IOWA DEPARTMENT OF ECONOMIC DEVELOPMENT

                               CEBA LOAN AGREEMENT

                     CEBA LOAN NUMBER:  05-CEBA-41
                     AWARD DATE:  June 28, 2005
                     KIND OF AWARD: Forgivable Loan
                     AWARD AMOUNT: $ 250,000


         THIS COMMUNITY  ECONOMIC  BETTERMENT ACCOUNT ("CEBA") AGREEMENT is made
by and among the IOWA DEPARTMENT OF ECONOMIC DEVELOPMENT, 200 East Grand Avenue,
Des Moines, Iowa 50309 ("Department" or "IDED"),  City of Algona  ("Community"),
112  W.  Call  St.,  Algona,   Iowa  50511-0452,   and  Hydrogen  Engine  Center
("Business"), 602 E. Fair Street, Algona, Iowa 50511.

         The Department  desires to make a loan to the Community for the benefit
of the  Business  and the  Community  desires to accept this loan,  all upon the
terms and conditions set forth in this Agreement.  The Community 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 CEBA  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 end of the  three  (3)  year  contract  period  if the
Business or Community has demonstrated  successful completion of the project Job
Attainment and Wage Obligation.

         1.2 AWARD DATE. "Award Date" means the date on which the Economic
Development Board approved the IDED CEBA participation.

         1.3  COMMUNITY  BASE JOBS.  "Community  Base Jobs"  means the number of
Full-time  Equivalent  (FTE) Jobs the Department  determines are in place in the
Community at the time of application for CEBA funds and which will remain in the
Community  whether or not CEBA funds are awarded.  Said jobs must be  maintained
for a minimum of thirteen (13) weeks beyond the Project Completion Date.

         1.4 CREATED  JOBS.  "Created  Jobs"  means the number of new  Full-time
Equivalent  (FTE) Jobs the  Business  will add to the  Community  which meet the
Project Wage  Obligation over and above the number of Community Base Jobs and/or
Retained Jobs. Said jobs must be maintained for a minimum of thirteen (13) weeks
beyond the Project Completion Date.

         1.5 FORGIVABLE LOAN. "Forgivable Loan" means a loan for which repayment
is  eliminated  in part or entirely if the  Community  and Business  satisfy the
terms of this  Agreement,  including  the Job  Attainment  and Wage  Obligations
stated in Article VII.
<PAGE>

         1.6 FULL-TIME  EQUIVALENT (FTE) JOB.  "Full-time  Equivalent (FTE) Job"
means the equivalent of employment of one (1) person for eight (8) hours per day
for a five (5) day forty (40) hour workweek for fifty two (52) weeks per year.

         1.7 JOB ATTAINMENT  OBLIGATION.  "Job Attainment  Obligation" means the
aggregate total number of Community Base Jobs,  Retained Jobs,  Created Jobs and
State Employment Level pledged by the Community and Business.

         1.8 LOAN. "Loan" means either a Conventional Loan or a Forgivable Loan,
or both, the terms of which are or may be set forth in this Loan Agreement.

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

         a.   Attachment A, Project Budget and Attachment B, Project Schedule.

         b.   Attachment B1, Promissory Note of the Business.

         c.   Attachment B2, Promissory Note of the Community.

         d.   Attachment C, CEBA Application for Assistance.

         e.   List of positions and associated  hourly rate of pay to be created
              and/or  retained  as a result  of this  project.  Those  positions
              paying equal to or greater than the project Wage Threshold must be
              highlighted.

         1.10 PROJECT.  "Project"  means the detailed  description  of the work,
services,  job attainment  requirements and other obligations to be performed or
accomplished  by the Community  and Business as described in this  Agreement and
the CEBA application approved by the Department.

         1.11 PROJECT COMPLETION DATE.  "Project Completion Date" means July 30,
2010  and is the  date  by  which  the  Project  tasks  shall  have  been  fully
accomplished including fulfillment of the Job Attainment Obligation.

         1.12 PROJECT WAGE OBLIGATION. The "Project Wage Obligation" is at least
100% of the County  Average wage as compiled  from data from the  Department  of
Employment  Services.  The  "Project  Wage  Obligation"  for this  project  is a
starting wage of at least $11.76/hour.

         1.13  RETAINED  JOBS.  "Retained  Jobs"  means the number of  Full-time
Equivalent (FTE) Jobs the Department determines are in place in the Community at
the time of application for CEBA assistance and which the Business and Community
agree  will be  retained  due to receipt  of the CEBA  funds.  Said jobs must be
maintained  for a minimum of thirteen  (13) weeks beyond the Project  Completion
Date.

                                   ARTICLE II
                                     FUNDING

         2.1  FUNDING  SOURCE.  The  source  of  funding  for  the  Loan  is  an
appropriation by the State legislature for the CEBA Program. With respect to the
closing of the Loan, processing of post-closing  documents and administration of
the Loan until paid in full,  the Business and  Community  shall comply with the
requirements,  conditions  and rules of the  Department  and any other public or
private entity having authority over the funds or the Loan.


                                      -2-
<PAGE>

         2.2 RECEIPT OF FUNDS.  All payments under this Agreement are subject to
receipt by the  Department of sufficient  State funds for the CEBA program.  Any
termination,  reduction or delay of CEBA funds to the Department  shall,  at the
option of the Department, result in the termination,  reduction or delay of CEBA
funds to the Community and 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 the total
award amount has not been disbursed  within one hundred twenty (120) days of the
Project  Completion  Date, then the Department  shall be under no obligation for
further disbursement.  And, the Community and Business shall be obligated to the
extent of Loan proceeds received.


                                   ARTICLE III
                            TERMS OF FORGIVABLE LOAN

         3.1 FORGIVABLE LOAN. The Department agrees to make a Forgivable Loan to
the  Community  on behalf of the  Business in the amount of  $250,000.  Interest
begins accruing at the date of disbursement of funds.

         3.2 PROMISSORY NOTES. The obligation to repay the Forgivable Loan shall
be evidenced by Promissory Notes executed by the Business and the Community (see
Attachments B1 and B2).

         3.3  OTHER  TERMS.  Funds  to  be  disbursed  when  all  conditions  to
disbursement have been satisfied, including:

             a)  Securing  the  other   funding  as   identified  in  the  CEBA
                 Application For Assistance.
             b)  Verification of conforming benefits/medical package as proposed
                 in the CEBA Application For Assistance.

         3.4 PREPAYMENT.  The outstanding principal and accrued interest of this
Loan,  or any part  thereof that is not  forgiven,  may be prepaid in part or in
full at any time without penalty.

         3.5  ACCELERATION  UPON  DEFAULT.  If  there  is a  failure  to pay any
installment of principal and interest when due, or only a portion is paid, or in
the event of any other default under this Loan,  the  Department may declare the
entire unpaid principal and all accrued interest immediately due and payable.

         3.6 FORGIVABLE  LOAN Repayment or Waiver.  The Department  will, in its
sole  discretion,  determine  if the Business  has  satisfied  the terms of this
Agreement,  including  fulfillment of the Job Attainment and Wage  Obligation by
the Project Completion Date. If the Department  determines that the Business has
satisfied  said terms and has  continued to satisfy said terms for thirteen (13)
weeks  past the  Project  Completion  Date,  then  barring  any  other  default,
repayment of principal and interest  which would  otherwise have accrued for the
time period beginning with the Award Date and ending with the Project Completion
Date shall be permanently  waived.  If the Department does not waive  repayment,
the  Forgivable  Loan  shall be repaid in  accordance  with the terms of Article
10.4(a) of this agreement.


                                   ARTICLE IV
                       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 Community or Business
any amounts under the Loan Agreement:
                                      -3-
<PAGE>

         4.1  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 corporation's Articles of Incorporation.

         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. Pursuant to Article 6.1(i) of this Contract,  a signed Authorization
         for Release of Confidential  State Tax Information form, to permit 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.

         4.2  CONSULTATION  WITH  EMPLOYMENT  SERVICES.  The Business shall have
provided  documentation  to the  Department  that it has consulted with the area
Department  of  Employment  Services  (DES)  Workforce  Center office to discuss
employment  services  available.  In addition,  the Business must provide to DES
agencies  a list of  positions  to be created  including  job  descriptions  and
qualifications.

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

         4.4 PROJECT  FINANCIAL  COMMITMENTS.  The Business and Community  shall
have  submitted a letter from each of the following  committing to the specified
financial  involvement in the Project and received the Department's  approval of
the letters of commitment including rate and terms:

          ==================================================================
                SOURCE                FORM                  AMOUNT
          ------------------- --------------------- ------------------------
              Algona EDC            Loan/FL                $143,316
          ------------------- --------------------- ------------------------
            City of Algona            Loan                 $200,000
          ------------------- --------------------- ------------------------
              Investors         Convertible Loan           $650,000
          ------------------- --------------------- ------------------------
                Owners                Cash                 $150,000
          ------------------- --------------------- ------------------------

          ==================================================================

Each letter shall  include the amount,  terms and  conditions  of the  financial
commitment, as well as any applicable schedules.

         4.5 RECORDING.  The Business and Community shall have properly recorded
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 Loan Agreement,  with all recording charges
paid.

         4.6  SOLID  AND  HAZARDOUS  WASTE  REDUCTION  PLAN.  A  Business  which
generates   solid  or  hazardous   waste  shall  have  submitted  the  following
information concerning the project site:

                                      -4-
<PAGE>

                  a. A copy of the completed  audit and  management  plan if the
Business  has  conducted  an in-house or an external  audit and a  corresponding
management plan within the last three years; or

                  b. If the Business  has not  conducted an in-house or external
audit and corresponding management plan within the last three years, a copy of a
letter from the Iowa Department of Natural Resources or the Iowa Waste Reduction
Center indicating they have met with the Business and an external audit has been
initiated,  or, a copy of the outline of the Business'  proposed  in-house audit
and a description of how and when the audit will be performed.  Furthermore, the
Business shall submit a copy of the completed  in-house or external audit within
30 days of its completion or receipt, which time period shall not exceed 90 days
from the disbursement date of the financial assistance.


                                    ARTICLE V
                   REPRESENTATIONS AND WARRANTIES OF BUSINESS

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

         5.1 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 Loan  Agreement.  All
action on the Business'  part,  such as  appropriate  resolution of its Board of
Directors  for the  execution  and  delivery  of the  Loan  Agreement,  has been
effectively taken.

         5.2  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.

         5.3 APPLICATION. The contents of the application the Business submitted
to the Department for CEBA 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 or key  personnel of the Business  since the date the Business
submitted its CEBA application to the Department.

         5.4  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 their rights to execute the Loan or
the ability of the Community or Business to make the payments required under the
Loan,  or to otherwise  comply with the  obligations  of the Business  contained
under the Loan.  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.

         5.5 PRIOR  AGREEMENTS.  The  Community  and the Business  separately or
jointly have not entered  into any verbal or written  contracts,  agreements  or
arrangements of any kind which are inconsistent with the Loan Agreement.

         5.6 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.

                                      -5-
<PAGE>
                                   ARTICLE VI
                              COVENANTS OF BUSINESS

         6.1 AFFIRMATIVE  COVENANTS.  Until payment in full or required part, or
forgiveness  of the Loan,  the Business  covenants  with the  Community and IDED
that:

                  (a) PROJECT WORK AND SERVICES. The Business shall complete the
work and services  detailed in its CEBA  application  by the Project  Completion
Date.

                  (b) JOB ATTAINMENT OBLIGATION.  By the Project Completion Date
and as the Agreement may require for  additional  time periods  thereafter,  the
Business shall have fulfilled its Job Attainment Obligation described in Article
VII of this Agreement.

                  (c) BUSINESS  RETENTION.  The Business shall have and maintain
in the Community (and State,  if required) the Business  premises and operations
at least through the Agreement Expiration Date.

                  (d) RECORDS AND ACCOUNTS. The Business shall maintain job data
information,  books,  records,  documents and other  evidence  pertaining to all
costs and  expenses  incurred and revenues  received  under this Loan  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 Loan
Agreement. The Business shall retain all records for a period of three (3) years
from the Agreement Expiration Date.

                  (e) ACCESS TO  RECORDS/INSPECTIONS.  The Business shall,  upon
reasonable  notice and at any time (during normal  business  hours),  permit the
Community and its representatives and 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
relating to the Project,  and (iii) all other documentation or materials related
to this Loan;  the Business  shall  provide  proper  facilities  for making such
examination and/or inspection.

                  (f)  USE OF  LOAN  FUNDS.  The  Business  shall  expend  funds
received  under the Loan only for the purposes and  activities  described in its
CEBA Application and approved by the Department.

                  (g) DOCUMENTATION. The Business shall deliver to the Community
and/or 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,  not older than sixty (60) days from the date
of request.
                  (h) NOTICE OF PROCEEDINGS.  The Business shall promptly notify
the Community and 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.

                  (i) REPORTS.  The Business shall execute an Authorization  for
Release of Confidential  State Tax  Information  form, to permit 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.  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  Business  shall  prepare,  sign and submit the
following reports to the Community throughout the Project period:
                                      -6-
<PAGE>

<TABLE>
<CAPTION>

Report                                                 Due Date
------                                                 --------
<S>                                                    <C>
Mid-Year Status Report                                 July 10th for the period ending June 30th

End-of-Year Status Report Includes:                    January 10th for the period ending Dec. 31st
- Public Return on Investment Update
- Payroll Register with all created and/or
  retained jobs highlighted and indicate
  jobs paying at least $11.76
- "Employer's Contribution and Payroll Report"

End of Project Report                                  Within 30 days of Project Completion Date
Same items as End-of-Year Report

End of Job Maintenance Period Report                   Within 30 days of the end of the Job
Same items as End-of-Year Report                       Maintenance Period
</TABLE>

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

                  (k)  NOTICE  OF  MEETINGS.   The  Business  shall  notify  the
Community  and 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
Loan  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.


                  (l)  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 Community and Department as a mortgagee and/or an additional loss payee
as appropriate and submit copies of the policies to the Department.

                  (m)  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.  The  Business  shall
indemnify and hold harmless the  Community,  its officers and employees from and
against any and all  losses,  except  those  losses  incurred  by the  Community
resulting  from willful  misconduct or  negligence  on its or their part,  which
losses  shall  include  losses of the  Community  incurred in  indemnifying  and
holding harmless the Department.

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

                                      -7-
<PAGE>
                  (o) INTEREST AND SURPLUS  PROCEEDS.  The Business shall return
all  unexpended  Loan  proceeds  and  interest  accrued on Loan  proceeds to the
Community within thirty (30) days after the Project Completion Date.

                  (p)  (PROJECTS  WITH  CEBA  AWARDS  GREATER  THAN   $500,000).
Business  shall provide at least 80% of the cost of standard  medical and dental
insurance for Full-time Equivalent (FTE) employees.

         6.2  NEGATIVE  COVENANTS.  So long as the  Business is indebted to IDED
and/or  Community,  the Business shall not, without prior written  disclosure to
the  Community  and 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 Loan Agreement.

                  (b)  PROPERTY/COLLATERAL.   Sell,  transfer,  convey,  assign,
encumber or otherwise  dispose of any of the real  property or other  collateral
securing the Loan.

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

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

                  (e)  RELOCATION  OR  ABANDONMENT.   Relocate  its  operations,
physical  facilities or jobs  (including  Created,  Retained and Community  Base
Jobs)  assisted  with the Loan  proceeds  outside the  Community  or abandon its
operations or facilities or a substantial  portion  thereof within the Community
during the Loan term.

                  (f)  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 Community
and 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.

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

                                   ARTICLE VII
                       JOB ATTAINMENT AND WAGE OBLIGATION

         7.1 COMMUNITY  EMPLOYMENT  LEVEL. On the Project  Completion  Date, the
Business shall have in the Community a total of 51 FTE Jobs as set forth below:
<TABLE>
<CAPTION>
     ================================== ============================== ==========================================
              PROJECT EMPLOYMENT            ATTAINMENT OBLIGATION                   WAGE OBLIGATION
     ---------------------------------- ------------------------------ ------------------------------------------
<S>                                                   <C>                              <C>
             Community Based Jobs                     2                                   N/A
     ---------------------------------- ------------------------------ ------------------------------------------
                 Retained Jobs                        0                                   N/A
     ---------------------------------- ------------------------------ ------------------------------------------
                 Created Jobs                         49                               $11.76/hr
     ---------------------------------- ------------------------------ ------------------------------------------
                     TOTAL                            51                      38 @ at least $11.76/hr and an
                                                                            average wage of at least $24.94/hr
     ================================== ============================== ==========================================
</TABLE>
                                      -8-
<PAGE>

         7.2  STATE  EMPLOYMENT  LEVEL.  On the  Project  Completion  Date,  the
Business shall have a minimum  employment level in the State of Iowa,  exclusive
of its Community  employment  level,  of at least 2 FTE Jobs. This State minimum
employment  level shall also be maintained  through the  thirteenth  (13th) week
after the Project Completion Date.

         7.3  CALCULATION OF JOB ATTAINMENT  OBLIGATION.  The Department has the
final  authority to assess  whether the Business has met its Job  Attainment and
Wage Obligation at the Project  Completion  Date. The Department shall determine
the number of Community Base, Retained and Created FTE Jobs maintained, retained
and created by the Business.  The Community and the Department reserve the right
to monitor and measure at any time during the  Agreement  term the number of FTE
jobs maintained and/or retained and/or created by the Business.


                                  ARTICLE VIII
                           COVENANTS OF THE COMMUNITY

         8.1 AFFIRMATIVE  COVENANTS.  Until payment in full or required part, or
forgiveness of the Loan, the Community covenants with IDED that:

                  (a) PROJECT WORK AND  SERVICES.  The  Community  shall perform
work and services  detailed in the CEBA  application  by the Project  Completion
Date.

                  (b) REPORTS  REVIEW.  The Community  shall review and sign the
reports  prepared  by the  Business  as required  under the Loan  Agreement  and
forward them to the Department.  The reports shall be submitted by the Community
by the 15th of the month of receipt,  and for the final  reports,  within  sixty
(60) days after the Project Completion Date or Agreement Expiration Date period,
whichever is applicable.

                  (c) RECORDS.  The Community shall maintain books,  records and
documents in sufficient detail to demonstrate compliance with the Loan Agreement
and shall  maintain  these  materials for a period of three (3) years beyond the
Agreement Expiration Date.

                  (d) FILING.  The  Community  shall file in a proper and timely
manner any and all Security  Instruments  required in connection  with the Loan,
naming the  Department  as  co-security  holder as  required  in Article 9.1 and
promptly  providing the  Department  with  date-stamped  copies of said Security
Instruments.  The  Community  shall,  at the  Department's  request,  obtain and
provide to the Department lien searches or attorney's title opinions.

                  (e)  INDEMNIFICATION.  The Community  shall indemnify and hold
harmless  the  Department,  its  officers  and  employees  as defined in Article
9.4(b).

                  (f) REQUESTS FOR LOAN FUNDS.  The  Community  shall review the
Business'  requests for Loan funds to ensure that the requests are in compliance
with the Department's  requisition  procedures and shall execute and forward the
requests to the Department for processing.

                  (g) REPAYMENTS.  The Community  shall promptly  forward to the
Department all Loan repayments received from the Business.


                  (h) UNUSED  LOAN  PROCEEDS.  The  Community  shall  return all
unused  Loan  proceeds,  including  interest  accrued on Loan  proceeds,  to the
Department within thirty (30) days after the Project Completion Date.

                                      -9-
<PAGE>

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

                  (j) NOTICE TO DEPARTMENT.  In the event the Community  becomes
aware of any material alteration in the Project, initiation of any investigation
or proceeding  involving the Project or Loan, change in the Business' ownership,
structure or operation,  or any other similar  occurrence,  the Community  shall
promptly notify the Department.

                  (k)  RESPONSIBILITY  UPON  DEFAULT.  If the Business  fails to
perform under the terms of the Loan  Agreement and the  Department  declares the
Business in default,  the Community shall be primarily  responsible for recovery
of Loan  proceeds,  as well as penalties,  interest,  costs and  foreclosure  on
collateral. The Department may also initiate an action to recover such proceeds,
or may intervene in any action commenced by the Community.

         8.2 NEGATIVE COVENANTS. So long as the Business is indebted to IDED and
loan  payments  are in arrears or past due,  the  Community  shall not,  without
written consent of IDED:

                  (a) ACCEPTANCE OF LOAN REPAYMENTS.  Accept any loan repayments
and/or settlements on community funds considered local effort in this agreement.

                  (b) ASSIGNMENT.  Assign its rights and responsibilities  under
this Loan Agreement.

                  (c)  ALTER  FINANCIAL   COMMITMENTS.   Alter,   accelerate  or
otherwise  change  the  terms of the  Community's  financial  commitment  to the
Business as set forth in Article 4.5.

                  (d)   ADMINISTRATION.   Discontinue   administration  or  loan
servicing activities under the Loan Agreement.


                                   ARTICLE IX
                                    SECURITY

         9.1 SECURITY INSTRUMENTS.  The Business shall execute in joint favor of
the Community and 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:

                  Blanket UCC-1.

         9.2 FINANCING  STATEMENT.  If the  Department  requires the filing of a
financing  statement,  the Community shall provide the Department with a copy of
the date-stamped  financing statement and a certified lien search which reflects
the  recordation  of the security  interests of the Department and the Community
and all other  lien-holder  of  record.  The  Community  shall  ensure  that the
financing statement(s) include language approved by the Department to secure its
interests.

         9.3 MORTGAGE. If the Department requires the filing of a mortgage,  the
Community shall provide the Department with a copy of the date-stamped, recorded
mortgage and an  attorney's  Opinion of Title  reflecting  the  interests of the
Community and the Department.

                                      -10-
<PAGE>

         9.4  COMMUNITY LIABILITY.

                  (a) The Community  shall be solely  responsible for the proper
and timely filing of all Security  Instruments executed by the Business pursuant
to this Article.

                  (b) The  Community's  liability  under this Loan  Agreement is
limited to those  amounts  which the  Community  recovers  from the  Business in
unused Loan proceeds,  enforcement of judgments against the Business and through
its good faith enforcement of the Security  Instruments executed by the Business
under this  Article.  Nothing in this  paragraph  shall  limit the  recovery  of
principal  and interest by the  Department  in the event of  Community's  fraud,
negligence,  or gross  mismanagement  in the  application  for,  or use of, sums
loaned under the Loan Agreement.

         9.5 COST  VARIATION.  In the event that the total  Project cost is less
than the amount  specified in this Agreement,  the CEBA  participation  shall be
reduced at the same ratio as CEBA funds are to the total Project  cost,  and any
disbursed excess above the reduced CEBA  participation  amount shall be returned
immediately to IDED with interest at the rate of six percent (6%) per annum from
the date of disbursement by IDED.


                                    ARTICLE X
                              DEFAULT AND REMEDIES

         10.1  EVENTS OF  DEFAULT.  The  following  shall  constitute  Events of
Default under this Loan 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 or Community in connection  with this Loan  Agreement
or to induce the  Department  to make a loan to the  Community  and/or  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 or Community.

                  (b) NON-PAYMENT.  If the Business fails to make a payment when
due under the terms of this Loan  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 or
Community to comply with any of the covenants,  terms or conditions contained in
this Agreement or Security Instruments executed pursuant to this Agreement.

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

                  (e)  JOB  ATTAINMENT  OBLIGATION.  If  the  Business,  in  the
exclusive judgment of the Department,  fails to meet its Job Attainment and Wage
Obligation.

                  (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)  RELOCATION  OR  ABANDONMENT.  If there is a relocation or
abandonment of the Business or jobs created or retained under the Project.

                                      -11-
<PAGE>

                  (h)  MISSPENDING.  If the Business or  Community  expends Loan
proceeds for purposes not described in the CEBA application or authorized by the
Department.

                  (i) 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.

                  (j) 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.

                  (k) INSECURITY.  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.

         10.2 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.

         10.3 REMEDIES UPON DEFAULT.  If the default  remains  unremedied,  IDED
shall have the right,  in addition to any rights and  remedies  available  to it
under any of the Security Instruments, to do one or more of the following:

                   (a)  exercise any remedy provided by law;

                   (b)  declare the unpaid  principal plus interest then accrued
                        on  the  Note  due  and  payable   immediately   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.

         10.4  FAILURE TO MEET JOB  ATTAINMENT  OBLIGATION.  If the  Business is
determined  by the  Department  to be in  default of the Loan  Agreement  due to
meeting  less than one hundred  percent  (100%) of its Job  Attainment  and Wage
Obligation,  the  Department  may require  full Loan  repayment  as described in
section 10.3 above or, at its discretion, the Department may permit repayment of
Loan proceeds using the following criteria:

                  (a) FORGIVABLE  LOANS. If the CEBA award is a Forgivable Loan,
interest buy-down or interest  subsidy,  the Department may require repayment of
Loan proceeds as follows:

                  A  three-year  $250,000  forgivable  loan.  There  will  be no
principal or interest payments or accruals for years one, two, and three. At the
project  completion  date, if the Business has fulfilled at least 50% of its job
creation/retention  (if  applicable)  and  wage  obligation,  $6,578.94  will be
forgiven for each new FTE job  created/retained  (if  applicable) and maintained

                                      -12-
<PAGE>

for at  least  ninety  days  past  the  project  completion  date.  Any  balance
(shortfall)  will be amortized over a two year period  (beginning at the project
completion  date) at six (6%)  percent  interest  per annum with  equal  monthly
payments,  and,  interest will be charged at six (6%) percent per annum from the
date of the first CEBA  disbursement  on the  shortfall  amount with that amount
accrued as of the project completion date being due and payable immediately.  If
the Business  has a current loan  balance,  the  shortfall  balance and existing
balance will be combined to reflect a single monthly payment.

                  (b) CONVENTIONAL  LOANS. If the Business  received a Loan at a
rate  that  is  below  the  annual  interest  rate  for  non-compliance  as  set
periodically by the IDED Board,  the remaining  principal amount of the Loan may
be prorated between the percentage of FTE Jobs  created/retained (if applicable)
at the Project Wage Threshold and the percentage of the shortfall. The shortfall
principal  portion  may be  amortized  over  the  remaining  term  of the  Loan,
beginning  at the  Project  Completion  Date,  at an  annual  interest  rate  as
determined  periodically by the IDED Board.  Interest will be charged  beginning
from the date Loan  proceeds  were  disbursed to the  Community on behalf of the
Business; interest accrued from this date will be due immediately.  The pro rata
portion of the Loan  associated  with the percentage of FTE Jobs created will be
amortized at the original rate and term.


                                   ARTICLE XI
                             DISBURSEMENT PROCEDURES

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


                                   ARTICLE XII
                          GENERAL TERMS AND PROVISIONS

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

         12.2 COMPLIANCE WITH LAWS AND  REGULATIONS.  The Community and Business
shall comply with all applicable  State and Federal laws,  rules  (including the
administrative  rules adopted by the  Department for the CEBA Program - 261 Iowa
Administrative Code, chapter 53), ordinances, regulations and orders.

         12.3 TERMINATION FOR CONVENIENCE.  In addition to termination due to an
Event of Default or  non-appropriation of CEBA funds, this Loan Agreement may be
terminated in whole, or in part, when the Department, Community and the Business
agree that the continuation of the Project would not produce  beneficial results
commensurate  with  the  future  disbursement  of Loan  funds.  The  Department,
Community  and  Business  shall  agree  upon  the  termination  conditions.  The
Community and Business shall not incur new obligations  after the effective date
of the  termination  and shall  cancel  as many  outstanding  obligations  as is
reasonably  possible.  The Department will allow full credit to the Community or
the  Business  for  the  Department  share  of  the  non-cancelable  obligations
allowable  under the Loan  Agreement  and properly  incurred by the Community or
Business prior to termination.

         12.4  PROCEDURE UPON  TERMINATION.  If the Loan Agreement is terminated
for  convenience,  an Event  of  Default  or  non-appropriation  of CEBA  funds,
disbursements  shall  be  allowed  for  costs  up to  the  date  of  termination

                                      -13-
<PAGE>

determined by the Department to be in compliance with this Loan  Agreement.  The
Community and the Business shall return to the Department all unencumbered  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,  monitoring or closeout procedures shall be returned
to the Department within thirty (30) days of the disallowance.

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

         12.6 GOVERNING  LAW. This Loan  Agreement and all Security  Instruments
shall be  interpreted  in accordance  with the law of the State of Iowa, and any
action  relating  to the Loan  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.

         12.7 MODIFICATION. Neither this Loan Agreement nor any provision of the
Security  Instruments  executed in  connection  with this Loan  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.

         12.8  NOTICES.  Whenever  this Loan  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 State
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  addresses of the Business and Community  set forth  heretofore,  as
modified  from  time to time,  as  being  the  addresses  of the  Community  and
Business.

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

         12.10  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.

         12.11  LIMITATION.  It is agreed between the Community and the Business
that the Department shall not, under any circumstances, be obligated financially
under this Loan Agreement except to disburse funds according to the terms of the
Agreement.

         12.12 ENFORCEMENT EXPENSES.  The Business shall pay upon demand any and
all  reasonable  fees and  expenses  of the  Community  and/or  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 and/or Community under the Loan Agreement.

                                      -14-
<PAGE>

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

         12.14 FINAL AUTHORITY. The Department shall have the final authority to
assess  whether the Business has met its Job  Attainment  Obligation and whether
the  Community  and  Business  have  otherwise  complied  with the terms of this
Agreement.

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

         12.16  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 Loan  Agreement
effective as of the Award Date first stated.

COMMUNITY:                                COMMUNITY:
Attorney for City of Algona               City of Algona
Approved as to form and content.


BY:  s/ Paul R. Doster,                   BY: s/ Timothy S. Lighter
     Algona City Attorney                     Mayor Pro-Tem
     -----------------------------            ---------------------------------
         Name/Title                                Name/Title


IOWA DEPARTMENT OF ECONOMIC DEVELOPMENT:


BY:  s/  Melanie Johnson
     -------------------------------------------
         Melanie Johnson, Business Services
         Division of Administration


BUSINESS:
Hydrogen Engine Center


BY:  s/ Theodore G. Hollinger
     --------------------------------------------
         Signature

     Theodore G. Hollinger, President
     --------------------------------------------
         Type or Print Name, Title


                                      -15-
<PAGE>

Contract Number 05-CEBA-41                                       ATTACHMENT B1
Hydrogen Engine Center                              PROMISSORY NOTE - BUSINESS
Page 1 of 2



                     IOWA DEPARTMENT OF ECONOMIC DEVELOPMENT
                                  CEBA PROGRAM

                                 PROMISSORY NOTE

                             Loan Number: 05-CEBA-41


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

Amount:  $250,000                                          June 28, 2005
                                                         ---------------------
                                                                (Date)

         FOR VALUE  RECEIVED,  the  undersigned  (hereafter  called the "Maker")
promises  to pay to the  order  of the  City of  Algona  (hereafter  called  the
"Payee"),  at its office at 112 W. Call St., Algona,  Iowa  50511-0452,  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 $250,000, to be paid as follows:

A $250,000 forgivable loan at six (6%) percent interest to be paid as follows:
--------------------------------------------------------------------------------
         A three-year  $250,000  forgivable  loan. There will be no principal or
interest  payments or accruals  for years one,  two,  and three.  At the project
completion  date,  if the  Business  has  fulfilled  at  least  50%  of its  job
creation/retention  (if  applicable)  and  wage  obligation,  $6,578.94  will be
forgiven for each new FTE job  created/retained  (if  applicable) and maintained
for at  least  ninety  days  past  the  project  completion  date.  Any  balance
(shortfall)  will be amortized over a two year period  (beginning at the project
completion  date) at six (6%)  percent  interest  per annum with  equal  monthly
payments,  and,  interest will be charged at six (6%) percent per annum from the
date of the first CEBA  disbursement  on the  shortfall  amount with that amount
accrued as of the project completion date being due and payable immediately.  If
the Business  has a current loan  balance,  the  shortfall  balance and existing
balance will be combined to reflect a single monthly payment.

         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-CEBA-41  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.

         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 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.

<PAGE>
Contract Number 05-CEBA-41                                       ATTACHMENT B1
Hydrogen Engine Center                              PROMISSORY NOTE - BUSINESS
Page 2 of 2

         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 E. Fair St.
Algona, Iowa 50511
                                     BY:
                                     -------------------------------------------
                                         (Signature)

                                     -------------------------------------------
                                     (Type or Print Name, Title)





                                     ATTEST:
                                     -------------------------------------------
                                         (Signature, Title)



<PAGE>

Contract Number 05-CEBA-41                                       ATTACHMENT B2
Hydrogen Engine Center                            PROMISSORY NOTE - COMMUNITY
Page 1 of 2


                     IOWA DEPARTMENT OF ECONOMIC DEVELOPMENT
                                  CEBA PROGRAM

                                 PROMISSORY NOTE

                             Loan Number 05-CEBA-41


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

Amount: $250,000                                         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
$250,000, to be paid as follows:

A $250,000 forgivable loan at six (6%) percent interest to be paid as follows:
--------------------------------------------------------------------------------
         A three-year  $250,000  forgivable  loan. There will be no principal or
interest  payments or accruals  for years one,  two,  and three.  At the project
completion  date,  if the  Business  has  fulfilled  at  least  50%  of its  job
creation/retention  (if  applicable)  and  wage  obligation,  $6,578.94  will be
forgiven for each new FTE job  created/retained  (if  applicable) and maintained
for at  least  ninety  days  past  the  project  completion  date.  Any  balance
(shortfall)  will be amortized over a two year period  (beginning at the project
completion  date) at six (6%)  percent  interest  per annum with  equal  monthly
payments,  and,  interest will be charged at six (6%) percent per annum from the
date of the first CEBA  disbursement  on the  shortfall  amount with that amount
accrued as of the project completion date being due and payable immediately.  If
the Business  has a current loan  balance,  the  shortfall  balance and existing
balance will be combined to reflect a single monthly payment.

         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-CEBA-41  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.

         3.  Limitation.  Maker's  liability  for the  repayment of this Note is
limited to those amounts Maker  collects  through its good faith  enforcement of
security  interest which Maker represents that it has obtained or will obtain as
required by the above-referenced  Loan Agreement.  Upon exhaustion of its rights
in the  collateral  granted by such  security  interest,  the Maker will have no
liability  for any  deficiency  owing  Payee  under this  Note.  Nothing in this
paragraph  shall limit the  recovery of  principal  and interest by Payee in the
event of Maker's fraud,  negligence,  or gross  mismanagement in the application
for, or use of, sums loaned under the above-referenced Loan Agreement.

<PAGE>


Contract Number 05-CEBA-41                                       ATTACHMENT B2
Hydrogen Engine Center                            PROMISSORY NOTE - COMMUNITY
Page 2 of 2


         4.  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.

         5. Security. Payment of this Note is secured by a Blanket UCC-1 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.

         6. 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.

         7. 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.

         8.  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.

         9.  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.

         10.  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:                          City of Algona
112 W. Call St
Algona, Iowa 50511-0452
                                  BY:
                                        ----------------------------------------
                                          (Signature)


                                        ----------------------------------------
                                          (Type or Print Name, Title)





                                  ATTEST:
                                         ---------------------------------------
                                                       (Signature, Title)