Michael E. Gabor ISBA # 13151


LEASE - BUSINESS PROPERTY - SHORT FORM

         THIS AGREEMENT, made and entered into this _______ day of May, 2003, by
and between Kossuth County  Agricultural  Association (a/k/a Kossuth County Fair
Board)  ("Landlord"),  whose address,  for the purpose of this lease, is Kossuth
County Courthouse,  114 West State Street, Algona, IA 50511, and Hydrogen Engine
Center, Inc. ("Tenant"), whose address for the purpose of this lease is 700 East
Fair Street, Algona, IA 50511.

         The parties agree as follows:

         1.  PREMISES AND TERM.  Landlord  leases to Tenant the  following  real
estate, situated in Kossuth County, Iowa:

         The  property  commonly  known as the  "Old  Armory"  at 700 East  Fair
         Street,  Algona,  Iowa,  and more  particularly  described on Exhibit A
         attached hereto and by this reference made a part hereof.

together  with  all  improvements   thereon,  and  all  rights,   easements  and
appurtenances  thereto  belonging,  for a term beginning on the 1st day of June,
2003,  and ending on the 30th day of May,  2006,  upon the condition that Tenant
performs as provided in this lease.

         2. RENT.  Tenant agrees to pay Landlord as rent $ 600.00 per month,  in
advance commencing on the 1st day of June, 2004, and on the 01 day of each month
thereafter,  during the term of this lease.  Rent for any partial month shall be
prorated as additional rent. Tenant shall also pay: all utilities and insurance.
         All sums  shall be paid at the  address of  Landlord,  or at such other
place as Landlord  may  designate  in writing.  Delinquent  payments  shall draw
interest at 7 % per annum.

         3. POSSESSION.  Tenant shall be entitled to possession on the first day
of the lease term, and shall yield  possession to Landlord at the termination of
this lease.  SHOULD LANDLORD BE UNABLE TO GIVE POSSESSION ON SAID DATE, TENANT'S
ONLY DAMAGES SHALL BE A PRO RATA ABATEMENT OF RENT.

         4.  USE.  Tenant  shall  use the  premises  only  for  hydrogen  engine
research, production and manufacturing.

         5. CARE AND MAINTENANCE.
         (a) Tenant takes the premises as is, except as herein provided.
         (b) Landlord  shall keep the following in good repair:  roof,  exterior
walls, foundation,  sewer, plumbing,  heating,  wiring, air conditioning,  plate
glass, windows and window glass, parking area,  driveways,  sidewalks,  exterior
decorating,  interior  decorating,  Landlord  shall not be liable for failure to
make any  repairs  or  replacements  unless  Landlord  fails  to do so  within a
reasonable time after written notice from Tenant.


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         (c)  Tenant  shall   maintain  the  premises  in  a  reasonable   safe,
serviceable,  clean and  presentable  condition,  and except for the repairs and
replacements  provided to be made by Landlord in subparagraph  (b) above,  shall
make all repairs,  replacements and improvements to the premises,  INCLUDING ALL
CHANGES, ALTERATIONS OR ADDITIONS ORDERED BY ANY LAWFULLY CONSTITUTED GOVERNMENT
AUTHORITY DIRECTLY RELATED TO TENANT'S USE OF THE PREMISES. Tenant shall make no
structural changes or alterations without the prior written consent of Landlord.
Unless otherwise provided,  and if the premises include the ground floor, Tenant
agrees to remove all snow and ice and other obstructions from the sidewalk on or
abutting the premises.

         6.  UTILITIES  AND  SERVICES.  Tenant shall pay for all  utilities  and
services  which may be used on the  premises.  Landlord  shall not be liable for
damages  for  failure to perform as herein  provided,  or for any  stoppage  for
needed repairs or for  improvements or arising from causes beyond the control of
Landlord, provided Landlord uses reasonable diligence to resume such services.

         7. SURRENDER. Upon the termination of this lease, Tenant will surrender
the premises to Landlord in good and clean  condition,  except for ordinary wear
and tear or damage without fault or liability of Tenant.  Continued  possession,
beyond  the term of this  Lease and the  acceptance  of rent by  Landlord  shall
constitute a month-to-month extension of this lease.

         8.  ASSIGNMENT  AND  SUBLETTING.  No assignment or  subletting,  either
voluntary or by operation of law,  shall be effective  without the prior written
consent of Landlord, which consent shall not unreasonably be withheld.

         9. INSURANCE.
         A.  PROPERTY  INSURANCE.  Landlord  and  Tenant  agree to insure  their
respective  real and  personal  property  for the  full  insurable  value.  Such
insurance  shall cover losses  included in the Insurance  Services  Office Broad
Form Causes of Loss (formerly fire and Landlord and extended  coverage).  To the
extent  permitted by their  policies the Landlord and Tenant waive all rights of
recovery against each other.

         B.  LIABILITY   INSURANCE.   Tenant  shall  obtain  commercial  general
liability  insurance  in  the  amounts  of  $1,000,000.00  each  occurrence  and
$1,000,000.00  annual  aggregate per location.  This policy shall be endorsed to
include the Landlord as an additional insured.

         10.  LIABILITY FOR DAMAGE.  Each party shall be liable to the other for
all damage to the property of the other negligently, recklessly or intentionally
caused by that party (or their  agents,  employees or  invitees),  except to the
extent the loss is insured and subrogation is waived under the owner's policy.

         11.  INDEMNITY  Except for any  negligence  of  Landlord,  Tenant  will
protect,  defend,  and  indemnify  Landlord  from and  against any and all loss,
costs,  damage and  expenses  occasioned  by, or arising out of, any accident or
other  occurrence  causing  or  inflicting  injury or  damage  to any  person or
property,  happening or done in, upon or about the premises,  or due directly or
indirectly  to the  tenancy,  use or occupancy  thereof,  or any part thereof by
Tenant or any person claiming through or under Tenant.

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         12. DAMAGE.  In the event of damage to the premises,  so that Tenant is
unable to conduct business on the premises,  this lease may be terminated at the
option of either  party.  Such  termination  shall be  effected by notice of one
party to the other within twenty days after such notice;  and both parties shall
thereafter be released from all future obligations hereunder.

         13. MECHANICS' LIENS.  Neither Tenant, nor anyone claiming by, through,
or under Tenant,  shall have the right to file any  mechanic's  lien against the
premises.   Tenant  shall  give  notice  in  advance  to  all   contractors  and
subcontractors who may furnish,  or agree to furnish,  any material,  service or
labor for any improvement on the premises.

         14. DEFAULT, NOTICE OF DEFAULT AND REMEDIES.

EVENTS OF DEFAULT
-----------------

          A. Each of the  following  shall  constitute  an event of  default  by
Tenant:  (1) Failure to pay rent when due; (2) failure to observe or perform any
duties, obligations, agreements, or conditions imposed on Tenant pursuant to the
terms of the lease;  (3)  abandonment of the premises.  "Abandonment"  means the
Tenant has failed to engage in its usual and  customary  business  activities on
the  premises  for  more  than  fifteen  (15)  consecutive  business  days;  (4)
institution  of  voluntary  bankruptcy  proceedings  by Tenant;  institution  of
involuntary  bankruptcy proceedings in which the Tenant thereafter is adjudged a
bankruptcy;  assignment  for the benefit of  creditors of the interest of Tenant
under this  lease  agreement;  appointment  of a receiver  for the  property  or
affairs of Tenant,  where the  receivership  is not vacated within ten (10) days
after the appointment of the receiver.

NOTICE OF DEFAULT
-----------------

          B. Landlord shall give Tenant a written notice  specifying the default
and giving the Tenant ten (10) days in which to correct the default. If there is
a default  (other  than for  nonpayment  of a  monetary  obligation  of  Tenant,
including rent) that cannot be remedied in ten (10) days by diligent  efforts of
the Tenant, Tenant shall propose an additional period of time in which to remedy
the default.  Consent to additional time shall not be  unreasonably  withheld by
Landlord.  Landlord  shall not be  required  to give  Tenant any more than three
notices for the same default within any 365 day period.
REMEDIES

          C. In the event Tenant has not  remedied a default in a timely  manner
following a Notice of Default,  Landlord may proceed with all available remedies
at  law  or  in  equity,  including  but  not  limited  to  the  following:  (1)
Termination.  Landlord  may declare this lease to be  terminated  and shall give
Tenant a written notice of such termination. In the event of termination of this
lease, Landlord shall be entitled to prove claim for and obtain judgment against
Tenant  for the  balance  of the rent  agreed  to be paid  for the  term  herein
provided,  plus all expenses of Landlord in regaining possession of the premises
and the reletting thereof,  including attorney's fees and court costs, crediting


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against such claim,  however,  any amount  obtained by reason of such reletting;
(2)  Forfeiture.  If a default is not remedied in a timely manner,  Landlord may
then declare this lease to be forfeited  and shall give Tenant a written  notice
of such  forfeiture,  and may,  at the  time,  give  Tenant  the  notice to quit
provided for in Chapter 648 of the Code of Iowa.

         15. SIGNS.  Landlord,  during the last ninety days of this lease, shall
have the right to maintain on the  premises  either or both a "For Rent" or "For
Sale"  sign.  Tenant  will  permit  prospective  tenants  or buyers to enter and
examine the premises.

         16.  NOTICES AND  DEMANDS.  All  notices  shall be given to the parties
hereto at the addresses  designated  unless either party notifies the other,  in
writing,  of a  different  address.  Without  prejudice  to any other  method of
notifying  a party in  writing or making a demand or other  communication,  such
notice  shall be  considered  given  under  the terms of this  lease  when it is
deposited in the U.S. Mail, registered or certified,  properly addressed, return
receipt requested, and postage prepaid.

         17.  PROVISIONS  BINDING.  Each and every covenant and agreement herein
contained shall extend to and be binding upon the respective successors,  heirs,
administrators, executors and assigns of the parties hereto.

         18. ADDITIONAL PROVISIONS.

         OPTION TO RENEW/EXTEND.  At the option of the Tenant, this Lease may be
         renewed or extended for two additional  one-year terms.  Notice of such
         renewal shall be given by Tenant to Landlord more than thirty (30) days
         in   advance   of  the   expiration   of  the  lease   term.   If  such
         renewal/extension  is exercised  for the first year,  the rent shall be
         Six   Hundred   Fifty   Dollars    ($650.00)   per   month.   If   such
         renewal/extension  is exercised for the second year,  the rent shall be
         Seven Hundred Dollars ($700.00) per month.

         GOVERNMENTAL PERMITS/APPROVALS. This lease is subject to and contingent
         upon issuance of all necessary building permits and zoning approvals of
         the City of Algona.  If any  necessary  permit or approval has not been
         issued or granted before June 16, 2003,  the Lease shall  terminate and
         be of no force and effect.

         IMPROVEMENTS. The parties jointly recognize that Tenant intends to make
         improvements  to the  building  including,  but not  limited  to:  HVAC
         replacement   and   improvements,   painting,   carpeting   and  office
         remodeling.  It is agreed that any and all improvements  shall inure to
         the benefit of the building and, therefore,  the Landlord.  Any and all
         building  alterations or structural  modifications  shall be subject to
         the prior approval of Landlord or its representative. Tenant shall have
         the right to make such  improvements  at any time  after the  execution
         hereof and prior to the date of  occupancy  as set forth in paragraph 1
         hereof.

         FAIR TIME USE.  Annually,  Tenant shall make  available to Landlord the
         use of the "center"  portion of the structure for a period of seven (7)
         days  commencing  on the  Monday of "fair  week".  Landlord  and Tenant
         mutually agree to work together to address  access and security  issues
         at said times.

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LANDLORD:                                        TENANT:

KOSSUTH COUNTY AGRICULTURAL ASSOCIATION
(A/K/A KOSSUTH COUNTY FAIR BOARD)            HYDROGEN ENGINE CENTER, INC.

By: /s/ Thomas Henry                         By: /s/ Theodore G. Hollinger
   -------------------------------------        --------------------------------
     Thomas Henry, Chairman/President        Theodore G. Hollinger, President

By: /s/ Kim Ruby
   ------------------------------------
     Kim Ruby, Secretary


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                     LEASE - BUSINESS PROPERTY - SHORT FORM
                         THE IOWA STATE BAR ASSOCIATION
                              Official Form No. 165
                             Recorder's Cover Sheet

Preparer Information: (name, address and phone number)
Michael E. Gabor, 111 North Dodge Street, Algona, IA  50511,
                  Phone: (515) 295-3565

Taxpayer Information: (name and complete address)
Hydrogen Engine Center, Inc.
700 East Fair Street
Algona, IA  50511

Return Document To: (name and complete address)
Michael E. Gabor
111 North Dodge Street
Algona, IA  50511

Grantors:
Kossuth County Agricultural Association (a/k/a Kossuth County Fair Board)

Grantees:
Hydrogen Engine Center, Inc.

Legal Description:  See Page 2

Document or instrument number of previously recorded documents:
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