**MEMORANDUM
      OF UNDERSTANDING**





This
      Memorandum of Understanding (hereinafter referred to as “MoU-A”) is made this
      10 th day of
      September, 2005 by and between:





Kirloskar
      Oil Engines Limited, a company incorporated under the Companies Act 1956 and
      having its registered office at Pune, hereinafter referred to as KOEL (which
      expression shall mean and include its successors and representatives) as the
      party of the FIRST PART;





Axial
      Vector Engine Corporation (Previously known as Aero Marine Engine Inc Name
      change effective May 31, 2005), a company incorporated in Nevada, USA and having
      its registered office at Portland Oregon USA, hereinafter referred to as AVEC
      (which expression shall mean and include its successors and representatives)
      as
      the party of the SECOND PART; WHEREAS:





KOEL
      is
      an established company in India and is involved in the Research, Development
      and
      Manufacturing of Diesel Engines for various applications, bearings, valves
      and
      catering to markets in India and a few Overseas markets as well.





AVEC
      is a
      company possesses a unique technology in the field of internal combustion engine
      and generator sets (Gen Sets) which have potential use in a wide range of
      applications such as the military, automotive, power generation, fluid handling,
      aviation, boats and ships, etc. Hereinafter, this unique technology is referred
      to as Axial Vector Engine (AVE).





**Both
      the parties wish to work together for mutual benefit on the following
      understanding:**





1.
            KOEL
                is keen to obtain manufacturing license to manufacture AVE in India
                and
                AVEC is agreeable to grant such a license on terms and conditions
                to be
                agreed to.





2.
            On
                execution of this MoU, KOEL will deposit one (1) million United States
                Dollars (USD) in a separate bank account in India solely controlled
                by
                KOEL. And, KOEL will formally instruct the bank to promptly advise
                AVEC of
                the creation of the account and all activities that occurs in the
                account.





3.
            As
                result of depositing the amount as above, KOEL will have the following
                rights:





3.1  First
      right of refusal for stationary use of AVE and Gen Sets such
      as generating
      sets and pumping sets amongst other such applications, and non-automotive
      mobile use


such as tractor engines, excavator engines, loader
      engines, fork life truck engines, farm and forestry applications.





3.2  AVEC
      will
      provide enough opportunities to KOEL to conduct.





3.21  Detailed
      Technical Due Diligence. The estimated time to complete due  diligence
      is January 2006.










3.2.2  Commercial
      Feasibility Study for the manufacture of AVE in India under  license.
      The estimated time to complete the study is April 2006.





3.3  AVEC
      will
      deal exclusively with KOEL concerning the manufacture of AVE
      under
      license in India as identified in Item 3.1 and AVEC will not entertain,
      solicit or discuss


with any third party the subject matter of this MoU
      as
      defined in Item 3.1





4.  The
      one
      million dollars referred in Item 2 above shall be kept in the bank account  until
      one
      or more of the following events occur:




4.1  The
      final
      agreement for manufacture of AVE in India under license is executed
      after all the due diligences, commercial feasibility and trials
      and negotiations
      are complete.


The money from the bank account will then be used
      as
      license fees to AVEC.





4.2  If
      the
      final agreement for manufacture of AVE in India under license
      is not
      executed by June 2006 for any reason KOEL will be free to deal
      with the
      bank
      account in


whatever way it deems proper.





5.  In
      response to the KOEL desire described above, AVEC is agreeable to exclusive negotiation
      a license for the said products identified in Item 3.1 during the validity  of
      this


MoU.





6.
      The
      parties will share their proprietary information to each other. Such proprietary  information
      shall be confidential and shall be kept secret as per the terms and  conditions


agreed
      between the parties in confidential agreement dated May 12,  2005,
      a
      copy of which appears as Annexure to this MoU.





7.  All
      disputes, proceedings, claims by either Party and suits in relation to this
      MoU  shall
      be
      referred to Arbitration. The arbitration proceeding shall be governed by  the


Arbitration and Conciliation Act 1996 and the Place of such Arbitration shall  be
      Singapore.





8.  This
      MoU
      shall remain in force till June 2006. The MoU may be extended by the  written
      and mutual consent of KOEL and AVEC.










IN
      WITNESS WHEREOF the parties hereto have set and subscribed their hands to the
      writing (in duplicate) on the day and year mentioned above.





For: Kirloskar Oil Engines
              Limited
            For: Axial Vector Engine
                Corporation/s/ Atul
                Kirloskar
              _____________________
            /s/
                Raymond Brouzes
              _____________________Authorized Signatory
            Authorized SignatoryDate: 10 September 2005
            Date: 09 September 2005Place: Pune India
            Place:
              Montreal