Best Efforts Underwriting

500,000 SHARES


ZAP POWER SYSTEMS, INC.


Common Stock


BEST EFFORTS UNDERWRITING


San Jose, California
April 1, 1998


Centennial Capital Management, Inc. 999 Peachtree Street, N.E. Suite 2670 Atlanta, Georgia 30309


Dear Sirs:


ZAP Power Systems, Inc., a California corporation (the "Company"), proposes to issue and sell an aggregate of 500,000 shares of Common Stock, no par value per share (the "Common Stock") of the Company (such 500,000 shares of the Company being referred to herein as the "Shares").


The Company will be offering its common stock pursuant to an SB-2 registered offering. Five hundred thousand (500,000) of the Shares will be offered to the public by the Company at a price of $6.00 per share (the "Offering"). The purpose of this Agreement is to set forth the understanding of the parties relating to the right of Centennial Capital Management, Inc., a Georgia corporation ("Centennial") to participate in the sale of the remaining Shares as the underwriter exercising its best efforts to sell the Shares.


Section 1. Representations and Warranties of the Company . The Company represents and warrants to and agrees with Centennial that:


(a) A registration statement on Form SB-2 (File No. 333-41411) with respect to the Shares has been prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the applicable rules and regulations (the "1933 Act Regulations") of the Securities and Exchange Commission (the "Commission"), and has been filed with the Commission; and such amendments to such registration statement as may have been required prior to the date hereof have been filed with the Commission, and such amendments have been similarly prepared. Such registration statement went effective with the Commission on January 16, 1998. Copies of such registration statement and amendment or amendments of each related preliminary prospectus, and the exhibits, financial statements and schedules, as finally amended and revised, have been delivered to you.


The term "Registration Statement" as used in this Agreement shall mean such registration statement at the time such registration statement became effective and, in the event any post-effective amendment thereto becomes effective prior to the closing of the Offering, shall also mean such registration statement as so amended. The term "Prospectus" as used in this Agreement shall mean the prospectus relating to the Shares in the form in which it is first filed with the Commission pursuant to Rule 424(b) of the 1933 Act Regulations or, if no filing pursuant to Rule 424(b) of the 1933 Act Regulations is required, shall mean the form of final prospectus included in the Registration Statement at the time such Registration Statement becomes effective.


(b) When the Registration Statement became effective, when the Prospectus was first filed pursuant to Rule 424(b) of the 1933 Act Regulations, when any amendment to the Registration Statement becomes effective, and when any supplement to the Prospectus is filed with the Commission, (i) the Registration Statement, the Prospectus and any amendments thereof and supplements thereto will conform in all material respects with the applicable requirements of the 1933 Act and the 1933 Act Regulations, and (ii) neither the Registration Statement, the Prospectus nor any amendment or supplement thereto will 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 not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by Centennial expressly for use in the Registration Statement.


(c) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the state of California with all requisite corporate power and authority to own, lease and operate its properties and the properties it proposes to own, lease and operate as described in the Registration Statement and the Prospectus and to conduct its business as now conducted and as proposed to be conducted as described in the Registration Statement and the Prospectus. The Company has been duly qualified to do business and is in good standing as a foreign corporation in each other jurisdiction in which the ownership or leasing of its properties or the nature or conduct of its business as now conducted or proposed to be conducted as described in the Registration Statement and the Prospectus requires such qualification, except where the failure to do so would not have a material adverse effect on the Company.


(d) The Company has full legal right, power and authority to enter into this Agreement, to issue, sell and deliver the Shares as provided herein and to consummate the transactions contemplated herein. This Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and binding agreement of the Company, enforceable in accordance with its terms, except to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization or other laws of general applicability relating to or affecting creditors, rights, or by general equity principles and except to the extent the indemnification provisions set forth in Section 5 of this Agreement may be limited by federal or state securities laws or the public policy underlying such laws.


(e) Each consent, approval, authorization, order, license, certificate, permit, registration, designation or filing by or with any governmental agency or body necessary for the valid authorization, issuance, sale and delivery of the Shares, the execution, delivery and


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performance of this Agreement and the consummation by the Company of the transactions contemplated hereby, has been made or obtained and is in full force and effect.


(f) Neither the issuance, sale and delivery by the Company of the Shares, nor the execution, delivery and performance of this Agreement nor the consummation of the transactions contemplated hereby by the Company will conflict with or result in a breach or violation of any of the terms and provisions of, or (with or without the giving of notice or the passage of time or both) constitute a default under, the charter, by-laws of the Company; any indenture, mortgage, deed of trust, loan agreement, note, bond or other agreement or instrument to which the Company, is a party or to which it, any of its properties or other assets; or any applicable statute, law, judgment, decree, order, rule or regulation of any court or governmental agency or body applicable to the Company or its property; or result in the creation or imposition of any lien, charge, claim or encumbrance upon any property or asset of the Company.


(g) The Shares to be issued and sold hereunder have been validly authorized by the Company. When issued and delivered against payment therefor, the Shares will be duly and validly issued, fully paid and non-assessable. No preemptive rights of shareholders exist with respect to any of the Shares. No person or entity holds a right to require or participate in the registration under the 1933 Act of the Shares pursuant to the Registration Statement; and, except as set forth in the Prospectus, no person holds a right to require registration under the 1933 Act of any shares of Common Stock of the Company at any other time. No person or entity has a right of participation or first refusal with respect to the sale of the Shares by the Company. The form of certificates evidencing the Shares complies with all applicable requirements of California law.


(h) The Common Stock to be issued upon exercise of the common stock purchase warrants to be issued to Centennial (the "Warrants") are duly authorized, and when issued and delivered pursuant to this Agreement, will be duly authorized, validly issued, fully paid and non-assessable and free of pre-emptive rights of any security holder of the Company. Neither the filing of the Registration Statement nor the offering or sale of the Shares gives rise to any rights, other than those which have been waived or satisfied, for or relating to the registration of any shares of Common Stock, except as described in the Registration Statement.


(i) This Agreement has been duly and validly authorized, executed and delivered by the Company. The Company has full power and lawful authority to issue and sell the shares of Common Stock to be sold by it upon exercise of the Warrants (the "Warrant Shares") on the terms and conditions set forth herein, and no consent, approval, authorization or other order of any governmental authority is required in connection with such authorization, execution and delivery or with the authorization, issue and sale of the Warrant Shares or the Warrants, except such as may be required under the 1933 Act or state securities laws.


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(j) The Company has 2,571,909 shares of issued and outstanding shares of Common Stock. The Company has no other issued and outstanding capital stock. The Company's authorized capitalization is as set forth in the Prospectus under the caption "CAPITAL STOCK." Except as disclosed in the Prospectus, there is no outstanding option, warrant or other right calling for the issuance of, and no commitment, plan or arrangement to issue, any shares of capital stock of the Company or any security convertible into or exchangeable for capital stock of the Company.


(k) The financial statements of the Company in the Registration Statement and the Prospectus present fairly the financial position of the Company as of the dates indicated and the results of operations and cash flows for the periods specified, all in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods specified. The financial statement schedule included in the Registration Statement and the amounts in the Prospectus under the captions "Prospectus Summary - Summary Selected Financial Information", and "Selected Financial Information" fairly present the information shown therein and have been compiled on a basis consistent with the financial statements included in the Registration Statement and the Prospectus. No other financial statements or schedules are required by Form SB-2 or otherwise to be included in the Registration Statement or the Prospectus. The unaudited pro forma combined financial information (including the related notes) included in the Prospectus complies as to form in all material respects to the applicable accounting requirements of the 1933 Act and the 1933 Act Regulations and management of the Company believes that the assumptions underlying the pro forma adjustments are reasonable. Such pro forma adjustments have been properly applied to the historical amounts in the compilation of the information and such information fairly presents with respect to the Company the pro forma financial position, results of operations and other information purported to be shown therein at the respective dates and for the respective periods specified.


(l) Moss Adams, LLP, who have examined and are reporting upon the audited financial statements and schedules included in the Registration Statement, are, and were during the periods covered by their Reports included in the Registration Statement and the Prospectus, independent public accountants, as required by the 1933 Act and the 1933 Act Regulations.


(m) The Company has not sustained, since January 15, 1998, any material loss or interference with its business from fire, explosion, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any labor dispute or arbitrators' or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus; and, since the respective dates as of which information is given in the Registration Statement and the Prospectus, and except as otherwise stated in the Registration Statement and Prospectus, there has not been (i) any material change in the capital stock or partnership interests, as applicable, long-term debt, obligations under capital leases or short-term borrowings of the Company, (ii) any material adverse change, or any development which could reasonably be seen as involving a prospective material adverse change, in or affecting the business prospects, properties, assets, results of operations or condition (financial or other) of the Company, (iii) any liability or obligation, direct or contingent, incurred or undertaken by the Company, which is material to the business or condition (financial or other) of the Company, except for liabilities or obligations incurred in the ordinary course of business, (iv) any declaration or payment of any dividend or distribution of any kind on or with respect to the capital stock of the Company, or (v)


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any transaction that is material to the Company except transactions in the ordinary course of business or as otherwise disclosed in the Registration Statement and the Prospectus.


(n) The Company is not in violation of its charter or by-laws, and no default exists, and no event has occurred, nor state of facts exists, which, with notice or after the lapse of time to cure or both, would constitute a default in the due performance and observance of any obligation, agreement, term, covenant, consideration or condition contained in any indenture, mortgage, deed of trust, loan agreement, note, lease or other agreement or instrument to which the Company is a party or by which it or any of its properties is subject. The Company is not in violation of, or in default with respect to, any statute, law, rule, regulation, order, judgment or decree, except as may be properly described in the Prospectus or such as is in the aggregate does not now have and will not in the future have a material adverse effect on the financial position, results of operations or business of the Company.


(o) Except as described in the Prospectus, there is not pending or, to the knowledge of the Company, threatened any action, suit, proceeding, inquiry or investigation against the Company, its officers and directors or to which the properties, assets or rights of the Company are subject, before or brought by any court or governmental agency or body or board of arbitrators, which could result in any material adverse change in the business, prospects, properties, assets, results of operations or condition (financial or otherwise) of the Company.


(p) The descriptions in the Registration Statement and the Prospectus of the contracts, leases and other legal documents therein described present fairly the information required to be shown, and there are no contracts, leases, or other documents of a character required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement which are not described or filed as required. To the best knowledge of the Company, there are no statutes or regulations applicable to the Company or certificates, permits or other authorizations from governmental regulatory officials or bodies required to be obtained or maintained by the Company of a character required to be disclosed in the Registration Statement or the Prospectus which have not been so disclosed and properly described therein. All agreements between the Company and third parties expressly referenced in the Prospectus are legal, valid and binding obligations of the Company enforceable in accordance with their respective terms, except to the extent enforceability may be limited by bankruptcy, insolvency, reorganization or other laws of general applicability relating to or affecting creditors' rights and by general equitable principles.


(q) The Company owns, possesses or has obtained all material permits, licenses, franchises, certificates, consents, orders, approvals and other authorizations of governmental or regulatory authorities as are necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as presently conducted, or as contemplated in the Prospectus to be conducted, and the Company has not received any notice of proceedings relating to revocation or modification of any such licenses, permits, certificates, consents, orders, approvals or authorizations.


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(r) The Company owns or possesses adequate license or other rights to use all patents, trademarks, service marks, trade names, copyrights, software and design licenses, trade secrets, manufacturing processes, other intangible property rights and know-how (collectively "Intangibles") necessary to entitle it to conduct its business now, and as proposed to be conducted or operated as described in the Prospectus, and the Company has not received notice of infringement or of conflict with (and knows of no such infringement of or conflict with) asserted rights of others with respect to any Intangibles which could materially and adversely affect its business, prospects, properties, assets, results of operation or condition (financial or otherwise).


(s) The Company has not directly or indirectly, at any time (i) made any contribution to any candidate for political office, or failed to disclose fully any such contribution, in violation of law or (ii) made any payment to any state, federal or foreign, governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments or contributions required or allowed by applicable law. To the best knowledge of the Company, the Company's internal accounting controls and procedures are sufficient to cause such entities to comply in all material respects with the Foreign Corrupt Practices Act of 1977, as amended.


(t) To the best of the Company's knowledge, the Company's systems of internal accounting controls taken as a whole are sufficient to meet the broad objectives of internal accounting control insofar as those objectives pertain to the prevention or detection of errors or irregularities in amounts that would be material in relation to the Company's financial statements; and, to the best of the Company's knowledge, neither the Company, nor any employee or agent thereof, has made any payment of funds of the Company or received or retained any funds and no funds of the Company have been set aside to be used for any payment, in each case in violation of any law, rule or regulation.


(u) The Company has filed on a timely basis all necessary federal, state, local and foreign income and franchise tax returns required to be filed through the date hereof and have paid all taxes shown as due thereon; and no tax deficiency has been asserted against the Company, nor does the Company know of any tax deficiency which is likely to be asserted against the Company which if determined adversely to the Company, could materially adversely affect the business, prospects, properties, assets, results of operations or condition (financial or otherwise) of any such entity, respectively. All tax liabilities are adequately provided for on the respective books of such entities.


(v) The Company maintains insurance (issued by insurers of recognized financial responsibility) of the types and in the amounts generally deemed adequate for their respective businesses and, to the best of the Company's knowledge, consistent with insurance coverage maintained by similar companies in similar businesses, including, but not limited to, insurance covering real and personal property owned or leased by the Company against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect.


(w) To the best of the Company's knowledge, no general labor problem exists or is imminent with the employees of the Company which would have a material adverse effect on the financial position, results of operations or business of the Company.


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(x) The Company and its officers, directors or affiliates have not taken and will not take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in or constitute the stabilization or manipulation of any security of the Company or to facilitate the sale or resale of the Shares in violation of any law, rule or regulation.


(y) The Company has not incurred any liability for a fee, commission or other compensation on account of the employment of a broker or finder in connection with the transactions contemplated by this Agreement other than as contemplated hereby.


(z) Except as otherwise disclosed in the Prospectus, the Company has not authorized or conducted nor has knowledge of the generation, transportation, storage, presence, use, treatment, disposal, release, or other handling of any hazardous substance, hazardous waste, hazardous material, hazardous constituent, toxic substance, pollutant, contaminant, asbestos, radon, polychlorinated biphenyls ("PCBs"), petroleum product or waste (including crude oil or any fraction thereof), natural gas, liquefied gas, synthetic gas or other material defined, regulated, controlled or potentially subject to any remediation requirement under any environmental law (collectively, "Hazardous Materials"), on, in, under or affecting any real property currently leased or owned or by any means controlled by the Company (the "Real Property") except as in material compliance with applicable laws; to the knowledge of the Company, the Real Property and the Company's operations with respect to the Real Property are in compliance with all federal, state and local laws, ordinances, rules, regulations and other governmental requirements relating to pollution, control of chemicals, management of waste, discharges of materials into the environment, health, safety, natural resources, and the environment (collectively, "Environmental Laws"), and the Company has, and is in compliance with, all licenses, permits, registrations and government authorizations necessary to operate under all applicable Environmental Laws. Except as otherwise disclosed in the Prospectus, the Company has not received any written or oral notice from any governmental entity or any other person and there is no pending or threatened claim, litigation or any administrative agency proceeding that: alleges a violation of any Environmental Laws by the Company; alleges that the Company is a liable party or a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. S 9601, et seq., or any state superfund law; has resulted in or could result in the attachment of an environmental lien on any of the Real Property; or, alleges that the Company is liable for any contamination of the environment, contamination of the Real Property, damage to natural resources, property damage, or personal injury based on their activities or the activities of their predecessors or third parties (whether at the Real Property or elsewhere) involving Hazardous Materials whether arising under the Environmental Laws, common law principles or other legal standards.


(aa) The Company will not become as a result of the transactions contemplated hereby or will not conduct its business in a manner in which it would become, "an investment company," or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended (the "Investment Company Act").


(bb) No relationship, direct or indirect, exists between or among any of the Company or any affiliate of the Company, on the one hand, and any director, officer, stockholder, customer


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or supplier of the Company or any affiliate of the Company, on the other hand, that is required by the 1933 Act or by the 1933 Act Regulations to be described in the Registration Statement or the Prospectus which is not so described or is not adequately described.


(cc) All offers and sales by the Company of the Company's securities prior to the date hereof were at all relevant times duly registered under or exempt from the registration requirements of the 1933 Act and were duly registered in accordance with or the subject of an available exemption from registration under the applicable blue sky laws. The Company has not effected any sales of securities that would be required to be disclosed in response to Item 701 of Regulation S-K that are not disclosed in the Registration Statement.


Any certificate signed by any officer of the Company on behalf of the Company and delivered to you or to counsel for the Representative shall be deemed a representation and warranty of the Company to the Representative as to the matters covered thereby.


Section 2. Certain Covenants of the Company. The Company covenants and agrees with Centennial, to use its best efforts to cause the Company to perform as follows:


(a) The Company will use its best efforts to cause the Registration Statement to become effective (if not yet effective at the date and time that this Agreement is executed and delivered by the parties hereto). The Company will notify you immediately, and confirm the notice in writing, (i) when the Registration Statement, or any post-effective amendment to the Registration Statement, shall have become effective, or any supplement to the Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission to amend the Registration Statement or amend or supplement the Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the suspension of the qualification of the Shares for offering or sale in any jurisdiction, or of the institution or threatening of any proceeding for any such purposes. The Company will use every reasonable effort to prevent the issuance of any such stop order or of any order preventing or suspending such use and, if any such order is issued, to obtain the withdrawal thereof at the earliest possible moment.


(b) The Company will not at any time file or make any amendment to the Registration Statement, or any amendment or supplement to the Prospectus if you shall not have previously been advised and furnished a copy thereof a reasonable time prior to the proposed filing, or if you or your counsel reasonably object to such amendment or supplement.


(c) The Company will deliver to you, at the Company's expense, from time to time as requested, such number of copies of the Prospectus (as supplemented or amended) as you may reasonably request. If the delivery of a Prospectus is required at any time prior to the expiration of nine months after the time of issue of the Prospectus in connection with the offering or sale of the Shares and if at such time any events shall have occurred as result of which the Prospectus as then amended or suppl ...