IOWA DEPARTMENT OF ECONOMIC DEVELOPMENT

                               PIAP LOAN AGREEMENT

                          PIAP LOAN NUMBER: 05-PIAP-13

                            AWARD DATE: June 28, 2005

                         KIND OF AWARD: Forgivable Loan

                             AWARD AMOUNT: $150,000

                    AGREEMENT EXPIRATION DATE: July 31, 2010

         THIS PHYSICAL  INFRASTRUCTURE  ASSISTANCE PROGRAM ("PIAP") AGREEMENT is
made by and between the IOWA DEPARTMENT OF ECONOMIC DEVELOPMENT,  200 East Grand
Avenue, Des Moines,  Iowa 50309 ("Department" or "IDED") Hydrogen Engine Center,
602 E. Fair Street, Algona, Iowa 50511 ("Business").

         The Department  desires to make a loan to the Business and the Business
desires to accept this loan, all upon the terms and conditions set forth in this
Agreement.

         THEREFORE,  in consideration  of the mutual promises  contained in this
Agreement and other good and valuable consideration, it is agreed as follows:


                                    ARTICLE I

                                   DEFINITIONS

         As used in this Agreement, the following terms shall apply:

         1.1 AGREEMENT  EXPIRATION DATE.  "Agreement  Expiration Date" means the
date the Agreement ceases to be in force and effect.  The Agreement expires upon
the  occurrence  of one of the  following:  a) the  Loan  is  repaid  in full or
required part, including accrued interest, court costs and any penalties; b) the
Agreement is terminated by the Department due to any default under Article X; c)
no  disbursement  of PIAP  funds has  occurred  within the  twenty  four  months
immediately  following the Award Date;  or d) if the  Agreement  includes only a
Forgivable Loan, at the Project Completion Date.

         1.2  AWARD DATE.  "Award Date" means June 28, 2005.

         1.3  FORGIVABLE  LOAN.  "Forgivable  loan"  means an award  made by the
Department to the Business for which repayment is eliminated in part or entirely
if the Business satisfies the terms of this Agreement.

         1.4 LOAN. "Loan" means funds advanced by the Department to the Business
of which full repayment is expected.

         1.5 LOAN AGREEMENT or AGREEMENT.  "Loan Agreement" or "Agreement" means
this  document,  the Project budget and all of the notes,  leases,  assignments,
mortgages,  and similar  documents  referred to in this  document  and all other
instruments  or  documents  executed by the  Business or  otherwise  required in
connection with this document, including but not limited to the following:

         (a)  Exhibit "A", "Application"

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         (b)  Exhibit "B",  Hydrogen Engine Center  Promissory  Note" dated June
              28, 2005
         (d)  Exhibit "C", "Commitment Letter" dated July 7, 2005
         (e)  Exhibit "D", "Uniform Commercial Code I (UCC I) Filing(s)
         (f)  Exhibit "E", "Program Description and Budget" dated August, 2005

         1.6  PROJECT.  "Project"  means the detailed  description  of the work,
services,  and other obligations to be performed or accomplished by the Business
as described in the Agreement,  Exhibit E - Program  Description and Budget, and
the PIAP application approved by the Department.

         1.7 PROJECT COMPLETION DATE.  "Project Completion Date" means
July 31, 2010 and is the date by which the  Project  tasks shall have been fully
accomplished.


                                   ARTICLE II

                                     FUNDING

         2.1 FUNDING SOURCE. As of the Award Date of this Agreement,  the source
of funding for the Loan is an  appropriation  by the State  legislature  for the
PIAP  Program  established  under Iowa Code Section  15E.175.  In the event that
funding  for the Iowa  Values  Fund is  restored  the  funding  source  for this
Agreement  shall  automatically  be  allocated  to the Iowa  Values  Fund or its
successor  funding source.  Business shall execute any documents IDED determines
are necessary to implement a change in funding source.

         2.2 RECEIPT OF FUNDS.  All payments under this Agreement are subject to
receipt by the  Department of sufficient  State funds for the PIAP program.  Any
termination,  reduction or delay of PIAP funds to the Department  shall,  at the
option of the Department, result in the termination,  reduction or delay of PIAP
funds to the Business.

         2.3 PRIOR COSTS.  No  expenditures  made prior to the Award Date may be
included as Project costs for the purposes of this Agreement.

         2.4  DISBURSEMENT  OF LESS THAN THE TOTAL AWARD AMOUNT.  If substantial
progress  toward work  activities  as specified in the  Agreement,  Exhibit "A",
Exhibit "E" of this  Agreement  has not been made within two hundred forty (240)
days of the Award Date,  then the  Department  shall be under no obligation  for
further  disbursement.  The  Business  shall be  obligated to the extent of Loan
proceeds received prior to that date.


                                   ARTICLE III

                                  TERMS OF LOAN

                                 Not Applicable


                                   ARTICLE IV

                            TERMS OF FORGIVABLE LOAN

         4.1 FORGIVABLE  LOAN. The Department  agrees to award a Forgivable Loan
in the amount of one hundred fifty thousand dollars  ($150,000) to assist in the
financing of the Project.

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         4.2  PROMISSORY  NOTES.  The  obligation to repay the  Forgivable  Loan
portion of this  Agreement,  if any, shall be evidenced by a Promissory  Note(s)
executed by the Business.

4.3      OTHER TERMS.

         a). The  Forgivable  Loan funds will be used by the Business for cost s
         related to the  construction  and  equipping  of a 30,000  square  foot
         facility to produce a 4.9 liter hydrogen engine.

         b). The Business will make an total  investment of at least  $1,543,316
         for  building  construction,   machinery  and  equipment,  and  working
         capital.

         c) The Business will create 49 full time  equivalent  (FTE)  positions,
         with 38  positions at a starting  wage  exceeding  $11.76/hour,  and an
         average wage for all positions of $24.94/hour.

         4.4 FORGIVABLE  LOAN  AMORTIZATION.  If the award includes a Forgivable
loan  the  Department  will,  in its  reasonable  discretion,  determine  if the
Business has  satisfied  the terms of this  Agreement by the Project  Completion
Date. If the Department determines that the Business has satisfied said terms as
of the Project  Completion  Date, then repayment of the Forgivable loan shall be
permanently  waived.  Should the Department  determine that the Business has not
satisfied the terms of this Agreement, or has operated in a manner substantially
inconsistent  with the Application  under which the terms of the award was made,
the Business may be required to repay all or part of the Forgivable loan funds.


                                    ARTICLE V

                       CONDITIONS TO DISBURSEMENT OF FUNDS

         Unless and until the  following  conditions  have been  satisfied,  the
Department  shall be under no obligation to disburse to the Business any amounts
under this Agreement:

5.1      AUTHORITY. The Business shall have submitted the following documents to
         the Department:

         (a) Certificate of Good Standing of the Corporation.
         (b) Certified copy of the Articles of Incorporation and By-Laws.
         (c) Certificate of Incumbency naming the current officers and directors
         of the corporation.
         (d) Resolution of the Board of Directors  authorizing the corporation's
         execution  and  delivery  of  this  Loan  Agreement  and the  Note  and
         borrowing  hereunder,  and such  other  papers  as the  Department  may
         reasonably request; and specifying the officer(s) authorized to execute
         the Loan Agreement and bind the corporation.
         (e) Uniform  Commercial Code I filing (with copies) showing any and all
         liens that may exist on Business' assets.
         (f) Verification of a minimum investment in the infrastructure activity
         in the same ratio of leveraged funds to PIAP funds as described in this
         Agreement,  Exhibit  "A" and  Exhibit  "E",  unless  prior  approval is
         obtained from the Department.
         (g)  Documentation of satisfactory  credit history of the Business with
         no judgments or unsatisfied liens.
         (h) Evidence of active  pursuit  other funding  commitments  from other
         sources of funds.

         5.2  LOAN  AGREEMENT  EXECUTED.  The Loan  Agreement  shall  have  been
properly executed and, where required, acknowledged.

         5.3  RECORDING.  The  Business  shall have paid the fees  necessary  to
properly  record in the  appropriate  office of the Recorder of Deeds and/or the
Secretary of State any  mortgage,  security  agreement,  financing  statement or
similar document required by the Department under the Agreement.

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                                   ARTICLE VI

                   REPRESENTATIONS AND WARRANTIES OF BUSINESS

         To  induce  the  Department  to make the Loan  and/or  Forgivable  Loan
referred to in this Agreement,  the Business represents,  covenants and warrants
that:

         6.1 AUTHORITY. The Business is a corporation duly organized and validly
existing under the laws of the state of  incorporation  and is in good standing,
and has complied with all applicable  laws of the State of Iowa. The Business is
duly  authorized and empowered to execute and deliver the Agreement.  All action
on the Business' part, such as appropriate  resolution of its Board of Directors
for the execution and delivery of the Agreement, has been effectively taken.

         6.2  FINANCIAL  INFORMATION.   All  financial  statements  and  related
materials concerning the Business and the Project provided to the Department are
true  and  correct  in all  material  respects  and  completely  and  accurately
represent the subject  matter thereof as of the effective date of the statements
and related  materials,  and no material  adverse change has occurred since that
date.

         6.3  APPLICATION.   The  contents  of  the  application/business   plan
submitted by the Business to the  Department  for PIAP funding is a complete and
accurate  representation  of the  Business  and the  Project  as of the  date of
submission and there has been no material  adverse  change in the  organization,
operation,  business prospects,  fixed properties, key personnel or project plan
of the Business  since the date the Business  submitted its PIAP  application to
the Department.

         6.4  CLAIMS  AND  PROCEEDINGS.   There  are  no  actions,  lawsuits  or
proceedings pending or, to the knowledge of the Business, threatened against the
Business  affecting in any manner  whatsoever its right to execute the Agreement
or the  ability  of the  Business  to  make  the  payments  required  under  the
agreement, or to otherwise comply with the obligations of the Business contained
under the Agreement.  There are no actions, lawsuits or proceedings at law or in
equity,  or before any governmental or  administrative  authority pending or, to
the knowledge of the Business,  threatened  against or affecting the Business or
any property or collateral pledged as security for the Loan.

         6.5 EFFECTIVE DATE. The covenants,  warranties and  representations  of
this Article are made as of the date of this Agreement and shall be deemed to be
renewed and  restated by the Business at the time of each advance or request for
disbursement of funds.

                                   ARTICLE VII

                              COVENANTS OF BUSINESS

         7.1 AFFIRMATIVE  COVENANTS.  Until payment in full of the Loan or until
the Forgivable  Loan is forgiven,  and  satisfaction of terms of this Agreement,
the Business covenants to IDED that:

         (a) PROJECT WORK AND SERVICES. The Business shall complete the work and
services  detailed in its PIAP application,  Section 4.3 of this Agreement,  and
"Exhibit E" by the Project Completion Date.

         (b) RECORDS AND ACCOUNTS.  The Business shall maintain books,  records,
documents and other evidence  pertaining to all costs and expenses  incurred and
revenues  received  under this Agreement  concerning the project,  in sufficient
detail  to  reflect  all  costs,  direct  and  indirect,  of  labor,  materials,
equipment,  supplies,  services and other costs and expenses of whatever nature,
for which payment is claimed under this Agreement. The Business shall retain all
records for a period of three (3) years from the Agreement Expiration Date.

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         (c) ACCESS TO  RECORDS/INSPECTIONS.  The Business shall,  without prior
notice and at any time (during normal  business  hours),  permit the Department,
its  representatives or the State Auditor to examine,  audit and/or copy (I) any
plans and work  details  pertaining  to the Project,  (ii) all of the  Business'
books,  records and  accounts,  and (iii) all other  documentation  or materials
related to this  Agreement;  the Business  shall provide  proper  facilities for
making such examination and/or inspection.

         (d) USE OF LOAN FUNDS.  The Business  shall expend funds received under
the Loan and/or  Forgivable Loan only for the purposes and activities  described
in its  PIAP  Application,  Section  4.3 of this  Agreement,  Exhibit  "F",  and
approved by the Department.

         (e)  DOCUMENTATION.  The  Business  shall  deliver  to the  IDED,  upon
request, (I) copies of all contracts or agreements relating to the Project, (ii)
invoices, receipts, statements or vouchers relating to the Project, (iii) a list
of all unpaid bills for labor and materials in connection with the Project, (iv)
budgets and revisions  showing estimated Project costs and funds required at any
given time to complete and pay for the Project, and (v) current and year-to-date
operating statements, including but not limited to a Profit and Loss and Balance
Sheet.

         (f) NOTICE OF  PROCEEDINGS.  The Business shall promptly notify IDED of
the  initiation  of  any  claims,  lawsuits,  bankruptcy  proceedings  or  other
proceedings  brought  against  the  Business  which would  adversely  impact the
project,  including,  but not limited to, any  proceedings  to assert or enforce
liens against collateral securing the Loan.

         (g) REQUIRED REPORTS.

         (i) Review of  Disbursement  Requests and Reports.  The Business  shall
prepare,  sign and submit disbursement requests and reports as specified in this
Master  Contract in the form and content  required by IDED.  The Business  shall
review all  reimbursement  requests  and verify that  claimed  expenditures  are
allowable costs. The Business shall maintain  documentation  adequate to support
the claimed costs.

          (ii)  Annual  Public  Return  on  Investment  (ROI)  Update.  Prior to
disbursement of funds, the Business shall execute an  Authorization  for Release
of  Confidential  State Tax  Information  form. This permits IDED to receive the
Business's  state tax  information  directly from the Iowa Department of Revenue
for purposes of annually updating the Iowa Public Return on Investment  Analysis
for this  Project.  Each  year,  the  Business  shall  submit  to IDED any other
information  requested  by IDED to update the Iowa Public  Return on  Investment
Analysis for this Project.  The End-of -Year Status Report  described below will
be the report used to collect information for this annual ROI update.

         (iii) The Business shall prepare, sign and submit the following reports
to the IDED throughout the Contract period:

Report                                                           Due Date
------                                                           --------

Mid-Year Status Report  ............................ July 10th for the period
                                                     ending June 30th
End-of-Year Status Report Includes:................. January 31st for the period
                                                     ending Dec. 31st

- Public Return on Investment  (ROI) Update
- Payroll  Register with all created and/or
  retained jobs highlighted and indicate
  the Project Jobs paying the required wage
- "Employer's Contribution and Payroll Report"

End of Project Report .............................. Within 30 days of Project
                                                     Completion Date
Report content: same items as End-of-Year Report


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End of Job Maintenance Period Report ............... Within 30 days of the end
                                                     of the Project Maintenance
                                                     Period
Report Content: same items as End-of-Year Report

         (iv)  Additional  Reports,  Financials  as Requested by IDED.  The IDED
reserves  the right to  require  more  frequent  submission  of any of the above
reports if, in the opinion of the IDED,  more  frequent  submissions  would help
improve the  Business's  Project  performance,  or if necessary in order to meet
requests  from the Iowa General  Assembly,  the  Department of Management or the
Governor's  office.  At the request of IDED,  Business  shall  submit its annual
financial  statements  completed  by an  independent  CPA,  or  other  financial
statements including, but not limited to, income, expense, and retained earnings
statements.

         (h) NOTICE OF BUSINESS  CHANGES.  The  Business  shall  provide  prompt
advance  notice  to  the  Department  of any  proposed  change  in the  Business
ownership, structure or control which would materially affect the Project.

         (i) NOTICE OF MEETINGS.  The Business  shall notify the  Department  at
least  ten  (10)  working  days  in  advance  of  all  Board  of  Directors  and
Stockholders  meetings at which the subject  matter of this Agreement or Project
is proposed to be  discussed.  The Business  shall provide the  Department  with
copies of the agenda and minutes of such  meetings and  expressly  agrees that a
representative of the Department has a right to attend any and all such meetings
for the purposes of the discussion of the Project and the Loan and/or Forgivable
Loan.

         (j) MAINTENANCE OF PROJECT  PROPERTY AND INSURANCE.  The Business shall
maintain the Project  property in good repair and  condition,  ordinary wear and
tear  excepted,  and shall not suffer or commit waste or damage upon the Project
property.  At the Department's  request, the Business shall pay for and maintain
insurance  against  loss  or  damage  by  fire,  tornado,   and  other  hazards,
casualties,  and  contingencies  and all risks from time to time included  under
"extended coverage" policies. This insurance shall be in an amount not less than
the full insurable  value of the Project  property.  The Business shall name the
Department as a mortgagee  and/or an additional  loss payee as  appropriate  and
submit copies of the policies to the Department.

         (k) INDEMNIFICATION. The Business shall indemnify and hold harmless the
Department,  its  officers and  employees,  from and against any and all losses,
except those losses incurred by the Department resulting from willful misconduct
or negligence on its or their part.

         (l) PROJECT  FEES.  The  Business  shall  promptly  pay all  appraisal,
survey,  recording,  title, license, permit and other fees and expenses incurred
incident to the Loan/Forgivable Loan.

         (m)  INTEREST  AND SURPLUS  PROCEEDS.  The  Business  shall  return all
unexpended Loan/Forgivable Loan proceeds and interest accrued on Loan/Forgivable
Loan  proceeds  to the  Department  within  thirty  (30) days after the  Project
Completion Date.

         7.2  NEGATIVE  COVENANTS.  So long as the Business is indebted to IDED,
the Business  shall not,  without  prior  written  disclosure  to IDED and prior
written consent of IDED (unless IDED prior approval is expressly  waived below),
directly or indirectly:

         (a)  BUSINESS'  INTEREST.  Assign,  waive or transfer  any of Business'
rights, powers, duties or obligations under this Agreement.

         (b) PROPERTY/COLLATERAL. Other than in the ordinary course of business,
provided  that  substitute  collateral  of equal or greater value is acquired or
secured by the business,  sell, transfer,  convey, assign, encumber or otherwise
dispose  of  any  of  the  real  property  or  other  collateral   securing  the
Loan/Forgivable Loan.

                                      -6-
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         (c) RESTRICTIONS.  Place or permit any  restrictions,  covenants or any
similar  limitations on the real property and/or other  collateral  securing the
Loan/Forgivable Loan.

         (d) REMOVAL OF  COLLATERAL.  Remove from the Project  site or the State
all or any part of the collateral securing the Loan.

         (e) BUSINESS OWNERSHIP.  Materially change the ownership, structure, or
control of the business  affecting  the Project,  including  but not limited to,
entering into any merger or consolidation  with any person,  firm or corporation
or  permitting  substantial  distribution,  liquidation  or  other  disposal  of
business  assets directly  associated with the Project.  Changes in the business
ownership, structure or control which do not materially affect the Project shall
require  forty-five  (45) days prior written notice of the  Department,  but not
written consent of, the Department. The materiality of the change and whether or
not the change affects the Project shall be determined by the Department.

         (f) BUSINESS  OPERATION.  Materially  change the nature of the business
being  conducted,  or proposed to be  conducted,  as described in the  Business'
application for PIAP funding.


                                  ARTICLE VIII

                                    SECURITY

         8.1 SECURITY  INSTRUMENTS.  The Business  shall execute in favor of the
Department all security agreements,  financing statements,  mortgages,  personal
and/or corporate guarantees (hereafter,  "Security  Instruments") as required by
the  Department.  The following  Security  Instruments  shall be executed by the
Business.

(a) Blanket UCC1 security filing on general business assets


                                   ARTICLE IX

                              DEFAULT AND REMEDIES

         9.1 EVENTS OF DEFAULT.  Each of the following shall constitute an Event
of Default under this Agreement:

         (a)  MATERIAL  MISREPRESENTATION.  If at any time  any  representation,
warranty or statement  made or furnished to the  Department by, or on behalf of,
the Business in connection  with this  Agreement or to induce the  Department to
make  a  loan/Forgivable  Loan  to  the  Business  shall  be  determined  by the
Department  to be  incorrect,  false,  misleading  or  erroneous in any material
respect  when  made or  furnished  and  shall  not  have  been  remedied  to the
Department's  satisfaction  within thirty (30) days after written  notice by the
Department is given to the Business.

         (b) NON-PAYMENT. If the Business fails to make a payment when due under
the terms of this Agreement within thirty (30) days following  written notice of
such overdue payment is given to the Business by the Department.

         (c) NONCOMPLIANCE. If there is a failure by the Business to comply with
any of the  covenants,  terms  or  conditions  contained  in this  Agreement  or
Security Instruments executed pursuant to this Agreement.

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         (d) CROSS DEFAULT. The Department may elect to terminate this Agreement
and demand repayment of PIAP funds, up to the full amount of this Agreement, and
levy  appropriate  penalties if the Business should fail to satisfy  obligations
under any state financial assistance program contract(s) identified below:

                 CEBA Contract #:                   05-CEBA-41
                 Enterprise Zone Contract #:        05-EZ-37

         (e) PROJECT  COMPLETION  DATE. If the Project,  in the sole judgment of
the Department, is not completed on or before the Project Completion Date.

         (f)  BUSINESS  CHANGES.  If there is a material  change in the Business
ownership,  structure,  or  control  which  occurs  without  the  prior  written
disclosure to and if required, written permission of the Department.

         (g) MISSPENDING.  If the Business expends Loan/Forgivable Loan proceeds
for  purposes  not  described  in the  PIAP  application  or  authorized  by the
Department.

         (h)  INSOLVENCY  OR  BANKRUPTCY  If the Business  becomes  insolvent or
bankrupt, or admits in writing its inability to pay its debts as they mature, or
makes an assignment for the benefit of creditors, or the Business applies for or
consents to the appointment of a trustee or receiver for the Business or for the
major part of its  property;  or if a trustee or receiver is  appointed  for the
Business or for all or a substantial  part of the assets of the Business and the
order of such appointment is not discharged, vacated or stayed within sixty (60)
days after such  appointment;  or if  bankruptcy,  reorganization,  arrangement,
insolvency, or liquidation proceedings or other proceedings for relief under any
bankruptcy or similar law or laws for the relief of debtors,  are  instituted by
or against the Business  and, if instituted  against the Business,  is consented
to, or, if contested by the Business is not dismissed by the adverse  parties or
by an order, decree or judgment within sixty (60) days after such institution.

         (i) INSURANCE. If loss, theft, damage or destruction of any substantial
portion of the  property  of the  Business  occurs for which  there is either no
insurance  coverage  or for which,  in the opinion of the  Department,  there is
insufficient insurance coverage.

         (j)  INSECURITY.  If the Department  shall deem itself insecure in good
faith  and  reasonably  believes,  after  consideration  of all  the  facts  and
circumstances  then existing,  that the prospect of payment and  satisfaction of
the obligations under this Agreement, or the performance of or observance of the
covenants  in this  Agreement,  or the  value  of its  collateral  is or will be
materially impaired.

         9.2 NOTICE OF DEFAULT.  The Department  shall issue a written notice of
default  providing  therein a thirty (30) day period in which the Business shall
have an opportunity to cure, provided that cure is possible and feasible.

         9.3 REMEDIES UPON DEFAULT.  Upon the happening of any Event of Default,
the  Department  shall have the right,  in addition  to any rights and  remedies
available  to it under any of the  Security  Instruments,  to require  immediate
repayment  of the full  amount  of funds  disbursed  to the  Business  under the
Agreement plus interest without presentment, demand, protest, notice of protest,
notice of intention to accelerate or other notice of any kind,  all of which are
expressly waived by the Business.


                                    ARTICLE X

                             DISBURSEMENT PROCEDURES

         10.1 REQUEST FOR REIMBURSEMENT.  All disbursements of proceeds shall be
subject to receipt by the Department of requests for  disbursement  submitted by
the Business.  Requests for disbursement shall be in form and content acceptable
to the Department.

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                                   ARTICLE XI

                          GENERAL TERMS AND PROVISIONS

         11.1 BINDING  EFFECT.  This  Agreement  shall be binding upon and shall
inure to the benefit of the Department and Business and their respective  heirs,
successors,  legal  representatives  and assigns.  The  obligations,  covenants,
warranties,   acknowledgments,   waivers,  agreements,   terms,  provisions  and
conditions of this Agreement shall be jointly and severally  enforceable against
the parties to this Agreement.

         11.2  COMPLIANCE WITH LAWS AND  REGULATIONS.  The Business shall comply
with all applicable State and federal laws, rules,  ordinances,  regulations and
orders.

         11.3 TERMINATION FOR CONVENIENCE.  In addition to termination due to an
Event of  Default or  nonappropriation  of PIAP  funds,  this  Agreement  may be
terminated in whole, or in part, when the Department and the Business agree that
the   continuation  of  the  Project  would  not  produce   beneficial   results
commensurate  with the future  disbursement of  Loan/Forgivable  Loan funds. The
Department and the Business  shall agree upon the  termination  conditions.  The
Business  shall not  incur  new  obligations  after  the  effective  date of the
termination  and shall cancel as many  outstanding  obligations as is reasonably
possible.

         11.4  PROCEDURE  UPON  TERMINATION.  If the Agreement is terminated for
convenience,   an  Event  of  Default  or   nonappropriation   of  PIAP   funds,
disbursements  shall  be  allowed  for  costs  up to  the  date  of  termination
determined  by the  Department  to be in  compliance  with this  Agreement.  The
Business shall return to the Department all  unencumbered  Loan/Forgivable  Loan
proceeds  within  one (1) week of receipt  of Notice of  Termination.  Any costs
previously  paid by the  Department  which  are  subsequently  determined  to be
unallowable  through audit procedures shall be returned to the Department within
thirty (30) days of the disallowance.

         11.5 SURVIVAL OF AGREEMENT. If any portion of this Agreement is held to
be invalid or unenforceable,  the remainder shall be valid and enforceable.  The
provisions of this  Agreement  shall  survive the  execution of all  instruments
herein mentioned and shall continue in full force until the Loan is paid in full
and the terms of the Forgivable Loan have been satisfied.

         11.6 GOVERNING LAW. This Agreement and all Security  Instruments  shall
be interpreted  in accordance  with the law of the State of Iowa, and any action
relating to the Agreement shall only be commenced in the Iowa District Court for
Polk County or the United  States  District  Court for the Southern  District of
Iowa.

         11.7  MODIFICATION.  Neither this  Agreement  nor any  provision of the
Security  Instruments executed in connection with this Agreement may be changed,
waived,  discharged or terminated  orally, but only by a written document signed
by the party  against  whom  enforcement  of the change,  waiver,  discharge  or
termination is sought.

         11.8 NOTICES. Whenever this Agreement requires or permits any notice or
written request by one party to another, it shall be in writing,  enclosed in an
envelope, addressed to the party to be notified at the address heretofore stated
(or at such  other  address  as may have been  designated  by  written  notice),
properly  stamped,  sealed and  deposited in the United  States  Mail.  Any such
notice  given  hereunder  shall be deemed  delivered  upon the earlier of actual
receipt or two (2) business days after  posting.  The Department may rely on the
address of the Business set forth heretofore,  as modified from time to time, as
being the address of the Business.

         11.9  INVESTMENT  OF  LOAN/FORGIVABLE  LOAN  FUNDS.   Temporarily  idle
Loan/Forgivable Loan proceeds held by the Business may be invested provided such
investments  shall be in accordance  with State law,  shall be controlled by the
Business,  and any  interest  accrued  shall be credited to and  expended on the
Project prior to the  expenditure of other  Loan/Forgivable  Loan proceeds.  All


                                      -9-
<PAGE>

proceeds  remaining,  including  accrued  interest,  after all allowable Project
costs have been paid or  obligated  shall be returned to the  Department  within
thirty (30) days after the Project Completion Date.

         11.10  RESOLUTION  OF  DISAGREEMENT.  In the event of any  disagreement
between the parties to this  Agreement  relating to the technical  competence of
the work and services being performed and its conformity to the  requirements of
this Agreement,  the Department shall resolve the disagreement.  The decision of
the Department shall be binding on the Business.

         11.11  WAIVERS.  No waiver by the  Department of any default  hereunder
shall  operate as a waiver of any other  default  or of the same  default on any
future occasion.  No delay on the part of the Department in exercising any right
or remedy  hereunder  shall  operate as a waiver  thereof.  No single or partial
exercise of any right or remedy by the Department shall preclude future exercise
thereof or the exercise of any other right or remedy.

         11.12  LIMITATION.  It is agreed by the  Business  that the  Department
shall  not,  under  any  circumstances,  be  obligated  financially  under  this
Agreement except to disburse funds according to the terms of the Agreement.

         11.13 ENFORCEMENT EXPENSES.  The Business shall pay upon demand any and
all  reasonable  fees and expenses  relating to this project of the  Department,
including  the fees and  expenses of their  attorneys,  experts  and agents,  in
connection  with  the  exercise  or  enforcement  of any of  the  rights  of the
Department under the Agreement.

         11.14 HEADINGS.  The headings in this Agreement are intended solely for
convenience  of reference and shall be given no effect in the  construction  and
interpretation of this Agreement.

         11.15 FINAL AUTHORITY. The Department shall have the final authority to
assess whether the Business has complied with the terms of this Agreement.

         11.16  INTEGRATION.  This Agreement  contains the entire  understanding
between the Business and the  Department and any  representations  that may have
been made before or after the signing of this Agreement, which are not contained
herein, are nonbinding,  void and of no effect.  None of the parties have relied
on any such prior representation in entering into this Agreement.

         11.17  COUNTERPARTS.  This  Agreement  may be executed in any number of
counterparts,  each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument.

         IN WITNESS WHEREOF,  the parties have executed this Agreement effective
as of the Award Date first stated.

HYDROGEN ENGINE CENTER:


BY:   /s/ Theodore G. Hollinger
     ------------------------------------------------
Name:  THEODORE G. HOLLINGER   Title: President


IOWA DEPARTMENT OF ECONOMIC DEVELOPMENT:


BY:  /s/ Mary Lawyer
     ------------------------------------------------
        Mary Lawyer, Director

                                      -10-
<PAGE>
ATTACHMENT B
                                                    PROMISSORY NOTE
                                                    Hydrogen Engine Center


                     IOWA DEPARTMENT OF ECONOMIC DEVELOPMENT
                                  PIAP PROGRAM

                                 PROMISSORY NOTE

                             Loan Number 05-PIAP-13
                                         ----------


                                                           Des Moines, Iowa
                                                      -------------------------
                                                           (City and State)

$ 150,000                                                    June 28, 2005
 --------------------------                           -------------------------
                                                        (Date)

         FOR VALUE  RECEIVED,  the  undersigned  (hereafter  called the "Maker")
promises  to pay to the  order  of the  State of Iowa,  Department  of  Economic
Development  (hereafter  called  the  "Payee"),  at its office at 200 East Grand
Avenue, Des Moines, Iowa 50309, or upon notice to the Maker, at such other place
as may be designated  from time to time by the holder,  the principal sum of one
hundred fifty thousand dollars ($150,000), to be paid as follows:

A one hundred  fifty  thousand  dollar  ($150,000)  forgivable  loan at six (6%)
percent interest to be paid as follows:

                  A  five  year  $150,000  forgivable  loan.  There  will  be no
                  principal or interest payments or accruals for years one, two,
                  three, four and five from the Agreement Award Date of June 28,
                  2005.  At  the  project  completion  date,  if the  Maker  has
                  fulfilled the terms of the  forgivable  loan, the balance will
                  be  forgiven.  Should a shortfall  in meeting the terms of the
                  forgivable  loan exist at the end of year five, the balance of
                  the forgivable loan determined by the Payee as due and payable
                  will  be  amortized   over  three  years  from  the  Agreement
                  Expiration Date of July 31, 2010 at six (6%) percent  interest
                  per annum with equal quarterly payments.

         1.  Payments.  All  payments  under the Note  shall be  applied in this
order: (1) to interest, and (2) to principal.

         2. Loan Agreement;  Acceleration  Upon Default.  This Note is issued by
Maker to evidence an obligation  to repay a loan  according to the terms of Loan
Agreement  05-PIAP-13  of June 28, 2005  between the Payee and Maker and, at the
election of the holder without notice to the Maker, shall become immediately due
and payable in the event any payment is not made when due or upon the occurrence
of any event of default under the terms of the Loan Agreement.

                                      -1-
<PAGE>

         3.  Reduced  Amount.  In the event the Maker fails to  requisition  and
spend the full face amount of the Note as set out above, then the amount of each
installment payment shall be reduced accordingly in equal amounts.


         4.  Security.  Payment of this Note is  secured  by a Blanket  UCC 1 on
general  business  assets,  and the holder is  entitled  to the  benefits of the
security therein described.

         In case of a decline in the market value of the collateral, or any part
thereof,  the Payee may demand that  additional  collateral of quality and value
satisfactory to holder be delivered, pledged and transferred to holder.

         5. Waiver. No delay or omission on the part of the holder in exercising
any right  under  this Note  shall  operate  as a waiver of that right or of any
other right under this Note. A waiver on any one occasion shall not be construed
as a bar to or waiver of any right and/or remedy on any future occasion.

         6. Waiver of Protest.  Each maker,  surety,  endorser and  guarantor of
this Note, expressly waives presentment,  protest, demand, notice of dishonor or
default, and notice of any kind with respect to this Note.

         7.  Costs of  Collection.  The Maker  will pay on  demand  all costs of
collection,  maintenance  of collateral,  legal  expenses,  and attorneys'  fees
incurred  or paid by the  holder in  collecting  and/or  enforcing  this Note on
default.

         8.  Meaning  of Terms.  As used in this Note,  "holder"  shall mean the
Payee or other  endorsee of this Note, who is in possession of it, or the bearer
hereof,  if this Note is at the time  payable to the  bearer.  The word  "Maker"
shall  mean  each of the  undersigned.  If this  Note is signed by more than one
person, it shall be the joint and several liabilities of such persons.

         9.  Miscellaneous.  The captions of paragraphs in this  Promissory Note
are for the  convenience  of  reference  only,  shall  not  define  or limit the
provisions hereof and shall not have any legal or other significance whatsoever.

ADDRESS:
 Hydrogen Engine Center
 602 East Fair Street
 Algona, IA 50511                   BY:  /s/ Theodore G. Hollinger
                                        ----------------------------------------
Date                                     President
-----------------




                                    ATTEST:
                                           -------------------------------------



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