Document:

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                                                                    EXHIBIT 10.1

                           JOINT DEVELOPMENT AGREEMENT

        This joint development agreement (the "Agreement") is entered into on
this 28th day of January, 1999 by and between AlliedSignal Inc., a Delaware
corporation acting through its Turbocharging Systems business unit having an
address of 23326 Hawthorne Boulevard, Suite 200, Torrance, California 90505
("AlliedSignal") and Turbodyne Technologies, Inc., a Delaware corporation having
an address of 6155 Carpinteria Avenue, Carpinteria, California 93013 and
Turbodyne Systems, Inc., a Nevada corporation its fully owned subsidiary
(collectively "Turbodyne"). AlliedSignal and Turbodyne shall be referred to in
the Agreement jointly as the "Parties" and individually, as appropriate, as the
"Party".

                                    RECITALS

        A. AlliedSignal is a manufacturer of turbochargers for internal
combustion engines and other applications and has extensive experience in the
development of charge air systems employing turbochargers and other comparable
devices.

        B. Turbodyne has developed technology and acquired patents relating to
electrically assisted turbochargers for use with combustion engines.

        C. AlliedSignal and Turbodyne believe that electrically assisted
turbochargers offer performance improvements over conventional turbochargers for
various engine applications.

        D. AlliedSignal and Turbodyne believe that by combining their
independent technologies they will more quickly realize their mutual goal of
introducing the Products (as defined in section 7 below) to the market as soon
as reasonably possible.

        E. Turbodyne has granted AlliedSignal an exclusive license attached
hereto as Exhibit A (the "License Agreement") for the manufacture and sale of
products incorporating Turbodyne's electrically assisted turbocharger technology
and improvements resulting from this Agreement.

        F. Accordingly, AlliedSignal and Turbodyne desire to jointly
develop specifications, designs, processes, know-how, trade secrets,
innovations, improvements and inventions for electrically assisted turbochargers
and turbochargers having combined electrical motor assist and

All schedules and exhibits have been omitted. Any omitted schedule or exhibit
will be furnished supplementally to the Securities and Exchange Commission on
request.

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generator power extraction (the "New Technology") while maintaining the
integrity of their respective businesses with respect to research, development,
engineering and manufacturing of their core technologies.

        NOW, THEREFORE, in consideration of the covenants and promises made
herein and other good and valuable consideration, the sufficiency of which is
acknowledged, the Parties agree as follows:

               1. PURPOSE. AlliedSignal and Turbodyne intend to jointly conduct
research, development and engineering in the field of electrical motor/generator
and electronic devices and the integration of such devices into turbochargers
(the "Field of Use").

               2. REPRESENTATIONS. Each of AlliedSignal and Turbodyne represent
to the other as follows:

               a. Each is a corporation duly organized, validly existing, and in
good standing under the laws of the State of its incorporation, with all
requisite corporate power, authority, and legal right to own its property and
conduct its business as now conducted and as contemplated under this Agreement.

               b. Each is duly qualified to do business in each jurisdiction in
which the nature of its properties or its business requires such qualification
and in which the failure to so qualify would materially adversely affect its
business or financial condition.

               c. The execution, delivery, and performance by each of this
Agreement and the performance by each of its obligations hereunder (i) are
within their respective power and authority; (ii) have been duly authorized by
all necessary action on the part of their respective governing bodies or
authorized officers; (iii) will not contravene any provision of law or
regulation, or any writ or decree of any court or governmental instrumentality
or their respective States of incorporation or other agreement of either, or any
other agreement, instrument, or undertaking binding upon either or any of their
respective assets; and (iv) will not contravene any agreements with any of
lenders or investors of either.

               d. This Agreement has been duly executed and delivered by each
Party and constitutes the valid, legal, and binding obligation of each Party,
enforceable in accordance with its terms.

               e. Except as defined herein, no approval or consent of, or filing
with, any governmental authority is required to be obtained or effected by
either Party in connection with its execution, delivery, and performance of this
Agreement or, alternatively, each Party has obtained or shall obtain in respect
of this Agreement and the transactions contemplated hereby, on or prior

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to the date hereof, all governmental permissions, rights, licenses, and permits,
if any, to carry out the transactions contemplated thereby.

               f. Neither Party has received notice of any violation of any
applicable law, regulation, order, or requirement which would have a materially
adverse effect on its business or on the transactions contemplated by this
Agreement, and which has not been complied with or corrected in all material
respects.

               g. There is no pending or, to the knowledge of the executing
officer, threatened action, suit or proceeding or investigation before any
court, board of arbitration or arbitrator, governmental body, agency,
instrumentality, or official against or affecting either Party, the outcome of
which, if adversely determined, would have a material adverse effect on its
business or assets or could adversely impair the ability of either Party to
fully perform its obligations under this Agreement. AlliedSignal is aware that
two class action lawsuits have recently been commenced by shareholders of
Turbodyne.

               h. Neither Party is a party to any agreement or instrument or
subject to any restriction having a materially adverse effect on its business,
operations, intellectual property, real or personal property, assets, or
condition, financial or other, or its ability to perform its obligations under
this Agreement or any agreement or instrument thereunder and is not in default
in the performance, observance, or fulfillment of the material obligations,
covenants, or agreements contained in any agreement or instrument or by which
any of its property or assets is bound. Turbodyne has disclosed to AlliedSignal
an Agreement in Principle (the "3K Agreement") it entered into in April 1997
with AG Kuhnle, Kopp & Kausch now know as 3K-Warner Turbosystems GmbH
("3K-Warner"). Although the validity and scope of the 3K Agreement and
Turbodyne's obligations thereunder are uncertain, the Parties agree that
Turbodyne's obligations, if any, under the 3K Agreement shall be fulfilled by
sub-license under the License Agreement and AlliedSignal and Turbodyne shall
share any benefits accruing to Turbodyne under the 3K Agreement on a 60%/40%
basis, respectively.

               i. Neither party is in default under any applicable order, writ,
injunction, or decree of any court, governmental department, board, or agency,
or instrumentality of any arbitrator.

        3. CONTRIBUTION OF DEVELOPMENT EFFORT

               a. AlliedSignal and Turbodyne will each contribute material and
personnel resources on a shared basis, sixty percent (60%) by AlliedSignal and
forty percent (40%) by Turbodyne as required and called for by the Development
Committee. Such contribution shall include work effort and expenses undertaken
by the Parties individually under the direction of the Program Manager pursuant
to the Development Program attached hereto as Exhibit B, which may be amended by
the Program Manager from time to time. Costs of employees of the Parties shall
be

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charged at a standard rate of $85 per hour and other costs shall be at actual
cost without mark-up. If such work effort and expense by a Party shall exceed
its contribution share, the Development Committee shall equitably assess the
other Party for a contribution for reimbursement of the excess amount pursuant
to the percentages defined above. Except with the approval of both Parties, the
Parties shall not be obligated to contribute in the aggregate more than
$1,500,000 in any 12 month period and $6,000,000 during the term of this
Agreement. If Turbodyne does not maintain its 40% share of investment in the
Development program in response to Development Committee assessments, the
royalty rate of the License Agreement shall be adjusted by a ratio of actual
percentage share of investment divided by 40% times 3.2% to which shall be added
a 0.5% base royalty.

               b. The parties shall work diligently and in good faith to
implement the objectives and purposes of this Agreement including the
development of New Technology as soon as commercially feasible to facilitate the
manufacture, marketing and sale of the Products. Either party's failure to so
perform shall constitute a breach of this Agreement subject to arbitration under
paragraph 16.

               c. Following the execution of this Agreement, both of the Parties
shall only engage in activities relating to the design, development,
manufacture, licensing or marketing of the Products or pursue the development of
technology relating to the Products as authorized in this Agreement or the
License Agreement. Notwithstanding the foregoing, Turbodyne shall be permitted
to continue with design and development activities, marketing, sale or other
activities relating to the exploitation of Turbopac products as defined in
Exhibit B to the License Agreement and AlliedSignal shall have any interest in
such products or activities.

               4. MANAGEMENT.

               a. The activities of this Agreement shall be governed by a
committee of five members (the "Development Committee" or the "Board") including
a chairperson appointed by AlliedSignal and two (2) members appointed by each
Party.

               b. The Parties will , by mutual agreement, appoint one person to
direct the Development Program contemplated by this Agreement (the "Program
Manager"). The Program Manager, with the assistance of the Development Committee
as required, shall define the personnel requirements, budget and other needs and
make recommendations to the Board for action. The Program Manager initially
appointed by the Parties shall be removable by a majority vote of the
Development Committee. Subsequent Program Managers will be appointed and removed
by a majority of the Development Committee.

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               c. The Program Manager will have full power and authority to
conduct and manage the Development Program contemplated by this Agreement and to
undertake and implement, on behalf of the Parties, all directions of the
Development Committee.

               d. The Program Manager, shall diligently and in good faith manage
and implement or cause to be implemented any directions of the Board, and
otherwise conduct the Development Program contemplated by this Agreement. The
Program Manager will devote such time and attention to the Development Program
as is reasonably necessary to accomplish the purposes of this Agreement.

               e. All decisions of the Development Committee shall be made by
majority vote. The Development Committee shall not materially alter the
Development Program or materially deviate from this Agreement without the
consent of the Parties.

               5. COMPENSATION OF THE BOARD, PROGRAM MANAGER AND PERSONNEL. The
Development Committee shall remain employees of the Party appointing them and
shall be compensated by that Party. The Program Manager shall be employed and
compensated as determined by the Development Committee.

               6. DEVELOPED INTELLECTUAL PROPERTY.

               a. Any specifications, designs, processes, know-how, trade
secrets, innovations, improvements, inventions, whether or not patentable,
trademarks and copyrightable works (collectively "Developed Intellectual
Property") conceived, reduced to practice or created during a project developing
New Technology solely by AlliedSignal shall be owned by AlliedSignal and all
right, title and interest in and to such Developed Intellectual Property shall
be held by AlliedSignal. Any Developed Intellectual Property conceived, reduced
to practice or created during a project developing New Technology jointly by the
Parties shall be jointly owned by the Parties. Any Developed Intellectual
Property conceived, reduced to practice or created during a project developing
New Technology solely by Turbodyne shall be owned by Turbodyne and shall be
exclusively licensed to AlliedSignal Pursuant to the License Agreement.

               b. AlliedSignal may, under the direction of the Development
Committee, license intellectual property from Third Parties for use by the
Parties in Products and Components and license Developed Intellectual Property,
with consent of the Parties, to third parties for royalty or fee income pursuant
to the License Agreement. The cost of any license of third party technology
shall be borne by the Parties at a ratio of 60% AlliedSignal and 40% Turbodyne.

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               7. PRODUCTS.

               a. Pursuant to the License Agreement AlliedSignal holds the sole
world wide right, subject to the license granted to Turbodyne to manufacture and
sell the Component Parts as defined in 7.b below, to develop, manufacture,
market and sell any electrically assisted charge air product or other engine
product, including electrically assisted turbochargers and turbochargers
employing an electric motor / generator for power assist / take-off, (the
"Products") or employing Developed Intellectual Property as an Improvement under
the License Agreement.

               b. AlliedSignal shall grant to Turbodyne, pursuant to a
sublicense under the License Agreement acceptable to both parties ("Turbodyne
License Agreement"), the sole world wide right, subject to any license granted
to third parties by AlliedSignal pursuant to paragraph 6. b., to manufacture,
market and sell all light metals, motors, generators and electronic controls
(collectively "Component Parts") for the Products and AlliedSignal shall license
to Turbodyne any Developed Intellectual Property necessary to manufacture,
market and sell the Component Parts. Turbodyne shall produce and provide
exclusively to AlliedSignal and to other licensees pursuant to 6.b above, and
AlliedSignal shall acquire the Component Parts solely from Turbodyne, pursuant
to AlliedSignal's standard terms and conditions for purchase under a Long Term
Supply Agreement, to be negotiated by the Parties, which shall be subject to
Turbodyne remaining competitive in cost, quality and delivery, and the price to
AlliedSignal for the Component Parts shall not exceed cost plus seven percent
(7%).

               c. Notwithstanding the terms of paragraph 7. a., Turbodyne shall
retain the rights to manufacture and sell any motor driven compressor products
currently offered in Turbodyne's Turbopac product line, as defined in Exhibit B
to the License Agreement including any developments or improvements to such
products limited to integration of the control electronics into those products
and changes not substantially affecting form, fit or function. Further,
AlliedSignal under its rights pursuant to paragraph 7. a. grants to Turbodyne a
limited sublicense for the right to manufacture and sell electrical motor
assistance systems for Cummins BHT turbochargers (the "BHT Products") in the
aftermarket pending development of AlliedSignal's capability, capacity and
interest in the sale and production of those products.

               8. TRANSFERS OF INTEREST IN THIS AGREEMENT. Either Party may
assign its rights and obligations under this Agreement upon the sale of all or
substantially all of its business and assets relating to the subject matter of
the Agreement subject to obtaining the consent of the other party which consent
shall not be unreasonably withheld. Neither party may otherwise, without the
prior written consent of the other party, sell, assign, or transfer in any way,
or mortgage, hypothecate, or otherwise encumber either of their respective
interests in this Agreement. Any attempted action in violation of this provision
will be null and void.

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               9. TERM AND TERMINATION. The term of this Agreement will commence
as of the date first above mentioned and will continue in effect during the term
of the License Agreement.

               10. MATERIAL BREACH - NOTICE AND CURE. If there is a material
breach of this Agreement, the party intending to arbitrate for termination must
give the defaulting party sixty (60) days' written notice thereof, detailing the
particular action or condition that is claimed to constitute a material breach.
The defaulting party may cure the breach during this period or take steps to
cure, and if cured, or if the steps taken to cure the breach will do so within a
reasonable period if diligently prosecuted, an arbitration action shall not be
brought.

               11. NO JOINT LIABILITIES OR AGENCY. This Agreement shall not be
deemed to create any agreement or control giving rise to joint and several
liability as between AlliedSignal and Turbodyne for any purpose, acts or
omissions by a Party, except as statutorily required for the legal entity formed
as this Agreement. No ownership or other interest is acquired by either Party in
the other Party. Further, no agency relationship between the Parties is formed
hereby and neither Party shall represent or hold itself out as an authorized
representative of the other Party for any purpose.

               12. CONFIDENTIALITY. Each Party shall maintain in confidence any
and all information received from the other Party which is known to be
confidential or proprietary ("Confidential Information") and will not disclose
such Confidential Information to any third party without the written consent of
the Party owning the Confidential Information. Confidential Information shall
not include any information which by demonstrable evidence

               a. is known by the receiving Party prior to its disclosure by the
disclosing Party;

               b. is in the public domain;

               c. is received from a third party not having any duty to maintain
the information in confidence; and

               d. is independently created by the receiving Party.

        This duty of confidentiality shall not be breached by disclosure of
Confidential Information pursuant to any court order or other process of law or
regulatory requirement, however, the Party required to disclose shall notify the
Party owning the Confidential Information of the requirement to disclose in a
timely manner prior to such disclosure and shall cooperate with that Party in
any efforts to minimize the disclosure of the Confidential Information.

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               13. PUBLICATIONS. Any statement, publication, press release or
announcement by Turbodyne regarding this Agreement or the New Technology shall
be approved by AlliedSignal prior to any publication or disclosure to a third
party.

               14. INDEMNIFICATION. Each Party agrees to indemnify the other
Party from any damages, losses, expense or costs, including attorney's fees,
based on any breach of the representations made by the indemnifying Party
herein, including, without limitation, any claim by a third party based on any
agreement in conflict with or frustrating the purpose and benefits of this
Agreement. The indemnifying Party shall defend, at its sole expense, and hold
harmless the other Party from any such claim. Notwithstanding the
indemnification of this paragraph 14, in no event shall either Party be liable
to the other Party for consequential damages or damages for loss of business by
the other party.

               15. NOTICE. Any notice required pursuant to this Agreement to the
Parties or to the Board of this Agreement shall be effective upon deposit in the
United States Mail Certified Return Receipt requested addressed as follows:

               If to AlliedSignal:
                      AlliedSignal Inc.
                      3201 West Lomita Boulevard
                      Torrance, California 90505
                      Attn: Jonathan Katz, Vice President

               If to Turbodyne:
                      Turbodyne Technologies, Inc.
                      6155 Carpinteria Avenue
                      Carpinteria, California 93013
                      Attn: Ed Halimi
               With copy to:
                      Kelly, Lytton, Mintz & Vann LLP
                      1900 Avenue of the Stars
                      Suite 1450
                      Los Angeles, California 90067
                      Attn: Peter D. Kelly

               16. INTEGRATION; GOVERNING LAW. This Agreement merges and
supersedes all prior Agreements between the parties hereto, and shall be
governed by, and construed in accordance with, the laws of the State of
California. Any dispute arising under this Agreement which cannot be resolved by
the Parties shall be settled by arbitration under the Commercial Arbitration
Rules of the American Arbitration Association before a panel of three

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arbitrators selected by the Parties, or if the Parties are unable to agree,
appointed by the director of the American Arbitration Association office in
which the arbitration is to occur. The arbitration proceedings will be held at a
location agreed to by the Parties in the greater Los Angeles Metropolitan area.
Any award or remedy by the arbitration panel will be enforceable by any court
having jurisdiction over the Parties and may include equitable remedies and
reimbursement of attorneys' fees and arbitration costs as equitably determined
by the panel. Either Party may apply to the arbitration panel or to a court of
competent jurisdiction for a preliminary injunction or other provisional remedy
to maintain the status quo pending arbitration.

               17. SURVIVAL. This Agreement and all the representations,
covenants and provisions contained in this Agreement will survive following the
formation of this Agreement and shall continue in effect throughout the duration
of this Agreement; provided, however, in the event of any inconsistency between
the terms of this Agreement and the License Agreement, the terms of the License
Agreement shall prevail.

               18. AMENDMENTS. No modification, amendment, or waiver of any
provision of this Agreement, or consent to any departure by either party
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the other party.

               19. CAPTIONS AND INTERPRETATION. The captions present in the
Agreement are for convenience only and shall not be interpreted as altering or
defining the content or substance of the Agreement contained herein. This
Agreement shall be considered as fully negotiated by the Parties and no
inference or presumption shall be interpreted for any language herein
attributable to the drafting Party.

               20. FURTHER DOCUMENTS. The Parties agree to negotiate in good
faith, execute and deliver any such further documents or agreements as may be
necessary to accomplish the intent of this Agreement.

               21. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal, or unenforceable in any
respect, the validity, legality, and enforceability of the remaining provisions
contained herein and therein shall not in any way be affected or impaired
thereby.

               22. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument.

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        IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their authorized officers under seal effective the date first
written above.

AlliedSignal Inc.                                  Turbodyne Systems, Inc.

By:                                                By:
   ---------------------------                        --------------------------

Title:                                             Title:
      ------------------------                           -----------------------

                                                   Turbodyne Technologies, Inc

                                                   By:
                                                      --------------------------

                                                   Title:
                                                         -----------------------
Attested:                                          Attested:
By:                                                By:
   ---------------------------                        --------------------------
Title: Assistant Secretary                         Title: Secretary

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                                                                    EXHIBIT 10.2

                                LICENSE AGREEMENT

      THIS AGREEMENT made and effective this 28th day of January, 1999, is
between, TURBODYNE TECHNOLOGIES, INC., a Delaware corporation having an address
of 6155 Carpinteria Avenue, Carpinteria, California 93013 and TURBODYNE SYSTEMS,
INC., a Nevada corporation its fully owned subsidiary (collectively "Turbodyne")
and ALLIEDSIGNAL INC. acting by and through its AlliedSignal Turbocharging
Systems business unit having an office at 23326 Hawthorne Boulevard, Torrance,
California hereinafter "AlliedSignal".

                                    RECITALS:

      WHEREAS AlliedSignal is now and has been engaged in the business among
others of manufacturing and selling systems and components for charge air
boosting and control for internal combustion engines; and

      WHEREAS Turbodyne has developed technology and acquired patents relating
to electrically assisted turbochargers for use with combustion engines
technology and may hereafter develop improvements directed to the such
technology; and

        WHEREAS AlliedSignal desires to acquire an exclusive license under
Turbodyne's proprietary and Licensed Patents;

        NOW, THEREFORE in consideration of the premises and mutual covenants
herein contained and other good and valuable considerations it is hereby agreed
as follows:

------------
All schedules and exhibits have been omitted. Any omitted schedule or exhibit
will be furnished supplementally to the Securities and Exchange Commission on
request.

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                                 1. DEFINITIONS

        As used in this Agreement, the following terms shall have the meanings
set forth herein:

        1.(a) "Effective Date" shall mean the date first written above

        1.(b) "Patent and Proprietary Rights" shall mean all proprietary rights
relating to the Technology (as hereinafter defined) and all rights under those
patents and patent applications and trademark rights identified in Exhibit A
attached hereto and all patents issuing from any such applications, all
counterpart patents and patent applications thereof now and hereafter filed
and/or issuing in any country of the world and all continuation, continuation in
part and reissued patent applications of any of the preceding and all patents
issuing therefrom and all related design rights, if any, and utility models. The
Parties agree that the patents and patent applications identified are
intellectual property within the statutory definition of the Bankruptcy Code.

        1 (c) "Improvements" shall mean all inventions and discoveries, whether
patentable or not, directed to the Technology and conceived and/or first reduced
to practice after the Effective Date. "Turbodyne Improvements" shall mean all
such Improvements made solely through the efforts of Turbodyne and/or controlled
by Turbodyne and/or for which Turbodyne has the right to grant licenses to
others. "AlliedSignal Improvements" shall mean any Improvements made solely by
employees of AlliedSignal. "Joint Improvements" shall mean inventions and
discoveries comprising Improvements made jointly by employees of Turbodyne and
AlliedSignal.

         1.(d) "Licensed Patents" shall mean the patents and patent applications
of the Patent and Proprietary Rights and any patents arising from the
Improvements.

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         1.(e) "Licensed Products" shall mean electrically assisted charge air
product or other engine product, including electrically assisted turbochargers
and turbochargers employing an electric motor / generator for power assist /
take-off, within the scope of any one or more claims of the Licensed Patents.

        1.(f) "Net Sales of Licensed Products" shall mean the invoiced sales
price less any discounts or rebates not itemized in the invoiced sales price and
not including any transportation or insurance costs of products within the scope
of Licensed Patents sold by AlliedSignal and all Subsidiaries of AlliedSignal
during the Reporting Period which are manufactured or sold in any country in
which the Licensed Patents are enforceable less the total number of returns to
AlliedSignal during such Reporting Period of such Licensed Products.

        1.(g) "Party" shall mean AlliedSignal and/or Turbodyne as apparent from
the context in the Section in which it is used.

        1.(h) "Reporting Period" shall mean each successive three (3) month
period during the term of this Agreement the first of which shall commence on
the Date of First Commercial Production.

        1.(i) "Subsidiary" shall mean any entity (including. but not limited to
any corporation. partnership or joint venture) that directly or indirectly
through one or more intermediaries controls or is controlled by or is under
common control with a Party. Control shall mean the ownership directly or
indirectly of at least thirty-five percent (35%) or more of the outstanding
voting shares of the entity or the maximum percent allowed under the laws of the
country or organization of the entity in the event the maximum percent allowed
is less than 35%.

        1.(j) "Technology" shall mean any designs, processes, data, inventions,
developments or other proprietary information relating to electrically assisted
turbochargers and motors and controls therefore.

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        1. (k) "Component Parts" shall mean any light metals, motors, generators
and electronic controls employed in an electrically assisted turbochargers
employing the Technology. 1. (l) "Third Party" shall mean any entity other than
any Party and any Subsidiary.

        1.(m) "Production Commitment" shall mean an order placed by a Third
Party with AlliedSignal for Licensed Products in production quantities.

        1. (n) "Joint Development Agreement" shall mean that certain agreement
entered into by the Parties entitled Joint Development Agreement and dated
January 28, 1999.

                              2. GRANT AND SUPPORT

        2.(a) Turbodyne hereby grants to AlliedSignal the worldwide exclusive
license under Patent and Proprietary Rights and Turbodyne Improvements, with the
right to sublicense, to make, have made, use and sell products incorporating the
Technology. Turbodyne and AlliedSignal shall report to each other on a monthly
basis all Improvements made within the preceding month which are to be employed
in Licensed Products.

        2.(b) Turbodyne also grants to AlliedSignal an exclusive worldwide
license under Turbodyne's owned portion of any Joint Improvement.

        2 (c) Turbodyne shall make available to AlliedSignal all proprietary and
confidential information relating to the Technology necessary for the design and
manufacture of products pursuant to this Agreement and will provide technical
support at AlliedSignal's request for Component integration into Licensed
Products and for customer support regarding the Technology.

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        2 (d) Notwithstanding the terms of paragraph 2.(a), Turbodyne shall
retain the rights and AlliedSignal hereby grants a royalty free non-exclusive
sublicense under the Patent and Proprietary Rights to manufacture and sell any
motor driven compressor products currently sold in Turbodyne's Turbopac product
line, defined in Exhibit B hereto, including any developments or improvements to
such products limited to integration of the control electronics into those
products and other changes not substantially affecting form, fit or function.
Turbodyne further shall retain the rights and AlliedSignal hereby grants a
royalty free non-exclusive sublicense under the Patent and Proprietary Rights to
manufacture and sell electrical motor assistance systems for Cummins BHT
turbochargers in the independent aftermarket.

        2 (e) AlliedSignal shall be the sole owner of any and all rights to
Licensee Improvements including any patents and patent applications arising
therefrom.

        2 (f) AlliedSignal shall grant to Turbodyne, pursuant to a sublicense
under this Agreement acceptable to both parties ("Turbodyne License Agreement"),
the sole world wide right, subject to any license granted to third parties by
AlliedSignal pursuant to paragraph 6. b. of the Joint Development Agreement, to
manufacture, market and sell all light metals, motors, generators and electronic
controls for the Licensed Products and AlliedSignal shall license to Turbodyne
any Developed Intellectual Property necessary to manufacture, market and sell
the Component Parts. Turbodyne shall produce and provide exclusively to
AlliedSignal and to other licensees pursuant to 6.b above, and AlliedSignal
shall acquire the Component Parts solely from Turbodyne, pursuant to
AlliedSignal's standard terms and conditions for purchase under a Long Term
Supply Agreement, to be negotiated by the Parties, which shall be subject to
Turbodyne remaining competitive in cost, quality and delivery, and the price to
AlliedSignal for the

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Component Parts shall not exceed cost plus seven percent (7%).

                                  3. ROYALTIES

        3.(a) In exchange for the exclusive license granted in Section 2 above
AlliedSignal shall pay to Turbodyne an earned royalty for each Reporting Period.
in an amount equal to the Net Sales of Licensed Products multiplied by three and
seven tenths percent (3.7) for each Licensed Product applicable to the Reporting
Period in question. If Turbodyne does not maintain its 40% share of investment
in the Development program in response to Development Committee assessments
pursuant to paragraph 3a of the Joint Development Agreement, the royalty rate of
the License Agreement shall be adjusted by a ratio of actual percentage share of
investment divided by 40% times 3.2% to which shall be added a 0.5% base
royalty.

        3 (b) Only one royalty shall be due with respect to any royalty bearing
Licensed Product regardless of whether such Licensed Product is covered by more
than one claim and/or patent and/or patent application of Licensed Patents.

                        4. REPRESENTATIONS AND WARRANTIES

        4.(a) Turbodyne represents and warrants that, to the best of its
knowledge, the exploitation by AlliedSignal of Licensed Patents and/or Turbodyne
Improvements and the manufacture, use or sale of Licensed Products does not
infringe any patent right or other proprietary right or alleged right of any
Third Party known to Turbodyne at the time of execution of this License.

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        4.(b) TURBODYNE MAKES NO REPRESENTATION OR WARRANTY. EXPRESS OR IMPLIED
REGARDING THE MERCHANTABILITY OF LICENSED PRODUCTS NOR THE FITNESS THEREOF FOR
ANY PARTICULAR PURPOSE.

        4 (c) Turbodyne represents and warrants that it has all right, title and
interest in and to the Patents and Proprietary Rights and has the power and
authority to enter into the License granted in this Agreement. Further,
Turbodyne has not sold, assigned, licensed, hypothecated or otherwise
transferred ownership or title to the Patents and Proprietary Rights and is not
a party to any agreement or instrument or subject to any restriction having a
materially adverse effect on its ability to perform its obligations under this
Agreement or any agreement or instrument thereunder and is not in default in the
performance, observance, or fulfillment of the material obligations, covenants,
or agreements contained in any agreement or instrument or by which any of its
Patents and Propretary Rights is bound. Turbodyne has disclosed to AlliedSignal
an Agreement in Principle (the "3K Agreement") it entered into in April 1997
with AG Kuhnle, Kopp & Kausch now know as 3K-Warner Turbosystems GmbH
("3K-Warner"). Although the validity and scope of the 3K Agreement and
Turbodyne's obligations thereunder are uncertain, the Parties agree that
Turbodyne's obligations, if any, under the 3K Agreement shall be fulfilled by
sub-license under this Agreement and AlliedSignal and Turbodyne shall share any
benefits accruing to Turbodyne under the 3K Agreement on a 60%/40% basis,
respectively.

                             5. PATENT INFRINGEMENT

        5.(a) In the event a claim of infringement of a patent has been asserted
against AlliedSignal by a third party as a result of AlliedSignal's manufacture,
use or sale of Licensed

                                       7
<PAGE>   8

Products Turbodyne shall make reasonable efforts to assist AlliedSignal in
modifying the Licensed Products to the extent necessary to avoid such claim of
infringement.

        5.(b) Turbodyne agrees to defend, at its expense, any claim or suit
against AlliedSignal based on an assertion or claim that any Component Part
employed in a Licensed Product infringes any patent or other intellectual
property right, where such assertion or claim is based solely on the Technology
and not on any substantial combination or addition designed or created by
AlliedSignal. Turbodyne further agrees to hold AlliedSignal harmless and
indemnify AlliedSignal for any cost, expense, damages, attorney's fees or other
financial loss resulting from any settlement, judgment or final award in any
suit or other action arising from such claim or assertion, provided that
Turbodyne is notified by AlliedSignal in a timely manner of the claim and
Turbodyne is tendered the defense of such claim at its own expense. Turbodyne
shall as a portion of this indemnity use reasonable efforts to obtain for
AlliedSignal and its customers the right to use the Licensed Products and
Technology. Failure of Turbodyne to perform under this paragraph 5 (b) which
results in costs or damages to AlliedSignal shall be directly setoff against any
royalties due or prospective royalties arising under this Agreement.

        5.(c) Any claim or suit against AlliedSignal or Turbodyne based on any
assertion or claim that any Licensed Product infringes any patent or other
intellectual property right shall be defended jointly by the Parties with costs
of the defense and any cost expense, damage or other financial loss resulting
from any settlement, judgment or final award in any such suit or other action
borne by the Parties in the proportion of 60% AlliedSignal and 40% Turbodyne.

                                       8
<PAGE>   9

                              6. PATENT ENFORCEMENT

      6.(a) In the event either Party discovers tangible evidence of the
manufacture use or sale by another of a product which infringes any claim of
patents comprising a portion of Licensed Patents and/or Improvements the Party
that discovered the evidence shall notify the other Party promptly in writing
upon such discovery. Such notification shall include such tangible evidence
discovered by the notifying Party.

        6.(b) AlliedSignal shall have the right but not the obligation to
initiate an action to enforce Licensed Patents. Any such enforcement shall be at
the expense of AlliedSignal and all damages awarded as a result of such action
shall be for AlliedSignal's account provided, however, that AlliedSignal shall
pay to Turbodyne a portion of any damages award after deduction of all
AlliedSignal's reasonable costs and expenses for pursuing the action (the "Net
Award"), to compensate Turbodyne for its proportional loss of royalties under
this Agreement comparable to AlliedSignal's proportionate loss of profits from
sales of Licensed Products suffered as a result of the infringement AlliedSignal
shall, within one hundred twenty (120) days after becoming aware of such
infringement by, a Third Party of Licensed Patents and/or any patents and/or
patent applications of Improvements whether by AlliedSignal's discovery of such
evidence or by notification from Turbodyne , notify Turbodyne whether
AlliedSignal intends to bring an action for enforcement of such Licensed
Patents. If AlliedSignal notifies Turbodyne of election to initiate legal
action, AlliedSignal shall promptly thereafter commence and prosecute to final
resolution such action, whether by judgment or settlement. In the event
AlliedSignal notifies Turbodyne that AlliedSignal is electing not to bring art
action for infringement of such Licensed Patents, Turbodyne shall have the
right, but not the obligation, to initiate and prosecute any legal action for
infringement by such Third Party thereof at Turbodyne's sole cost and expense.
Any

                                       9
<PAGE>   10

proceeds from such litigation undertaken by Turbodyne shall be for Turbodyne's
account provided, however, that Turbodyne shall pay to AlliedSignal a portion of
any damages award after deduction of all Turbodyne's reasonable costs and
expenses for pursuing the action (the "Net Award"), to compensate AlliedSignal
for its proportional loss of profits from sales of Licensed Products under this
Agreement comparable to Turbodyne's proportionate loss of royalties suffered as
a result of the infringement. The Parties agree to cooperate in any litigation
or action taken under the Licensed Patents at the expense of the litigating
party.

                         7. FILING & MAINTAINING PATENTS

        7.(i) Turbodyne shall maintain active and enforceable patents and patent
applications in Exhibit A and on Turbodyne Improvements provided however that
any time after the seventh anniversary of this Agreement, Turbodyne shall have
the option to forego payment of maintenance fees or annuities in the event that
Turbodyne shall have first offered to AlliedSignal the option to pay the fees
and to take title to the patents for no additional royalty payments.
AlliedSignal shall maintain active and enforceable any patents issuing on
AlliedSignal and Joint Improvements. If AlliedSignal elects not to maintain such
patents and forego payment of maintenance fees, AlliedSignal shall notify
Turbodyne of such election and Turbodyne shall have the right to acquire title
to such patents subject to the Grant of License herein.

        7.(b) At the request of AlliedSignal and at AlliedSignal's expense for
the preparation, filing, prosecution and maintenance thereof, Turbodyne shall
with respect to patents and patent applications in Exhibit A and Turbodyne
Improvements file and cause to be filed patent application(s) in such additional
countries as AlliedSignal may designate. AlliedSignal shall

                                       10
<PAGE>   11

have no obligations to maintain active and enforceable any patents and/or patent
applications for which it incurred any costs.

                                   8. PAYMENTS

        8.(a) All payments shall become due under any provision of this
Agreement shall be made by AlliedSignal to Turbodyne , without discount or
offset, in lawful money of the United States, or to such bank or other location
that Turbodyne may designate. All taxes shall be paid by and be for the account
of Turbodyne, provided however, that AlliedSignal may deduct income taxes
required to be withheld under law, if any. With such payments AlliedSignal shall
deliver to Turbodyne a certified copy of the receipt by the government of
payment of such taxes.

        8.(b) Within ninety (90) days after the end of each Reporting Period
AlliedSignal shall render to Turbodyne accounting statement showing the Net
Sales of Licensed Products sold during such Reporting Period, the amount of
royalties payable to Turbodyne and, at the same time AlliedSignal shall pay to
Turbodyne the royalties shown by the report to be due.

        8 (c) Acceptance by Turbodyne of any payment tendered hereunder whether
or not the amount thereof shall be in dispute shall not constitute acceptance of
the account or schedules on which such payment is based, provided however, that
the correctness of any such payment shall be conclusively presumed unless
questioned within two (2) years from the date of receipt thereof.

                                    9. BOOKS

        9.(a) AlliedSignal shall keep adequate records in sufficient detail to
enable the royalties payable to Turbodyne hereunder to be determined and shall
permit said records to be inspected at Turbodyne's expense at any time during
regular business hours by an independent auditor,

                                       11
<PAGE>   12

appointed by Turbodyne for this purpose and not objectionable to AlliedSignal,
who shall report to Turbodyne the Net Sales of Licensed Products and the amount
of the royalties payable hereunder. However, AlliedSignal shall not be obligated
to retain said records longer than two (2) years after receipt by Turbodyne of
such payment unless the amount of the payment is disputed. In the event the
auditor determines that additional royalties are due Turbodyne, AlliedSignal
shall within (30) days of receipt by AlliedSignal of a copy of such auditors
determination pay to Turbodyne all additional royalties due and the reasonable
costs of the audit.

                            10. TERM AND TERMINATION

        10.(a) The term of this Agreement shall commence on the Effective Date
and. unless sooner terminated as provided in this Section 10, shall continue in
force until the date of expiration of the earlier of the date of the last to
expire of Licensed Patents or the twentieth anniversary of the Effective Date of
this Agreement, unless extended by mutual agreement of the Parties, upon which
date the rights granted under Article 2 above shall become fully paid up and
thereafter irrevocable.

        10.(b) This Agreement may be terminated by Turbodyne at any time by
giving not less than sixty (60) days prior written notice of termination if: (i)
AlliedSignal fails to make any payment due under this Agreement when due or
fails to perform any material obligation hereunder when due and such nonpayment
and/or failure continues for sixty (60) days after receipt of notice from
Turbodyne; (ii) AlliedSignal is dissolved or becomes bankrupt or insolvent or
makes any assignment for the benefit of creditors, or if a trustee or receiver
of its property is appointed, or (iii) if AlliedSignal takes or is subjected to
any other action based upon its inability to meet its

                                       12
<PAGE>   13

financial obligations. In the event of such termination all rights and licenses
granted to AlliedSignal hereunder shall cease and terminate.

        10.(c) This Agreement may be terminated by AlliedSignal if the Licensed
Products fail to obtain commercial or technical viability. No termination by
AlliedSignal under this Section 10(c) shall relieve AlliedSignal of its
obligation to make all payments due to Turbodyne resulting from activities
conducted by AlliedSignal on or before the date of termination and Turbodyne
shall under no circumstances be obligated to reimburse any proper payments made
prior to such termination.

        10(d) Turbodyne may terminate this Agreement if Production Commitments
pursuant to paragraph 17 (c) are not obtained by AlliedSignal.

        10 (e) During the period of one (1) year commencing on the date of
termination of this Agreement pursuant to Sections 10(b), 10(c), or 10(d) above
AlliedSignal may, subject to the payment to Turbodyne of the running royalty
amount due to it in accordance with Section 3(b) above sell Licensed Products
which it had on hand as of the date of termination.

        10(f) The Parties agree that this Agreement is governed by Section
365(n) of the Bankruptcy Code and the terms herein shall be modified as
necessary pursuant to paragraph 15 for continuation of the License granted
herein at AlliedSignal's option upon any rejection of the Agreement by a duly
appointed Trustee in Bankruptcy.

                                11. FORCE MAJEURE

        11.(a) If either Party is rendered unable wholly, or in part, to carry
out any of its duties or obligations under this Agreement by reason of (i) act
of God; or the public enemy, fire, explosion; perils of the sea, flood, drought,
war, riot, sabotage, accident, embargo, or (ii) without limiting

                                       13
<PAGE>   14

the foregoing circumstances of circumstances of like or different character
beyond the reasonable control of the party so failing; or (iii) inadequacy, or
shortage or failure of supply of materials or breakdowns, labor trouble from
whatever cause arising and whether or not the demands of the employees involved
are reasonable and within said Party's power to concede or (iv) compliance by
either Party with any order , action, failure to act, direction or request of
any governmental officer, department, agency, authority, or committee thereof;
and (v) whether in any case the circumstance now exists or hereafter arises such
Party shall forthwith give written notice thereof to the other Party (such
notice briefly to describe the circumstances causing such inability) and
thereupon to the extent that the Party giving such notice is unable to perform
such duty or obligation shall be suspended during but no longer than the
continuance of such circumstances.

                                12. ASSIGNABILITY

        12(a) Either Party shall have the right to assign this Agreement to any
Subsidiary, or any Third Party acquiring substantially the entire business or
assets of the Party to which this Agreement pertains;

        12.(b) In the event that AlliedSignal assigns any of the Licensed
Patents to any Subsidiary, AlliedSignal will procure the due performance by such
Subsidiary with all of the obligations set out in this Agreement is if such
Subsidiary were a part of this Agreement and will indemnify Turbodyne for and
against all damages, costs, claims and proceedings incurred by Turbodyne as a
result of any breach by such Subsidiary.

                                       14
<PAGE>   15

                         13. NOTICES AND COMMUNICATIONS

        13.(a) Any notice or other communication required or authorized to be
given by either party to the other hereunder shall be in writing and shall be
delivered personally or by air mail, registered with postage prepaid and return
receipt requested or by telex confirmed by air mail in either case addressed to
the Party to receive the same at the address set forth below or such other
address as such party shall have specified by written notice hereunder, and
shall be effective when received. It is the responsibility of each party to
notify the other within a reasonable period of time of any change of address.

        If to AlliedSignal

               AlliedSignal Inc.
               Turbocharging Systems
               23326 Hawthorne Boulevard
               Torrance, CA 90505
               Attention:    President Turbocharging Systems

        With  copy to:

                      AlliedSignal Inc.
                      Law Department
                      101  Columbia Road
                      PO Box 2245
                      Morristown, NJ 07962
                      Attn: Licensing

                                       15
<PAGE>   16

If to Turbodyne:.
                      Turbodyne Technologies, Inc.
                      6155 Carpinteria Avenue
                      Carpinteria, California 93013
                      Attn: Ed Halimi

               With copy to:

                      Kelly, Lytton, Mintz & Vann LLP
                      1900 Avenue of the Stars
                      Suite 1450
                      Los Angeles, California 90067
                      Attn: Peter D. Kelly

                                   14. WAIVER

        14(a) Failure of either Party to insist upon the strict performance of
any provision of this Agreement or to exercise any right or remedy shall not be
deemed to be a waiver of such right or remedy or of any right or remedy with
respect to any subsequent breach or default, the election by either Party of any
right or remedy shall not be deemed to exclude any other and all rights and
remedies of either Party shall be cumulative.

                                15. SEVERABILITY

        If any provision or provisions of this Agreement are held invalid by a
court of competent jurisdiction or other court appointed authority the remaining
provisions of this agreement shall not be effected and this Agreement shall be
modified to conform with such laws or regulations provided, however, that either
Party shall have the right to terminate this Agreement in the event its rights
hereunder are significantly, adversely affected by such invalidation.

                                       16
<PAGE>   17

                              16. INDEMNIFICATION

               Turbodyne shall indemnify AlliedSignal from any damages, losses,
expenses or costs, including attorney's fees, based on any breach of
representations made herein , including, without limitation, any claim by a
Third Party based on any agreement in conflict with or frustrating the purpose
and benefits of this Agreement. Turbodyne shall defend, at its sole expense, and
hold harmless AlliedSignal from any such claim. Notwithstanding the
indemnification of this paragraph 16, in no event shall Turbodyne be liable to
AlliedSignal for consequential damages or damages for loss of business.

                           17. CONTINUING DEVELOPMENT

        17 (a) Turbodyne and AlliedSignal commit to using their best efforts to
continue development of the Technology pursuant to the Joint Development
Agreement during the term of this Agreement for the mutual benefit of the
Parties.

        17 (b) The Parties mutually agree to enter into good faith negotiations
for formation of a joint venture for more fully exploiting the Technology upon
full reinstatement of Turbodyne on its listing stock exchanges and receipt of an
opinion of competent counsel that Turbodyne is not liable under any claim,
action, suit, agreement or other obligation which would encumber either Party's
rights with respect to a joint venture.

        17(c) Unless this Agreement is superceded by a joint venture negotiated
pursuant to paragraph 17 (b), AlliedSignal will conduct development of the
Licensed Products pursuant to the Joint Development Agreement and obtain a
Production Commitment from a Third Party customer by July 1, 2001 or the License
granted herein will become non-exclusive, at Turbodyne's option. If AlliedSignal
is unable to obtain a Production Commitment by January 1, 2002, Turbodyne may,

                                       17
<PAGE>   18

at its option, terminate this Agreement. If the License granted pursuant to
paragraph 2(a) becomes non-exclusive by operation of this paragraph 17(c), the
royalty rates defined in paragraph 3(a) shall be reduced by one-half percent
(.5%).

                        18. CONFIDENTIALITY AND PUBLICITY

        18 (a) Each Party shall maintain in confidence any and all information
received from the other Party which is known to be confidential or proprietary
("Confidential Information") and will not disclose such Confidential Information
to any third party without the written consent of the Party owning the
Confidential Information. Confidential Information shall not include any
information which by demonstrable evidence

               i. is known by the receiving Party prior to its disclosure by the
disclosing Party;

               ii. is in the public domain;

               iii. is received from a third party not having any duty to
maintain the information in confidence; and

               iv. is independently created by the receiving Party.

This duty of confidentiality shall not be breached by disclosure of Confidential
Information pursuant to any court order or other process of law or regulatory
requirement, however, the Party required to disclose shall notify the Party
owning the Confidential Information of the requirement to disclose in a timely
manner prior to such disclosure and shall cooperate with that Party in any
efforts to minimize the disclosure of the Confidential Information. The terms
and obligations of this paragraph 18(a) shall survive any termination of the
Agreement.

                                       18
<PAGE>   19

        18(b) Any statement, publication, press release or announcement by
Turbodyne regarding this Agreement, the License granted hereunder or the
Technology shall be approved by AlliedSignal prior to any publication or
disclosure to a Third Party.

                                19. GOVERNING LAW

        19 (a) This Agreement may be executed in two or more counterparts, each
of which shall constitute an original, but all of which, when taken together,
shall constitute but one instrument and this Agreement shall be governed by and
interpreted in accordance with the laws of the State of California, United
States of America, disregarding any conflicts of law rules which may dictate the
application of the laws of another jurisdiction.

        19(b) Any dispute arising under this License which cannot be resolved by
the Parties themselves shall be settled by arbitration before a panel of three
arbitrators in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. The arbitration will be conducted at a location agreed
to by the Parties or, if the Parties fail to agree, in the Los Angeles,
California metropolitan area. The award rendered in any arbitration conducted
may provide for equitable remedies, an accounting and/or reimbursement for
attorneys' fees and costs. Either party may apply to the arbitration panel or an
appropriate court of law for a preliminary injunction or other provisional
remedy to preserve the status quo pending arbitration. Any award shall be
enforceable in any court of competent jurisdiction.

                            20. ENTIRETY OF AGREEMENT

        This Agreement contains the entire agreement and understanding between
the Parties hereto with respect to the subject matter hereof and merges and
supersedes all prior

                                       19
<PAGE>   20

discussions and writings with respect thereto. Unless expressly set forth in
this Agreement, no warranties, express or implied are made and no statement,
promises or inducements made or offered by either Party or by any agent or
representative of either Party shall be valid or binding. No modification or
alteration of this Agreement shall be effective unless made in writing and
signed by both Parties hereto.

        IN WITNESS WHEREOF the Parties hereto have caused this Agreement to be
executed and delivered in duplicate as of the day and year first written above.

AlliedSignal, Inc.                                 Turbodyne Technologies, Inc.

By:                                                By:
   --------------------------                         --------------------------

Title:                                             Title:
      -----------------------                            -----------------------
                                                   Turbodyne Systems, Inc.

                                                   By:
                                                   Title:
Attested:                                          Attested:
By:                                                By:
   --------------------------                         --------------------------
Title: Assistant Secretary                         Title: Secretary

                                       20

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