the Escrow Fund shall not be added to the Escrow Fund but shall be distributed to the recordholders thereof. Cash dividends on Parent Common Stock shall not be added to the Escrow Fund but shall be distributed to the recordholders thereof. (iii) Each former holder of Series B Preferred Stock and Series D Preferred Stock shall be deemed the record holder of, and shall have voting, dividend, distribution and all other rights with respect to the shares of Parent Common Stock contributed to the Escrow Fund by such shareholder (and on any voting securities and other equity securities added to the Escrow Fund in respect of such shares of Parent Common Stock). (d) Claims Upon Escrow Fund (i) Upon receipt by the Escrow Agent at any time on or before the Expiration Date of a certificate signed by any officer of Parent (an "Officer's Certificate"): (A) stating that Parent has paid or properly accrued or reasonably anticipates that it will have to pay or accrue Losses; and (B) specifying in reasonable detail the individual items of Losses included in the amount so stated, the date each such item was paid or properly accrued, or the basis for such anticipated liability, and the nature of the misrepresentation, breach of warranty or covenant to which such item is related, the Escrow Agent shall, subject to the provisions of Section 8.2(e) hereof, deliver to Parent out of the Escrow Fund, as promptly as practicable, shares of Parent Common Stock held in the Escrow Fund in an amount equal to such Losses. (ii) For the purposes of determining the number of shares of Parent Common Stock to be delivered to Parent out of the Escrow Fund pursuant to Section 8.2(d)(i) hereof, the shares of Parent Common Stock shall be valued in the manner described in Section 1.9(c) of this Agreement. Parent and the Securityholder Agent shall certify such determined value in a certificate signed by both Parent and the Securityholder Agent, and shall deliver such certificate to the Escrow Agent. (e) Objections to Claims. At the time of delivery of any Officer's Certificate to the Escrow Agent, Parent shall deliver a duplicate copy of such certificate to the Securityholder Agent and for a period of thirty (30) days after such delivery, the Escrow Agent shall not deliver to Parent any Escrow Amounts pursuant to Section 8.2(d) hereof unless the Escrow Agent shall have received written authorization from the Securityholder Agent to make such delivery. After the expiration of such thirty (30) day period, the Escrow Agent -45-

shall make delivery of shares of Parent Common Stock from the Escrow Fund in accordance with Section 8.2(d) hereof, provided that no such payment or delivery may be made if the Securityholder Agent shall object in a written statement to the claim made in the Officer's Certificate, and such statement shall have been delivered to the Escrow Agent prior to the expiration of such thirty (30) day period. (f) Resolution of Conflicts; Arbitration. (i) In case the Securityholder Agent shall so object in writing to any claim or claims made in any Officer's Certificate, the Securityholder Agent and Parent shall attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims. If the Securityholder Agent and Parent should so agree, a memorandum setting forth such agreement shall be prepared and signed by both parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum and distribute shares of Parent Common Stock from the Escrow Fund in accordance with the terms thereof. (ii) If no such agreement is reached within sixty (60) days after receipt of the written objection of the Securityholder Agent, either Parent or the Securityholder Agent may demand arbitration of the matter unless the amount of the damage or loss is at issue in pending litigation with a third party, in which event arbitration shall not be commenced until such amount is ascertained or both parties agree to arbitration; and in either such event the matter shall be settled by arbitration conducted by three arbitrators. Parent and the Securityholder Agent shall each select one arbitrator, and the two arbitrators so selected shall select a third arbitrator, each of which arbitrators shall be independent and have at least ten years relevant experience. The arbitrators shall set a limited time period and establish procedures designed to reduce the cost and time for discovery while allowing the parties an opportunity, adequate in the sole judgment of the arbitrators, to discover relevant information from the opposing parties about the subject matter of the dispute. The arbitrators shall rule upon motions to compel or limit discovery and shall have the authority to impose sanctions, including attorneys fees and costs, to the extent as a court of competent law or equity, should the arbitrators determine that discovery was sought without substantial justification or that discovery was refused or objected to without substantial justification. The decision of a majority of the three arbitrators as to the validity and amount of any claim in such Officer's Certificate shall be binding and conclusive upon the parties to this Agreement, and notwithstanding anything in Section 8.2(e) hereof, the Escrow Agent shall be entitled to act in accordance with such decision and make or withhold payments out of the Escrow Fund in accordance therewith. Such decision shall be written and shall be supported by written findings of fact and conclusions which shall set forth the award, judgment, decree or order awarded by the arbitrators. (iii) Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction. Any such arbitration shall be held in San Francisco, California under the rules then in effect of the Judicial Arbitration and Mediation Services, Inc. -46-

(g) Securityholder Agent of the Shareholders; Power of Attorney. (i) In the event that the Merger is approved, effective upon such vote, and without further act of any shareholder, Michael Benjamin shall be appointed as agent and attorney-in-fact (the "Securityholder Agent") for each former shareholder of the Company (except such shareholders, if any, as shall have perfected their dissenters' rights under Massachusetts Law), for and on behalf of former shareholders of the Company, to give and receive notices and communications, to authorize delivery to Parent of shares of Parent Common Stock from the Escrow Fund in satisfaction of claims by Parent, to object to such deliveries, to agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to such claims, and to take all actions necessary or appropriate in the judgment of Securityholder Agent for the accomplishment of the foregoing. Such agency may be changed by the shareholders of the Company from time to time upon not less than thirty (30) days prior written notice to Parent; provided that the Securityholder Agent may not be removed unless holders of a two-thirds interest of the Escrow Fund agree to such removal and to the identity of the substituted agent. Any vacancy in the position of Securityholder Agent may be filled by approval of the holders of a majority in interest of the Escrow Fund. No bond shall be required of the Securityholder Agent, and the Securityholder Agent shall not receive compensation for his or her services. Notices or communications to or from the Securityholder Agent shall constitute notice to or from each of the former shareholders of the Company. (ii) The Securityholder Agent shall not be liable for any act done or omitted hereunder as Securityholder Agent while acting in good faith and in the exercise of reasonable judgment. The former shareholders of the Company on whose behalf the Escrow Amount was contributed to the Escrow Fund shall jointly and severally indemnify the Securityholder Agent and hold the Securityholder Agent harmless against any loss, liability or expense incurred without gross negligence or bad faith on the part of the Securityholder Agent and arising out of or in connection with the acceptance or administration of the Securityholder Agent's duties hereunder, including the reasonable fees and expenses of any legal counsel retained by the Securityholder Agent. (h) Actions of the Securityholder Agent. A decision, act, consent or instruction of the Securityholder Agent shall constitute a decision of all the former shareholders for whom a portion of the Escrow Amount otherwise issuable to them are deposited in the Escrow Fund and shall be final, binding and conclusive upon each of such shareholders, and the Escrow Agent and Parent may rely upon any such written decision, consent or instruction of the Securityholder Agent as being the decision, consent or instruction of each every such shareholder of the Company. The Escrow Agent and Parent are hereby relieved from any liability to any person for any acts done by them in accordance with such decision, consent or instruction of the Securityholder Agent. -47-

(i) Third-Party Claims. (i) If any third party shall notify Parent or its affiliates hereto with respect to or if Parent shall become aware of any matter (hereinafter referred to as a "Third Party Claim"), which may give rise to a claim by Parent against the Escrow Fund, then Parent shall give notice to the Securityholder Agent within 30 days of Parent becoming aware of any such Third Party Claim and of facts upon which any such Third Party Claim will be based setting forth such material information with respect to the Third party Claim as is reasonably available to Parent; provided, however, that no delay or failure on the part of Parent in notifying the Securityholder Agent shall relieve the Securityholder Agent and the former Company shareholders from any obligation hereunder unless the Securityholder Agent and the former Company shareholders are thereby materially prejudiced (and then solely to the extent of such prejudice). The Securityholder Agent and the former Company shareholders shall not be liable for any attorneys fees and expenses incurred by Parent prior to Parent's giving notice to the Securityholder Agent of a Third Party Claim. The notice from Parent to the Securityholder Agent shall set forth such material information with respect to the Third Party Claim as is then reasonably available to Parent. (ii) In case any Third Party Claim is asserted against Parent or its affiliates, Parent shall notify the Securityholder Agent thereof pursuant to Section 8.2(i)(i) hereinabove, and Parent shall be entitled to assume the defense thereof, with counsel selected by Parent. (iii) In the event that Parent assumes the defense of the Third Party Claim in accordance with Section 8.2(i)(ii) above, the Securityholder Agent may retain separate counsel and participate in the defense of the Third Party Claim, but the fees and expenses of such counsel shall be at the expense of the Company shareholders independent of the Escrow Fund. (iv) In each case, Parent or its affiliates shall conduct the defense of the Third Party Claim actively and diligently, and the Securityholder Agent and the former Company shareholders will cooperate with Parent or its affiliates in the defense of that claim and will use reasonable efforts to provide full access to documents, assets, properties, books and records reasonably requested by Parent and material to the claim and will use reasonable efforts to make available all individuals reasonably requested by Parent for investigation, depositions and trial. (j) Escrow Agent's Duties. (i) The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein, and as set forth in any additional written escrow instructions which the Escrow Agent may receive after the date of this Agreement which are signed by an officer of Parent and the Securityholder Agent, and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow Agent while acting in good faith and in the exercise of reasonable judgment, and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith. -48-

(ii) The Escrow Agent is hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person, excepting only orders or process of courts of law, and is hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case the Escrow Agent obeys or complies with any such order, judgment or decree of any court, the Escrow Agent shall not be liable to any of the parties hereto or to any other person by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. (iii) The Escrow Agent shall not be liable in any respect on account of the identity, authority or rights of the parties executing or delivering or purporting to execute or deliver this Agreement or any documents or papers deposited or called for hereunder. (iv) The Escrow Agent shall not be liable for the expiration of any rights under any statute of limitations with respect to this Agreement or any documents deposited with the Escrow Agent. (v) In performing any duties under the Agreement, the Escrow Agent shall not be liable to any party for damages, losses, or expenses, except for gross negligence or willful misconduct on the part of the Escrow Agent. The Escrow Agent shall not incur any such liability for: (A) any act or failure to act made or omitted in good faith; or (B) any action taken or omitted in reliance upon any written instrument, including any written statement or affidavit provided for in this Agreement that the Escrow Agent shall in good faith believe to be genuine, nor will the Escrow Agent be liable or responsible for forgeries, fraud, impersonations, or determining the scope of any representative authority. In addition, the Escrow Agent may consult with the legal counsel in connection with Escrow Agent's duties under this Agreement and shall be fully protected in any act taken, suffered, or permitted by him/her in good faith in accordance with the advice of counsel. The Escrow Agent is not responsible for determining and verifying the authority of any person acting or purporting to act on behalf of any party to this Agreement. (vi) If any controversy arises between the parties to this Agreement, or with any other party, concerning the subject matter of this Agreement, its terms or conditions, the Escrow Agent will not be required to determine the controversy or to take any action regarding it. The Escrow Agent may hold all documents and shares of Parent Common Stock and may wait for settlement of any such controversy by final appropriate legal proceedings or other means as, in the Escrow Agent's discretion, the Escrow Agent may be required, despite what may be set forth elsewhere in this Agreement. In such event, the Escrow Agent will not be liable for damage. Furthermore, the Escrow Agent may at its option, file an action of interpleader requiring the parties to answer and litigate any claims and rights among themselves. The Escrow Agent is authorized to deposit with the clerk of the court all documents and shares of Parent Common Stock held in escrow, except all cost, expenses, charges and reasonable attorney fees incurred by the Escrow Agent due to the interpleader action and which the parties jointly and severally agree to pay. Upon initiating such action, the Escrow Agent shall be fully released and discharged of and from all obligations and liability imposed by the terms of this Agreement. -49-

(vii) Parent and the Surviving Corporation agree jointly and severally to indemnify and hold Escrow Agent harmless against any and all losses, claims, damages, liabilities, and expenses, including reasonable costs of investigation, counsel fees, and disbursements that may be imposed on Escrow Agent or incurred by Escrow Agent in connection with the performance of its duties under this Agreement, including but not limited to any litigation arising from this Agreement or involving its subject matter. (viii) The Escrow Agent may resign at any time upon giving at least thirty (30) days written notice to the parties; provided, however, that no such resignation shall become effective until the appointment of a successor escrow agent which shall be accomplished as follows: the parties shall use their best efforts to mutually agree on a successor escrow agent within thirty (30) days after receiving such notice. If the parties fail to agree upon a successor escrow agent within such time, the Escrow Agent shall have the right to appoint a successor escrow agent authorized to do business in the state of California. The successor escrow agent shall execute and deliver an instrument accepting such appointment and it shall, without further acts, be vested with all the estates, properties, rights, powers, and duties of the predecessor escrow agent as if originally named as escrow agent. Upon such appointment of a successor escrow agent, the Escrow Agent shall be discharged from any further duties and liability under this Agreement. (k) Fees. All fees of the Escrow Agent for performance of its duties hereunder shall be paid by Parent. It is understood that the fees and usual charges agreed upon for services of the Escrow Agent shall be considered compensation for ordinary services as contemplated by this Agreement. In the event that the conditions of this Agreement are not promptly fulfilled, or if the Escrow Agent renders any service not provided for in this Agreement, or if the parties request a substantial modification of its terms, or if any controversy arises, or if the Escrow Agent is made a party to, or intervenes in, any litigation pertaining to this escrow or its subject matter, the Escrow Agent shall be reasonably compensated for such extraordinary services and reimbursed for all costs, attorneys' fees, and expenses occasioned by such default, delay, controversy or litigation. Parent promises to pay these sums upon demand. (l) Maximum Liability and Remedies. Except for intentional fraud and willful misconduct, the rights of Parent to make claims upon the Escrow Fund in accordance with this Article VIII shall be the sole and exclusive remedy of Parent and the Surviving Corporation after the Closing with respect to any representation, warranty, covenant or agreement made by Company under this Agreement (or in any certificate, instrument, schedule, statement or document delivered in connection with the Merger) and no former shareholder, option holder, warrant holder, director, officer, employee or agent of Company shall have any personal liability to Parent or the Surviving Corporation after the Closing in connection with the Merger. -50-

ARTICLE IX TERMINATION, AMENDMENT AND WAIVER 9.1 Termination. Except as provided in Section 9.2 below, this Agreement may be terminated and the Merger abandoned at any time prior to the Closing Date: (a) by mutual written consent duly authorized by the Board of Directors of the Company and Parent; (b) by either Parent or the Company if: (i) the Closing Date has not occurred by December 31, 1999 (provided that the right to terminate this Agreement under this clause 9.1(b)(i) shall not be available to any party whose willful failure to fulfill any obligation hereunder has been the cause of, or resulted in, the failure of the Effective Time to occur on or before such date and such action or failure constitutes a breach of this Agreement); (ii) there shall be a final non-appealable order of a federal or state court in effect preventing consummation of the Merger; or (iii) there shall be any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger by any Governmental Entity that would make consummation of the Merger illegal; (c) by Parent, if there shall be any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger, by any Governmental Entity, which would: (i) prohibit Parent's or the Company's ownership or operation of any portion of the business of the Company; or (ii) compel Parent or the Company to dispose of or hold separate, as a result of the Merger, any portion of the business or assets of the Company or Parent; (d) by Parent, if it is not in material breach of its obligations under this Agreement and there has been a breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of the Company and as a result of such breach the conditions set forth in Section 7.3(a) or 7.3(b), as the case may be, would not then be satisfied; provided, however, that if such breach is curable by the Company within ten (10) calendar days after written notice to the Parent through the exercise of the Company's reasonable best efforts, then for so long as the Company continues to exercise such reasonable best efforts Parent may not terminate this Agreement under this Section 9.1(d) (but no cure period shall be required for a breach which by its nature reasonably cannot be cured); (e) by the Company if, it is not in material breach of its obligations under this Agreement and there has been a breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of Parent or Merger Sub and as a result of such breach the conditions set forth in Section 7.2(a) or 7.2(b), as the case may be, would not then be satisfied; provided, however, that if such breach is curable by Parent or Merger Sub within ten (10) calendar days after written notice to the Company through the exercise of the reasonable best efforts of the Parent or Merger Sub, then for so long as the Parent or Merger Sub continues to exercise such reasonable best efforts the Company may not terminate this -51-

Agreement under this Section 9.1(e) (but no cure period shall be required for a breach which by its nature reasonably cannot be cured). Where action is taken to terminate this Agreement pursuant to Section 9.1, it shall be sufficient for such action to be authorized by the Board of Directors (as applicable) of the party taking such action. 9.2 Effect of Termination. Any termination of this Agreement under Section 9.1 above will be effective immediately upon the delivery of written notice of the terminating party to the other parties hereto. In the event of the termination of this Agreement as provided in Section 9.1, this Agreement shall be of no further force or effect, except: (a) as set forth in Sections 6.4, 6.5, this Section 9.2 and Article X (general provisions, including expenses) and provisions which provide expressly that they survive termination, each of which shall survive the termination of this Agreement; and (b) nothing herein shall relieve any party from liability for any breach of this Agreement prior to its termination. 9.3 Amendment. Except as is otherwise required by applicable law, prior to the Closing, this Agreement may be amended by the parties hereto at any time by execution of an instrument in writing signed by Parent and the Company. 9.4 Extension; Waiver. At any time prior to the Effective Time, Parent and Merger Sub, on the one hand, and the Company, on the other, may, to the extent legally allowed: (a) extend the time for the performance of any of the obligations of the other party hereto; (b) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto; and (c) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE X GENERAL PROVISIONS 10.1 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested) or at the time sent via facsimile (with acknowledgment of complete transmission) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice), provided, however, that notices sent by mail will not be deemed given until received: -52-

(a) if to Parent or Merger Sub, to: Zapworld.com, Inc. 117 Morris Street Sebastopol, California 95472
Attention: Garry Starr, President Telephone:(707) 824-4150 Facsimile:(707) 824-4159

with a copy to: Evers & Hendrickson, LLP 155 Montgomery Street, 12th Floor San Francisco, California 94104
Attention: William D. Evers, Esq. Telephone:(415) 772-8100 Facsimile:(415) 772-8101

(b) if to the Company, to: EMPower Corporation 210 Broadway, Building 3 Everett, Massachusetts 02149
Attention: Michael Benjamin Telephone:(617) 387-7200 Facsimile:(617) 387-7224

with a copy to: Ropes & Gray One International Place Boston, Massachusetts 02110 Attention: Howard K. Fuguet, Esq. Telephone:(617) 951-7000 Facsimile:(617) 951-7050 (c) if to the Securityholder Agent: EMPower Corporation 210 Broadway, Building 3 Everett, Massachusetts 02149 Attention: Michael Benjamin Telephone:(617) 3877200 -53-

Facsimile:(617) 387-7224 (d)if to the Escrow Agent: The Pacific Bank 100 Montgomery Street San Francisco, California 94104
Attention: Ronald Garcia Telephone:(415) 576-2556 Facsimile:(415) 576-2556

10.2 Expenses. Each party will bear its respective expenses and legal fees incurred with respect to this Agreement, and the transactions contemplated hereby. 10.3 Interpretation. For purposes of this Agreement, the words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The word "agreement" when used herein shall be deemed in each case to mean any contract, commitment or other agreement, whether oral or written, that is legally binding. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 10.4 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. 10.5 Entire Agreement; Assignment. This Agreement, the schedules and Exhibits hereto, and the documents and instruments and other agreements among the parties hereto referenced herein: (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; (b) are not intended to confer upon any other person any rights or remedies hereunder; and (c) shall not be assigned by operation of law or otherwise except as otherwise specifically provided, except that Parent and Merger Sub may assign their respective rights and delegate their respective obligations hereunder to a wholly-owned subsidiary provided that Parent remain primarily liable for its obligations hereunder. 10.6 Severability. In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 10.7 Other Remedies. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of -54-

any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. 10.8 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Each of the parties hereto consents to the jurisdiction and venue of the federal and state courts for San Francisco, California for purposes of any action arising out of this Agreement, and agrees that process may be served upon them in any manner authorized by this Agreement for delivery of notices, and waives any covenants not to assert or plead any objection which they might otherwise have to such jurisdiction and such process. 10.9 Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. 10.10 Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 10.11 Miscellaneous. Merge Sub hereby agrees that it may be sued in the Commonwealth of Massachusetts for any prior obligation of the Company, and any obligation thereafter incurred by Merger Sub, including the obligation created by section eighty-five of MGLA 156B, so long as any liability remains outstanding against the Company or Merger Sub in the Commonwealth of Massachusetts, and Merger Sub hereby irrevocably appoints the state secretary of the Commonwealth of Massachusetts as its agent to accept service of process in any action for the enforcement of any such obligation, including taxes, in the same manner as provided in MGLA chapter one hundred and eight-one. -55-

IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Securityholder Agent (as to Article VIII only) and the Escrow Agent (as to matters set forth in Article VIII only) have caused this Agreement to be signed by their duly authorized respective officers, all as of the date first written above. EMPower Corporation Zapworld.com, Inc. a Massachusetts corporation a California corporation
By: /s/ Michael Benjamin ----------------------------Michael Benjamin President By: /s/ Gary Starr ---------------------------Gary Starr President

SECURITYHOLDER AGENTS EmPower Acquisition, Inc. a California corporation
By: /s/ Michael Benjamin ----------------------------Michael Benjamin By: /s/ Gary Starr ---------------------------Gary Starr President

-56-

COMMERCIAL LEASE
TABLE OF CONTENTS Preamble

ARTICLE 1. 1.01 1.02 1.03 1.04 1.05 ARTICLE 2. 2.01 2.02 2.03 2.04 ARTICLE 3. 3.01 3.02 3.03 3.04 ARTICLE 4. 4.01 4.02 4.03 ARTICLE 5. 5.01 5.02 5.03 5.04 5.05 5.06 5.07

TERM OF LEASE Original Term Extended Term Holding Over Landlord's Inability to Deliver Possession Termination for Failure RENT Security Deposit Minimum Rent Late Charge Rental Increase USE OF PREMISES Permitted Use Insurance Hazards Waste or Nuisance Compliance With Laws TAXES AND UTILITIES Utilities Personal Property Taxes Real Property Taxes ALTERATIONS AND REPAIRS Condition of Premises Maintenance by Landlord Maintenance by Tenant Maintenance of Plate Glass Alterations and Liens Inspection by Landlord Surrender of Premises

ARTICLE 6. 6.01 6.02 ARTICLE 7. 7.01 7.02 7.03 ARTICLE 8. 8.01 8.02 ARTICLE 9. 9.01 ARTICLE 10. 10.01 10.02 10.03 10.04 10.05 10.06 10.07 10.08 10.09 ARTICLE 11. 11.01 11.02. 11.03 11.04 11.05 11.06 11.07 EXHIBIT "A" EXHIBIT "B" EXHIBIT "C"

INDEMNITY AND INSURANCE Hold-Harmless Clause Public Liability and Property Damage SIGNS AND TRADE FIXTURES Installation and Removal of Trade Fixtures Unremoved Trade Fixtures Signs DESTRUCTION OF PREMISES Landlord's Election to Repair or Terminate Insurance Proceeds CONDEMNATION Total Condemnation DEFAULT, ASSIGNMENT, AND TERMINATION Prohibition Against Subletting or Assignment Subordination Default Defined Termination of Lease and Recovery of Damages Landlord's Right to Continue Lease in Effect Landlord's Right to Relet Landlord's Right to Cure Tenant Defaults Cumulative Remedies Waiver of Breach MISCELLANEOUS Force Majeure-Unavoidable Delays Attorney's Fees Notices Binding on Heirs and Successors Partial Invalidity Sole and Only Agreement Time of Essence LEGAL DESCRIPTION IMPROVEMENTS PARCEL MAP

2

Preamble This lease is made and entered into on January 12, 1996 by and between DANIEL O. DAVIS and ROBBIN H. DAVIS ("landlord"), and ZAP POWER SYSTEMS/ ELECTRICYCLE CORPORATION, a California Corporation ("Tenant"). It is understood by parties hereto, that Tenant has been in possession of the property since November 1, 1995 and has paid rent in full for November and December 1995. Landlord, for and in consideration of the rent to be paid by Tenant and of the covenants and provisions to be kept and performed by Tenant under this lease, hereby leases to Tenant, and Tenant agrees to lease from Landlord, the following: the real property commonly known as 117 Morris Street, Sebastopol, California, and legally described on Exhibit "A" attached hereto ("the Property"), together with the warehouse and office space and paved parking now existing thereon and all improvements now existing and to be made by Landlord and as set forth in Exhibit "B" attached hereto. The term "Premises" as used in this lease shall mean all of the Real Property, the structures known as 117 Morris Street and all of the improvements thereto. ARTICLE 1 TERM OF LEASE Original Term Section 1.01. This lease for the property described in Exhibit "A" shall be for a term of (2) years and (5) months , commencing at 12:01 A.M. on January 1, 1996 ("Commencement Date"), and ending at 12:01 A.M. on June 1, 1998 ("Original Term"), unless terminated earlier pursuant to the provisions of this lease. The Tenant understands and agrees that possession of 117 Morris Street shall be delivered by Landlord January 1, 1996 subject to the provisions this lease. Regardless of the date of Possession, the Commencement date of this lease, which encompasses all of the property in Exhibit "A", shall be January 1, 1996. Extended Term Section 1.02. In the event Tenant is not then in default under this lease, Tenant shall have the option and right to extend the Original Term of this lease for one period of (5) years commencing on expiration of the Original Term. In the event Tenant is not then in default under this lease, Tenant shall have the option and right to extend this lease for one additional period of five (5) years commencing on expiration of the first five (5) year Extended Term. If Tenant elects to extend the term of this lease, Tenant must give Landlord written notice of Tenant's election to extend at least sixty (60) days before expiration of the previous term. During the Extended Term of this lease, if any, Landlord and Tenant shall be bound by all of the obligations, covenants, and agreements of this lease except that Tenant shall have no right to further extend the term of this lease beyond or after expiration of the two five (5) year Extended Terms granted under this section. References throughout this lease to "the term of 3

this lease" shall include both the Original Term and the Extended Term, if any, unless otherwise indicated. Holding Over Section 1.03. In the event Tenant holds over and continues in possession of the Premises after expiration of the Original Term (when Tenant has not validly exercised its option to extend the term of the lease in accordance with Section 1.02) or after expiration of the Extended Term (when Tenant has validly exercised its option to extend the term of the lease in accordance with Section 1.02), Tenant's continued occupancy of the Premises shall be considered a month-to-month tenancy subject to all the terms and conditions of this lease. Landlord's Inability to Deliver Possession Section 1.04. If Landlord is for any reason unable to deliver possession of the Premises to Tenant on the dates of Possession set forth in Section 1.01 of this lease, this lease shall not be void or voidable nor shall Landlord be liable to Tenant for any loss or damage resulting from failure to deliver possession to Tenant so long as Landlord has exercised, and continues to exercise, reasonable diligence to deliver possession of the Premises to Tenant. No rent shall, however, accrue or become due from Tenant to Landlord under this lease until the actual physical possession of the Premises is delivered, or the right to actual unrestricted physical possession of the Premises under this lease is tendered by Landlord to Tenant. Furthermore, the term of this lease shall not be extended by Landlord's inability to deliver possession of the Premises to Tenant on the dates of Possession set forth in Section 1.01. Termination for Failure of Possession Section 1.05. Notwithstanding any provision of Section 1.04 of this lease, if Landlord for any reason fails to deliver actual physical possession of the Premises, or fails to tender actual unrestricted physical possession of the Premises under this lease, to Tenant within one hundred eighty (180) days after the date for Possession specified in Section 1.01 of this lease, Tenant may terminate this lease by giving Landlord written notice of its election to do so. In the event Tenant elects to so terminate this lease, this lease shall become null and void as of the date Tenant delivers its written notice of termination to Landlord, and thereafter neither party to this lease shall be under any further obligation or liability to the other because of this lease and Landlord shall return to Tenant any consideration received from Tenant pursuant to or for execution of this lease. If Tenant elects to terminate this lease in accordance with the provisions of this section, it shall give written notice of its election to terminate to Landlord not later than five (5) days after the dates specified for Possession in Section 1.01 of this lease. 4

ARTICLE 2 RENT Security Deposit Section 2.01. Tenant has, contemporaneously with the execution of this lease and in addition to the minimum cash rental for the first month of the term hereof, deposited with Landlord the sum of four thousand four hundred dollars ($4,400.00), receipt of which is hereby acknowledged by Landlord, said sum being hereinafter referred to as the "Deposit Amount". The Deposit Amount shall be held by Landlord as security for the faithful performance by Tenant of all the terms, covenants and conditions of this lease by Tenant to be kept and performed during the term hereof, including payment of rent, repair of damages to the premises caused by Tenant, and to clean the premises upon termination. If at any time during the term of this lease any of the rent herein reserved shall be overdue and unpaid, or any other sum payable to Tenant to Landlord hereunder shall be overdue and unpaid, then Landlord may at its option (but Landlord shall not be required to), apply any portion of the Deposit Amount to the payment of any such overdue rent or other sum. In the event of the failure of Tenant to keep and perform all of the terms, covenants and conditions of this lease to be kept and performed by Tenant then, at its option, Landlord may, after terminating this lease, apply the entire Deposit Amount , or so much thereof as may be necessary, to compensate Landlord for all loss or damage sustained or suffered by Landlord due to such breach on the part of Tenant. Should the entire Deposit Amount, or any portion thereof, be applied by Landlord for the payment of overdue rent or other sums due and payable to Landlord by Tenant hereunder, then Tenant shall, upon the written demand of Landlord, forthwith remit to Landlord a sufficient amount in cash to restore said security to the original Deposit Amount; the Tenant's failure to do so within five (5) days after receipt of such demand shall constitute a breach of this lease. If the claim of the Landlord upon the deposit is only for defaults in payment of rent, then any remaining portion of the deposit shall be returned to Tenant no later than two (2) weeks after the date the Landlord receives possession of the premises. Where the claim of Landlord upon the deposit includes amounts reasonably necessary to repair damages to the premises caused by the Tenant or to clean the premises (not to include reasonable wear and tear), then any remaining portion of the deposit shall be returned to the Tenant no later than thirty (30) days from the date the Landlord receives possession of the premises. Upon termination of the Landlord's interest in the demised premises, Landlord shall within a reasonable time, do one of the following acts, either of which shall relieve the Landlord of further liability with respect to the deposit: (1) Transfer the portion of the deposit remaining after any lawful deductions to the Landlord's successor in interest, and thereafter notify the Tenant by personal delivery or certified mail of the transfer, of any claims made against the deposit, and of the transferee's name and address. (2) Return the portion of the deposit remaining after any lawful deductions to the Tenant. 5

Minimum Rent Section 2.02. Tenant agrees to pay to Landlord a fixed minimum rental for the use and occupancy of the Premises (the "Minimum Rent"). The amount of Minimum Rent payable for each month during the Original Term shall be four thousand four hundred dollars ($4,400.00), and the amount of Minimum Rent payable for each month during the Extended Terms, if any, shall be the same. The Minimum Rent shall be payable on the first day of each and every month commencing the first day the premises are made available for possession. The rent shall be payable at the office of Landlord at 111 Morris Street, Sebastopol, California, or at any other place or places as Landlord may from time to time designate by written notice delivered to Tenant. Minimum Rent for partial calendar months occurring at the commencement and termination of the term of this lease shall be prorated accordingly. Rental Increase Section 2.03. The Minimum Rent described above shall be adjusted on every first Anniversary of the commencement date of this lease beginning on January l, 1997 (including during any extension of this lease) to reflect the average percentage increase in the Consumer Price Index or All Urban Consumers using 1977 as a base year, as compiled by the Bureau of Labor Statistics of the United States Department of Labor for the San Francisco-Oakland Metropolitan Area for the reference month closest preceding each of the adjustment dates over the same Consumer Price Index for all Urban Consumers for the base reference month immediately preceding the commencement of this lease. The Minimum Rent as adjusted on each of the this lease or any interest therein by Tenant except as provided in Section 10.01 of this lease. Adjustment dates shall be the rent payable by Tenant to Landlord monthly for the use and occupancy of the premises until the next adjustment date; provided, however, in no event shall any adjustment result in a decrease in the Minimum Rent to a sum less than the Minimum Rent payable for each month of the Original Term. Late Charges Section 2.04. Tenant acknowledges that late payment of rent may cause Landlord to incur costs and expenses, the exact amount of such costs being extremely difficult and impractical to fix. Such costs may include, but are not limited to, processing and accounting expenses, late charges that may be imposed on Landlord by terms of any loan secured by the property, costs for additional attempts to collect rent, and preparation of notices. Therefore, if any installment of rent due from Tenant is not received by Landlord within five (5) business days after the date due, Tenant shall pay to Landlord an additional sum of ten percent (10%) of the amount due as a late charge, which shall be deemed additional rent. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord may incur by reason of Tenant's late payments. Acceptance of any late charge shall not constitute a waiver of Tenant's default with respect to the past due amount, or prevent Landlord from exercising any other rights and remedies under this agreement, and as provided by law. 6

ARTICLE 3 USE OF PREMISES Permitted Use Section 3.01. During the term of this lease (including the Original Term and the Extended Term, if any), the Premises shall be used for the exclusive purpose of operating and conducting a solar energy and environmental equipment sales and production facility, including bicycles, scooters and other equipment for uses normally incident to that purpose, and for no other purpose. Tenant shall not use or permit the Premises to be used for any other purpose, without the prior written consent of Landlord. In conducting the business specified in this section in and on the Premises, Tenant shall sell any merchandise and render any services that are customarily sold and rendered by the operators of similar businesses. Insurance Hazards Section 3.02. Tenant shall not commit or permit the commission of any acts on the Premises nor use or permit the use of the Premises in any manner that will increase the existing rates for or cause the cancellation of any fire, liability, or other insurance policy insuring the Premises or the improvements on the Premises. Tenant shall, at its own cost and expense, comply with any and all requirements of Landlord's insurance carriers necessary for the continued maintenance at reasonable rates of fire and liability insurance policies on the Premises and the improvements on the Premises. Waste or Nuisance Section 3.03. Tenant shall not commit or permit the commission by others of any waste on the Premises; Tenant shall not maintain, commit, or permit the maintenance or commission of any nuisance as defined in Civil Code Section 3479 on the Premises; and Tenant shall not use or permit the use of the Premises for any unlawful purpose. Compliance With Laws Section 3.04. Tenant shall at Tenant's own cost and expense comply with all statutes, ordinances, regulations, and requirements of all governmental entities, both federal and state and county or municipal, [including those requiring capital improvements to the Premises,] relating to Tenant's use and occupancy of the Premises whether those statutes, ordinances, regulations, and requirements are now in force or are subsequently enacted. The judgment of any court of competent jurisdiction, or the admission by Tenant in a proceeding brought against Tenant by any government entity, that Tenant has violated any such statute, ordinance, regulation, or requirement shall be conclusive as between Landlord and Tenant and shall constitute grounds for termination of thus lease by Landlord. The Landlord shall be responsible for any. hazardous waste which is discovered on the subject premises and which is proven to have existed at the commencement of this lease. 7

ARTICLE 4 TAXES AND UTILITIES Utilities Section 4.01. Tenant shall pay for all utilities and services furnished to or used by it, including, without limitation, gas, electricity, water, telephone service, and trash collection. Tenant shall make all arrangements for such services and shall pay all connection charges, and shall hold Landlord harmless from any liability for charges for said service. Personal Property Taxes Section 4.02. Tenant shall pay before they become delinquent all taxes, assessments, and other charges leveled or imposed by any governmental entity on the furniture, trade fixtures, appliances, terms used in this section, any shelves, counters, vaults, vault doors, wall safes? partitions, fixtures, machinery, plant equipment, office equipment, television or radio antennas, and communication equipment brought on the Premises by Tenant. Real Property Taxes Section 4.03. Landlord shall pay all real property taxes and assessments leveled or assessed ARTICLE 5 ALTERATIONS AND REPAIRS Condition of Premises Section 5.01. Tenant accepts the Premises, as well as the Improvements indicated and agreed on as per plan, in their present condition or as planned to be made, and stipulates with Landlord that the Premises and Improvements are in good, clean, safe, and tenantable condition as of the date of this lease. Tenant further agrees with and represents to Landlord that the Premises have been inspected by Tenant, that it has received assurances acceptable to Tenant by means independent of Landlord or any agent of Landlord of the truth of all facts material to this lease, and that the Premises are being leased by Tenant as a result of its own inspection and investigation and not as a result of any representations made by Landlord or any agent of Landlord except those expressly set forth in this lease. Maintenance by Landlord Section 5.02. Landlord shall, at its own cost and expense, maintain in good condition and repair the structural elements of the Building , landscaping, walkways, driveways, trash enclosures, and painting and maintenance of exterior walls. For purposes of this section, "structural elements" shall mean the exterior roof, exterior walls (except show window glass), structural supports, and foundation of the Building. Landlord shall not be liable for any damages to Tenant or the property of Tenant resulting from Landlord's failure to make any repairs required by this section unless written notice of the need for those repairs has been 8

given to Landlord by Tenant and Landlord has failed for a period of 30 days after receipt of the notice, unless prevented by causes not the fault of the Landlord, to make the needed repairs. Notwithstanding anything in this section to the contrary, Tenant shall promptly reimburse Landlord for the full cost of any repairs made pursuant to this section required because of the negligence or other fault, other than normal and proper use, of Tenant or its employees or agents or subtenants, if any. Landlord and its agents shall have the right to enter the Premises at all reasonable times after giving Tenant twenty-four (24) hours notice (and at any time during an emergency) for the purpose of inspecting them or to make any repairs required to be made by Landlord under this lease. Maintenance by Tenant Section 5.03. Except as otherwise expressly provided in Section 5.02 of this lease, Tenant shall at its own cost and expense keep and maintain all portions of the Premises and all Improvements located on the Premises in good order and repair and in as safe and clean a condition as they were when received by Tenant from Landlord, reasonable wear and tear excepted. Maintenance of Plate Glass Section 5.04. Tenant shall, at its own cost and expense, repair and replace any plate glass in any show window on the Premises that is broken regardless of any cause. Furthermore, Tenant shall at Tenant's own cost and expense at all times during the term of this lease carry adequate plate glass insurance on the glass in all show windows on the Premises to perform the repair and replacement requirements of this section. Should Tenant fail to repair or replace any glass broken in a show window or fall to maintain adequate plate glass insurance on the glass in show windows on the Premises, Landlord may replace or repair the broken glass or secure that insurance and Tenant shall promptly reimburse Landlord for the cost of the repair, replacement, or insurance. In addition, Tenant shall pay Landlord interest on those costs at the rate of ten percent (10%) per year from the date the costs were incurred by Landlord to the date they are reimbursed to Landlord by Tenant. Alterations and Liens Section 5.05. Tenant shall not make or permit any other person to make any alterations to the Premises or to any Improvements on the Premises without the prior written consent of Landlord. Landlord shall not unreasonable withhold this consent. Tenant shall keep the premises free and clear from any and all liens, claims, and demands for work performed, materials furnished, or operations conducted on the Premises at the instance or request of Tenant. Furthermore, any and all alterations, additions, improvements, and fixtures, except furniture and trade fixtures, made or placed in or on the Premises by Tenant or any other person shall on expiration or earlier termination of this lease, become the property of Landlord and remain on the Premises. Landlord shall have the option, however, on expiration or termination of this lease, of requiring Tenant, at Tenant's sole cost 9

and expense, to remove any or all such alterations, additions, improvements, or fixtures from the Premises. Inspection by Landlord Section 5.06. Tenant shall permit Landlord or Landlord's agents, representatives, or employees to enter the Premises at all reasonable times after giving Tenant twenty-four (24) hours notice for the purpose of inspecting the Premises to determine whether Tenant is complying with the terms of this lease, for the purpose of doing other lawful acts that may be necessary to protect Landlord's interest in the Premises, or for the purpose of performing Landlord's duties under this lease. Surrender of Premises Section 5.07. On expiration or earlier termination of this lease, Tenant shall promptly surrender and deliver the Premises to Landlord in as good condition as they are now at the date of this lease, excluding reasonable wear and tear, and repairs required to be made by Landlord under this lease. ARTICLE 6 INDEMNITY AND INSURANCE Hold-Harmless Clause Section 6.01. Tenant agrees to protect, indemnify, and save Landlord harmless from and against any all liability to third parties resulting from Tenant's occupation and use of the Premises, specifically including, without limitation, any claim, liability, loss, or damage arising by reason of: (a) The death or injury of any person or persons, including Tenant or any person who is an employee or agent of Tenant, or by reason of the damage to or destruction of any property, including property owned by Tenant or any person who is an employee or agent of Tenant, and caused or allegedly caused by either the condition of the Premises, or some act or omission of Tenant or of some agent, contractor, employee, servant, subtenant, or concessionaire of Tenant on the Premises; (b) Any work performed on the Premises or materials furnished to the Premises at the instance or request of Tenant or any agent or employee of Tenant; and (c) Tenant's failure to perform any provision of this lease or to comply with any requirement of law or any requirement imposed on Landlord or the leased premises by any duly authorized governmental agency or political subdivision. Public Liability and Property Damage Insurance Section 6.02. Tenant shall, at Tenant's expense, maintain and keep in force during the term of this lease a policy of comprehensive public liability insurance insuring Tenant and 10

Landlord against any liability arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be in an amount of not less than One Million Dollars ($1,000,000), combined single limit. If Tenant shall fail to procure and maintain said insurance Landlord may, but shall not be required to, procure and maintain the same, but at the expense of Tenant. Not more frequently than each three (3) years, if in the opinion of Landlord or its insurance broker the amount of public liability and property damage insurance coverage of the time is not adequate, Tenant shall increase the insurance coverage as required by either Landlord, its lender or insurance broker. (a) Fire Insurance. In order that the business of Tenant may continue with as little interruption as possible, Tenant shall, during the full term of this lease and any renewals or extensions thereof, maintain at Tenant's own cost and expense an insurance policy issued by a reputable company authorized to conduct insurance business in California insuring for their full insurable value all fixtures and equipment and, to the extent possible, all merchandise that is, at any time during the term of this lease or any renewal or extension thereof, in or on said premises against damage or destruction by fire, theft, or the elements. (b) Insurance Policy Form. The bodily injury liability insurance and property damage insurance to be maintained by Tenant shall be carried in the joint names of Landlord and Tenant. Such policy shall be subject to Landlord's approval as to form and substance and shall expressly provide that the policy shall not be canceled or altered without thirty (30) days prior written notice to Landlord. Upon insurance thereof, such policy or a duplicate or a certificate thereof, shall be delivered to Landlord for retention by it. The insurance policy to be maintained by Tenant shall be issued by good and responsible insurance companies authorized to do business in the state of California. ARTICLE 7 SIGNS AND TRADE FIXTURES Installation and Removal of Trade Fixtures Section 7.01. Tenant shall have the right at any time and from time to time during the term of this lease, at Tenant's sole cost and expense, to install and affix in, to, or on the Premises any items, herein called "trade fixtures", for use in Tenant's trade or business that Tenant may, in Tenant's sole discretion, deem advisable. Any and all trade fixtures that can be removed without structural damage to the Premises or any building or improvements on the Premises shall, subject to Section 7.02 of this lease, remain the property of the Tenant and may be removed by Tenant at any time before the expiration or earlier termination of this lease, provided Tenant repairs any damage caused by the removal. Unremoved Trade Fixtures Section 7.02. Any trade fixtures described in this Article that are not removed from the Premises by Tenant within thirty (30) days after the expiration or earlier termination regardless of cause, of this lease shall be deemed abandoned by Tenant and shall automatically become the property of Landlord as owner of the real property to which they are affixed. 11

Signs Section 7.03. Tenant may erect, maintain, permit, and from time to time remove any signs at Tenant's sole cost and expense, in or about the Premises that Tenant may deem necessary or desirable, provided that any signs erected or maintained by Tenant and authorized by Landlord, and shall comply with all requirements of any governmental authority with jurisdiction. ARTICLE 8 DESTRUCTION OF PREMISES Landlord's Election to Repair or Terminate Section 8.01. Should the premises or the building on said premises be destroyed in whole or in part from any cause, Landlord may at Landlord's option either: (a) Continue this lease in full force and effect by repairing and restoring, at Landlord's own cost and expense, said premises to their former condition if that can be accomplished within ninety (90) days from the date of destruction, or (b) Terminate this lease by giving Tenant written notice of such termination. Insurance Proceeds Section 8.02. Any insurance proceeds received by Landlord because of the total or partial destruction of said premises of the building on said Premises shall be the sole property of Landlord free from any claims of Tenant, and may be used by Landlord for whatever purpose Landlord may desire. Should Landlord elect to repair and restore the premises to their former condition following partial or full destruction of said Premises or the building on said premises: (a) Tenant shall not be entitled to any damage for any loss or inconvenience sustained by Tenant as a result of the making of such repairs and restoration, unless caused by negligence of Landlord or Landlord's agents; (b) Landlord shall have full right to enter said Premises and take possession of so much of said Premises, including the whole of said Premises, as may be reasonably necessary to enable Landlord promptly and efficiently to carry out the work of repair and restoration; and (c) The rent payable by Tenant to Landlord for the part destroyed shall be abated to the extent and for the time Tenant is prevented from using that portion of the premises. 12

ARTICLE 9 CONDEMNATION Section 9.01. If title to all or any part of the Premises be taken for any public or quasi-public use under any statute or by right of eminent domain, or by private purchase in lieu thereof, Landlord may terminate this Lease as of the date that possession of said premises or part thereof, be taken. All compensation awarded or paid upon such taking, including the full fair market value of the property taken and damage for injury, if any, to the remainder, shall belong solely to and be the property of Landlord, whether such compensation be awarded or paid as compensation for diminution in value of the leasehold or to the fee; provided, however, that Landlord shall not be entitled to any award made to Tenant for loss of good will to Tenants business or for cost of removal of stock and fixtures. If by reason of such taking, a reasonable amount of the premises reasonable suitable for Tenant's continued occupancy for the uses and purposes for which the premises are leased does not remain, Tenant may terminate this lease as of the date possession of said premises or part thereof be taken. If neither party terminates this lease by reason of a partial taking, the lease shall nevertheless terminate unless the parties reach agreement as to the rent payable hereunder for the remaining portions of the premises prior to the date possession of the portion of the premises is taken. Each party agrees to execute and deliver to the other all instruments that may be required to effectuate the provisions hereof. ARTICLE 10 DEFAULT, ASSIGNMENT, AND TERMINATION Restriction Against Subletting or Assignment Section 10.01. Tenant shall not encumber, assign, otherwise transfer this lease, any right or interest in this lease, or any right or interest in the Premises or any of the Improvements that may now or hereafter be constructed or installed on the Premises without first obtaining the express written consent of Landlord. Tenant shall not sublet the Premises or any part of the Premises or allow any other person, other than Tenant's agents, servants, and employees to occupy the Premises or any part of the Premises without the prior written consent of Landlord. A consent by Landlord to one assignment, one subletting, or one occupation of the Premises by another person shall not be deemed to be a consent to any subsequent assignment, subletting, or occupation of the Premises by another person. Any encumbrance, assignment, transfer, or subletting without the prior written consent of Landlord, whether voluntary or involuntary, by operation of law or otherwise, is void and shall, at the option of Landlord, terminate this lease. The consent of Landlord to any assignment of Tenant's interest in this lease or the subletting by Tenant of the Premises or parts of the Premises shall not be unreasonable withheld. Subordination Section 10.02. Tenant agrees that this lease shall be subordinate to any mortgages or trust deeds that are now or may hereafter be placed upon said premises and to any and all 13

advances made or to be made thereunder, and to the interest thereon and all renewals, replacements and extensions thereof, provided the mortgagee or beneficiary named in said mortgages or trust deed shall agree to recognize the lease of the Tenant in the event of foreclosure if the Tenant is not in default. If any mortgagee or beneficiary elects to have this lease superior to its mortgage, or deed of trust by notice to Tenant, then this lease shall be deemed superior to the lien of any such mortgage or trust deed, whether this lease is dated or recorded before or after said mortgage or trust deed. Default Defined Section 10.03. The occurrence of any of the following shall constitute a material default and breach of this lease by Tenant: (a) Any failure by Tenant to pay the rent or to make any other payment required to be made by Tenant under this lease when that failure continues for ten (10) days after written notice of the failure is given by Landlord to Tenant. (b) The abandonment or vacation of the Premises by Tenant (the absence of Tenant from or the failure by Tenant to conduct business on the Premises for a period in excess of fourteen (14) consecutive days shall constitute an abandonment or vacation for purposes of this lease.) (c) A failure by Tenant to observe and perform any other provision of this lease to be observed or performed by Tenant, when that failure continues for thirty (30) days after written notice of Tenant's failure is given by Landlord to Tenant; provided, however, that if the nature of that default is such that it cannot reasonable be cured within said thirty (30) day period, Tenant shall not be deemed to be in default if Tenant commences that cure within the said thirty (30) day period and thereafter diligently prosecutes it to completion. (d) The making by Tenant of any general assignment for the benefit of creditors; the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or of a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, it is dismissed within sixty (60) days); the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this lease, when possession is not restored to Tenant within thirty (30) days; or the attachment, execution, or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this lease, when that seizure is not discharged within thirty (30) days. Termination of Lease and Recovery of Damages Section 10.04. In the event of any default by Tenant under this lease, in addition to any other remedies available to Landlord at law or in equity, Landlord shall have the right to terminate this lease and all rights of Tenant hereunder by giving written notice of the termination. No act of Landlord shall be construed as terminating this lease except written notice given by Landlord to Tenant advising Tenant that Landlord elects to terminate the lease. in the event Landlord elects to terminate this lease, Landlord may recover from Tenant: 14

(a) The worth at the time of award of any unpaid rent that had been earned at the time of termination of the lease; (b) The worth at the time of award of the amount by which the unpaid rent that would have been earned after termination of the lease until the time of award exceeds the amount of rental loss that Tenant proves could have been reasonably avoided; (c) The worth at the time of award of the amount by which the unpaid rent for the balance of the term of this lease after the time of award exceeds the amount of rental loss that Tenant proves could be reasonably avoided; and (d) Any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform its obligations under this lease. The term "rent" as used in this section shall mean the Minimum Rent, the Percentage Rent, and all other sums required to be paid by Tenant pursuant to the terms of this lease. As used in subsections (a) and (b) above, the "worth at the time of award" is computed by allowing interest at the rate of ten percent (10%) per year. As used in subsection c), the "worth at the time of award" is computed by discounting that amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). Landlord's Right to Continue Lease in Effect Section 10.05. (a) If Tenant breaches this lease and abandons the Premises before the natural expiration of the term of this lease, Landlord may continue this lease in effect by not terminating Tenant's right to possession of the Premises, in which event Landlord shall be entitled to enforce all its rights and remedies under this lease, including the right to recover the rent specified in this lease as it becomes due under this lease. For as long as Landlord does not terminate this lease, Tenant shall have the right to assign or sublease the Premises with the Landlord's prior written consent. Landlord shall not unreasonably withhold consent. (b) No act of Landlord, including but not limited to Landlord's entry on the Premises, efforts to relet the Premises, or maintenance of the Premises, shall be construed as an election to terminate this lease unless a written notice of that intention is given to Tenant or unless the termination of this lease is decreed by a court of competent jurisdiction. Landlord's Right to Relet Section 10.06. In the event Tenant breaches this lease, Landlord may enter on and relet the Premises or any part of the Premises to a third party or third parties for any term, at any rental, and on any other terms and conditions that Landlord in its sole discretion may deem advisable, and shall have the right to make alterations and repairs to the Premises. Tenant shall be liable for all of Landlord's costs in reletting, including but not limited to remodeling costs required for the reletting. In the event Landlord relets the premises, Tenant 15

shall pay all rent due under and at the times specified in this lease, less any amount or amounts actually received by Landlord from the reletting. Landlord's Right to Cure Tenant Default Section 10.07. If Tenant breaches or fails to perform any of the covenants or provisions of this lease, Landlord may, but shall not be required to, cure Tenant's breach. Any sum expended by Landlord, with the ten maximum legal rate of interest, shall be reimbursed by Tenant to Landlord with the next due rent payment under this lease. Cumulative Remedies Section 10.08. The remedies granted to Landlord in this Article shall not be exclusive but shall be cumulative and in addition to all remedies now or hereafter allowed by law or provided in this lease. Waiver of Breach Section 10.09. The waiver by Landlord of any breach by Tenant of any of the provisions of this lease shall not constitute a continuing waiver or waiver of any subsequent breach by Tenant either of the same or another provision of this lease. ARTICLE 11 MISCELLANEOUS Force Majeure-Unavoidable Delays Section 11.01. If the performance of any act required by this lease to be performed by either Landlord or Tenant is prevented or delayed by reason of an act of God, strike, lockout, labor troubles, inability to secure materials, restrictive governmental laws or regulations, or any other cause except financial inability that is not the fault of the party required to perform the act, the time for performance of the act will be extended for a period equivalent to the period of delay, and performance of the act during the period of delay will be excused. However, nothing contained in this section shall excuse the prompt payment of rent by Tenant as required by this lease or the performance of any act rendered difficult solely because of the financial condition of the party required to perform the act. Attorney's Fees Section 11.02. If any litigation is commenced between the parties to this lease concerning the Premises, this lease, or the rights and duties of either in relation to the Premises or to this lease, the party prevailing in that litigation shall be entitled to, in addition to any other relief that may be granted in the litigation, a reasonable sum as and for it's attorney's fees in that litigation that are determined by the court in that litigation or in a separate action brought for that purpose. 16

Notices Section 11.03. Except as otherwise expressly provided by law, any and all notices or other communications required or permitted by this lease or by law to be served on or given to either party to this lease by the other party to this lease shall be in writing and shall be deemed duly served and given when personally delivered to the party to whom they are directed, or in lieu of personal service, when deposited in the United States mail, firstclass postage prepaid, addressed to Tenant at 117 Morris Street, Sebastopol, California 95472 or to Landlord at 111 Morris Street, Sebastopol, California 95472. Either party, Tenant or Landlord, may change it's address for the purpose of this section by giving written notice of that change to the other party in the manner provided in this section. Binding on Heirs and Successors Section 11.04. This lease shall be binding on and shall inure to the benefit of the heirs, executors, administrators, successors, and assigns of Landlord and Tenant, but nothing in this section shall be construed as a consent by Landlord to any assignment of Partial Invalidity Section 11.05. If any provision of this lease is held by a court of competent jurisdiction to be either invalid, void, or unenforceable, the remaining provisions of this lease shall remain in full force and effect unimpaired by the holding. Sole and Only Agreement Section 11.06. This instrument constitutes the sole and only agreement between Landlord and Tenant respecting the Premises, the leasing of the Premises to Tenant, or the lease term created under this lease, and correctly sets forth the obligations of Landlord and Tenant to each other as of its date. Any agreements or representations respecting the Premises or their leasing by Landlord to Tenant not expressly set forth in this instrument are null and void. Time of Essence Section 11.07. Time is expressly declared to be of the essence in this lease. Executed on January 12, 1996, at Sebastopol, California.
/s/ David O. Davis --------------------------------Daniel O. Davis (Landlord) /s/ Robbin H. Davis --------------------------------Robbin H. Davis (Landlord) /s/ James McGreen (President) --------------------------------ZAP POWER SYSTEMS/ELECTRICYCLE CORP. (Tenant)

17

EXHIBIT "B" Improvements Landlord agrees to the following terms and conditions: (1) Offices will be cleaned and made ready for occupancy. (2) Office furniture, file cabinets, copier, and other items needed per Don Bright's walk through of Premises to become the property of ZAP Power Systems/Electricycle Corp. (3) Phone System will remain on Premises for tenants use for as long as Tenant occupies Premises. Tenant is responsible for upkeep and repair. Tenant shall take ownership of all phones. (4) Landlord to supply 8' x 20' outside area for storage container. (5) Landlord to supply one (1) double door entrance from downstairs office to warehouse, doors to be included. 18

Extension of Lease: 117 Morris Street, Sebastopol 1. Extension of Lease Agreement made by and between Daniel O. Davis and Robin H. Davis (Landlord), and ZAP Power Systems (Tenant) relative to a certain lease agreement for premises known as 117 Morris Street, and dated January 12, 1996 (Lease). 2. For good consideration, Landlord and Tenant each agree to extend the term of said Lease for a period of (3) three years commencing on June 1, 1993, terminating on June 1, 2002. The tenant has the option and right to extend this lease for one period of (3) years commencing on the expiration of the Original Term. The other conditions of this renewal option are described in the original lease, Section 1.02. 3. During the extended term, Tenant shall pay Lessor rent of $4,614.40 per month with consideration given to Rental Increases as described in the Original Lease. 4. Other terms are as follows: Lessee shall agree to continue the terms of the lease as specified in the Original Lease. Lessor agrees to install wall ventilation openings and/or ceiling ventilation fans per specifications and as agreed to by Lessee and Lessor to help with the air flow in maintaining an acceptable comfort level in the shop portion of the building. These improvement shall be completed no later than August 10, 1998. Lessor agrees to install a 10' wide paved path from the existing parking lot to the front of 111 Morris Street. This improvement shall be completed no later than August 31, 1998. 5. It is further provided that all other terms of the Lease shall continue during this extended term. This agreement shall be binding upon and shall inure to the benefit of the parties, their successors, assigns and personal representatives. Executed on July 10, 1998 at Sebastopol, California.
/s/ Daniel O. Davis -------------------------Daniel O. Davis (Landlord) /s/ Robbin H. Davis -------------------------Robbin H. Davis (Landlord)

/s/ James McGreen ------------------------James McGreen, President (Tenant)

LEASE THIS LEASE, is made AUGUST 6 1999, between PINE CREEK PROPERTIES, a California general partnership, "Landlord", whose address is P.O. Box 11218, Santa Rosa, CA 95406, and ZAPWORLD. COM "Tenant," whose address is ONE ZAP DR., 117 MORRIS ST. SEBASTOPOL, CA 951172. This Lease is made with reference to the following facts and objectives: (a) Landlord is the owner of the premises described in Paragraph 1 and Exhibit "A", which consists, generally, of APPROX. 5,000 SQ. FEET WAREHOUSE/OFFICE. (b) Tenant is willing to lease the premises from Landlord pursuant to the provisions stated in this Lease. (c) Tenant wishes to lease the premises for the purposes of MANUFACTURE AND ASSEMBLY OF ELECTRIC VEHICLES. (d) Tenant has examined the premises and is fully informed of their condition. THE PARTIES HERETO AGREE AS FOLLOWS: 1. PREMISES. Landlord hereby leases to Tenant and Tenant hereby hires and takes from Landlord, upon the terms and conditions herein set forth, the real property located at 6780 DEPOT STREET, SEBASTOPOL Sonoma County, California, and more particularly described in Exhibit "A", together with the building and other improvements located on the real property ("premises"). 2. TERM. (a) The term of this lease shall commence on the 1st day of SEPTEMBER, 1999, and end on the 1st day of June, 2004, inclusive. (b) If Landlord is unable to deliver possession of the premises Tenant, by the date specified above for the commencement of the term of this Lease, neither Landlord nor its agent shall be liable for any damage caused thereby, nor shall this Lease thereby become void or voidable, and the term herein specified shall, in such case, commence upon the date of delivery of possession of the premises to Tenant and shall terminate FIVE (5) years thereafter. In such event, Tenant shall not be liable for any rent until such time as Landlord shall deliver possession of the premises to Tenant. 3. ACCEPTANCE OF PREMISES. Tenant's taking possession of the premises on commencement of the term shall constitute Tenant's acknowledgment that the premises are in good condition.

4. RENT. Tenant agrees to pay to Landlord, as rent for the premises the sum of TWO HUNDRED AND NO/100 -Dollars ($2,500.00) per month, in advance, on the first day of the term of this Lease and on the first day of each calendar month thereafter during the term. Rent for any partial month shall be prorated at the rate of 1/30th of the monthly rent per day. All installments of rent shall be paid at the address to which notices to Landlord are given, or at such other place as may be designated in writing, from time to time by Landlord, in lawful money of the United States and without deduction or offset for any cause whatsoever. In addition, Tenant agrees to pay to Landlord a late payment of ten percent (10%) of the amount due for any payment received later than the seventh day of each calendar month. 5. RENT ADJUSTMENTS. The monthly tent provided for in Paragraph 4 ("minimum monthly rent") shall be subject to adjustment at the commencement of the second year of the term and each year thereafter (the "adjustment date"), as follows: The base for computing the adjustment is the Consumer Price Index, All Urban Consumers ("All Items") for the San Francisco-Oakland Metropolitan Area, published by the United States Department of Labor, Bureau of Labor Statistics ("Index"), which is published for the month nearest the date of commencement of the term ("Beginning Index"). If the index published nearest the adjustment date ("Extension Index") has increased or decreased over the Beginning Index, the minimum monthly rent for the following year shall be set by multiplying the minimum monthly rent set forth in Paragraph 4, by a fraction, the numerator of which is the Extension Index and the denominator of which is the Beginning Index. In no case shall the minimum monthly rent be less than the minimum monthly rent set forth in Paragraph 4. On adjustment of the minimum monthly rent as provided in this Lease, the parties shall immediately execute an amendment to the Lease stating the new minimum monthly rent. If the index is changed so that the base year differs from that used as of the month immediately preceding the month in which the term commences, the Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index had not been discontinued or revised. 6. SECURITY DEPOSIT. On execution of this Lease, Tenant shall deposit with Landlord the sum of TWO THOUSAND FIVE HUNDRED AND NO/100 Dollars ($ 2500.00) as a security deposit for the performance by Tenant of the provisions of this Lease. If Tenant is in default, Landlord can use the security deposit, or any portion of it, to cure the default or to compensate Landlord for all damage sustained by Landlord resulting from Tenant's default. Tenant shall immediately, on demand pay to Landlord a sum equal to the portion of the security deposit expended or applied by Landlord as provided in this paragraph so as to maintain the security deposit in the sum initially deposited with Landlord. If Tenant is not in default at the expiration or termination of this Lease, Landlord shall return the security deposit to Tenant. Landlord's obligations with respect to the security deposit are 2

those of a debtor and not a trustee. Landlord can maintain the security deposit separate and apart from Landlord's general funds or can commingle the security deposit with Landlord's general and other funds. Landlord shall not be required to pay Tenant interest on the security deposit. 7. PERSONAL PROPERTY TAXES. Tenant shall pay before delinquency all taxes, assessments, license fees, and other charges that are levied and assessed against Tenant's trade fixtures or personal property installed or located in or on the premises, and that become payable during the term. On demand by Landlord, Tenant shall furnish Landlord with satisfactory evidence of these payments. 8. REAL PROPERTY TAXES. Landlord shall pay all real property taxes and general and special assessments ("real property taxes") levied and assessed against the premises, provided, however, that Lessee shall pay to Lessor any increase in real property tax assessed by reason of Tenant's activities or additional improvements placed upon the Premises by Lessee or at Lessee's request. 9. USE. The premises are to be used as described in the Recitals of this Lease, and for no other business or purpose without the prior written consent of Landlord. Tenant shall be responsible for any required City, County, State or Federal permits. No use shall be made or permitted to be made of the premises, nor acts done in or on about the premises, which will in any way conflict with any law, ordinance, rule or regulation affecting the occupancy or use of the premises which has been or is subsequently enacted or promulgated by any public authority, or which will increase the existing rate of insurance upon the building, or cause a cancellation of any insurance policy covering the building or any part thereof, nor shall Tenant sell, or permit to be kept, used or sold in or about the premises, any article which may be prohibited by the standard form of fire insurance policy. Tenant shall not commit, or suffer to be committed, any waste upon the premises or, any public or private nuisance, or other act of thing which may disturb the quiet enjoyment of any neighbor, commercial or residential, nor any other tenant in the building, nor use any apparatus, machinery or device in or about the premises which shall cause any substantial noise or vibration, or which shall substantially increase the amount of electricity or water, if any, agreed to be furnished or supplied under this Lease. Tenant further agrees not to connect with electric wires or water or other pipes any apparatus machinery or device without the consent of Landlord. If parking becomes an issue, Landlord shall assign specific parking spaces. 10. MAINTENANCE AND REPAIRS. Except as provided in Paragraphs 22 and 23, Tenant, at its cost, shall maintain the premises in good condition. Landlord shall be responsible for roof, walls and floor repair maintenance. Landlord shall not have any responsibility for general maintenance of the premises. Tenant waives the provisions of Civil Code Sections 1941 and 1942, with respect to Landlord's obligations for tenantability of the premises and Tenant's right to make repairs and deduct the expenses of such repairs from rent. 11. ALTERATIONS. Except as provided in Paragraph 12, Tenant shall not make any alterations to the premises without Landlord's consent. Unless otherwise provided by written agreement, all alterations shall be done either by or under the direction of Landlord, 3

but at the sole cost of Tenant, shall be the property of Landlord, and shall remain on and be surrendered with the premises on expiration or termination of the term; provided, however, that at Landlord's option, Tenant shall, at Tenant's expense, when surrendering the premises, restore the same to their original condition. If Tenant makes any alterations to the premises, as provided in this paragraph, the alterations shall not be commenced until two (2) days after has received notice from Tenant stating the date the installation of the alterations is to commence, so that Landlord can post and record an appropriate notice of non-responsibility. 12. TRADE FIXTURES. Subject to the provisions of Paragraph 11 hereof, Tenant may install and maintain its trade fixtures on the premises, provided that such fixtures, by reason of the manner in which they are affixed, do not become an integral part of the building or premises. Tenant, if not in default hereunder, may at any time or from time to time during the term hereof, or upon the expiration or termination of this Lease, alter or remove any such trade fixtures so installed by Tenant. If not so removed by Tenant on or before the expiration or termination of this Lease, Tenant, upon the request of Landlord so to do, shall thereupon remove the same. Any damage to the premises caused by any such installation, alteration or removal o such trade fixtures shall be promptly repaired at the expense of the Tenant. 13. MECHANICS' LIENS. Tenant shall pay all costs for construction done by it, or caused to be done by it, on the premises, including all required permits, as permitted by this Lease. Tenant shall keep the premises free and clear of all mechanics' liens resulting from construction done by or for Tenant. Tenant shall have the right to contest the correctness or validity of any such lien if, immediately on demand by Landlord, Tenant procures and records a lien release bond issued by a corporation authorized to issue surety bonds in California in an amount equal to one and one-half times the amount of the claim of the lien. The bond shall meet the requirements of Civil Code Section 3143 and shall provide for the payment of any sum that the claimant may recover on the claim (together with costs of suit, if it recovers in the action). 14. AMERICANS WITH DISABILITIES ACT (ADA). If Tenant's use and/or personnel requirements change after the granting of initial use permit which would enact new ADA requirements, then Tenant shall at all times keep the premises in compliance with the ADA and its supporting regulations, and all similar federal, state or local laws, regulations and ordinances with respect to this new use. If Landlord's consent would be required for alterations to bring the premises into compliance, Landlord agrees not to unreasonably withhold its consent. 15. HAZARDOUS MATERIALS ACKNOWLEDGMENT ENVIRONMENTAL REPRESENTATION AND LIABILITY RELEASE. Tenant acknowledges that various materials utilized in the construction of the Property may contain materials that have been or may in the future be determined to be toxic, hazardous or undesirable and may need to be specially treated, specially handled and/or removed from the Property. Such substances may be above and below ground on the Property or may be present on or in soils, water, building 6

components or other portions of the Property in areas that may or may not be accessible or noticeable. Tenant shall use and operate the premises, at all times during the term hereof, under and in compliance with the laws of the State of California and in compliance with all applicable environmental legal requirements. For any contamination to Leased Property due to Tenant's use, Tenant assumes full responsibility for the clean-up of such toxic hazardous or undesirable material as required by current and future federal, state and local laws and regulations. Tenant acknowledges that toxic wastes, hazardous materials and undesirable substances problems can be extremely costly to correct and Tenant relieves the Landlord from all liability related thereto due to Tenant's use. Tenant therefore hereby agrees that they shall indemnify and defend and hold the Landlord harmless from any claim, liability, damage, cost or expense, including but not limited to court costs and attorneys' fees, arising out of or in any way related to toxic waste, hazardous material and/or undesirable substance affecting the Leased Property related to and caused by Tenant's use. 16. UTILITIES. Tenant shall make all arrangements for, and pay for all utilities and services furnished to or used by it including, without limitation, gas, electricity, water, sewer, telephone service, and trash collection, and for all connection charges. If for any reason, any of these utilities or services are paid for by Landlord on behalf of Tenant, then Tenant shall reimburse Landlord upon receiving notice. 17. EXCULPATION OF LANDLORD. Landlord shall not be liable to Tenant for any injury or damage that may result to any person or property in or about the premises or the building which the premises are located, from any cause whatsoever, including but not limited to injury or damage resulting from any defects in the building, including roof leaks, or any equipment located therein, or from fire, water, gas, oil, electricity or other cause or any failure in the supply of same, or from the acts or neglect of any persons. 18. INDEMNIFY AND HOLD HARMLESS. Tenant agrees to indemnify and hold Landlord harmless against all claims, and the expense of defending against such claims, for injury or damage to persons or property occurring in or about the premises or occurring outside the premises but resulting in whole or in part from the act, failure to act, negligence or other fault of Tenant or its agents, employees or invitees. 19. LIMITATION OF LANDLORD'S LIABILITY. Tenant agrees to look solely to Landlord's interest in the building for the recovery of any judgement from Landlord, it being agreed that Landlord shall never be personally liable for any such judgement. The provision contained in the foregoing sentence is not intended to, and shall not, limit any right the Tenant might otherwise have to obtain injunctive relief against Landlord or Landlord's successors in interest or any other action not involving the personal liability of Landlord to respond in monetary damages from assets other than Landlord's interest in the building or any suit or action in connection with enforcement or collection of amounts which may become owing or payable under or on account of insurance maintained by Landlord. 5

20. INSURANCE. (a) Tenant, at its cost, shall maintain public liability and property damage insurance with a combined single limit of liability of not less than $1,000,000, insuring against all liability of Tenant and its authorized representatives arising out of and in connection with Tenant's use or occupancy of the premises. All public liability insurance, and property damage insurance shall insure performance by Tenant of the indemnity provisions of Paragraph 18. Both parties shall be named as additional insureds, and the policy shall contain cross-liability endorsements. (b) Not more frequently than three (3) years, if, in the opinion of Landlord's lender or of the insurance broker retained by Landlord, the amount of public liability and property damage insurance coverage at that time is not adequate, Tenant shall increase the insurance coverage as required by either Landlord's lender or Landlord's insurance broker. (c) Tenant, at its cost, shall maintain on all its personal property, Tenant's improvements, and alteration in, on, or about the premises, a policy of standard fire and extended coverage (Tenant shall be financially responsible for glass breakage), with vandalism and malicious mischief endorsements, to the extent of at least ninety percent (90%) of their full replacement value. The proceeds from any such policy shall be used by Tenant for the replacement of personal property or the restoration of Tenant's improvements or alterations. (d) Landlord shall maintain on the building and other improvements that are a part of the premises, a policy of standard fare and extended coverage insurance with vandalism and malicious mischief endorsements, to the extent of at least ninety percent (90%) full replacement value. (e) Tenant's obligation to pay the insurance costs, shall be prorated for any partial year, at the commencement and expiration or termination of the term. (f) All insurance policies maintained by Tenant, under this paragraph, shall contain a provision requiring thirty (30) days' written notice from the insurance company to both parties and Landlord's lender, before cancellation or change in the coverage, scope, or amount of any policy. Each policy, or a certificate of the policy, together with evidence of payment of premiums, shall be deposited with the other party at the commencement of the term, and on renewal of the policy, not less than twenty (20) days before expiration of the term of the policy. 21. WAIVER OF SUBROGATION. The parties release each other, and their respective authorized representatives, from any claims for damage to any person, or to the premises and to the fixtures, personal property, Tenant's improvements and alterations of either Landlord or Tenant in or on the premises that are caused by or result from the risks insured against under any insurance policies carried by the parties and in force at the time of any such damage. Each party shall cause each insurance policy obtained by it to provide that the insurance company waives all rights of recovery by way of subrogation against either party in 6

connection with any damage covered by any policy. Neither party shall be liable to the other for any damage caused by fire or any of the risks insured against under any insurance policy required by Lease. If any insurance policy cannot be obtained with a waiver of subrogation, or is obtainable only by the payment of an additional premium charge above that charged by insurance companies issuing policies without waiver of subrogation, the party undertaking to obtain the insurance shall notify the other party of this fact. The other party shall have a period of ten (10) days after receiving the notice either to place the insurance with a company that is reasonably satisfactory to the other party and that will carry the insurance with a waiver of subrogation, or to agree to pay the additional premium if such policy is obtainable at additional cost, if the insurance cannot be obtained or the party in whose favor a waiver of subrogation is desired refuses to pay the additional premium charged, the other party is relieved of the obligation to obtain a waiver of subrogation rights with respect to the particular insurance involved. 22. DESTRUCTION. If the whole or any part of the premises shall be destroyed by fire or other cause, or be so damaged thereby that they are untenantable and cannot be rendered tenantable within one hundred twenty (120) days from the date of such destruction or damage, or such damage or destruction is not covered by any insurance required to be maintained under Paragraph 20 this Lease may be terminated by Landlord or Tenant by written notice to the other. Within forty-five (45) days from date of such destruction or damage, Landlord shall give written notice to Tenant as to whether or not the premises will be rendered tenantable within one hundred twenty (120) days from the date of such destruction or damage and whether such damage or destruction is anticipated to be covered by the insurance required to be maintained under Paragraph 16. In case the damage or destruction be not such as to permit termination of the Lease as above provided, or neither Landlord nor Tenant elects to terminate the Lease as above provided, Landlord shall within reasonable time, render said premises tenantable, and a proportionate reduction shall be made in the rent herein reserved corresponding to the time during which and to the portion of the premises of which Tenant shall be deprived of possession. The provisions of Subdivision 2 of Section 1932 of the California Civil Code, and of Subdivision 4 of Section 1933 of that Code, shall not apply to this Lease. 23. CONDEMNATION. Should the whole or any part of the premises be condemned and taken by any competent authority for any public or quasi-public use or purpose, all awards payable on account of such condemnation and taking shall be payable to Landlord and Tenant hereby waives all interest in or claim to said awards, or any part thereof. If the whole of the premises shall be so condemned and taken, then this Lease shall terminate. If only a part of the premises is condemned and taken and the remaining portion thereof is not suitable for the purposes for which Tenant has leased said premises, this Lease shall terminate. If only a part of the premises is condemned and taken and the remaining portion thereof is suitable for the purposes for which Tenant has leased said premises, this Lease shall continue, but the rental shall be reduced in an amount proportionate to the value of the portion taken as it related to the total value of the premises. Each party waives the provisions of Code of Civil Procedure ss. 1265.130 allowing either party to petition the Superior Court to terminate this Lease in the event of a partial taking of the premises. 7

24. ASSIGNMENT AND SUBLETTING. Except as provided in Paragraph 24(d) hereof, Tenant shall not assign, mortgage or pledge this Lease, or any interest therein, and shall not sublet the premises or any part thereof, or any right or privilege appurtenant thereto, or allow any other person (the agents and servants of Tenant excepted) to occupy or use the premises, or any portion thereof, without the written consent of Landlord first had and obtained. A consent to one assignment, mortgage pledge, subletting, occupation or use by any other person shall not relieve the Tenant from any obligation under this Lease, and shall not be deemed to be a consent to any subsequent assignment, mortgage, pledge, subletting, occupation or use by another person. Any assignment, mortgage, subletting, occupation or use without such consent shall be void, and shall, at the option of Landlord, terminate this Lease. (a) If the Tenant desires any assignment, mortgage, pledge or subletting, occupation or use referred to in Paragraph 24, Tenant shall give written notice to the Landlord giving the name and address of the proposed assignee, mortgagee, pledgee, sublessee, occupier or user, and the price and other terms of the proposed transaction. At the same time, Tenant shall, in writing, tender by an offer to the Landlord the option to (i) reacquire the premises for the same period and under the same terms as the proposed assignment or sublease, or (ii) reacquire the premises for the same period but at a price equal to the lease rent. If the Landlord accepts the offer, it shall do so by mailing written notice of its acceptance to the Tenant within thirty (30) days after the Tenant's offer is received by the Landlord. Tenant shall be entitled to withdraw its notice of intent to assign, mortgage, pledge, sublet, occupy or use, at any time until the Landlord accepts the Tenant's offer. If only a portion of the premises would be affected by a sublease or assignment the Landlord shall have the right to re-acquire the portion affected. If the Landlord elects to reacquire under this provision the portion affected, Tenant shall be required to provide without charge reasonable and appropriate access to the portion affected and reasonable use of any common facilities. (b) If Landlord does not choose to accept the Tenant's offer under Subparagraph 24(a), but does consent to the proposed assignment, mortgage, pledge, subletting, occupation or use referred to in Paragraph 24, Landlord shall have the right to receive from the Tenant any profit realized by the Tenant from charging a higher rent that the lease rent. Such profit shall be measured by the difference between the lease rent and any rent received by the Tenant, minus the Tenant's reasonable leasing and administrative costs related to the assignment or subletting, and excess of building standards. For this purpose, "rent received by the Tenant" shall include all sums paid under the sublease of assignment, whether characterized as rent, additional rent, or any other payment or consideration in respect of use or occupancy or in reimbursement of the costs of leasehold improvements installed by the Tenant, and whether paid in a lump sum or in periodic payments. In no event shall the total sums payable to the Landlord, including the lease rent and any additional payments made by Tenant to Landlord as a result of the application of this paragraph, be less than the lease rent. (c) The provisions in Paragraphs 24(a) and (b) shall be binding on any subtenant or assignee who desires to subsublet or sub-assign their interest, and Landlord's actions with 8

respect to one assignment, mortgage, pledge, sublease, occupation or use shall not be deemed to limit the Landlord's options under this Lease with respect to a subsequent assignment, mortgage, pledge, sublease, occupation or use. Landlord's rights under Paragraphs 24(a) and (b) shall prevail over any inconsistent language in any sublease or assignment to which the Landlord consents and are reserved by the Landlord from the grant of the Tenant's leasehold estate. Nothing herein shall be construed to require the Landlord's consent to any assignment, mortgage, pledge, subletting, occupation or use referred to in Paragraph 24 (so long as the Landlord's consent is not unreasonably withheld). Any exercise of the Landlord's rights under Paragraphs 24(a) and (b) shall be deemed to be reasonable. Failure of any subtenant or assignee to make any payments to Tenant shall not affect the obligation of the Tenant to pay the lease rent or any other obligation under the Lease owing to the Landlord. The provisions of any sublease or assignment cannot be modified, nor may the sublease or assignment be terminated other than in accordance with its terms, without the written consent of the Landlord. (d) Tenant shall have the right, without Landlord's consent, to assign this Lease to a general or limited partnership if (1) Tenant is a general partner and owns and retains not less than 51% of the partnership following the assignment and (2) the partnership executes an agreement required by Landlord assuming Tenant's obligations. Tenant shall have the right, without Landlord's consent to assign this Lease to a corporation if (1) Tenant owns and retains at least 51% of the outstanding capital stock of the corporation and (2) the corporation executes an agreement required by Landlord assuming Tenant's obligations. 25. INSOLVENCY AND RECEIVERSHIP. Either the appointment of a receiver to take possession of all, or substantially all, of the assets of Tenant or a general assignment by Tenant for the benefit of creditors, or any action taken or suffered by Tenant under any insolvency or bankruptcy act, shall constitute a breach of this Lease by Tenant. 26. DEFAULT AND RE-ENTRY. In the event of any breach of the terms and provisions of this Lease by Tenant, or if Tenant's interest herein, or any part thereof, be assigned or transferred without the written consent of Landlord, either voluntarily or by operation of law, whether by judgement, execution, death, receivership or any other means, or if Tenant vacates or abandons the premises, which shall be conclusively presumed if Tenant leaves the premises closed or unoccupied continuously for twenty (20) days, then in any such event, Landlord, besides other rights or remedies it may have, shall have the immediate right of re-entry and may remove all persons and property from the premises and may store such property at the cost of and for the account and risk of Tenant. Should Landlord elect to re-enter as herein provided, or should Landlord take possession pursuant to legal proceedings or pursuant to any notice provide for by law, it may either terminate this Lease or it may from time to time, without terminating this Lease, re-let the premises, or any part thereof, for such term or terms (which may be for a term extending beyond the term of this Lease) and at such rental or rentals and upon such other terms and 9

conditions as Landlord, in its sole discretion, may deem advisable with the right to make alterations and repairs to the premises. Rents received by such Landlord from such re-letting shall be applied: first, to the payment of any costs and expenses of such re-letting, including a reasonable attorney's fee and any real estate commission actually paid, and any costs and expenses of such alterations and repairs; second, to the payment of any indebtedness, other than rent, due hereunder from Tenant to Landlord; third, to the payment of rent due and unpaid hereunder; and the residue, if any, shall be held by Landlord and applied in payment of future rent or other obligations as the same may become due and payable hereunder. If rentals received from such reletting during any month be less than that to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord, and such deficiency shall be calculated and paid monthly. No such re-entry or taking possession of said premises by Landlord shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Tenant or unless the termination thereof be decreed by a court of competent jurisdiction. Notwithstanding any such re-letting without termination, Landlord may, at any time thereafter, elect to terminate this Lease for such previous breach. Should Landlord at any time terminate this Lease for any breach, and thereafter seek relief pursuant to Section 1951.2 of the California Civil Code, interest shall be allowed upon unpaid rent, for the purposes of Section 1951.2(b), at ten percent (10%) per annum or the maximum rate permitted bylaw, whichever is greater. Any proof by Tenant under subparagraphs (2) or (3) of subdivision (a) of Section 1951.2 of the California Civil Code, as to the amount of rental loss that could be reasonably avoided, shall be made in the following manner: Landlord and Tenant shall each select a licensed real estate broker in the business of renting property of the same type and use as the leased premises and in the same geographic vicinity and such two real estate brokers shall select a third licensed real estate broker and the three licensed real estate brokers so selected shall determine the amount of the rental loss that could be reasonably avoided for the balance of the term of this Lease after the time of award. The decision of the majority of said licensed real estate brokers shall be final and binding upon the parties hereto. 27. WAIVER. The waiver by Landlord of any breach of any term, covenant, or condition herein contained shall not be deemed to be a waiver of such term, covenant or condition or of any subsequent breach of the same or any other term, covenant or condition herein contained. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular rental so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. 28. REMOVAL OF PROPERTY. Whenever Landlord shall remove any property of Tenant from the premises and store the same elsewhere for the account, and at the expense and risk, of Tenant, as provided in Paragraph 22, hereof, and Tenant shall fail to pay the cost o 10

f storing any such property after it has been stored for a period of ninety (90) days or more, Landlord may sell any or all such property at public or private sale, in such manner and at such times and places as Landlord in its sole discretion, may deem proper, without notice to or demand upon Tenant, for the payment of any part of such charges or the removal of any such property, and shall apply the proceeds of such sale; first, to the cost and expenses of such sale, including reasonable attorney's fees actually incurred; second, to the payment of the cost of or charges for storing any such property; third, to the payment of any other sums of money which may then or thereafter be due to Landlord from Tenant under any of the terms hereof; and fourth, the balance, if any, to Tenant. 29. WAIVER OF DAMAGES FOR RE-ENTRY. Tenant hereby waives all claims for damages that may be caused by Landlord's re-entering and taking possession of the premises or removing and storing the property of Tenant as herein provided, and will save Landlord harmless from loss, costs or damages occasioned thereby, and no such re-entry shall be considered or construed forcible entry. 30. SURRENDER. At the time of surrender, all improvements made by Tenant to the premises shall be in compliance with all applicable building code requirements. 31. ATTORNEY'S FEES. If either party becomes a party to any litigation concerning this Lease, the premises, the building or other improvements in which the premises are located, by reason of any act or omission of the other party or its authorized representatives, and not by any act or omission of the party that becomes a party to that litigation or any act or omission of its authorized representatives, the party that causes the other party to become involved in the litigation shall be liable to that party for reasonable attorney's fees and court costs incurred by it in the litigation. If Landlord commences an action or incurs expenses against Tenant to enforce any of the terms hereof or because of the breach by Tenant of any of the terms hereof or for the recovery of any rent due hereunder or for the unlawful detainer of such premises, Tenant shall pay to Landlord reasonable attorneys' fees and expenses, and the right to such attorneys' fees and expenses shall be deemed to have accrued from the commencement of such action and shall be enforceable whether or not such action is prosecuted to judgment. If Tenant breaches any terms of this Lease, Landlord may employ an attorney or attorneys to protect Landlord's rights hereunder, and in the event of such employment following any breach by Tenant, Tenant shall pay Landlord reasonable attorneys' fees and expenses incurred by Landlord whether or not an action is actually commenced against Tenant by reason of such breach. 32. LITIGATION AGAINST TENANT. Should Landlord, without fault on Landlord's part, be made a party to any litigation instituted by or against Tenant, or by or against any person holding under or using the premises by license of Tenant, or for the foreclosure of any lien for labor or material furnished to or for Tenant or any such other person or otherwise arising out of or resulting from any act or transaction of Tenant or of any such other person, Tenant covenants to pay to Landlord the amount of any judgment rendered against Landlord or the premises or any part thereof, and all costs and expenses, including an attorney's fees, incurred by Landlord in or in connection with such litigation. 11

33. SUBORDINATION. Tenant agrees that this Lease shall be subject and subordinate to any first mortgage, first trust deed or like encumbrance heretofore or hereafter placed upon said premises or any part thereof, except the Tenant's property or trade fixtures, and to any and all renewals, modifications, consolidations, replacements, extensions or substitutions of any first mortgage or like encumbrance. Such subordination shall be automatic, without the execution of any further subordination agreement by Tenant. If, however, a written subordination agreement is required by a mortgagee, Tenant agrees to execute, acknowledge and deliver the same and in the event of failure to do so, Landlord may, in addition to any other remedies for breach of covenant hereunder, execute, acknowledge and deliver the same as the agent of Tenant, and Tenant hereby irrevocably constitutes Landlord its attorney-in-fact for such purpose. 34. WAIVER OF REDEMPTION BY TENANT, HOLDING OVER. Tenant hereby waives for Tenant and all those claiming under Tenant, all right now or hereafter existing to redeem the leased premises after termination of Tenant's right of occupancy by order of judgment of any court or by any legal process or writ. Any holding over after the expiration of the term of this lease, with the consent of the Landlord, shall be construed to be a tenancy from month to month, and shall be under the terms and conditions specified in this lease, so far as applicable, and in such case rental shall be payable in the amount and at the time specified in Paragraph 4 hereof Any such holding over without Landlord's consent shall be a breach of this lease and Tenant shall pay to Landlord, without affecting Landlord's rights under the law or elsewhere under this lease for such a breach, as liquidated damages in the amount equal to thee (3) times the then current minimum monthly rent under Paragraph 4 hereof for each month of holding over, since Landlord and Tenant agree that fixing Landlord's actual damages if such holding over occurs would be most difficult but that such an amount is a reasonable approximation of what such actual damages would be. 35. ENTRY AND INSPECTION. Tenant will permit Landlord and its agents to enter into and upon the premises at all reasonable times for the purpose of inspecting the same, or for the purpose of protecting the interest therein of Landlord or the Owner, or to post notices of non-responsibility, or to make alterations or additions to the premises, including the erection of scaffolding, props or other mechanical devices, or to provide any service provided by Landlord to Tenant hereunder, without any rebate of rent to Tenant for any loss of occupancy or quiet enjoyment of the premises, or damage, injury or inconvenience thereby occasioned, and Tenant will permit Landlord, at any time within one hundred eighty (180) days prior to the expiration of this Lease, to bring upon the premises, for purposes of inspection or display, prospective tenants thereof. 36. SALE OR TRANSFER OF PREMISES. If Landlord sells or transfers all or any portion of the premises, Landlord, on consummation of the sale or transfer, shall be released from any liability thereafter accruing under this Lease if Landlord's successor has assumed in writing, for the benefit of Tenant, Landlord's obligations under this Lease. If any security deposit or prepaid rent has been paid by Tenant, Landlord can transfer the security deposit or prepaid rent to Landlord's successor and on such transfer Landlord shall be discharged from any further liability in reference to the security deposit or prepaid rent. 12

37. ATTORNMENT. Tenant shall attorn to any purchaser of the premises at any foreclosure sale of private sale conducted pursuant to any security instrument encumbering the premises, or to any grantee or transferee designated in any deed give in lieu to foreclosure, provided that such party shall have assumed the obligations of Landlord hereunder in writing. 38. SUCCESSORS AND ASSIGNS. Subject to the provisions hereof relating to assignment, mortgaging, pledging and subletting, this Lease is intended to and does bind the heirs, executors, administrators, successors and assigns of any and all of the parties hereto. 39. TIME. Time is of the essence of this Lease. 40. NOTICES. All notices which Landlord or Tenant may be required, or may desire, to serve on the other may be served, as an alternative to personal service, by mailing the same, postage prepaid, and addressed as listed herein. Any party may change its address for purposes of this Paragraph by giving the other parties written notice of the new address in the manner set forth above. 41. CORPORATE AUTHORITY. If either party is a corporation, that party shall deliver to the other party on execution of this Lease a certified copy of a resolution of its board of directors authorizing the offices that are authorized to execute this Lease on behalf of the corporation. 42. CALIFORNIA LAW. This lease shall be construed and interpreted in accordance with the laws of the State of California. 43. COMPLETE AGREEMENT. It is expressly agreed by the parties, as a material consideration for the execution of this Lease, that there are, and were, no verbal representation, understandings, stipulations, agreement of promises pertaining thereto, not incorporated in writing herein, and it is likewise agreed that this Lease should not be altered, waived, amended or extended otherwise than as provided herein, except by writing signed by both parties. 44. ADDENDA. Attached hereto is an addendum or addenda containing the following Paragraphs 45 which constitute a part of this Lease. In the event that any provisions of the addendum or addenda conflict with other provisions of the Lease, the provisions of the addendum or addenda shall control and supersede the other conflicting Lease provisions. 13

IN WITNESS WHEREOF Landlord and Tenant have executed this Lease the day and year first written above.
"Landlord" PINE CREeK PROPERTIES /s/ Signature 8/17/99 --------------------(signature) (date) "Tenant" zapworld.com /s/ Signature 8/13/99 --------------------(date)

(signature)

(signature) (date) (signature) (date) 14

EXHIBIT "A" ADDENDUM TO LEASE DATED: AUGUST 6, 1999 BETWEEN: PINE CREEK PROPERTIES AND ZAPWORLD.COM Paragraph 45 -- Acknowledgement of Floodplain. Tenant specifically recognizes that the premises are located in a floodplain area. Tenant acknowledges that Landlord shall not be liable to Tenant for any injury to any person or property is or about the premises or the building in which the premises are located, from any cause directly or indirectly related to flooding or any collateral effects of flooding.. Tenant understands that Landlord does not carry flood insurance for Tenant's benefit. Tenant further represents that it has had the advice of independent counsel in negotiations for and preparation of this addendum or had been advised of the right to. such advise, that Tenant has read this addendum or had It read and fully explained by counsel, arid that Tenant understands this addendum. 15

LEASE THIS LEASE, is made AUGUST 24, 2000, between PINE CREEK PROPERTIES, a California general partnership, "Landlord", whose address is P.O. Box 11218, Santa Rosa, CA 95406, and ZAPWORLD.COM "Tenant," whose address is 117 Morris, Sebastopol. This Lease is made with reference to the following facts and objectives: (a) Landlord is the owner of the premises described in Paragraph 1 and Exhibit "A", which consists, generally, of APPROX. 9,800 SQ. FT. WAREHOUSE (INCLUDES APPROX. 400 SQ. FT. OFFICE). (b) Tenant is willing to lease the premises from Landlord pursuant to the provisions stated in this Lease. (c) Tenant wishes to lease the premises for the purposes of WAREHOUSE. (d) Tenant has examined the premises and is fully informed of their condition. THE PARTIES HERETO AGREE AS FOLLOWS: 1. PREMISES. Landlord hereby leases to Tenant and Tenant hereby hires and takes from Landlord, upon the terms and conditions herein set forth, the real property located at 6784 SEBASTOPOL AVE., SEBASTOPOL, Sonoma County, California, and more particularly described in Exhibit "A", together with the building and other improvements located on the real property ("premises"). 2. TERM. (a) The term of this lease shall be FIVE (5 years) and shall commence on the 1st day of SEPTEMBER, 2000, and end on the 31st day of AUGUST, 2005, inclusive. (b) If Landlord is unable to deliver possession of the premises Tenant, by the date specified above for the commencement of the term of this Lease, neither Landlord nor its agent shall be liable for any damage caused thereby, nor shall this Lease thereby become void or voidable, and the term herein specified shall, in such case, commence upon the date of delivery of possession of the premises to Tenant and shall terminate FIVE (5) years thereafter. In such event, Tenant shall not be liable for any rent until such time as Landlord shall deliver possession of the premises to Tenant. 3. ACCEPTANCE OF PREMISES. Tenant's taking possession of the premises on commencement of the term shall constitute Tenant's acknowledgment that the premises are in good condition. -1-

4. RENT. Tenant agrees to pay to Landlord, as rent for the premises the sum of FIVE THOUSAND EIGHT HUNDRED EIGHTY Dollars ($5,880.00) per month, in advance, on the first day of the term of this Lease and on the first day of each calendar month thereafter during the term. Rent for any partial month shall be prorated at the rate of 1/30th of the monthly rent per day. All installments of rent shall be paid at the address to which notices to Landlord are given, or at such other place as may be designated in writing, from time to time by Landlord, in lawful money of the United States and without deduction or offset for any cause whatsoever. In addition, Tenant agrees to pay to Landlord a late payment of ten percent (10%) of the amount due for any payment received later than the seventh day of each calendar month. 5. RENT ADJUSTMENTS. The monthly rent provided for in Paragraph 4 ("minimum monthly rent") shall be subject to adjustment at the commencement of the second year of the term and each year thereafter (the "adjustment date"), as follows: The base for computing the adjustment is the Consumer Price Index, All Urban Consumers ("All Items") for the San Francisco-Oakland Metropolitan Area, published by the United States Department of Labor, Bureau of Labor Statistics ("Index"), which is published for the month nearest the date of commencement of the term ("Beginning Index"). If the index published nearest the adjustment date ("Extension Index") has increased or decreased over the Beginning Index, the minimum monthly rent for the following year shall be set by multiplying the minimum monthly rent set forth in Paragraph 4, by a fraction, the numerator of which is the Extension Index and the denominator of which is the Beginning Index. In no case shall the minimum monthly rent be less than the minimum monthly rent set forth in Paragraph 4. On adjustment of the minimum monthly rent as provided in this Lease, the parties shall immediately execute an amendment to the Lease stating the new minimum monthly rent. If the index is changed so that the base year differs from that used as of the month immediately preceding the month in which the term commences, the Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index had not been discontinued or revised. 6. SECURITY DEPOSIT. On execution of this Lease, Tenant shall deposit with Landlord the sum of FIVE THOUSAND EIGHT HUNDRED Dollars ($5,800.00) as a security deposit for the performance by Tenant of the provisions of this Lease. If Tenant is in default, Landlord can use the security deposit, or any portion of it, to cure the default or to compensate Landlord for all damage sustained by Landlord resulting from Tenant's default. Tenant shall immediately, on demand pay to Landlord a sum equal to the portion of the security deposit expended or applied by Landlord as provided in this paragraph so as to maintain the security deposit in the sum initially deposited with Landlord. If Tenant is not in default at the expiration or termination of this Lease, Landlord shall return the security deposit to Tenant. Landlord's obligations with respect to the security deposit are -2-

those of a debtor and not a trustee. Landlord can maintain the security deposit separate and apart from Landlord's general funds or can commingle the security deposit with Landlord's general and other funds. Landlord shall not be required to pay Tenant interest on the security deposit. 7. PERSONAL PROPERTY TAXES. Tenant shall pay before delinquency all taxes, assessments, license fees, and other charges that are levied and assessed against Tenant's trade fixtures or personal property installed or located in or on the premises, and that become payable during the term. On demand by Landlord, Tenant shall furnish Landlord with satisfactory evidence of these payments. 8. REAL PROPERTY TAXES. Landlord shall pay all real property taxes and general and special assessments ("real property taxes") levied and assessed against the premises, provided, however, that Lessee shall pay to Lessor any increase in real property tax assessed by reason of Tenant's activities or additional improvements placed upon the Premises by Lessee or at Lessee's request. 9. USE. The premises are to be used as described in the Recitals of this Lease, and for no other business or purpose without the prior written consent of Landlord. Tenant shall be responsible for any required City, County, State or Federal permits. No use shall be made or permitted to be made of the premises, nor acts done in or on about the premises, which will in any way conflict with any law, ordinance, rule or regulation affecting the occupancy or use of the premises which has been or is subsequently enacted or promulgated by any public authority, or which will increase the existing rate of insurance upon the building, or cause a cancellation of any insurance policy covering the building or any part thereof, nor shall Tenant sell, or permit to be kept, used or sold in or about the premises, any article which may be prohibited by the standard form of fire insurance policy. Tenant shall not commit, or suffer to be committed, any waste upon the premises or, any public or private nuisance, or other act of thing which may disturb the quiet enjoyment of any neighbor, commercial or residential, nor any other tenant in the building, nor use any apparatus, machinery or device in or about the premises which shall cause any substantial noise or vibration, or which shall substantially increase the amount of electricity or water, if any, agreed to be furnished or supplied under this Lease. Tenant further agrees not to connect with electric wires or water or other pipes any apparatus, machinery or device without the consent of Landlord. If parking becomes an issue, Landlord shall assign specific parking spaces. 10. MAINTENANCE AND REPAIRS. Except as provided in Paragraphs 22 and 23, Tenant, at its cost, shall maintain the premises in good condition. Landlord shall be responsible for roof, walls and floor repair maintenance. Landlord shall not have any responsibility for general maintenance of the premises. Tenant waives the provisions of Civil Code Sections 1941 and 1942, with respect to Landlord's obligations for tenantability of the premises and Tenant's right to make repairs and deduct the expenses of such repairs from rent. 11. ALTERATIONS. Except as provided in Paragraph 12, Tenant shall not make any alterations to the premises without Landlord's consent. Unless otherwise provided -3-

by written agreement, all alterations shall be done either by or under the direction of Landlord, but at the sole cost of Tenant, shall be the property of Landlord, and shall remain on and be surrendered with the premises on expiration or termination of the term; provided, however, that at Landlord's option, Tenant shall, at Tenant's expense, when surrendering the premises, restore the same to their original condition. If Tenant makes any alterations to the premises, as provided in this paragraph, the alterations shall not be commenced until two (2) days after has received notice from Tenant stating the date the installation of the alterations is to commence, so that Landlord can post and record an appropriate notice of non-responsibility. 12. TRADE FIXTURES. Subject to the provisions of Paragraph 11 hereof, Tenant may install and maintain its trade fixtures on the premises, provided that such fixtures, by reason of the manner in which they are affixed, do not become an integral part of the building or premises. Tenant, if not in default hereunder, may at any time or from time to time during the term hereof, or upon the expiration or termination of this Lease, alter or remove any such trade fixtures so installed by Tenant. If not so removed by Tenant on or before the expiration or termination of this Lease, Tenant, upon the request of Landlord so to do, shall thereupon remove the same. Any damage to the premises caused by any such installation, alteration or removal of such trade fixtures shall be promptly repaired at the expense of the Tenant. 13. MECHANICS' LIENS. Tenant shall pay all costs for construction done by it, or caused to be done by it, on the premises, including all required permits, as permitted by this Lease. Tenant shall keep the premises free and clear of all mechanics' liens resulting from construction done by or for Tenant. Tenant shall have the right to contest the correctness or validity of any such lien if, immediately on demand by Landlord, Tenant procures and records a lien release bond issued by a corporation authorized to issue surety bonds in California in an amount equal to one and one-half times the amount of the claim of the lien. The bond shall meet the requirements of Civil Code Section 3143 and shall provide for the payment of any sum that the claimant may recover on the claim (together with costs of suit, if it recovers in the action). 14. AMERICANS WITH DISABILITIES ACT (ADA). If Tenant's use and/or personnel requirements change after the granting of initial use permit which would enact new ADA requirements, then Tenant shall at all times keep the premises in compliance with the ADA and its supporting regulations, and all similar federal, state or local laws, regulations and ordinances with respect to this new use. If Landlord's consent would be required for alterations to bring the premises into compliance, Landlord agrees not to unreasonably withhold its consent. 15. HAZARDOUS MATERIALS ACKNOWLEDGMENT ENVIRONMENTAL REPRESENTATION AND LIABILITY RELEASE. Tenant acknowledges that various materials utilized in the construction of the Property may contain materials that have been or may in the future be determined to be toxic, hazardous or -4-

undesirable and may need to be specially treated, specially handled and/or removed from the Property. Such substances may be above and below ground on the Property or may be present on or in soils, water, building components or other portions of the Property in areas that may or may not be accessible or noticeable. Tenant shall use and operate the premises, at all times during the term hereof, under and in compliance with the laws of the State of California and in compliance with all applicable environmental legal requirements. For any contamination to Leased Property due to Tenant's use, Tenant assumes full responsibility for the clean-up of such toxic hazardous or undesirable material as required by current and future federal, state and local laws and regulations. Tenant acknowledges that toxic wastes, hazardous materials and undesirable substances problems can be extremely costly to correct and Tenant relieves the Landlord from all liability related thereto due to Tenant's use. Tenant therefore hereby agrees that they shall indemnify and defend and hold the Landlord harmless from any claim, liability, damage, cost or expense, including but not limited to court costs and attorneys' fees, arising out of or in any way related to toxic waste, hazardous material and/or undesirable substance affecting the Leased Property related to and caused by Tenant's use. 16. UTILITIES. Tenant shall make all arrangements for, and pay for all utilities and services furnished to or used by it including, without limitation, gas, electricity, water, sewer, telephone service, and trash collection, and for all connection charges. If for any reason, any of these utilities or services are paid for by Landlord on behalf of Tenant, then Tenant shall reimburse Landlord upon receiving notice. 17. EXCULPATION OF LANDLORD. Landlord shall not be liable to Tenant for any injury or damage that may result to any person or property in or about the premises or the building which the premises are located, from any cause whatsoever, including but not limited to injury or damage resulting from any defects in the building, including roof leaks, or any equipment located therein, or from fire, water, gas, oil, electricity or other cause or any failure in the supply of same, or from the acts or neglect of any persons. 18. INDEMNIFY AND HOLD HARMLESS. Tenant agrees to indemnify and hold Landlord harmless against all claims, and the expense of defending against such claims, for injury or damage to persons or property occurring in or about the premises or occurring outside the premises but resulting in whole or in part from the act, failure to act, negligence or other fault of Tenant or its agents, employees or invitees. 19. LIMITATION OF LANDLORD'S LIABILITY. Tenant agrees to look solely to Landlord's interest in the building for the recovery of any judgement from Landlord, it being agreed that Landlord shall never be personally liable for any such judgement. The provision contained in the foregoing sentence is not intended to, and shall not, limit any right the Tenant might otherwise have to obtain injunctive relief against Landlord or Landlord's successors in interest or any other action not involving the personal liability of Landlord to respond in monetary damages from assets other than Landlord's interest in the building or any -5-

suit or action in connection with enforcement or collection of amounts which may become owing or payable under or on account of insurance maintained by Landlord. 20. INSURANCE. (a) Tenant, at its cost, shall maintain public liability and property damage insurance with a combined single limit of liability of not less than $1,000,000, insuring against all liability of Tenant and its authorized representatives arising out of and in connection with Tenant's use or occupancy of the premises. All public liability insurance, and property damage insurance shall insure performance by Tenant of the indemnity provisions of Paragraph 18. Both parties shall be named as additional insureds, and the policy shall contain cross-liability endorsements. (b) Not more frequently than three (3) years, if, in the opinion of Landlord's lender or of the insurance broker retained by Landlord, the amount of public liability and property damage insurance coverage at that time is not adequate, Tenant shall increase the insurance coverage as required by either Landlord's lender or Landlord's insurance broker. (c) Tenant, at its cost, shall maintain on all its personal property, Tenant's improvements, and alterations, in, on, or about the premises, a policy of standard fire and extended coverage insurance, with vandalism and malicious mischief endorsements, to the extent of at least ninety percent (90%) of their full replacement value. The proceeds from any such policy shall be used by Tenant for the replacement of personal property or the restoration of Tenant's improvements or alterations. TENANT SHALL BE FINANCIALLY RESPONSIBLE FOR GLASS BREAKAGE. (d) Landlord shall maintain on the building and other improvements that are a part of the premises, a policy of standard fire and extended coverage insurance with vandalism and malicious mischief endorsements, to the extent of at least ninety percent (90%) full replacement value. (e) Tenant's obligation to pay the insurance costs, shall be prorated for any partial year, at the commencement and expiration or termination of the term. (f) All insurance policies maintained by Tenant, under this paragraph, shall contain a provision requiring thirty (30) days' written notice from the insurance company to both parties and Landlord's lender, before cancellation or change in the coverage, scope, or amount of any policy. Each policy, or a certificate of the policy, together with evidence of payment of premiums, shall be deposited with the other party at the commencement of the term, and on renewal of the policy, not less than twenty (20) days before expiration of the term of the policy. 21. WAIVER OF SUBROGATION. The parties release each other, and their respective authorized representatives, from any claims for damage to any person, or to the premises and to the fixtures, personal property, Tenant's improvements and alterations of either Landlord or Tenant in or on the premises that are caused by or result from the risks -6-

insured against under any insurance policies carried by the parties and in force at the time of any such damage. Each party shall cause each insurance policy obtained by it to provide that the insurance company waives all rights of recovery by way of subrogation against either party in connection with any damage covered by any policy. Neither party shall be liable to the other for any damage caused by fire or any of the risks insured against under any insurance policy required by this Lease. If any insurance policy cannot be obtained with a waiver of subrogation, or is obtainable only by the payment of an additional premium charge above that charged by insurance companies issuing policies without waiver of subrogation, the party undertaking to obtain the insurance shall notify the other party of this fact. The other party shall have a period of ten (10) days after receiving the notice either to place the insurance with a company that is reasonably satisfactory to the other party and that will carry the insurance with a waiver of subrogation, or to agree to pay the additional premium if such policy is obtainable at additional cost. If the insurance cannot be obtained or the party in whose favor a waiver of subrogation is desired refuses to pay the additional premium charged, the other party is relieved of the obligation to obtain a waiver of subrogation rights with respect to the particular insurance involved. 22. DESTRUCTION. If the whole or any part of the premises shall be destroyed by fire or other cause, or be so damaged thereby that they are untenantable and cannot be rendered tenantable within one hundred twenty (120) days from the date of such destruction or damage, or such damage or destruction is not covered by any insurance required to be maintained under Paragraph 20 this Lease may be terminated by Landlord or Tenant by written notice to the other. Within forty-five (45) days from date of such destruction or damage, Landlord shall give written notice to Tenant as to whether or not the premises will be rendered tenantable within one hundred twenty (120) days from the date of such destruction or damage and whether such damage or destruction is anticipated to be covered by the insurance required to be maintained under Paragraph 16. In case the damage or destruction be not such as to permit termination of the Lease as above provided, or neither Landlord nor Tenant elects to terminate the Lease as above provided, Landlord shall within reasonable time, render said premises tenantable, and a proportionate reduction shall be made in the rent herein reserved corresponding to the time during which and to the portion of the premises of which Tenant shall be deprived of possession. The provisions of Subdivision 2 of Section 1932 of the California Civil Code, and of Subdivision 4 of Section 1933 of that Code, shall not apply to this Lease. 23. CONDEMNATION. Should the whole or any part of the premises be condemned and taken by any competent authority for any public or quasi-public use or purpose, all awards payable on account of such condemnation and taking shall be payable to Landlord and Tenant hereby waives all interest in or claim to said awards, or any part thereof. If the whole of the premises shall be so condemned and taken, then this Lease shall terminate. If only a part of the premises is condemned and taken and the remaining portion thereof is not suitable for the purposes for which Tenant has leased said premises, this Lease shall terminate. If only a part of the premises is condemned and taken and the remaining portion thereof is suitable for the purposes for which Tenant has leased said premises, this Lease shall continue, -7-

but the rental shall be reduced in an amount proportionate to the value of the portion taken as it related to the total value of the premises. Each party waives the provisions of Code of Civil Procedure ss.1265.130 allowing either party to petition the Superior Court to terminate this Lease in the event of a partial taking of the premises. 24. ASSIGNMENT AND SUBLETTING. Except as provided in Paragraph 24(d) hereof, Tenant shall not assign, mortgage or pledge this Lease, or any interest therein, and shall not sublet the premises or any part thereof, or any right or privilege appurtenant thereto, or allow any other person (the agents and servants of Tenant excepted) to occupy or use the premises, or any portion thereof, without the written consent of Landlord first had and obtained. A consent to one assignment, mortgage pledge, subletting, occupation or use by any other person shall not relieve the Tenant from any obligation under this Lease, and shall not be deemed to be a consent to any subsequent assignment, mortgage, pledge, subletting, occupation or use by another person. Any assignment, mortgage, subletting, occupation or use without such consent shall be void, and shall, at the option of Landlord, terminate this Lease. (a) If the Tenant desires any assignment, mortgage, pledge or subletting, occupation or use referred to in Paragraph 24, Tenant shall give written notice to the Landlord giving the name and address of the proposed assignee, mortgagee, pledgee, sublessee, occupier or user, and the price and other terms of the proposed transaction. At the same time, Tenant shall, in writing, tender by an offer to the Landlord the option to (i) reacquire the premises for the same period and under the same terms as the proposed assignment or sublease, or (ii) reacquire the premises for the same period but at a price equal to the lease rent. If the Landlord accepts the offer, it shall do so by mailing written notice of its acceptance to the Tenant within thirty (30) days after the Tenant's offer is received by the Landlord. Tenant shall be entitled to withdraw its notice of intent to assign, mortgage, pledge, sublet, occupy or use, at any time until the Landlord accepts the Tenant's offer. If only a portion of the premises would be affected by a sublease or assignment the Landlord shall have the right to re-acquire the portion affected. If the Landlord elects to reacquire under this provision the portion affected, Tenant shall be required to provide without charge reasonable and appropriate access to the portion affected and reasonable use of any common facilities. (b) If Landlord does not choose to accept the Tenant's offer under Subparagraph 24(a), but does consent to the proposed assignment, mortgage, pledge, subletting, occupation or use referred to in Paragraph 24, Landlord shall have the right to receive from the Tenant any profit realized by the Tenant from charging a higher rent that the lease rent. Such profit shall be measured by the difference between the lease rent and any rent received by the Tenant, minus the Tenant's reasonable leasing and administrative costs related to the assignment or subletting, and excess of building standards. For this purpose, "rent received by the Tenant" shall include all sums paid under the sublease of assignment, whether characterized as rent, additional rent, or any other payment or consideration in respect of use or occupancy or in reimbursement of the costs of leasehold improvements installed by the Tenant, and whether paid in a lump sum or in periodic payments. In no event shall the total -8-

sums payable to the Landlord, including the lease rent and any additional payments made by Tenant to Landlord as a result of the application of this paragraph, be less than the lease rent. (c) The provisions in Paragraphs 24(a) and (b) shall be binding on any subtenant or assignee who desires to subsublet or sub-assign their interest, and Landlord's actions with respect to one assignment, mortgage, pledge, sublease, occupation or use shall not be deemed to limit the Landlord's options under this Lease with respect to a subsequent assignment, mortgage, pledge, sublease, occupation or use. Landlord's rights under Paragraphs 24(a) and (b) shall prevail over any inconsistent language in any sublease or assignment to which the Landlord consents and are reserved by the Landlord from the grant of the Tenant's leasehold estate. Nothing herein shall be construed to require the Landlord's consent to any assignment, mortgage, pledge, subletting, occupation or use referred to in Paragraph 24 (so long as the Landlord's consent is not unreasonably withheld). Any exercise of the Landlord's rights under Paragraphs 24(a) and (b) shall be deemed to be reasonable. Failure of any subtenant or assignee to make any payments to Tenant shall not affect the obligation of the Tenant to pay the lease rent or any other obligation under the Lease owing to the Landlord. The provisions of any sublease or assignment cannot be modified, nor may the sublease or assignment be terminated other than in accordance with its terms, without the written consent of the Landlord. (d) Tenant shall have the right, without Landlord's consent, to assign this Lease to a general or limited partnership if (1) Tenant is a general partner and owns and retains not less than 51% of the partnership following the assignment and (2) the partnership executes an agreement required by Landlord assuming Tenant's obligations. Tenant shall have the right, without Landlord's consent to assign this Lease to a corporation if (1) Tenant owns and retains at least 51% of the outstanding capital stock of the corporation and (2) the corporation executes an agreement required by Landlord assuming Tenant's obligations. 25. INSOLVENCY AND RECEIVERSHIP. Either the appointment of a receiver to take possession of all, or substantially all, of the assets of Tenant or a general assignment by Tenant for the benefit of creditors, or any action taken or suffered by Tenant under any insolvency or bankruptcy act, shall constitute a breach of this Lease by Tenant. 26. DEFAULT AND RE-ENTRY. In the event of any breach of the terms and provisions of this Lease by Tenant, or if Tenant's interest herein, or any part thereof, be assigned or transferred without the written consent of Landlord, either voluntarily or by operation of law, whether by judgement, execution, death, receivership or any other means, or if Tenant vacates or abandons the premises, which shall be conclusively presumed if Tenant leaves the premises closed or unoccupied continuously for twenty (20) days, then in any such event, Landlord, besides other rights or remedies it may have, shall have the immediate right of re-entry and may remove all persons and property from the premises and may store such property at the cost of and for the account and risk of Tenant. -9-

Should Landlord elect to re-enter as herein provided, or should Landlord take possession pursuant to legal proceedings or pursuant to any notice provide for by law, it may either terminate this Lease or it may from time to time, without terminating this Lease, re-let the premises, or any part thereof, for such term or terms (which may be for a term extending beyond the term of this Lease) and at such rental or rentals and upon such other terms and conditions as Landlord, in its sole discretion, may deem advisable with the right to make alterations and repairs to the premises. Rents received by such Landlord from such re-letting shall be applied: first, to the payment of any costs and expenses of such re-letting, including a reasonable attorney's fee and any real estate commission actually paid, and any costs and expenses of such alterations and repairs; second, to the payment of any indebtedness, other than rent, due hereunder from Tenant to Landlord; third, to the payment of rent due and unpaid hereunder; and the residue, if any, shall be held by Landlord and applied in payment of future rent or other obligations as the same may become due and payable hereunder. If rentals received from such reletting during any month be less than that to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord, and such deficiency shall be calculated and paid monthly. No such re-entry or taking possession of said premises by Landlord shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Tenant or unless the termination thereof be decreed by a court of competent jurisdiction. Notwithstanding any such re-letting without termination, Landlord may, at any time thereafter, elect to terminate this Lease for such previous breach. Should Landlord at any time terminate this Lease for any breach, and thereafter seek relief pursuant to Section 1951.2 of the California Civil Code, interest shall be allowed upon unpaid rent, for the purposes of Section 1951.2(b), at ten percent (10%) per annum or the maximum rate permitted by law, whichever is greater. Any proof by Tenant under subparagraphs (2) or (3) of subdivision (a) of Section 1951.2 of the California Civil Code, as to the amount of rental loss that could be reasonably avoided, shall be made in the following manner: Landlord and Tenant shall each select a licensed real estate broker in the business of renting property of the same type and use as the leased premises and in the same geographic vicinity and such two real estate brokers shall select a third licensed real estate broker and the three licensed real estate brokers so selected shall determine the amount of the rental loss that could be reasonably avoided for the balance of the term of this Lease after the time of award. The decision of the majority of said licensed real estate brokers shall be final and binding upon the parties hereto. 27. WAIVER. The waiver by Landlord of any breach of any term, covenant, or condition herein contained shall not be deemed to be a waiver of such term, covenant or condition or of any subsequent breach of the same or any other term, covenant or condition herein contained. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular rental so -10-

accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. 28. REMOVAL OF PROPERTY. Whenever Landlord shall remove any property of Tenant from the premises and store the same elsewhere for the account, and at the expense and risk, of Tenant, as provided in Paragraph 22, hereof, and Tenant shall fail to pay the cost of storing any such property after it has been stored for a period of ninety (90) days or more, Landlord may sell any or all such property at public or private sale, in such manner and at such times and places as Landlord in its sole discretion, may deem proper, without notice to or demand upon Tenant, for the payment of any part of such charges or the removal of any such property, and shall apply the proceeds of such sale; first, to the cost and expenses of such sale, including reasonable attorney's fees actually incurred; second, to the payment of the cost of or charges for storing any such property; third, to the payment of any other sums of money which may then or thereafter be due to Landlord from Tenant under any of the terms hereof; and fourth, the balance, if any, to Tenant. 29. WAIVER OF DAMAGES FOR RE-ENTRY. Tenant hereby waives all claims for damages that may be caused by Landlord's re-entering and taking possession of the premises or removing and storing the property of Tenant as herein provided, and will save Landlord harmless from loss, costs or damages occasioned thereby, and no such re-entry shall be considered or construed forcible entry. 30. SURRENDER. At the time of surrender, all improvements made by Tenant to the premises shall be in compliance with all applicable building code requirements. 31. ATTORNEY'S FEES. If either party becomes a party to any litigation concerning this Lease, the premises, or the building or other improvements in which the premises are located, by reason of any act or omission of the other party or its authorized representatives, and not by any act or omission of the party that becomes a party to that litigation or any act or omission of its authorized representatives, the party that causes the other party to become involved in the litigation shall be liable to that party for reasonable attorney's fees and court costs incurred by it in the litigation. If Landlord commences an action or incurs expenses against Tenant to enforce any of the terms hereof or because of the breach by Tenant of any of the terms hereof or for the recovery of any rent due hereunder or for the unlawful detainer of such premises, Tenant shall pay to Landlord reasonable attorneys' fees and expenses, and the right to such attorneys' fees and expenses shall be deemed to have accrued from the commencement of such action and shall be enforceable whether or not such action is prosecuted to judgment. If Tenant breaches any terms of this Lease, Landlord may employ an attorney or attorneys to protect Landlord's rights hereunder, and in the event of such employment following any breach by Tenant, Tenant shall pay Landlord reasonable attorneys' fees and expenses incurred by Landlord whether or not an action is actually commenced against Tenant by reason of such breach. 32. LITIGATION AGAINST TENANT. Should Landlord, without fault on Landlord's part, be made a party to any litigation instituted by or against Tenant, or by or -11-

against any person holding under or using the premises by license of Tenant, or for the foreclosure of any lien for labor or material furnished to or for Tenant or any such other person or otherwise arising out of or resulting from any act or transaction of Tenant or of any such other person, Tenant covenants to pay to Landlord the amount of any judgment rendered against Landlord or the premises or any part thereof, and all costs and expenses, including an attorney's fees, incurred by Landlord in or in connection with such litigation. 33. SUBORDINATION. Tenant agrees that this Lease shall be subject and subordinate to any first mortgage, first trust deed or like encumbrance heretofore or hereafter placed upon said premises or any part thereof, except the Tenant's property or trade fixtures, and to any and all renewals, modifications, consolidations, replacements, extensions or substitutions of any first mortgage or like encumbrance. Such subordination shall be automatic, without the execution of any further subordination agreement by Tenant. If, however, a written subordination agreement is required by a mortgagee, Tenant agrees to execute, acknowledge and deliver the same and in the event of failure to do so, Landlord may, in addition to any other remedies for breach of covenant hereunder, execute, acknowledge and deliver the same as the agent of Tenant, and Tenant hereby irrevocably constitutes Landlord its attorney-in-fact for such purpose. 34. WAIVER OF REDEMPTION BY TENANT, HOLDING OVER. Tenant hereby waives for Tenant and all those claiming under Tenant, all right now or hereafter existing to redeem the leased premises after termination of Tenant's right of occupancy by order of judgment of any court or by any legal process or writ. Any holding over after the expiration of the term of this lease, with the consent of the Landlord, shall be construed to be a tenancy from month to month, and shall be under the terms and conditions specified in this lease, so far as applicable, and in such case rental shall be payable in the amount and at the time specified in Paragraph 4 hereof. Any such holding over without Landlord's consent shall be a breach of this lease and Tenant shall pay to Landlord, without affecting Landlord's rights under the law or elsewhere under this lease for such a breach, as liquidated damages in the amount equal to three (3) times the then current minimum monthly rent under Paragraph 4 hereof for each month of holding over, since Landlord and Tenant agree that fixing Landlord's actual damages if such holding over occurs would be most difficult but that such an amount is a reasonable approximation of what such actual damages would be. 35. ENTRY AND INSPECTION. Tenant will permit Landlord and its agents to enter into and upon the premises at all reasonable times for the purpose of inspecting the same, or for the purpose of protecting the interest therein of Landlord or the Owner, or to post notices of non-responsibility, or to make alterations or additions to the premises, including the erection of scaffolding, props or other mechanical devices, or to provide any service provided by Landlord to Tenant hereunder, without any rebate of rent to Tenant for any loss of occupancy or quiet enjoyment of the premises, or damage, injury or inconvenience thereby occasioned, and Tenant will permit Landlord, at any time within one hundred eighty (180) days prior to the expiration of this Lease, to bring upon the premises, for purposes of inspection or display, prospective tenants thereof. -12-

36. SALE OR TRANSFER OF PREMISES. If Landlord sells or transfers all or any portion of the premises, Landlord, on consummation of the sale or transfer, shall be released from any liability thereafter accruing under this Lease if Landlord's successor has assumed in writing, for the benefit of Tenant, Landlord's obligations under this Lease. If any security deposit or prepaid rent has been paid by Tenant, Landlord can transfer the security deposit or prepaid rent to Landlord's successor and on such transfer Landlord shall be discharged from any further liability in reference to the security deposit or prepaid rent. 37. ATTORNMENT. Tenant shall attorn to any purchaser of the premises at any foreclosure sale of private sale conducted pursuant to any security instrument encumbering the premises, or to any grantee or transferee designated in any deed give in lieu to foreclosure, provided that such party shall have assumed the obligations of Landlord hereunder in writing. 38. SUCCESSORS AND ASSIGNS. Subject to the provisions hereof relating to assignment, mortgaging, pledging and subletting, this Lease is intended to and does bind the heirs, executors, administrators, successors and assigns of any and all of the parties hereto. 39. TIME. Time is of the essence of this Lease. 40. NOTICES. All notices which Landlord or Tenant may be required, or may desire, to serve on the other may be served, as an alternative to personal service, by mailing the same, postage prepaid, and addressed as listed herein. Any party may change its address for purposes of this Paragraph by giving the other parties written notice of the new address in the manner set forth above. 41. CORPORATE AUTHORITY. If either party is a corporation, that party shall deliver the other party on execution of this Lease a certified copy of a resolution of its board of directors authorizing the officer that are authorized to execute this Lease on behalf of the corporation. 42. CALIFORNIA LAW. This lease shall be construed and interpreted in accordance with the laws of the State of California. 43. COMPLETE AGREEMENT. It is expressly agreed by the parties, as a material consideration for the execution of this Lease, that there are, and were, no verbal representation, understandings, stipulations, agreement of promises pertaining thereto, not incorporated in writing herein, and it is likewise agreed that this Lease should not be altered, waived, amended or extended otherwise than as provided herein, except by writing signed by both parties. 44. ADDENDA. Attached hereto is an addendum or addenda containing the following Paragraphs 45 which constitute a part of this Lease. In the event that any provisions of the addendum or addenda conflict with other provisions of the Lease, the provisions of the addendum or addenda shall control and supersede the other conflicting Lease provisions. -13-

46. TENANT IMPROVEMENTS. Landlord to install black out windows and turbine fans, make rear sliding door operational, and bring bathroom up to ADA standards. Ensures zoning is acceptable for Zapp's occupancy needs and fire codes. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the day and year first written above.
"Landlord" PINE CREEK PROPERTIES --------------------------------(signature) (date) "Tenant:" ZAPWORLD.COM ------------------------------------(signature) (date)

(signature) (date) (signature) (date) -14-

E X H I B I T "A" Lease Dated August 24, 2000 Between: Pine Creek Properties and Zapworld. Com [Diagrammatic description of lease premises] -15-

ADDENDUM TO LEASE DATED: AUGUST 24, 2000 BETWEEN: PINE CREEK PROPERTIES AND ZAPWORLD.COM Paragraph 45-- Acknowledgement of Floodplain. Tenant specifically recognizes that the premises are located in a floodplain area. Tenant acknowledges that Landlord shall not be liable to Tenant for any injury to any person or property in or about the premises or the building in which the premises are located, from any cause directly or indirectly related to flooding or any collateral effects of flooding. Tenant understands that Landlord does not carry flood insurance for Tenant's benefit. Tenant further represents that it has had the advice of independent counsel in negotiations for and preparation of this addendum or had been advised of the right to such advise, that Tenant has read this addendum or had it read and fully explained by counsel, and that Tenant understands this addendum. -16-

COMMERCIAL LEASE
TABLE OF CONTENTS

Preamble ARTICLE 1. 1.01 1.02 1.03 1.04 1.05 ARTICLE 2. 2.01 2.02 2.03 2.04 ARTICLE 3. 3.01 3.02 3.03 3.04 ARTICLE 4. 4.01 4.02 4.03 ARTICLE 5. 5.01 5.02 5.03 5.04 5.05 5.06 5.07 TERM OF LEASE Original Term Extended Term Holding Over Landlord's Inability to Deliver Possession Termination for Failure RENT Security Deposit Minimum Rent Late Charge Rental Increase USE OF PREMISES Permitted Use Insurance Hazards Waste or Nuisance Compliance With Laws TAXES AND UTILITIES Utilities Personal Property Taxes Real Property Taxes ALTERATIONS AND REPAIRS Condition of Premises Maintenance by Landlord Maintenance by Tenant Maintenance of Plate Glass Alterations and Liens Inspection by Landlord Surrender of Premises

ARTICLE 6. 6.01 6.02 ARTICLE 7. 7.01 7.02 7.03 ARTICLE 8. 8.01 8.02 ARTICLE 9. 9.01 ARTICLE 10. 10.01 10.02 10.03 10.04 10.05 10.06 10.07 10.08 10.09 ARTICLE 11. 11.01 11.02. 11.03 11.04 11.05 11.06 11.07

INDEMNITY AND INSURANCE Hold-Harmless Clause Public Liability and Property Damage SIGNS AND TRADE FIXTURES Installation and Removal of Trade Fixtures Unremoved Trade Fixtures Signs DESTRUCTION OF PREMISES Landlord's Election to Repair or Terminate Insurance Proceeds CONDEMNATION Total Condemnation DEFAULT, ASSIGNMENT, AND TERMINATION Prohibition Against Subletting or Assignment Subordination Default Defined Termination of Lease and Recovery of Damages Landlord's Right to Continue Lease in Effect Landlord's Right to Relet Landlord's Right to Cure Tenant Defaults Cumulative Remedies Waiver of Breach MISCELLANEOUS Force Majeure-Unavoidable Delays Attorney's Fees Notices Binding on Heirs and Successors Partial Invalidity Sole and Only Agreement Time of Essence

2

Preamble This lease is made and entered into on June 5, 1998, by and between DANIEL O. DAVIS and ROBBIN H. DAVIS ("landlord") and ZAP POWER SYSTEMS, a California Corporation ("Tenant"). It is understood by parties hereto, that Tenant has leased and been in possession of approximately 1/2 the property since August 1, 1997 and has paid rent in full for each month to date. Landlord, for and in consideration of the rent to be paid by Tenant and of the covenants and provisions to be kept and performed by Tenant under this lease, hereby leases to Tenant, and Tenant agrees to lease from Landlord, the following: the real property commonly known as 111 Morris Street, Sebastopol, California, together with the warehouse and office space and parking space now existing thereon and all improvements now existing. The term "Premises" as used in this lease shall mean all of the Real Property, the structures known as 111 Morris Street and all of the improvements thereto. ARTICLE 1 TERM OF LEASE Original Term Section 1.01. This lease for the property shall be for a term of (3) years, commencing at 12:01 A.M. on June 1, 1998 ("Commencement Date"), and ending at 12:01 A.M. on June 1, 2001 ("Original Term"), unless terminated earlier pursuant to the provisions of this lease. The Tenant understands and agrees that possession of 111 Morris Street shall be delivered by Landlord June 1, 1998 subject to the provisions of this lease. Regardless of the date of Possession, the Commencement date of this lease shall be June 1, 1998. Extended Term Section 1.02. In the event Tenant is not then in default under this lease, Tenant shall have the option and right to extend the Original Term of this lease for one period of (3) years commencing on expiration of the Original Term. In the event Tenant is not then in default under this lease, Tenant shall have the option and right to extend this lease for one additional period of three (3) years commencing on expiration of the first three (3) year Extended Term. If Tenant elects to extend the term of this lease, Tenant must give landlord written notice of Tenant's election to extend at least sixty (60) days before expiration of the previous term. During the Extended Term of this lease, if any, Landlord and Tenant shall be bound by all of the obligations, covenants, and agreements of this lease except that Tenant shall have no right to further extend the term of this lease beyond or after expiration of the two three (3) year Extended Terms granted under this section. References throughout this lease to "the term of this lease" shall include both the Original Term and the Extended Term, if any, unless otherwise indicated.

Holding Over Section 1.03. In the event Tenant holds over and continues in possession of the Premises after expiration of the Original Term (when Tenant has not validly exercised its option to extend the term of the lease in accordance with Section 1.02) or after expiration of the Extended Term (when Tenant has validly exercised its option to extend the term of the lease in accordance with Section 1.02), Tenant's continued occupancy of the Premises shall be considered a month-to-month tenancy subject to all the terms and conditions of this lease. Landlord's Inability to Deliver Possession Section 1.04. If Landlord is for any reason unable to deliver possession of the Premises to Tenant on the dates of Possession set forth in Section 1.01 of this lease, this lease shall not be void or voidable nor shall Landlord be liable to Tenant for any loss or damage resulting from failure to deliver possession to Tenant so long as Landlord has exercised, and continues to exercise, reasonable diligence to deliver possession of the Premises to Tenant. No rent shall, however, accrue or become due from Tenant to Landlord under this lease until the actual physical possession of the Premises is delivered, or the right to actual unrestricted physical possession of the Premises under this lease is tendered by Landlord to Tenant. Furthermore, the term of this lease shall not be extended by Landlord's inability to deliver possession of the Premises to Tenant on the dates of Possession set forth in Section 1.01. Termination for Failure of Possession Section 1.05. Notwithstanding any provision of Section 1.04 of this lease, if Landlord for any reason fails to deliver actual physical possession of the Premises, or fails to tender actual unrestricted physical possession of the Premises under this lease, to Tenant within one hundred eighty (180) days after the date for Possession specified in Section 1 .01 of this lease, Tenant may terminate this lease by giving Landlord written notice of its election to do so. In the event Tenant elects to so terminate this lease, this lease shall become null and void as of the date Tenant delivers its written notice of termination to Landlord, and thereafter neither party to this lease shall be under any further obligation or liability to the other because of this lease and Landlord shall return to Tenant any consideration received from Tenant pursuant to or for execution of this lease. If Tenant elects to terminate this lease in accordance with the provisions of this section, it shall give written notice of its election to terminate to Landlord not later than five (5) days after the dates specified for Possession in Section 1.01 of this lease. ARTICLE 2 RENT Section 2.01. Tenant has, contemporaneously with the execution of this lease and in addition to the minimum cash rental for the first month of the term hereof, deposited with Landlord the sum of five hundred dollars ($500.00) which constitutes the balance for the remainder of the building, receipt of which is hereby acknowledged by Landlord, said sum being hereinafter referred to as the "Deposit Amount". The Deposit Amount shall be held by Landlord as security for the faithful performance by Tenant of all the terms, covenants and 2

conditions of this lease by Tenant to be kept and performed during the term hereof, including payment of rent, repair of damages to the premises caused by Tenant, and to clean the premises upon termination. If at any time during the term of this lease any of the rent herein reserved shall be overdue and unpaid, or any other sum payable to Tenant to Landlord hereunder shall be overdue and unpaid, then Landlord may at its option (but Landlord shall not be required to), apply any portion of the Deposit Amount to the payment of any such overdue rent or other sum. In the event of the failure of Tenant to keep and perform all of the terms, covenants and conditions of this lease to be kept and performed by Tenant then, at its option, Landlord may, after terminating this lease, apply the entire Deposit Amount, or so much thereof as may be necessary, to compensate Landlord for all loss or damage sustained or suffered by Landlord due to such breach on the part of Tenant. Should the entire Deposit Amount, or any portion thereof, be applied by Landlord for the payment of overdue rent or other sums due and payable to Landlord by Tenant hereunder, then Tenant shall, upon the written demand of Landlord, forthwith remit to Landlord a sufficient amount in cash to restore said security to the original Deposit Amount; the Tenant's failure to do so within five (5) days after receipt of such demand shall constitute a breach of this lease. If the claim of the Landlord upon the deposit is only for defaults in payment of rent, then any remaining portion of the deposit shall be returned to Tenant no later than two (2) weeks after the date the Landlord receives possession of the premises. Where the claim of Landlord upon the deposit includes amounts reasonably necessary to repair damages to the premises caused by the Tenant or to clean the premises (not to include reasonable wear and tear), then any remaining portion of the deposit shall be returned to the Tenant no later than thirty (30) days from the date the Landlord receives possession of the premises. Upon termination of the Landlord's interest in the demised premises, Landlord shall within a reasonable time, do one of the following acts, either of which shall relieve the Landlord of further liability with respect to the deposit: (1) Transfer the portion of the deposit remaining after any lawful deductions to the Landlord's successor in interest, and thereafter notify the Tenant by personal delivery or certified mail of the transfer, of any claims made against the deposit, and of the transferee's name and address. (2) Return the portion of the deposit remaining after any lawful deductions to the Tenant. Minimum Rent Section 2.02. Tenant agrees to pay to Landlord a fixed minimum rental for the use and occupancy of the Premises (the "Minimum Rent"). The amount of Minimum Rent payable for each month during the Original Term shall be two thousand ($2,000.00), and the amount of Minimum Rent payable for each month during the Extended Terms, if any, shall be the same. The Minimum Rent shall be payable on the first day of each and every month commencing the first day the premises are made available for possession. The rent shall be payable at the office of the Landlord at 1051 Todd Road, Santa Rosa, California, or at any other place or places as Landlord may from time to time designate by written notice delivered 3

to Tenant. Minimum Rent for partial calendar months occurring at the commencement and termination of the term of this lease shall be prorated accordingly. Rental Increase Section 2.03. The Minimum Rent described above shall be adjusted on every 1st Anniversary of the commencement date of this lease beginning on June 1, 1999 (including during any extension of this lease) to reflect the average percentage increase in the Consumer Price Index or All Urban Consumers using 1977 as a base year, as compiled by the Bureau of Labor Statistics of the United States Department of Labor for the San Francisco-Oakland Metropolitan Area for the month closest preceding each of the adjustment dates over the same Consumer Price Index for all Urban Consumers for the base reference month immediately preceding the commencement of this lease. The Minimum Rent as adjusted on each of the adjustment dates shall be the rent payable by Tenant to Landlord monthly for the use and occupancy of the premises until the next adjustment date; provided, however, in no event shall any adjustment result in a decrease in the Minimum Rent to a sum less than the Minimum Rent payable for each month of the Original Term. Late Charges Section 2.04. Tenant acknowledges that late payment of rent may cause Landlord to incur costs and expenses, the exact amount of such costs being extremely difficult and impractical to fix. Such costs may include, but are not limited to, processing and accounting expenses, late charges that may be imposed on Landlord by terms of any loan secured by the property, costs for additional attempts to collect rent, and preparation of notices. Therefore, if any installment of rent due from Tenant is not received by Landlord within five (5) business days after the date due, Tenant shall pay to Landlord an additional sum of ten percent (10%) of the amount due as a late charge, which shall be deemed additional rent. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord may incur by reason of Tenant's late payments. Acceptance of any late charge shall not constitute a waiver of Tenant's default with respect to the past due amount, or prevent Landlord from exercising any other rights and remedies under this agreement, and as provided by law. ARTICLE 3 USE OF PREMISES Permitted Use Section 3.01. During the term of this lease (including the Original Term and the Extended Term, if any), the Premises shall be used for the exclusive purpose of operating and conducting a solar energy and environmental equipment sales and production facility, Including bicycles, scooters and other equipment for uses normally incident to that purpose, and for no other purpose. Tenant shall not use or permit the Premises to be used for any other purpose, without the prior written consent of Landlord. In conducting the business specified in this section in and on the Premises, Tenant shall sell any merchandise and render any services that are customarily sold and rendered by the operators of similar businesses. 4

Insurance Hazards Section 3.02. Tenant shall not commit or permit the commission of any acts on the Premises nor use or permit the use of the Premises in any manner that will increase the existing rates for or cause the cancellation of any fire, liability, or other insurance policy insuring the Premises or the improvements on the Premises. Tenant shall, at its own cost and expense, comply with any and all requirements of Landlord's insurance carriers necessary for the continued maintenance at reasonable rates of fire and liability insurance policies on the Premises and the improvements on the Premises. Waste or Nuisance Section 3.03. Tenant shall not commit or permit the commission by others of any waste on the Premises; Tenant shall not maintain, commit, or permit the maintenance or commission of any nuisance as defined in Civil Code Section 3479 on the Premises; and Tenant shall not use or permit the use of the Premises for any unlawful purpose. Compliance With Laws Section 3.04. Tenant shall at Tenant's own cost and expense comply with all statutes, ordinances, regulations, and requirements of all governmental entities, both federal and state and county or municipal, [including those requiring capital improvements to the Premises,] relating to Tenant's use and occupancy of the Premises whether those statutes, ordinances, regulations, and requirements are now in force or are subsequently enacted. The judgment of any court of competent jurisdiction, or the admission by Tenant in a proceeding brought against Tenant by any government entity, that Tenant has violated any such statute, ordinance, regulation, or requirement shall be conclusive as between Landlord and Tenant and shall constitute grounds for termination of this lease by Landlord. The Landlord shall be responsible for any hazardous waste which is discovered on subject premises and which is proven to have existed at the commencement of this lease. ARTICLE 4 TAXES AND UTILITIES Utilities Section 4.01. Tenant shall pay for all utilities and services furnished to or used by it, including, without limitation, gas, electricity, water, telephone service, and trash collection. Tenant shall make all arrangement for such services and shall pay all connection charges and shall hold Landlord harmless from any liability for charges for said service. Personal Property Taxes Section 4.02. Tenant shall pay before they become delinquent all taxes, assessments, and other charges levied or imposed by any governmental entity on the furniture, trade fixtures, appliances, etc. brought on the Premises by Tenant. 5

Real Property Taxes Section 4.03. Landlord shall pay all real property taxes and assessments levied or assessed against the premises during the term of this lease. ARTICLE 5 ALTERATIONS AND REPAIRS Condition of Premises Section 5.01. Tenant accepts the Premises, as well as the Improvements indicated and agreed on as per plan, in their present condition or as planned to be made, and stipulates with Landlord that the Premises and Improvements are in good, clean, safe, and tenantable condition as of the date of this lease. Tenant further agrees with and represents to Landlord that the Premises have been inspected by Tenant, that it has received assurances acceptable to Tenant by means independent of Landlord or any agent of Landlord of the truth of all facts material to this lease, and that the Premises are being leased by Tenant as a result of its own inspection and investigation and not as a result of any representations made by Landlord or any agent of Landlord except those expressly set forth in this lease. Maintenance by Landlord Section 5.02. Landlord shall, at its own cost and expense, maintain in good condition and repair the structural elements of the Building , landscaping, walkways, driveways, trash enclosures, and painting and maintenance of exterior walls. For purposes of this section, "structural elements" shall mean the exterior roof, exterior walls (except show window glass), structural supports, and foundation of the Building. Landlord shall not be liable for any damages to Tenant or the property of Tenant resulting from Landlord's failure to make any repairs required by this section unless written notice of the need for those repairs has been given to Landlord by Tenant and Landlord has failed for a period of 30 days after receipt of the notice, unless prevented by causes not the fault of the Landlord, to make the needed repairs. Notwithstanding anything in this section to the contrary, Tenant shall promptly reimburse Landlord for the full cost of any repairs made pursuant to this section required because of the negligence or other fault, other than normal and proper use, of Tenant or its employees or agents or subtenants, if any. Landlord and its agents shall have the right to enter the Premises at all reasonable times after giving Tenant twenty-four (24) hours notice (and at any time during an emergency) for the purpose of inspecting them or to make any repairs required to be made by Landlord under this lease. Maintenance by Tenant Section 5.03. Except as otherwise expressly provided in Section 5.02 of this lease, Tenant shall at its own cost and expense keep and maintain all portions of the Premises and all Improvements located on the Premises in good order and repair and in as safe and clean a 6

condition as they were when received by Tenant from Landlord, reasonable wear and tear excepted. Maintenance of Plate Glass Section 5.04. Tenant shall, at its own cost and expense, repair and replace any plate glass in any show window on the Premises that is broken regardless of any cause. Furthermore, Tenant shall at Tenant's own cost and expense at all times during the term of this lease carry adequate plate glass insurance on the glass in all show windows on the Premises to perform the repair and replacement requirements of this section. Should Tenant fail to repair or replace any glass broken in a show window or fail to maintain adequate plate glass insurance on the glass in show windows on the Premises, Landlord may replace or repair the broken glass or secure that insurance and Tenant shall promptly reimburse Landlord for the cost of the repair, replacement, or insurance. In addition, Tenant shall pay Landlord interest on those costs at the rate of ten percent (10%) per year from the date the costs were incurred by Landlord to the date they are reimbursed to Landlord by Tenant. Alterations and Liens Section 5.05. Tenant shall not make or permit any other person to make any alterations to the Premises or to any Improvements on the Premises without the prior written consent of Landlord. Landlord shall not unreasonably withhold this consent. Tenant shall keep the premises free and clear from any and all liens, claims, and demands for work performed, materials furnished, or operations conducted on the Premises at the instance or request of Tenant. Furthermore, any and all alterations, additions, improvements, and fixtures, except furniture and trade fixtures, made or placed in or on the Premises by Tenant or any other person shall on expiration or earlier termination of this lease, become the property of Landlord and remain on the Premises. Landlord shall have the option, however, on expiration or termination of this lease, of requiring Tenant, at Tenant's sole cost and expense, to remove any or all such alterations, additions, improvements, or fixtures from the Premises. Inspection by Landlord Section 5.06. Tenant shall permit Landlord or Landlord's agents, representatives, or employees to enter the Premises at all reasonable times after giving Tenant twenty-four (24) hours notice for the purpose of inspecting the Premises to determine whether Tenant is complying with the terms of this lease, for the purpose of doing other lawful acts that may be necessary to protect Landlord's interest in the Premises, or for the purpose of performing Landlord's duties under this lease. Surrender. of Premises Section 5.07. On expiration or earlier termination of this lease, Tenant shall promptly surrender and deliver the Premises to Landlord in as good condition as they are now at the date of this lease, excluding reasonable wear and tear, and repairs required to be made by Landlord under this lease. 7

ARTICLE 6 INDEMNITY AND INSURANCE Hold-Harmless Clause Section 6.01. Tenant agrees to protect, indemnify, and save Landlord harmless from and against any and all liability to third parties resulting from Tenant's occupation and use of the Premises, specifically including, without limitation, any claim, liability, loss, or damage arising by reason of: (a) The death or injury of any person or persons, including Tenant or any person who is an employee or agent of Tenant, or by reason of the damage to or destruction of any property, including property owned by Tenant or any person who is an employee or agent of Tenant, and caused or allegedly caused by either the condition of the Premises, or some act or omission of Tenant or of some agent, contractor, employee, servant, subtenant, or concessionaire of Tenant on the Premises; (b) Any work performed on the Premises or materials furnished to the Premises at the instance or request of Tenant or any agent or employee of Tenant; and (c) Tenant's failure to perform any provision of this lease or to comply with any requirement of law or any requirement imposed on Landlord or the leased premises by any duly authorized governmental agency or political subdivision. Public Liability and Property Damage Insurance Section 6.02. Tenant shall, at Tenant's expense, maintain and keep in force during the term of this lease a policy of comprehensive public liability insurance insuring Tenant and Landlord against any liability arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be in an amount of not less than One Million Dollars ($1,000,000), combined single limit. If Tenant shall fail to procure and maintain said insurance Landlord may, but shall not be required to, procure and maintain the same, but at the expense of Tenant. Not more frequently than each three (3) years, if in the opinion of Landlord or its insurance broker the amount of public liability and property damage insurance coverage of the time is not adequate, Tenant shall increase the insurance coverage as required by either Landlord, its lender or insurance broker. (a) Fire Insurance. In order that the business of Tenant may continue with as little interruption as possible, Tenant shall, during the full term of this lease and any renewals or extensions thereof, maintain at Tenant's own cost and expense an insurance policy issued by a reputable company authorized to conduct insurance business in California insuring for their full insurable value all fixtures and equipment and, to the extent possible, all merchandise that is, at any time during the term of this lease or any renewal or extension thereof, in or on said premises against damage or destruction by fire, theft, or the elements. (b) Insurance Policy Form. The bodily injury liability insurance and property damage insurance to be maintained by Tenant shall be carried in the joint names of Landlord 8

and Tenant. Such policy shall be subject to Landlord's approval as to form and substance and shall expressly provide that the policy shall not be canceled or altered without thirty (30) days prior written notice to Landlord. Upon insurance thereof, such policy or a duplicate or a certificate thereof, shall be delivered to Landlord for retention by it. The insurance policy to be maintained by Tenant shall be issued by good and responsible insurance companies authorized to do business in the state of California. ARTICLE 7 SIGNS AND TRADE FIXTURES Installation and Removal of Trade Fixtures Section 7.01. Tenant shall have the right at any time and from time to time during the term of this lease, at Tenant's sole cost and expense, to install and affix in, to, or on the Premises any items, herein called "trade fixtures," for use in Tenant's trade or business that Tenant may, in Tenant's sole discretion, deem advisable. Any and all trade fixtures that can be removed without structural damage to the Premises or any building or improvements on the Premises shall, subject to Section 7.02 of this lease, remain the property of the Tenant and may be removed by Tenant at any time before the expiration or earlier termination of this lease, provided Tenant repairs any damage caused by the removal. Unremoved Trade Fixtures Section 7.02. Any trade fixtures described in this Article that are not removed from the Premises by Tenant within thirty (30) days after the expiration or earlier termination regardless of cause, of this lease shall be deemed abandoned by Tenant and shall automatically become the property of Landlord as owner of the real property to which they are affixed. Signs Section 7.03. Tenant may erect, maintain, permit, and from time to time remove any signs at Tenant's sole cost and expense, in or about the Premises that Tenant may deem necessary or desirable, provided that any signs erected or maintained by Tenant and authorized by Landlord, and shall comply with all requirements of any governmental authority with jurisdiction. ARTICLE 8 DESTRUCTION OF PREMISES Landlord's Election to Repair or Terminate Section 8.01. Should the premises or the building on said premises be destroyed in whole or in part from any cause, Landlord may at Landlord's option either: (a) Continue this lease in full force and effect by repairing and restoring, at Landlord's own cost and expense, said premises to their former condition if that can be accomplished within ninety (90) days from the date of destruction, or 9

(b) Terminate this lease by giving Tenant written notice of such termination. Insurance Proceeds Section 8.02. Any insurance proceeds received by Landlord because of the total or partial destruction of said premises of the building on said Premises shall be the sole property of Landlord free from any claims of Tenant, and may be used by Landlord for whatever purpose Landlord may desire. Should Landlord elect to repair and restore the premises to their former condition following partial or full destruction of said Premises or the building on said premises: (a) Tenant shall not be entitled to any damage for any loss or inconvenience sustained by Tenant as a result of the making of such repairs and restoration, unless caused by negligence of Landlord or Landlord's agents; (b) Landlord shall have full right to enter said Premises and take possession of so much of said Premises, including the whole of said Premises, as may be reasonably necessary to enable Landlord promptly and efficiently to carry out the work of repair and restoration; and (c) The rent payable by Tenant to Landlord for the part destroyed shall be abated to the extent and for the time Tenant is prevented from using that portion of the premises. ARTICLE 9 CONDEMNATION Section 9.01. If title to all or any part of the Premises be taken for any public or quasi-public use under any statute or by right of eminent domain, or by private purchase in lieu thereof, Landlord may terminate this Lease as of the date that possession of said premises or part thereof, be taken. All compensation awarded or paid upon such taking, including the full fair market value of the property taken and damage for injury, if any, to the remainder, shall belong solely to and be the property of Landlord, whether such compensation be awarded or paid as compensation for diminution in value of the leasehold or to the fee; provided, however, that Landlord shall not be entitled to any award made to Tenant for loss of good will to Tenants business or for cost of removal of stock and fixtures. If by reason of such taking, a reasonable amount of the premises reasonably suitable for Tenant's continued occupancy for the uses and purposes for which the premises are leased does not remain, Tenant may terminate this lease as of the date possession of said premises or part thereof be taken. If neither party terminates this lease by reason of a partial taking, the lease shall nevertheless terminate unless the parties reach agreement as to the rent payable hereunder for the remaining portions of the premises prior to the date possession of the portion of the premises is taken. Each party agrees to execute and deliver to the other all instruments that may be required to effectuate the provisions hereof. 10

ARTICLE 10 DEFAULT, ASSIGNMENT, AND TERMINATION Restriction Against Subletting or Assignment Section 10.01. Tenant shall not encumber, assign, otherwise transfer this lease, any right or interest in this lease, or any right or interest in the Premises or any of the improvements that may now or hereafter be constructed or installed on the Premises without first obtaining the express written consent of Landlord. Tenant shall not sublet the Premises or any part of the Premises or allow any other person, other than Tenant's agents, servants, and employees to occupy the Premises or any part of the Premises without the prior written consent of Landlord. A consent by Landlord to one assignment, one subletting, or one occupation of the Premises by another person shall not be deemed to be a consent to any subsequent assignment, subletting, or occupation of the Premises by another person. Any encumbrance, assignment, transfer, or subletting without the prior written consent of Landlord, whether voluntary or involuntary, by operation of law or otherwise, is void and shall, at the option of Landlord, terminate this lease. The consent of Landlord to any assignment of Tenant's interest in this lease or the subletting by Tenant of the Premises or parts of the Premises shall not be unreasonably withheld. Subordination Section 10.02. Tenant agrees that this lease shall be subordinate to any mortgages or trust deeds that are now or may hereafter be placed upon said premises and to any and all advances made or to be made thereunder, and to the interest thereon and all renewals, replacements and extensions thereof, provided the mortgagee or beneficiary named in said mortgages or trust deed shall agree to recognize the lease of the Tenant in the event of foreclosure if the Tenant is not in default. If any mortgagee or beneficiary elects to have this lease superior to its mortgage, or deed of trust by notice to Tenant, then this lease shall be deemed superior to the lien of any such mortgage or trust deed, whether this lease is dated or recorded before or after said mortgage or trust deed. Default Defined Section 10.03. The occurrence of any of the following shall constitute a material default and breach of this lease by Tenant: (a) Any failure by Tenant to pay the rent or to make any other payment required to be made by Tenant under this lease when that failure continues for ten (10) days after written notice of the failure is given by Landlord to Tenant. (b) The abandonment or vacation of the Premises by Tenant (the absence of Tenant from or the failure by Tenant to conduct business on the Premises for a period in excess of fourteen (14) consecutive days shall constitute an abandonment or vacation for purposes of this lease.) 11

(c) A failure by Tenant to observe and perform any other provision of this lease to be observed or performed by Tenant, when that failure continues for thirty (30) days after written notice of Tenant's failure is given by Landlord to Tenant; provided, however, that if the nature of that default is such that it cannot reasonable be cured within said thirty (30) day period, Tenant shall not be deemed to be in default if Tenant commences that cure within the said thirty (30) day period and thereafter diligently prosecutes it to completion. (d) The making by Tenant of any general assignment for the benefit of creditors; the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or of a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, it is dismissed within sixty (60) days); the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this lease, when possession is not restored to Tenant within thirty (30) days; or the attachment, execution, or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this lease, when that seizure is not discharged within thirty (30) days. Termination of Lease and Recovery of Damages Section 10.04. In the event of any default by Tenant under this lease, in addition to any other remedies available to Landlord at law or in equity, Landlord shall have the right to terminate this lease and all rights of Tenant hereunder by giving written notice of the termination. No act of Landlord shall be construed as terminating this lease except written notice given by Landlord to Tenant advising Tenant that Landlord elects to terminate the lease. In the event Landlord elects to terminate this lease, Landlord may recover from Tenant: (a) The worth at the time of award of any unpaid rent that had been earned at the time of termination of the lease; (b) The worth at the time of award of the amount by which the unpaid rent that would have been earned after termination of the lease until the time of award exceeds the amount of rental loss that Tenant proves could have been reasonably avoided; (c) The worth at the time of award of the amount by which the unpaid rent for the balance of the term of this lease after the time of award exceeds the amount of rental loss that Tenant proves could be reasonably avoided; and (d) Any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform its obligations under this lease. The term "rent" as used in this section shall mean the Minimum Rent, the Percentage Rent, and all other sums required to be paid by Tenant pursuant to the terms of this lease. As used in subsections (a) and (b) above, the "worth at the time of award" is computed by allowing interest at the rate of ten percent (10%) per year. As used in subsection (c), the "worth at the time of award" is computed by discounting that amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). 12

Landlord's Right to Continue Lease in Effect Section 10.05. (a) If Tenant breaches this lease and abandons the Premises before the natural expiration of the term of this lease, Landlord may continue this lease in effect by not :terminating Tenant's right to possession of the Premises, in which event Landlord shall be entitled to enforce all its rights and remedies under this lease, including the right to recover the rent specified in this lease as it becomes due under this lease. For as long as Landlord does not terminate this lease, Tenant shall have the right to assign or sublease the Premises with the Landlord's prior written consent. Landlord shall not unreasonably withhold consent. (b) No act of Landlord, including but not limited to Landlord's entry on the Premises, efforts to relet the Premises, or maintenance of the Premises, shall be construed as an election to terminate this lease unless a written notice of that intention is given to Tenant or unless the termination of this lease is decreed by a court of competent jurisdiction. Landlord's Right to Relet Section 10.06. In the event Tenant breaches this lease, Landlord may enter on and relet the Premises or any part of the Premises to a third party or third parties for any term, at any rental, and on any other terms and conditions that Landlord in its sole discretion may deem advisable, and shall have the right to make alterations and repairs to the Premises. Tenant shall be liable for all of Landlord's costs in reletting, including but not limited to remodeling costs required for the reletting. In the event Landlord relets the premises, Tenant shall pay all rent due under and at the times specified in this lease, less any amount or amounts actually received by Landlord from the reletting. Landlord's Right to Cure Tenant Default Section 10.07. If Tenant breaches or fails to perform any of the covenants or provisions of this lease, Landlord may, but shall not be required to, cure Tenant's breach. Any sum expended by Landlord, with the ten maximum legal rate of interest, shall be reimbursed by Tenant to Landlord with the next due rent payment under this lease. Cumulative Remedies Section 10.08. The remedies granted to Landlord in this Article shall not be exclusive but shall be cumulative and in addition to all remedies now or hereafter allowed by law or provided in this lease. Waiver of Breach Section 10.09. The waiver by Landlord of any breach by Tenant of any of the provisions of this lease shall not constitute a continuing waiver or waiver of any subsequent breach by Tenant either of the same or another provision of this lease. 13

ARTICLE 11 MISCELLANEOUS Force Majeure-Unavoidable Delays Section 11.01. If the performance of any act required by this lease to be performed by either Landlord or Tenant is prevented or delayed by reason of an act of God, strike, lockout, labor troubles, inability to secure materials, restrictive governmental laws or regulations, or any other cause except financial inability that is not the fault of the party required to perform the act, the time for performance of the act will be extended for a period equivalent to the period of delay, and performance of the act during the period of delay will be excused. However, nothing contained in this section shall excuse the prompt payment of rent by Tenant as required by this lease or the performance of any act rendered difficult solely because of the financial condition of the party required to perform the act. Attorney's Fees Section 11.02. If any litigation is commenced between the parties to this lease concerning the Premises, this lease, or the rights and duties of either in relation to the Premises or to this lease, the party prevailing in that litigation shall be entitled to, in addition to any other relief that may be granted in the litigation, a reasonable sum as and for its attorney's fees in that litigation that are determined by the court in that litigation or in a separate action brought for that purpose. Notices Section 11.03. Except as otherwise expressly provided by law, any and all notices or other communications required or permitted by this lease or by law to be served on or given to either party to this lease by the other party to this lease shall be in writing and shall be deemed duly served and given when personally delivered to the party to whom they are directed, or in lieu of personal service, when deposited in the United States mail, firstclass postage prepaid, addressed to Tenant at 11 7 Morris Street, Sebastopol, California 95472 or to Landlord at 111 Morris Street, Sebastopol, California 95472. Either party, Tenant or Landlord, may change its address for the purpose of this section by giving written notice of that change to the other party in the manner provided in this section. Binding on Heirs and Successors Section 11.04. This lease shall be binding on and shall inure to the benefit of the heirs, executors, administrators, successors, and assigns of Landlord and Tenant, but nothing in this section shall be construed as a consent by Landlord to any assignment of ???? Partial Invalidity Section 11.05. If any provision of this lease is held by a court of competent jurisdiction to be either invalid, void, or unenforceable, the remaining provisions of this lease shall remain in full force and effect unimpaired by the holding. 14

Sole and Only Agreement Section 11.06. This instrument constitutes the sole and only agreement between Landlord and Tenant respecting the Premises, the leasing of the Premises to Tenant, or the lease term created under this lease, and correctly sets forth the obligations of Landlord and-Tenant to each other as of its date. Any agreements or representations respecting the Premises or their leasing by Landlord to Tenant not expressly set forth in this instrument are null and void. Time of Essence Section 11.07. Time is expressly declared to be of the essence in this lease.
Executed on 6/5/98, at Sebastopol, CA, California. /s/ Daniel O. Davis ---------------------------------------Daniel O. Davis (Landlord) /s/ Robbin H. Davis ---------------------------------------Robbin H. Davis (Landlord)

/s/ James McGreen ---------------------------------------ZAP POWER SYSTEMS (Tenant) by ------------------------------------

15

LEASE Preamble--Parties and Leasing GEORGE R. BRAMWELL, herein called "Lessor", hereby leases to RON BASSO DBA/R. S. BASSO COMPANY, herein called "Lessee", those certain premises, herein called "said premises", in the County of Sonoma, State of California, described as 7190 Keating Avenue, Sebastopol, California, on the following terms and conditions: ARTICLE 1. TERM OF LEASE Original Term Section 1.01. This lease shall be for an initial term of five (5) years commencing on July 1, 1996, and shall have three successive options exercisable by Lessee for five (5) years each. Lessee shall be required to notify Lessor six months in advance of each successive option period whether Lessee intends to exercise the option or not. Hold Over Section 1.02. Should Lessee hold over and continue in possession of said premises after expiration of the term of this lease or any extension thereof, Lessee's continued occupancy of said premises shall be considered a monthto-month tenancy subject to all terms and conditions of this lease and the rent in effect immediately prior to the period of the hold over. Lessor's Inability to Deliver possession Section 1.03. Should Lessor for any reason be unable to deliver possession of said premises to Lessee on the date specified in Section 1.01 of this lease as the date on which the term of the lease is to commence, this lease shall not be void or voidable nor shall Lessor be liable to Lessee for any loss or damage resulting from such failure to deliver possession to Lessee so long as Lessor has exercised, and continues to exercise, reasonable diligence to deliver possession or said premises to Lessee and so long as said premises are delivered to Lessee by July 1, 1996. No rent shall, however, accrue or become due from Lessee to Lessor under this lease until the actual physical possession of said premises is delivered, or the right to actual unrestricted physical possession of said premises under this lease is tendered, by Lessor to Lessee. The term of this lease shall be extended by any inability by Lessor to deliver possession of said premises to Lessee on the date specified in Section 1.01 for commencement of the term of this lease by the actual period of Lessor's inability to deliver possession. Condition Warrants Section 1.04. Lessor warrants that the premises will be turned over with level floor, clean interior, and one demising wall having been mutually agreed upon by Lessor and Lessee. 1

Lessor also warrants that the three roll-up doors are in good repair and work properly at the time of occupancy of the Lessee. Section 1.05. Lessor agrees that, prior the lease commencement, the roof and the skylites will be replaced and shall warrant roof to be leak free. Section 1.06. Lessor shall make premises available to Lessee 30 days prior to commencement date of this lease for the purpose of making tenant improvements, and Lessee shall have the right to inspect the premises just prior to the commencement date in order to determine if Lessor has made premises acceptable as outlined in above sections. ARTICLE 2. RENT Minimum Rent Section 2.01. Lessee agrees to pay Lessor a fixed minimum rental for the use and occupancy of said promises of______________________ per month payable on the first day of each and every month, commencing July 1,1996, at the home of Lessor at 11 Castle Court, Santa Rosa, California 95401, or at such other place or places as Lessor may from time to time designate by written notice delivered to Lessee. Cost of Living Adjustments Section 2.02. Monthly rent for the space subject to the option provided for in Section 2.01 hereof shall be subject to adjustment at the commencement of the second year of the term and annually thereafter. This adjustment shall be as follows: The base for computing the adjustment is the Consumer Price Index (San Francisco Bay Area) published by the United States Department of Labor, Bureau of Labor Statistics ("Index") which is published for July 1, 1996 ("Beginning Index"). If the index published nearest each adjustment date ("Extension Index") has changed from the Beginning Index, the monthly rent shall be adjusted by multiplying the monthly rent by a fraction, the numerator of which is the Extension Index and the denominator of which is the Beginning Index. In no case shall the monthly rent be less than the monthly rent in effect commencing July 1, 1996. The maximum annual adjustment shall not exceed five percent (5%) per year. If the index is changed so that the base year differs from that used as of July 1, 1996, the Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the term, such other government Index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the index had not been discontinued or revised. Late Payment Penalty Section 2.03. In the event that Lessee tenders any monthly payment specified in Section 2.01 and/or 2.02 above after the tenth of any month when due, Lessee agrees to pay a Two Hundred Fifty ($250.00) Dollar late penalty. 2

ARTICLE 3. USE OF PREMISES Section 3.01. Said premises shall, during the term of this lease and any extensions thereof, be used for the purpose of operating and conducting thereon and therein "workshops, storage facilities, shipping and receiving, and offices" for uses normally incident to such purpose, and for no other purpose without Lessor's written permission. Leased "premises" includes approximately 10,000 square feet of floor space with three roll-up doors, together with approximately 6,000 square feet of parking lot to park cars and trucks or other vehicles and to make deliveries to and ship products from the premises. Insurance Hazards Section 3.02. Lessee shall not commit or permit the commission of any acts on said premises nor use or permit the use of said premises in any manner that will increase the existing rates for or cause the cancellation of any fire, liability, or other insurance policy insuring said premises or the improvements on said premises. Waste or Nuisance Section 3.03. Lessee shall not commit or permit the commission by others of any waste on said premises; Lessee shall not maintain, commit, or permit the maintenance or commission of any nuisance as defined in Section 3479 of the California Civil Code on said premises; and Lessee shall not use or permit the use of said premises for any unlawful purpose. ARTICLE 4. TAXES AND UTILITIES Payment of Utility Charges Section 4.01. Lessee shall pay, and hold Lessor and the property of Lessor free and harmless from, all charges for the furnishing of gas, water, electricity, telephone service, and other public utilities to said premises during the term of this lease or any extension thereof and for the removal of garbage and rubbish from said premises during the term of this lease or any extensions thereof. Personal Property Taxes Section 4.02. Lessee shall pay before they become delinquent all taxes, assessments, or other charges levied or imposed by any governmental entity on the furniture, trade fixtures, appliances, and other personal property placed by Lessee in, on, or about said premises including, without limiting the generality of the other terms used in this section, any shelves, counters, vaults, vault doors, wall safes, partitions, fixtures, machinery, plant equipment, office equipment, television or radio antennas, or communication equipment brought on said premises by Lessee. 3

Real Property Taxes Section 4.03. All real property taxes an assessments levied or assessed against said premises by any governmental entity, including any special assessments imposed on or against said premises for the construction or improvement of public works in, on, or about said premises, shall be paid, before they become delinquent, by Lessor. ARTICLE 5. ALTERATIONS AND REPAIRS Condition of Premises Section 5.01. Lessee accepts said premises, as well as the improvements thereon and the facilities appurtenant thereto, in their present condition and stipulates with Lessor that said premises as well as the improvements thereon and the facilities appurtenant thereto are in good, clean, safe, and tenantable condition as of the date of this lease. Lessee further agrees with and represents to Lessor that said premises have been inspected by Lessee and that he has been assured by means independent of Lessor any agent of Lessor of the suitability of the premises for its intended use by Lessee and that said premises are being leased by Lessee as a result of his inspection and investigation and not as a result of any representations made by Lessor or any agent of Lessor. Maintenance by Lessor Section 5.02. Lessor shall, at his own expense, maintain in good condition and repair the exterior roof, exterior walls; provided, however, that the Lessor shall not be liable for any damage to Lessee or the property of Lessee resulting from Lessor's failure to make any repairs required by this section unless written notice of the need for such repairs has been given to Lessor by Lessee and Lessor has failed for a period of thirty (30) days after receipt of the notice, unless prevented by causes not the fault of the Lessor, to make the needed repairs; provided, further, that Lessor shall promptly be reimbursed by Lessee for the full cost of any repairs made pursuant to this section required because of the negligence or other fault, other than normal and proper use, of Lessee or his employees or agents or sublessees, if any. Maintenance by Lessee Section 5.03. Except as otherwise expressly provided in Section 5.02 of this lease, Lessee shall at his own cost and expense keep and maintain all portions of said premises as well as all improvements on said premises and all facilities appurtenant to said premises in good order and repair and in as safe and clean a condition as they were when received by Lessee from Lessor, reasonable wear and tear expected. Maintenance of Show Window Glass Section 5.04. Lessee shall, at his own cost and expense, repair and replace any glass in any show window on said premises that becomes broken regardless of cause, including show window glass that is broken by fire, by act of God, by fault of Lessor, or by fault of some employee or agent of Lessor. Furthermore, Lessee shall at his own cost and 4

expense at all times during the term of this lease carry adequate plate glass insurance on the glass in all show windows on said premises to perform the repair and replacement requirements of this section. Should Lessee fail to repair or replace any glass broken in a show window or fail to maintain adequate plate glass insurance on the glass in show windows on said premise, Lessor may replace or repair the broken glass or secure such insurance and Lessee will promptly reimburse Lessor for the cost thereof and pay Lessor interest on such costs at the rate of ten percent (10%) per annum from the date the costs were incurred by Lessor to tile date they are reimbursed to Lessor by Lessee. Alterations and Liens Section 5.05. Lessee shall not make or permit any other person to make any alterations to said premises or to any improvement thereon or facility appurtenant thereto without the written consent of Lessor first had and obtained. Lessee shall keep the premises free and clear from any and all liens, claims, and demands for work performed, materials furnished, or operations conducted on said premises at the instance or request of Lessee. Furthermore, any and all alterations, additions, improvements, and fixtures, except furniture and trade fixtures, made or placed in or on said premises by Lessee or any other person shall on expiration or sooner termination of this lease become the property of Lessor and remain on said premises provided, however, that Lessor shall have the option on expiration or sooner termination of this lease of requiring Lessee, at Lessee's sole cost and expense, to remove any or all such alterations, additions, improvements, or fixtures from said premises. Inspection by Lessor Section 5.06. Lessee shall permit Lessor or Lessor's agents, representatives, or employees to enter said premises at all reasonable times for the purpose of inspection of said premises to determine whether Lessee is complying with the terms of this lease and for the purpose of doing other lawful acts that may be necessary to protect Lessor's interest in said premises under this lease or to perform Lessor's duties under this lease. Surrender of Premises Section 5.07. On expiration or sooner termination of this lease, or any extensions or renewals of this lease, Lessee shall promptly surrender and deliver said premises to Lessor in as good condition as they are now at the date of this lease, reasonable wear and tear and repairs herein requited to be made by Lessor excepted. ARTICLE 6. INDEMNITY AND INSURANCE Hold-Harmless Clause Section 6.01. Lessee agrees to indemnify and hold Lessor and the property of Lessor, including said premises, free and harmless from any and all claims, liability, loss, damage, or expenses resulting from Lessee's occupation and use of said premises, specifically including, without limitation, any claim, liability, loss or damage arising by reason of: 5

(a) The death or injury of any person or persons including Lessee or any person -who is an employee or agent of Lessee, or by reason at, except as & result of Lessor's negligence, the damage to or destruction of any property, including property owned by Lessee or any person who is an employee or agent of Lessee, and caused or allegedly caused by either the condition of said premises, or some act or omission of Lessee or of some agent, contractor, employee, servant, sublessee, or concessionaire of Lessee on said premises; (b) Any work performed on said premises or materials furnished to said premises at tile instance or request of Lessee or any agent or employee of Lessee; and (c) Lessee's failure to perform any provisions of this lease or to comply with any requirement of law or any requirement imposed on Lessor or the leased premises by any duly authorized governmental agency or political subdivision. Liability Insurance Section 6.02. Lessee shall, at his own cost and expense, secure within ten (10) days and maintain during the entire term of this lease and any renewals or extensions of such term a broad form comprehensive coverage policy of public liability insurance issued by an insurance company acceptable to or connected with Lessee's occupation an use of said premises under this lease in amounts not less than: (a) Two Hundred Fifty Thousand ($250,000.00) Dollars for injury to or death of one person and subject to such limitation for the injury or death of one person, of not less than Five Hundred Thousand ($500,000.00) Dollars for injury to or death of two or more persons as a result -of' any- one accident or incident; and (b) One Hundred Thousand ($100,000.00) Dollars for damage to or destruction of -any property of others. Waiver of Subrogation Section 6.03. The parties release each other, and their respective authorized representatives, from any claims for damage, to any person, or to the premises and to the fixtures, personal property, Lessee's improvements and alterations of either Lessor or Lessee in or on the premises that are caused by or result from the risks insured against under any insurance policies carried by the parties and in force at the time of any such damage. Each party shall cause each insurance policy obtained by it to provide that the insurance company waives all right of recovery by way of subrogation against either party in connection with any damage covered by any policy. Neither party shall be liable to the other for any damage caused by fire or any of the risks insured against under any insurance policy required by this lease. If any insurance policy cannot be obtained with a waiver of subrogation, or is obtainable only by the payment of an additional premium charge above that charged by insurance companies issuing policies without waiver of subrogation, the party undertaking to obtain the insurance shall notify the other party of this fact. The other party shall have a period of ten (10) days after receiving the notice either to place the insurance with 6

a company that is reasonably satisfactory to the other party and that will carry the insurance with a waiver of subrogation, or to agree to pay the additional premium if such policy is obtainable at additional cost. If the insurance cannot be obtained or the party in whose favor a waiver of subrogation is desired refuses to pay the additional premium charged, the other party is relieved of the obligation to obtain a waiver of subrogation rights with respect to the particular insurance involved. Fire Insurance Section 6.04. In order that the business of Lessee and the gross sales of Lessee as defined in this lease may continue with as little interruption as possible, Lessee shall, during the full term of this lease and any renewals or extensions thereof, maintain at Lessee's own cost and expense an insurance policy issued by a reputable company authorized to conduct insurance business in California insuring for their full insurable value all fixtures and equipment and, to the extent possible, all merchandise that is, at any time during the term of this lease or any renewal or extension thereof, in or on said premises against damage or destruction by fire, theft, or the elements. ARTICLE 7. SIGNS AND TRADE FIXTURES Installation and Removal of Trade Fixtures Section 7.01. Lessee shall have the right at any time and from time to time during the term of this lease and any renewal or extension of such term, at Lessee's sole cost and expense, to install and affix in, to, or on said premises such items, herein called "trade fixtures", for use in Lessee's trade or business as Lessee may, in his sole discretion, deem advisable. Any and all such trade fixtures that can be removed without structural damage to said premises or any building or improvements on said premises shall remain the property of the Lessee and may be removed by Lessee at any time times prior to the expiration or sooner termination of this lease. ARTICLE 8. DESTRUCTION AND CONDEMNATION Partial Destruction Section 8.01. Should said premises or the building on said premises be partially destroyed by any cause not the fault of Lessee or any person in or about said premises with the consent, express or implied, of Lessee, this leash shall continue in full force and effect and Lessor, at Lessor's own cost and expense, shall promptly commence the work of repairing and restoring said premises to their prior condition providing such work can be accomplished under all applicable governmental laws and regulations within sixty (60) working days at a cost not exceeding full insured value. Total Destruction Section 8.02. Should said premises or the building on said premises be so far destroyed by any cause not the fault of Lessee or any person in or about said premises with the 7

consent, express or implied, of Lessee that they cannot be repaired or restored to their former condition within sixty (60) working days or at a cost not exceeding full insured value, Lessor or Lessee may at Lessor's or Lessee's option either: (a) Continue this lease in full force and effect by repairing and restoring, at Lessor's own cost and expense, said premises to their former condition; or (b) Terminate this lease by giving Lessee written notice of such termination. Total Condemnation Section 8.03. Should, during the term of this lease or any renewal or extension thereof, title and possession of all of said premises be taken under the taken of eminent domain by any public or quasi-public agency or entity, this lease shall terminate as of 12:01 a.m. of the date actual physical possession of said premises is taken by the agency or entity exercising the power of eminent domain and both Lessor and Lessee shall thereafter be released from all obligations, except those specified in Section 8.06 of this lease, under this lease. Termination Option for Partial Condemnation Section 8.04. Should, during the term of this lease or any renewal or extension thereof, title and possession of only a portion of said premises be taken under the power of eminent domain by any public or quasi-public agency or entity, Lessee may, at Lessee's option, terminate this lease if more than Thirty-Five percent (35%) of the ground area or more than Thirty-Five percent (35%) in value of said premises is taken under the power of eminent domain. Lessee shall exercise his option by giving written notice to Lessor within thirty (30) days after actual physical possession of the portion subject to the eminent domain power is taken by the agency or entity exercising that power. This lease shall terminate as of 12:01 a.m. of the date the notice is deemed given to Lessor by the minimum rent specified in Section 2.01 of this lease shall be reduced in the manner specified in Section 8.05 of this lease from the date of taking to the date of termination of the lease. Partial Condemnation Without Termination Section 8.05. Should Lessee fail to exercise the option described in Section 8.04 of this lease or should the portion of said premises taken under the power of eminent domain be insufficient to give rise to the option described in Section 8.04 of this lease, then, in that event: (a) This lease shall terminate as to the portion of said premises taken by eminent domain as of 12:01 a.m. of the day, herein called the "date of taking", actual physical possession of that portion of said premises is taken by the agency or entity exercising the power of eminent domain; (b) The minimum rent specified in Section 2.01 together with any adjustments specified in Section 2.02 of this lease shall, after the date of taking, be reduced by an amount that bears the same ratio to the minimum rent specified in Section 2.01. of this 8

lease as the square footage store area of the portion of said premises taken under the power of eminent domain bears to the total square footage ground area of said premises as of the date of this lease. Condemnation Award Section 8.06. Should, during the term of this lease or any renewal or extension thereof, title and possession of all or any portion of said premises be taken under the power of eminent domain by any public or quasi-public agency or entity, the portion of the compensation or damages for the taking awarded to each of the parties to this lease, Lessor and Lessee, shall belong to and be the sole property of the party Lessor or Lessee, to whom it is awarded. Lessee shall be entitled to that portion of the compensation or damages awarded for the eminent domain taking that represents (1) the reasonable value of the Lessee's rights under this lease for the unexpired term of this lease and (2) the cost or less sustained by Lessee because of the removal of Lessee's merchandise, trade fixtures, equipment, and furnishings from the portion of said premises taken by eminent domain. Arbitration of Condemnation Award Section 8.07. Should separate awards not be made to Lessor and Lessee for the taking by eminent domain of all or any portion of said premises, and should Lessor and Lessee be unable to agree on the manner the total award is to be divided between them pursuant to Section 8.06 of this lease, the proper division of the award between Lessor and Lessee shall be settled by arbitration. Each party shall appoint an arbitrator and the two arbitrators so appointed shall, within a month after both have been appointed, select a third arbitrator. The decision of any two of the three arbitrators in writing shall be binding on both Lessor and Lessee. Should no two arbitrators be able to agree within one month after appointment of the third arbitrator, the report of the arbitrator most favorable to Lessor and the report of the arbitrator most favorable to Lessee shall both be disregarded and the report of the remaining arbitrator shall be binding on both Lessor and Lessee. Should either Lessor or Lessee fail to appoint an arbitrator within twenty (20) days after receiving notice from the other to so do, the arbitrator selected by the other party shall act for both and his decision in writing shall be binding on both Lessor and Lessee. ARTICLE 9. DEFAULT, ASSIGNMENT, AND TERMINATION Subleasing or Assigning as Breach Section 9.01. Lessee shall not encumber, assign, or otherwise transfer this lease, any right or interest in this lease, or any right or interest in said premises or any of the improvements that may now or hereafter be constructed or installed on said premises without the express written consent of Lessor first had and obtained; provided that Lessor shall not unreasonably withhold much express written consent. 9

Default by Lessee Section 9.02. Should Lessee default in the performance of any of the covenants, conditions, or agreements contained in this lease, Lessee shall have breached the lease and Lessor may re-enter and retain possession of said premises in the manner provided by the laws of unlawful detainer of the State of California then in effect. Waiver of Breach Section 9.03. The waiver of either party of any breach by the other of any of the provisions of this lease shall not constitute a continuing waiver or a waiver of any subsequent breach by either party, either of the same or another provision of this lease. ARTICLE 10. SALE OF LEASED PREMISES Right of First Refusal to Purchase Leased Premises Section 10.01. Should Lessor, during the lease term (or any extension thereof) elect to sell all or any portion of the leased premises, Lessee shall have the right of first refusal to meet any bona fide offer of sale on the same terms and conditions of such offer, and on failure to meet such bona fide offer within thirty (30) days after written notice thereof from Lessor, Lessor shall be free to sell the premises or portion thereof to such third person in accordance with the terms and conditions of his offer. This right of first refusal by Lessee shall not extend to a sale of the leased premises between GEORGE AND RUBY BRAMWELL and WALTER BRAMWELL. ARTICLE 11. MISCELLANEOUS Force Majeure--Unavoidable Delays Section 11.01. Should the performance of any act required by this lease be performed by either Lessor or Lessee be prevented or delayed by reason of an act of God, strike, lockout, labor troubles, inability to secure materials, restrictive governmental laws or regulations, or any other cause, except financial inability, not the fault of the party required to perform the act, the time for performance of the act will be extended for a period equivalent to the period of delay and performance of the act during the period of delay will be excused; provided, however, that nothing contained in this section shall excuse the prompt payment of rent by Lessee as required by this lease or the performance of any act rendered difficult solely because of the financial condition of the party, Lessor or Lessee, required to perform the act. Notices Section 11.02. Except as otherwise provided by law, any and all notices or other communications acquired or permitted by this lease or by law to be served on or given to either party hereto by the other party hereto shall be in writing and shall be deemed duly served and given when personally delivered to the party to whom they are directed, or in lieu 10

of such personal service when deposited in the United States mail, first-class postage prepaid, addressed to Lessee at 7190 Keating Avenue, Sebastopol, California 95472 or to Lessor at 11 Castle Court, Santa Rosa, California 95401. Either party, Lessee or Lessor, may change his address for the purpose of this section by giving written notice of such change to the other party in the manner provided in this section. Binding on Heirs and Successors Section 11.03. This lease shall be binding on and shall inure to the benefit of the heirs, executors, administrators, successors, and assigns of the parties hereto, Lessor and Lessee, but nothing in this section contained shall be construed as a consent by Lessor to any assignment of this lease or any interest therein by Lessee except as provided in Article 9 of this lease. Partial Invalidity Section 11.04. Should any provision of this lease be held by a court of competent jurisdiction to be either invalid, void, or unenforceable, the remaining provisions of this lease shall remain in full force and effect unimpaired by the holding. Sole and Only Agreement Section 11.05. This instrument constitutes the sole and only agreement between Lessor and Lessee respecting said premises, the leasing of said premises to Lessee, or the lease term herein specified, and correctly sets forth the obligations of Lessor and Lessee to each other as of its date. Any agreement or representations respecting said premises or their leasing by Lessor to Lessee not expressly set forth in this instrument are null and void. Attorney's Fees Section 11.06. Should any litigation be commenced between the parties to this lease concerning said premises, this lease, or the rights and duties or either in relation thereto, the party prevailing in such litigation shall be entitled in addition to such other relief as may be granted, to a reasonable sum as and for his attorney's fees in the litigation which shall be determined by the court in such litigation or in a separate action brought for that purpose. 11

Time of Essence Section 11.07. Time is expressly declared to be the essence of this lease. Executed on __________________, 1996 at Sebastopol, Sonoma County, California.
LESSEE LESSOR

-----------------------------------RON BASSO R. S. BASSO COMPANY

----------------------------------RUBY BRAMWELL

----------------------------------GEORGE BRAMWELL

12

SUBLEASE *************** This Sublease (Sublease) dated for reference purposes as of August 1, 1999 is made between Ron Basso, an individual doing business as R.S. Basso Company (Sublandlord), and ZAPWORLD.COM, a California Corporation (Subtenant). Recitals A. Sublandlord is the tenant under that certain Lease executed on May 22, 1996 between Ruby Bramwell and George Bramwell as Lessor and Ron Basso/ dba R.S. Basso Company as Lessee (Master Lease), pursuant to which Ruby Bramwell and George Bramwell (Master Landlord) leased to Sublandlord the real property located in the City of Sebastopol, County of Sonoma, State of California, described as 7190 Keating Avenue (Master Premises). B. A copy of the Master Lease is attached and incorporated in this Sublease as Exhibit A. Section 1. Sublease. Sublandlord subleases to Subtenant on the terms and conditions in this Sublease all of the Master Premises and certain other personal property as set forth herein. Section 2. Warranty by Sublandlord. Sublandlord warrants to Subtenant that the Master Lease has not been amended or modified except as expressly set forth in this Sublease; that Sublandlord is not now, and as of the commencement of the Term (defined in this Sublease) of this Sublease will not be, in default or breach of any of the provisions of the Master Lease; and that Sublandlord has no knowledge of any claim by Master Landlord that Sublandlord is in default or breach of any of the provisions of the Master Lease. Section 3. Term. (a) The term of this Sublease will commence on August 1, 1999 (Commencement Date), and shall end on June 1, 2004 (Termination Date), unless terminated sooner. Said period of time hereinafter shall be referred to as the Term. If the Term commences on a date other than the Commencement Date, Sublandlord and Subtenant will execute a memorandum setting forth the actual date of commencement of the Term. (b) Possession of the Premises (Possession) will be delivered to Subtenant on the commencement of the Term, subject to Subtenant's successful receipt of a use permit from the city of Sebastopol. Subtenant shall not be allowed to occupy the premises unless and until it provides proof of such permit to Sublandlord. If for any reason Sublandlord does not deliver Possession to Subtenant on the Commencement of the Term (other than due to Subtenant's failure to obtain a use permit), Sublandlord will not be subject to any liability for this failure, the Termination Date will not be extended by the delay, and the validity of this Sublease will not be impaired. Rent will be abated until delivery of Possession. However, if Sublandlord has not delivered Possession to Subtenant within thirty (30) business days after the Commencement Date, at any time after that and before delivery of Possession (other than due to Subtenant's failure to obtain a use permit), Subtenant may give written 1

notice to Sublandlord of Subtenant's intention to cancel this Sublease. The notice will set forth an effective date for the cancellation, which will be at least three (3) days after delivery of notice to Sublandlord. If Sublandlord delivers Possession to Subtenant on or before this effective date, this Sublease will remain in full force. If Sublandlord fails to deliver Possession to Subtenant on or before this effective date, this Sublease will be canceled. Upon cancellation, all consideration previously paid by Subtenant to Sublandlord on account of this Sublease will be returned to Subtenant, this Sublease will have no further force, and Sublandlord will have no further liability to Subtenant because of this delay or cancellation. If Sublandlord permits Subtenant to take Possession prior to the commencement of the Term, the early Possession will not advance the Termination Date and will be subject to the provisions of this Sublease, including, without limitation, the payment of rent. (c) The parties agree and acknowledge that Subtenant's ability to obtain a use permit from the city of Sebastopol is a condition precedent to the effectiveness of this lease and that this lease shall be of no further force and effect (and Sublandlord shall return to Subtenant any sums received from Subtenant) if Subtenant fails to obtain a use permit and provide it to Sublandlord within forty-five (45) days of the date this lease is signed by Sublandlord and Subtenant. Section 4. Rent. (a) Minimum Rent. Subtenant will pay to Sublandlord as rent (Rent), without deduction, setoff, notice, or demand, at the offices of Sublandlord or at any other place Sublandlord designates by notice to Subtenant, the sum of Five Thousand Dollars per month commencing on the Commencement Date. Said Rent shall be due and payable on the first day of each month. If the Term begins or ends on a day other than the first or last day of a month, the rent for the partial months will be prorated on a per diem basis. (b) Subtenant will pay an amount equal to the first month's Rent and the Security Deposit (as defined in Section 5 of this Sublease) upon execution of the Sublease. (c) Operating Costs. Sublandlord and Subtenant agree and acknowledge that the Master Lease requires Sublandlord to pay all or a portion of the expenses of operating the Master Premises including but not limited to payment of utilities under Section 4.01 of the Master Lease, payment of personal property taxes under Section 4.02 of the Master Lease, and certain maintenance costs under Sections 5.03 and 5.04 of the Master Lease (collectively, Operating Costs). Subtenant shall pay to the appropriate creditors for the benefit of Subtenant and Sublandlord as additional rent (Additional Rent) all of these Operating Costs associated with Subtenant's use and operation of the Master Premises. (d) Subtenant shall pay any increases in Rent as may be paid by Sublandlord to Master Landlord in accordance with the provisions of Section 2.02 of the Master Lease and any increases in Operating Costs after the initial term of this Sublease. Section 5. Security Deposit. Subtenant will deposit with Sublandlord on execution of this Sublease the sum of one months' Rent (determined in accordance with Section 4(a)) as security for Subtenant's faithful performance of Subtenant's obligations under this Sublease (Security Deposit). If Subtenant fails to pay rent or other charges when due under this Sublease, or fails to perform any obligations under this Sublease, Sublandlord may use any portion of the Security Deposit for the payment of any rent or other amount then due and unpaid, for the payment of any other sum for which Sublandlord may become obligated because of Subtenant's default or breach, or for any loss sustained by Sublandlord as a result of 2

Subtenant's default or breach. If Sublandlord uses any portion of the Security Deposit, Subtenant will, within ten (10) days after written demand by Sublandlord, restore the Security Deposit to the full amount originally deposited. Subtenant's failure to do so will constitute a default under this Sublease. Sublandlord will not be required to keep the Security Deposit separate from its general accounts, and will have no obligation or liability for payment of interest on the Security Deposit. If Sublandlord assigns its interest in this Sublease, Sublandlord will deliver to its assignee as much of the Security Deposit as Sublandlord then holds. Within ten (10) days after the Term has expired or Subtenant has vacated the Premises or any final adjustment pursuant to Subsection 4(b) of this Sublease has been made, whichever occurs last, and provided that Subtenant is not then in default under this Sublease, the Security Deposit, or as much as remains that has not been applied by Sublandlord, will be returned to Subtenant or to the last assignee, if any, of Subtenant's interest under this Sublease. Section 6. Insurance (a) Intentionally Omitted (b) Subtenant agrees to procure and maintain public liability insurance, including products and completed operations insurance, from a responsible insurance company authorized to do business in California, with a combined single limit of not less than One Million Dollars ($1,000,000) for injury or death to any person or damage to property and Four Million Dollars ($4,000,000) excess umbrella coverage for injury or death or property damage, for any claims, demands, or causes of action of any person arising out of accidents occurring on the Premises during the Term or arising out of Subtenant's use of the Premises. (c) Each policy of insurance shall be issued by a responsible insurance company authorized to do business in California, and shall list Master Landlord and Sublandlord and any beneficiary under any deed of trust covering the Premises, if required by the deed of trust, as their respective interests may appear, as additional insureds. Subtenant shall deliver certificates for each insurance policy to Sublandlord and Master Landlord with all relevant endorsements. Each policy of insurance shall be primary and noncontributory with any policies carried by Master Landlord and Sublandlord and, to the extent obtainable, any loss shall be payable notwithstanding any act or negligence of Master Landlord or Sublandlord that might otherwise result in forfeiture of insurance. Each insurance policy shall provide that a thirty (30) day notice of cancellation and of any material modification of coverage shall be given to all named insureds. The insurance coverage required under this Section may be carried by Subtenant under a blanket policy insuring other locations of Subtenant's business, provided that the Premises covered by this Sublease are specifically identified as included under that policy. Subtenant agrees that upon the failure to insure as provided in this Sublease, or to pay the premiums in the insurance, Sublandlord may contract for the insurance and pay the premiums, and all sums expended by Sublandlord for the insurance shall be considered additional rent under this Sublease and shall be immediately repayable by Subtenant. (d) So that the business of Subtenant may continue with as little interruption as possible, Subtenant shall, during the Term and any renewals or extensions, maintain at Subtenant's own cost and expense, an insurance policy insuring against damage or destruction by fire, theft, or the elements for their full insurable value all fixtures and equipment and, to the extent possible, all merchandise that is on the Premises at any time during the Term or any renewal or extension. (e) At all times during the Term and any extensions or renewals, Subtenant agrees to keep and maintain, or cause Subtenant's agents, contractors, or subcontractors to keep and maintain, workmen s compensation insurance and other forms of insurance as may from time to time be required 3

by law or may otherwise be necessary to protect Sublandlord and the Premises from claims of any person who may at any time work on the Premises, whether as a servant, agent, or employee of Subtenant or otherwise. This insurance shall be maintained at the expense of Subtenant or Subtenant's agents, contractors, or subcontractors and not at the expense of Sublandlord. (f) Sublandlord agrees that it will tender and turn over to Subtenant or to Subtenant's insurers the defense of any claims, demands, or suits instituted, made, or brought against Sublandlord or against Sublandlord and Subtenant jointly, within the scope of this Section. However, Sublandlord shall have the right to approve the selection of legal counsel, to the extent that selection is within Subtenant's control, which approval shall not be unreasonably withheld or delayed. In addition, Sublandlord shall retain the right at Sublandlord `s election to have Sublandlord `s own legal counsel participate as co-counsel, to the extent that claims are made that may not be covered by Subtenant's insurers. (g) Subtenant and Sublandlord each release the other and waive the entire right of recovery against the other for loss or damage arising out of or incident to the perils insured against, which perils occur in, on, or about the Premises, whether due to the negligence of Sublandlord or Subtenant or their agents, employees, contractors, or invitees. Subtenant and Sublandlord shall, upon obtaining the required policies of insurance, give notice to the insurance carriers that this mutual waiver of subrogation is in this Lease. Section 7. Assignment and Subletting. Subtenant will not assign this Sublease or further sublet all or any part of the Premises without the prior written consent of Sublandlord (and the consent of Master Landlord, if this is required under the terms of the Master Lease). All rent received by Subtenant from any of its subtenants in excess of the rent payable by Subtenant to Sublandlord under this Sublease shall be paid to Sublandlord, or any sums to be paid by an assignee to subtenant in consideration of the assignment of this sublease shall be paid to Sublandlord. If Subtenant requests Sublandlord to consent to a proposed assignment or subletting, subtenant shall pay to Sublandlord, whether or not consent is ultimately given, Sublandlord's reasonable attorneys' fees incurred in connection with each such request. Section 8. Other Provisions of Sublease. (a) Except as otherwise set forth in this Sublease, all applicable terms and conditions of the Master Lease are incorporated into and made a part of this Sublease as if Sublandlord were the landlord, Subtenant the lessee, and the Premises the Master Premises except for the following: Master Lease Sections: 1.01, 1.03, 1.04, 1.05, 1.06, 2.01, 2.03, 6.02, 6.04, 9.01, 10.01, 11.02. Subtenant assumes and agrees to perform all of the remainder of the lessee's obligations under the Master Lease during the Term to the extent that these obligations are applicable to the Premises. However, the obligation to pay rent and operating costs to Master Landlord under the Master Lease will be considered performed by Subtenant to the extent and in the amount rent and operating costs are paid to Sublandlord in accordance with Section 4 of this Sublease. Subtenant will not commit or suffer any act or omission that will violate any of the provisions of the Master Lease. Sublandlord will exercise due diligence in attempting to cause Master Landlord to perform its obligations under the Master Lease for the benefit of Subtenant. if the Master Lease terminates, at the option of Master Landlord, this Sublease will terminate and the parties will be relieved of any further liability or 4

obligation under this Sublease. However, if the Master Lease terminates as a result of a default or breach by Sublandlord or Subtenant under this Sublease or the Master Lease, the defaulting party will be liable to the nondefaulting party for the damage suffered as a result of the termination. Regardless, if the Master Lease gives Sublandlord any right to terminate the Master Lease in the event of the partial or total damage, destruction, or condemnation of the Master Premises or the building or project of which the Master Premises are a part, the exercise of this right by Sublandlord will not constitute a default or breach. (b) Sublandlord shall deliver the Premises to Subtenant "AS IS" in broom-clean condition with the Premises in their existing condition, with no alterations being made by Sublandlord on the Commencement Date. (c) (i) Notwithstanding the provisions of Section 4(a)of this Sublease and subject to subsection (ii) of this subsection, Sublandlord waives Subtenant's obligation to pay Base Rent for the first month of this Sublease. Sublandlord and Subtenant agree that for purposes of this subsection, the Base Rent foregone by Sublandlord shall be equal to Five Thousand Dollars ($5,000) (the "Free Rent"). (ii) Subtenant agrees that Sublandlord's agreement to waive Base Rent as provided in subsection (i) of this Section is conditioned upon occurrence of no default on the part of Subtenant under this Sublease during the Term of this Sublease. If a default shall occur during the Term of this Sublease then the aggregate amount of the Free Rent provided to Subtenant prior to such default shall become immediately due and owing as additional rent under this Lease. (d) Subtenant shall have the right to place a sign on the Premises, in accordance with the terms and conditions of the Master Lease. (e) Sublandlord and Subtenant agree that Subtenant shall have free use of the existing telecommunications system in the Premises which is the sole property of Sublandlord. Subtenant accepts the telecommunications system "AS IS" in its existing condition. Subtenant will be responsible at its sole cost for the installation of any other telecommunications system, and the maintenance and repair of all telecommunications systems, wiring, and risers running throughout the Premises, together with all of Subtenant's telephones, telecopiers, computers, telephone switching, telephone panels and related equipment, whether provided by Sublandlord or by other vendors. Subtenant agrees to install, maintain and repair all such telecommunications equipment in a good and proper manner. Subtenant agrees to indemnify, release, defend and hold Sublandlord harmless from and against any damages, claims, or other liability resulting from Subtenant's installation, maintenance and repair of such equipment. (f) Compliance with Legal Requirements; No Waste. (i) Compliance with Legal Requirements. At Subtenant's sole cost, Subtenant will promptly comply with all laws, statutes, ordinances, rules, regulations, orders, recorded covenants and restrictions, and requirements of all municipal, state, and federal authorities now or later in force, including, but not limited to, all provisions of the Americans with Disabilities Act; the requirements of any board of fire underwriters or other similar body now or in the future constituted; and the direction or occupancy certificate issued by public officers (Legal Requirements), insofar as they relate to the condition, use, or occupancy of the Premises. However, Subtenant's compliance will not be required for: 5

(A) tenant improvements to be made pursuant to this Lease by Sublandlord, if any; and (B) work necessitated by defects in the construction of the Building. The judgment of any court of competent jurisdiction or the admission of Subtenant in any action or proceeding against Subtenant that Subtenant has violated any Legal Requirement in the condition, use, or occupancy of the Premises, will be conclusive of that fact as between Sublandlord and Subtenant. (ii) No Waste. Subtenant will not commit or allow any waste on the Premises or any nuisance or other act or thing that may disturb the quiet enjoyment of any other tenant in the building in which the Premises may be located. (g) Event of Default and Remedies A breach of the terms and conditions of this Sublease or of the Master Lease shall constitute an event of default ("Event of Default"). Upon the occurrence of an Event of Default, Sublandlord is entitled at its option to the following: (i) to reenter and take exclusive possession of the Premises; (ii) to collect immediately the present value of the unpaid rent reserved for the entire term, or to collect each installment of rent as it becomes due; (iii) to continue this Sublease in force or to terminate it at any time; (iv) to relet the Premises for any period on Subtenant's account and at Subtenant's expense, including real estate commissions actually paid, and to apply the proceeds received during the balance of Term to Subtenant's continuing obligations under this Sublease; (v) to take custody of all personal property on the Premises and to dispose of the personal property and to apply the proceeds from any sale of that property to Subtenant's obligations under this Sublease; (vi) to recover from Subtenant the damages described in Civil Code ss. 1951.2(a)(l), 1951.2(a)(2), 1951.2(a) (3), and 1951.2(a)(4), the provisions of which are expressly made a part of this Lease; (vii) to restore the Premises to the same condition as received by Subtenant, or to alter the Premises to make them suitable for reletting, all at Subtenant's expense; and (viii) to enforce by suit or otherwise all obligations of Subtenant under this Sublease and to recover from Subtenant all remedies now or later allowed by law. Any act that Sublandlord is entitled to do in exercise of Sublandlord's rights upon an Event of Default may be done at a time and in a manner deemed reasonable by Sublandlord in Sublandlord's sole discretion, and Subtenant irrevocably authorizes Sublandlord to act in all things done on Subtenant's account. 6

Section 9. Attorney Fees. If either party commences an action against the other in connection with this Sublease, the prevailing party will be entitled to recover costs of suit and reasonable attorney fees. Section 10. No Broker. Sublandlord and Subtenant each warrant that they have not dealt with any real estate broker in connection with this transaction. Sublandlord and Subtenant each agree to indemnify, defend, and hold the other harmless against any damages incurred as a result of the breach of the warranty contained in this Sublease. Section 11. Notices. All notices and demands that may be required or permitted by either party to the other will be in writing. All notices and demands by the Sublandlord to Subtenant will be sent by United States Mail, postage prepaid, addressed to the Subtenant at the Premises, and to the address in this Sublease below, or to any other place that Subtenant may from time to time designate in a notice to the Sublandlord. All notices and demands by the Subtenant to Sublandlord will be sent by United States Mail, postage prepaid, addressed to the Sublandlord at the address in this Sublease, and to any other person or place that the Sublandlord may from time to time designate in a notice to the Subtenant. To Sublandlord: Ron Basso 970 Gravenstein Highway South Sebastopol, CA 95472 To Subtenant: ZAP WORLD.COM Main Office 117 Morris Street Sebastopol, CA 95472 Section 12. Successors and Assigns. This Sublease will be binding on and inure to the benefit of the parties to it, their heirs, executors, administrators, successors in interest, and assigns. Section 13. Attornment. If the Master Lease terminates, this Sublease shall survive said termination and Subtenant will, if requested, attorn to Master Landlord and recognize Master Landlord as Sublandlord under this Sublease. However, Subtenant's obligation to attorn to Master Landlord will be conditioned on Subtenant's receipt of a nondisturbance agreement. 7

Section 14. Entry. Sublandlord reserves the right to enter the Premises on reasonable notice to Subtenant to inspect the Premises or the performance by Subtenant of the terms and conditions of this Sublease and, during the last three (3) months of the Term, to show the Premises to prospective subtenants. In an emergency, no notice will be required for entry. Section 15. Late Charge and Interest. The late payment of any Rent will cause Sublandlord to incur additional costs, including the cost to maintain in full force the Master Lease, administration and collection costs, and processing and accounting expenses. If Sublandlord has not received any installment of Rent within ten (10) days after that amount is due, Subtenant will pay five percent (5%) of the delinquent amount, which is agreed to represent a reasonable estimate of the cost incurred by Sublandlord. In addition, all delinquent amounts will bear interest from the date the amount was due until paid in full at a rate per annum (Applicable Interest Rate) equal to the greater of (a) two percent (2%) per annum plus the then federal discount rate on advances to member banks in effect at the Federal Reserve Bank of San Francisco on the 25th day of the month preceding the date of this Sublease or (b) ten percent (10%). However, in no event will the Applicable Interest Rate exceed the maximum interest rate permitted by law that may be charged under these circumstances. Sublandlord and Subtenant recognize that the damage Sublandlord will suffer in the event of Subtenant's failure to pay this amount is difficult to ascertain and that the late charge and interest are the best estimate of the damage that Sublandlord will suffer. If a late charge becomes payable for any three (3) installments or Rent within any twelve (12) month period, the Rent will automatically become payable quarterly in advance. Section 16. Entire Agreement. This Sublease sets forth all the agreements between Sublandlord and Subtenant concerning the Premises, and there are no other agreements either oral or written other than as set forth in this Sublease. Section 17. Time of Essence. Time is of the essence in this Sublease. Section 18. Governing Law. This Sublease will be governed by and construed in accordance with California law. Section 19. Advice of Counsel This Sublease has been prepared by the firm of Mclnerney & Dillon, P.C. for the benefit if its client Ron Basso. Subtenant is advised to consult with an attorney on the legal requirements of this Sublease. The parties hereto state that they have been fully advised by their respective counsel (or if no counsel has been consulted, then in reliance on their own officers and directors) as to the contents of this Sublease and each provision thereof and understand its content and effect. The parties further represent that they do not rely and have not relied upon any representation or statement made by any of the other parties with regard to the subject matter, basis or effect of this agreement, other than the express provisions contained within this agreement. 8

In Witness Whereof the parties have executed this Sublease effective as of the date first above written. Sublandlord
Date Signed: 8/13/99 --------------------By: /s/ Ron Basso ------------------------Ron Basso

ZAPWORLD.COM A California Corporation
Date Signed: 8/3/99 --------------------By: /s/ Jim McGreen ------------------------Jim McGreen, President

Date Signed:

8/13/99 ---------------------

By:

/s/ Nancy K. Cadigan ------------------------Secretary

9

EXHIBITS Exhibit A--Copy of Master Lease 10

SUBLEASE AGREEMENT THIS SUBLEASE is made in San Francisco, California by and between American Scooter and Cycle Rental, Inc., a California corporation ("Sublessor") and ZAP WORLD.com, a California corporation ("Sublessee" or "ZAP"). 1. Agreement. Sublessor does hereby sublease to Sublessee, and Sublessee does hereby sublease from Sublessor, a portion of the premises located at 2715 Hyde Street in San Francisco, California, (hereinafter referred to as the "Premises") and as more particularly described in the attached Exhibit A. 2. Term. The term of this sublease shall be for the unexpired portion of Sublessor's Lease for said Premises (through April 30, 2001) as provided in the Lease between Sublessor and JB&T Properties, LLC, a California limited liability company ("Lessor") dated March 9, 1999, as amended. Said lease ("Master Lease"), as amended, is attached hereto as Exhibit B and incorporated herein by reference. 3. Rent. Sublessee hereby accepts and subleases the Premises in their present condition and agrees to pay to Sublessor monthly rent for the sublet premises in accordance with the following schedule: July 13th through July 31st: $1.00 August: $1.00 September: $1.00 October: $1.00 November: $5,950.00 December 1, 1999 through April 30, 2001: $10,500 per month Such sums shall be paid directly to Sublessor on the first day of each month throughout the term of this sublease. 4. Late Charge and Interest. If Sublessor has not received any installment of rent within five (5) days after that amount is due, Sublessee will pay five percent (5%) of the delinquent amount, which is agreed to represent a reasonable estimate of the cost incurred by Sublessor. In addition, all delinquent amounts will bear interest from the date the amount was due until paid in full at the rate of ten percent (10%) per annum. 5. Security Deposit. Sublessee will deposit with Sublessor on execution of this sublease the sum of Thirteen Thousand Dollars ($13,000) as security for Sublessee's faithful performance of Sublessee's obligations under this Sublease. If Sublessee fails to pay rent or other charges when due, or fails to perform any obligations under this Sublease, Sublessor may use any portion of the security deposit for the payment of any rent or other amount then due and unpaid, for the payment of any other sum for which Sublessor may become obligated because of Sublessee's default or breach, or for any loss sustained by Sublessor as a result of Sublessee's default or breach. If Sublessor uses any portion of the security deposit, Sublessee will, within ten (10) days after written demand by Sublessor, restore the security deposit to the full amount originally deposited. Sublessee's failure to do so will constitute a default under

this Sublease. Sublessor will not be required to keep the Security Deposit separate from its general accounts, and will have no obligation or liability for payment of interest on the Security Deposit. Within ten (10) days after the Term has expired or Sublessee has vacated the Premises, whichever occurs last, and provided that Sublessee is not then in default under this Sublease, the security deposit, or as much as remains that has not been applied by Sublessor, will be returned to Sublessee. Sublessee shall have the right to apply any portion of the security deposit in payment of the last month's rent. 6. Subject to Terms of Master Lease. The parties agree that all applicable terms and conditions of the Master Lease referred to in paragraph 2 herein are incorporated into and made a part of this Sublease. Sublessee assumes and agrees to perform the lessee's obligations under the Master Lease during the Term to the extent that these obligations are applicable to the Premises. However, the obligation to pay rent and operating costs to Master Landlord under the Master Lease will be considered performed by Sublessee to the extent and in the amount rent and operating costs are paid to Sublessor in accordance with Section 3 of this Sublease. Sublessee will not commit or suffer any act or omission that will violate any of the provisions of the Master Lease. Sublessor will exercise due diligence in attempting to cause Master Landlord to perform its obligations under the Master Lease for the benefit of Sublessee. 7. Use of Premises. The Premises will be used and occupied only as a ZAP administrative office, a showroom and retail outlet for ZAP products and a facility for the rental and maintenance of bicycles and ZAP products and for no other use or purpose, except as agreed to in writing by the parties. IN WITNESS WHEREOF, the parties have executed this agreement on the dates indicated below:
Dated: July ___, 1999 Dated: July ___, 1999

ZAPWORLD.com Sublessee

American Scooter and Cycle Rental, Inc. Sublessor

By:

/s/ Gary Starr ---------------------Gary Starr, President

By:

/s/ Jeff Sears -------------------------Jeff Sears, President

-2-

CONSENT OF LESSOR The undersigned limited liability company hereby consents to and approves the terms of the foregoing sublease between American Scooter and Cycle Rental, Inc. and ZAP WORLD.com.
Dated: July ___, 1999 JB&T Properties, LLC, Lessor

By:

/s/ Signature ---------------------------

-3-

ADDENDUM TO SUBLEASE This Addendum to Sublease is made in San Francisco, California by and between American Scooter and Cycle Rental, Inc., a California corporation ("Sublessor") and ZAPWORLD.com, a California corporation ("Sublessee"). This agreement is intended to modify the monthly rental provisions of paragraph 3 of the existing sublease between the parties for the premises located at 2715 Hyde Street in San Francisco, California. 1. The parties agree that Sublessee shall pay monthly rent to Sublessor at the rate of $12,000 per month effective January 1, 2000. 2. All other terms and provisions of the Sublease shall remain the same. IN WITNESS WHEREOF, the parties have executed this agreement on the dates indicated below:
Dated: March ____, 2000 Dated: April 4, 2000

ZAPWORLD.com Sublessee By /s/ Gary Starr -----------------------Gary Starr, CEO

American Scotter and Cycle Rental, Inc. Sublessor By /s/ Jeff Sears --------------------------Jeff Sears, CEO

LEASE THIS LEASE is made October 16, 2000, between PINE CREEK PROPERTIES, a California general partnership, "Landlord," whose address is P.O. Box 11218, Santa Rosa, CA 94056, and ZAPWORLD.COM, "Tenant," whose address is 117 Morris St., Sebastopol, CA 95472. This Lease is made with reference to the following facts and objectives: (a) Landlord is the owner of the premises described in Paragraph 1 and Exhibit "A," which consists, generally, of approximately 4,200 sq. feet warehouse/office. (b) Tenant is willing to lease the premises from Landlord pursuant to the provisions stated in this Lease. (c) Tenant wishes to lease the premises for the purposes of manufacture and assembly of electric vehicles. (d) Tenant has examined the premises and is fully informed of their condition. THE PARTIES HERETO AGREE AS FOLLOWS: 1. PREMISES. Landlord hereby leases to Tenant and Tenant hereby hires and takes from Landlord, upon the terms and conditions herein set forth, the real property located at 6780-B Depot St., Sebastopol, Sonoma County, California, and more particularly described in Exhibit "A," together with the building and other improvements located on the real property ("premises"). 2. TERM. (a) The term of this Lease shall be 3 years 7 months and shall commence on the 1st day of November, 2000, and end on the 31st day of May, 2004, inclusive. (b) If Landlord is unable to deliver possession of the premises to Tenant, by the date specified above for the commencement of the term of this Lease, neither Landlord nor its agent shall be liable for any damage caused thereby, nor shall this Lease thereby become void or voidable, and the term herein specified shall, in such case, commence upon the date of delivery of possession of the premises to Tenant and shall terminate 3 years 7 months thereafter. In such event, Tenant shall not be liable for any rent until such time as Landlord shall deliver possession of the premises to Tenant. 3. ACCEPTANCE OF PREMISES. Tenant's taking possession of the premises on commencement of the term shall constitute Tenant's acknowledgement that the premises are in good condition.

4. RENT. Tenant agrees to pay to Landlord, as rent for the premises, the sum of Two Thousand One Hundred Eighty-Eight Dollars ($2,188.00) per month, in advance, on the first day of the term of this Lease and on the first day of each calendar month thereafter during the term. Rent for any partial month shall be prorated at the rate of 1/30th of the monthly rent per day. All installments of rent shall be paid at the address to which notices to Landlord are given, or at such other place as may be designated in writing, from time to time by Landlord, in lawful money of the United States and without deduction or offset for any cause whatsoever. In addition, Tenant agrees to pay to Landlord a late payment of ten percent (10%) of the amount due for any payment received later than the seventh day of each calendar month. 5. RENT ADJUSTMENTS. The monthly rent provided for in Paragraph 4 ("minimum monthly rent") shall be subject to adjustment at the commencement of the second year of the term and each year thereafter (the "adjustment date"), as follows: The base for computing the adjustment is the Consumer Price Index, All Urban Consumers ("All Items") for the San Francisco-Oakland Metropolitan Area, published by the United States Department of Labor, Bureau of Labor Statistics ("Index"), which is published for the month nearest the date of commencement of the term ("Beginning Index"). If the index published nearest the adjustment date ("Extension Index") has increased or decreased over the Beginning Index, the minimum monthly rent will be set by multiplying the minimum monthly rent set forth in Paragraph 4 by a fraction, the numerator of which is the Extension Index and the denominator of which is the Beginning Index. In no case shall the minimum monthly rent be less than the minimum monthly rent set forth in Paragraph 4. On adjustment of the minimum monthly rent as provided in this Lease, the parties shall immediately execute an amendment to the Lease stating the new minimum monthly rent. If the index is changed so that the base year differs from that used as of the month immediately preceding the month in which the term commences, the Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the term, such other government index or competition with which it is replaced shall be used in order to obtain substantially the same results as would be obtained if the Index had not been discontinued or revised. ANNUAL CPI ADJUSTMENTS SHALL BE ON SEPTEMBER 1ST, BEGINNING 9/1/01. 6. SECURITY DEPOSIT. On execution of this Lease, Tenant shall deposit with Landlord the sum of One Thousand Five Hundred and no/100 Dollars ($1,500.00) as a security deposit for the performance by Tenant of the provisions of this Lease. If Tenant is in default, Landlord can use the security deposit, or any portion of it, to cure the default or to compensate Landlord for all damage sustained by Landlord resulting from Tenant's default. Tenant shall immediately, on demand pay to Landlord a sum equal to the portion of the security deposit expended or applied by Landlord as provided in this paragraph so as to maintain the security deposit in the sum initially deposited with Landlord. If Tenant is not in default at the expiration or termination of this Lease, Landlord shall return the security deposit to Tenant. Landlord's obligations with respect to the security deposit are those of a debtor and -2-

not a trustee. Landlord can maintain the security deposit separate and apart from Landlord's general funds or can commingle the security deposit with Landlord's general and other funds. Landlord shall not be required to by Tenant interest on the security deposit. 7. PERSONAL PROPERTY TAXES. Tenant shall pay before delinquency all taxes, assessments, license fees, and other charges that are levied and assessed against Tenant's trade fixtures or personal property installed or located in or on the premises, and that become payable during the term. On demand by Landlord, Tenant shall furnish Landlord with satisfactory evidence of these payments. 8. REAL PROPERTY TAXES. Landlord shall pay all real property taxes and general and special assessments ("real property taxes") levied and assessed against the premises; provided, however, that Lessee shall pay to Lessor any increase in real property tax assessed by reason of Tenant's activities or additional improvements placed upon the Premises by Lessee or at Lessee's request. 9. USE. The premises are to be used as described in the Recitals of this Lease, and for no other business or purpose without the written consent of Landlord. Tenant shall be responsible for any required City, County, State or Federal permits. No use shall be made or permitted to be made of the premises, nor acts done in or on or about the premises, which will in any way conflict with any law, ordinance, rule or regulation affecting the occupancy or use of the premises which has been or is subsequently enacted or promulgated by any public authority, or which will increase the existing rate of insurance upon the building, or cause a cancellation of any insurance policy covering the building or any part thereof, nor shall Tenant sell, or permit to be kept, used or sold in or about the premises, any article which may be prohibited by the standard form of fire insurance policy. Tenant shall not commit, or suffer to be committed, any waste upon the premises or any public or private nuisance, or other act or thing which may disturb the quiet enjoyment of any neighbor, commercial or residential, nor any other tenant in the building, nor use any apparatus, machinery or device in or about the premises which shall cause any substantial noise or vibration, or which shall substantially increase the amount of electricity or water, if any, agreed to be furnished or supplied under this Lease. Tenant further agrees not to connect with electric wires or water or other pipes any apparatus, machinery or device without the consent of Landlord. If parking becomes an issue, Landlord shall assign specific parking spaces. 10. MAINTENANCE AND REPAIRS. Except as provided in Paragraphs 22 and 23, Tenant, at its cost, shall maintain the premises in good condition. Landlord shall be responsible for roof, walls and floor repair maintenance. Landlord shall not have any responsibility for general maintenance of the premises. Tenant waives the provisions of Civil Code Sections 1941 and 1942, with respect to Landlord's obligations for tenantability of the premises and Tenant's right to make repairs and deduct the expenses of such repairs from rent. 11. ALTERATIONS. Except as provided in Paragraph 12, Tenant shall not make any alterations to the premises without Landlord's consent. Unless otherwise provided by written agreement, all alterations shall be done either by or under the direction of Landlord, but at the sole cost of Tenant, shall be the property of Landlord, and shall remain on and be -3-

surrendered with the premises on expiration or termination of the term; provided, however, that at Landlord's option, Tenant shall, at Tenant's expense, when surrendering the premises, restore the same to their original condition. If Tenant makes any alterations to the premises, as provided in this paragraph, the alterations shall not be commenced until two (2) days after Landlord has received notice from Tenant stating the date the installation of the alterations is to commence, so that Landlord can post and record an appropriate notice of non-responsibility. 12. TRADE FIXTURES. Subject to the provisions of Paragraph 11 hereof, Tenant may install and maintain its trade fixtures on the premises, provided that such fixtures, by reason of the manner in which they are affixed, do not become an integral part of the building or premises. Tenant, if not in default hereunder, may at any time or from time to time during the term hereof, or upon the expiration or termination of this Lease, alter or remove any such trade fixtures so installed by Tenant. If not so removed by Tenant on or before the expiration or termination of this Lease, Tenant, upon the request of Landlord so to do, shall thereupon remove the same. Any damage to the premises caused by any such installations, alteration or removal of such trade fixtures shall be promptly repaired at the expense of the Tenant. 13. MECHANICS' LIENS. Tenant shall pay all costs for construction done by it, or caused to be done by it, on the premises, including all required permits, as permitted by this Lease. Tenant shall keep the premises free and clear of all mechanics' liens resulting from construction done by or for Tenant. Tenant shall have the right to contest the correctness or validity of any such lien if, immediately on demand by Landlord, Tenant procures and records a lien release bond issued by a corporation authorized to issue surety bonds in California in an amount equal to one and one-half times the amount of the claim of the lien. The bond shall meet the requirements of Civil Code Section 3143 and shall provide for the payment of any sum that the claimant may recover on the claim (together with costs of suit, if it recovers in the action). 14. AMERICANS WITH DISABILITIES ACT (ADA). If Tenant's use and/or personnel requirements change after the granting of the initial use permit which would enact new ADA requirements, then Tenant shall at all times keep the premises in compliance with the ADA and its supporting regulations, and all similar federal, state or local laws, regulations and ordinances with respect to this new use. If Landlord's consent would be required for alterations to bring the premises into compliance, Landlord agrees not to unreasonably withhold its consent. 15. HAZARDOUS MATERIALS ACKNOWLEDGEMENT, ENVIRONMENT REPRESENTATION AND LIABILITY RELEASE. Tenant acknowledges that various materials utilized in the construction of the Property may contain materials that have been or may in the future be determined to be toxic, hazardous or undesirable and may need to be specially treated, specially handled and/or removed from the Property. Such substances may be above and below ground on the Property or may be present on or in soils, water, building -4-

components or other portions of the Property in areas that may or may not be accessible or noticeable. Tenant shall use and operate the premises, at all times during the term hereof, under and in compliance with the laws of the State of California and in compliance with all applicable environmental legal requirements. For any contamination to Leased Property due to Tenant's use, Tenant assumes full responsibility for the clean-up of such toxic, hazardous or undesirable materials as required by current and future federal, state and local laws and regulations. Tenant acknowledges that toxic wastes, hazardous materials and undesirable substances problems can be extremely costly to correct and Tenant relieves Landlord from all liability related thereto due to Tenant's use. Tenant therefore hereby agrees that they shall indemnify and defend and hold Landlord harmless from any claim, liability, damage, cost or expense, including, but not limited to, court costs and attorneys' fees, arising out of or in any way related to toxic waste, hazardous material and/or undesirable substance affecting the Leased Property related to and caused by Tenant's use. 16. UTILITIES. Tenant shall make all arrangements for, and pay for all utilities and services furnished to or used by it including, without limitation, gas, electricity, water, sewer, telephone service, and trash collection, and for all connection charges. If for any reason any of these utilities or services are paid for by Landlord on behalf of Tenant, then Tenant shall reimburse Landlord upon receiving notice. 17. EXCULPATION OF LANDLORD. Landlord shall not be liable to Tenant for any injury or damage that may result to any person or property in or about the premises or the building which the premises are located, from any cause whatsoever, including, but not limited to, injury or damage resulting from any defects in the building, including roof leaks, or any equipment located therein, or from fire, water, gas, oil, electricity or other cause or any failure in the supply of same, or from the acts or neglect of any persons. 18. INDEMNITY AND HOLD HARMLESS. Tenant agrees to indemnify and hold Landlord harmless against all claims, and the expense of defending against such claims, for injury or damage to persons or property occurring in or about the premises or occurring outside the premises but resulting in whole or in part from the act, failure to act, negligence or other fault of Tenant or its agents, employees or invitees. 19. LIMITATION OF LANDLORD'S LIABILITY. Tenant agrees to look solely to Landlord's interest in the building for the recovery of any judgment from Landlord, it being agreed that Landlord shall never be personally liable for any such judgment. The provision contained in the foregoing sentence is not intended to, and shall not, limit any right the Tenant might otherwise have to obtain injunctive relief against Landlord or Landlord's successors in interest or any other action not involving the personal liability of Landlord to respond in monetary damages from assets other than Landlord's interest in the building or any suit or action in connection with enforcement or collection of amounts which may become owing or payable under or on account of insurance maintained by Landlord. -5-

20. INSURANCE. (a) Tenant, at its cost, shall maintain public liability and property damage insurance with a combined single limit of liability of not less than $1,000,000, insuring against all liability of Tenant and its authorized representatives arising out of and in connection with Tenant's use or occupancy of the premises. All public liability insurance and property damage insurance shall insure performance by Tenant of the indemnity provisions of Paragraph 18. Both parties shall be named as additional insureds, and the policy shall contain cross-liability endorsements. (b) Not more frequently than three (3) years, if, in the opinion of Landlord's lender or of the insurance broker retained by Landlord, the amount of public liability and property damage insurance coverage at that time is not adequate, Tenant shall increase the insurance coverage as required by either Landlord's lender or Landlord's insurance broker. (c) Tenant, at its cost, shall maintain on all its personal property, Tenant's improvements and alterations in, on or about the premises, a policy of standard fire and extended coverage insurance with vandalism and malicious mischief endorsements, to the extent of at least ninety percent (90%) of their full replacement value. The proceeds from any such policy shall be used by Tenant for the replacement of personal property or the restoration of Tenant's improvements or alterations. TENANT SHALL BE FINANCIAL RESPONSIBLE FOR GLASS BREAKAGE. (d) Landlord shall maintain on the building and other improvements that are a part of the premises, a policy of standard fire and extended coverage insurance with vandalism and malicious mischief endorsements, to the extent of at least ninety percent (90%) full replacement value. (e) Tenant's obligation to pay the insurance costs shall be prorated for any partial year, at the commencement and expiration or termination of the term. (f) All insurance policies maintained by Tenant, under this paragraph, shall contain a provision requiring thirty (30) days' written notice from the insurance company to both parties and Landlord's lender, before cancellation or change in the coverage, scope or amount of any policy. Each policy, or a certificate of the policy, together with evidence of payment of premiums, shall be deposited with the other party at the commencement of the term, and on renewal of the policy, not less than twenty (20) days before expiration of the term of the policy. 21. WAIVER OF SUBROGATION. The parties release each other, and their respective authorized representatives, from any claims for damage to any person, or to the premises and to the fixtures, personal property, Tenant's improvements and alterations of either Landlord or Tenant in or on the premises that are caused by or result from the risks insured against under any insurance policies carried by the parties and in force at the time of any such damage. -6-

Each party shall cause each insurance policy obtained by it to provide that the insurance company waives all rights of recovery by way of subrogation against either party in connection with any damage covered by any policy. Neither party shall be liable to the other for any damage caused by fire or any of the risks insured against under any insurance policy required by this Lease. If any insurance policy cannot be obtained with a waiver of subrogation, or is obtainable only by the payment of an additional premium charge above that charged by insurance companies issuing policies without waiver of subrogation, the party undertaking to obtain the insurance shall notify the other party of this fact. The other party shall have a period of ten (10) days after receiving the notice either to place the insurance with a company that is reasonably satisfactory to the other party and that will carry the insurance with a waiver of subrogation, or to agree to pay the additional premium if such policy is obtainable at additional cost. If the insurance cannot be obtained or the party in whose favor a waiver of subrogation is desired refuses to pay the additional premium charged, the other party is relieved of the obligation to obtain a waiver of subrogation rights with respect to the particular insurance involved. 22. DESTRUCTION. If the whole or any part of the premises shall be destroyed by fire or other cause, or be so damaged thereby that they are untenantable and cannot be rendered tenantable within one hundred twenty (120) days from the date of such destruction or damage, or such damage or destruction is not covered by any insurance required to be maintained under Paragraph 20 this Lease may be terminated by Landlord or Tenant by written notice to the other. Within forty-five (45) days from date of such destruction or damage, Landlord shall give written notice to Tenant as to whether or not the premises will be rendered tenantable within one hundred twenty (120) days from the date of such destruction or damage and whether such damage or destruction is anticipated to be covered by the insurance required to be maintained under Paragraph 16. In case the damage or destruction be not such as to permit termination of the Lease as above provided, or neither Landlord nor Tenant elects to terminate the Lease as above provided, Landlord shall, within reasonable time, render said premises tenantable, and a proportionate reduction shall be made in the rent herein reserved corresponding to the time during which and to the portion of the premises of which Tenant shall be deprived of possession. The provisions of Subdivision 2 of Section 1932 of the California Civil Code, and of Subdivision 4 of Section 1933 of that Code, shall not apply to this Lease. 23. CONDEMNATION. Should the whole or any part of the premises be condemned and taken by any competent authority for any public or quasi-public use or purpose, all awards payable on account of such condemnation and taking shall be payable to Landlord, and Tenant hereby waives all interest in or claim to said awards, or any part thereof. If the whole of the premises shall be so condemned and taken, then this Lease shall terminate. If only a part of the premises is condemned and taken and the remaining portion thereof is suitable for the purposes for which Tenant has leased said premises, this Lease shall continue, but the rental shall be reduced in an amount proportionate to the value of the portion taken as it related to the total value of the premises. Each party waives the provisions of Code of Civil Procedure ss. 1265.130 allowing either party to petition the Superior Court to terminate this Lease in the event of a partial taking of the premises. -7-

24. ASSIGNMENT AND SUBLETTING. Except as provided in Paragraph 24(d) hereof, Tenant shall not assign, mortgage or pledge this Lease, or any interest therein, and shall not sublet the premises or any part thereof, or any right or privilege appurtenant thereto, or allow any other person (the agents and servants of Tenant excepted) to occupy or use the premises, or any portion thereof, without the written consent of Landlord first had and obtained. A consent to one assignment, mortgage pledge, subletting, occupation or use by any other person shall not relieve the Tenant from any obligation under this Lease, and shall not be deemed to be a consent to any subsequent assignment, mortgage, pledge, subletting, occupation or use by another person. Any assignment, mortgage, subletting, occupation or use without such consent shall be void, and shall, at the option of Landlord, terminate this Lease. (a) If the Tenant desires any assignment, mortgage, pledge or subletting, occupation or use referred to in Paragraph 24, Tenant shall give written notice to the Landlord giving the name and address of the proposed assignee, mortgagee, pledgee, sublesee, occupier or user, and the price and other terms of the proposed transaction. At the same time, Tenant shall, in writing, tender by an offer to the Landlord the option to (i) reacquire the premises for the same period and under the same terms as the proposed assignment or sublease, or (ii) reacquire the premises for the same period but at a price equal to the lease rent. If the Landlord accepts the offer, it shall do so by mailing written notice of its acceptance to Tenant within thirty (30) days after Tenant's offer is received by Landlord. Tenant shall be entitled to withdraw its notice of intent to assign, mortgage, pledge, sublet, occupy or use, at any time until Landlord accepts Tenant's offer. If only a portion of the premises would be affected by a sublease or assignment Landlord shall have the right to reacquire the portion affected. If Landlord elects to reacquire under this provision the portion affected, Tenant shall be required to provide without charge reasonable and appropriate access to the portion affected and reasonable use of any common facilities. (b) If Landlord does not choose to accept Tenant's offer under Subparagraph 24(a), but does consent to the proposed assignment, mortgage, pledge, subletting, occupation or use referred to in Paragraph 24, Landlord shall have the right to receive from Tenant any profit realized by Tenant from charging a higher rent than the lease rent. Such profit shall be measured by the difference between the lease rent and any rent received by Tenant, minus Tenant's reasonable leasing and administrative costs related to the assignment or subletting, and excess of building standards. For this purpose, "rent received by Tenant" shall include all sums paid under the sublease of assignment, whether characterized as rent, additional rent, or any other payment or consideration in respect of use or occupancy or in reimbursement of the costs of leasehold improvements installed by Tenant, and whether paid in a lump sum or in periodic payments. In no event shall the total sums payable to Landlord, including the lease rent and any additional payments made by Tenant to Landlord as a result of the application of this paragraph, be less than the lease rent. (c) The provisions in Paragraphs 24(a) and (b) shall be binding on any subtenant or assignee who desires to subsublet or sub-assign their interest, and Landlord's -8-

actions with respect to one assignment, mortgage, pledge, sublease, occupation or use shall not be deemed to limit Landlord's options under this Lease with respect to a subsequent assignment, mortgage, pledge, sublease, occupation or use. Landlord's rights under Paragraphs 24(a) and (b) shall prevail over any inconsistent language in any sublease or assignment to which Landlord consents and are reserved by Landlord from the grant of Tenant's leasehold estate. Nothing herein shall be construed to require Landlord's consent to any assignment, mortgage, pledge, subletting, occupation or use referred to in Paragraph 24 (so long as Landlord's consent is not unreasonably withheld). Any exercise of Landlord's rights under Paragraphs 24(a) and (b) shall be deemed to be reasonable. Failure of any subtenant or assigns to make any payments to Tenant shall not affect the obligation of Tenant to pay the lease rent or any other obligation under the Lease owing to Landlord. The provisions of any sublease or assignment cannot be modified, nor may the sublease or assignment be terminated other than in accordance with its terms, without the written consent of Landlord. (d) Tenant shall have the right, without Landlord's consent, to assign this Lease to a general or limited partnership if (1) Tenant is a general partner and owns and retains not less than 51% of the partnership following the assignment and (2) the partnership executes an agreement required by Landlord assuming Tenant's obligations. Tenant shall have the right, without Landlord's consent to assign this Lease to a corporation if (1) Tenant owns and retains at least 51% of the outstanding capital stock of the corporation and (2) the corporation executes an agreement required by Landlord assuming Tenant's obligations. 25. INSOLVENCY AND RECEIVERSHIP. Either the appointment of a receiver to take possession of all, or substantially all, of the assets of Tenant or a general assignment by Tenant for the benefit of creditors, or any action taken or suffered by Tenant under any insolvency or bankruptcy act, shall constitute a breach of this Lease by Tenant. 26. DEFAULT AND RE-ENTRY. In the event of any breach of the terms and provisions of this Lease by Tenant or if Tenant's interest herein, or any part thereof, be assigned or transferred without the written consent of Landlord, either voluntarily or by operation of law, whether by judgment, execution, death, receivership or any other means, or if Tenant vacates or abandons the premises, which shall be conclusively presumed if Tenant leaves the premises closed or unoccupied continuously for twenty (20) days, then in any such event, Landlord, besides other rights or remedies it may have, shall have the immediate right of re-entry and may remove all persons and property from the premises and may store such property at the cost of and for the account and risk of Tenant. Should Landlord elect to re-enter as herein provided, or should Landlord take possession pursuant to legal proceedings or pursuant to any notice provided for by law, it may either terminate this Lease or it may from time to time, without terminating this Lease, re-let the premises, or any part thereof, for such term or terms (which may be for a term extending beyond the term of this Lease) and at such rental or rentals and upon such other terms and -9-

conditions as Landlord, in its sole discretion, may deem advisable with the right to make alterations and repairs to the premises. Rents received by such Landlord from such re-letting shall be applied: first, to the payment of any costs and expenses of such re-letting, including reasonable attorneys' fees and any real estate commission actually paid, and any costs and expenses of such alterations and repairs; second, to the payment of any indebtedness, other than rent, due hereunder from Tenant to Landlord; third, to the payment of rent due and unpaid hereunder, and the residue, if any, shall be held by Landlord and applied in payment of future rent or other obligations as the same may become due and payable hereunder. If rentals received from such reletting during any month be less than that to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord, and such deficiency shall be calculated and paid monthly. No such re-entry or taking possession of said premises by Landlord shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Tenant or unless the termination thereof be decreed by a court of competent jurisdiction. Notwithstanding any such re-letting without termination, Landlord may, at any time thereafter, elect to terminate this Lease for such previous breach. Should Landlord at any time terminate this Lease for any breach, and thereafter seek relief pursuant to Section 1951.2 of the California Civil Code, interest shall be allowed upon unpaid rent, for the purposes of Section 1951.2(b), at ten percent (10%) per annum or the maximum rate permitted by law, whichever is greater. Any proof by Tenant under subparagraphs (2) or (3) of subdivision (a) of Section 1951.2 of the California Civil Code, as to the amount of rental loss that could be reasonably avoided, shall be made in the following manner: Landlord and Tenant shall each select a licensed real estate broker in the business of renting property of the same type and use as the leased premises and in the same geographic vicinity and such two real estate brokers shall select a third licensed real estate broker and the three licensed real estate brokers so selected shall determine the amount of the rental loss that could be reasonably avoided for the balance of the term of this Lease after the time of award. The decision of the majority of said licensed real estate brokers shall be final and binding upon the parties hereto. 27. WAIVER. The waiver by Landlord of any breach of any term, covenant, or condition herein contained shall not be deemed to be a waiver of such term, covenant or condition of any subsequent breach of the same or any other term, covenant or condition herein contained. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular rental so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. 28. REMOVAL OF PROPERTY. Whenever Landlord shall remove any property of Tenant from the premises and store the same elsewhere for the account, and at the expense and risk, of Tenant, as provided in Paragraph 22 hereof, and Tenant shall fail to pay the cost -10-

of storing any such property after it has been stored for a period of ninety (90) days or more, Landlord may sell any or all such property at public or private sale, in such manner and at such times and places as Landlord, in its sole discretion, may deem proper, without notice to or demand upon Tenant, for the payment of any part of such charges or the removal of any such property, and shall apply the proceeds of such sale: first, to the cost and expenses of such sale, including reasonable attorneys' fees actually incurred; second, to the payment of the cost of or charges for storing any such property; third, to the payment of any other sums of money which may then or thereafter be due to Landlord from Tenant under any of the terms hereof; and fourth, the balance, if any, to Tenant. 29. WAIVER OF DAMAGES FOR RE-ENTRY. Tenant hereby waives all claims for damages that may be caused by Landlord's re-entering and taking possession of the premises or removing and storing the property of Tenant as herein provided, and will save Landlord harmless from loss, costs or damages occasioned thereby, and no such re-entry shall be considered or construed forcible entry. 30. SURRENDER. At the time of surrender, all improvements made by Tenant to the premises shall be in compliance with all applicable building code requirements. 31. ATTORNEYS' FEES. If either party becomes a party to any litigation concerning this Lease, the premises, or the building or other improvements in which the premises are located, by reason of any act or omission of the other party or its authorized representatives, and not by any act or omission of the party that becomes a party to that litigation or any act or omission of its authorized representatives, the party that causes the other party to become involved in the litigation shall be liable to the party for reasonable attorneys' fees and court costs incurred by it in the litigation. If Landlord commences an action or incurs expenses against Tenant to enforce any of the terms hereof or because of the breach by Tenant of any of the terms hereof or for the recovery of any rent due hereunder or for the unlawful detainer of such premises, Tenant shall pay to Landlord reasonable attorneys' fees and expenses, and the right to such attorneys' fees and expenses shall be deemed to have accrued from the commencement of such action and shall be enforceable whether or not such action is prosecuted to judgment. If Tenant breaches any terms of this Lease, Landlord may employ an attorney or attorneys to protect Landlord's rights hereunder, and in the event of such employment following any breach by Tenant, Tenant shall pay Landlord reasonable attorneys' fees and expenses incurred by Landlord whether or not an action is actually commenced against Tenant by reason of such breach. 32. LITIGATION AGAINST TENANT. Should Landlord, without fault on Landlord's part, be made a party to any litigation instituted by or against Tenant, or by or against any person holding under or using the premises by license of Tenant, or for the foreclosure of any lien for labor or material furnished to or for Tenant or any such other person or otherwise arising out of or resulting from any act or transaction of Tenant or of any such other person, Tenant covenants to pay to Landlord the amount of any judgment rendered against Landlord or the premises or any part thereof, and all costs and expenses, including any attorneys' fees, incurred by Landlord in or in connection with such litigation. -11-

33. SUBORDINATION. Tenant agrees that this Lease shall be subject and subordinate to any first mortgage, first trust deed or like encumbrance heretofore or hereafter placed upon said premises or any part thereof, except the Tenant's property or trade fixtures, and to any and all renewals, modifications, consolidations, replacements, extensions or substitutions of any first mortgage or like encumbrance. Such subordination shall be automatic, without the execution of any further subordination agreement by Tenant. If, however, a written subordination agreement is required by a mortgagee, Tenant agrees to execute, acknowledge and deliver the same and in the event of failure to do so, Landlord may, in addition to any other remedies for breach of covenant hereunder, execute, acknowledge and deliver the same as the agent of Tenant, and Tenant hereby irrevocably constitutes Landlord its attorney-in-fact for such purpose. 34. WAIVER OF REDEMPTION BY TENANT, HOLDING OVER. Tenant hereby waives for Tenant and all those claiming under Tenant, all right now or hereafter existing to redeem the leased premises after termination of Tenant's right of occupancy by order of judgment of any court or by any legal process or writ. Any holding over after the expiration of the term of this lease, with the consent of Landlord, shall be construed to be a tenancy from month to month, and shall be under the terms and conditions specified in this Lease, so far as applicable, and in such case rental shall be payable in the amount and at the times specified in Paragraph 4 hereof. Any such holding over without Landlord's consent shall be a breach of this Lease and Tenant shall pay to Landlord, without affecting Landlord's rights under the law or elsewhere under this Lease for such a breach, as liquidated damages in the amount equal to three (3) times the then current minimum monthly rent under Paragraph 4 hereof for each month of holding over, since Landlord and Tenant agree that fixing Landlord's actual damages if such holding over occurs would be most difficult but that such an amount is a reasonable approximation of what such actual damages would be. 35. ENTRY AND INSPECTION. Tenant will permit Landlord and its agents to enter into and upon the premises at all reasonable times for the purpose of inspecting the same, or for the purpose of protecting the interest therein of Landlord or the Owner, or to post notices of non-responsibility, or to make alterations or additions to the premises, including the erection of scaffolding, props or other mechanical devices, or to provide any service provided by Landlord to Tenant hereunder, without any rebate of rent to Tenant for loss of occupancy or quiet enjoyment of the premises, or damage, injury or inconvenience thereby occasioned, and Tenant will permit Landlord, at any time within one hundred eighty (180) days prior to the expiration of this Lease, to bring upon the premises, for the purposes of inspection or display, prospective tenants thereof. 36. SALE OR TRANSFER OF PREMISES. If Landlord sells or transfers all or any portion of the premises, Landlord, on consummation of the sale or transfer, shall be released from any liability thereafter accruing under this Lease if Landlord's successor has assumed in writing, for the benefit of Tenant, Landlord's obligations under this Lease. If any security deposit or prepaid rent has been paid by Tenant, Landlord can transfer the security deposit or prepaid rent to Landlord's successor and on such transfer Landlord shall be discharged from any further liability in reference to the security deposit or prepaid rent. -12-

37. ATTORNMENT. Tenant shall attorn to any purchaser of the premises at any foreclosure sale or private sale conducted pursuant to any security instrument encumbering the premises, or to any grantee or transferee designated in any deed given in lieu of foreclosure, provided that such party shall have assumed the obligations of Landlord hereunder in writing. 38. SUCCESSORS AND ASSIGNS. Subject to the provisions hereof relating to assignment, mortgaging, pledging and subletting, this Lease is intended to and does bind the heirs, executors, administrators, successors and assigns of any and all of the parties hereto. 39. TIME. Time is of the essence of this Lease. 40. NOTICES. All notices which Landlord or Tenant may be required, or may desire, to serve on the other may be served, as an alternative to personal service, by mailing the same, postage prepaid, and addressed as listed herein. Any party may change its address for purposes of this paragraph by giving the other parties written notice of the new address in the manner set forth above. 41. CORPORATE AUTHORITY. If either party is a corporation, that party shall deliver to the other party on execution of this Lease a certified copy of a resolution of its board of directors authorizing the execution of this Lease. 42. CALIFORNIA LAW. This Lease shall be construed and interpreted in accordance with the laws of the State of California. 43. COMPLETE AGREEMENT. It is expressly agreed by the parties, as a material consideration for the execution of this Lease, that there are, and were, no verbal representations, understandings, stipulations, agreement of promises pertaining thereto, not incorporated in writing herein, and it is likewise agreed that this Lease should not be altered, waived, amended or extended otherwise than as provided herein, except by writing signed by both parties. 44. ADDENDA. Attached hereto is an addendum or addenda containing the following Paragraph 45 which constitutes a part of this Lease. In the event that any provisions of the addendum or addenda conflict with other provisions of the Lease, the provisions of the addendum or addenda shall control and supersede the other conflicting Lease provisions. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the day and year first written above.
"Landlord" PINE CREEK PROPERTIES "Tenant" ZAPWORLD.COM

-----------------------------------(signature) (date)

--------------------------------------(signature) (date)

(signature) (date) (signature) (date) -13-

ADDENDUM TO LEASE DATED: October 16, 2000 between: pine creek properties and zapworld.com Paragraph 45 -- Acknowledgement of Floodplain. Tenant specifically recognizes that the premises are located in a floodplain area. Tenant acknowledges that Landlord shall not be liable to Tenant for any injury to any person or property in or about the premises or the building in which the premises are located, from any cause directly or indirectly related to flooding or any collateral effects of flooding. Tenant understands that Landlord does not carry flood insurance for Tenant's benefit. Tenant further represents that it has had the advice of independent counsel in negotiations for and preparation of this addendum or had been advised of the right to such advice, that Tenant has read this addendum or had it read and fully explained by counsel, and that Tenant understands this addendum. INITIAL

We have issued our report dated March 9, 2001, accompanying the financial statements of Zapworld.com contained in the Registration Statement and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption "Experts."
/s/ GRANT THORNTON LLP San Francisco, California May 2, 2001

BRUSSELS CHICAGO DENVER DETROIT JACKSONVILLE LOS ANGELES MADISON MILWAUKEE

FOLEY & LARDNER ATTORNEYS AT LAW ONE MARITIME PLAZA, SIXTH FLOOR SAN FRANCISCO, CALIFORNIA 94111-3404 TELEPHONE: (415) 434-4484 FACSIMILE: (415) 434-4507 WRITER'S DIRECT LINE 415-438-6453

ORLANDO SACRAMENTO SAN DIEGO SAN FRANCISCO TALLAHASSEE TAMPA WASHINGTON, D.C. WEST PALM BEACH

EMAIL ADDRESS wevers@foleylaw.com

CLIENT/MATTER NUMBER 059284/0112

May 2, 2001 Mr. Gary Starr, Chief Executive Officer ZAPWORLD.COM 117 Morris Street Sebastopol, California 95472 Re: Zapworld.com Dear Mr. Starr: This law firm consents to the incorporation of its name and its opinion letter regarding the legality of the securities being cleared for registration with the Securities and Exchange Commission into the Pre-Effective Amendment Number 1 to Form SB-2 Registration Statement filed on May 3, 2001. Sincerely, FOLEY & LARDNER
/s/ William D. Evers -----------------------------By: William D. Evers, Partner


				
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