Deed of agreement concerning the patents, licensing and research and
                    development in relation to the OX2 engine


THIS DEED is made the 12th day of May 1999


BETWEEN:  ADVANCED ENGINE  TECHNOLOGY PTY LTD AN 063 092 759, Company  organised
and existing under the laws of Australia having its registered office at Factory
1, 2 Greg Chappell Drive,  Burleigh Gardens Industrial  Estate,  Burleigh Heads,
Queensland 4220, Australia ("AETP") of the first part


AND: OX2 INTELLECTUAL  PROPERTY INC, a company incorporated in Vanuatu under the
International  Companies Act 1992 and having its registered  office at 2ndFloor,
Windsor House,  Kumul Highway,  Port Vila,  Republic of Vanuatu ("OX21P") of the
second part


AND: OX2 ENGINE (DISTRIBUTION)  LIMITED, a company incorporated in Vanuatu under
the  International  Companies Act 1992 and having its  registered  office at 2nd
Floor,,  Windsor House, Kumul Highway,  Port Vita, Republic of Vanuatu ("OX2ED")
of the third part


AND:  ADVANCED ENGINE  TECHNOLOGIES,  INC, a company  incorporated in the United
States of America in the State of Colorado and having its  registered  office at
9909 Osuna Road, NE, Albuquerque,  New Mexico,  United State of America ("AETI")
of the fourth part




<PAGE>


RECITALS:



A.       By an Agreement for the Assignment of  Intellectual  Property dated the
         11th day of January 1994,  made between  Steven  Charles  Manthey,  the
         inventor  of the  Engine,  as  assignor  and AETP,  as  assignee,  AETP
         acquired  all  right,  title and  interest  in and to the  Intellectual
         Property ("the Original Assignment Agreement").

B.       By an  Agreement  For Sale By Way of  Assignment  dated  the 6th day of
         November  1996,  made  between  AETP as seller and OX2IP as  purchaser,
         OX2IP acquired all right, title and interest in and to the. Patents and
         the Product.

C.       By a Patent License  Agreement dated the 18th day of October 1996, made
         between  OX2IP as licensor  and OX2ED as  licensee,  OX2ED  acquired an
         exclusive  worldwide license to manufacture,  distribute and market the
         Product ("the Head-License Agreement").

D.       By a Patent Sub-License  Agreement dated 18th October 1996 made between
         OX2IP as grantor and AETI as licensee  ("the  Sub-License  Agreement"),
         AETI acquired an exclusive  sub-license to manufacture,  distribute and
         market the  Engine in the  territory  of Canada,  Mexico and the United
         States of America ("the NAFTA region")

E.       By an Investment  Agreement  dated the 25th day of August 1997 and made
         between AETP and OX2IP,  AETP assumed the obligations,  for the benefit
         of AETI, of carrying out the research and development of the Engine and
         producing and  supplying  prototype  engines and spare and  replacement
         engine parts ("Engines and Parts") to AETI, for the purpose of enabling
         AETI to better exploit the Engine.

F.       Since entering into the Sub-License Agreement,  AETI has diligently and
         aggressively  pursued the  commercialisation  and  exploitation  of the
         Engine  in  the  NAFTA  region  and  has  established  strong  business
         relationships  with a  number  of  major  multi-national  corporations,
         (including  in  particular  United  States  based  corporations  in the
         automotive,  military and  outboard  boating  industries)  and American
         Universities,  that are  interested  in pursuing  some form of business
         relationship  with AETI, such as a partnership,  joint venture or other
         cooperative relationship,  in relation to the research and development,
         manufacture,  distribution  or marketing of the Engine,  including  the
         provision  of  debt  or  equity   funding  for  any  of  the  foregoing
         ("Potential Business Partners").

G.       In  order  for  AETI to be able  to  enter  into  agreements  with  the
         Potential  Business  Partners AETI must be able to assure them that for
         the duration of any agreement that they may enter into with AETI:

         (a).     the Patents will be valid and will remain in force;

         (b).     the  Potential  Business  Partners  will have the  benefit  of
                  advancements and improvements to the Engine;

<PAGE>

         (c).     AETI will have such  rights in  relation  to the Engine as are
                  necessary in order for the Potential  Business  Partners to be
                  entitled to research  and  develop,  manufacture,  distribute,
                  market, or otherwise exploit the Engine;

         (d).     the Potential Business  Partners,  which carry on business and
                  supply their products to countries  throughout the world, will
                  have the  opportunity to manufacture,  distribute,  market and
                  otherwise  exploit the Engine,  not just in the NAFTA  region,
                  but in any country in which they carry on business or supply a
                  significant  amount of the relevant product and not be at risk
                  of having a  competitor  control  the  rights to  exploit  the
                  Engine to their  exclusion or in competition  with them in any
                  such country;

         (e).     the research and  development  of the Engine will  continue to
                  take place, with all due diligence,  on an ongoing basis, into
                  the future.

AETI is unable to provide these rights and assurances because it does not own or
control the Patents or the  Intellectual  Property,  and does not own or control
the licensing of the Engine except in relation to its  sub-license for the NAFTA
region  and  does  not  control  and is not  responsible  for the  research  and
development  of the Engine.  In addition  the  Potential  Business  Partners are
reluctant  to enter into  agreements  with AETI because of the  complicated  and
fragmented nature of the ownership of the Patents and licensing of the Engine.

H.       AETI will be able to provide the Potential  Business  Partners with the
         necessary   rights  and   assurances   in  relation  to  the   Patents,
         Intellectual  Property  and the Engine,  that they  require in order to
         enter into  agreements  with  AETI,  if AETI  becomes  the owner of the
         Patents and  Intellectual  Property and is responsible for the research
         and development of the Engine.

I.       AETP,  OX21P  and  OX2ED  each  accept  the  accuracy  of the facts and
         circumstances  set out in the foregoing  Recitals and have agreed that,
         in  order  to  better  assure  the  successful   commercialisation  and
         exploitation of the Engine:

         (a).     AETP  shall  assign  to AETI,  all  AETP's  right,  title  and
                  interest in the  Intellectual  Property (if any) that AETP may
                  have at the date hereof,

         (b).     OX2EP  shall  assign to AETI,  all  OX21P's  right,  title and
                  interest in the Patents and the Product;


         (c).     the Head-License Agreement and the Sub-License Agreement shall
                  be terminated;

         (d).     AIETI shall take over the  responsibility for the research and
                  development of the Engine.

J.       AETP,  OX2fP and OX2ED  have each  considered  the terms and actual and
         potential  consequences  of this Deed and have determined that it is in
         their best commercial interests to enter into this Deed.


<PAGE>
NOW THE PARTIES AGREE as follows

Article I         Interpretation

1.1      In this Deed the following definitions shall apply -

         "Application"    means    International    Patent    Application    No.
         PCT/AU/95/00815  filed under the PCT and given an international  filing
         date of 4th December 1995.

         "Confidential  Information"  means the Technical  Information  together
         with any other confidential information relating to the Engine.

         "Copyright"  means those  rights of  copyright  under the  Commonwealth
         Copyright  Act in respect of the Material and other rights of copyright
         throughout the World.

         "Deed" means the this agreement  concerning the Patents,  Licensing and
         research  and  development  in relation to the OX2  combustion  engine,
         which is entered into as a deed between the parties.

         "Design  Rights"  means those rights  comprised  in a  definition  of a
         registered  design in the  Design  Act  (1906) of the  Commonwealth  of
         Australia  granted in  relation  to the  Technology  together  with all
         rights of  registered  design now confirmed by the laws enforced in the
         other parts of the World.

         "Engine"  means  the  OX2  combustion   engine  and  any  improvements,
         amendments and advancements  relating to the OX2 combustion engine, and
         any other engine technology  existing at the date hereof,  developed or
         owned by AETP, OX2IP or OX2ED at the date hereof.

         "Future  Rights"  means,  jointly  and  severally,   all  those  rights
         (statutory and otherwise)  comprised in Technical  information  and the
         definition  of Design  Rights,  Patent  Rights,  Trade  Mark  Rights or
         Copyright and which have been granted or acquired in any way whatsoever
         in relation to the Technology by AETP, OX2IP or OX2ED.

         "Intellectual  Property"  means,  jointly  and  severally,  the  Future
         Rights,  the Patent Rights,  the  Copyright,  the Design Rights and the
         Trade Mark Rights and the Technical Information.

         "Licenses" means the licenses, whether head-licenses,  licenses granted
         pursuant to a head-license,  sub-licenses or otherwise, which have been
         granted in relation to the Engine.

         "Material" means, jointly and severally,  those client lists, formulae,
         notes, correspondence,  drawings and other written material or software
         associated with the conduct of the Technology.

         "Parties" mean the parties to this Deed, being AETP,  OX2IP,  OX2ED and
         AETI.

         "Patents" means all present and future patents and  applications  filed
         in any  country in the world  insofar as they relate to the Product and
         all  divisions,  continuation,,   continuation  in  part,  supplemental
         disclosure and reissues thereof and thereto,

<PAGE>

         "Patent  Rights"  means,  jointly and  severally,  those patent  rights
         pursuant  to the  Commonwealth  Patents  Act  1990 in  relation  to the
         Technology  and the  right  to  register  patents  in  relation  to the
         Technology throughout other countries of the World.

         "PCT" means the Patent  Cooperation Treaty signed at Washington on 19th
         June 1970.

         "Product" means the OX2 combustion  engine as defined in  International
         Patent Application No. PCT/AU95/00815.

         "Technical  Information"  means in relation to the Original  Assignment
         Agreement,  all that information,  advice and know-how of a proprietary
         nature  owned by Steven  Manthey in  relation  to the  Technology,  and
         means, in relation to the technical  information to be assigned to AETI
         hereunder,  all that information,  advice and know-how of a proprietary
         nature  relating  to the  Technology  that is owned by, or is under the
         control of, Steven Manthey, AETI, OX2IP or OX2ED.

         "Technology" means, jointly and severally, those rights associated with
         the OX2 internal combustion engine the subject of the Application.

         "Territory" means

         EUROPEAN UNION
         Belgium           Greece                    Netherlands
         Denmark           Ireland, Republic of      Italy
         France            Portugal                  Spain
         Germany           Luxembourg                United Kingdom

         NAFTA
         Canada            Mexico                    United States of America

         ASIA
         All  countries of  continental  Asia  (excluding  Russia,  Thailand and
         Indonesia)

         REST OF THE WORLD

         All countries, territories and jurisdictions not comprised in the above
         3 categories.

         "Trade  Mark  Rights"  means  those  rights  in the  trade  nominations
         developed or acquired by Manthey,  AFETP,  OX2IP or OX2ED,  which might
         describe  the  Technology  or  such  other  names  in  respect  of  the
         Technology which is capable of protection under the Trade Mark Act 1955
         (as  amended) and the Trade Mark  Regulations  of the  Commonwealth  of
         Australia,  the  Business  Names  Act  or the  Corporations  Law of the
         respective  states of the Commonwealth and by similar laws in all other
         countries throughout the World.

         "World" means, jointly and severally,  all territories and countries of
         the World including the Commonwealth of Australia.

1.2      A reference to persons shall include corporations;  words including the
         singular  number shall include the plural number and vice versa,  words
         including a gender shall include all other genders.

<PAGE>

1.3      A  reference  to a statute  or a  section  of a  statute  includes  all
         amendments  to that  statute or section and  includes  all  statutes or
         sections passed in substitution for the statute or section referred to,
         or incorporating any of its provisions.

Article 2   Assignment of Product, Patents and Intellectual Property to AETI

2.1      OX2IP hereby assigns to AETI, all OX2IP's right,  title and interest in
         the  Product  and  the  Patents  and  the  Intellectual   Property,  in
         consideration  for the sum of US$1,500,000  paid by AETI to OX2IP,  the
         receipt  of  which  sum  is  hereby   acknowledged   by  OX2IP  and  in
         consideration for the other obligations assumed by AETI hereunder.

2.2      AETP  hereby  assigns to AETI,  all right,  title and  interest  in the
         Intellectual  Property  that  AETP  may  have at the  date  hereof,  in
         consideration for AETI assuming the responsibility for the research and
         development   of  the  Engine  and  AETP  being   released   from  such
         responsibility  and in  consideration  for AETP being released from its
         obligation to supply Engines and Parts to AETI and in consideration for
         the other obligations assumed by AETI hereunder.

Article 3   Execution  and  form  of  Assignments  of  Patents  and Intellectual
Property and costs

3.1      OX2IP shall  execute such forms of  assignment  and other  documents in
         respect of the Patents and the Intellectual  Property and shall perform
         such other acts as AETI may  reasonably  require,  in order to register
         such Patents and  Intellectual  Property in AETI's name pursuant to any
         relevant  statutory  provision  in any country and all fees,  costs and
         expenses  incurred by OX2IP in connection  therewith shall be borne and
         paid by AETI.

3.2      AETP shall  execute  such forms of  assignment  and other  documents in
         respect of the Patents and the Intellectual  Property and shall perform
         such other acts as AETI may  reasonably  require,  in order to register
         such Patents and  Intellectual  Property in AETI's name pursuant to any
         relevant  statutory  provision  in any country and all fees,  costs and
         expenses  incurred by AETP in connection  therewith  shall be borne and
         paid by AETI.

Article 4   No  Warranty  or  Guarantee  as  to  the  validity of the Patents or
Intellectual Property

4.1      OX2IP and AETP do not warrant or guarantee the validity of the Patents,
         or the  Intellectual  Property and do not warrant or guarantee that any
         manufacture,  use, sale, lease or other disposal or exploitation of the
         Engine does not  infringe any patent or similar  intellectual  property
         right not held by OX2IP or AETP at the date hereof.

Article 5   AETI to assume all  obligations  in relation  to  the  Patents,  the
            Intellectual Property and the research and development of the Engine
            and AETI to be released from its obligations to AETI

5.1      In  consideration  of  the  assignment  of  the  Product,  Patents  and
         Intellectual  Property to AETI,  AETI agrees to perform all obligations
         in respect of the Patents and the  Intellectual  Property,  and without
         limiting the generality of the aforesaid, AETI shall:

<PAGE>

         (a)      Lodge  applications  for  Patents  and  Intellectual  Property
                  rights in respect of countries where such  application has not
                  been made, where it would be reasonable for AETI so to do;

         (b)      Pay all  renewal  fees  necessary  to  keep  the  Patents  and
                  Intellectual  Property  rights  (if any) in  force,  each such
                  payment to be  effected  not later than seven days  before the
                  last date; thereof,

         (c)      use its best  efforts to procure  the grant of all Patents and
                  Intellectual Property rights for which application is made;

         (d)      assert from time to time whatever claims and rights which AETI
                  may have as holder of the  Patents  or  Intellectual  Property
                  arising  from  actual or  apparent  use,  disclosure  or other
                  infringement of the Patents, or Intellectual  Property, or the
                  Confidential  Information and it is a fundamental condition of
                  this Deed that AETI shall promptly assert and enforce all such
                  claims  and  rights  and  institute  and  prosecute  an action
                  against any such infringement which comes to its notice.

5.2      In  consideration  of  the  assignment  of  the  Product,  Patents  and
         Intellectual  Property to AETI, AETI hereby assumes the  responsibility
         of  carrying  out  the  research  and  development  of the  Engine  and
         undertakes  to use its best efforts to carry out all such  research and
         development as shall be necessary to diligently advance and improve the
         Engine in order to be able to  successfully  commercialise  and exploit
         the Engine throughout the World.

5.3      In  consideration  of AETP  assigning  to AETI  all  right,  title  and
         interest in the  Intellectual  Property  that AETP may have at the date
         hereof,  AETI hereby  releases AETP from all  obligations  that it owes
         AETI in respect of the research and  development  of the Engine and the
         supply of  Engines  and Parts and AETI  shall  have no claims or rights
         against  AETP,   whether  existing  or  future,   in  relation  to  the
         performance of such obligations.

Article 6   Disclosure of Confidential Information by AETI

6.1      AETI agrees only to disclose  Confidential  Information  to parties who
         have first signed a confidentiality agreement under which they agree:

         (a)      not to use or disclose the Confidential  Information except in
                  relation  to  the  research  and  development,  manufacturing,
                  distribution,  marketing,  or other exploitation of the Engine
                  pursuant to an  agreement  entered  into with AETI which is in
                  force;

         (b)      not to perform any act,  or omit to perform any act,  which in
                  the  circumstances  carries an unreasonable high risk that the
                  confidentiality  of the Confidential  Information or any of it
                  will be breached;

         (c)      only to disclose the Confidential Information to other parties
                  where it is  necessary to do so in order to exploit the engine
                  as set out in sub-clause  (a) of this clause and provided that
                  such parties first sign a confidentiality  agreement,  for the
                  benefit  of  AETI,  on the  same  terms  as  those  set out in
                  sub-clauses (a), (b) and (c) of this clause.

<PAGE>

Article 7   Assignment of Intellectual Property to OX2IP by AETI in the event of
            its default

7.1      AETI will  forthwith  assign the Patents and  Intellectual  Property to
         AETP upon the happening of any of the following events:

         (a)      an order is made or a resolution  passed for the winding up or
                  dissolution  without winding up of AETI, unless the winding up
                  is for the purpose of  reconstruction  or amalgamation and the
                  scheme for  reconstruction  or  amalgamation  receives  AETP's
                  prior   written   consent   (which   consent   shall  not  be'
                  unreasonably withheld);

         (b)      AETI enters into an arrangement, reconstruction or composition
                  with  its  creditors  or any of  them,  without  AETP's  prior
                  written  consent  (which  consent  shall  not be  unreasonably
                  withheld);

         (c)      AETI suspends payment of its debts or becomes insolvent within
                  the meaning of any relevant legislation or law;

         (d)      a receiver is appointed to AETI;

         (e)      if pursuant to the provisions of any relevant legislation AETI
                  Is  placed  under  official  management  or  an  inspector  is
                  appointed to investigate its affairs;

         (f)      if AETI is in breach of its obligations under clause 6;

         (g)      if is persist and  substantial  default is made by AETI in the
                  performance of any term of this Deed and where such default is
                  capable of remedy such default is not remedied  within 30 days
                  after notice,  specifying  such default and requiring  AETI to
                  remedy the same has been given to AETI by AETP.

In the event  that AETI is  required  to assign  the  Patents  and  Intellectual
Property  to AETP,  AETI  shall  execute  such  forms of  assignment  and  other
documents in thereof and shall  perform  such other acts as AETP may  reasonably
require,  in order to register such Patents and Intellectual  Property in AETP's
name pursuant to any relevant  statutory  provision in any country and all fees,
costs and expenses  incurred by AETI in connection  therewith shall be borne and
paid by AETI.


Article 8   Exploitation of the Engine

8.1      shall use its best  endeavors to  commercialise  and exploit the Engine
         including  the research and  development  of the Engine and the funding
         thereof and the manufacturing, distribution and marketing of the Engine
         and  to  appoint  agents,   and  licensees  for  the  purpose  of  such
         commercialisation and exploitation.

<PAGE>


Article 9   Termination of Head License Agreement and Sub-License Agreement by
            mutual abandonment

9.1      OX2fP and OX2ED agree that the Head-License  Agreement is terminated at
         the date hereof by mutual  abandonment and neither party shall have any
         existing or future  claims or rights  against the other arising out of,
         or in relation to, the  Head-License  Agreement,  or the performance of
         any term thereof.

9.2      OX2ED and AETI agree that the  Sub-License  Agreement is  terminated at
         the date hereof by mutual  abandonment and neither party shall have any
         existing or future  claims or rights  against the other arising out of,
         or in relation to, the Sub-License Agreement, or the performance of any
         term thereof.

Article 10   AETP, OX2IP  and  OX2ED  warrant that the execution of this Deed by
             them does not breach any agreement

10.1     AETP, OX2IP and OX2ED each hereby represent, warrant and undertake that
         neither  the  execution  of this  Deed  nor the  performance  of its of
         obligations hereunder will cause it to be in breach of any agreement to
         which it is party or is subject

Article 11   AETP,  OX21P  and  OX2ED  agree  that  this  Deed  is in their best
             commercial interests

11.1     AETP,  OX2IP and OX2ED have each considered the terms and  consequences
         of this Deed and have  determined  that it is in their best  commercial
         interests to enter into this Deed.

Article 12   Stamp duty and charges

12.1     All stamp duty and other government charges (if any) payable in respect
         of this deed shall be paid by AETI.

Article 13   Notices

13.1     All notices shall be in writing and shall be given by any one Of the
         following means -

         (a)      by  delivering it to the  address  of the party on a  business
                  day during normal business hours; or

         (b)      by sending it to the address of the party by pre-paid  airmail
                  post or if airmail post is not available by ordinary post; or

         (c)      by  sending  it by  facsimile  transmission  to the  facsimile
                  number of the party and on the next  business day by giving it
                  by either of the  means  set forth in  sub-clause  13.1 (a) or
                  13.1 (b) above.

13.2     A notice shall be deemed to be given and received -

         (a)      if given in accordance with  sub-clause  13.1 (a), on the next
                  business day after the day of delivery;

<PAGE>

         (b)      if given in accordance  with  sub-clause  I3.I (b),  seven (7)
                  clear business days after the day of posting;

         (c)      if  given in accordance with sub-clause 13.1  (c) on the  next
                  business days after transmission.

13.3     The address and facsimile  numbers  referred to in clause 13.1 shall in
         the absence of notice to the contrary be as set out below:

         AETP:

         Address:  Factory 1, 2 Greg Chappell Drive,  Burleigh  Gardens
         Industrial  Estate,  Burleigh Heads, Queensland 4220, Australia

         Facsimile: +61-75-593-5180

         OX2IP:

         Address: 2nd Floor, Windsor House, Kumul Highway, Port Vila, Republic
         of Vanuata

         Facsimile: +678-23836

         OX2ED:

         Address: 2nd Floor, Windsor House, Kumul Highway, Port Vila, Republic
         of Vanuata

         Facsimile: +678-23836

         AETI:

         Address: 9909 Osuna Road, NE, Albuquerque, New Mexico, United States of
         America

         Facsimile: +1-505-323-7342

Article 14   Waiver

14.1     A  party's  failure  or delay  to  exercise  a power or right  does not
         operate as a waiver of that power or right.

14.2     The exercise of a power or right does not preclude  either its exercise
         in the future or the exercise of any other power or right.

14.3     A waiver is not effective unless it is in writing.

14.4     Waiver of a power or right is effective only in respect of the specific
         instance to which it relates and for the specific  purpose for which it
         is given.

<PAGE>

Article 15   Severability

15.1     If any  provision  of this  deed be  held to be  invalid  in any way or
         unenforceable  it shall be severed and the remaining  provisions  shall
         not in any way be affected or impaired and this deed shall be construed
         so as to most nearly give effect to the intent of the parties as it was
         originally executed.

Article 16   Applicable law and jurisdiction

16.1     This Deed shall be governed by and  construed  in  accordance  with the
         laws of the State of California and the United States of America.

16.2     Each  party  irrevocably  and  unconditionally   submits  to  the  non-
         exclusive  jurisdiction  of the courts of the State of  California  and
         waives any immunity or any objection it may have to any action in those
         courts and to a claim  that any  action in those  courts and to a claim
         that any action has been brought in an  inconvenient  forum or to those
         courts not having jurisdiction.

THIS AGREEMENT WAS EXECUTED AS A DEED on the date first hereinbefore written

THE COMMON SEAL of
ADVANCED ENGINE TECHNOLOGY PTY LTD
was hereunto affixed in accordance with its
Articles of Association and in the presence of-.


/s/ Steven Manthey
--------------------------------------
Steven Manthey          Director



/s/ Paul Bailey
--------------------------------------
Paul Bailey         Director/Secretary


BY STEVEN MANTHEY for and on
Behalf of OX2 INTELLECTUAL
 PROPERTY INC.


/s/ Steven Manthey
--------------------------------------
Steven Manthey




<PAGE>



BY STEVEN MANTHEY for and on
Behalf of OX2 ENGINE
(DISTRIBUTION) INC.


/s/ Steven Manthey
-------------------------------------
Steven Manthey


THE COMMON SEAL of
ADVANCED ENGINE TECHNOLOGIES, INC.
was hereunto affixed in accordance with its
Articles of Association and in the presence of:




/s/ Murray J. Bailey
-------------------------------------
Murray J. Bailey       Director